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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998
REGISTRATION NO. 333-60119
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CONOCO INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 2911
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
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DELAWARE 51-0370352
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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600 NORTH DAIRY ASHFORD
HOUSTON, TEXAS 77079
(281) 293-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
R. A. HARRINGTON
SENIOR VICE PRESIDENT, LEGAL, AND
GENERAL COUNSEL
CONOCO INC.
600 NORTH DAIRY ASHFORD
HOUSTON, TEXAS 77079
TEL: (281) 293-1000
FAX: (281) 293-1440
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
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MATTHEW J. MALLOW, ESQ. WALTER J. SMITH, ESQ.
EILEEN NUGENT SIMON, ESQ. BAKER & BOTTS, L.L.P.
SKADDEN, ARPS, SLATE, ONE SHELL PLAZA
MEAGHER & FLOM LLP 910 LOUISIANA
919 THIRD AVENUE HOUSTON, TEXAS 77002
NEW YORK, NEW YORK 10022 TEL: (713) 229-1234
TEL: (212) 735-3000 FAX: (713) 229-1522
FAX: (212) 735-2000
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MATTHEW J. MALLOW, ESQ. JOHN W. WHITE, ESQ.
EILEEN NUGENT SIMON, ESQ. CRAVATH, SWAINE & MOORE
SKADDEN, ARPS, SLATE, 825 EIGHTH AVENUE
MEAGHER & FLOM LLP NEW YORK, NEW YORK 10019
919 THIRD AVENUE TEL: (212) 474-1000
NEW YORK, NEW YORK 10022 FAX: (212) 474-3700
TEL: (212) 735-3000
FAX: (212) 735-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), 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(c)
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: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AGGREGATE OFFERING REGISTRATION
BEING REGISTERED PRICE(1) FEE
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Class A Common Stock, $.01 par value per share.............. $100,000,000 $29,500
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Preferred Share Purchase Rights ("Rights")(2)...............
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Options to purchase Class A Common Stock and stock
appreciation rights with respect to Class A Common
Stock(3).................................................. $214,425,000 $63,256
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Total....................................................... $314,425,000 $92,756(4)
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(o) of the Securities Act.
(2) Rights initially will trade together with the Class A Common Stock. The
value attributable to the Rights, if any, will be reflected in the market
price of the Class A Common Stock.
(3) Consists of options to purchase Class A Common Stock and stock appreciation
rights with respect to Class A Common Stock (collectively, the "Conoco
Options") to be granted by Conoco Inc. under its 1998 Stock and Performance
Incentive Plan and its 1998 Key Employee Stock Performance Plan upon
surrender by the holders thereof of options to purchase common stock, $0.30
par value per share, of E.I. du Pont de Nemours and Company and of stock
appreciation rights with respect to DuPont common stock (collectively, the
"DuPont Options"). The aggregate offering price of the Conoco Options has
been determined based on the aggregate in-the-money value of the DuPont
Options eligible to be surrendered calculated using the average of the high
and low prices of DuPont common stock on August 18, 1998.
(4) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering outside the United States and Canada (the "International Prospectus").
The International Prospectus is substantially the same as the U.S. Prospectus
except for the front outside cover page. The form of the U.S. Prospectus is
included herein and is followed by the page to be used in the International
Prospectus which differs from that in the U.S. Prospectus. The page for the
International Prospectus included herein is labeled "Alternate Page for
International Prospectus." Each of the U.S. Prospectus and the International
Prospectus will be filed with the Securities and Exchange Commission pursuant to
Rule 424(b) under the Securities Act of 1933.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued September 10, 1998
[CONOCO LOGO]
Shares
Conoco Inc.
CLASS A COMMON STOCK
------------------------
Of the shares of the Class A Common Stock of Conoco Inc. (the "Company"
or "Conoco") being offered, shares are being offered initially in the United
States and Canada by the U.S. Underwriters (the "U.S. Offering") and
shares are being offered initially outside the United States and Canada by the
International Underwriters (the "International Offering" and, together with the
U.S. Offering, the "Offerings"). Each share of Class A Common Stock will have
attached one Preferred Share Purchase Right (a "Right") which will initially
trade together with the share. All of the shares of Class A Common Stock offered
hereby are being sold by the Company. The price to public and the underwriting
discount per share will be identical for both Offerings. Prior to these
Offerings, there has been no public market for the Class A Common Stock. It is
currently estimated that the public offering price per share will be between
$ and $ . See "Underwriters" for a discussion of the factors to be
considered in determining the initial public offering price.
The Company has two classes of authorized common stock consisting of Class A
Common Stock offered hereby and Class B Common Stock (collectively, the "Common
Stock"). See "Description of Capital Stock." Holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to five votes per share on each matter submitted to a vote of stockholders.
Prior to the Offerings, E.I. du Pont de Nemours and Company ("DuPont")
indirectly owned 100 percent of the outstanding shares of the Company's Common
Stock, and immediately after completion of the Offerings, DuPont, through its
ownership of 100 percent of the outstanding Class B Common Stock, will
indirectly own approximately percent of the Company's Common Stock
representing approximately percent of the combined voting power of all classes
of voting stock of the Company (or percent if the U.S. Underwriters exercise
their over-allotment option in full). Accordingly, DuPont will continue to
control the Company. See "Arrangements Between the Company and DuPont" and
"Principal Stockholder."
------------------------
The Class A Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the trading symbol "CLL," subject to official notice of
issuance.
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SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR INFORMATION CONCERNING CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE
TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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Per Share................................................... $ $ $
Total(3).................................................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The U.S. Underwriters have been granted an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of
additional shares of Class A Common Stock at the price to public
shown above less underwriting discounts and commissions for the purpose
of covering over-allotments, if any. If the U.S. Underwriters exercise
such option in full, the total price to public and the underwriting
discounts and commissions will be $ and $ , respectively.
The additional shares to be sold under this option may, at the
discretion of DuPont, be sold either by the Company or DuPont or a
combination of the Company and DuPont. If the U.S. Underwriters exercise
such option in full, and the shares are sold only by the Company, the
proceeds to the Company will be $ . If such shares are sold only
by DuPont, the Company will not receive any of the proceeds from the
sale of such shares by DuPont. The actual option granted by the Company
and/or DuPont will be described in the final prospectus. See
"Underwriters."
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The Class A Common Stock is offered, subject to prior sale, when, as, and if
accepted by the Underwriters named herein and, subject to approval of certain
legal matters by Cravath, Swaine & Moore, counsel for the Underwriters, and to
certain other conditions. It is expected that delivery of the Class A Common
Stock will be made on or about , 1998 at the offices of Morgan
Stanley & Co. Incorporated, New York, New York, against payment therefor in
immediately available funds.
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MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO. SALOMON SMITH BARNEY
BT ALEX. BROWN SCHRODER & CO. INC.
, 1998
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NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK
AND THE RIGHTS OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY WILL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
AS OF ANY DATE SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
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UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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In addition to the Offerings, this Prospectus also relates to the offering
to Conoco employees of options to purchase Class A Common Stock and stock
appreciation rights with respect to Class A Common Stock upon surrender by such
employees of their options to purchase common stock of DuPont and of stock
appreciation rights with respect to DuPont common stock. See
"Management -- Treatment of Outstanding Stock Options and Stock Appreciation
Rights."
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For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would permit
a public offering of the Class A Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Class A Common
Stock and the distribution of this Prospectus.
References to "dollars" and "$" in this Prospectus are to United States
dollars.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 5
Risk Factors.......................... 17
Use of Proceeds....................... 23
Dividend Policy....................... 23
Capitalization........................ 24
Selected Historical and Pro Forma
Financial Information............... 25
Pro Forma Combined Financial
Statements.......................... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 56
Management............................ 85
Arrangements between the Company and
DuPont.............................. 108
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Principal Stockholder................. 114
Description of Capital Stock.......... 115
Shares Eligible for Future Sale....... 124
Certain Material United States Federal
Tax Considerations for Non-U.S.
Holders of Class A Common Stock..... 125
Underwriters.......................... 127
Legal Matters......................... 131
Experts............................... 131
Available Information................. 131
Index to Combined Financial
Statements.......................... F-1
Annex A -- Report of DeGolyer and
MacNaughton......................... A-1
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3
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CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT THE CLASS A COMMON STOCK IN
CONNECTION WITH THE OFFERINGS, AND MAY BID FOR AND PURCHASE THE SHARES OF CLASS
A COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITERS."
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements relating to the
Company's operations that are based on management's current expectations,
estimates and projections about the Company and the petroleum industry. Words
such as "expects," "intends," "plans," "projects," "believes," "estimates" and
similar expressions are used to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Further, certain
forward-looking statements are based upon assumptions as to future events that
may not prove to be accurate. Therefore, actual outcomes and results may differ
materially from what is expressed or forecast in such forward-looking
statements.
Factors that could cause actual results to differ materially include, but
are not limited to, crude oil and natural gas prices; refining and marketing
margins; potential failure to achieve expected production from existing and
future oil and gas development projects; lack of exploration success; potential
disruption or interruption of the Company's production facilities due to
accidents or political events; international monetary conditions and exchange
controls; potential liability for remedial actions under existing or future
environmental regulations; and potential liability resulting from pending or
future litigation. In addition, such statements could be affected by general
domestic and international economic and political conditions. See "Risk
Factors."
ORGANIZATION OF THE COMPANY
Since 1981, business operations of the Company have been conducted by
various entities owned directly or indirectly by DuPont. Prior to the Offerings,
these operations will have been substantially reorganized and, as of the
Offerings, certain entities and, in some cases, assets, liabilities, and related
operations will be transferred between the Company and DuPont. See "Arrangements
Between the Company and DuPont." Unless the context otherwise indicates,
references in this Prospectus to "Conoco" or the "Company" are references to
Conoco Inc. (formerly Conoco Energy Company), its wholly owned and majority
owned subsidiaries (collectively, the "Combined Subsidiaries"), and its
ownership interest in equity affiliates (corporate entities, partnerships,
limited liability companies and other ventures in which Conoco exerts
significant influence by virtue of its ownership interest, typically between 20
and 50 percent). Unless the context otherwise indicates, references in this
Prospectus to "DuPont" are references to E.I. du Pont de Nemours and Company and
its consolidated subsidiaries. Financial information included herein is
presented in accordance with Generally Accepted Accounting Principles and
accounts for the Company's interests in equity affiliates using the equity
method of accounting.
Unless otherwise indicated or unless the context otherwise requires, all
information in this Prospectus: (i) gives effect to the amendment to the
Company's Certificate of Incorporation to change the Company's authorized
capital stock to Class A Common Stock, par value $.01 per share, Class B Common
Stock, par value $.01 per share, and Preferred Stock, par value $.01 per share
("Preferred Stock"), and (ii) gives effect to the conversion of each outstanding
share of the Company's current common stock, par value $.01 per share, into
shares of its newly created Class B Common Stock. References in this
Prospectus to "Common Stock" are to the Class A Common Stock and Class B Common
Stock of the Company. See "Description of Capital Stock."
4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus (i) gives effect to the
transactions described below under "-- Separation from DuPont" and (ii) assumes
no exercise of the Underwriters' over-allotment option.
THE COMPANY
Conoco is a major, integrated, international energy company operating in 40
countries worldwide. The Company was founded in 1875 and acquired by DuPont in
1981 and is involved in both the "Upstream" and "Downstream" segments of the
petroleum business. Upstream activities include exploring for, and developing,
producing and selling crude oil, natural gas and natural gas liquids. Downstream
activities include refining crude oil and other feedstocks into petroleum
products, buying and selling crude oil and refined products and transporting,
distributing and marketing petroleum products. As of December 31, 1997, Conoco
had proved worldwide reserves of 2.6 billion barrels of oil equivalent ("BOE"),
38 percent of which were natural gas. Conoco owns or has equity interests in
nine refineries worldwide, with a total crude oil and condensate processing
capacity of approximately 799,000 barrels per day (including the new Melaka
refinery in Malaysia, which Conoco expects will be completed in the fourth
quarter of 1998). The Company also has a marketing network of approximately
7,900 outlets in the United States, Europe and Asia. Based on public filings,
for the year ended December 31, 1997, Conoco ranked eighth in the worldwide
production of petroleum liquids by U.S.-based companies, eleventh in the
production of natural gas and eighth in refining throughput. Over that same
period, Conoco reported net income of $1,097 million on total revenues of $26.3
billion, representing a 27 percent improvement in net income over the prior
year.
UPSTREAM
Conoco has ownership interests in producing properties in the United
States, Canada, the United Kingdom, Norway, Venezuela, Indonesia, the United
Arab Emirates, Russia and Nigeria. For the year ended December 31, 1997, North
America and Western Europe represented 29 percent and 36 percent, respectively,
of total reserves and 45 percent and 38 percent, respectively, of total
production. Conoco's interest in proved reserves from the Petrozuata joint
venture in Venezuela represented 26 percent of the Company's total reserves as
of December 31, 1997.
In 1997, the Company's production averaged 654,000 BOE per day, consisting
of 453,000 barrels of petroleum liquids (including natural gas liquids from gas
plant ownership) and 1.2 billion cubic feet of natural gas per day. Based on
1997 annual production of 209 million BOE (excluding natural gas liquids from
gas plant ownership), the Company had a reserve life of 12.4 years as of
December 31, 1997. Over the last five years, Conoco has replaced an average of
190 percent of the crude oil and natural gas it has produced each year. In
addition, Conoco has concentrated on improving its Upstream portfolio by
lowering costs, consolidating operations, rationalizing assets and refocusing
its exploration efforts. Over the past five years, Conoco has sold hundreds of
small, marginal interests, reducing the number of fields in which it owns an
interest from approximately 700 in 1990 to 136 as of June 30, 1998, while
maintaining production essentially constant on a BOE basis. At the same time,
Conoco has increased its profitability on a BOE basis.
As Conoco has reduced its marginal interests, it has increased its share of
larger, longer-lived and more profitable projects. The Company believes these
projects will contribute to 1999 production and significantly increase Conoco's
production rates over current levels in future years. In North America, these
projects include development of the Lobo trend in South Texas and the Ursa field
in the Gulf of Mexico. In 1997, the Company substantially increased its holdings
in the Lobo trend in South Texas through the acquisition of approximately $0.9
billion of natural gas properties and transportation assets (the "Lobo
Acquisition"). Since June 30, 1997, gross natural gas production from Conoco's
Lobo trend assets has increased from approximately 450 million cubic feet per
day to approximately 700 million cubic feet per day at June 30, 1998. The
Company expects to spend $1 billion between 1997 and 2002 to develop its leases
in the Lobo trend. Conoco
5
<PAGE> 7
also has a 16 percent interest in the Shell-operated Ursa field ("Ursa"), one of
the largest discoveries to date in the deepwater Gulf of Mexico. The Company
expects first production from Ursa in mid-1999 and that peak gross production
from Ursa will be 150,000 barrels of petroleum liquids and 400 million cubic
feet of natural gas per day. Conoco also has significant producing properties in
the San Juan Basin in New Mexico, the Permian Basin in West Texas, the foothills
east of the Canadian Rocky Mountains and the Central Appalachian Basin in
Virginia. The Company also ranks as the fourth largest natural gas liquids
("NGLs") producer in the United States with ownership interests in 25 plants
located in Colorado, Louisiana, New Mexico, Oklahoma and Texas.
Conoco has a significant portfolio of producing properties, discoveries and
near term development projects in the United Kingdom and Norway. Conoco has a 42
percent ownership interest in the Britannia field ("Britannia"), one of the
largest natural gas fields in the United Kingdom sector of the North Sea, which
Conoco operates jointly with Chevron. First production from Britannia occurred
in August 1998 and the Company estimates that the field will have a production
life of 30 years. The Company believes that Britannia has the potential to
produce between 650 and 740 million cubic feet of natural gas per day (gross).
Conoco also has an 18.125 percent interest in the Heidrun field in Norway, where
production began in 1995 and is currently averaging 205,000 barrels of petroleum
liquids per day (gross). Conoco was the operator for the construction and
installation of the Heidrun tension leg platform. In addition to Conoco's
interests in Britannia and Heidrun, Conoco also has interests in a number of
other offshore fields including the Miller, Statfjord, Alba, MacCulloch, Banff,
Viking, Vulcan and Murdoch fields and the Clair discovery in the United Kingdom
and the Statfjord and Troll fields in Norway. Clair, which is operated by
British Petroleum, is one of the largest undeveloped oil discoveries in Western
Europe. Conoco operates the MacCulloch and Banff fields, both of which will
employ innovative floating production, storage and offtake ("FPSO") technology.
Conoco is also the sixth largest oil producer in Norway.
In Venezuela, Conoco holds a 50.1 percent non-controlling equity interest
in Petrozuata C.A. ("Petrozuata"), a joint venture with PDVSA Petroleo y Gas
S.A., a subsidiary of Petroleos de Venezuela ("PDVSA"), the national oil company
of the Republic of Venezuela. Petrozuata, the first venture of its kind in
Venezuela, will upgrade extra heavy crude oil into a lighter, partially
processed refinery feedstock similar to crude oil ("Synthetic Crude") and
by-products using the Company's proprietary delayed coking technology. The
Petrozuata joint venture agreement has a 35-year term and Conoco's equity
interest in proved reserves from Petrozuata is 680 million barrels of oil,
representing 26 percent of the Company's total reserves at December 31, 1997.
Petrozuata began producing extra heavy crude oil in August 1998 and the Company
expects Petrozuata to have production of 120,000 barrels per day (gross) by the
time the project's upgrading facility becomes operational.
Conoco is also working to expand its existing operations in the Asia
Pacific and Russia/Caspian Sea regions into additional major business areas. In
Asia Pacific, Conoco is the operator under a production sharing contract
relating to Block B of the Indonesian sector of the Natuna Sea, which the
Company believes may contain in excess of one trillion cubic feet of natural gas
(Conoco's interest in the Block B production sharing contract is 40 percent).
The Company is one of several companies party to an agreement with Pertamina,
the Indonesian state oil company, pursuant to which Conoco and other companies
in the region intend to jointly market natural gas from Natuna to companies in
Singapore, assuming satisfaction of certain conditions. In Russia, Conoco has
signed a memorandum of understanding with OAO Lukoil ("Lukoil"), the Russian
Federation's largest oil company, to jointly study the development of petroleum
reserves in the 1.2 million acre block known as the Northern Territories in the
Timan-Pechora region in Northern Russia, which includes the large undeveloped
Yuzhno Khilchuyu oilfield. Such a development would complement the Company's
producing Polar Lights joint venture, the first joint venture between Russia and
a Western oil company to develop a major new oil field.
Since 1996, Conoco has pursued and continues to implement an exploration
strategy focused on acquiring large acreage positions in areas that are
relatively under-explored. The purpose of these acreage acquisitions has been to
establish Conoco at an early stage in areas that have the potential for large
discoveries. Conoco has acquired significant acreage in the deepwater Gulf of
Mexico, the Atlantic Margin of the North Sea, the La
6
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Luna trend in Northern South America and the Caribbean, and selected basins in
the Asia Pacific region. Conoco has applied 3D seismic and other technologies to
evaluate its acreage, and has recently begun drilling programs to test the
potential of this acreage. Conoco is the seventh largest leaseholder in the
deepwater Gulf of Mexico, with interests in 271 leases in over 1,000 feet of
water. Conoco has a 100 percent interest in 130 of these leases and jointly owns
76 of the remaining leases on a 50/50 basis with Shell. In late 1998, Conoco
intends to commence a five-year, $400 million deepwater drilling program in the
Gulf of Mexico with one of two highly sophisticated drillships being constructed
for joint ventures between Conoco and R&B Falcon Corporation.
For the year ended December 31, 1997, Upstream reported earnings of $884
million, up 30 percent from 1996, on sales and other operating revenues of $5.3
billion. Capital investments, including the Lobo Acquisition, were $2.5 billion
in 1997 and are expected to be $1.8 billion in 1998, with the largest
expenditures being made in the continued development of the Lobo trend,
Britannia, Petrozuata and Ursa.
DOWNSTREAM
The Company's Downstream activities are predominately located in North
America and Europe, with additional operations being developed in the Asia
Pacific region. The Company operates four wholly owned refineries in the United
States and one in the United Kingdom. It also has equity interests in one
refinery in Germany, two refineries in the Czech Republic and the Melaka
refinery, which is nearing completion in Malaysia. Total refined product sales
were approximately one million barrels per day in 1997. Marketing activities
include selling gasoline, diesel fuels and motor oils under the "Conoco", "Jet",
"Seca" and other brand names through approximately 4,900 outlets in the United
States, 2,900 outlets in Europe and 100 outlets in Asia. Approximately 23
percent of these outlets are Company-owned.
Conoco has significantly improved its competitive position by increasing
asset utilization and reducing overhead and operating costs. The Company
instituted major efficiency enhancing projects at its principal refineries in
both the U.S. and Europe. The Company's Humber refinery in the United Kingdom
and the Company's joint venture OMW refinery in Germany (in which the Company
owned a 25 percent interest) were ranked in the top quartile of European
refineries in 1996 (in the net margin, return on investment, processing
efficiency and volumetric expansion categories) by Solomon Associates, an
independent benchmarking company. This ranking was based on both financial and
operating performance. This competitive position was further improved through
synergies gained by formation of the MiRO joint venture (an 18.75 percent
Company interest), which combined the OMW refinery with a neighboring Esso
refinery.
Downstream's principal strengths include the processing of heavy, high
sulfur and acidic crudes, upgrading bottom-of-the-barrel feedstocks via coking
technology, running low-cost, high-volume retail marketing operations and
developing specialty products. Approximately 50 percent of the Company's
worldwide refining capacity is designed to process heavy, high sulfur crude.
This allows the Company to purchase cheaper grades of crude oil with high levels
of sulfur and to process them into high grade petroleum products. Recent
investments designed to capitalize on these strengths include Excel Paralubes, a
50/50 joint venture between the Company and Pennzoil Company ("Pennzoil"), which
recently completed construction of a $500 million lube oil hydrocracker at the
Company's Lake Charles, Louisiana, refinery that produces hydrocracked base oil.
The Company made $250 million in improvements in the Lake Charles refinery to
facilitate this project. The Company also recently upgraded its refinery in the
United Kingdom to process acidic North Sea crude oils. Recent expansion projects
include the Company's new joint venture refinery in Melaka, Malaysia (in which
the Company has a 40 percent interest) which will have a gross refining capacity
of 100,000 barrels per day. Startup of the Melaka refinery was initiated in
August 1998 with the commissioning of the crude unit. A staggered startup of the
other units in the refinery will occur between August and November 1998. By
developing and applying its coking technology to nearly all of its refineries,
the Company has become a world leader in the petroleum coke market and the
manufacture of specialty cokes for use in the steel and aluminum industries. The
Company has also established a marketing presence in Central and Eastern Europe,
and Southeast Asia, where it is a leading operator of low-cost, high-volume
retail stations.
7
<PAGE> 9
For the year ended December 31, 1997, Downstream reported earnings of $307
million, up 6 percent from 1996, on sales and other operating revenues of $20.0
billion. Downstream capital investments were $558 million in 1997. The Company
expects to make capital investments of approximately $600 million in 1998,
primarily relating to the completion of the Melaka refinery, expansion of
European and Asian retail operations and the upgrading of its U.S. and European
refineries, including initial work at Lake Charles to facilitate the processing
of Petrozuata Synthetic Crude.
BUSINESS STRATEGY
Conoco intends to pursue a growth-oriented business strategy by: (a)
exploiting growth opportunities where Conoco has existing major areas of
operation, (b) creating at least two new major business areas in Northern South
America and the Caribbean, and the Asia Pacific, Middle East or Russia/Caspian
Sea regions and (c) continuing to improve the profitability, efficiency and
effectiveness of its existing operations. Specifically, the Company intends to:
- Manage its portfolio to increase the proportion of Upstream assets
relative to Downstream assets and the proportion of large-scale,
long-lived, early-life cycle assets relative to mature assets.
- Achieve significant near-term production growth through the
implementation of large-scale projects such as Petrozuata, Britannia,
Lobo and Ursa.
- Seek opportunities created by worldwide privatizations and the opening of
new markets previously closed to private investment.
- Apply its strengths in carbon upgrading, project management, deepwater
technology, natural gas processing, seismic processing and
interpretation, and the ability to present integrated Upstream/
Downstream solutions to host governments and other institutions in new
and emerging markets.
- Pursue exploration activities that have significant value creation
potential by concentrating on areas that are under-explored.
- Capitalize on the Company's ability to convert low-cost, heavy, high
sulfur and acidic crude oils into high-value light oil products.
- Continuously rationalize its asset base, contain costs, optimize its
investment portfolio, and improve operating reliability.
In all of its activities, the Company will strive to act in accordance with its
core values: operating safely, protecting the environment, acting ethically and
valuing all people.
8
<PAGE> 10
THE OFFERINGS
Class A Common Stock
offered:(1)
U.S. Offering............ shares
International Offering... shares
Total................. shares
Common Stock to be
outstanding after the
Offerings(1)(2)
Class A Common Stock..... shares
Class B Common Stock..... shares
Total................. shares
Use of proceeds............ The net proceeds of approximately $ million
to be received by the Company from the Offerings
will be used to repay outstanding indebtedness owed
to DuPont. See "Use of Proceeds."
Dividend policy............ The Company currently intends to pay quarterly cash
dividends of $ per share of Class A Common
Stock and Class B Common Stock, subject to
financial results and declaration by the Board of
Directors. The Company expects to pay an initial
dividend in March 1999 (anticipated to be $
per share) representing a pro rata dividend for the
period from the date of the Offerings to December
31, 1998. There can be no assurance, however, that
this dividend or any future dividends will be
declared or paid. See "Dividend Policy."
Voting Rights
Class A Common Stock..... 1 vote per share
Class B Common Stock..... 5 votes per share
Other Common Stock
Provisions................. Apart from the different voting rights described
above, the holders of Class A Common Stock and
Class B Common Stock generally have identical
rights, except that the holders of Class A Common
Stock are not eligible to vote on any alteration of
the powers, preferences or special rights of the
Class B Common Stock that would not adversely
affect the Class A Common Stock. See "Description
of Capital Stock."
Proposed NYSE symbol....... "CLL"
Rights..................... One Right will be attached to each share of Class A
Common Stock sold in the Offerings. See
"Description of Capital Stock -- Anti-Takeover
Effects of Certain Certificate and By-Law
Provisions -- Rights Plan."
Risk factors............... Prospective investors should consider carefully the
matters set forth under the caption "Risk Factors,"
as well as the other information set forth in this
Prospectus, including the uncertainty of supply and
demand in the crude oil, natural gas and refined
products markets, the volatility of crude oil,
natural gas and refined product prices, the
possibility of sustained depressed prices, the
Company's need to replace its crude oil and natural
gas reserves depleted through production, the
uncertainty of the Company's estimates of its
proved reserves, control of the Company
9
<PAGE> 11
by DuPont, changes in the Company's ongoing
relationship with DuPont, competition, drilling
risks, operating hazards, potential disruption or
interruption of the Company's production or
refining facilities due to political events,
international monetary conditions and exchange
controls, the potential adverse effects of
disparate voting rights of two classes of Common
Stock, the impact of environmental and other
governmental regulation, certain anti-takeover
provisions in the Company's Certificate of
Incorporation and By-laws, the absence of a prior
public market for the Class A Common Stock, and the
presence of a significant number of shares of
Common Stock which are eligible for future sale by
DuPont.
- ---------------
(1) Assumes that the U.S. Underwriters do not exercise their over-allotment
option to purchase up to an aggregate of additional shares of
Class A Common Stock.
(2) Does not include shares of Class A Common Stock that will be
issuable in connection with Common Stock-based employee benefit awards
awarded at the time of the Offerings (not all of which will be immediately
exercisable), and other Common Stock-based employee benefit awards that will
be issued upon cancellation of DuPont Stock Options and DuPont SARs (as
defined herein). See "Management -- Compensation of Executive Officers" and
"-- Treatment of Outstanding Stock Options and Stock Appreciation Rights."
10
<PAGE> 12
SEPARATION FROM DUPONT
Since 1981, the Company's business operations have been conducted by
various entities owned directly or indirectly by DuPont. In May 1998, DuPont and
the Company announced their intention to create a separate company composed of
the oil and gas businesses and operations that will comprise the Company after
the Offerings, and the associated assets and liabilities of such businesses and
operations (the "Separation"). The Company believes that the Separation will be
substantially completed, including the transfer of substantially all of such
assets and liabilities, by the date of the Offerings. DuPont has advised the
Company that it expects to fully divest its ownership interest in the Company
over time. The determination as to the form and timing of such divestiture will
be based on financial and business considerations and prevailing market
conditions. The form of divestiture could include further stock offerings, a
distribution to DuPont's stockholders of DuPont's remaining shares of Common
Stock (commonly referred to as a "spin-off"), the sale of all or a portion of
DuPont's shares of Common Stock to one or more third parties or a combination of
the foregoing.
The Separation is intended to establish the Company as a stand-alone entity
with objectives separate from those of DuPont. DuPont and the Company believe
that the Separation will (a) create a structure which will enable the Company to
have better access to capital markets, (b) permit the Company to adopt a more
aggressive investment program in new and capital-intensive oil and gas projects,
(c) facilitate future partnerships and other arrangements with other entities in
the oil and gas business, (d) allow the Company to offer incentives to its
employees that are more closely linked to the Company's performance and (e)
facilitate comparisons with other major, international integrated energy
companies.
After completion of the Offerings, DuPont will own 100 percent of the
outstanding Class B Common Stock, which will represent approximately
percent of the combined voting power of all classes of voting stock of the
Company. See "Principal Stockholder." Until such time as DuPont holds less than
50 percent of the voting power of outstanding common stock of the Company,
DuPont will be able to control the vote on all matters submitted to
stockholders, including the election of directors and the approval of
extraordinary corporate transactions. See "Risk Factors -- Control by DuPont;
Potential Conflicts of Interest."
Historically, the Company and its business operations have derived tangible
and intangible benefits from being owned by DuPont. The Company and DuPont have
entered into certain ancillary agreements which govern various interim and
ongoing relationships between the two companies, including agreements with
respect to employee benefit arrangements, information management, the provision
of interim services, financing arrangements, tax sharing, environmental
liabilities and various commercial arrangements, such as the supply of natural
gas by the Company to DuPont. While these agreements will continue to benefit
the Company, the Company is only entitled to the ongoing assistance of DuPont
for a limited time and it may not enjoy benefits from its relationship with
DuPont beyond the term of the agreements. These agreements were developed in
connection with the Separation and were not the result of arm's-length
negotiations between independent parties. See "Risk Factors -- Limited Operating
History; Limited Relevance of Historical Financial Information" and
"Arrangements Between the Company and DuPont."
In July 1998, a dividend of $7.5 billion was paid by the Company to DuPont
in the form of a promissory note. The promissory note is due January 2, 2000 and
bears interest at an annual interest rate of 6.0125 percent. The Company will
use the first $ billion of net proceeds of the Offerings and its cash and
cash equivalents in excess of $225 million to repay, in part, the promissory
note.
DuPont has historically guaranteed certain obligations and liabilities of
the Company and its subsidiaries and affiliates. Certain of these guarantees
will remain in place after the Separation pursuant to their terms. The Company
will indemnify DuPont for any liabilities DuPont may incur pursuant to these
guarantees.
Certain international assets relating primarily to the business of DuPont
may be held by the Company or its subsidiaries at the closing of the Offerings
pending receipt of consents or other approval or satisfaction of other
applicable foreign requirements necessary for the transfer of such assets to
DuPont. In addition, certain international assets relating primarily to the
business of the Company may be held by DuPont or other of its subsidiaries at
the closing of the Offerings pending receipt of consents or approvals or
satisfaction of other applicable foreign requirements necessary for the transfer
of such assets to the Company. The financial and
11
<PAGE> 13
other information included herein assumes the consummation of all such
transactions. Additionally, such information reflects the inclusion of certain
subsidiaries of DuPont which will not be owned by the Company as of the closing
of the Offerings and which DuPont will not thereafter be obligated to transfer
to the Company. DuPont and the Company intend to negotiate for the sale of such
subsidiaries within the six months following the Offerings at a purchase price
equal to their then fair market value. DuPont and the Company estimate that the
fair market value of such subsidiaries at August 1998, is approximately $20
million and cannot predict at what price any such sale may occur. All of the
above subsidiaries, which are immaterial to total assets and results of
operations of the Company, have been included in the Combined Financial
Statements.
Certain pension assets will be held in trust with the DuPont Pension and
Retirement Plan until the date on which DuPont ceases to own securities
representing 80 percent or more of the voting power and ceases to own securities
representing 80 percent or more of the economic value of all of the outstanding
shares of Common Stock, on which date the Company will adopt a qualified defined
benefit retirement plan. In this event, the trust associated with the Company
plan will receive, assuming satisfaction of certain conditions, a transfer of
assets and liabilities on behalf of the Company's current and former employees
from the DuPont Pension and Retirement Plan. Other employee benefit trusts
established by the Company will continue following the Separation.
The Separation Agreement (as defined in "Arrangements Between the Company
and DuPont") provides that the Company will, subject to certain exceptions,
apply the net proceeds of any additional indebtedness or the issuance of equity
securities by the Company, including the net proceeds of the Offerings, to repay
debt owed to DuPont.
Generally, all one-time costs, including fees and taxes, directly relating
to the Offerings or the Separation are to be paid by DuPont under the terms of
the Separation Agreement.
12
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary combined historical and pro forma
financial data of the Company as of the dates and for the periods indicated. The
statement of income data for each of the years in the three-year period ended
December 31, 1997, and the historical balance sheet data as of December 31, 1996
and 1997, have been derived from the Combined Financial Statements audited by
PricewaterhouseCoopers LLP, independent accountants. The statement of income
data for the years ended December 31, 1993 and 1994, and the six months ended
June 30, 1997 and 1998, and the historical balance sheet data as of December 31,
1993, 1994, 1995, and June 30, 1998 are based on the accounting records of
DuPont which, in the opinion of the Company's management, include all
adjustments necessary for the fair presentation of the financial position at
such dates and the results of operations for such respective interim periods.
The results for the six months ended June 30, 1998, are not necessarily
indicative of results to be expected for the full fiscal year or any interim
period. The financial information included herein may not necessarily reflect
the results of operations, financial position and cash flows of the Company in
the future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented.
The pro forma financial data have been derived from the Pro Forma Combined
Financial Statements which were prepared by the Company to illustrate the
estimated effects of the Offerings and related transactions described in the
Notes to the Pro Forma Combined Financial Statements as if the Offerings and
related transactions had occurred as of the beginning of the periods presented,
for purposes of the pro forma combined statements of income and as of June 30,
1998, for purposes of the pro forma combined balance sheet. In addition, the Pro
Forma Combined Financial Statements do not purport to represent what the results
of operations or financial position of the Company would actually have been if
the Offerings and related transactions had in fact occurred on such dates or to
project the results of operations or financial position of the Company for any
future period or date. The following data should be read in conjunction with,
and are qualified by reference to, the Combined Financial Statements, the
Interim Combined Financial Statements, the Pro Forma Combined Financial
Statements, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
POST-OFFERINGS CHARGE
Subject to completion of the Offerings, the Company and DuPont expect to
give all current employees of the Company the option, subject to specific
country tax and legal requirements, to participate in a program (the "Option
Program") involving the cancellation of all or part of their options to purchase
DuPont common stock or appreciation rights ("SARs") with respect to DuPont
common stock and the issuance by the Company upon such cancellation of
comparable options to acquire Class A Common Stock, or SARs with respect to
Class A Common Stock. Participation in the Option Program will be deemed a
change in the terms of certain awards granted to Conoco employees. As a result,
the Company will incur a non-cash charge to compensation expense, in the quarter
the Offerings are completed, of approximately $100 to 200 million after-tax
depending on the market price of DuPont common stock at the time of the
cancellation and issuance and the number of outstanding Conoco employee options
to purchase DuPont common stock canceled. Since the cancellation and issuance
would be a one-time event occurring after the Offerings, the charge is not
reflected in the Pro Forma financial information included in this Prospectus.
See "Management -- Treatment of Outstanding Stock Options and Stock Appreciation
Rights."
13
<PAGE> 15
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED FOR
SIX MONTHS ENDED FOR THE YEAR THE SIX MONTHS
YEAR ENDED DECEMBER 31 JUNE 30, ENDED ENDED
----------------------------------------------- ----------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- ------- ------------ ----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total Revenues(1)......... $19,687 $19,433 $20,518 $24,416 $26,263 $12,600 $11,486 $26,157 $11,424
Cost of Goods Sold and
Other Operating
Expenses................ 11,349 10,640 11,146 14,560 16,226 7,667 6,754 16,218 6,748
Selling, General and
Administrative
Expenses................ 651 679 728 755 726 355 370 726 370
Exploration Expenses...... 361 357 331 404 457 192 176 457 176
Depreciation, Depletion
and Amortization........ 1,428 1,244 1,067 1,085 1,179 516 505 1,179 505
Taxes Other Than on
Income(1)............... 4,652 5,477 5,823 5,637 5,532 2,669 2,896 5,532 2,896
Interest and Debt
Expense................. 67 63 74 74 36 24 1 160 70
------- ------- ------- ------- ------- ------- ------- ------- -------
Income Before Income
Taxes................... 1,179 973 1,349 1,901 2,107 1,177 784 1,885 659
Provision for Income
Taxes................... 424 551 774 1,038 1,010 590 254 932 221
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income(2)..... $ 755 $ 422 $ 575 $ 863 $ 1,097 $ 587 $ 530 $ 953 $ 438
======= ======= ======= ======= ======= ======= ======= ======= =======
Segment Net Income:
Upstream.................. $ 481 $ 498 $ 492 $ 681 $ 884 $ 454 $ 359
Downstream................ 324 241 233 289 307 181 181
Corporate and Other(2).... (50) (317) (150) (107) (94) (48) (10)
------- ------- ------- ------- ------- ------- -------
$ 755 $ 422 $ 575 $ 863 $ 1,097 $ 587 $ 530
======= ======= ======= ======= ======= ======= =======
Pro Forma Earnings Per
Share:
Basic...................
Diluted.................
Pro Forma Weighted Average
Shares Outstanding:
Basic...................
Diluted.................
</TABLE>
- ---------------
(1) Includes petroleum excise taxes of $4,478, $5,291, $5,655, $5,461 and $5,349
for 1993 through 1997 and $2,577 and $2,806 for the first six months of 1997
and 1998, respectively.
(2) Includes after-tax exchange gains (losses) of $60, $(143), $(40), $(7), and
$21 for 1993 through 1997 and $5 for both the first six months of 1997 and
1998, and $(25) for the pro forma as adjusted for 1997 and $(8) for the pro
forma as adjusted for the first six months of 1998.
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31 AS ADJUSTED
----------------------------------------------- JUNE 30, JUNE 30,
1993 1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- -------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents.............................. $ 271 $ 319 $ 286 $ 846 $ 1,147 $ 829 $ 225
Working Capital........................................ 1,893 1,790 999 862 567 276 294
Net Property, Plant and Equipment...................... 9,473 9,522 9,758 10,082 10,828 11,048 11,048
Total Assets........................................... 14,809 15,271 14,229 15,226 17,062 17,164 15,420
Long-Term Borrowings -- Related Parties................ 2,102 2,279 2,141 2,287 1,450 1,181 --
Long-Term Borrowings -- Other Related Party............ -- -- -- -- -- -- 4,140
Other Long-Term Borrowings and Capital Lease
Obligations.......................................... 304 342 65 101 106 103 103
Owner's Net Investment and Accumulated Other
Comprehensive Loss/Stockholders' Equity.............. 7,462 7,274 6,754 6,579 7,896 8,223 4,631
OTHER DATA:
Cash Provided by Operations............................ 2,132 2,143 1,924 2,396 2,876 548
Capital Expenditures and Investments................... 1,743 1,665 1,837 1,944 3,114 1,050
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Proved Reserves at December 31(1):
Oil (MMbbls)(2)...................... 983 988 977 973 1,624
Natural Gas (Bcf).................... 3,971 4,674 5,048 5,396 5,861
Total Proved Reserves (MMBOE)(3)..... 1,645 1,767 1,818 1,872 2,601
International Proved Reserves (% of
Total)............................... 58% 61% 63% 65% 73%
Reserve Replacement Ratio(1)........... 89% 157% 127% 126% 448%
Reserve Life (years)(1)(4)............. 7.7 8.2 9.3 8.9 12.4
Finding and Development Costs per
BOE(1)(3)(5)......................... $ 6.79 $ 6.24 $ 5.39 $ 4.84 $ 3.63
Average Daily Production(1):
Oil (Mbbls/day)(2)................... 434 436 424 454 453
Natural Gas (MMcf/day)............... 1,301 1,327 1,126 1,211 1,203
Total Production (MBOE/day)(3)....... 651 657 612 656 654
Average Production Costs per
BOE(3)(6)............................ $ 3.97 $ 3.59 $ 3.92 $ 3.84 $ 4.21
Refinery Capacity at December 31
(Mbbls/day)(1)(7).................... 595 602 621 743 754
Refinery Utilization(7)................ 95% 99% 97% 83% 91%
Total Refinery Inputs
(Mbbls/day)(1)(8).................... 674 697 721 732 780
Sales of Refined Products
(Mbbls/day)(1)....................... 876 931 983 998 1,048
Retail Marketing Outlets at December
31(9):
United States ....................... 5,008 5,196 5,125 4,976 4,903
International........................ 2,454 2,438 2,390 2,874 2,971
</TABLE>
- ---------------
(1) Includes the Company's share of equity affiliates.
(2) Includes crude oil, condensate, and NGLs expected to be removed for the
Company's account from its natural gas production. Average Daily Production
also includes NGLs acquired through gas plant ownership of 67, 69, 78, 80,
and 79 Mbbls/day for 1993 through 1997, respectively.
(3) 6,000 cubic feet of natural gas = one barrel-of-oil-equivalent (BOE).
(4) Total Proved Reserves at December 31 divided by annual production for the
year ended December 31, excluding NGLs from gas plant ownership.
(5) Finding and development costs per BOE represent a trailing five-year average
for each year displayed.
(6) Excludes equity affiliates and processed NGLs.
(7) Based on capacity to process crude oil and condensate (excludes other
feedstocks).
(8) Includes crude oil, condensate and other feedstocks.
(9) Represents outlets owned by the Company and others that sell the Company's
refined products.
15
<PAGE> 17
SUMMARY RESERVE DATA
The following table sets forth summary information as of the dates
indicated with respect to the estimated proved reserves of oil and natural gas
of the Company at year-end for 1996 and 1997. Unless otherwise noted, all
information in this Prospectus relating to oil and natural gas reserves is based
upon estimates prepared by the Company and reflects the Company's net interest
after royalties. At the request of the Company, DeGolyer and MacNaughton,
independent petroleum engineering consultants, carried out an independent
evaluation of the reserves of selected properties representing approximately 80
percent in present value of the Company's reserves at December 31, 1997. The
results obtained by DeGolyer and MacNaughton with respect to reserves at
December 31, 1997 do not show significant differences from those reported by the
Company. DeGolyer and MacNaughton has delivered to the Company a summary letter
report describing its procedures and conclusions, a copy of which appears as
Annex A hereto. See "Risk Factors -- Uncertainty of Estimates of Proved
Reserves" and "Business -- Upstream -- Oil and Natural Gas Reserves."
<TABLE>
<CAPTION>
PROVED RESERVES
AT DECEMBER 31
---------------- % INCREASE
1996 1997 (DECREASE)
------ ------ ----------
(NET AFTER ROYALTY BASIS)(1)
<S> <C> <C> <C>
United States
Oil (MMbbls)(2)........................................... 299 277 (7)
Natural Gas (Bcf)......................................... 2,155 2,605 21
----- -----
Total proved reserves (MMBOE)(3).......................... 658 711 8
International
Oil (MMbbls)(2)........................................... 674 1,347 100
Natural Gas (Bcf)......................................... 3,241 3,256
----- -----
Total proved reserves (MMBOE)(3).......................... 1,214 1,890 56
Worldwide
Total proved reserves (MMBOE)(3).......................... 1,872 2,601 39
===== ===== ===
</TABLE>
- ---------------
(1) Includes the Company's share of equity affiliate reserves.
(2) Reserves comprise crude oil, condensate and NGLs expected to be removed for
the Company's account from its natural gas production.
(3) 6,000 cubic feet of natural gas = one barrel-of-oil-equivalent (BOE).
16
<PAGE> 18
RISK FACTORS
In evaluating the Company and its business, prospective investors should
consider carefully the following risk factors in addition to the other
information contained herein. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the following risk factors.
VOLATILITY OF OIL AND GAS PRICES; RECENT SUBSTANTIAL PRICE DECLINE
The Company's profitability will be determined in large part by the
difference between the prices received for the natural gas, natural gas liquids,
crude oil and refined products produced by the Company and the costs of finding,
developing, producing, refining and marketing these resources. Prices for crude
oil, natural gas, and refined products are subject to wide fluctuation in
response to changes in global and regional supply over which the Company has no
control, including political developments and the ability of the Organization of
Petroleum Exporting Countries ("OPEC") and other producing nations to set and
maintain production levels and prices. Prices for crude oil, natural gas and
refined products are also affected by changes in demand for these products,
which may result from global events beyond the Company's control, as well as
supply and demand in industrial markets, such as the steel and aluminum markets.
Reduced Asian demand, as a result of the recent economic downturn in Asia, has
negatively affected crude oil and product prices elsewhere, including in the
Company's core markets. Even relatively modest declines in crude oil and natural
gas prices and refined product margins may adversely affect the Company's
financial condition, liquidity, and results of operations. A substantial decline
in crude oil prices occurred in late 1997 and is continuing in 1998. Recently,
West Texas Intermediate crude oil prices fell to 12-year lows as measured in
absolute dollars (and 25-year lows as measured in inflation-adjusted dollars),
closing at $11.58 a barrel on June 15, 1998. Lower oil and natural gas prices
may reduce the amount of oil and natural gas the Company can produce
economically, and existing contracts that the Company has entered into may
become uneconomical as a result of changing prices. From time to time, the
Company may attempt to mitigate the effect of price fluctuations by hedging
specific exposures, although there can be no assurance that these efforts will
be successful. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RISKS OF GLOBAL OPERATIONS
Local political and economic factors in international markets over which
the Company has no control may have a material adverse effect on the Company's
financial condition and results of operations. Approximately 40 percent of the
Company's sales in 1997 were derived from markets outside the United States. The
Company conducts exploration and production operations in 18 countries including
the United States, Canada, the United Kingdom, Norway, Venezuela, the United
Arab Emirates, Indonesia, Russia and Nigeria. The Company has interests in
refineries located in the United Kingdom, Germany, the Czech Republic and
Malaysia, and conducts marketing and crude oil supply operations in foreign
countries, primarily in Europe and Southeast Asia. Risks associated with
operations in international markets also include changes in foreign governmental
policies, and other political, economic or diplomatic developments which are not
within the control of the Company, including changes in crude oil, natural gas
or refined product pricing policies, taxation policies, changing political
conditions and international monetary fluctuations. Recent turmoil in regions
such as Russia and Southeast Asia has subjected the Company's operations there
to increased risk of political and economic instability, the risks of war,
embargoes and expropriation and nationalization with or without compensation,
confiscatory taxation, renegotiation or nullification of existing concessions
and contracts, and increased risks of fluctuating currency values, hard currency
shortages and currency controls. Civil unrest and changes in government are also
potential hazards.
The profitability of the Company's operations (both domestic and
international) is similarly exposed to risks due to actions of the United States
government through tax and other legislation, executive order and commercial
restrictions. Various agencies of the United States and other governments have
from time to time imposed restrictions on the Company's ability to operate in or
gain attractive opportunities in various
17
<PAGE> 19
countries. Actions by both the United States and host governments have affected
operations significantly in the past and will continue to do so in the future.
The Company is also exposed to fluctuations in foreign currency exchange
rates. The Company does not intend to comprehensively hedge its exposure to
currency rate changes, although it may choose to selectively hedge certain
working capital balances, firm commitments, cash returns from affiliates and
certain tax payments. There can be no assurance that these efforts will be
successful.
CONTROL BY DUPONT; POTENTIAL CONFLICTS OF INTEREST
After completion of the Offerings, DuPont will own approximately percent
of the Company's outstanding Common Stock, and approximately percent of the
combined voting power of all classes of voting stock of the Company. After the
Offerings, through its ability to elect the majority of the Board of Directors
of the Company, DuPont will be in a position to continue to control all matters
affecting the Company, including the composition of the Board of Directors and,
through it, any determination with respect to the direction and policies of the
Company, acquisition or disposition of assets, future issuances of Common Stock
or other securities of the Company, the Company's incurrence of debt, and any
dividend payable on the Common Stock. See "Principal Stockholder."
Conflicts of interest may arise between the Company and DuPont in a number
of areas relating to their past and ongoing relationships including the nature,
quality and pricing of services rendered by the Company to DuPont or by DuPont
to the Company, potential competitive business activities, shared marketing
functions, tax and employee benefit matters, indemnity agreements, sales or
distributions by DuPont of all or any portion of its ownership interest in the
Company, or DuPont's ability to control the management and affairs of the
Company. The Company's Chairman of the Board, Edgar S. Woolard, Jr., its
President and Chief Executive Officer, Archie W. Dunham, and its director
nominee, William K. Reilly, currently serve, and will continue to serve after
the closing of the Offerings, as directors of DuPont. Gary M. Pfeiffer, a
director of the Company, is also an officer of DuPont. For purposes of governing
their on-going relationship, the Company and DuPont have or will enter into
various agreements involving the provision of services such as natural gas and
gas liquids supply, cash management and other financial services, purchasing,
legal, and computer services. It is the policy of Conoco and DuPont that such
services will generally be provided on terms and conditions comparable to those
granted to an unaffiliated third party for similar services. However, because
these agreements were negotiated in the context of a parent-subsidiary
relationship, there can be no assurance that these agreements, or the
transactions provided for therein, will be effected on terms at least as
favorable to the Company as could have been obtained from unaffiliated third
parties. There can be no assurance that DuPont and the Company will be able to
resolve any potential conflict or that, if resolved, the Company would not
receive more favorable resolution if it were dealing with an unaffiliated party.
See "Prospectus Summary -- Separation from DuPont" and "Arrangements Between the
Company and DuPont."
UNCERTAINTY OF ESTIMATES OF PROVED RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves. The reserve data set forth in this
Prospectus represent estimates only. Reservoir engineering is an inherently
subjective and inexact process of estimating underground accumulations of oil
and natural gas that cannot be measured in an exact manner. Estimates of
economically recoverable oil and natural gas reserves and future net cash flows
are based on a number of variable factors and assumptions (some or all of which
may prove to be incorrect over time) related to reserve performance that require
evaluation by engineers interpreting the available geologic, engineering and
economic data, as well as price and other economic factors, many of which may be
beyond the control of the Company. The reliability of these estimates depends on
the quality and quantity of technical and economic data, the production
performance of the reservoirs and extensive engineering judgment. Results of
drilling, testing and production after the date of the estimates may require
substantial upward or downward revisions. Adverse changes in economic conditions
may render it uneconomical to produce certain reserves. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material. See
"Business -- Upstream -- Oil and Natural Gas Reserves."
18
<PAGE> 20
HIGHLY COMPETITIVE MARKET
Each of the segments in which the Company operates is highly competitive.
The Company's competitors include major integrated petroleum companies, state
oil companies controlled by foreign governments, independent oil, natural gas,
pipeline, refining and marketing companies and alternative fuel producers, many
of which have larger financial and other resources than the Company.
Upstream competes with numerous companies in the industry to find and
obtain new sources of supply, and to produce oil and gas in a cost-effective and
efficient manner. The Company also actively competes for reserve acquisitions,
exploration leases, licenses and concessions and skilled industry personnel.
Downstream competitive factors include product improvement and new product
development through research and technology, and efficient manufacturing and
distribution systems. In the marketing phase of the business, competitive
factors include site location, name recognition, customer loyalty, ease of
access, store management, product selection, pricing, hours of operation, store
safety, cleanliness, product promotions, product quality, customer programs,
customer service and marketing.
RESERVE REPLACEMENT; DRILLING RISKS
The Company's ability to achieve its growth objectives is highly dependent
upon its level of success in finding, acquiring or gaining access to additional
reserves. In general, the volume of production from oil and natural gas
properties declines as reserves are depleted, with the rate of decline depending
on reservoir characteristics. Except to the extent the Company conducts
successful exploration and development activities or acquires properties
containing proved reserves, or both, the proved reserves of the Company will
decline as reserves are produced. The Company's exploration and development
activities expose it to inherent risks of drilling, including the risk that no
economically productive natural gas or oil reservoirs will be encountered. The
costs of drilling, completing and operating wells are often uncertain and
numerous factors beyond the Company's control may cause drilling operations to
be curtailed, delayed or cancelled. The Company's future drilling, exploration
and acquisition activities may not be successful and, if unsuccessful, such
failure would have an adverse effect on the Company's future results of
operations and financial condition.
OPERATING HAZARDS
The Company's operations are subject to certain operating hazards such as
well blowouts, collapsed wells, explosions, uncontrolled flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures, pipeline ruptures
or spills, refinery explosions, surface or marine transportation incidents,
pollution, releases of toxic gas and other environmental hazards and risks. In
addition, the Company conducts significant operations offshore, which are
subject to additional hazards of marine operations, such as capsizing, collision
and damage or loss from severe weather. All such hazards could result in loss of
human life, significant property and equipment damage, environmental pollution,
impairment of operations and substantial losses to the Company. Such hazards
have adversely affected the Company in the past, and litigation arising from a
catastrophic occurrence in the future at one of the Company's locations may
result in the Company being named as a defendant in lawsuits asserting
potentially large claims. In addition, the Company is exposed to risks inherent
in any business such as equipment failures, accidents, theft, strikes, protests
and sabotage that could disrupt or interrupt operations. In accordance with
customary industry practices, the Company maintains insurance against some, but
not all, such risks and losses. See "Business -- Operating Hazards and
Insurance."
ENVIRONMENTAL RISKS
The Company incurs, and expects to continue to incur, substantial capital
and operating costs to comply with various federal, state, local and foreign
laws and regulations covering the discharge of material into the environment or
otherwise relating to clean-up or protection of the environment, including costs
to remediate certain contamination at various owned and previously owned
facilities, as well as third-party sites where the Company's products or wastes
have been handled or disposed. These regulatory requirements continue to
increase in both number and complexity and affect the Company's operations with
respect to, among other things: the discharge of pollutants into the
environment; the handling, use, storage, transportation, disposal and
19
<PAGE> 21
clean-up of hazardous materials and hazardous and non-hazardous wastes; and the
dismantlement, abandonment, and restoration of oil and gas properties and
Company facilities at the end of their useful lives. The costs to comply with
complex environmental laws and regulations, as well as internal voluntary
programs, are significant. Estimated pre-tax environmental expenses charged to
current operations totaled about $136 million, before insurance recoveries, in
1997, as compared to approximately $162 million in 1996 and $129 million in
1995. These expenses include remediation accruals, operating maintenance and
depreciation costs for solid waste, air and water pollution control facilities
and the costs of certain other environmental activities. Capital expenditures
for environmental control facilities totaled approximately $50 million in 1997,
as compared to approximately $78 million in 1996 and $68 million in 1995. The
Company estimates that capital expenditures for pollution control facilities
will total approximately $51 million in 1998, and approximately $52 million in
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Environmental Expenditures." There can be no assurance
that costs to comply with such requirements will not materially increase in the
future. In addition, the U.S. Environmental Protection Agency (the "EPA") and
other rulemaking bodies have from time to time changed minimum product
specifications in such a manner as to require the Company to make major
investments or incur significant additional operating expenses. Developments
such as the adoption of new laws and regulations, the imposition of more onerous
requirements in permits, increasingly strict enforcement of existing laws and
regulations or the discovery of previously unknown contamination may require
future expenditures to modify operations, install pollution control equipment,
perform site clean-ups or curtail Conoco's operations. There can be no assurance
that such future expenditures or curtailments will not have a material adverse
effect on the Company. See "Business -- Environmental Regulation," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Expenditures" and Note 25 to the Combined Financial
Statements.
GOVERNMENT REGULATION
The Company's operations are subject to extensive government regulations
which are subject to change from time to time in response to economic or
political conditions. Matters subject to regulation include discharge permits
for drilling operations, reports concerning operations, the spacing of wells,
unitization and pooling of properties, gasoline formulation and taxation. From
time to time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and natural gas wells below
actual production capacity in order to conserve supplies of oil and natural gas.
Because legal requirements are frequently changed and subject to interpretation,
the Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on operations.
RISK OF YEAR 2000 NONCOMPLIANCE
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the failure
of computer applications or create erroneous results by or at the year 2000.
This issue is referred to as the "Year 2000 Issue." The Year 2000 Issue is a
broad business issue, whose impact extends beyond traditional computer hardware
and software to possible failure of automated plant systems and instrumentation,
as well as to business third parties. Also, there can be no guarantee that third
parties of business importance to Conoco will successfully reprogram or replace,
and test, all of their own computer hardware, software and process control
systems to ensure such systems are Year 2000 compliant. Failure by the Company,
third parties of business importance to the Company and/or other constituents
such as governments to become Year 2000 compliant on a timely basis could have a
material adverse effect on the Company's financial position and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000."
ADVERSE EFFECT ON VALUE AND LIQUIDITY OF CLASS A COMMON STOCK FROM DISPARATE
VOTING RIGHTS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The differential in the voting rights of the Class A Common Stock and Class
B Common Stock could adversely affect the value of the Class A Common Stock to
the extent that investors or any potential future purchaser of the Company's
Common Stock ascribes value to the superior voting rights of the Class B
20
<PAGE> 22
Common Stock. The existence of two separate classes of Common Stock could result
in less liquidity for either class of Common Stock than if there were only one
class of Common Stock. The holders of Class A Common Stock and Class B Common
Stock generally have identical rights except that (i) holders of Class A Common
Stock are entitled to one vote per share while holders of Class B Common Stock
are entitled to five votes per share on all matters to be voted on by
stockholders and (ii) holders of Class A Common Stock are not eligible to vote
on any alteration of the powers, preferences, or special rights of the Class B
Common Stock that would not adversely affect the holders of Class A Common
Stock. Holders of Class A Common Stock and Class B Common Stock are entitled to
class votes on amendments to the Certificate that would alter or adversely
affect the powers, preferences or special rights of the shares of their
respective class. See "Description of Capital Stock."
LIMITED OPERATING HISTORY; LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
Since 1981, the Company's business operations have been conducted by
various entities owned directly or indirectly by DuPont, and the Company has had
no independent operating history. Following the Offerings, the Company will be
required to supplement its financial, administrative and other resources to
provide services necessary to operate successfully as an independent public
company. In addition, the financial information included herein may not
necessarily reflect the results of operations, financial position and cash flows
of the Company in the future or what the results of operations, financial
position and cash flows would have been had the Company been a separate,
stand-alone entity during the periods presented. The financial information
included herein does not reflect many significant changes that will occur in the
capital structure, funding and operations of the Company as a result of the
Separation and the Offerings. See "Arrangements Between the Company and DuPont,"
"Pro Forma Combined Financial Statements" including the discussion of the
assumptions reflected therein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), the By-laws of the Company (the "By-laws"), the Rights and
applicable provisions of the Delaware General Corporation Law (the "DGCL")
contain various provisions that may inhibit the acquisition of control of the
Company without the approval of the Company's Board of Directors. Certain
provisions of the Certificate and the By-laws, among other things, classify the
Company's Board of Directors into three classes, each of which (after an initial
transition period) will serve for staggered three-year periods. The Company's
Board of Directors has the authority to issue shares of Preferred Stock in one
or more series and to fix the rights and preferences of the shares of any such
series without stockholder approval. Any series of Preferred Stock will be
senior to the Common Stock with respect to dividends, liquidation rights and,
possibly, voting. The ability to issue Preferred Stock could have the effect of
discouraging unsolicited acquisition proposals. In addition, the Board of
Directors plans to adopt a Rights Plan providing for the issuance of Rights,
which would cause substantial dilution to a person or group that attempts to
acquire the Company on terms not approved in advance by the Company's Board of
Directors. With certain exceptions, Section 203 of the DGCL imposes certain
restrictions on mergers and other business combinations between the Company and
any holder of 15 percent or more of the Common Stock. In addition, certain
provisions of the Certificate of Incorporation and By-laws (i) require advance
notice for actions to be taken at annual meetings and director nominations, (ii)
require mergers and certain other extraordinary corporate transactions in
certain circumstances to meet certain fair price criteria and (iii) depending on
DuPont's level of ownership, restrict the ability to remove directors without
cause or for stockholders to take action by written consent or call special
meetings of stockholders. See "Description of Capital Stock -- Anti-Takeover
Effects of Certain Certificate and By-Law Provisions."
ABSENCE OF PRIOR PUBLIC MARKET FOR CLASS A COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE; NO ASSURANCE OF DIVIDENDS
Prior to the Offerings, there has been no public market for the Class A
Common Stock. Although the Class A Common Stock has been approved for listing on
the NYSE, subject to official notice of issuance,
21
<PAGE> 23
there can be no assurance that an active trading market will develop or continue
upon completion of the Offerings, or that purchasers of the Class A Common Stock
will be able to resell their Class A Common Stock at prices equal to or greater
than the initial public offering price. The initial public offering price of the
Class A Common Stock will be determined by negotiations among DuPont, the
Company and the representatives of the Underwriters and may not be indicative of
either the actual value of the Company or the market price of the Class A Common
Stock after the Offerings. The price at which the Class A Common Stock will
trade in the public market after the Offering may be less than the initial
public offering price. In addition, the market price of the Class A Common Stock
could be subject to significant fluctuations in response to a number of factors,
including variations in quarterly and yearly operating results, changes in crude
oil and natural gas prices, the success of the Company's business strategy,
competition, changes in government policies affecting the Company and market
conditions for energy or petroleum stocks in general. Moreover, stock markets
have recently experienced significant price and volume fluctuations unrelated or
disproportionate to the operating performance of affected companies.
The determination of the amount of cash dividends, if any, to be declared
and paid will depend upon declaration by the Company's Board of Directors and
upon the Company's financial condition, results of operations, cash flow, the
level of its capital and exploration expenditures, its future business prospects
and such other matters that the Company's Board of Directors deems relevant.
There can be no assurance that any dividends will be declared or paid. See
"Dividend Policy."
ADVERSE EFFECT ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Sales, or the real or perceived possibility of sales, of a significant
number of shares of Common Stock in the public market following the Offerings
could adversely affect prevailing market prices for the Class A Common Stock.
Upon completion of the Offerings, DuPont will hold 100 percent of the
outstanding Class B Common Stock, representing approximately percent of the
combined voting power of all classes of voting stock of the Company. Following
the expiration of the day lock-up period with respect to the Offerings,
DuPont may sell such shares subject to the requirements of the Securities Act.
DuPont has indicated its intention to divest its ownership interest in the
Company over time, subject to DuPont's business needs, prevailing market
conditions and other factors. The form of divestiture could include further
stock offerings, a spin-off, the sale of all or a portion of its shares of
Common Stock to one or more third parties or a combination of the foregoing.
DuPont will have rights to require the Company to register Common Stock held by
DuPont for sale in public offerings. See "Arrangements Between the Company and
DuPont -- Registration Rights Agreement." No predictions can be made as to the
effect, if any, that market sales of such shares, or the availability of such
shares for future sale, will have on the market price of the Class A Common
Stock. See "Shares Eligible for Future Sale" and "Underwriters."
22
<PAGE> 24
USE OF PROCEEDS
The estimated net proceeds from the sale of the Class A Common Stock
offered hereby, assuming an initial offering price of $ per share, and after
deducting estimated offering expenses and the underwriting discounts and
commissions payable by the Company, are approximately $ million (or
approximately $ million if the U.S. Underwriters' over-allotment option is
exercised in full). The Company will use the net proceeds of the Offerings, plus
a portion of its cash and cash equivalents, to repay or purchase a portion of
the indebtedness owed by certain subsidiaries of the Company to DuPont under
certain intercompany notes (the "Intercompany Notes"). The Intercompany Notes
will consist of (i) a promissory note in the principal amount of $7.5 billion,
due January 2, 2000, and bearing interest at a rate of 6.0125 percent per annum,
(ii) a promissory note in the principal amount of approximately $797 million,
due January 2, 2000, and bearing interest at a rate equal to the six-month LIBOR
plus 0.375 percent per annum (or 5.965 percent per annum in the current period)
and (iii) several Norwegian Kroner denominated promissory notes with an
aggregate principal amount of approximately $462 million after conversion to
U.S. dollars, having various maturity dates (ranging from to and
averaging ), and bearing interest at a rate equal to the six-month NIBOR
plus 0.375 percent per annum (or 5.565 percent per annum in the current period).
The Company will use the first $ billion of (a) net proceeds of the Offerings
and (b) its cash and cash equivalents in excess of $225 million to repay, in
part, the $7.5 billion promissory note. To the extent the net proceeds of the
Offerings, together with the Company's cash and cash equivalents (in excess of
$225 million), exceed $ billion, the Company will use such excess to first
repay, in whole or in part, the promissory note described in clause (ii) above
and then to repurchase the promissory notes described in clause (iii) above. The
$7.5 billion promissory note was incurred in payment of a dividend. The
promissory note with a principal amount of approximately $797 million was
incurred to finance the purchase by the Company of certain loans made by DuPont
to Conoco. The purchased loans, as well as the several promissory notes with an
aggregate principal amount of approximately $462 million, were incurred to
finance certain capital expenditures, acquisitions and working capital.
Following the application of the net proceeds from the Offerings and the
utilization of a portion of the Company's cash and cash equivalents in
connection with the matters discussed in "Arrangements Between the Company and
DuPont -- Intercompany Notes," the Company will have approximately $225 million
in cash and cash equivalents.
DIVIDEND POLICY
The Company currently intends to pay to its stockholders a dividend of
$ per quarter ($ annually) per share of Class A Common Stock and Class B
Common Stock. The first dividend (which is anticipated to be approximately
$ per share) is expected to be paid in March 1999, representing a pro rata
dividend for the period from the date of the Offerings to December 31, 1998.
There can be no assurance, however, that this dividend, or any future dividend,
will be declared or paid.
The determination of the amount of cash dividends (including the initial
quarterly dividend referred to above), if any, to be declared and paid will
depend upon declaration by the Company's Board of Directors and upon the
Company's financial condition, results of operations, cash flow, the level of
its capital and exploration expenditures, its future business prospects and such
other matters that the Company's Board of Directors deems relevant.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth the combined capitalization of the Company
as of June 30, 1998, pro forma to reflect the transactions related to the
Separation as of June 30, 1998, and pro forma as adjusted to reflect the
Offerings as of June 30, 1998, at an assumed public offering price of $ per
share of Class A Common Stock and the application of the estimated net proceeds
as described herein under "Use of Proceeds."
<TABLE>
<CAPTION>
PRO FORMA, AS
HISTORIC PRO FORMA(1) ADJUSTED(1)
-------- ------------- -------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short Term Borrowings -- Related Parties(2)............. $ 1,087 $ -- $ --
Other Short Term Borrowings and Capital Lease
Obligations(2)........................................ 51 51 51
Long-Term Borrowings -- Related Parties(2).............. $ 1,181 $1,259 $ 130
Long-Term Borrowings -- Other Related Party(2).......... -- 7,500 4,000
Other Long-Term Borrowings and Capital Lease
Obligations(2)........................................ 103 103 103
Owner's Net Investment:
Class A Common Stock, $0.01 par value; shares
authorized; shares issued and outstanding
for pro forma, as adjusted(3)...................... -- -- (4)
Class B Common Stock, $0.01 par value; shares
authorized; shares issued and outstanding
for pro forma, as adjusted......................... -- -- (4)
Additional Paid-in Capital............................ -- -- --
Owner's Net Investment and Accumulated Other
Comprehensive Loss/Stockholders' Equity............ 8,223 980
------- ------ ------
Total Capitalization.......................... $10,645 $9,893 $
======= ====== ======
</TABLE>
- ---------------
(1) See "Pro Forma Combined Financial Statements."
(2) For a description of the Company's borrowings, see Notes 3, 14, 16 and 28 to
the Combined Financial Statements.
(3) Excludes shares of Class A Common Stock issuable upon exercise of options
granted under the Company's employee compensation plans. See "Management."
(4) To be completed upon finalization of the Offerings.
24
<PAGE> 26
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected combined historical and pro forma
financial data of the Company as of the dates and for the periods indicated. The
statement of income data for each of the years in the three-year period ended
December 31, 1997 and the historical balance sheet data as of December 31, 1996
and 1997 have been derived from the Combined Financial Statements audited by
PricewaterhouseCoopers LLP, independent accountants. The statement of income
data for the years ended December 31, 1993 and 1994 and the six months ended
June 30, 1997 and 1998 and the historical balance sheet data as of December 31,
1993, 1994, 1995 and June 30, 1998 are based on the accounting records of DuPont
which, in the opinion of the Company's management, include all adjustments
necessary for the fair presentation of the financial position at such dates and
the results of operations for such respective interim periods. The results for
the six months ended June 30, 1998, are not necessarily indicative of results to
be expected for the full fiscal year or any interim period. The financial
information included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Company in the future or
what the results of operations, financial position and cash flows would have
been had the Company been a separate, stand-alone entity during the periods
presented.
The pro forma financial data have been derived from the Pro Forma Combined
Financial Statements, which were prepared by the Company to illustrate the
estimated effects of the Offerings, the Separation and related transactions
described in the Notes to the Pro Forma Combined Financial Statements as if the
Offerings, the Separation and related transactions had occurred as of the
beginning of the periods presented, for purposes of the pro forma combined
statements of income and as of June 30, 1998 for purposes of the pro forma
combined balance sheet. In addition, the Pro Forma Combined Financial Statements
do not purport to represent what the results of operations or financial position
of the Company would actually have been if the Offerings, the Separation and
related transactions had in fact occurred on such dates or to project the
results of operations or financial position of the Company for any future period
or date. The following data should be read in conjunction with, and are
qualified by reference to, the Combined Financial Statements, the Interim
Combined Financial Statements, the Pro Forma Combined Financial Statements, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
POST-OFFERINGS CHARGE
Subject to completion of the Offerings, the Company and DuPont expect to
give all current employees of the Company the option, subject to specific
country tax and legal requirements, to participate in the Option Program, which
involves the cancellation of all or part of their options to purchase DuPont
common stock or SARs with respect to DuPont common stock and the issuance by the
Company upon such cancellation of comparable options to acquire Class A Common
Stock, or SARs with respect to Class A Common Stock. Participation in the Option
Program will be deemed a change in the terms of certain awards granted to Conoco
employees. As a result, the Company will incur a non-cash charge to compensation
expense, in the quarter the Offerings are completed, of approximately $100 to
200 million after-tax depending on the market price of DuPont common stock at
the time of the cancellation and issuance and the number of outstanding Conoco
employee options to purchase DuPont common stock canceled. Since the
cancellation and issuance would be a one-time event occurring after the
Offerings, the charge is not reflected in the Pro Forma financial information
included in this Prospectus. See "Management -- Treatment of Outstanding Stock
Options and Stock Appreciation Rights."
25
<PAGE> 27
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED FOR
SIX MONTHS ENDED FOR THE YEAR THE SIX MONTHS
YEAR ENDED DECEMBER 31 JUNE 30 ENDED ENDED
----------------------------------------------- ----------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- ------- ------------ ----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total Revenues(1)......... $19,687 $19,433 $20,518 $24,416 $26,263 $12,600 $11,486 $26,157 $11,424
Cost of Goods Sold and
Other Operating
Expenses................ 11,349 10,640 11,146 14,560 16,226 7,667 6,754 16,218 6,748
Selling, General and
Administrative
Expenses................ 651 679 728 755 726 355 370 726 370
Exploration Expenses...... 361 357 331 404 457 192 176 457 176
Depreciation, Depletion
and Amortization........ 1,428 1,244 1,067 1,085 1,179 516 505 1,179 505
Taxes Other Than on
Income(1)............... 4,652 5,477 5,823 5,637 5,532 2,669 2,896 5,532 2,896
Interest and Debt
Expense................. 67 63 74 74 36 24 1 160 70
------- ------- ------- ------- ------- ------- ------- ------- -------
Income Before Income
Taxes................... 1,179 973 1,349 1,901 2,107 1,177 784 1,885 659
Provision for Income
Taxes................... 424 551 774 1,038 1,010 590 254 932 221
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income(2)..... $ 755 $ 422 $ 575 $ 863 $ 1,097 $ 587 $ 530 $ 953 $ 438
======= ======= ======= ======= ======= ======= ======= ======= =======
Segment Net Income:
Upstream.................. $ 481 $ 498 $ 492 $ 681 $ 884 $ 454 $ 359
Downstream................ 324 241 233 289 307 181 181
Corporate and Other(2).... (50) (317) (150) (107) (94) (48) (10)
------- ------- ------- ------- ------- ------- -------
$ 755 $ 422 $ 575 $ 863 $ 1,097 $ 587 $ 530
======= ======= ======= ======= ======= ======= =======
Pro Forma Earnings Per
Share:
Basic...................
Diluted.................
Pro Forma Weighted Average
Shares Outstanding:
Basic...................
Diluted.................
</TABLE>
- ---------------
(1) Includes petroleum excise taxes of $4,478, $5,291, $5,655, $5,461 and $5,349
for 1993 through 1997 and $2,577 and $2,806 for the first six months of 1997
and 1998, respectively.
(2) Includes after-tax exchange gains (losses) of $60, $(143), $(40), $(7), and
$21 for 1993 through 1997 and $5 for both the first six months of 1997 and
1998, and $(25) for the pro forma as adjusted for 1997 and $(8) for the pro
forma as adjusted for the first six months of 1998.
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31 AS ADJUSTED
------------------------------------------ JUNE 30 JUNE 30,
1993 1994 1995 1996 1997 1998 1998
------ ------ ------ ------ ------ ------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents............................. $ 271 $ 319 $ 286 $ 846 $1,147 $ 829 $ 225
Working Capital....................................... 1,893 1,790 999 862 567 276 294
Net Property, Plant and Equipment..................... 9,473 9,522 9,758 10,082 10,828 11,048 11,048
Total Assets.......................................... 14,809 15,271 14,229 15,226 17,062 17,164 15,420
Long-Term Borrowings -- Related Parties............... 2,102 2,279 2,141 2,287 1,450 1,181 --
Long-Term Borrowings -- Other Related Party........... -- -- -- -- -- -- 4,140
Other Long-Term Borrowings and Capital Lease
Obligations......................................... 304 342 65 101 106 103 103
Owner's Net Investment and Accumulated Other
Comprehensive Loss/Stockholders' Equity............. 7,462 7,274 6,754 6,579 7,896 8,223 4,631
OTHER DATA:
Cash Provided by Operations........................... 2,132 2,143 1,924 2,396 2,876 548
Capital Expenditures and Investments.................. 1,743 1,665 1,837 1,944 3,114 1,050
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Proved Reserves at December
31(1):
Oil (MMbbls)(2)............. 983 988 977 973 1,624
Natural Gas (Bcf)........... 3,971 4,674 5,048 5,396 5,861
Total Proved Reserves
(MMBOE)(3)................ 1,645 1,767 1,818 1,872 2,601
International Proved Reserves
(% of Total)................ 58% 61% 63% 65% 73%
Reserve Replacement Ratio
(1)......................... 89% 157% 127% 126% 448%
Reserve Life (years)(1)(4).... 7.7 8.2 9.3 8.9 12.4
Finding and Development Costs
per BOE (1)(3)(5)........... $ 6.79 $ 6.24 $ 5.39 $ 4.84 $ 3.63
Average Daily Production(1):
Oil (Mbbls/day)(2).......... 434 436 424 454 453
Natural Gas (MMcf/day)...... 1,301 1,327 1,126 1,211 1,203
Total Production
(MBOE/day)(3)............. 651 657 612 656 654
Average Production Costs per
BOE(3)(6)................... $ 3.97 $ 3.59 $ 3.92 $ 3.84 $ 4.21
Refinery Capacity at December
31 (Mbbls/day)(1)(7)........ 595 602 621 743 754
Refinery Utilization(7)....... 95% 99% 97% 83% 91%
Total Refinery Inputs
(Mbbls/day)(1)(8)........... 674 697 721 732 780
Sales of Refined Products
(Mbbls/day)(1).............. 876 931 983 998 1,048
Retail Marketing Outlets at
December 31(9):
United States .............. 5,008 5,196 5,125 4,976 4,903
International............... 2,454 2,438 2,390 2,874 2,971
</TABLE>
- ---------------
(1) Includes the Company's share of equity affiliates.
(2) Includes crude oil, condensate, and NGLs expected to be removed for the
Company's account from its natural gas production. Average Daily Production
also includes NGLs acquired through gas plant ownership of 67, 69, 78, 80,
and 79 Mbbls/day for 1993 through 1997, respectively.
(3) 6,000 cubic feet of natural gas = one barrel-of-oil-equivalent (BOE).
(4) Total Proved Reserves at December 31 divided by annual production for the
year ended December 31 (excluding NGLs from gas plant ownership).
(5) Finding and development costs per BOE represent a trailing five-year average
for each year displayed.
(6) Excludes equity affiliates and processed NGLs.
(7) Based on capacity to process crude oil and condensate (excludes other
feedstocks).
(8) Includes crude oil, condensate and other feedstocks.
(9) Represents outlets owned by the Company and others that sell the Company's
refined products.
27
<PAGE> 29
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Combined Financial Statements of the
Company for the year ended December 31, 1997, the six months ended June 30, 1997
and 1998, and as of June 30, 1998, were prepared by the Company to illustrate
the estimated effects of the Offerings, the Separation and related transactions
described in the Notes hereto as if they had occurred as of the beginning of the
period presented, for purposes of the pro forma combined statements of income,
and as of June 30, 1998, for purposes of the pro forma combined balance sheet.
Management believes that the assumptions used provide a reasonable basis for
presenting the significant effects directly attributable to the Offerings, the
Separation and related transactions. The Pro Forma Combined Financial Statements
do not purport to represent what the results of operations or financial position
of the Company would actually have been if the Offerings, the Separation and
related transactions had in fact occurred on such dates or to project the
results of operations or financial position of the Company for any future period
or date. These statements should be read in connection with, and are qualified
by reference to, the Combined Financial Statements, the Interim Combined
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this Prospectus.
28
<PAGE> 30
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORIC ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ----------- --------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total Revenues........................... $26,263 $ (24)(a) $26,219 $ (62)(o) $26,157
2(b)
(11)(c)
(11)(d)
Cost of Goods Sold and Other Operating
Expenses............................... 16,226 (8)(a) 16,218 -- 16,218
Selling, General and Administrative
Expenses............................... 726 -- 726 -- 726
Exploration Expenses..................... 457 -- 457 -- 457
Depreciation, Depletion and
Amortization........................... 1,179 -- 1,179 -- 1,179
Taxes Other Than on Income............... 5,532 -- 5,532 -- 5,532
Interest and Debt Expense................ 36 403(c) 439 (279)(p) 160
------- ----- ------- -------- -------
Income Before Income Taxes............... 2,107 (439) 1,668 217 1,885
Provision for Income Taxes............... 1,010 (146)(e) 864 68(p) 932
------- ----- ------- -------- -------
Net Income..................... $ 1,097 $(293) $ 804 $ 149 $ 953
======= ===== ======= ======== =======
Pro Forma Earnings Per Share
Basic..................................
Diluted................................
Pro Forma Weighted Average Shares
Outstanding
Basic..................................
Diluted................................
</TABLE>
See Notes to Pro Forma Combined Financial Statements
29
<PAGE> 31
PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORIC ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ----------- --------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total Revenues............................. $12,600 $ (12)(a) $12,574 $ (60)(o) $12,514
1(b)
(6)(c)
(9)(d)
Cost of Goods Sold and Other Operating
Expenses................................. 7,667 (4)(a) 7,663 -- 7,663
Selling, General and Administrative
Expenses................................. 355 -- 355 -- 355
Exploration Expenses....................... 192 -- 192 -- 192
Depreciation, Depletion and Amortization... 516 -- 516 -- 516
Taxes Other Than on Income................. 2,669 -- 2,669 -- 2,669
Interest and Debt Expense.................. 24 198(c) 222 (139)(p) 83
------- ----- ------- ----- -------
Income Before Income Taxes................. 1,177 (220) 957 79 1,036
Provision for Income Taxes................. 590 (76)(e) 514 27(p) 541
------- ----- ------- ----- -------
Net Income....................... $ 587 $(144) $ 443 $ 52 $ 495
======= ===== ======= ===== =======
Pro Forma Earnings Per Share
Basic....................................
Diluted..................................
Pro Forma Weighted Average Shares
Outstanding
Basic....................................
Diluted..................................
</TABLE>
PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORIC ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ----------- --------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total Revenues............................. $11,486 $ (10)(a) $11,441 $ (17)(o) $11,424
1(b)
(33)(c)
(3)(d)
Cost of Goods Sold and Other Operating
Expenses................................. 6,754 (6)(a) 6,748 -- 6,748
Selling, General and Administrative
Expenses................................. 370 -- 370 -- 370
Exploration Expenses....................... 176 -- 176 -- 176
Depreciation, Depletion and Amortization... 505 -- 505 -- 505
Taxes Other Than on Income................. 2,896 -- 2,896 -- 2,896
Interest and Debt Expense.................. 1 208(c) 209 (139)(p) 70
------- ----- ------- ----- -------
Income Before Income Taxes................. 784 (247) 537 122 659
Provision for Income Taxes................. 254 (62)(e) 192 29(p) 221
------- ----- ------- ----- -------
Net Income....................... $ 530 $(185) $ 345 $ 93 $ 438
======= ===== ======= ===== =======
Pro Forma Earnings Per Share
Basic....................................
Diluted..................................
Pro Forma Weighted Average Shares
Outstanding
Basic....................................
Diluted..................................
</TABLE>
See Notes to Pro Forma Combined Financial Statements
30
<PAGE> 32
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA OFFERING AS
HISTORIC ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
-------- ----------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents.................... $ 829 $ 1,140(f) $ 1,185 $ 3,500(j) $ 225
(267)(g) (960)(l)
(517)(f) (3,500)(k)
Marketable Securities........................ 7 -- 7 -- 7
Accounts and Notes Receivable................ 1,252 -- 1,252 -- 1,252
Notes Receivable -- Related Parties.......... 465 (465)(f) -- -- --
Inventories.................................. 981 -- 981 -- 981
Prepaid Expenses............................. 305 -- 305 -- 305
------- ------- ------- ------- -------
Total Current Assets................ 3,839 (109) 3,730 (960) 2,770
Net Property, Plant and Equipment............ 11,048 -- 11,048 -- 11,048
Investment in Affiliates..................... 1,141 -- 1,141 -- 1,141
Long-Term Notes Receivable -- Related
Parties.................................... 612 (612)(f) -- -- --
Other Assets................................. 524 (63)(f) 461 -- 461
------- ------- ------- ------- -------
Total Assets........................ $17,164 $ (784) $16,380 $ (960) $15,420
======= ======= ======= ======= =======
LIABILITIES AND OWNER'S NET INVESTMENT
Accounts Payable............................. $ 1,129 $ -- $ 1,129 $ -- $ 1,129
Short-Term Borrowings -- Related Parties..... 1,087 (1,087)(f) -- --
Other Short-Term Borrowings and Capital Lease
Obligations................................ 51 -- 51 -- 51
Income Taxes................................. 253 -- 253 -- 253
Other Accrued Liabilities.................... 1,043 -- 1,043 -- 1,043
------- ------- ------- ------- -------
Total Current Liabilities........... 3,563 (1,087) 2,476 -- 2,476
------- ------- ------- ------- -------
Long-Term Borrowings -- Related Parties...... 1,181 78(f) 1,259 (960)(l)
(299)(m)
Long-Term Borrowings -- Other Related
Party...................................... 7,500(i) 7,500 (3,500)(k) 4,140
140(n)
Other Long-Term Borrowings and Capital Lease
Obligations................................ 103 -- 103 -- 103
Deferred Income Taxes........................ 1,861 (24)(h) 1,837 -- 1,837
Other Liabilities and Deferred Credits....... 1,925 -- 1,925 -- 1,925
------- ------- ------- ------- -------
Total Liabilities................... 8,633 6,467 15,100 (4,619) 10,481
------- ------- ------- ------- -------
Minority Interests........................... 308 -- 308 -- 308
Owner's Net Investment and Accumulated Other
Comprehensive Loss/Stockholders' Equity.... 8,223 (7,500)(i) 972 3,500(j) 4,631
(267)(g) 299(m)
24(h) (140)(n)
492(f)
------- ------- ------- ------- -------
Total Liabilities and Owner's Net
Investment/Stockholders' Equity... $17,164 $ (784) $16,380 $ (960) $15,420
======= ======= ======= ======= =======
</TABLE>
See Notes to Pro Forma Combined Financial Statements
31
<PAGE> 33
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(1) BASIS OF PRESENTATION
The unaudited pro forma combined statements of income of the Company for
the year ended December 31, 1997, and the six months ended June 30, 1997 and
1998, and the unaudited pro forma combined balance sheet as of June 30, 1998
(collectively "the Pro Forma Combined Financial Statements") have been prepared
from the Combined Financial Statements and Interim Combined Financial Statements
presented elsewhere in this Prospectus. The Pro Forma Combined Financial
Statements are based on numerous assumptions and include the adjustments
explained in Note 2 below. The unaudited pro forma combined statements of income
have been prepared as if the Offerings, Separation and related transactions
described in the following paragraph had occurred as of the beginning of the
period presented. The unaudited pro forma combined balance sheet has been
prepared as if the Offerings, Separation and related transactions described in
the following paragraph had occurred as of June 30, 1998.
In July 1998, a dividend of $7,500 was declared and paid in the form of a
promissory note by the Company to all shareholders of record as of July 20,
1998. Prior to or concurrently with the consummation of the Offerings the
following transactions will have occurred as provided for in the Separation
Agreement: (a) to structure the Company on a stand-alone basis, certain
subsidiaries and assets and liabilities will be transferred between DuPont and
Conoco; (b) intercompany loans in existence prior to the Offerings will be
settled to the extent specified; (c) the Company will deliver a promissory note
to DuPont as settlement for DuPont stock options held by Conoco employees not
cancelled in the Option Program; (d) the Company will use the net proceeds of
the Offerings to repay a portion of the Long-Term Borrowings -- Other Related
Party; and (e) DuPont and Conoco will enter into certain agreements with respect
to employee benefit arrangements, information management, the provision of
interim services, financing arrangements, tax sharing, environmental liabilities
and various commercial arrangements. The transactions described above, excluding
the Offerings, are referred to herein collectively as the "Transactions". See
"Arrangements between the Company and DuPont."
The Pro Forma Combined Financial Statements do not purport to represent
what the results of operations or financial position of the Company would
actually have been if the Offerings and Transactions had in fact occurred on
such dates or to project the results of operations or financial position of the
Company for any future date or period. These statements should be read in
conjunction with, and are qualified by reference to, the Combined Financial
Statements, the Interim Combined Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
The pro forma adjustments are based upon currently available information
and contain certain estimates and assumptions. One assumption inherent to all
the pro forma adjustments is that DuPont's ownership interest in the Company
remains 50 percent or more for at least one year from the date of the Offerings.
Based on this assumption, the Company does not expect any change to Selling,
General and Administrative Expense levels, as the historical expense
approximates the pro forma expense level. Should DuPont's ownership interest
fall below 50 percent, pro forma Selling, General and Administrative expenses
would increase by approximately $15 to $20 on a full year basis.
Certain international assets relating primarily to the business of DuPont
may be held by the Company or its subsidiaries at the closing of the Offerings
pending receipt of consents or other approval or satisfaction of other
applicable foreign requirements necessary for the transfer of such assets to
DuPont. In addition, certain international assets relating primarily to the
business of the Company may be held by DuPont or other of its subsidiaries at
the closing of the Offerings pending receipt of consents or approvals or
satisfaction of other applicable foreign requirements necessary for the transfer
of such assets to the Company. The financial and other information included
herein assumes the consummation of all such transactions. Additionally, such
information reflects the inclusion of certain subsidiaries of DuPont which will
not be owned by the Company as of the closing of the Offerings, and which DuPont
will not thereafter be obligated to transfer to the
32
<PAGE> 34
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Company. DuPont and the Company intend to negotiate for the sale of such
subsidiaries within the six months following the Offerings at a purchase price
equal to their then fair market value. DuPont and the Company estimate that the
fair market value of such subsidiaries at August 1998, is approximately $20
million and cannot predict at what price any such sale may occur. All of the
above subsidiaries, which are immaterial to total assets and results of
operations of the Company, have been included in the Combined Financial
Statements.
Subject to completion of the Offerings, the Company and DuPont expect to
give all current employees of the Company the option, subject to specific
country tax and legal requirements, to participate in the Option Program, which
involves the cancellation of all or part of their options to purchase DuPont
common stock or SARs with respect to DuPont common stock and the issuance by the
Company upon such cancellation of comparable Class A Common Stock options, or
SARs with respect to Class A Common Stock. Participation in the Option Program
will be deemed a change in the terms of certain awards granted to Conoco
employees. As a result, the Company will incur a non-cash charge to compensation
expense, in the quarter the Offerings are completed, of approximately $100 to
200 million after-tax, depending on the market price of DuPont common stock at
the time of the cancellation and issuance and the number of outstanding Conoco
employee options to purchase DuPont common stock canceled. Since the
cancellation and issuance would be a one-time event occurring after the
Offerings, the charge is not reflected in the Pro Forma Combined Financial
Statements. See "Management -- Treatment of Outstanding Stock Options and Stock
Appreciation Rights."
The Company estimates that approximately 50 percent of all outstanding
DuPont stock options and SARs held by Conoco employees will be voluntarily
canceled in the Option Program. See "Prospectus Summary -- Separation from
DuPont."
Management believes the estimates and assumptions provide a reasonable
basis for presenting the significant effects of the Offerings and Transactions
as contemplated, and that the pro forma adjustments give appropriate effect to
these estimates and assumptions and are properly applied in the Pro Forma
Combined Financial Statements.
(2) PRO FORMA ADJUSTMENTS
Unaudited Pro Forma Combined Statements of Income
(a) Reflects the loss of insurance premium income, and the associated cost,
from a Conoco-owned captive insurance company providing insurance coverage to
certain DuPont assets. After the Offerings, the Company will cease providing
insurance coverage to DuPont.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Captive Insurance:
Loss of Revenue..................... (24) (12) (10)
Remove associated Operating
Expense.......................... (8) (4) (6)
</TABLE>
(b) Represents an increase in fees charged by Conoco for services, based on
new contractual commitments, provided to DuPont such as research and development
and securing supplies of natural gas for various DuPont facilities.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Increased Revenue................. 2 1 1
</TABLE>
(c) Reflects a decrease in interest income due to settlement of Notes
Receivables -- Related Parties and incremental interest expense resulting from
the Company's new debt structure. The incremental interest expense was
calculated by multiplying the Long-Term Borrowings -- Related Parties ($1,259)
and the new Long-Term Borrowings -- Other Related Party ($7,500) by an assumed
annual interest rate of 6.0125 percent
33
<PAGE> 35
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
on those borrowings and subtracting the historical related party interest cost
of $124 for 1997, and $65 and $55 for the six months ended June 30, 1997 and
1998, respectively. The historical related party interest cost is net of
capitalized interest of $94, $44 and $57, for these periods, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Decrease to Interest Income....... (11) (6) (33)
Increase to Interest and Debt
Expense......................... 403 198 208
</TABLE>
(d) Reflects the impact of changes in currency exchange rates on certain
intercompany loans denominated in foreign currencies purchased by the Company
from DuPont as part of the restructuring and settlement of notes prior to the
Offerings provided for in the Separation Agreement. These loans are to Western
European petroleum operations for which the local currency has been designated
as the functional currency.
(e) Reflects the impact of the Pro Forma Adjustments (primarily increased
interest expense resulting from the Company's new debt structure) and a separate
return income tax calculation method on the Provision for Income Taxes. The
historic tax provision was calculated on a loss benefit method (See Note 2 to
the Combined Financial Statements). In accordance with SEC Staff Accounting
Bulletin No. 55, the Pro Forma Provision for Income Taxes is calculated using a
separate return method. The Pro Forma Combined Statements of Income for the year
ended December 31, 1997 and for the six months ended June 30, 1997 and June 30,
1998, reflect a reduction in the Pro Forma Provision for Income Taxes of
approximately $8, $0 and $0, respectively, due to the change to the separate
return method of presentation. The reduction in Pro Forma Provision for Income
Taxes is primarily attributable to the utilization of additional foreign tax
credits against the provision for U.S. taxes, offset by a reduction in tax
benefits resulting from the transfer of international exploration subsidiaries
from the original tax jurisdiction to another tax jurisdiction. See also
"Arrangements Between the Company and DuPont -- Tax Sharing Agreement" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Tax Matters."
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1998
(f) Reflects the settlement, and transactions necessary for settlement, of
intercompany notes in existence prior to the Offerings as provided for in the
Separation Agreement.
(g) A portion ($247) of the cash generated by the transactions in (f) above
will be used to acquire certain subsidiaries from DuPont and to refund prepaid
insurance premiums to DuPont. Additionally, an estimated $20 will be available
to acquire certain other assets from DuPont subsequent to the Offerings if such
transactions take place. As these assets are held under common control, they are
accounted for at their historical book value. As a result, their acquisition or
potential future acquisition at estimated fair value has been reflected as a
charge to Owner's Net Investment. Any deferred tax assets related to these
acquisitions or potential future acquisitions have been fully reserved.
(h) The pro forma separate return tax calculation reflects a reduction in
deferred tax liabilities of $24 principally resulting from the transfer of
international production subsidiaries from the original tax jurisdiction to
another tax jurisdiction.
(i) Reflects that in July 1998, a dividend of $7,500 was declared and paid
by the Company in the form of a promissory note, to all shareholders of record
as of July 20, 1998. The Promissory Note is due January 2, 2000 and bears
interest at an annual interest rate of 6.0125 percent.
34
<PAGE> 36
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Offering Adjustments
(j) Represents the receipt by Conoco of $3,500 in proceeds from the
Offerings (consisting of the assumed sale of million shares at $ per
share), net of underwriting discounts of $ and estimated expenses of the
Offerings of $ .
(k) Represents the payment to DuPont by the Company with respect to
Long-Term Borrowings -- Other Related Party of the net proceeds from the
Offerings.
(l) Represents the payment to DuPont by Conoco with respect to Long Term
Borrowings -- Related Parties of all cash in excess of $225. This includes the
repayment of a note in the amount of $797 and the purchase of a portion of the
foreign denominated notes in the amount of $163.
(m) Represents the capital contribution by DuPont of $299 of the remaining
balance in Long-Term Borrowings -- Related Parties relating to foreign
denominated loans made by DuPont to one of the Company's foreign subsidiaries
prior to the Offerings.
(n) The Separation Agreement provides that the Company will enter into a
promissory note with DuPont to cover: (i) an assumed level of future
appreciation of DuPont stock options or SARs held by active Conoco employees who
do not participate in the Option Program; (ii) an amount necessary so that the
Company and DuPont equally share the liability resulting from the after-tax
value of all DuPont stock option and SARs held by active Conoco employees
immediately prior to the Offerings; and (iii) $10.4 in consideration for other
employee benefits related liabilities assumed by DuPont for Conoco employees
transferring to DuPont. This note will be non-interest bearing with a due date
of January 2, 2000 and have a principal amount equal to the amount calculated
using the provisions of the Separation Agreement. Assuming an estimate of the
value at the date of the Offerings and that 50% of all outstanding stock options
and SARs are voluntarily cancelled in the Option Program, the principal amount
is projected to be $140.
(o) Reflects the impact of changes in currency exchange rates on certain
intercompany loans denominated in foreign currencies purchased by the Company
from DuPont. These loans are to Western European petroleum operations for which
the local currency has been designated as the functional currency.
(p) Represents the reduction of interest expense and the associated
increase in income taxes resulting from the payment to DuPont of the Long-Term
Borrowings described in (k) and (l) above as well as the capital contribution
described in (m) above, and the tax impact of the adjustment described in (o)
above.
(3) EARNINGS PER SHARE
Unaudited pro forma basic earnings per share includes both the Class A and
the Class B common shares deemed to be outstanding as of the date of the
Offerings. Pro forma diluted earnings per share includes the dilutive effect of
the Company stock options, applying the treasury stock method, which are
expected to be issued in the Option Program upon cancellation of outstanding
DuPont stock options, using the anticipated weighted-average exercise price of
the outstanding options and the anticipated price per share of the Offerings. In
accordance with SEC Staff Accounting Bulletin No. 98, pro forma basic and
diluted earnings per share have been presented for the most recent annual and
subsequent interim periods only.
35
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following section contains forward-looking statements including,
without limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions and resources. See "Disclosure Regarding
Forward-Looking Information" and "Risk Factors." The Company does not undertake
to update, revise or correct any of the forward-looking information.
The discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Combined Financial
Statements of the Company, the unaudited Supplemental Information to the
Combined Financial Statements, the unaudited Interim Combined Financial
Statements of the Company and the notes to each of these appearing elsewhere in
this Prospectus.
Since 1981, the Company's business operations have been conducted by
various entities, owned directly or indirectly, by DuPont. In conjunction with
the Offerings, certain businesses are being realigned so these operations can be
conducted as wholly owned subsidiaries of Conoco. The Combined Financial
Statements are presented on a "carve out" basis and include the historical
operations of the entities owned by Conoco and operations to be transferred to
Conoco by DuPont. In this context, no direct ownership relationship existed
among all the various units comprising Conoco; accordingly, DuPont and its
subsidiaries' net investment in Conoco ("Owner's Net Investment") is shown in
lieu of Stockholders' Equity in the Combined Financial Statements. The Combined
Financial Statements included herein have been prepared from DuPont's historical
accounting records.
The Combined Statement of Income includes all revenues and costs directly
attributable to Conoco, including costs for facilities, functions and services
used by Conoco at shared sites and costs for certain functions and services
performed by centralized DuPont organizations and directly charged to Conoco
based on usage. In addition, services performed by Conoco on DuPont's behalf are
reflected in the accompanying Combined Financial Statements. The results of
operations also include allocations of (i) costs for administrative functions
and services performed on behalf of Conoco by centralized staff groups within
DuPont and (ii) DuPont's general corporate expenses.
All charges and allocations of costs for facilities, functions and services
performed by DuPont organizations for Conoco have been deemed to have been paid
by Conoco to DuPont, in cash, in the period in which the costs were recorded in
the Combined Financial Statements. Allocations of current income taxes
receivable or payable are deemed to have been remitted, in cash, by or to DuPont
in the period the related income taxes were recorded.
All of the allocations and estimates in the Combined Financial Statements
are based on assumptions management believes are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if Conoco had
operated as a separate entity.
Business operations are grouped into three segments: Upstream, Downstream
and Corporate and Other. The Upstream segment explores for, develops, produces
and sells crude oil, natural gas and natural gas liquids. The Downstream segment
refines crude oil and other feedstocks into petroleum products, buys and sells
crude oil and refined products, and transports, distributes and markets
petroleum products. Corporate and Other includes general corporate expenses,
financing costs and other non-operating items and results for electric power and
related-party insurance operations.
The Company considers portfolio optimization to be an ongoing business
strategy and continuously seeks to rationalize its investment portfolio in order
to maximize profitability. Over the past five years the Company has generated
proceeds of approximately $1.7 billion, averaging about $340 million a year
through the disposal of marginal and nonstrategic producing properties, by
upgrading and redirecting its exploration portfolio and by increasing its
ownership in larger scale properties. As a result, the Company has maintained
production essentially constant on a BOE basis while undergoing this
rationalization. The Company's policy is to report
36
<PAGE> 38
material gains and losses from individual asset sales as non-recurring items
when reporting Combined Net Income.
The Company's revenue and profitability are largely determined by the
difference between prices received for crude oil, natural gas, natural gas
liquids and refined products produced and the costs of finding, developing, and
producing those resources. The Company conducts its activities through wholly
and majority owned subsidiaries and, increasingly, through equity affiliates.
This trend of conducting business in the petroleum industry through equity
affiliates is expected to increase in the future as the Company attempts to
minimize either the capital or political risks associated with new large scale,
high impact projects. In addition, the Company conducts its Upstream and
Downstream activities in 40 countries worldwide and is subject to various tax
rates, some significantly higher than U.S. rates, which can result in
variability in revenues and profitability. Other potential sources of
variability in the Company's revenues are crude oil and refined product buy/sell
contracts and natural gas and electric power resale activities.
Buy/sell contracts are the marketing of crude oil or refined products,
which are produced or refined by other companies and purchased by the Company
for resale. The vast majority of crude oil buy/sell contracts are geared at
repositioning purchased crude oil for supplying the Company's refineries and
optimizing its transportation assets. The Company also engages in some buy/sell
crude oil contracts in pursuit of trading profit opportunities. Each side of the
contract, i.e., the buy side and the sell side, is accounted for and settled
independently of the other. Although differentials (reflecting differences in
quality or location) between the sales revenue and the cost are relatively
immaterial, the gross amounts reported for both revenue and cost are material.
A substantial decline in crude oil prices began in late 1997 and is
continuing in 1998, with crude oil prices currently at their lowest level in
over a decade. These lower prices had a significant negative impact on the
Company's results in the first half of 1998 and are expected to continue to
negatively impact 1998 financial results.
Subject to completion of the Offerings, the Company and DuPont expect to
give all current employees of the Company the option, subject to specific
country tax and legal requirements, to participate in the Option Program, which
involves the cancellation of all or part of their options to purchase DuPont
common stock or SARs with respect to DuPont common stock and the issuance by the
Company upon such cancellation of comparable options to acquire Class A Common
Stock, or SARs with respect to Class A Common Stock. Participation in the Option
Program will be deemed a change in the terms of certain awards granted to Conoco
employees. As a result, the Company will incur a non-cash charge to compensation
expense in the quarter the Offerings are completed of approximately $100 to 200
million after-tax depending on the market price of DuPont common stock at the
time of the cancellation and issuance and the number of outstanding Conoco
employee options to purchase DuPont common stock or SARs canceled. Since the
cancellation and issuance would be a one-time event, occurring after the
Offerings, the charge is not reflected in the Pro Forma financial information
included in this Prospectus. See "Management -- Treatment of Outstanding Stock
Options and Stock Appreciation Rights."
37
<PAGE> 39
RESULTS OF OPERATIONS
COMBINED RESULTS
A summary of the Company's Sales and Other Operating Revenues and Combined
Net Income, by business segment, is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES
Upstream..................................... $ 3,270 $ 4,726 $ 5,254 $ 2,679 $ 2,475
Downstream................................... 17,038 19,425 20,033 9,649 8,534
Corporate and Other.......................... 20 79 509 147 339
------- ------- ------- ------- -------
Total Sales and Other Operating
Revenues.............................. $20,328 $24,230 $25,796 $12,475 $11,348
======= ======= ======= ======= =======
COMBINED NET INCOME
Upstream
United States.............................. $ 258 $ 314 $ 445 $ 241 $ 144
International.............................. 234 367 439 213 215
------- ------- ------- ------- -------
Total Upstream.......................... $ 492 $ 681 $ 884 $ 454 $ 359
Downstream
United States.............................. $ 112 $ 172 $ 216 $ 130 $ 86
International.............................. 121 117 91 51 95
------- ------- ------- ------- -------
Total Downstream........................ $ 233 $ 289 $ 307 $ 181 $ 181
Corporate and Other.......................... (150) (107) (94) (48) (10)
------- ------- ------- ------- -------
Combined Net Income..................... $ 575 $ 863 $ 1,097 $ 587 $ 530
======= ======= ======= ======= =======
</TABLE>
NON-RECURRING ITEMS
Combined net income includes the following material non-recurring items on
an after-tax basis:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Asset sales.................................. $ -- $ 35 $240 $ 24 $54
Property impairments......................... (45) (63) (167) -- --
Tax rate changes............................. -- -- 30 -- --
Environmental insurance litigation
recoveries................................. -- 44 -- -- --
Employee separation costs.................... -- (22) -- -- --
Other........................................ -- -- (23) -- (28)
---- ---- ---- ---- ---
Total non-recurring items............... $(45) $ (6) $ 80 $ 24 $26
==== ==== ==== ==== ===
</TABLE>
First half 1998 non-recurring items reflect a $23 million gain on the sale
of North Sea producing and non-producing properties and a $31 million gain from
the sale of an international subsidiary versus a $24 million gain from the sale
of US producing properties in the first half of 1997. Other losses in the first
half of 1998 reflect anticipated costs of $28 million to resolve various
litigation claims.
Non-recurring items in 1997 include $240 million in gains from asset sales
consisting of $191 million associated with both producing and non-producing
properties in the North Sea and $49 million in the United States. Such asset
sales are part of the Company's rationalization program, designed to improve
profitability by disposing of marginal properties and concentrating operations
on core properties. A U.K. tax rate change
38
<PAGE> 40
also provided a $30 million benefit in 1997. Largely offsetting these benefits
were property impairments of $167 million, with $55 million attributable to the
write-down of an office building held for sale in Europe and $112 million
reflecting the impairment of certain international non-revenue producing
properties. Other losses of $23 million include litigation settlements.
Non-recurring items in 1996 include $35 million in gains from asset sales
consisting of $19 million associated with the sale of the Company's retail
marketing business in Ireland and $16 million from the sale of producing and
non-producing properties in the United States. Environmental insurance
litigation recoveries also resulted in a $44 million benefit. Offsetting these
benefits was a $63 million impairment associated with a write-down of an
investment in a European gas marketing joint venture and employee separation
costs of $22 million.
Non-recurring items in 1995 reflect $45 million in property impairments
associated with implementation of Statement of Financial Accounting Standards
No. 121 -- "Accounting for Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of."
Combined net income excluding the above non-recurring items ("underlying
net income") was $504 million in the first half of 1998, $1,017 million in 1997,
$869 million in 1996 and $620 million in 1995.
First Half 1998 versus First Half 1997
The Company had first half combined net income of $530 million in 1998,
down 10 percent from $587 million in the first half of 1997. The Company had
underlying net income of $504 million in the first half of 1998, down 10 percent
from $563 million in the first half of 1997. Lower underlying net income
primarily reflects lower net realizable crude oil and natural gas prices. The
effect of lower crude oil and natural gas prices was partly offset by higher
natural gas volumes, increased oil production in countries with lower effective
tax rates, lower exploration expenses, improved international Downstream margins
and the favorable resolution of certain tax issues.
Sales and Other Operating Revenues for the first half of 1998 were $11.3
billion, down nine percent from the first half of 1997, primarily due to a
decrease in worldwide crude oil and natural gas prices and lower refined product
volumes and prices. Crude oil and refined product buy/sell and natural gas and
electric power resale activities in the first half of 1998 totaled $2.4 billion,
down three percent compared to $2.5 billion in the first half of 1997.
Cost of Goods Sold and Other Operating Expenses for the first half of 1998
totaled $6.8 billion, a decrease of $0.9 billion, or 12 percent, compared to
$7.7 billion in the first half of 1997, primarily due to lower crude oil,
natural gas and refined product prices and slightly lower crude oil and refined
product volumes offset partly by higher natural gas production.
Selling, General and Administrative Expenses for the first half of 1998
totaled $370 million, an increase of $15 million, or four percent, compared to
$355 million in the first half of 1997, primarily due to higher costs in
international Downstream marketing operations resulting from retail marketing
expansion activities in countries with better growth potential over the
long-term.
Exploration Expenses for the first half of 1998 totaled $176 million, a
decline of $16 million, or eight percent, compared to $192 million in the first
half of 1997, due to lower amortization of non-producing leasehold properties in
the United States and lower exploration overhead and operating expenses
resulting from seismic surveys conducted in 1997 in the Gulf of Paria located
between Venezuela and Trinidad and the Merida Andes foothills in Venezuela,
offset by higher international dry hole costs.
Depreciation, Depletion and Amortization for the first half of 1998 totaled
$505 million, or two percent lower, compared to $516 million in the first half
of 1997.
Provision for Income Taxes for the first half of 1998 totaled $254 million,
down 57 percent compared to $590 million for the first half of 1997. This
reflects an effective tax rate of approximately 32 percent in the first half of
1998 compared to 50 percent in the first half of 1997 due to increased oil
production in countries with lower effective tax rates and the favorable
resolution of certain tax issues.
39
<PAGE> 41
1997 versus 1996
Combined net income for 1997 of $1,097 million was up 27 percent from $863
million the prior year. The Company had underlying net income of $1,017 million
in 1997, up 17 percent from $869 million in 1996. The increase was attributable
to improved U.S. natural gas prices and higher international natural gas volumes
in addition to stronger worldwide Downstream product margins and increased
worldwide refinery production.
Sales and Other Operating Revenues of $25.8 billion in 1997 were up six
percent compared to $24.2 billion in the prior year, as higher Downstream
product prices and volumes, increased international natural gas volumes and
stronger domestic natural gas prices more than compensated for lower crude oil
prices. Crude oil and refined product buy/sell and natural gas and electric
power resale activities in 1997 totaled $5.5 billion, up 32 percent compared to
$4.2 billion in 1996.
Cost of Goods Sold and Other Operating Expenses in 1997 totaled $16.2
billion, up 11 percent compared to $14.6 billion in 1996, due to higher refined
product volumes and crude oil and refined product buy/sell contract activity and
natural gas and electric power resale activities.
Selling, General and Administrative Expenses in 1997 totaled $726 million,
a decrease of $29 million, or four percent, compared to $755 million in 1996,
primarily due to one-time costs in 1996 for retail expansion activities in the
U.S.
Exploration Expenses in 1997 totaled $457 million, an increase of $53
million, or 13 percent, compared to $404 million in 1996, due to higher
international exploration overhead and operating costs primarily from seismic
surveys conducted in the Gulf of Paria located between Venezuela and Trinidad
and in the Merida Andes foothills in Venezuela, higher international dry hole
costs and an adjustment of certain non-producing U.S. leasehold properties.
Depreciation, Depletion and Amortization in 1997 totaled $1,179 million, an
increase of $94 million, or nine percent, compared to $1,085 million in 1996 due
to higher depreciation resulting from a write down of an office building held
for sale in the U.K. and an impairment of certain international non-revenue
producing properties partially offset by lower depreciation in U.S. Downstream
operations.
Provision for Income Taxes totaled $1,010 million in 1997, down three
percent compared to $1,038 million in 1996. The lower provision reflects an
effective tax rate of approximately 48 percent in 1997 compared to 55 percent in
1996. The decrease in the effective tax rate was primarily due to a lower
proportion of earnings from operations in countries with higher effective tax
rates.
1996 versus 1995
Combined net income for 1996 of $863 million was up 50 percent from $575
million in 1995. The Company had underlying net income of $869 million in 1996,
up 40 percent from $620 million in 1995. The improvement was due to higher crude
oil and natural gas prices, higher international crude oil and natural gas
volumes, and higher refining margins. Partly offsetting these benefits were
startup costs related to the Humber refinery's new vacuum unit in the United
Kingdom.
Sales and Other Operating Revenues of $24.2 billion in 1996 were up 19
percent compared with $20.3 billion in 1995, principally resulting from higher
worldwide crude oil and natural gas prices and higher international crude oil
and natural gas volumes, partly offset by lower industry-wide marketing prices.
Crude oil and refined product buy/sell contracts and natural gas and electric
power resale activities in 1996 totaled $4.2 billion, up 67 percent compared to
$2.5 billion in 1995.
Cost of Goods Sold and Other Operating Expenses in 1996 totaled $14.6
billion, an increase of $3.5 billion or 31 percent, compared to $11.1 billion in
1995 due to higher crude oil and natural gas prices and higher volumes for crude
oil, natural gas and refined products, higher purchased refined product costs
and increased activity from crude oil and refined products buy/sales and natural
gas resales.
40
<PAGE> 42
Selling, General and Administrative Expenses in 1996 totaled $755 million,
an increase of $27 million, or four percent, compared to $728 million in 1995,
primarily due to one-time costs for retail marketing expansion activities in the
U.S. .
Exploration Expenses in 1996 totaled $404 million, an increase of $73
million, or 22 percent, compared to 1995 of $331 million, primarily due to
higher exploration overhead and operating costs in the United States and Norway
and higher U.S. and international dry hole costs.
Depreciation, Depletion and Amortization in 1996 totaled $1,085 million, an
increase of $18 million, or 2 percent, compared to $1,067 in 1995, primarily due
to higher depreciation from Eastern European retail marketing expansion
activities and impairments of certain international non-revenue producing
properties offset partially by lower depreciation in U.S. Downstream operations.
Provision for Income Taxes totaled $1,038 in 1996, up 34 percent compared
to $774 million in 1995. This reflects a relatively constant effective tax rate
of approximately 55 percent in 1996 compared to 57 percent in 1995.
UPSTREAM SEGMENT RESULTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------ -----------
1995 1996 1997 1997 1998
------ ------ ------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Combined Net Income............................... $492 $681 $884 $454 $359
Non-recurring Items............................... 39 58 (147) (24) (54)
---- ---- ---- ---- ----
Combined Underlying Net Income.................... $531 $739 $737 $430 $305
==== ==== ==== ==== ====
</TABLE>
First Half 1998 versus First Half 1997
Upstream combined net income was $359 million in the first half of 1998,
down 21 percent from $454 million in the first half of 1997. Upstream underlying
net income was $305 million in the first half of 1998, down 29 percent from $430
million in the first half of 1997.
The Company's worldwide net realized crude oil price was $13.01 per barrel
for the first half of 1998, down $6.17 per barrel, or 32 percent, from $19.18
per barrel in the first half of 1997. Excess supply caused by weak Asian demand,
higher crude oil production from OPEC producing countries and warmer winter
weather caused the sharp drop in crude oil prices. Worldwide natural gas prices
averaged $2.37 per thousand cubic feet (mcf) for the first half, compared with
$2.62 per mcf in the same period in 1997 because of warmer winter weather. Lower
worldwide natural gas prices were primarily driven by lower natural gas prices
outside the United States. Worldwide crude oil and condensate production in the
first half of 1998 was 317,000 barrels per day versus 319,000 barrels per day in
the first half of 1997. Worldwide natural gas production in the first half of
1998 being up eight percent to 1,307 million cubic feet per day from 1,210
million cubic feet per day in the first half of 1997.
U.S. Upstream underlying net income totaled $144 million in the first half
of 1998, down 40 percent from $241 million in the comparable period of 1997.
Lower U.S. Upstream underlying net income was due to lower crude oil and natural
gas prices and lower crude oil volumes due to asset dispositions and crude oil
production declines. These factors more than offset benefits from increased
natural gas production and lower exploration expenses. Natural gas volumes were
up 16 percent as increased production from the holdings in the South Texas Lobo
trend acquired in 1997 more than offset the decline in natural gas production
elsewhere.
Outside the United States, Upstream underlying net income was $161 million,
down 15 percent, from $189 million in the comparable period in 1997, primarily
due to lower crude oil and natural gas prices offset by higher natural gas
volumes, lower exploration expenses, and the favorable resolution of certain tax
issues. Despite slightly lower crude oil volumes resulting from the sale of the
Company's interest in the mature Ula
41
<PAGE> 43
and Gyda fields in Norway, earnings benefited from higher production from
countries with relatively lower tax rates (primarily the United Kingdom and
Nigeria).
1997 versus 1996
Upstream combined net income was $884 million in 1997, up 30 percent,
compared to $681 million in 1996. Upstream underlying net income totaled $737
million in 1997, essentially unchanged from the previous year.
Worldwide natural gas prices were up 14 percent to $2.51 per mcf in 1997
from $2.21 per mcf in 1996 resulting primarily from higher U.S. industry demand.
Worldwide net realized crude oil prices were $18.58 per barrel, down $1.53 per
barrel, or eight percent, from $20.11 per barrel in 1996. Crude oil prices
declined despite higher crude oil demand and strong crude oil production growth,
which included initial exports of Iraqi crude oil. Worldwide crude oil and
condensate production averaged 337,000 barrels per day for the year, up slightly
versus 1996. Worldwide natural gas deliveries in 1997 of 1,203 million cubic
feet per day were essentially unchanged from 1,211 million cubic feet per day in
1996 as higher international natural gas volumes were offset by lower domestic
natural gas volumes.
U.S. Upstream underlying net income totaled $396 million, up 30 percent
from $305 million in 1996, due to higher gas prices which more than offset lower
crude oil prices. U.S. production costs per BOE were $4.23, up $0.12 per BOE or
3 percent, compared to $4.11 per BOE in 1996, due to higher production taxes.
Outside the United States, underlying net income was $341 million, down 21
percent from $434 million in 1996 due to lower crude oil prices, partly offset
by increased crude oil and natural gas volumes associated with the first year of
oil production from Nigeria and increased production from the Heidrun and Troll
fields in Norway and the Canadian Foothills. International production costs per
BOE were $4.19 per BOE, up $0.51 per BOE, or 14 percent, compared to $3.68 per
BOE in 1996, resulting from FPSO lease costs on new fields in the United Kingdom
and costs incurred on development projects that have not yet begun production.
1996 versus 1995
Upstream combined net income was $681 million in 1996, up 38 percent,
compared with $492 million in 1995. Upstream underlying net income totaled $739
million in 1996, up 39 percent from $531 million in 1995.
The Company's worldwide net realized crude oil price averaged $20.11 per
barrel for 1996, up 22 percent from $16.52 per barrel in 1995. Higher crude oil
prices were the result of colder weather, stronger worldwide economic growth and
tight inventories. Worldwide natural gas prices averaged $2.21 per mcf in 1996,
compared to $1.86 per mcf in 1995 resulting from stronger worldwide demand.
Worldwide crude oil and condensate production was 336,000 barrels per day for
1996 compared to 317,000 barrels per day in 1995. Worldwide natural gas
deliveries were 1,211 million cubic feet per day in 1996 compared to 1995
deliveries of 1,126 million cubic feet per day due to higher international
natural gas volumes, offset partly by lower U.S. natural gas volumes.
U.S. Upstream underlying net income totaled $305 million, up $40 million,
or 15 percent, versus the prior year due to higher crude oil and natural gas
prices. U.S. production costs per BOE were $4.11 per BOE, up $0.33 per BOE, or 9
percent, compared to $3.78 per BOE in 1995, due to higher production taxes.
Outside the United States, underlying net income was $434 million, up $168
million, or 63 percent, versus $266 million earned in 1995, due to higher crude
oil and natural gas prices and higher international natural gas volumes.
International natural gas volumes increased 23 percent due to production
increases in the United Kingdom and the Canadian Foothills. International
production costs per BOE were $3.68 per BOE, down $0.34 per BOE, or 8 percent,
compared to $4.02 per BOE in 1995, due to higher crude production from the
Heidrun field in Norway.
42
<PAGE> 44
DOWNSTREAM SEGMENT RESULTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------ -----------
1995 1996 1997 1997 1998
------ ------ ------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Combined Net Income............................... $233 $289 $307 $181 $181
Non-recurring Items............................... 6 (52) 67 -- 28
---- ---- ---- ---- ----
Combined Underlying Net Income.................... $239 $237 $374 $181 $209
==== ==== ==== ==== ====
</TABLE>
First Half 1998 versus First Half 1997
Downstream combined net income was $181 million in the first half of 1998
and the first half of 1997. Downstream underlying net income totaled $209
million in the first half of 1988, up 15 percent from $181 million in the first
half of 1997, due to higher European refined product margins.
U.S. Downstream underlying net income was $114 million in the first half of
1998, down $16 million, or 12 percent from $130 million in the first half of
1997, due to lower marketing margins and lower refined product sales volumes.
International Downstream underlying net income was $95 million in the first
half of 1998, up 86 percent, from $51 million in the comparable period in 1997,
reflecting higher refinery runs from less downtime from scheduled maintenance at
the Humber refinery and improved refining and marketing margins offset by
slightly lower refined product sales volumes. In the United Kingdom, a continued
strengthening of retail marketing prices resulted in higher marketing margins.
1997 versus 1996
Downstream combined net income was $307 million, up six percent from $289
million in 1996. Downstream underlying net income increased 58 percent to $374
million in 1997, compared with $237 million in the prior year. Worldwide refined
product sales volumes were 1,048,000 barrels per day in 1997, up five percent
versus 1996.
In the United States, Downstream underlying net income was $239 million
versus $136 million in 1996, an increase of 81 percent. The improvement was
attributable to strong refining margins, reduced operating costs and higher
refined product volumes from the new Lake Charles, Louisiana, hydrocracker
expansion project.
International Downstream underlying net income was $135 million, up 34
percent from $101 million in the comparable period in 1996, primarily due to
higher European refining margins and increased refinery production from the
Humber refinery's new vacuum unit in the U.K.
The Company's refineries ran at 91 percent capacity in 1997, 10 percent
higher than 1996. The increase was primarily due to less downtime incurred in
1997, compared to 1996 when major expansions were taking place at the Lake
Charles and Humber refineries.
1996 versus 1995
Downstream combined net income was $289 million, up 24 percent from $233
million in 1995. Downstream underlying net income of $237 million in 1996 was
essentially unchanged from $239 million in 1995, as improved refining margins
were offset by higher marketing product costs. Worldwide refined product sales
volumes were 998,000 barrels per day in 1996, up from 983,000 barrels per day in
1997.
In the United States, Downstream underlying net income was $136 million in
1996 compared with $122 million in 1995, an increase of 11 percent, reflecting
gradually improving retail margins despite higher marketing product costs and
startup costs relating to the new hydrocracker unit at the Lake Charles
refinery.
43
<PAGE> 45
International Downstream underlying net income was $101 million, down 14
percent versus $117 million in 1995, attributable to startup and other costs
relating to the Humber refinery's new vacuum unit in the United Kingdom.
The Company's refineries ran at 83 percent of capacity in 1996, down 14
percent from 1995 due to more downtime incurred in 1996 relating to the major
expansions at the Lake Charles and Humber refineries.
CORPORATE AND OTHER SEGMENT RESULTS
Corporate and Other combined net income includes:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------ -------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Interest Income (Expense).................. $ 5 $ 28 $ 35 $ 10 $ 39
Exchange Gains (Losses)........................ (40) (7) 21 5 5
Other Corporate Expenses(1).................... (115) (128) (150) (63) (54)
----- ----- ----- ---- ----
Combined Net Income............................ $(150) $(107) $ (94) $(48) $(10)
===== ===== ===== ==== ====
</TABLE>
- ---------------
(1) Includes general corporate expenses, other non-operating items and results
for electric power and related-party insurance operations.
First Half 1998 versus First Half 1997
Corporate and Other results for the first half of 1998 were a loss of $10
million, an improvement of $38 million versus the comparable period in 1997,
primarily reflecting an improvement in Net Interest Income (Expense) due to
lower average related-party borrowings in the first half of 1998 versus 1997.
On July 20, 1998, a dividend of $7,500 million was declared and paid by the
Company in the form of a promissory note to shareholders of record as of July
20, 1998. The resulting increase in debt will substantially increase the amount
of interest expense incurred by the Company in the third and fourth quarters of
1998. See "Pro Forma Combined Financial Statements."
1997 versus 1996
Corporate and Other reported a loss of $94 million in 1997, an improvement
of $13 million from 1996 results. Net Interest Income (Expense) in 1997 was
improved by $7 million versus 1996, primarily due to increased after-tax
capitalized interest on major Upstream development projects. The Company
incurred an after-tax exchange gain of $21 million in 1997 compared with a loss
of $7 million in 1996, primarily reflecting the impact of Norwegian Kroner and
British Pound exchange rate movements on U.S. dollar-denominated working capital
balances. Other Corporate Expenses were $22 million higher in 1997 versus 1996
due to additional costs associated with the Company's emerging electric power
business and other miscellaneous items.
1996 versus 1995
Corporate and Other reported a loss of $107 million in 1996, an improvement
of $43 million over 1995. Net Interest Income (Expense) in 1996 improved $23
million versus 1995, primarily reflecting increased after-tax capitalized
interest on major Upstream development projects. The Company incurred an
after-tax exchange loss of $7 million in 1996, compared with a loss of $40
million in 1995, primarily attributable to the January 1, 1996 change in
reporting to reflect the local currency as the functional currency for the
Company's integrated Western European operations. (See Note 2 to the Combined
Financial Statements).
44
<PAGE> 46
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY OPERATIONS
Cash provided by operations in the first half of 1998 decreased $307
million to $548 million versus $855 million in the first half of 1997. Cash
provided by operations before changes in operating assets and liabilities
decreased $53 million compared to the first half of 1997, primarily due to lower
net realized crude oil and natural gas prices partially offset by higher natural
gas volumes and improved international Downstream margins. Negative changes to
net operating assets and liabilities of $254 million were due to higher tax
payments attributable to 1997 asset sales, a decrease in accounts payable
largely offset by a decrease in accounts receivable due to lower crude oil
prices and the timing of payments on other operating liabilities.
Cash provided by operations increased $480 million to $2,876 million during
1997, a 20 percent increase over $2,396 million in 1996, as cash provided by
operations before changes in operating assets and liabilities improved $34
million compared to 1996. Positive changes to net operating assets and
liabilities of $446 million were principally due to the $303 million received
from a contract for future sales of natural gas to Centrica, a United Kingdom
gas marketing company.
Cash provided by operations increased $472 million to $2,396 million during
1996, a 25 percent increase over $1,924 million in 1995. The improvement from
1995 reflects a $263 million increase in 1996 cash provided by operations before
changes in operating assets and liabilities, primarily due to higher crude oil
and natural gas prices, higher international crude oil and natural gas volumes
and higher refinery margins. Positive changes to net operating assets and
liabilities of $209 million were primarily due to timing of payments on
operating liabilities and tax payments.
CAPITAL EXPENDITURES AND INVESTMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------ -----------------
1995 1996 1997 1997 1998
------ ------ ------ ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Upstream.................................. $1,224 $1,264 $2,533 $1,611 $ 804
Downstream................................ 613 680 558 196 241
Corporate and Other....................... -- -- 23 8 5
------ ------ ------ ------ ------
$1,837 $1,944 $3,114 $1,815 $1,050
====== ====== ====== ====== ======
United States............................. $ 760 $ 618 $1,761 $1,187 $ 469
International............................. 1,077 1,326 1,353 628 581
------ ------ ------ ------ ------
$1,837 $1,944 $3,114 $1,815 $1,050
====== ====== ====== ====== ======
</TABLE>
The Company's capital expenditure program promotes the Company's
growth-oriented business strategy by continuing to invest in existing core areas
where efficiencies and profitability can be enhanced and by targeting funds into
new high potential areas where long-term growth opportunities can be realized.
Total capital investments, including investments in affiliates and
acquisitions, were $3.1 billion in 1997, a 60 percent increase over 1996. This
increase primarily reflects the $0.9 billion spent in connection with the Lobo
Acquisition. Capital investments in 1996 and 1995 were $1.9 and $1.8 billion,
respectively. The six percent increase in 1996 from 1995 is primarily
attributable to increased investment in Upstream operations in Europe and, in
particular, development of the Britannia gas field. Exploration capital
investments were approximately $0.2 billion each year in 1997, 1996 and 1995.
The Company expects to make capital investments of $2.5 billion during
1998, up approximately 14 percent versus 1997 capital investments excluding the
Lobo Acquisition. Approximately 60 percent of 1998 capital investments are
targeted outside the United States. Approximately 70 percent of 1998 capital
investments are allocated to Upstream, with a majority of this devoted to
development projects in South Texas, deepwater Gulf of Mexico, Venezuela, the
U.K. and Norway. Approximately $0.2 billion will also be devoted to exploratory
drilling. Downstream capital investments are targeted at completion of the
Melaka
45
<PAGE> 47
refinery, expansion of retail marketing operations, particularly in Europe, and
upgrades and maintenance of existing facilities. The Company has also earmarked
approximately $50 million for its emerging electric power business. The
Company's capital investment program may be adjusted as business conditions
warrant. See also "Business."
Upstream
Upstream capital investments totaled $2.5 billion in 1997, an increase of
100 percent over 1996, primarily reflecting the $0.9 billion Lobo Acquisition.
The Lobo Acquisition added significant reserves and 1,150 miles of natural gas
gathering and transportation pipeline, providing direct access to major Texas
intrastate and interstate pipelines. As a result, the Company is the largest
natural gas producer in the area, and one of the three largest natural gas
producers in Texas. Upstream capital investments were $1.3 billion and $1.2
billion in 1996 and 1995, respectively.
-- United States
During 1997, the Company spent $1.5 billion on capital projects in the
United States. Besides the $0.9 billion Lobo Acquisition and exploratory
drilling, expenditures focused on development of the partner-operated Ursa field
in deepwater Gulf of Mexico, construction of two deepwater drillships,
acquisition of additional reserves and exploratory acreage in the San Juan Basin
and expansion of onshore natural gas operations. The Ursa field development,
operated by Shell, represents the Company's most important current development
project in the Gulf of Mexico. The project involves installing a new generation
tension leg platform in approximately 3,800 feet of water. First production is
scheduled for 1999. The construction of the two deepwater drillships is pivotal
in achieving the Company's growth plans in the Gulf of Mexico. The Company has
increased its deepwater holdings in the Gulf of Mexico, and exploration within
these holdings will be carried out by the two highly sophisticated deepwater
drillships. The first of these two vessels is expected to be in service in late
1998.
In 1996, U.S. capital investments were $0.4 billion, with expenditures
focused on continuing operations and development. Capital investments were $0.5
billion in 1995 and included the acquisition of two South Texas gas fields from
Enron Oil & Gas Company. These two gas fields were located near existing Company
assets and offered considerable potential development.
-- International
International capital investments totaled nearly $1.0 billion in 1997, up
16 percent from 1996. The Company continued to develop the Britannia gas field
in the U.K. North Sea. The Britannia gas field is one of the largest natural gas
fields in the U.K. North Sea, and the Company's proved reserves in the field
include 1.1 trillion cubic feet of natural gas and 52 million barrels of
petroleum liquids at December 31, 1997. First production from Britannia occurred
in August 1998. Britannia development is an example of the Company's strategy to
increase production and reserves through large, long-lived projects. Other
significant capital investments were made for exploratory drilling and
development projects such as the Petrozuata joint venture in Venezuela, the
Ukpokiti field offshore Nigeria, the Visund field in the Norwegian North Sea, a
methanol plant in Norway and the Boulton gas field in the U.K. North Sea.
In 1996, international capital investments were $0.9 billion, up 14 percent
compared to $0.8 billion in 1995. The 1996 increase reflects expenditures to
develop the Britannia field and $67 million to fund the Company's share of
losses incurred by a European gas marketing joint venture. These increases were
partially offset by reduced capital expenditures due to the Heidrun field in
Norway coming on stream in late 1995.
Downstream
Downstream capital investments totaled $558 million in 1997, a decrease of
18 percent versus 1996, primarily reflecting completion of the acidic crude
vacuum unit at the Company's Humber refinery in the U.K. as well as the
acquisition of an equity interest in two refineries in the Czech Republic during
1996. Downstream capital investments were $680 and $613 million in 1996 and
1995, respectively. The 11 percent
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<PAGE> 48
increase in 1996 versus 1995 reflects increased expenditures for construction of
the Melaka refinery and acquisition of equity interests in two Czech refineries,
somewhat offset by decreased expenditures on the Lake Charles refinery's
hydrocracker expansion project, and construction of retail marketing outlets in
Thailand during 1995.
-- United States
During 1997, the Company spent $227 million on Downstream capital projects
in the United States, up four percent from 1996, with the majority of these
funds being used to support continuing operations and optimization of retail
marketing operations. The Company also invested funds for an equity interest in
Penreco, a joint venture with Pennzoil that will produce and market highly
refined specialty petroleum products.
Capital investments in 1996 totaled $218 million, down 26 percent from
1995. The most significant investments related to the completion of the 45,000
barrel per day expansion of the Lake Charles refinery's sour crude oil
processing capability to support the Excel Paralubes lube oil hydrocracker,
another joint venture with Pennzoil. The lube oil hydrocracker converts low
quality, high sulphur crude oil into base oil of extremely high purity and
enhances the value of the Company's finished lubricants business by producing
improved motor oils, transmission fluids and industrial lubes blended from
hydrocracked base oils.
Investments in 1995 totaled $293 million and included costs for the
construction of a plant to produce Conoco LiquidPower(R), the acquisition of 61
retail marketing outlets, and initial costs associated with the Lake Charles
refinery expansion. The manufacturing plant for LiquidPower allowed the Company
to meet growing demand for this product. LiquidPower is a flow improver, which
allows operators of crude oil and product pipelines to maintain throughput
levels with fewer electric pump stations, thereby significantly lowering
operating costs.
-- International
During 1997, the Company spent $331 million on Downstream international
capital investments, down 28 percent from 1996, due to expenditures in 1996
relating to costs for the acidic crude vacuum unit at the Company's Humber
refinery. The installation of the vacuum unit at the Humber refinery allowed the
refinery to process acidic crude oil, including equity crude oil from the
Heidrun field. The vacuum unit incorporated special metallurgy and the Company
believes that Humber is the only refinery in Europe capable of processing
unblended acidic crude. Expenditures in 1997 focused on strengthening the
Company's retail marketing position in core markets such as Germany, Austria and
the Nordic countries, expanding in targeted retail growth markets in Central and
Eastern Europe, Spain, Turkey and the Asia Pacific region, and continuing the
construction of the Melaka refinery, which is expected to begin operations in
the second half of 1998. The Company believes that the Melaka refinery, 40
percent owned by the Company, will provide a source of product to support the
Company's expanding marketing activities in the Asia Pacific region.
Capital investments in 1996 totaled $462 million, up 44 percent from 1995
and included costs for the acidic crude vacuum unit at the Company's Humber
refinery, construction expenditures related to the Melaka refinery, acquisition
of equity interests in two Czech refineries, and expansion of retail marketing
operations, particularly in Eastern Europe. The acquisition of the equity
interests in the two Czech refineries supported the expansion of the Company's
retail marketing operations in the emerging markets in Eastern Europe, including
the Czech Republic, Poland, Hungary and Slovakia.
In 1995, the Company made capital investments of $320 million including
investments in the Humber and Melaka refinery projects, an acquisition of a 28.9
percent equity interest in a Turkish distribution and marketing company, and the
opening of retail marketing outlets in Thailand. The acquisition of the equity
interest in the Turkish distribution and marketing company enabled the Company
to increase its market share in Turkey's motor fuels market, an emerging market.
47
<PAGE> 49
Corporate and Other
Capital investments in 1997 were $23 million, most of which represents the
Company's investment in electric power generation projects in international
equity affiliates. Because of deregulation within this industry, the Company
will continue to pursue projects which leverage the economic advantages of the
Company's energy production activities and the demand for energy in DuPont or
third party manufacturing operations.
There were no capital investments in Corporate and Other during 1996 and
1995.
FINANCING
The Company's ability to maintain and grow its operating income and cash
flow is dependent upon continued capital spending. The Company believes its
future cash flow from operations and its borrowing capacity should be sufficient
to fund its dividends, if any, debt service, capital expenditures, and working
capital requirements.
Cash flow in 1996 includes a $269 million benefit from the formation of a
partnership, Conoco Oil and Gas Associates, L.P. ("COGA"), in which the Company
has a general partnership interest of 67 percent. The remaining 33 percent is
owned by Vanguard Energy Investors L.P. ("Vanguard"), of which the Company owns
10 percent. In 1996, certain of the Company's subsidiaries contributed assets
with an aggregate fair value of $613 million to COGA for a general partnership
interest. Cash of $300 million was contributed by Vanguard as limited partner
and under the terms of the partnership agreement, COGA can require an additional
cash contribution of up to $200 million from Vanguard prior to December 31,
1998. The net result of this transaction was to increase minority interest by
$297 million.
Vanguard is entitled to a cumulative annual priority return on its
investment and participation in residual earnings at rates established in the
partnership agreement. The priority return rate, currently 6.5 percent, is
negotiated every four years commencing in 1999. If at that time Vanguard and the
Company are unable to agree on a priority return for the subsequent four-year
period, then the partnership would be dissolved, with COGA being required to
liquidate the partnership and distribute cash and properties to the partners
based on their individual interests. The estimated impact of such an event is a
cash outflow not materially different from the recorded amount of minority
interest. See Note 18 to the Combined Financial Statements.
Prior to the Separation, the businesses transferred to the Company were
funded through DuPont. Apart from limited recourse project financings related to
various joint ventures, equipment lease facilities and financing of certain
refinery equipment and other smaller financings, the Company has had limited
indebtedness to third parties. After the Offerings, the Company's operations
will be funded through related party debt with DuPont. The Company plans to
enter into a $500 million Revolving Credit Facility with DuPont to fund routine
working capital requirements. The Company intends to refinance related party
debt with a combination of commercial paper, bank debt and public debt. See
"Arrangements Between the Company and DuPont."
MARKET RISKS
The Company operates in the worldwide crude oil, refined product, natural
gas and natural gas liquids markets and is exposed to fluctuations in interest
rates, foreign currency exchange rates and hydrocarbon prices that can affect
the revenues and cost of operating, investing and financing. The Company's
management has and intends to use financial and commodity based derivative
contracts to reduce the risk in the Company's overall earnings and cash flow
when the benefits of avoiding disruption of the Company's value creation process
(primarily long-term exploration and capital investment programs) are
anticipated to more than offset the risk management costs involved.
The Company has established a Financial Risk Management Policy Framework
that provides guidelines for entering into contractual arrangements
(derivatives) to manage the Company's commodity price, foreign currency exchange
rate, and interest rate risks. The Conoco Risk Management Committee has ongoing
responsibility for the content of this policy and has principal oversight
responsibility for compliance with the
48
<PAGE> 50
policy framework by ensuring proper procedures and controls are in place. These
procedures establish derivative control and valuation processes, routine
monitoring and reporting requirements and counterparty credit approval
procedures. Additionally, the Company's internal audit group conducts routine
reviews of these risk management activities to assess the adequacy of internal
controls and the audit results are reviewed by the Conoco Risk Management
Committee and by operating management.
The counterparties to these contractual arrangements are limited to major
financial institutions and other major companies in the petroleum business.
Although the Company is exposed to credit loss in the event of nonperformance by
these counterparties, this exposure is managed through credit approvals, limits
and monitoring procedures, and limits to the period over which unpaid balances
are allowed to accumulate. The Company has not experienced nonperformance by
counterparties to these contracts and no material loss would be expected from
any such individual nonperformance.
COMMODITY PRICE RISK
The Company enters into energy-related futures, forwards, swaps and options
in various markets to balance its physical systems to meet customer needs and to
manage its exposure to price fluctuations on anticipated crude oil, natural gas,
refined product and electric power transactions. These instruments provide a
natural extension of the underlying cash market and are used to physically
acquire a portion of supply requirements and to manage pricing of near term
physical requirements. The commodity futures market has underlying principles of
increased liquidity and longer trading periods than the cash market and is one
method of managing price risk in the petroleum business.
From time to time, management may use derivatives to establish longer-term
positions to hedge the price risk for the Company's equity crude oil and natural
gas production as well as refinery margins.
Under the Company's policy, hedging includes only those transactions that
offset physical positions and reduce overall company exposure to prevailing
market price risk. Trading is defined as any transaction that does not meet the
definition of a hedge. After-tax gain/loss from risk trading has not been
material.
The fair value gain (loss) of outstanding derivative commodity instruments
and the change in fair value that would be expected from a 10 percent adverse
price change are shown in the table below:
<TABLE>
<CAPTION>
CHANGE
IN FAIR
VALUE FROM
10%
ADVERSE
PRICE
AT DECEMBER 31, 1997 FAIR VALUE CHANGE
-------------------- ---------- ----------
($ IN MILLIONS)
<S> <C> <C>
Crude Oil and Refined Products
Hedging................................................... (3) (8)
Trading................................................... (6) (18)
Combined.................................................. (9) (26)
Natural Gas -- Hedging...................................... 8 (9)
Electric Power Trading...................................... -- --
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
CHANGE
IN FAIR
VALUE FROM
10%
ADVERSE
PRICE
AT JUNE 30, 1998 FAIR VALUE CHANGE
---------------- ---------- ----------
($ IN MILLIONS)
<S> <C> <C>
Crude Oil and Refined Products
Hedging................................................... (7) (3)
Trading................................................... (11) (5)
Combined.................................................. (18) (8)
Natural Gas -- Hedging...................................... 10 (13)
Electric Power Trading...................................... -- --
</TABLE>
The fair values of the futures contracts are based on quoted market prices
obtained from the New York Mercantile Exchange or the International Petroleum
Exchange of London. The fair values of swaps and other over-the-counter
instruments are estimated based on quoted market prices of comparable contracts
and approximate the gain or loss that would have been realized if the contracts
had been closed out at year end.
All hedge positions offset physical positions exposed to the cash market;
none of these offsetting physical positions are included in the above table.
Price-risk sensitivities were calculated by assuming an across-the-board 10
percent adverse change in prices regardless of term or historical relationships
between the contractual price of the instrument and the underlying commodity
price. In the event of an actual 10 percent change in prompt month crude or
natural gas prices, the fair value of the Company's derivative portfolio would
typically change less than that shown in the table due to lower volatility in
out-month prices.
Additional details regarding accounting policy for these financial
instruments are set forth in Note 2 to the Combined Financial Statements.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company's operations in 40 countries expose it to foreign currency
exchange rate risk. The Company does not intend to comprehensively hedge its
exposure to currency rate changes, although it may choose to selectively hedge
certain working capital balances, firm commitments, cash returns from
subsidiaries and affiliates and certain tax payments. There can be no assurance
these efforts will be successful. Historically, the Company has selectively
hedged firm commitments. At July 31, 1998, the Company had no open foreign
currency hedged positions. Cash balances are maintained in U.S. dollars and
foreign currency denominations principally including U.K. Pounds, Deutsch Marks,
Norwegian Kroner and Swedish Kroner. The effect of foreign currency exchange
rate changes on cash increased cash balances $33 million in 1995, and decreased
cash balances $2 million in 1996 and $39 million in 1997. The Company has
experienced negative foreign currency impacts from currency revaluations in
Southeast Asia, but these losses have not been material.
INTEREST RATE RISK
Due to limited third party borrowings, the Company had no material interest
rate risk associated with the debt used to finance its operations. Certain major
capital investments were financed using project finance. The Company managed the
interest rate risk of these transactions, when appropriate, with a combination
of financial derivative instruments to balance the fixed and floating interest
rates. Subsequent to the Offerings, the Company intends to manage its interest
rate exposure using a combination of financial derivative instruments as part of
its program to manage the fixed and floating interest rate mix of the total
debt.
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<PAGE> 52
ENVIRONMENTAL EXPENDITURES
The costs to comply with complex environmental laws and regulations, as
well as internal voluntary programs, are significant and will continue to be so
in the foreseeable future. For example, the Company anticipates substantial
expenditures will be necessary to comply with Maximum Achievable Control
Technology ("MACT") standards to be promulgated by EPA under the Clean Air Act,
and specifications for motor fuels designed to reduce emissions of certain
pollutants from vehicles using such fuels. See "Business -- Environmental
Regulation -- Air Emissions." These costs may increase in the future, but are
not expected to have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
Estimated pre-tax environmental expenses charged to current operations
totaled about $136 million, before insurance recoveries, in 1997 as compared to
approximately $162 million in 1996 and $129 million in 1995. These expenses
include the remediation accruals discussed below, operating maintenance and
depreciation costs for solid waste, air and water pollution control facilities
and the costs of certain other environmental activities. The largest of these
expenses resulted from the operation of wastewater treatment facilities and
solid waste management facilities and facilities for the control and abatement
of air emissions. Approximately 70 percent of total annual environmental
expenses resulted from the operations of the Company's business in the United
States.
Capital expenditures for environmental control facilities totaled
approximately $50 million in 1997, as compared to approximately $78 million in
1996 and $68 million in 1995. The Company estimates that capital expenditures
for pollution control facilities will total approximately $51 million in 1998,
and approximately $52 million in 1999.
REMEDIATION EXPENDITURES
The Resource Conservation and Recovery Act ("RCRA") extensively regulates
the treatment, storage and disposal of hazardous waste and requires a permit to
conduct such activities. RCRA requires permitted facilities to undertake an
assessment of environmental conditions at the facility. If conditions warrant,
the Company may be required to remediate contamination caused by prior
operations. In contrast to the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended ("CERCLA"), often referred to as
"Superfund," the cost of corrective action activities under the RCRA corrective
action program are typically borne solely by the Company. The Company
anticipates significant ongoing expenditures for RCRA remediation activities may
be required over the next decade although annual expenditures for the near term
are not expected to vary significantly from the range of such expenditures over
the past few years. The Company's expenditures associated with RCRA and similar
remediation activities conducted voluntarily or pursuant to state law were
approximately $31 million in 1997, $34 million in 1996 and $32 million in 1995.
In the long term, expenditures are subject to considerable uncertainty and may
fluctuate significantly.
The Company from time to time receives requests for information or notices
of potential liability from EPA and state environmental agencies alleging that
the Company is a potentially responsible party ("PRP") under CERCLA or an
equivalent state statute. The Company on occasion also has been made a party to
cost recovery litigation by those agencies or by private parties. These
requests, notices and lawsuits assert potential liability for remediation costs
at various sites that typically are not Company owned but allegedly contain
wastes attributable to the Company's past operations. As of December 31, 1997,
the Company had been notified of potential liability under CERCLA or state law
at about 15 sites around the United States, with active remediation under way at
seven of those sites. The Company received notice of potential liability at four
new sites during 1997 compared with one similar notice in 1996 and one in 1995.
The Company's expenditures associated with CERCLA and similar state remediation
activities were not significant in 1997, 1996 and 1995.
For most Superfund sites, the Company's potential liability will be
significantly less than the total site remediation costs because the percentage
of waste attributable to the Company versus that attributable to all other PRPs
is relatively low. Other PRPs at sites where the Company is a party typically
have had the financial strength to meet their obligations and, where they have
not, or where PRPs could not be located, the Company's own share of liability
has not materially increased. There are relatively few sites where the
51
<PAGE> 53
Company is a major participant, and neither the cost to the Company of
remediation at those sites, nor at all CERCLA sites in the aggregate, is
expected to have a material adverse effect on the competitive or financial
condition of the Company.
Cash expenditures not charged against income for previously accrued
remediation activities under CERCLA, RCRA and similar state and foreign laws
were $19 million in 1997, $19 million in 1996 and $16 million in 1995. Although
future remediation expenditures in excess of current reserves are possible, the
effect of any such excess on future financial results is not subject to
reasonable estimation because of the considerable uncertainty regarding the cost
and timing of expenditures. See "Business -- Environmental Regulation" and "Risk
Factors -- Environmental Risks."
REMEDIATION ACCRUALS
The Company accrues for remediation activities when it is probable a
liability has been incurred and reasonable estimates of the liability can be
made. These accrued liabilities exclude claims against the Company's insurers or
other third parties and are not discounted. Many of these liabilities result
from CERCLA, RCRA and similar state laws that require the Company to undertake
certain investigative and remedial activities at sites where the Company
conducts or once conducted operations or at sites where Company-generated waste
was disposed. The accrual also includes a number of sites identified by the
Company that may require environmental remediation, but which are not currently
the subject of CERCLA, RCRA or state enforcement activities. Over the next
decade, the Company may incur significant costs under both CERCLA and RCRA.
Considerable uncertainty exists with respect to these costs and under adverse
changes in circumstances, potential liability may exceed amounts accrued as of
December 31, 1997.
Remediation activities vary substantially in duration and cost from site to
site depending on the mix of unique site characteristics, evolving remediation
technologies, diverse regulatory agencies and enforcement policies and the
presence or absence of potentially liable third parties. Therefore, it is
difficult to develop reasonable estimates of future site remediation costs. At
December 31, 1997, the Company's balance sheet included an accrued liability of
$144 million as compared to $152 million and $137 million at year-end 1996 and
1995, respectively. Approximately 84 percent of the Company's environmental
reserve at December 31, 1997 was attributable to RCRA and similar remediation
liabilities (excluding voluntary remediations) and 16 percent to CERCLA
liabilities. During 1997, remediation accruals of $13 million, offset by $54
million in insurance proceeds, resulted in a credit to income of $41 million,
compared to credits of $70 million and $13 million in 1996 and 1995,
respectively, also resulting from insurance recoveries. No significant
additional recoveries are expected.
TAX MATTERS
As a result of the Separation and the Offerings, and possible subsequent
transactions, the Company may not be able to combine the results of its
operations with those of DuPont in reporting income for U.S. federal, state, and
non-U.S. income tax purposes. The Company believes this will not have a material
adverse effect on the Company's earnings. At the time the Company is no longer
included in DuPont's consolidated U.S. federal income tax return, it may become
exposed to having its U.S. tax liability computed under the U.S. federal
alternative minimum tax. Such a computation could have a material adverse effect
on the year-to-year timing of the Company's cash flow.
As of December 31, 1997, the Company had deferred tax assets in the amount
of $1,065 million. Of this amount, $417 million related to tax benefits from
operating losses incurred in start-up operations, including exploration and U.S.
foreign tax credit carryforwards. These benefits were substantially offset by a
valuation reserve. The Company believes it is more likely than not the balance
of the deferred tax assets will be realized in future years.
52
<PAGE> 54
YEAR 2000
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing a
date using "00" as the year 1900 rather than the year 2000. This could result in
major failures or miscalculations, and is generally referred to as the "Year
2000 issue."
The Company recognizes that the impact of the Year 2000 issue extends
beyond traditional computer hardware and software to automated plant systems and
instrumentation, as well as to third parties. The Year 2000 issue is being
addressed within the Company by its individual business units, and progress is
reported periodically to management.
The Company has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications as well as traditional computer software
and hardware in the mainframe, midrange and desktop environments. Plant systems
include all automation and embedded chips used in plant operations. External
parties include any third party with whom the Company does business.
In the information technology area, inventory and assessment audits in the
mainframe and midrange environments are expected to be completed by the third
quarter of 1998 with corrective action scheduled for completion by the fourth
quarter of 1998, except for business application software which is expected to
be completed by the fourth quarter of 1999. Inventory and assessment audits of
telecommunications are expected to be completed by the third quarter of 1998,
with corrective action expected to be completed by the second quarter of 1999.
Finally, inventory and assessment audits in the desktop environment are expected
to be completed by third quarter of 1998, with corrective action expected to be
completed by third quarter of 1999.
In the plant systems area, 75 percent of the Company's business units have
completed their inventory and assessment audits; the remaining units are
expected to complete this work by fourth quarter 1998. The Company is relying on
vendor testing and certification with validation through limited internal
testing and/or industry test results. Downtime for normally scheduled plant
maintenance will be used to conduct testing, with corrective action expected to
be completed by second quarter of 1999.
With respect to external parties, 65 percent of the Company's business
units have completed their inventory audit of critical external parties. The
remaining business units are expected to completed this work by the fourth
quarter of 1998. Risk assessment is expected to be complete by the fourth
quarter of 1998, and monitoring of risk in this area will continue into 1999, as
many external parties will not have completed their work.
The total cost of Year 2000 activities is not expected to be material to
the Company's operations, liquidity or capital resources. Costs are being
managed within each business unit. The total estimated cost for the Company's
Year 2000 work is $47 million. 1997 costs were $5 million, and 1998 costs
through June 1998 were $9 million. Costs exclude expenditures for replacement
systems, which were previously scheduled.
Failure to address a Year 2000 issue could result in business disruption
that could materially affect the Company's operations, liquidity or capital
resources. The Company has developed contingency plans to address other issues
such as oil tanker spills and plant explosions. Typically these contingency
plans address the results of single events while the scope of Year 2000 issues
may cause multiple concurrent events for a longer duration. Development of
contingency plans is expected to be completed by the first quarter of 1999.
There is still uncertainty around the scope of the Year 2000 issue. At this
time the Company cannot quantify the potential impact of these failures. The
Company's Year 2000 program and contingency plans are being developed to address
issues within the Company's control. The program minimizes, but does not
eliminate, the issues of external parties.
EUROPEAN MONETARY UNION
Within Europe, the European Monetary Union (the "EMU") will introduce a new
currency, the Euro, on January 1, 1999. The new currency is in response to the
EMU's policy of economic convergence to
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harmonize trade policy, eliminate business costs associated with currency
exchange and to promote the free flow of capital, goods and services.
On January 1, 1999, the participating countries are scheduled to adopt the
Euro as their local currency, initially available for currency trading on
currency exchanges and noncash (banking) transactions. The existing local
currencies, or legacy currencies, will remain legal tender through January 1,
2002. Beginning on January 1, 2002, Euro-denominated bills and coins will be
issued for cash transactions. On or before July 1, 2002, the participating
countries will withdraw all legacy currency and use exclusively the Euro.
The Company has recognized the introduction of the Euro as a significant
event with potential implications for existing operations. Currently,
participating countries in the EMU where the Company operates include Austria,
Belgium, Finland, Germany and Spain. The Company expects nonparticipating
European Union countries, such as Great Britain, to eventually join the EMU.
The Company has committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure the Company is prepared for the
introduction of the Euro. The Company has undertaken a review of the Euro
implementation and has concentrated on areas such as operations, finance,
treasury, legal, information management, procurement and others, both in
participating and nonparticipating European Union countries where the Company
operates. Also, a review of existing legacy accounting and business systems and
other business assets have been reviewed for Euro compliance, including
assessing any risks from third parties. Progress regarding Euro implementation
is reported periodically to management.
Because of the staggered introduction of the Euro regarding noncash and
cash transactions, the Company has developed its plans to address first its
accounting and business systems and second, its business assets. The Company
expects to be Euro compliant within its accounting and business systems by the
end of 1999 and compliant within its other business assets prior to the
introduction of the Euro bills and coins. Compliance in participating and
nonparticipating countries will be achieved primarily through upgraded systems,
which were previously planned to be upgraded. Remaining systems will be modified
to achieve compliance. The Company does not currently expect to experience any
significant operational disruptions or to incur any significant costs, including
any currency risk, which could materially affect the Company's liquidity or
capital resources. The Company is preparing plans to address issues within the
transitional period when both legacy and Euro currencies may be tendered.
Because of the competitive business environment within the petroleum
industry, the Company does not anticipate any long-term competitive implications
or the need to materially change its mode of conducting business as a result of
increased price transparency.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both Statements are
effective for fiscal years beginning after December 15, 1997, and are
disclosure-oriented statements. The Company adopted Statement No. 130 in the
first quarter of 1998 and the accompanying financial statements reflect
application of the provisions of this statement.
The Company is required to adopt Statement No. 131 for its 1998 annual
report and disclose segment information on the same basis used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company is currently assessing the effect of the new disclosure;
however, the Company believes adoption of Statement No. 131 will have no
financial impact on the Company.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosure About Pension and Other Postretirement Benefits"
which revised disclosure requirements for pension and other postretirement
benefits. It does not affect the measurement of the expense of the Company's
pension and other postretirement benefits. The Company is required to adopt this
Statement for the 1998 Annual Report and is currently assessing the effect of
the new disclosures.
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In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company is required to adopt this Statement by the first quarter of 2000 and
is currently assessing the effect of the new standard.
Statement No. 133 provides, if certain conditions are met, that a
derivative may be specifically designated as (1) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment (fair value hedge), (2) a hedge of the exposure to variable cash
flows of a forecasted transaction (cash flow hedge) or (3) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
Under Statement No. 133, the accounting for changes in fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change.
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BUSINESS
GENERAL
Conoco, a major, integrated, international energy company, is involved in
both the Upstream and Downstream segments of the petroleum business. Upstream
activities include exploring for, and developing, producing and selling, crude
oil, natural gas and natural gas liquids. Downstream activities include refining
crude oil and other feedstocks into petroleum products, buying and selling crude
oil and refined products and transporting, distributing and marketing petroleum
products. The Company operates in 40 countries worldwide.
As of December 31, 1997, Conoco had proved worldwide reserves of 2.6
billion BOE, 38 percent of which were natural gas. Based on 1997 annual
production of 209 million BOE (excluding natural gas liquids from gas plant
ownership), the Company had a reserve life of 12.4 years as of December 31,
1997. Over the last five years, Conoco has replaced an average of 190 percent of
the oil and gas it has produced each year. Conoco owns or has equity interests
in nine refineries worldwide, with a total crude and condensate processing
capacity of approximately 799,000 barrels per day (including the new Melaka
refinery in Malaysia, which Conoco expects will be completed in the fourth
quarter of 1998). The Company has a marketing network of approximately 7,900
outlets in the United States, Europe and Asia. Based on public filings, for the
year ended December 31, 1997, Conoco ranked eighth in the worldwide production
of petroleum liquids by U.S.-based companies, eleventh in the production of
natural gas, and eighth in refining throughput. For that same period, Conoco
reported net income of $1,097 million on total revenues of $26.3 billion,
representing a 27 percent improvement in net income over the prior year.
COMPANY HISTORY
The Company was founded in 1875 in Ogden, Utah, as the Continental Oil and
Transportation Company. In 1885, it was reincorporated with a new name,
Continental Oil Company, as part of the nationwide Standard Oil Trust. In its
early years, its principal operations were marketing oil and petroleum related
products, primarily in the Rocky Mountain area and in California. In 1913, two
years after the U.S. Supreme Court dissolved the Standard Oil Trust, the Company
was again independently incorporated. From 1913 to 1929, the Company evolved
into a fully integrated oil company, with operations in most states west of the
Mississippi River.
By 1929, Conoco had approximately 1,800 producing wells and had become one
of the largest retailers of gasoline in the Rocky Mountain area. In that year it
merged with the Marland Oil Company, an oil and gas company with wells and
marketing operations from Oklahoma to Maryland. After World War II, the Company
was an early participant in Gulf of Mexico exploration and production activities
and moved aggressively overseas with Upstream assets in many parts of the world
and Downstream assets in Western Europe. In 1981, Conoco was acquired by DuPont.
UPSTREAM
SUMMARY
Conoco is currently exploring for, developing or producing crude oil,
natural gas and/or natural gas liquids in 18 countries around the world. In
1997, production averaged 654,000 BOE per day, consisting of 453,000 barrels of
petroleum liquids (including natural gas liquids from gas plant ownership) and
1.2 billion cubic feet of natural gas per day. The bulk of this production came
from fields located in the United States, the United Kingdom and Norway, with
the remaining production coming from operations in Canada, the United Arab
Emirates, Indonesia, Nigeria and Russia.
In 1997, Conoco replaced nearly 450 percent of the oil and natural gas it
produced, adding 938 million BOE to the Company's worldwide proved reserves,
while producing 209 million BOE (excluding natural gas liquids from gas plant
ownership), for a net addition of 729 million BOE. A large part of the reserve
increase reflected the recording of 680 million barrels of proved oil reserves
for the Company's interest in Petrozuata.
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Excluding the recording of the Petrozuata reserves, Conoco replaced
approximately 123 percent of its 1997 production. On December 31, 1997, the
Company had proved reserves of 2.6 billion BOE, consisting of 1,624 million
barrels of petroleum liquids and 5,861 billion cubic feet of natural gas,
representing an increase of 58 percent on a BOE basis since December 31, 1993.
In recent years, Conoco has significantly increased capital expenditures
through participation in several large scale development projects. Conoco's
capital investment in Upstream activities in 1997 was $2.5 billion, including
approximately $0.9 billion for the Lobo Acquisition and $171 million for the
continued development of Britannia. The Company expects to make Upstream capital
investments in 1998 of approximately $1.8 billion, the largest of which will be
made in continued development of the Lobo trend, Britannia, Ursa and Petrozuata.
The Company believes that all of these projects will contribute to Conoco's 1999
production and significantly increase Conoco's production rates over current
levels in future years.
The majority of Conoco's exploration and production assets are located in
North America (United States and Canada) and Western Europe (United Kingdom and
Norway). The producing properties in these areas generate cash to fund growth
opportunities around the world. Outside of North America and Western Europe,
Conoco's investment activities are focused on areas that have the potential to
become major business areas in the future, such as Northern South America and
the Caribbean, and the Asia Pacific, Middle East and Russia/Caspian Sea regions.
Conoco is exploring for oil and/or natural gas in 16 countries. Since 1996,
Conoco has pursued and continues to implement an exploration strategy focused on
acquiring large acreage positions in areas that are relatively under-explored.
The purpose of these acreage acquisitions has been to establish Conoco at an
early stage in areas that have the potential for large discoveries. Since 1996,
Conoco has acquired significant acreage positions in the deepwater Gulf of
Mexico, the Atlantic Margin of Northwest Europe, Northern South America and the
Caribbean, and selected basins in the Asia Pacific region. Conoco has applied 3D
seismic and other technologies to evaluate this acreage, and has recently begun
drilling programs to test the potential of this acreage.
NORTH AMERICA
Production operations in North America are principally located in the Lobo
trend in South Texas, the Gulf of Mexico, the San Juan Basin in New Mexico, the
Permian Basin in West Texas, the foothills east of the Canadian Rockies and the
Central Appalachian Basin in Virginia. In 1997, North American operations
contributed approximately 24 percent of the Company's worldwide petroleum
liquids production and 64 percent of its worldwide natural gas production.
Proved North American reserves as of December 31, 1997, were 753 million BOE,
consisting of 286 million barrels of petroleum liquids and 2,801 billion cubic
feet of natural gas.
In recent years, Conoco has consolidated its exploration and production
operations in North America in order to increase profitability. Conoco sold
hundreds of smaller, less efficient properties, while acquiring an increased
interest in the Company's largest producing areas such as the San Juan Basin and
the Lobo trend. As a result, Conoco has reduced the number of fields in its
portfolio from approximately 700 in 1990 to 136 as of June 30, 1998, while
maintaining production essentially constant on a BOE basis. The Company has also
focused its exploration activities by reducing the number of exploration plays
being pursued in North America from over 30 in 1995 to less than 10 as of June
30, 1998. Exploration activity in North America is concentrated in the deepwater
Gulf of Mexico, the Permian Basin in West Texas, the San Juan Basin in New
Mexico and the foothills of the Canadian Rockies.
Over the near term, the Company's objectives are to maintain existing
production from current North American assets, while increasing production from
new wells in the Lobo trend and the deepwater Gulf of Mexico, widening its
exploration activities in the foothills of the Canadian Rockies and focusing on
its natural gas processing capabilities.
Lobo Trend in South Texas
Conoco is the largest natural gas producer in the Lobo trend, and a leading
producer, marketer and transporter of natural gas in South Texas. Conoco has 20
years of operating and drilling experience in the
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Lobo trend and currently holds approximately 450,000 acres in the area under oil
and gas leases. In 1997, in accordance with its strategy to rapidly increase
production through participation in large development projects, the Company
substantially increased its holdings in South Texas as the result of the Lobo
Acquisition. Assets acquired by Conoco in this transaction included
approximately 215,000 acres of leases, 800 wells and 1,150 miles of natural gas
gathering and transportation pipeline, providing direct access to major Texas
intrastate and interstate pipeline systems. As a result of the Lobo Acquisition,
Conoco is currently the third largest natural gas producer in Texas.
Conoco's average working interest in its leases in the Lobo trend is 92
percent. A large number of the producing wells acquired in the Lobo Acquisition
were acquired subject to volumetric production payments. The holders of these
production payments are entitled to a specific volume of production from these
wells (averaging approximately 91 million cubic feet per day in 1998) until the
last of the production payments terminate in 2002.
With most of the Company's expanded Lobo holdings still undeveloped, the
Company has significantly increased drilling activity and, as of June 30, 1998,
had 14 rigs working continuously in the region. This development activity has
resulted in an increase in gross natural gas production in the region from
approximately 450 million cubic feet per day as of June 30, 1997 to
approximately 700 million cubic feet per day as of June 30, 1998. The Company
anticipates spending $1 billion between 1997 and 2002 to further develop its
leases in the Lobo trend. The Company's 1998 Lobo trend development program
includes the acquisition of new 3D seismic data and the drilling of over 200
wells.
Lobo Pipeline Company, a wholly owned subsidiary of the Company, owns a
1,150 mile intrastate natural gas pipeline system in South Texas (the "Lobo
Pipeline") and expects to implement an expansion plan designed to provide
transportation for the Company's gas production and that of third party
producers, laying 100 miles of pipeline per year for the next five years. During
the first two years, most of the pipeline added will be high-pressure trunklines
to support regional development.
Gulf of Mexico
Conoco's current portfolio of producing properties in the Gulf of Mexico
includes approximately 10 fields operated by the Company and 16 operated by
other companies. The properties are in various stages of development, ranging
from properties that are fully developed to ones with considerable additional
development potential. The Company also holds interests in various offshore
platforms, pipelines and other infrastructure.
Conoco currently has 11 leases in production or under development in the
deepwater Gulf of Mexico. The Company's most important current development
project in the Gulf of Mexico is the Ursa field development. Ursa, operated by
Shell, is one of the largest discoveries to date in the deepwater Gulf of
Mexico. The Company holds a 16 percent interest in the field, along with Shell
(45 percent), British Petroleum (23 percent) and Exxon (16 percent). The Company
expects the Ursa tension leg platform to be installed by early 1999 in
approximately 3,800 feet of water, with first production scheduled for mid-1999.
The Company projects that peak gross production from the Ursa field will reach
150,000 barrels of petroleum liquids and 400 million cubic feet of gas per day.
Conoco's most important exploration program in North America is in the
deepwater Gulf of Mexico. Conoco is the seventh largest deepwater leaseholder in
the Gulf, with interests in 271 leases. Conoco has a 100 percent interest in 130
of these leases, and jointly owns 76 of the remaining leases on a 50-50 basis
with Shell. Since 1996, Conoco has acquired 3D seismic data over large portions
of the deepwater Gulf of Mexico to identify acreage to lease and to select
prospects for drilling. Seismic interpretation is now underway on many leases
and preparations for a multi-well drilling program are being made.
Conoco will carry out its deepwater Gulf of Mexico drilling program in
large part with one of two highly sophisticated deepwater drillships that are
being constructed for joint ventures between Conoco and R&B Falcon Corporation.
The Company expects the first of these vessels to be in service in late 1998,
when the Company expects to begin a five-year, $400 million drilling program in
the Gulf of Mexico. These drillships,
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which will be capable of drilling wells in water depths of up to 10,000 feet,
provide Conoco with the ability to explore in areas that were previously
inaccessible.
Other U.S. Producing Properties
Outside of South Texas and the Gulf of Mexico, Conoco's largest producing
properties in North America are located in the San Juan Basin of New Mexico, the
Permian Basin in West Texas and the Central Appalachian Basin in Virginia.
Conoco also has producing properties in the Williston Basin and the Hugoton
complex in the Oklahoma/Texas panhandle.
Conoco has a significant acreage position in the San Juan Basin. Conoco's
average daily net production from the San Juan Basin in 1997 was approximately
13,600 barrels of petroleum liquids and 227 million cubic feet of natural gas.
Conoco will continue to consider potential acquisitions in this basin to take
advantage of synergies resulting from its large asset base and gas plant in the
area.
Conoco has an interest in 29 fields in the Permian Basin, which is one of
the largest producing areas in North America. In the Permian Basin, the
Company's average daily net production in 1997 was approximately 25,800 barrels
of petroleum liquids and approximately 43 million cubic feet of gas. The Company
believes the use of 3D seismic technology, horizontal wells and other innovative
extraction technologies will allow Conoco to extend the productive life of many
of the mature fields in the Permian Basin.
Pocahontas Gas Partnership ("Pocahontas") is a 50/50 partnership between
the Company and DuPont's 50 percent-owned equity affiliate, Consolidation Coal
Company. Pocahontas produces and gathers coal bed methane ("CBM") prior to and
during coal mining operations in Virginia. The Company expects Pocahontas to
produce and gather approximately 38 million cubic feet per day of CBM from the
existing active mining area in 1998. The Company recently approved a major
expansion of the Pocahontas project to develop CBM outside of the existing
mining area. In the project, Pocahontas plans to drill approximately 800 wells
over 70,000 acres.
Canadian Foothills
Conoco has had significant exploration success in the 1990s in the
foothills east of the Canadian Rockies. In this area, Conoco has an interest in
202,000 net acres, much of which has yet to be developed. As part of the
Canadian foothills development, Conoco participated in the construction of a gas
processing plant in 1997. In addition to the discoveries in the foothills trend,
Conoco has a significant interest in the Peco Gas Field, located just east of
the foothills. Conoco also owns 100 percent of the Peco gas processing plant,
which processes gas from both the Peco Field and the Lovett River Field, another
one of Conoco's discoveries in the area.
NATURAL GAS AND GAS PRODUCTS
The Company ranked as the fourth largest producer of NGLs in the United
States in 1997. In the United States, the Company owns interests in 25 natural
gas processing plants located in Colorado, Louisiana, New Mexico, Oklahoma and
Texas as well as approximately 10,000 miles of gathering lines. Seventeen of the
plants are operated by the Company.
The Company gathers natural gas, extracts the liquids and sells the
remaining residual gas. Most of the Company's raw gas liquids are supplied to
its processing operations, which further separate them into NGL products that
are used as feedstocks for gasoline and chemicals production. The Company
provides service to more than 800 natural gas producers and sells approximately
500 million cubic feet per day of residue gas to approximately 120 customers.
The Company's share of total NGLs resulting from processing activities at
the 25 plants in which the Company owns an interest averaged 65,900 barrels per
day in 1997. In 1997, approximately 30,000 barrels per day of additional NGLs
were attributable to processing of the Company's natural gas liquids in
third-party-operated plants. In addition, the Company's 50 percent-owned equity
affiliate, C&L Processors Partnership,
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has five natural gas processing plants in Oklahoma and Texas. The Company's pro
rata share of C&L's NGL production was approximately 7,500 barrels per day in
1997.
The Company's other natural gas and gas products facilities in the United
States include the Lobo Pipeline, an 800-mile intrastate natural gas pipeline
system in Louisiana, natural gas and NGL pipelines in several other states,
three underground NGL storage facilities, a natural gas liquids fractionating
plant in Gallup, New Mexico with capacity of 19,000 barrels per day, and a 22.5
percent equity interest in Gulf Coast Fractionators, which owns a natural gas
liquids fractionating plant in Mt. Belvieu, Texas with capacity of 104,000
barrels per day.
WESTERN EUROPE
Conoco has a significant portfolio of producing properties in the United
Kingdom and Norway. Proved Western Europe reserves, as of December 31, 1997,
were 931 million BOE, consisting of 421 million barrels of petroleum liquids and
3,060 billion cubic feet of natural gas. In 1997, operations in Western Europe
contributed 46 percent of the Company's worldwide petroleum liquids production
and 36 percent of its natural gas production.
Britannia Field
Conoco has a 42 percent interest in the Britannia field, which is one of
the largest natural gas fields in the United Kingdom sector of the North Sea.
Britannia is a centerpiece of the Company's strategy to increase production and
reserves through large, long-lived projects. First production from Britannia
occurred in August 1998 and the Company estimates that the field will have a
production life of approximately 30 years. The Company's proved reserves at
Britannia include 1.1 trillion cubic feet of natural gas and 52 million barrels
of petroleum liquids at December 31, 1997. The Company believes Britannia has
the potential to produce between 650 and 740 million cubic feet of gas per day
(gross). Conoco and Chevron, the two largest interest holders in the field,
jointly operate Britannia.
Southern North Sea Producing Properties
Conoco has various equity interests in 12 producing gas fields in the
Southern North Sea, a major gas producing area on the United Kingdom continental
shelf. These fields mostly feed into the Conoco-operated Theddlethorpe gas
processing facility through three Conoco-operated pipeline systems (Viking,
LOGGS and CMS). In 1997, Conoco's net production from the Southern North Sea was
108 billion cubic feet of natural gas.
Conoco believes there are additional development opportunities in the
Southern North Sea. One example is the Viking Phoenix project in which Conoco is
targeting the development of additional reserves using existing infrastructure
and new drilling and completion technology. The Company expects first production
from this development, for which Conoco's proved reserves were 174 billion cubic
feet of gas as of December 31, 1997, to occur by the end of 1998.
Other United Kingdom Properties and Discoveries
Conoco also has interests in the Miller (30 percent), Alba (12 percent),
Statfjord (4.8 percent in the United Kingdom/10.3 percent in the Norwegian
sector), MacCulloch (40 percent), and Banff (32 percent) fields, and the Clair
discovery (21 percent). Conoco operates the MacCulloch and Banff fields, both of
which will employ innovative floating production, storage and offtake
technology. British Petroleum operates the Miller field and the Clair discovery,
which is one of the largest undeveloped oil discoveries in Western Europe.
Interconnector Pipeline and Gas Sales
The Interconnector pipeline, which connects the United Kingdom and Belgium,
will facilitate marketing throughout Europe of the natural gas the Company
produces in the United Kingdom. The pipeline was
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installed in 1997, and is expected to commence operation in October 1998. The
Company has a 10 percent interest in the $700 million project.
Norwegian Producing Fields
Conoco is the sixth largest oil producer in Norway. The Company has an
ownership interest in three of the largest fields in the country, Heidrun,
Statfjord and Troll. Conoco also has an interest in the Oseberg South (7.7
percent), Visund (9.1 percent), Jotun (3.75 percent), and Huldra (23.3 percent)
discoveries, which are in development, as well as the PL 203 (20 percent)
discovery.
Production from the Heidrun field began in 1995 and is currently averaging
205,000 barrels of petroleum liquids per day (gross). Conoco's share of the
proved reserves in the field, based on its 18.125 percent equity interest, is
123 million barrels of petroleum liquids and 164 billion cubic feet of natural
gas. Conoco was the operator for the construction and installation of Heidrun's
tension leg platform. Upon first production, Statoil assumed operatorship in
accordance with a pre-agreed arrangement. Associated gas from the Heidrun Field
serves as feedstock for a methanol plant that became operational in Norway in
1997. The plant, in which the Company holds an 18.125 percent interest, is
operated by Statoil.
Proved reserves from the Statfjord field have increased substantially over
the last five years as field performance has exceeded projections. Conoco, which
holds 10.3 and 4.8 percent interests in the Norwegian and United Kingdom sectors
of the field, respectively, had net proved reserves of 84 million barrels of
petroleum liquids and 142 billion cubic feet of natural gas in the field as of
December 31, 1997 (total for Norway and the United Kingdom). Conoco is
supporting work by Statoil, the operator of Statfjord, to determine ways to slow
the natural decline of the field, and increase reserves. The Company also owns a
1.66 percent interest in the Troll gas field, operated by Statoil, and has net
proved reserves in the field of 634 billion cubic feet of natural gas and 20
million barrels of petroleum liquids.
Exploration -- The Atlantic Margin
Exploration activity in Western Europe is focused on the deepwater Atlantic
Margin fairway, which runs from the Voring Basin off the coast of Norway to the
Porcupine Basin off of the west coast of Ireland. Along the Atlantic Margin,
Conoco has significant acreage positions in the Voring Basin, the West of
Shetlands and North Rockall Trough areas in the United Kingdom and the Porcupine
Basin. In 1997, the British government awarded Conoco and three partners
exploration licenses for two highly sought after deepwater blocks, Blocks 204/14
and 204/15, in the West of Shetlands area. These blocks are adjacent to a
discovery in British Petroleum-operated Block 204/19. Conoco, as operator of
Blocks 204/14 and 204/15, anticipates drilling two wells to test the potential
of this acreage in 1998.
NORTHERN SOUTH AMERICA AND THE CARIBBEAN
Petrozuata
Petrozuata is a key component of Conoco's strategy to increase production
and reserves through implementation of long-lived, large development projects
and to utilize its proprietary coking technology in other areas of its business.
Petrozuata is a joint venture between the Company, which holds a 50.1 percent
non-controlling equity interest (subject to an option held by the Venezuelan
investment entity SOFIP to purchase one percent of the joint venture from Conoco
that expires May 31, 1999), and PDVSA Petroleo y Gas S.A., a subsidiary of
PDVSA, which holds the remaining interest. Petrozuata, the first venture of its
kind in Venezuela, is developing an integrated operation to produce extra heavy
crude oil from known reserves in the Zuata region of the Orinoco Belt, transport
it to the Jose industrial complex on the north coast of Venezuela and upgrade it
into Synthetic Crude, with associated by-products of liquified petroleum gas,
sulfur, petroleum coke and heavy gas oil. Conoco's recorded proved reserves
relating to its interest in this project as of December 31, 1997 were 680
million barrels of oil. Drilling began in 1997 and currently approximately 50
horizontal wells are in various stages of development, with another 37 wells
planned by year-end 1999. The joint venture agreement has a 35-year term and
requires approval of both Conoco and PDVSA Petroleo y Gas S.A. for major
Petrozuata decisions.
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The upgrading facility, which will employ the Company's proprietary delayed
coking technology, is currently under construction. The upgrader will be located
at Jose and is projected to become operational in 2000. Diluted extra-heavy
crude oil will be transported via a 36-inch pipeline from the field to the Jose
industrial complex. An adjacent 20-inch pipeline will return naphtha from the
upgrader to the field for use as a diluent. Petrozuata has also begun
construction of field processing and support facilities and marine facilities
for shipping Synthetic Crude and by-products.
Petrozuata began producing extra heavy crude oil in August 1998 and the
Company expects that Petrozuata's production will rise to 120,000 barrels
(gross) daily by the time the project's upgrading facility becomes operational.
Prior to completion of the upgrader, the extra heavy crude will be blended with
lighter oils and sold on world markets. Following completion of the upgrader,
the Synthetic Crude produced by Petrozuata will either be used as a feedstock
for the Company's Lake Charles refinery and a refinery operated by PDVSA, or
will be sold to third parties. The Company has entered into an agreement to
purchase up to 104,000 barrels per day of the Petrozuata Synthetic Crude for a
formula price over the term of the joint venture if Petrozuata is unable to sell
the production to third parties for higher prices. All synthetic crude sales
will be denominated in United States dollars. By-products produced by the
upgrader (principally coke and sulfur) will be sold to a variety of domestic and
foreign purchasers. The loading facilities at Jose will transfer Synthetic Crude
and some of the by-products to ocean tankers for export. Synthetic Crude sales
are expected to comprise more than 90 percent of the project's revenues.
The La Luna Trend
Exploration activity in Northern South America and the Caribbean is focused
on a geologic trend known as La Luna. In Venezuela, the Company conducted
seismic surveys in 1997 on the shallow water Gulf of Paria West block, located
between Venezuela and Trinidad, and on the Guanare block in the Merida Andes
foothills. The Company expects to begin drilling of prospects on these blocks in
1998. Conoco currently holds a 50 percent working interest in both the Gulf of
Paria West block, which it operates, and the Guanare block, which is operated by
Elf (in each case subject to dilution to 32.5 percent at the option of a PDVSA
affiliate).
In northwestern Colombia, seismic surveys have been completed in
partnership with Texaco on three tracts that Conoco acquired through a 50
percent farm-in. In 1998, Texaco has drilled one well on the acreage (which was
a non-commercial discovery) and plans two additional wells before year-end. In
addition, Conoco and Texaco recently acquired a fourth tract in a joint bid.
In 1997, Conoco signed a production sharing contract for Blocks 4a and 4b,
two large, prospective blocks off Trinidad's east coast. A 3D seismic survey was
acquired over the acreage in 1997, and the Company expects to commence drilling
in late 1998 or early 1999. Conoco is operator of both blocks and has a 50
percent working interest, as does Texaco.
Seeking additional attractive opportunities in the La Luna Trend, Conoco
has conducted a two-year study of the hydrocarbon potential of the entire
offshore Barbados area. Encouraged by the study, Conoco has entered into a
commitment to acquire seismic data over 50 percent of the original study area
and has the option to enter a drilling program to test the potential of this
largely unexplored area.
Phoenix Park
The Company holds a 39 percent interest in Phoenix Park Gas Processors
Limited ("Phoenix Park"), a joint venture with the National Gas Company of
Trinidad and Tobago Limited, that processes and markets gas products in
Trinidad. Phoenix Park owns a gas processing plant, a fractionator producing
propane, mixed butane and natural gasoline, storage tanks and a liquefied
petroleum gas marine loading dock. These facilities produce over 13,000 barrels
per day (gross) of NGLs. Phoenix Park is currently implementing a significant
expansion of its facilities.
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<PAGE> 64
ASIA PACIFIC
The Company has a 30-year operating history in Indonesia. The focus of
Conoco's effort in the Asia Pacific region is the Company's operations in the
Indonesian sector of the Natuna Sea. In this area, Conoco is the operator of the
Block B and North West Natuna production sharing contracts ("PSCs").
West Natuna Gas Project
Conoco, as operator of the South Natuna Sea Block B PSC, along with the
other participants in Block B and the interest holders in the Block A and Kakap
PSCs, have formed the "West Natuna Group", with the aim of jointly marketing gas
from the West Natuna Area. In April 1997, Pertamina, the Indonesian state-owned
oil and gas company, entered into an agreement with a consortium (led by
Sembawang in Singapore) (the "Singapore Group") pursuant to which the parties
intend to negotiate natural gas purchase and sale agreements for the sale by
Pertamina of natural gas from specified fields in the PSCs operated by the West
Natuna Group (the "West Natuna Gas Project"). Pertamina and the Singapore Group
have now finalized (but not executed) a gas sales agreement. The current term of
the proposed purchase agreement provides for gas deliveries to begin by
mid-2001. The gas would be used for industrial purposes, primarily in power
generation and petrochemical plants, in Singapore.
For the project to proceed certain conditions must be satisfied, including
the completion of the design of a 463 kilometer 30-inch submarine pipeline to
transport the gas from the West Natuna Sea fields to Singapore, completion of
the tariff and offtake arrangements relating to the pipeline, agreement between
the West Natuna Group and Pertamina to gas supply and allocation terms, the
arrangement by the Singapore parties of offtake agreements for the gas, and the
extension of each of the PSCs. The Company has no control over the satisfaction
of these conditions, and there is no assurance that the conditions will be
satisfied or waived by the date required.
Assuming satisfaction of the above stated conditions and successful
negotiation of natural gas agreements among Pertamina and the Singapore Group,
up to one trillion cubic feet of natural gas could be supplied from gas fields
in Block B to the Singapore Group under the letter agreement Pertamina has
signed. First gas deliveries could begin by mid-2001, and the Company believes
Block B's share of production could reach 140 million cubic feet of gas daily.
Until all conditions necessary for project approval are met, no proved reserves
will be attributed to Conoco's interest in the West Natuna Gas Project.
Belida and Sembilang Fields, Indonesia
Conoco holds a 40 percent interest in and serves as operator of the Belida
and Sembilang oil fields in the Block B PSC. An ongoing infill drilling program
in the Belida Field maintained gross production in the range of 90,000 barrels
per day in 1997.
RUSSIA/CASPIAN SEA
The Company holds a 50 percent direct (plus a 4.7 percent indirect
interest) ownership interest in Polar Lights Company ("Polar Lights"), a Russian
limited liability company established in January 1992. Polar Lights, the first
Russian-Western joint venture to develop a major new oil field, was established
to develop the Ardalin oil field discovered in 1988 by the Russian state
enterprise GP Arkhangelskgeologia. Ardalin is located in the Arctic tundra some
1,000 miles northeast of Moscow. As of December 31, 1997, Conoco's share of
proved reserves is 43 million barrels of petroleum liquids, with an additional
eight million barrels of net proved reserves at the adjacent oil fields -- Kolva
and Dusushev. Polar Lights started producing oil in August 1994 and gross
production has increased from an average 27,000 barrels per day to 37,000
barrels per day as of June 30, 1998. Oil is transported through the existing
Russian pipeline system, and is then exported or sold on the domestic market.
In March 1998, Conoco signed a memorandum of understanding with OAO Lukoil
("Lukoil"), Russia's largest oil company, to jointly study the development of
petroleum reserves in the 1.2-million-acre block known as the Northern
Territories in the Timan-Pechora region in Northern Russia, which includes the
large
63
<PAGE> 65
undeveloped Yuzhno Khilchuyu oil field. The memorandum of understanding followed
Lukoil's purchase in December 1997 of the controlling interest in OAO
Arkhangelskgeoldobycha (successor to GP Arkhangelskgeologia), the Company's
original partner in the Northern Territories.
In July 1998, the Company acquired a 15.667 percent interest in OAO
Arkhangelskgeoldobycha for approximately $33 million. OAO Arkhangelskgeoldobycha
owns a 30 percent interest in Polar Lights.
Conoco is also one of several foreign participants with Gazprom, the major
Russian gas company, in a project to assess the feasibility of developing
infrastructure and establishing a market for the extensive gas reserves believed
to be contained in the remote Shtokmanskoye field located in the Barents Sea.
WEST AFRICA
In 1997, Conoco, in partnership with Express Petroleum and Gas Company Ltd.
of Nigeria ("Express"), announced the production of first oil from the shallow
water Ukpokiti field, located offshore in the western Niger delta. Conoco
currently has a 90 percent revenue interest in the field. Total production from
the field is currently 20,000 barrels per day of oil, and Conoco's net proved
reserves as of December 31, 1997, were 13.2 million barrels of oil. Express
operates Ukpokiti with the Company providing technical and operational
assistance in the field's development. Field development included three remote
caisson-type structures, five wells, and the conversion of the Conoco VLCC
tanker "Independence" into a floating production and storage offtake vessel.
With a 1.7 million-barrel storage capacity, the vessel also serves as an export
terminal.
In addition to the Company's interest in the Ukpokiti field, Conoco has a
47.5 percent working interest in the deepwater OPL 220 license off the coast of
Nigeria, which is operated by Conoco and encompasses 600,000 acres. The Company
has acquired a 3D seismic survey and drilled two wells on this license. The
first well, which was drilled in 1997, found only gas and was noncommercial. The
second well was drilled in 1998 and encountered both oil and gas-filled sands.
Conoco and its partner Exxon are currently evaluating results from this second
well so that a decision can be made as to the future work program for the block.
MIDDLE EAST
In Dubai, United Arab Emirates, Conoco has operated four fields since their
discovery between 1966 and 1973. Currently the Company is using horizontal
drilling techniques and advanced reservoir drainage technology to enhance the
efficiency of the offshore production operations and improve recovery rates.
OIL AND NATURAL GAS RESERVES
The Company's estimated proved reserves at December 31, 1997, were 2.6
billion BOE (consisting of 1,624 million barrels of oil and 5,861 billion cubic
feet of natural gas), up 39 percent from December 31, 1996. This increase
largely reflects reserves associated with the Company's equity interest in
Petrozuata.
Oil and gas proved reserves cannot be measured precisely. Reserve estimates
are based on many factors related to reservoir performance which require
evaluation by engineers interpreting the available data, as well as price and
other economic factors. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data, the
production performance of the reservoirs as well as extensive engineering
judgment. Consequently, reserve estimates are subject to revision as additional
data become available during the producing life of a reservoir. When a
commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. See "Risk Factors -- Uncertainty of Estimates of Proved Reserves."
At the request of the Company, DeGolyer and MacNaughton, independent
petroleum engineering consultants has carried out an independent evaluation of
selected properties representing approximately 80 percent of the Company's
proved reserves based on present value at December 31, 1997. The results
obtained by DeGolyer and MacNaughton with respect to reserves at December 31,
1997 do not show significant differences from those reported by the Company.
DeGolyer and MacNaughton has delivered to the
64
<PAGE> 66
Company its summary letter report describing its procedures and conclusions, a
copy of which appears as Annex A hereto. No major discovery or other favorable
or adverse event has occurred since December 31, 1997, that would cause a
significant change in the estimated proved reserves as of that date.
The following table sets forth by region the Company's proved oil reserves
at year-end for the past five years:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ------
(MILLIONS OF BARRELS)
<S> <C> <C> <C> <C> <C>
PROVED OIL RESERVES(1)
COMBINED COMPANIES
United States.............................................. 344 336 294 299 277
Europe..................................................... 390 394 408 413 421
Other regions.............................................. 230 223 231 214 195
--- --- --- --- ------
Worldwide........................................ 964 953 933 926 893
SHARE OF EQUITY AFFILIATE RESERVES
Europe..................................................... 19 35 44 47 51
Other regions(2)........................................... -- -- -- -- 680
--- --- --- --- ------
Total oil reserves............................... 983 988 977 973 1,624
=== === === === ======
</TABLE>
- ---------------
(1) Oil reserves comprise crude oil, condensate and NGLs expected to be removed
for the Company's account from its natural gas production.
(2) Represents the Company's equity share of the Petrozuata venture in
Venezuela.
The following table sets forth the Company's natural gas reserves at
year-end for the past five years by region:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
(BILLIONS OF CUBIC FEET)
<S> <C> <C> <C> <C> <C>
PROVED NATURAL GAS RESERVES
COMBINED COMPANIES
United States.......................................... 1,802 1,749 1,891 1,822 2,235
Europe................................................. 1,752 2,431 2,649 3,068 3,060
Other regions.......................................... 126 150 169 173 196
----- ----- ----- ----- -----
Worldwide.................................... 3,680 4,330 4,709 5,063 5,491
SHARE OF EQUITY AFFILIATE RESERVES
United States.......................................... 291 344 339 333 370
----- ----- ----- ----- -----
Total natural gas reserves................... 3,971 4,674 5,048 5,396 5,861
===== ===== ===== ===== =====
</TABLE>
PRODUCTION DATA
The Company's oil and natural gas production averaged 654,000 BOE per day
in 1997, compared with 656,000 BOE per day in 1996. As a percentage of total
production, natural gas production was 31 percent in 1997 and 1996.
The table below shows the Company's interests in average daily oil
production and natural gas production for the past three years. Oil production
comprises crude oil and condensate produced for the Company's account, plus its
share of NGLs removed from natural gas production from owned leases and NGLs
acquired
65
<PAGE> 67
through gas plant ownership. Natural gas production represents the Company's
share of production from leases in which the Company has an ownership interest.
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
(THOUSANDS OF BARRELS
PER DAY)
<S> <C> <C> <C>
AVERAGE DAILY OIL PRODUCTION
COMBINED COMPANIES
Crude Oil, Condensate, and Natural Gas Liquids from
Owned Reserves:
United States........................................ 93 91 90
Europe............................................... 143 182 176
Other Regions........................................ 98 88 92
----- ----- -----
Subtotal.......................................... 334 361 358
Natural Gas Liquids from Gas Plant Ownership:
United States........................................ 65 67 66
----- ----- -----
Total Production.................................. 399 428 424
SHARE OF EQUITY AFFILIATES
Crude Oil, Condensate, and Natural Gas Liquids from
Owned Reserves........................................ 12 13 16
Natural Gas Liquids from Gas Plant Ownership........... 13 13 13
----- ----- -----
Total Production Equity Affiliates................ 25 26 29
----- ----- -----
Total Oil Production Per Day...................... 424 454 453
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(MILLIONS OF CUBIC FEET
PER DAY)
<S> <C> <C> <C>
AVERAGE DAILY NATURAL GAS PRODUCTION
COMBINED COMPANIES
Natural Gas from Owned Reserves:
United States........................................ 740 738 709
Europe............................................... 341 416 432
Other Regions........................................ 31 41 46
----- ----- -----
Total Deliveries.................................. 1,112 1,195 1,187
SHARE OF EQUITY AFFILIATES
Natural Gas from Owned Reserves:
United States........................................ 14 16 16
----- ----- -----
Total Natural Gas Production Per Day.............. 1,126 1,211 1,203
===== ===== =====
</TABLE>
See pages F-33 and F-34 for the annual production volumes of oil (crude
oil, condensate and natural gas liquids) and natural gas from proved reserves.
Proved oil production volumes exclude natural gas liquids from plant ownership.
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<PAGE> 68
PRODUCTION COST DATA
The following table sets forth the Company's average production costs per
BOE produced, average sales prices per barrel of crude oil and condensate sold
and average sales prices per MCF of natural gas sold, for the three-year period
ended December 31, 1997.
<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(UNITED STATES DOLLARS)(1)
<S> <C> <C> <C> <C>
For the year ended December 31, 1997
Average production costs per barrel of oil equivalent
of petroleum produced(2)............................ $ 4.21 $ 4.23 $ 4.51 $ 3.40
Average sales prices of produced petroleum(3)
Per barrel of crude oil and condensate sold......... 18.58 17.93 18.93 18.35
Per MCF of natural gas sold......................... 2.51 2.34 3.25 1.41
For the year ended December 31, 1996
Average production costs per barrel of oil equivalent
of petroleum produced(2)............................ 3.84 4.11 4.13 2.50
Average sales prices of produced petroleum(3) Per
barrel of crude oil and condensate sold............. 20.11 18.68 20.94 19.47
Per MCF of natural gas sold......................... 2.21 1.90 2.92 1.24
For the year ended December 31, 1995
Average production costs per barrel of oil equivalent
of petroleum produced(2)............................ 3.92 3.78 4.82 2.49
Average sales prices of produced petroleum(3) Per
barrel of crude oil and condensate sold............. 16.52 15.53 16.95 16.56
Per MCF of natural gas sold......................... 1.86 1.44 2.96 1.13
</TABLE>
- ---------------
(1) Excludes the Company's share of equity affiliates.
(2) Average production costs per barrel of equivalent liquids, with natural gas
converted to liquids at a ratio of 6,000 cubic feet of gas to one barrel of
liquid.
(3) Excludes proceeds from sales of interest in oil and gas properties.
DRILLING AND PRODUCTIVE WELLS
The following table sets forth the Company's drilling wells and productive
wells by region as of December 31, 1997.
<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(NUMBER OF WELLS)
<S> <C> <C> <C> <C> <C>
Number of wells drilling(1)(3)
Gross.................................................... 33 15 13 5
Net...................................................... 14 9 3 2
Number of productive wells(2)(3)
Oil
wells -- gross....................................... 7,761 7,173 278 310
-- net......................................... 2,657 2,523 26 108
Gas wells -- gross....................................... 8,749 8,486 169 94
-- net......................................... 4,210 4,089 33 88
</TABLE>
- ---------------
(1) Includes wells being completed.
(2) Approximately 80 gross (27 net) oil wells and 757 gross (271 net) gas wells,
all in the United States, have multiple completions.
(3) Excludes the Company's share of equity affiliates.
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<PAGE> 69
DRILLING ACTIVITY
The following table sets forth the Company's net exploratory and
development wells drilled by region for the three-year period ended December 31,
1997.
<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(NUMBER OF NET WELLS COMPLETED)
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997(1)
Exploratory -- productive............................... 7.1 3.7 1.6 1.8
-- dry...................................... 18.4 11.7 4.9 1.8
Development -- productive............................... 142.6 126.9 5.4 10.3
-- dry...................................... 10.2 7.2 0.0 3.0
For the year ended December 31, 1996(1)
Exploratory -- productive............................... 42.8 1.6 2.0 39.2
-- dry...................................... 20.5 10.3 4.0 6.2
Development -- productive............................... 89.9 73.1 6.1 10.7
-- dry...................................... 17.3 13.5 0.3 3.5
For the year ended December 31, 1995(1)
Exploratory -- productive............................... 34.2 12.8 1.4 20.0
-- dry...................................... 38.2 22.1 4.9 11.2
Development -- productive............................... 109.5 94.3 8.0 7.2
-- dry...................................... 13.7 10.7 0.0 3.0
</TABLE>
- ---------------
(1) Excludes the Company's share of equity affiliates.
DEVELOPED AND UNDEVELOPED PETROLEUM ACREAGE
The following table sets forth the Company's developed and undeveloped
petroleum acreage by region as of December 31, 1997.
<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(THOUSANDS OF ACRES)
<S> <C> <C> <C> <C>
Developed acreage(1)
Gross.................................................. 7,555 2,663 1,129 3,763
Net.................................................... 3,341 1,559 317 1,465
Undeveloped acreage(1)
Gross.................................................. 108,803 2,749 4,984 101,070
Net.................................................... 80,017 2,103 1,648 76,266
</TABLE>
- ---------------
(1) Excludes the Company's share of equity affiliates.
The Company is not required to file, and has not filed on a recurring
basis, estimates of its total proved net oil and gas reserves with any U.S. or
non-U.S. governmental regulatory authority or agency other than the Department
of Energy (the "DOE") and the Securities and Exchange Commission (the
"Commission"). The estimates furnished to the DOE have been consistent with
those furnished to the Commission. They are not necessarily directly comparable,
however, due to special DOE reporting requirements such as requirements to
report in some instances on a gross, net or total operator basis, and
requirements to report in terms of smaller units. In no instance have the
estimates for the DOE differed by more than five percent from the corresponding
estimates reflected in total reserves reported to the Commission.
68
<PAGE> 70
DOWNSTREAM
SUMMARY
Downstream operations encompass refining crude oil and other feedstocks
into petroleum products, buying and selling crude oil and refined products and
transportating, distributing and marketing petroleum products. Downstream
operations are organized regionally with operations in North America, Europe and
the Asia Pacific region. North American and European operations provided 60
percent and 46 percent, respectively, of total Downstream earnings in 1997,
partially offset by a small loss resulting from start-up activities in Asia
Pacific. Downstream's objective is to continue to provide an appropriate return
on investment by improving the competitiveness of the core business, while
providing free cash flow to fund growth in new Downstream businesses, as well as
elsewhere within the Company.
Conoco has made capital investments in Downstream activities averaging
approximately $600 million per year for the last three years. 1998 capital
investments in Downstream activities are also expected to be approximately $600
million.
Downstream's strengths are in processing heavy, high sulfur and acidic
crudes, upgrading bottom-of-the-barrel feedstocks via coking technology, running
low-cost, high volume retail marketing operations and developing specialty
products. Approximately 50 percent of the Company's worldwide refining capacity
is designed to process heavy, high sulfur crude. The Humber refinery in the
United Kingdom can process about 44 percent acidic crudes in its crude slate.
The Company has applied its coking technology to nearly all of its refining
operations throughout the world. This has enabled the Company to become a world
leader in producing petroleum coke products, such as high-value graphite and
anode coke, which are used in the production of electrodes for the steel and
aluminum industries. Conoco has also licensed its fuel coking technology around
the world, which has in turn created other business development opportunities.
The Company produces and markets a full range of refined petroleum
products, including gasolines, diesel fuels, heating oils, aviation fuels, heavy
fuel oils, asphalts, lubricants, petroleum coke products and petrochemical
feedstocks. The Company owns and operates, or is a partner in the operation of,
nine refineries worldwide with a total crude and condensate capacity of 799,000
barrels per calendar day (including the new Melaka refinery, which Conoco
expects will be completed in the fourth quarter of 1998). Upon completion of
Melaka, refining capacity will be distributed 62 percent in the United States,
33 percent in Europe and five percent in the Asia Pacific region. Capacity has
risen by over 175,000 barrels per day, or 29 percent, since year end 1995 as a
result of the expansion of the Lake Charles refinery, the upgrade of the Humber
refinery, and the acquisition of its interest in two refineries in the Czech
Republic. In the United States, the Company primarily markets through low-cost
wholesale operations. The Company has a growing marketing presence in Europe and
Asia Pacific, where it is a leader in operating low-cost, high-volume retail
stations. In the first half of 1998, marketing sales averaged 984,000 barrels of
refined product per day, distributed 67 percent, 32 percent and 1 percent in the
United States, Europe and the Asia Pacific region, respectively.
NORTH AMERICA
Conoco's four U.S. refineries are fully integrated, high conversion
facilities, with design capacity to process over 50 percent high sulfur crude
oils, much of which is also heavy crude. A principal factor affecting the
profitability of the Company's North American operations is the price of refined
products in relation to the cost of crude oils and other feedstocks processed.
Because the Company is able to process a relatively large portion of heavy, high
sulfur crude oil, the cost advantage of these crude oils (such as those from
Mexico, Venezuela and Canada) over lighter, low sulfur crude oils (such as West
Texas Intermediate) is particularly significant. Over half of Conoco's U.S.
refining capacity is located in inland markets and therefore benefits from the
price differential for products produced and sold inland versus those produced
and sold on the Gulf Coast.
Integration of refining, transportation and marketing, and continuous
improvement initiatives, have resulted in increased profitability from
improvements in refinery reliability, utilization, product yield, and energy
usage. Since 1993, the Company has increased refining input at its four U.S.
refineries by 20 percent,
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<PAGE> 71
while lowering average operating expenses by approximately $1.70 per barrel of
refinery input. The Company has improved market share through geographic
concentration of markets.
The Company intends to limit ongoing capital investments in Downstream
North America to a level that is less than half of Downstream North America's
operating cash flow for ongoing capital expenditures, excluding large,
non-discretionary, regulatory-driven projects and selected growth projects.
Capital expenditures for North America were approximately $227 million in 1997
and are expected to decline to approximately $170 million in 1998, reflecting
the completion of major projects. The Company is positioned to make the
necessary clean fuels investments at its refineries over the next five years in
support of changing motor fuel specifications. The Company also plans to make
investments at the Lake Charles refinery to facilitate processing of Petrozuata
Synthetic Crude.
Refining
The Company operates four wholly owned refineries in the United States. The
following tables outline the rated crude and condensate distillation capacity as
of December 31 for each of the past five years, and the average daily crude,
condensate and other inputs for each of the past five years.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(THOUSANDS OF BARRELS PER DAY)
<S> <C> <C> <C> <C> <C> <C>
REFINERY CRUDE AND CONDENSATE CAPACITY
Lake Charles, Louisiana................................... 175 182 191 226 226
Ponca City, Oklahoma...................................... 140 140 150 155 155 (1)
Denver, Colorado.......................................... 58 58 58 58 58
Billings, Montana......................................... 49 49 49 52 52
--- --- --- --- ---
Total........................................... 422 429 448 491 491
=== === === === ===
</TABLE>
- ---------------
(1) Subsequent to December 31, 1997, capacity has been upgraded to 160,000
barrels per day.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(THOUSANDS OF BARRELS PER DAY)
<S> <C> <C> <C> <C> <C>
REFINERY INPUTS(1)
Lake Charles, Louisiana
Crude and condensate(2)................................ 165 183 179 177 211
Other feedstocks....................................... 21 24 23 21 23
Ponca City, Oklahoma
Crude and condensate(2)................................ 135 144 151 150 161
Other feedstocks....................................... 3 2 5 2 2
Denver, Colorado
Crude and condensate(2)................................ 46 47 49 49 53
Other feedstocks....................................... 0 0 0 0 0
Billings, Montana
Crude and condensate(2)................................ 45 48 45 51 51
Other feedstocks....................................... 4 3 3 3 3
Total crude and condensate........................ 391 422 424 426 476
Total other feedstocks............................ 28 30 31 26 27
</TABLE>
- ---------------
(1) This table includes feedstocks in addition to crude and condensate on which
rated capacity is based.
(2) This table includes actual crude and condensate runs, which may exceed rated
capacity.
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<PAGE> 72
The Company's U.S. consolidated refined product yields by volume in 1997
were 46 percent motor gasoline, 40 percent middle distillates, including jet and
diesel fuel, 4 percent residual fuel oil and asphalt and 10 percent other
products, including petroleum coke, lubricants and liquefied petroleum gases.
Lake Charles Refinery and Related Facilities
The Company's Lake Charles refinery, located in Westlake, Louisiana, has a
crude capacity of 226,000 barrels per day and processes both heavy, high sulfur
crude oil and low sulfur crude oil. The refinery's Gulf Coast location provides
access to numerous cost-effective domestic and international crude oil sources.
The crude design capacity is approximately 56,000 barrels per day of local,
domestically supplied low sulfur crudes, with the remaining 170,000 barrels per
day being heavy, high sulfur crudes. While the types and origins of these lower
priced, heavy, high sulfur crudes can vary, the majority consists of Venezuelan
and Mexican crudes delivered via tanker. The Lake Charles refinery products can
be delivered by truck, rail or into major common carrier products pipelines
partially owned by the Company which serve the Eastern and Mid-continent United
States. In addition, refinery products can be sold into export markets through
the refinery's marine terminal.
The ability to refine both low-sulfur and heavy high sulfur crudes at the
Lake Charles refinery provides a competitive advantage to the Company by
enabling the refinery to produce from relatively low-cost feedstocks a full
range of products including LPG, gasolines, jet fuel, diesel fuel, petroleum
coke, lube oils and other specialty products. The refinery facilities include
fluid catalytic cracking, delayed coking and hydrodesulfurization units which
enable it to maximize the upgrade from the heavier crudes. A crude unit
expansion and a new catalytic reformer were completed in conjunction with the
Excel Paralubes project to take advantage of synergies generated between the two
facilities. The Company is making investments in the Lake Charles refinery so
that, in the future, it will be able to process Petrozuata Synthetic Crude.
Integration of fuels and specialty products plays an important role in
maximizing product value at the refinery. Intermediates produced from low-sulfur
crude processing allow the refinery to supply the heaviest, highest boiling
range material in the crude to the Cit-Con lube plant (owned by a 35
percent-owned equity affiliate of Conoco) for base oils, finished lubes and wax
production. Other intermediates are exchanged with a neighboring chemical plant
complex for further processing.
The refinery supplies high sulfur gas oil to Excel Paralubes (a 50/50 joint
venture between the Company and Pennzoil) which owns a hydrocracked lubricating
base oil facility. Excel Paralubes's state-of-the-art lube oil facility produces
nearly 17,000 barrels per day of high quality hydrocracked base oils,
representing approximately 10 percent of U.S. lubricating base oil production.
Hydrocracked base oils are second in quality only to synthetic base oils, but
are produced at a much lower cost. The refinery produces other specialty
intermediates for making solvents to supply the recently formed Penreco joint
venture company (also a joint venture with Pennzoil). Penreco manufactures and
markets highly refined specialty petroleum products for global markets.
The Lake Charles facilities also include a specialty coker and calciner
that manufacture the more highly valued graphite and anode petroleum cokes for
the steel and aluminum industries, and provide a substantial increase in light
oils production by converting the heaviest part of the heavy high sulfur crude
barrel into diesel fuel and gasoline. In addition, green petroleum coke is
supplied to a nearby coke calcining venture.
Ponca City Refinery
The Company's refinery located in Ponca City, Oklahoma, recently increased
its crude capacity to 160,000 barrels per day of light, high sulfur and light,
low sulfur crudes. Both foreign and domestic crudes are delivered by pipeline
from offshore, Oklahoma, Kansas, and North and West Texas fields. Finished
products are shipped by truck, rail and Company-owned and common carrier
pipelines to markets throughout the Mid-continent region.
The Ponca City refinery is a fully integrated, high-conversion facility
that produces a full range of products, including LPG, gasoline, jet fuel,
diesel and anode and fuel grade petroleum cokes. The refinery's
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facilities include fluid catalytic cracking, delayed coking and
hydrodesulfurization units which enable it to produce high ratios of gasoline
and diesel fuel from crude oil.
Denver Refinery
The Company's Denver refinery, located in Commerce City, Colorado, has a
crude capacity of 58,000 barrels per day, processing a mixture of Canadian
heavy, high sulfur crudes, and domestic heavy, high sulfur crude oils and low
sulfur crude oils. Almost all crude oil processed at the refinery is transported
via pipeline. Products are delivered predominantly through a local truck loading
terminal to the east side of the Rockies but also by rail and pipelines to other
Colorado markets. The refined gasoline products from the Denver refinery help
supply the Company's marketing operations in the Rocky Mountain states.
The Denver refinery is a fully integrated refinery that produces a full
range of products including gasolines, jet fuels, diesel and asphalt. The
refinery's upgrading units enable it to process a crude slate containing nearly
50 percent heavy, high sulfur crude. The Company has a processing agreement with
a refinery located in Cheyenne, Wyoming, that has coking capabilities from which
the refinery receives intermediate feedstocks for processing into finished
products. The Denver refinery also supplies KC Asphalt (a 50/50 joint venture
between the Company and Koch Industries) with high quality asphalt products.
Both of these ventures enable the Company to turn relatively low value
intermediates into higher margin products.
Billings Refinery
The Company's Billings, Montana refinery has a crude capacity of 52,000
barrels per day, processing a mixture of over 80 percent Canadian heavy, high
sulfur crude plus domestic high sulfur and low sulfur crude oils all delivered
by pipeline. Products from the refinery are delivered via Company-owned
pipelines, rail, and trucks, supplying the Company's extensive branded marketing
in Eastern Washington and the Northern Rocky Mountain states. The refinery's
proximity to its primary source of crude and its ability to refine both low
sulfur and heavy-sulfur crudes provide the Company with significant competitive
advantages.
The Billings refinery is a fully integrated refinery that produces a full
range of products including gasolines, jet fuels, diesel and fuel grade
petroleum coke. The Billings refinery has a very high conversion rate and the
capability to process less expensive, very heavy high sulfur crudes. A delayed
coker converts heavy, high sulfur resid into higher value light oils. A gas oil
hydrotreating unit and hydrogen plant improve the light oil production yields
and remove the additional sulfur contained in these heavy, high sulfur crudes.
Marketing
In the United States, the Company markets gasoline, utilizing the Conoco
brand, in 33 states (20 of which represent primary markets), in the Southeast,
Mid-continent and Rocky Mountain regions. Market growth continues to be targeted
to those areas where the Company can obtain a strong market share and
geographical areas that leverage supply from the U.S. refineries and
distribution systems in which the Company has an ownership position. Increasing
operating market share has resulted in particularly strong brand recognition in
the Rocky Mountain and Mid-continent markets.
Conoco branded gasoline is sold through approximately 4,900 branded
stations in the United States, 84 percent through retail outlets owned by
independent wholesale marketers and 16 percent through 295 Company-owned stores
at year end 1997. The Company markets gasoline primarily through the wholesale
channel in the United States because it requires a lower capital investment than
retail but still provides a secure, branded outlet for the Company's products.
The Company also operates retail stations to establish brand standards and image
as well as to better understand the independent distributors in order to provide
programs and services to them and to the consumer. Building on this knowledge,
the Company has recently introduced "breakplace(R)," a new concept in
convenience store design. This new format, involving the complete redesign of an
outlet's exterior and interior, is designed to increase the frequency and
transaction size of customer visits by catering to the needs of the "convenience
connoisseur." There were 21 breakplace(R) locations as of May 31, 1998, and the
Company is licensing the trademark to marketers. Many more stores in
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the network have adopted comprehensive offerings patterned after the format,
thereby supporting wholesale marketing and elevating the Company's brand
perception to the consumer.
At year-end 1997, CFJ Properties, a 50/50 joint venture between the Company
and Flying J, owned and operated 78 truck travel plazas that carry both the
Conoco and Flying J brands and provide a secure outlet for the Company's diesel
production. In addition, bulk sales of all refined petroleum products are made
to commercial, industrial and spot market customers.
Transportation
Conoco has approximately 6,500 miles of crude and product mainline
pipelines in the United States, including those partially owned and/or operated
by affiliates. The Company also owns and operates 37 finished product terminals,
six liquified petroleum gas terminals, one crude terminal and one coke-exporting
facility. The Company's crude pipeline interests and terminals provide integral
logistical links between crude sources and refineries to lower crude costs. The
product pipelines serve as secure links between refineries and key products
markets. In 1997, the Company had a 87 percent utilization rate in its pipelines
and a 68 percent utilization in its crude/product terminals. The Company has
historically had one of the highest pipeline utilization rates in industry
benchmarking studies. The Company's U.S. pipeline system transported an average
of 914,000 barrels per day in 1997. The Company's equity share of shipments on
affiliate pipelines was an additional 363,000 barrels per day.
The Company currently operates a fleet of seven crude oil tankers,
principally of Liberian registry, including five double hulled tankers. By the
end of 1998, the Company plans to operate a 100 percent double-hulled tanker
fleet in United States waters. Four vessels are used to provide secure
transportation to the Lake Charles refinery, two others are in use in the Asia
Pacific market and another is on lease to a third party for use as a shuttle
tanker for the Heidrun field in the North Sea, in which Conoco has an interest.
An eighth vessel is being used as a floating production storage and offtake
vessel off the coast of Nigeria. Two additional double-hulled tankers are
currently under construction and will be joining the fleet in the Gulf of Mexico
in 1999.
EUROPE
The Company's European refining and marketing activities include operations
in 17 countries, primarily in the United Kingdom and Germany. These two markets
accounted for 72 percent of the assets and 92 percent of the Company's European
Downstream after-tax earnings in 1997. The Company also has marketing operations
in Austria, Belgium, Denmark, Finland, France, Luxembourg, Norway, Sweden, and
Switzerland. More recently it has entered the faster growing markets of the
Czech Republic, Hungary, Poland, Slovakia, Spain and Turkey. The marketing
operations in Central and Eastern Europe and Turkey are complemented by a
minority interest in two refineries in the Czech Republic.
The Company's European Downstream strategy has been to operate low cost,
high volume retail outlets in selected key markets where the Company has a
competitive advantage, pursue opportunities in growth regions, and maintain its
Humber refinery and the MiRO joint venture refinery, in the United Kingdom and
Germany, respectively, as top performers in Europe. The Company plans to
redirect cash generated in its mature European businesses to other parts of
Upstream and Downstream operations and to the identified European growth
markets.
The Company has invested an average of $232 million per year over the past
five years in its Downstream European operations and expects to invest a similar
amount in 1998. The Company continues to implement relatively low-cost projects
in its refining operations designed to increase production and yields, while
reducing feedstock costs and operating expenses. The Company plans to continue
to direct capital expenditures for marketing operations, which are expected to
be approximately 50 percent of the European Downstream total capital
expenditures, toward construction of new stations in growth markets, primarily
in Central and Eastern Europe, but also in its areas of competitive strength in
Germany, Austria and the Nordic countries.
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The Company's European Downstream profitability is affected by several
factors. As with all refining operations, the difference between the market
price of refined products and the cost of crude oil is the major factor. The
Company has strengths in its European refineries because it is able to process
lower cost crudes or upgrade other feedstocks into high value finished products.
In addition, since the United Kingdom refinery also processes fuel oil as a
feedstock, the price difference between low sulfur fuel oil and finished
products is important to earnings. European operations also include significant
retail marketing volumes and therefore earnings are driven by retail margins,
fuel and convenience product sales and operating expenses in the various
countries where the Company operates.
Refining
The Company's principal European refining operations are located in the
United Kingdom, Germany, and the Czech Republic. Since early 1996, the expansion
of the Company's Humber refinery in the United Kingdom, the formation of the
MiRO joint venture through consolidation with a neighboring German refinery and
the purchase of a share in a joint venture owning two Czech Republic refineries
have increased the Company's European crude refining capacity by approximately
52 percent (90,000 barrels per day). The Company has continuously upgraded its
refineries in Europe since the early 1990s and the configuration and output of
its refineries are two of the Company's primary sources of competitive
advantage. In 1996, the United Kingdom and German refineries ranked in the first
quartile of their peer group for financial and operating performance (in the net
margin, return on investment, processing efficiency and volumetric expansion
categories) as ranked by Solomon Associates, an independent benchmarking
company.
The Company has undertaken a major capital investment program totaling $449
million from 1993 through 1997 to process lower cost feedstocks and increase
conversion capacity, product quality and energy efficiency at the Humber
refinery. The Company plans to make approximately $46 million in capital
expenditures at the refinery in 1998 in order to continue to improve reliability
and efficiency. The Company is also participating in upgrading projects at its
joint venture owned refineries in Germany and the Czech Republic. In addition,
the Company intends to continue to invest to ensure that its European refineries
are capable of manufacturing products meeting European clean fuels
specifications.
The following tables outline the rated crude and condensate distillation
capacity as of December 31 for each of the past five years and the annual
average daily crude and condensate and other inputs for each of the past five
years.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(THOUSANDS OF BARRELS PER DAY)
<S> <C> <C> <C> <C> <C>
REFINERY CRUDE AND CONDENSATE CAPACITY
Humber Refinery, United Kingdom .......................... 130 130 130 180 180
MiRO Refinery, Germany(1)................................. 43 43 43 43 54
Czech Republic(2)......................................... -- -- -- 29 29
--- --- --- --- ---
Total(3).......................................... 173 173 173 252 263
=== === === === ===
</TABLE>
- ---------------
(1) The 1997 figure represents the Company's 18.75 percent interest in the MiRO
refinery complex at Karlsruhe, Germany. For the years 1996 and earlier,
Conoco's interest was 25 percent of the OMW refinery.
(2) Represents the Company's 16.33 percent interest in two Czech Republic
refineries.
(3) Does not include the Company's indirect 1.2 percent interest in a 95,000
barrel per day refinery in Mersin, Turkey acquired as a result of the
Company's marketing joint venture in Turkey.
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<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(THOUSANDS OF BARRELS PER DAY)
<S> <C> <C> <C> <C> <C>
REFINERY INPUTS(1)
Humber, United Kingdom(3)
Crude and condensate(2)................................ 131 125 133 121 137
Other feedstocks....................................... 62 59 74 76 56
MiRO, Germany(4)
Crude and condensate(2)................................ 46 46 46 47 51
Other feedstocks....................................... 16 15 13 13 11
Czech Republic(5)
Crude and condensate(2)................................ -- -- -- 22 21
Other feedstocks....................................... -- -- -- 1 1
Total crude and condensate(6)..................... 177 171 179 190 209
Total other feedstocks............................ 78 74 87 90 68
</TABLE>
- ---------------
(1) This table includes feedstocks in addition to crude and condensate on which
rated capacity is based.
(2) This table includes actual crude and condensate runs, which may exceed rated
capacity.
(3) The tie-in of a major expansion project and a major refinery maintenance
turnaround significantly affected the Humber Refinery's utilization in 1996
and 1997, respectively.
(4) The 1997 figure represents the Company's 18.75 percent interest in the MiRO
refinery complex at Karlsruhe, Germany. For the year 1996 and earlier years,
Conoco's interest was 25 percent of the OMW refinery.
(5) Represents the Company's 16.33 percent interest in two refineries in the
Czech Republic.
(6) Does not include the Company's 1.2 percent interest in a 95,000 barrel per
day refinery in Mersin, Turkey.
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The yield of the Company's European refineries by product and country for
the year ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
UNITED CZECH
KINGDOM(1) GERMANY(2) REPUBLIC(3)
---------- ---------- -----------
<S> <C> <C> <C>
PERCENT OF TOTAL YIELD
Motor gasoline.................................... 38 43 22
Middle distillate................................. 41 38 35
Residual fuel oil and asphalt..................... 9 13 21
Other(1).......................................... 12 6 22
</TABLE>
- ---------------
(1) Other products primarily include petroleum coke, lubricants and liquefied
petroleum gases.
United Kingdom Refinery
The Company's wholly owned Humber refinery is located in North
Lincolnshire, England, and has a crude and condensate capacity of 180,000
barrels per day. Crude processed at the refinery is exclusively low-sulfur, and
is supplied primarily from the North Sea and includes lower cost, acidic crudes.
The refinery also processes up to 60,000 barrels per day of other intermediate
feedstocks, mostly vacuum gasoils and resid, which many other European
refineries are not able to process. The refinery's location on the east coast of
England provides for cost-effective North Sea crude imports and product exports
to European and world markets. The Humber refinery, one of the most
sophisticated refineries in Europe, is a full conversion refinery that produces
a full slate of light products and minimal fuel oil. The Company recently
increased crude capacity at the refinery and added a vacuum unit which allows
the refinery to process up to 80,000 barrels per day of the less expensive,
acidic North Sea crudes. The refinery also has two coking units with associated
calcining plants, which upgrade the heavy "bottoms" and imported feedstocks into
light oil products and high value graphite and anode petroleum cokes.
Approximately 50 percent of the light oils produced in the refinery are marketed
in the United Kingdom while the other products are sent to the rest of Europe
and the United States. This gives the refinery the flexibility to take full
advantage of inland and global export market opportunities.
Germany Refinery
The Mineraloel Raffinerie Oberrhein GmbH ("MiRO") refinery in Karlsruhe,
Germany, is a joint venture refinery with a crude and condensate capacity of
288,000 barrels per day. The MiRO joint venture arose from the combination in
1996, of the existing OMW refinery, in which the Company had a 25 percent share,
with an adjacent Esso refinery. The Company has an 18.75 percent interest in
MiRO and the Company's capacity share is 54,000 barrels per day. The other
owners of MiRO are DEA Mineraloel AG, Esso AG and Ruhr Oel GmbH (a 50/50 joint
venture between Veba and PDVSA). Approximately 55 percent of the refinery's
crude feedstock is low cost, high sulfur crude. The MiRO refinery complex is a
full upgrading refinery producing gasoline, middle distillates, residual fuel
oil and other products. The refinery has a high capacity to convert lower cost
feedstocks into high value products primarily with a fluid catalytic cracker and
delayed coker. The coker produces both fuel grade and specialty calcined cokes.
The creation of the MiRO joint venture has improved the refinery's
competitiveness and was driven by the synergy that existed between the two
facilities. Integrated operations have yielded improved product slates, which
better match local demand, and increased processing efficiency, while retaining
operational flexibility for the partners. The refinery processes crude and
feedstock supplied by each of the partners in proportion to their respective
ownership interests. Streamlining the two operations has allowed the Company to
eliminate less efficient processing units in both refineries, resulting in lower
operating costs.
Czech Republic Refineries
In late 1995, the Company, through participation in the newly formed Czech
Refining Company ("CRC"), acquired an interest in two refineries in the Czech
Republic. The other owners of CRC are
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Unipetrol A.S., AgipPetroli, and Shell Overseas Investment B.V. The refinery at
Litvinov has a crude and condensate capacity of 109,800 barrels per day, and the
Kralupy refinery has a crude and condensate capacity of 67,500 barrels per day.
The Company's effective 16.33 percent ownership share of the combined capacity
is 29,000 barrels per day. Both refineries process mostly high sulfur crude,
with a large portion being Russian export blend delivered by pipeline at an
advantageous cost. The refineries have an alternative crude supply via a
pipeline from the Mediterranean.
The Company expects that completion of a visbreaker project at the Litvinov
refinery scheduled for the year 2000 will increase conversion rates and
significantly reduce fuel oil production. The Kralupy refinery is currently a
hydroskimming facility, but CRC is currently planning investment in major
conversion facilities, to reduce fuel oil production and increase light oil
yields. The two Czech refineries are operated as a single entity with
intermediate streams moving between the two facilities. CRC markets finished
products both inland and abroad. The Company intends to use its share of the
light oil production to support an expanding retail marketing network in Central
and Eastern Europe.
Marketing
The Company has marketing operations in 17 European countries. The
Company's European marketing strategy is to sell primarily through owned, leased
or joint venture retail sites using a low cost, high volume, low price strategy.
The Company intends to expand into identified growing markets, while
concurrently strengthening its market share in core markets such as Germany,
Austria and the Nordic countries. The Company is standardizing its European
retail operations in order to capture cost savings and prepare for a more
integrated Europe. The Company is continuing to reduce its cost structure for
marketing activities while also optimizing the growing income in the non-fuels
sector. The Company also markets aviation fuels, liquid petroleum gases, heating
oils, transportation fuels and marine bunkers to commercial accounts and into
the bulk or spot market.
The Company uses the "Jet" brand name to market its retail products in its
wholly owned operations in Austria, Czech Republic, Denmark, Finland, Germany,
Hungary, Norway, Poland, Slovakia, Sweden and the United Kingdom. In Belgium and
Luxembourg, it markets under the "Seca" brand. Stations throughout Europe also
display the "Conoco" brand. In addition, various joint ventures in which the
Company has an equity interest market products in Spain, Switzerland and Turkey
under the "Jet", "OK Co-op" and "Tabas" or "Turkpetrol" brand names,
respectively.
As of December 31, 1997, the Company had 1,968 branded marketing outlets in
its wholly owned European operations, of which 1,386 were Company-owned. Through
its joint venture operations in Turkey, Spain and Switzerland, the Company also
has an interest in another 928 retail sites. The largest branded site networks
are in Germany and the United Kingdom, which account for 63 percent of the total
net branded units. In Germany and Austria, where the Company has its biggest
network, 25 outlets were added during 1997. In the Nordic countries, the Company
has expanded from its base of unmanned sites in Sweden and Denmark into Norway
and Finland with 22 new stations in the last two years, bringing the total to
244 stations in the region. In response to weak fuel margins in the United
Kingdom over the past several years, the Company has restructured its operations
there, reducing the number of stations and focusing on locations where the
Company has a competitive advantage. The Company is continuing to reduce its
unit breakeven cost structure in the United Kingdom and is simultaneously
investing to take advantage of the growing income in the non-fuels sector.
The Company has been expanding in targeted growth markets in Central and
Eastern Europe (Czech Republic, Poland, Hungary and Slovakia) and has added 30
stations in the last year for a total of 101 stations at December 31, 1997. The
Company expects to continue this expansion in order to capture the demand growth
and rising margins expected in these inland markets. This marketing expansion
allows the Company to obtain further integration with products produced at the
Czech refineries. Similarly, the Company has invested in the growing markets of
Spain and Turkey where at the end of 1997 it had an interest, through its joint
ventures, in 80 and 766 sites, respectively. The joint venture marketing
operation in Turkey also provides the Company with a strategic position and
opportunity for Upstream ventures in this region.
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ASIA PACIFIC
The Company is looking to the Asia Pacific region for much of its long-term
Downstream growth. Despite the recent economic downturn, the Company expects the
Asian market, in the long term, to grow faster than comparable markets. The
Company intends to establish at least 100,000 barrels per day of equity refining
capacity in the region long-term and expand its marketing operations to
integrate with the refining supply to capitalize on market deregulation and long
term regional demand growth.
The refinery in Melaka, Malaysia, has been built by a joint venture 40
percent owned by the Company (with partners Statoil and the Malaysian state oil
company, Petronas) and will have a crude capacity of 100,000 barrels per day.
Startup of the Melaka refinery was initiated in August 1998 with the
commissioning of the crude unit. Initial crude unit operation will be followed
shortly thereafter by the start-up of the reformer, hydrocracker and coker
units. The joint venture has a five-year tax holiday commencing with initial
operation. The feedstocks for the refinery will consist of up to approximately
70 percent high sulfur crude and 30 percent sweet crude.
This refinery will capitalize on the Company's proprietary coking
technology to upgrade low-cost feedstocks to higher-margin products. Initial
refinery units, in addition to the fuels delayed coker, include a crude and
vacuum distillation unit, a vacuum gas oil hydrocracker, naphtha and diesel
hydrotreater, catalytic reformer, and an isomerization unit. The refinery will
produce a full range of refined petroleum products to help meet the demand for
motor fuels and specialty products in the Asia Pacific region although the
process at Melaka is designed to maximize diesel production in concert with
industry demand in the region.
The Company intends to use its share of refined products from the refinery
to continue growing its retail marketing operations in Thailand, Malaysia and
throughout the Asia Pacific region. The balance of the Company's share of
production will be sold primarily in the spot market. The Company has its
regional crude and product supply and disposition operations centrally located
in Singapore.
The Company began marketing motor fuels in Thailand in 1993. Using a
high-volume/low-price strategy and marketing concepts and strategies that were
new to Thailand, the Company has already established a significant presence in
the Thai retail market. The Company is building more than 20 new Jet branded
retail outlets this year and by the end of 1998 expects to have almost 100
stores in operation. The Company plans to continue building new retail outlets
at a comparable pace until it has 200 stores in the country.
The Company has launched a retail marketing joint venture in Malaysia with
Sime Darby Bhd., a company that has a major presence in the business sector.
Capitalizing on the cost benefits of direct supply, the benefits of being the
first licensees since 1969 to establish retail marketing in Malaysia, and the
currently depressed prices of premium Malaysian real estate, the Company will
initially target major markets within 125 miles of the Melaka refinery. The
Company plans to have six stores operating by the first quarter of 1999.
SPECIALTY PRODUCTS
The Company sells a variety of high value lubricants and specialty products
to commercial, industrial and wholesale accounts worldwide, including lubes
(such as automotive and industrial lubricants and waxes), petroleum coke,
solvents and pipeline flow improvers. The Company's experience has been that
specialty products are attractive because their premium prices generate higher
margins and their markets are generally less cyclical than commodity markets.
The Company began marketing the HYDROCLEAR(TM) brand of lubricants with the
start-up of the Excel Paralubes plant in 1997. The HYDROCLEAR(TM) lubricants
were designed to compete with synthetics for a range of applications with
difficult operating conditions, along with the added value of non-toxicity.
Through its Penreco joint venture company, the Company also produces specialty
petroleum products for global markets.
The Company's technical expertise in carbon upgrading positions it as a
leader in the manufacture and marketing of specialty coke and coke products. The
Company manufactures high quality graphite coke at its Lake Charles and Humber
refineries for use in the global steel industry. It also globally markets anode
and
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fuel coke produced at its Lake Charles, Ponca City, Billings and Humber
refineries. In addition, the Company participates in the Asia Pacific coke
market by providing technical and marketing expertise to its PetroCokes joint
venture with Sumitomo and Japan Energy.
The Company is a leader in the worldwide market for pipeline flow
improvers. Conoco's "LiquidPower(TM)" product is a flow improver for increasing
petroleum pipeline capacity by reducing friction loss. The Company also uses
"LiquidPower(TM)" in its own pipeline systems.
POWER
Conoco Global Power was founded in 1995 to leverage the economic advantages
of the Company's energy production activities and DuPont's demand for energy in
its manufacturing operations.
The Company has entered into a joint venture agreement to build a natural
gas fired cogeneration plant near Corpus Christi, Texas. Construction has begun
on the plant, which will be located adjacent to chemical complexes owned by
DuPont and OxyChem, Occidental Petroleum Corporation's chemicals division, the
Company's partner in this joint venture. OxyChem will operate the plant under a
long-term contract and will purchase a majority of the plant's electricity and
steam production. The plant is designed to produce 440 megawatts of power and
1.1 million pounds per hour of process steam. The plant will be a qualifying
facility under the Public Utility Regulatory Policies Act and expects to sell
excess electricity in the Texas power markets. Commercial operation of the plant
is expected by January 2000.
The Company has made a proposal for a multi-site industrial energy project
involving various DuPont facilities in the United States.
CORE VALUES
The Company is committed to four core values: operating safely, protecting
the environment, acting ethically and valuing all people. Conoco is a recognized
industry leader in both concern for the health and safety of its employees and
protecting the environment. In 1997, the Company achieved the lowest recordable
injury rate in its history. This performance earned it the lowest injury rate
among all major petroleum companies reporting to the American Petroleum
Institute, an achievement matched in ten out of the last 15 years.
Conoco is also an innovator both at recycling materials and at operating in
environmentally sensitive areas. In the United Kingdom, for example, the Company
successfully recycled over 99 percent of the Viking gas platforms, which it
redeployed from the North Sea. It has also operated in the Aransas National
Wildlife Refuge in South Texas for almost 60 years. In 1990, the Company took a
major step toward oil spill prevention with the decision to build only
double-hulled tankers -- a decision taken before law mandated such technology.
By the year 2000, the Company intends to have a U.S. fleet consisting entirely
of double-hulled vessels.
In order to maintain the highest ethical standards, the Company established
clear guidelines on business ethics which every employee agrees to follow. The
Company has established annual President's Awards for safety, environmental
protection and valuing all people performance. Valuing people includes seeking
diversity in the workforce, nationalizing a significant portion of its workforce
in each country where it operates as soon as practicable, responding to employee
ideas and concerns, treating everyone with dignity and respect, sharing the
financial success of the Company with substantially all employees through the
"Conoco Challenge" program, and helping employees contribute fully in achieving
business goals. The Company believes that these core values result in a
motivated workforce with values and goals firmly aligned with the strategic aims
of the business.
These core values provide guidance to employees in working to meet the
expectations of customers, partners and host governments, and in respecting the
communities in which the Company does business.
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ENVIRONMENTAL REGULATION
Together with other companies in the industries in which it operates, the
Company's operations are subject to numerous federal, state, local, European
Union and other foreign environmental laws and regulations concerning its oil
and gas operations, products and other activities, including legislation that
implements international conventions or protocols. In particular, these laws and
regulations require the acquisition of permits, restrict the type, quantities,
and concentration of various substances that can be released into the
environment, limit or prohibit activities on certain lands lying within
wilderness, wetlands and other protected areas, regulate the generation,
handling, storage, transportation, disposal and treatment of waste materials and
impose criminal or civil liabilities for pollution resulting from oil, natural
gas and petrochemical operations.
Governmental approvals and permits are currently, and may in the future be,
required in connection with the Company's operations. The duration and success
of obtaining such approvals are contingent upon many variables, many of which
are not within the Company's control. To the extent such approvals are required
and not obtained, operations may be delayed or curtailed, or the Company may be
prohibited from proceeding with planned exploration or operation of facilities.
Environmental laws and regulations are expected to have an increasing
impact on the Company's operations in most of the countries in which it
operates, although it is impossible to predict accurately the effect of future
developments in such laws and regulations on the Company's future earnings and
operations. Some risk of environmental costs and liabilities is inherent in
particular operations and products of the Company, as it is with other companies
engaged in similar businesses, and there can be no assurance that material costs
and liabilities will not be incurred. However, the Company does not currently
expect any material adverse effect upon its results of operations or financial
position as a result of compliance with such laws and regulations.
Protection and concern for the environment is one of the Company's core
values. The Company is an innovator both at recycling materials and operating
responsibly in environmentally sensitive areas. The Company operates oil and gas
production facilities, petroleum refineries, natural gas processing plants and
distribution facilities throughout the world. These facilities are subject to
various federal, state, local and foreign environmental laws and regulations. It
is Conoco's policy to fully meet or exceed legal and regulatory requirements
wherever it operates. To meet future environmental obligations, the Company is
engaged in a continuing program to develop effective measures to protect the
environment. This program includes research into reducing sulfur levels in heavy
fuel oils and diesel fuel, reducing benzene content in gasoline, reducing vapor
emissions at service stations, developing more effective methods of containing
and recovering offshore oil spills, improving the quality of emissions and
effluents from the Company's refineries and other facilities, developing and
installing monitoring systems at the Company's facilities and developing
environmental impact assessments before commencing major projects. For a
discussion of the Company's operating expenses and capital expenditures with
respect to environmental protection, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Environmental Matters."
Although future environmental obligations are not expected to have a material
adverse effect on the results of operations or financial condition of the
Company, there can be no assurance that future developments, such as
increasingly stringent environmental laws or enforcement thereof, will not cause
the Company to incur substantial environmental liabilities or costs.
AIR EMISSIONS
The operations of the Company are subject to regulations controlling
emissions of air pollutants. The primary legislation affecting the Company's
U.S. air emissions is the Federal Clean Air Act and its 1990 Amendments (the
"CAA"). Among other things, the CAA requires all major sources of air emissions
to obtain operating permits; the CAA also revised the definition of "major
source" such that additional equipment involved in oil and gas production may
now be covered by the permitting requirements. Although the precise requirements
of the CAA are not yet known, the Company may incur substantial capital,
operating and maintenance costs to comply with such requirements.
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The CAA requires EPA to promulgate regulations imposing Maximum Achievable
Control Technology ("MACT") standards to reduce emissions of certain air
pollutants from industrial facilities, such as Conoco's refineries,
transportation terminals and certain crude oil production operations. EPA has
promulgated MACT standards that are applicable to some of Conoco's operations
and the Company's costs to comply with them have not been material. However,
MACT standards applicable to many of Conoco's other operations have yet to be
promulgated. Consequently, while it is not yet possible to predict accurately
the total actual expenditures that Conoco may incur to comply with these
standards, the Company anticipates that these costs may be substantial.
In June 1997, EPA revised the National Ambient Air Quality Standards
("NAAQS") for ozone and particulate matter, which will ultimately require more
stringent controls on stationary sources and cleaner-burning fuels in certain
parts of the United States. The financial impacts of these revisions cannot
reasonably be estimated until individual states adopt regulations to implement
the revised NAAQS, although Conoco believes that such impacts could be
substantial.
Under the CAA, EPA has promulgated a number of regulatory standards that
mandate a variety of specifications for motor fuels designed to reduce emissions
of certain air pollutants from vehicles burning such fuels. These regulated
fuels include gasoline and diesel fuels produced and marketed by Conoco. In
addition, many other countries in which Conoco produces or markets motor fuels
similarly regulate the composition of such products. The Company has already
incurred the costs of complying with such requirements that are currently in
effect. The European Parliament and European Union governments recently agreed
to enact legislation that, among other things, requires phased reductions of
sulfur and aromatics content in gasoline and diesel fuel and of benzene in
gasoline. While it is not yet possible to predict accurately the total actual
expenditures that Conoco may incur to comply with these requirements, the
Company anticipates that these costs may be substantial. EPA also continues to
consider further regulation of motor fuels composition specifications. Although
it is not yet possible to predict the precise composition specifications that
may be imposed by EPA in the future, and therefore, it is not yet possible to
predict accurately the total actual expenditures that may be incurred by Conoco
to produce motor fuels meeting future specifications, such expenditures could be
substantial.
In 1997, an international conference on global warming concluded an
agreement, known as the Kyoto Protocol, which called for reductions of certain
emissions that contribute to increases in atmospheric greenhouse gas
concentrations. The combustion of fossil fuels, such as crude oil, results in
emissions of the type sought to be reduced by the Kyoto Protocol. The treaty
codifying the Kyoto Protocol has not been ratified by the United States, but may
be in the future. In addition, other countries where Conoco has interests, or
may have interests in the future, have made commitments to the Kyoto Protocol
and are in various stages of formulating applicable regulations. Although it is
not yet possible to estimate accurately the total actual expenditures that may
be incurred by Conoco as a result of the Kyoto Protocol, such expenditures could
be substantial.
HAZARDOUS SUBSTANCES AND WASTE DISPOSAL
The Company currently owns or leases numerous properties that have been
used for many years for hardminerals production or natural gas and crude oil
production. Although the Company has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other wastes may
have been disposed of or released on or under the properties owned or leased by
the Company. In addition, some of these properties have been operated by third
parties over whom the Company had no control. CERCLA and comparable state
statutes impose strict, joint and several liability on owners and operators of
sites and on persons who disposed of or arranged for the disposal of "hazardous
substances" found at such sites. RCRA and comparable state statutes govern the
management and disposal of wastes. Although CERCLA currently excludes petroleum
from cleanup liability, many state laws affecting the Company's operations
impose clean-up liability regarding petroleum and petroleum related products. In
addition, although RCRA currently classifies certain exploration and production
wastes as "nonhazardous", such wastes could be reclassified as hazardous wastes
thereby making such wastes subject to more stringent handling and disposal
requirements. If such a change in legislation were to be enacted, it could have
a significant impact on
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the Company's operating costs, as well as the gas and oil industry in general.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Environmental Matters."
OIL SPILLS
Under the Federal Oil Pollution Act of 1990, as amended ("OPA"), (i) owners
and operators of onshore facilities and pipelines, (ii) lessees or permittees of
an area in which an offshore facility is located and (iii) owners and operators
of tank vessels ("Responsible Parties") are strictly liable on a joint and
several basis for removal costs and damages that result from a discharge of oil
into the navigable waters of the United States. These damages include, for
example, natural resource damages, real and personal property damages and
economic losses. OPA limits the strict liability of Responsible Parties for
removal costs and damages that result from a discharge of oil to $350 million in
the case of onshore facilities, $75 million plus removal costs in the case of
offshore facilities, and in the case of tank vessels, an amount based on gross
tonnage of the vessel. However, these limits do not apply if the discharge was
caused by gross negligence or wilful misconduct, or by the violation of an
applicable Federal safety, construction or operating regulation by the
Responsible Party, its agent or subcontractor or in certain other circumstances.
In addition, with respect to certain offshore facilities, OPA requires
evidence of financial responsibility in an amount of up to $150 million. Tank
vessels must provide such evidence in an amount based on the gross tonnage of
the vessel. OPA also requires offshore facilities, certain onshore facilities
and tank vessels to prepare spill response plans, which the Company has done,
for responding to a "worst case discharge" of oil. Failure to comply with these
requirements or failure to cooperate during a spill event may subject a
Responsible Party to civil or criminal enforcement actions and penalties.
OFFSHORE PRODUCTION
Offshore oil and gas operations in U.S. waters are subject to regulations
of the United States Department of the Interior which currently impose strict
liability upon the lessee under a Federal lease for the cost of clean-up of
pollution resulting from the lessee's operations, and such lessee could be
subject to possible liability for pollution damages. In the event of a serious
incident of pollution, the Department of the Interior may require a lessee under
Federal leases to suspend or cease operations in the affected areas. See
"-- Litigation and Other Contingencies."
SOURCES OF SUPPLY
During 1997, the Company supplemented its own crude oil production to meet
its refining requirements by the purchase of crude oil from both domestic and
international sources. Approximately 56 percent of the crude oil processed in
the Company's U.S. refineries in 1997 came from U.S. sources. The remainder of
crude processed came principally from Venezuela, Mexico and Canada. During 1997,
the Company's Humber refinery in the United Kingdom processed principally North
Sea crude oils. In the joint venture MiRO refinery, the Company processed
primarily Mediterranean crude oils in 1997. The Company's joint venture CRC
refineries in the Czech Republic process primarily Russian crudes.
To assure availability, the Company maintains multiple sources for most raw
materials, supplies, services and equipment, with no one company supplying a
substantial portion of the Company's needs. The Company also routinely leases or
charters equipment, such as drilling rigs, offshore supply boats, seismic boats,
pipeline laying equipment, derrick barges, and cranes. Availability of supply
and/or cost of such equipment has been a factor in the past, and could have a
detrimental impact on the Company in the future.
RESEARCH AND DEVELOPMENT
The objectives of the Company's research and development programs are to
discover new products, processes and business opportunities in relevant fields,
and to improve existing products and processes. Research and development also
focuses on improving efficiency, safety and environmental protection. Worldwide
expenditures for research and development amounted to approximately $44 million
in 1997,
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$41 million in 1996 and $36 million in 1995. Approximately $46 million is
budgeted for research and development activities in 1998.
The capabilities of the Company's research and development group have been
augmented by its access to DuPont's corporate science and engineering resources.
Certain elements of DuPont's material science expertise and analytical
capabilities are relevant to the Company's oil and gas research and development
work. Following the Separation, the Company will continue to have access to
DuPont's corporate science and engineering expertise pursuant to transitional
agreements.
PATENTS AND TRADEMARKS
The Company owns and is licensed under various patents, which expire from
time to time, covering many products, processes and product uses. No individual
patent is of material importance to the Company's business as a whole. During
1997, the Company was granted seven U.S. and 26 non-U.S. patents. The Company
also has individual trademarks and brands for its products and services which
are registered in various countries throughout the world. None of these
trademarks and brands are considered material other than the "Conoco" and "Jet"
brands.
OPERATING HAZARDS AND INSURANCE
The Company's operations are subject to certain operating hazards such as
well blowouts, collapsed wells, explosions, uncontrolled flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures, pipeline ruptures
or spills, refinery explosions, surface or marine transportation incidents,
pollution, releases of toxic gas and other environmental hazards and risks. In
accordance with customary industry practices, the Company maintains insurance
against some, but not all, such risks and losses. The Company does not carry
business interruption insurance. The Company has elected to retain the risk
where management believes the cost of insurance, although available, is
excessive relative to the risks presented. In addition, pollution and
environmental risks are generally not fully insurable. See "Risk
Factors -- Operating Hazards."
LITIGATION AND OTHER CONTINGENCIES
Two of three proceedings instituted by governmental authorities against
Conoco for alleged violations of RCRA with the potential for monetary sanctions
in excess of $100,000, have been resolved by Conoco's executing Consent Orders
and agreeing to pay cash penalties of $112,500 and $72,500, respectively, and to
perform a Supplemental Environmental Project over the next two years applicable
to both proceedings at an expected total cost of approximately $600,000. With
regard to the third proceeding, although regulatory authorities have requested a
civil penalty of $169,000, Conoco expects that the matter will ultimately be
resolved for a substantially smaller penalty.
On March 6, 1996, the Department of Justice filed a complaint in the United
States District Court for the District of Montana against Yellowstone Pipeline
Company ("YPL") and the Conoco Pipe Line Company as a part owner and operator of
YPL. The complaint alleges discharges of oil from a YPL pipeline in January 1993
and seeks civil penalties of up to $25,000 per day for each violation or up to
$1,000 for each barrel of oil discharged. Since the duration of the discharge is
in dispute, the penalty calculation is uncertain although it is expected to
exceed $100,000. The parties are attempting to negotiate a resolution of the
matter, including a supplemental environmental project that would constitute a
substantial part of a settlement with the Government.
Conoco has been assessed a monetary penalty in the amount of $298,000 by
the New Mexico Environmental Department, Air Quality Bureau. The demand was made
on June 18, 1998. New Mexico alleges that Conoco failed to obtain a permit under
the CAA and violated certain permit conditions in the existing permits. Conoco
assets affected are the Maljamar Gas Plant and the MCA field. Conoco expects to
obtain settlement by payment of a lesser monetary penalty and performance of a
supplemental environmental project.
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The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business, including
personal injury claims, environmental claims and leaking underground storage
tank claims and, along with other oil companies, actions challenging oil and gas
royalty and severance tax payments based on posted prices. The Company believes
ultimate liabilities resulting from such lawsuits and claims may be material to
results of operations in the period in which they are recognized, but will not
materially affect the combined financial position of the Company.
PROPERTIES
The Company owns its corporate headquarters, consisting of 16 three-story
buildings on a 62-acre site in Houston, Texas. The Company owns and leases
petroleum properties and operates production processing, refining, marketing,
power-generating, and research and development facilities worldwide. In
addition, the Company operates sales offices, regional purchasing offices,
distribution centers, and various other specialized service locations throughout
the world.
EMPLOYEES
The Company had approximately 16,400 employees as of June 30, 1998.
Approximately 1,400 employees at the Company's U.S. refineries are represented
by the Oil, Chemical and Atomic Workers International Union under separate
bargaining agreements for each refinery. These agreements cover wages, certain
benefit matters, grievance procedures and various employment conditions, and the
Company believes they are typical of the refining industry in the U.S. The
Company believes that its relations with its employees are good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning the current executive officers
and current and prospective directors of the Company.
<TABLE>
<CAPTION>
NAME AGE(2) POSITION WITH THE COMPANY TERM EXPIRES
---- ------ ------------------------- ------------
<S> <C> <C> <C>
Edgar S. Woolard, Jr.............. 64 Chairman of the Board of Directors
Archie W. Dunham.................. 59 President, Chief Executive Officer and
Director
Ruth R. Harkin(1)................. 53 Director
Frank A. McPherson(1)............. 65 Director
Gary M. Pfeiffer.................. 48 Director
William K. Reilly(1).............. 58 Director
William R. Rhodes(1).............. 62 Director
Franklin A. Thomas(1)............. 63 Director
Gary W. Edwards................... 56 Executive Vice President, Refining,
Marketing, Supply and Transportation
Robert E. McKee III............... 52 Executive Vice President, Exploration
Production
Robert W. Goldman................. 56 Senior Vice President, Finance, and Chief
Financial Officer
Rick A. Harrington................ 53 Senior Vice President, Legal, and General
Counsel
</TABLE>
- ---------------
(1) Expected to be elected as a Director at the Company's first regular board
meeting following the Offerings.
(2) As of July 31, 1998.
Edgar S. Woolard, Jr. retired as Chairman of the Board of Directors of
DuPont on October 29, 1997, having served since 1989. He remains a director of
DuPont. Since he joined DuPont in 1957, he occupied many technical and
managerial positions at various locations across the United States. From 1987 to
1989, Mr. Woolard served as President and Chief Operating Officer of DuPont, and
from 1989 to 1995, as Chairman and Chief Executive Officer. Mr. Woolard is a
director of Citicorp and Apple Computer, Inc. and a member of The Business
Council, the Board of Trustees of Winterthur Museum, the Christiana Care
Corporation, the Protestant Episcopal Theological Seminary in Virginia, and the
North Carolina Textile Foundation. He is also a member of the National Academy
of Engineering and the Bretton Woods Committee.
Archie W. Dunham has been President and Chief Executive Officer of the
Company since 1996. He joined the Company in 1966 and subsequently held a number
of commercial and managerial positions within the Company and DuPont. He
currently serves on both companies' boards of directors. Mr. Dunham is also a
member of the Louisiana-Pacific Corporation Board of Directors and has been
elected a director of Phelps Dodge Corporation effective November 4, 1998. Mr.
Dunham is a former Executive Vice President, Exploration Production and
Executive Vice President, Refining, Marketing, Supply and Transportation for the
Company. He was also a Senior Vice President, Polymers and Senior Vice
President, Chemicals and Pigments for DuPont. He is a director of the American
Petroleum Institute, the National Petroleum Council, the U.S. -- Russia Business
Council, the Greater Houston Partnership and Chairman of the United States
Energy Association. Mr. Dunham is a member of the Board of Visitors and the
Energy Center Board of Directors at the University of Oklahoma. He also serves
on the board of trustees of the Memorial Hermann Healthcare System in Houston,
the Houston Grand Opera, the Houston Symphony, the George Bush Presidential
Library and the Smithsonian Institution.
Ruth R. Harkin is Senior Vice President, International Affairs and
Government Relations of United Technologies Corporation ("UTC") and Chair of
United Technologies International, UTC's international representation arm.
Previously Mrs. Harkin was the president and chief executive officer of the
Overseas Private Investment Corporation (OPIC), in the Clinton administration
from 1993 to 1997. Mrs. Harkin was elected as a prosecutor in the office of the
County Attorney of Story County, Iowa in 1973. She also served as
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Deputy General Counsel at the U.S. Department of Agriculture and was Of Counsel
at the law firm of Akin, Gump, Strauss, Hauer & Feld. Mrs. Harkin is a member of
the Board of Visitors of the College of Business Administration, University of
Iowa. She also sits on the Boards of the Center for National Policy and the
National Association of Manufacturers, and is a Trustee of the Eurasia
Foundation.
Frank A. McPherson retired as Chairman and Chief Executive Officer of
Kerr-McGee Corporation on February 1, 1997. He joined Kerr-McGee in 1957 and
held many technical, operational and managerial positions including President
from 1980 to 1983. He is a past director of the Federal Reserve Bank of Kansas
City and the Oklahoma State University foundation Board of Trustees. Mr.
McPherson serves on the boards of directors of Kimberly-Clark Corp., Bank of
Oklahoma, Tri-Continental Corporation, Seligman Quality Fund, Inc., Seligman
Select Municipal Fund, Inc., and the Seligman Group of Mutual Funds. He is also
a member of the boards of the American Petroleum Institute, Boys and Girls Clubs
of America, Baptist Medical Center, Oklahoma Chapter of Nature Conservancy,
Oklahoma City Chamber of Commerce, Oklahoma City Public School Foundation,
Oklahoma Medical Research Foundation and Oklahoma Foundation for Excellence in
Education.
Gary M. Pfeiffer has been Senior Vice President, Finance and Chief
Financial Officer of DuPont since 1997. Previously from 1994 to 1997, Mr.
Pfeiffer was Vice President and General Manager of DuPont Nylon, North America,
with responsibility for all of DuPont's nylon fiber and intermediate business in
North America. He has also served as Global Business Director, Nylon
Intermediates for DuPont Chemicals, from 1992 to 1994, and as Director - Finance
for DuPont Chemicals and Specialties Manufacturing, from 1991 to 1992. Since he
joined DuPont in 1974, Mr. Pfeiffer has held a number of technical and
managerial positions in the United States and overseas. He is also on the board
of the Hagley Museum and Library.
William K. Reilly is currently a member of the Board of Directors of DuPont
and is President and Chief Executive Officer of Aqua International Partners, an
investment group which finances water improvements in developing countries.
Formerly, Mr. Reilly was a visiting professor at the Institute of International
Studies at Stanford University and served as Administrator of the U.S.
Environmental Protection Agency from February 1989 to January 1993. Mr. Reilly
was president of the Conservation Foundation from 1973 to 1989 and, after its
affiliation with World Wildlife Fund in 1985, served as President of both
groups. He also serves on the boards of Royal Caribbean International and
Evergreen Holdings. He is Chairman of the Board of the American Farmland Trust
and serves on the boards of National Geographic Society, World Wildlife Fund and
Yale University. Mr. Reilly also serves as a member of the board of the Presidio
Trust of San Francisco.
William R. Rhodes is a Vice Chairman of Citicorp and its principal
subsidiary, Citibank. Mr. Rhodes is Vice Chairman of the Institute of
International Finance; a Director of the Private Export Funding Corporation; a
trustee and member of the Executive Council of the Council of the Americas; an
Executive Committee member of the Bretton Woods Committee and the U.S.-Russia
Business Council; and a founding member of the U.S. National Advisory Council to
the International Management Center. Other board memberships include The Group
of Thirty; the Americas Society; The African-American Institute; CHIPCo; and the
U.S.-Egypt Presidents' Council. He is also a member of the Council on Foreign
Relations, the Foreign Policy Association, and The Bankers Roundtable. Mr.
Rhodes is a past Chairman of the U.S. Advisory Committee of the Export-Import
Bank of the United States; past Chairman of the U.S. section of the
Venezuela-U.S. Business Council; past President of the Venezuela-American
Chamber of Commerce; and past President of the Bankers Association for Foreign
Trade. He is a Governor and Trustee of the New York and Presbyterian Hospital
and a Director of the New York City Partnership and Chamber of Commerce. He
serves as a trustee of Brown University and Chairman of the Board of Trustees of
the Northfield Mount Hermon School.
Franklin A. Thomas has been a consultant to the TFF Study Group, a
non-profit initiative assisting development in southern Africa, since April
1996. Mr. Thomas was President and Chief Executive Officer of The Ford
Foundation from 1979 to 1996. He also serves as a director of the Aluminum
Company of America, Citicorp and its subsidiary, Citibank, N.A., Cummins Engine
Company, Inc., Lucent Technologies, Inc. and PepsiCo, Inc.
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Gary W. Edwards has been Executive Vice President of the Company since
1991, with responsibility for worldwide refining, marketing, supply and
transportation. He is currently a Senior Vice President of DuPont. He joined the
Company in 1963, working at various locations throughout the United States and
in the United Kingdom, and was formerly the Company's Vice President, Refining
Marketing Europe; Vice President Refining, Marketing and Transportation; and
Vice President North American Marketing. Mr. Edwards has held a number of
managerial positions in Conoco Pipeline, Transportation, Natural Gas and Gas
Products, Logistics and Marketing. He is a Director of the American Petroleum
Institute and a previous director and Vice President of the European Petroleum
Industry Association in Brussels, Belgium. Mr. Edwards is Chairman of the Kansas
State University Engineering advisory council and a member of the Yellowstone
Park foundation advisory committee. He is a board member of Theatre Under the
Stars, Junior Achievement, Inc. (National) as well as Junior Achievement of
Southeast Texas, Target Hunger, Private Sector Initiative, and the Houston Music
Hall Foundation.
Robert E. McKee III has been an Executive Vice President for the Company
since 1992, with responsibility for worldwide exploration and production. He is
currently a Senior Vice President of DuPont. He was formerly the Company's
Executive Vice President for Corporate Strategy and Development, Senior Vice
President for Administration, Vice President of North American Refining and
Marketing and Vice President, Chairman and Managing Director of Conoco (UK)
Limited. Since he joined Conoco in 1968, Mr. McKee has worked at various
locations and held numerous managerial, operating, administrative and technology
positions both in the United States and overseas. He currently serves on the
board of directors of Consolidation Coal Company, a subsidiary of DuPont, and
the American Petroleum Institute. In addition, he is Chairman of the Southern
Regional Advisory Board of the Institute of International Education and a member
of the advisory committee of the University of Texas Engineering Department. Mr.
McKee also serves on the board of directors of the Houston Museum of Natural
Science and as Chairman of the President's Council of the Colorado School of
Mines.
Robert W. Goldman has been Senior Vice President, Finance, and Chief
Financial Officer of the Company since 1998 and was its Vice President, Finance
from 1991 to 1998. Mr. Goldman began his career with DuPont in 1965 and
subsequently held many technical and managerial positions within the finance,
tax and treasury functions. He is the former Vice President - Finance of DuPont
(Mexico), Vice President, Remington Arms Company and served as Director and
Comptroller of several operating departments of DuPont in Wilmington, Delaware.
Mr. Goldman transferred to the Company in 1988 as Vice President and Controller.
He is co-chairman of the Company's Risk Management Committee and is a member of
the American Petroleum Institute, a former chairman of its Accounting Committee
and currently serves on its Executive Committee of the General Committee on
Finance. He is also a member of the Financial Executives Institute and the
Executive Committee of the Board of Directors of the Alley Theatre in Houston,
Texas.
Rick A. Harrington has been Senior Vice President, Legal, and General
Counsel of the Company since 1998 and was Vice President and General Counsel of
the Company and Vice President and Assistant General Counsel of DuPont from 1994
to 1998. He joined DuPont in 1979 as a Senior Attorney, and subsequently held
the positions of Managing Counsel, Special Litigation, and Vice President and
General Counsel of Consolidation Coal Company, a subsidiary of DuPont. Prior to
joining DuPont, he was a partner in the firm of Arent, Fox, Kintner, Plotkin and
Kahn in Washington, D.C. where he specialized in antitrust litigation. Mr.
Harrington is a member of the bar of the District of Columbia, the District of
Columbia Court of Appeals and the Fifth Circuit Court of Appeals. He is a member
of the American Petroleum Institute General Committee on Law, the American
Corporate Counsel Association International Legal Affairs Committee, and the
University of Kansas School of Business Dean's Board.
Effective as of the closing of the Offerings, Messrs. Dunham, McKee,
Edwards and Harrington will resign as officers of DuPont.
ELECTION AND COMPENSATION OF DIRECTORS
The By-laws provide for a Board of Directors of not less than six nor more
than 15 directors, with the current number set at nine (eight of which have been
named as of the date hereof). Each member of the
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Board of Directors holds office until the expiration of his or her term and
until his or her successor is elected and qualified. Vacancies on the Board of
Directors may be filled by the majority vote of directors then in office or by a
sole remaining director, or by stockholder vote if such vacancy was caused by
action taken by stockholders. DuPont elected the current members of the Board of
Directors on July 24, 1998. Edgar S. Woolard, Jr., Gary M. Pfeiffer, William K.
Reilly, William R. Rhodes and Franklin A. Thomas are nominees of DuPont under
the terms of the Separation Agreement. See "Arrangements Between the Company and
DuPont."
Directors who are officers of the Company or employees of DuPont will
receive no additional compensation for serving on the Board of Directors. At the
time of the Offerings, nonemployee members of the Board of Directors will
receive a special grant of an option to purchase Class A Common Stock (each, a
"Company Stock Option") with a present value of $30,000 and a grant of Company
restricted stock units with respect to Class A Common Stock with an aggregate
value of $95,000. Future nonemployee Directors, upon election to the Board, will
receive a grant of Company restricted stock units with respect to Class A Common
Stock with an aggregate value equal to $95,000. On an annual basis, nonemployee
Directors will receive a fee of $30,000, and, following the annual meeting, a
grant of Company restricted stock units with respect to Class A Common Stock
with an aggregate value of $20,000 and Company Stock Options with a present
value of $30,000. Company Stock Options and Company restricted stock units will
be awarded pursuant to the terms of the 1998 Stock and Performance Incentive
Plan of the Company (described below). The present value of Company Stock
Options will be determined using a generally accepted stock option valuation
methodology. Annual fees may be, and awards of restricted stock units will be,
deferred pursuant to the terms of the Deferred Compensation Plan for Nonemployee
Directors (described below).
Board members will also be eligible to participate in a Charitable Gift
Plan, which provides that, upon a Director's death, the Company will make a
donation in an amount equal to $200,000 per year for five years to the
tax-exempt educational institutions or charitable organizations recommended by
such director and approved by the Company. Each director will be fully vested in
the Charitable Gift Plan upon completion of one year of service as director. The
Company may fund the Charitable Gift Plan through, among other vehicles, the
purchase of life insurance policies on the lives of the directors, of which
policies the Company would be the beneficiary and which policies the Company
would own. Employee directors may elect to participate in the plan provided they
bear their allocable cost of the plan. Directors derive no personal financial or
tax benefit from the Charitable Gift Plan, since the charitable, tax-deductible
donations and insurance proceeds, if any, accrue solely to the benefit of the
Company.
Board members who serve as Chairman of a standing Board committee will
receive a supplement of $5,000 annually. No additional fees will be paid for
serving on Board committees. No additional fees will be paid for attending Board
or committee meetings.
In lieu of the compensation payable to nonemployee directors described
above (other than participation in the Charitable Gift Plan), Edgar S. Woolard,
Jr., Chairman of the Board, will receive an annual fee of $300,000 and equity
grants with a present value of $700,000. The annual fee will commence at the
closing of the Offerings. An initial grant of Company restricted stock units
with a value of $100,000 and nonqualified Company Stock Options with a present
value of $1,300,000 will be made at the closing of the Offerings and will cover
a two-year period. Company restricted stock units and Company Stock Options will
be granted pursuant to the terms of the 1998 Stock and Performance Incentive
Plan and will have provisions consistent with those of the other nonemployee
directors.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT AND COMPLIANCE COMMITTEE
The Audit and Compliance Committee has oversight responsibility for
Conoco's internal control structure, financial reporting, and legal compliance
program. The Audit and Compliance Committee selects an independent accounting
firm, subject to shareholder ratification, to audit the financial statements of
the Company. The Audit and Compliance Committee also requests the Company's
subsidiaries to engage independent accountants, as deemed appropriate by the
Audit and Compliance Committee, to audit their
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<PAGE> 90
respective financial statements. The Audit and Compliance Committee ensures
there is a corporate system in place to provide timely and accurate information
to senior management and the Board concerning the Company's compliance with the
law. The Audit and Compliance Committee meets to consider matters raised by its
members, internal legal staff, management, internal auditing staff, and the
independent accountants. It reports to the Board of Directors a summary of its
findings and recommendations. Members of the Audit and Compliance Committee are
independent from the Company's management and free from any relationship that,
in the opinion of the Board of Directors, would interfere with the exercise of
independent judgement. The Audit and Compliance Committee will initially consist
of Frank A. McPherson, Ruth R. Harkin, Gary M. Pfeiffer and William R. Rhodes.
Mr. McPherson will serve as chairman of the Audit and Compliance Committee.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for establishing certain
compensation policies consistent with corporate objectives and stockholder
interests. The Compensation Committee has responsibility for approving and/or
recommending to the Board levels of compensation for the President and Chief
Executive Officer, as well as stock options, performance awards and other stock
or cash-based awards for employee directors and executive officers. The
Compensation Committee also administers certain grants under the Company's
stock-based and other global performance-based compensation plans and adopts
and/or recommends to the full Board new plans or changes in compensation
programs. No member of the Compensation Committee may be an employee or officer
of the Company or any of its subsidiaries. The Compensation Committee will
initially consist of Franklin A. Thomas, William K. Reilly and Edgar S. Woolard,
Jr. Mr. Thomas will serve as chairman of the Compensation Committee.
Prior to the Offerings, the executive officers named in the Summary
Compensation Table below were participants in the executive compensation
programs of DuPont. The compensation committee of DuPont was responsible for the
review of those programs, and for grants awarded under those programs.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
No present officer, director or director nominee currently owns any shares
of Conoco's Common Stock, all of which are currently owned by DuPont. The
following table sets forth the number of shares of DuPont common stock
beneficially owned on June 15, 1998, by each of the Company's directors,
director nominees, the executive officers named in the Summary Compensation
Table below and all directors, director nominees and executive officers of the
Company as a group. Except as otherwise noted, the individual director, director
nominee or executive officer or their family members had sole voting and
investment power with respect to such securities.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED(1)(2)(3)(4)
---- -----------------
<S> <C>
Edgar S. Woolard, Jr....................................... 1,495,881(5)
Archie W. Dunham........................................... 834,487(6)
Frank A. McPherson......................................... 1,000(7)
Gary M. Pfeiffer........................................... 43,237(8)
William K. Reilly.......................................... 7,407
Gary W. Edwards............................................ 442,516(9)
Robert E. McKee III........................................ 372,089(10)
Robert W. Goldman.......................................... 105,661(11)
Rick A. Harrington......................................... 97,703(12)
Directors, and Executive Officers as a Group (12
persons)................................................. 3,399,381
</TABLE>
- ---------------
(1) No individual director, director nominee or named executive officer
beneficially owns 1 percent or more of the DuPont common stock, nor do the
directors and executive officers as a group.
(2) Mrs. Harkin, Mr. Rhodes and Mr. Thomas do not beneficially own any shares.
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<PAGE> 91
(3) Includes beneficial ownership of the following number of shares of DuPont
common stock which may be acquired within 60 days of June 15, pursuant to
stock options awarded under employee compensation plans of DuPont: Mr.
Woolard -- 1,101,240; Mr. Dunham -- 704,428; Mr. Pfeiffer -- 31,602; Mr.
Edwards -- 367,846; Mr. McKee -- 296,398; Mr. Goldman -- 93,306; and Mr.
Harrington -- 89,058. Certain of these options are to be canceled in the
Option Program, as described below under "-- Treatment of Outstanding
Stock Options and Stock Appreciation Rights -- Option Program."
(4) The persons named in this table have sole voting power and investment
power with respect to all shares of DuPont common stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in this table and these notes.
(5) Includes (i) 20,000 shares owned by Mr. Woolard's spouse to which Mr.
Woolard disclaims beneficial ownership, (ii) 18,000 shares owned by The
Woolard Family Foundation, and (iii) 13,698 shares owned by family trusts.
(6) Includes (i) 104,880 shares held in Dunham Management Trust, a revocable
grantor trust and (ii) 6,204 shares held in deferred compensation.
(7) The 1,000 shares listed above are owned by Mr. McPherson and his spouse
jointly.
(8) Includes 1,796 shares held in deferred compensation.
(9) Includes 6,800 shares owned by the Edwards Charitable Foundation.
(10) Includes (i) 1,300 shares owned by a minor child of Mr. McKee, (ii) 298
shares owned by another child of Mr. McKee, (iii) 453 shares owned by a
minor grandchild of Mr. McKee, (iv) 453 owned by another minor grandchild
of Mr. McKee, and (v) 29,509 owned by the McKee Family Trust.
(11) Includes (i) 1,650 shares owned by Mr. Goldman's spouse, and (ii) 350
shares owned by a minor child of Mr. Goldman.
(12) Includes 50 shares owned by a child of Mr. Harrington.
Company Stock Options and other stock-based awards may be granted to
directors, officers and other key employees of the Company in the future under
the 1998 Stock and Performance Incentive Plan of the Company. See "-- Election
and Compensation of Directors."
TREATMENT OF OUTSTANDING STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
OPTION PROGRAM
Each individual who (i) is actively employed by the Company as of the date
of the closing of the Offerings (the "Effective Date"), (ii) either (a) was an
employee of the Company more than 20 days prior to the Effective Date or (b) was
designated as an individual who would become an employee of the Company and such
designation occurred more than 20 days prior to the Effective Date and (iii)
holds, as of the closing of the Offerings, options to purchase DuPont common
stock (each such option, a "DuPont Option") or appreciation rights with respect
to DuPont common stock (each such right, a "DuPont SAR") will have the option,
subject to specific country tax and legal requirements, effective as of the
closing of the Offerings, to surrender for cancellation in the Option Program
each such DuPont Option or DuPont SAR, whether or not vested or exercisable, and
upon such cancellation, the Company will issue to such employee a Company Stock
Option or an appreciation right with respect to Class A Common Stock (a "Company
SAR"), as applicable. In general, Company Stock Options that qualify as
incentive stock options, as defined in the Code ("Incentive Stock Options"), are
to be issued upon cancellation of DuPont Options that qualify as Incentive Stock
Options, and Company nonqualified stock options are to be issued upon
cancellation of DuPont nonqualified stock options. The number of shares subject
to each Company Stock Option and each Company SAR issued in the Option Program,
and the exercise price per share of each such Company Stock Option and Company
SAR, will be determined in the manner described below that will reflect, in the
aggregate, the difference between the exercise price of the DuPont Options and
the fair market value per share of DuPont common stock and, in the case of
DuPont SARs, the appreciated value of such SARs.
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<PAGE> 92
The exercise price applicable to each Company Stock Option and Company SAR
issued upon cancellation of DuPont Options and DuPont SARs (the "Company
Exercise Price") will be the price (rounded to the nearest fourth decimal)
obtained by dividing (i) the exercise price of the applicable DuPont Option or
DuPont SAR (the "DuPont Exercise Price") by (ii) the ratio (the "Option Ratio")
of (a) the average price (the "DuPont Share Price") of DuPont common stock over
the five trading days immediately preceding the date of the commencement of the
Offerings (calculated as the average of the mean of the high and low prices of
DuPont common stock on each of these five days as reported on the NYSE) to (b)
the offering price to the public of the Class A Common Stock set forth on the
cover page of this Prospectus (the "IPO Price"). The DuPont Share Price is
$ . Each such Company Stock Option will entitle the holder to purchase,
and each such Company SAR will relate to, the whole number of shares of Class A
Common Stock (rounded up to the nearest whole share, in the case of a
nonqualified stock option, and rounded down to the nearest whole share, in the
case of an Incentive Stock Option) obtained by multiplying the number of shares
of DuPont common stock underlying the applicable DuPont Option or DuPont SAR by
the Option Ratio. In the case of any DuPont Option that qualifies as an
Incentive Stock Option, the formula set forth above will be adjusted, if
necessary, to comply with the Code.
Mr. Dunham has agreed to the cancellation in the Option Program of 100
percent of his DuPont Options and DuPont SARs and the issuance upon such
cancellation of Company Stock Options and Company SARs. The other executive
officers named in the Summary Compensation Table below have agreed to the
cancellation in the Option Program of 100 percent of their DuPont Options and
DuPont SARs, and the 12 other senior officers of the Company have agreed, in the
aggregate, to the cancellation of approximately 90 percent of their DuPont
Options and DuPont SARs.
All Company Stock Options and Company SARs issued upon cancellation of
DuPont Options and DuPont SARs will remain subject to the threshold, vesting,
exercisability and option-length terms and conditions to which the DuPont
Options and DuPont SARs were subject prior to cancellation. DuPont Options and
DuPont SARs that are not canceled in the Option Program generally will terminate
12 months after DuPont's ownership of the Company decreases to less than 50
percent. The Option Program will be conducted in accordance with such procedures
and at such time as is determined by DuPont's Compensation Committee and the
Company. See "Arrangements Between the Company and DuPont -- Employee Matters
Agreement."
Company Stock Options and Company SARs to be granted to the 17 senior
officers of the Company upon cancellation of DuPont Options and DuPont SARs are
to be granted under the Company's 1998 Stock and Performance Incentive Plan.
Company Stock Options and Company SARs to be granted to the remaining officers
and other employees of the Company upon cancellation of DuPont Options and
DuPont SARs are to be granted under the Company's 1998 Key Employee Stock
Performance Plan. As of July 31, 1998, the 17 senior officers of the Company
held an aggregate of 4,104,583 DuPont Options and 57,200 DuPont SARs eligible
for the Option Program, and the remaining officers and other employees of the
Company held an aggregate of 7,102,249 DuPont Options and 1,251,213 DuPont SARs
eligible for the Option Program. For a more detailed description of the Company
Stock Options and Company SARs to be issued in the Option Program, see "-- 1998
Stock and Performance Incentive Plan of the Company," "-- 1998 Key Employee
Stock Performance Plan," "-- Certain Provisions Applicable to the Plan and the
1998 Plan" and "-- Certain Federal Income Tax Consequences of the Plan and the
1998 Plan."
CERTAIN MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES OF THE OPTION
PROGRAM
The following is a general summary of certain United States federal income
tax consequences of the cancellation of DuPont Options and DuPont SARs and the
issuance upon such cancellation of Company Stock Options and Company SARs in
connection with the Option Program. This summary does not address tax
considerations that may be relevant to certain persons in light of their
particular circumstances. This summary is based upon the Code, existing,
temporary and proposed regulations promulgated thereunder and administrative and
judicial decisions, all of which are subject to change, possibly with
retroactive effect. In addition, this summary does not address the effect of any
state, local or foreign tax laws. Each person
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<PAGE> 93
contemplating participation in the Option Program should consult his or her tax
advisor with respect to the tax consequences of such participation.
The issuance of Company Stock Options and Company SARs upon cancellation of
DuPont Options and DuPont SARs will not be a taxable event to the holders of
DuPont Options and DuPont SARs. The Company Stock Options received upon
cancellation of DuPont Options which are nonqualified stock options will be
nonqualified Company Stock Options. Generally, a modification of an incentive
stock option results in the loss of incentive stock option status of such
option. However, under certain circumstances set forth in the Code and
applicable regulations (including proposed regulations), an incentive stock
option may be modified without loss of the incentive stock option status. In
particular, the issuance of an option upon cancellation of another option by
reason of a certain type of a corporate transaction will not result in loss of
incentive stock option status. The Separation constitutes such a corporate
transaction and, accordingly, assuming the applicable requirements of the Code
are satisfied, the issuance of a Company Stock Option upon cancellation of a
DuPont Option by reason of the Separation should not result in loss of incentive
stock option status.
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<PAGE> 94
COMPENSATION OF EXECUTIVE OFFICERS
During fiscal 1997, the executive officers named in the table included
under this caption were employees of DuPont and participated in DuPont's
executive benefit plans, as indicated in the tables.
The following table sets forth the aggregate compensation paid to the
Company's chief executive officer and four other most highly compensated
executive officers (the "Named Officers") by DuPont or its subsidiaries during
fiscal 1997.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------------
OTHER SHARES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(3) OPTIONS GRANTED(4) COMPENSATION(5)
- ------------------ ---- -------- ---------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Archie W. Dunham.......... 1997 $667,500 $1,450,000 $33,075 290,376 $39,950
President, Chief
Executive Officer and
Director
Gary W. Edwards........... 1997 431,320 725,000 24,044 133,200 25,715
Executive Vice
President, Refining,
Marketing, Supply and
Transportation
Robert E. McKee III....... 1997 374,400 718,000 16,612 126,700 22,247
Executive Vice
President, Exploration
Production
Robert W. Goldman......... 1997 236,700 292,000 1,513 38,600 13,958
Senior Vice President,
Finance, and Chief
Financial Officer
Rick A. Harrington........ 1997 229,500 325,000 4,703 59,802 13,598
Senior Vice President,
Legal, and General
Counsel
</TABLE>
- ---------------
(1) Columns required by the rules and regulations of the Securities and Exchange
Commission that contain no entries have been omitted.
(2) On average, approximately 25 percent of variable compensation (i.e., bonus)
was paid in DuPont common stock.
(3) Other Annual Compensation consists solely of the reimbursement for the
payment of taxes.
(4) Shares have been adjusted to reflect a 2-for-1 DuPont common stock split in
1997. 1997 includes shares underlying both "Bicentennial" options (larger
than normal grants to reflect the higher risk due to significant stock price
hurdles and forfeiture provisions) and for Messrs. Dunham and Harrington,
reload options totaling 3,376 and 902, respectively. The totals for Messrs.
Goldman and Harrington each include 200 options granted under the DuPont
Shares program. See Notes 1, 2 and 3 of the Option Grants Table and Note 1
of the Aggregated Option Exercises and Year-End Option Values Table for more
detail on the "Bicentennial" options, reload feature and DuPont Shares
program.
(5) Includes the Company's matching contributions made pursuant to the Company's
thrift plans, including the following amounts credited under the related
savings restoration plan in 1997: Mr. Dunham, $30,450; Mr. Edwards, $16,215;
Mr. McKee, $12,747; Mr. Goldman, $4,458 and Mr. Harrington, $4,098.
93
<PAGE> 95
The following table sets forth information as of December 31, 1997
regarding DuPont Options granted to the Named Officers during fiscal 1997.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK APPRECIATION FOR
INDIVIDUAL OPTION GRANTS IN 1997 OPTION TERM(5)
----------------------------------------------- ---------------------------
NUMBER OF PERCENT
SHARES OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED EXERCISE EXPIRATION
NAME GRANTED IN 1997 PRICE(4) DATE 5%(6) 10%(7)
- ---- ---------- -------- -------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Archie W. Dunham................ 287,000(1) 2.87% $52.50 1/28/07 $ 0 $12,018,125
1,688(2) 0.02% 59.22 1/29/01 17,355 36,345
1,688(2) 0.02% 59.22 1/23/00 11,447 24,107
Gary W. Edwards................. 133,200(1) 1.33% 52.50 1/28/07 0 5,577,750
Robert E. McKee III............. 126,700(1) 1.27% 52.50 1/28/07 0 5,305,563
Robert W. Goldman............... 38,400(1) 0.38% 52.50 1/28/07 0 1,608,000
200(3) * 52.50 1/28/07 6,650 16,750
Rick A. Harrington.............. 58,700(1) 0.59% 52.50 1/28/07 0 2,458,063
902(2) 0.01% 56.28 1/23/00 7,639 15,982
200(3) * 52.50 1/28/07 6,650 16,750
</TABLE>
- ---------------
(1) These DuPont Options (the "Bicentennial" Options) may not be exercised
earlier than 12 months from date of grant and have a term of ten years.
Subject to the preceding sentence, DuPont Options with respect to 50 percent
of the DuPont common stock subject thereto will become exercisable if the
DuPont common stock price reaches $75 per share and the balance will be
exercisable if the DuPont common stock reaches $90 per share, but the DuPont
Options will be forfeited if these stock price thresholds are not met within
five years of grant date. The $75 threshold was met on April 17, 1998.
(2) These DuPont Options are subject to reload options which were granted when a
previously granted option was exercised. These reload options have not
increased the combined number of shares and options held by the executive
prior to exercise. The reload feature was added in 1997 to accelerate stock
ownership by executives. The shares of DuPont common stock received upon
exercise of the original DuPont Options (not including shares withheld to
satisfy income tax obligations) may not be transferred for a period of five
years. Reload options are granted at fair market value of a share of DuPont
common stock on the date of exercise of the original option, have a term
equal to the remaining term of the original DuPont Options and are
exercisable six months from the date of grant.
(3) These DuPont Options were awarded under the DuPont Shares program. Under
this program, substantially all employees received a one-time grant to
acquire shares of DuPont common stock at the fair market value as of the
date of grant. These DuPont Options became exercisable when the price of
DuPont common stock reached $75 per share on April 17, 1998. Similarly,
these DuPont Options have a term of 10 years.
(4) The exercise price is the average of the high and low prices of DuPont
common stock as reported on the NYSE-Composite Transactions Tape on the date
of grant.
(5) Represents total appreciation over the exercise price at the assumed annual
appreciation rates of 5 percent and 10 percent compounded annually for the
term of the DuPont Options.
(6) Reflects forfeiture of all Bicentennial options granted on January 29, 1997,
because the $75 and $90 stock price thresholds would not be met within five
years of grant date based on the assumed rate of stock price appreciation.
Also see Note 1 above.
(7) Reflects forfeiture of 50 percent of the Bicentennial options granted on
January 29, 1997, because the $90 stock price threshold would not be met
within five years of grant date based on the assumed rate of stock price
appreciation. Also see Note 1 above.
* Represents less than 0.01 percent of the total options granted under the
DuPont Shares program.
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<PAGE> 96
The following table sets forth information regarding the exercise of DuPont
Options during the 1997 fiscal year by each of the Named Officers and the 1997
fiscal year end value of all unexercised DuPont Options held by each of the
Named Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END 1997 AT FISCAL YEAR END 1997(2)
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Archie W. Dunham..... 10,648 $430,620 557,552 290,376 $17,407,434 $2,173,286
Gary W. Edwards...... 13,153 984,009 301,246 133,200 10,013,260 1,007,325
Robert E. McKee
III................ -- -- 233,048 126,700 7,428,204 958,169
Robert W. Goldman.... -- -- 73,906 38,600 2,361,524 291,913
Rick A. Harrington... 7,657 543,945 64,500 59,802 1,924,256 448,842
</TABLE>
- ---------------
(1) Represents the pre-tax gain, which is the difference between the market
value of the shares on the date of exercise of the DuPont Options and the
exercise price. The reload feature prohibits distribution of any net
after-tax gains, as described in Note 2 of the Option Grants Table. The
gains after taxes are converted to DuPont common stock that may not be sold
or transferred for at least five years. One hundred percent of the gains for
Mr. Dunham and 17 percent for Mr. Harrington resulted from the reload
feature.
(2) Represents the closing price for DuPont common stock on December 31, 1997 of
$60.0625 less the exercise price for all outstanding exercisable and
unexercisable DuPont Options for which the exercise price is less than such
closing price.
RETIREMENT BENEFITS
Retirement benefits for Company employees under the DuPont Pension and
Retirement Plan are based on an employee's years of service and average monthly
pay during the employee's three highest-paid years. "Average monthly pay" for
this purpose includes regular compensation and 100 percent of annual variable
compensation payments, but excludes other bonuses and compensation in excess of
limits imposed by the Internal Revenue Code of 1986, as amended (the "Code").
The Code limits the amount of annual benefits which may be payable from the
pension trust. Retirement benefits in excess of these limitations are paid from
the Company's general revenues under separate, nonfunded pension restoration
plans.
The table below illustrates the straight-life annuity amounts payable under
the DuPont Pension and Retirement Plan and retirement restoration plans to
Company employees retiring at age 65 in 1998. These amounts reflect an offset
based on Social Security benefits. The current years of service credited for
retirement benefits for the Named Officers are as follows: 32 years for A. W.
Dunham, 35 years for G. W. Edwards, 31 years for R. E. McKee, 33 years for R. W.
Goldman and 18 years for R. A. Harrington.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT
SALARY AND BENEFITS BASED ON SERVICE OF:
VARIABLE -------------------------------------------------
COMPENSATION 30 YEARS 35 YEARS 40 YEARS 45 YEARS
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 325,000.................................... $ 149,000 $ 174,000 $ 200,000 $ 226,000
900,000................................... 425,000 496,000 568,000 640,000
1,475,000................................... 701,000 818,000 936,000 1,054,000
2,050,000................................... 977,000 1,140,000 1,304,000 1,468,000
2,625,000................................... 1,253,000 1,462,000 1,672,000 1,882,000
</TABLE>
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<PAGE> 97
1998 STOCK AND PERFORMANCE INCENTIVE PLAN OF THE COMPANY
GENERAL
The Company has adopted the 1998 Stock and Performance Incentive Plan of
Conoco Inc. (the "Plan") to reward (i) key employees of the Company
("Employees"), (ii) directors of the Company who are not employees of the
Company ("Nonemployee Directors") and (iii) nonemployee consultants and other
independent contractors (collectively, "Independent Contractors") of the
Company. The primary objectives of the Plan are to attract and retain the
services of key Employees, Nonemployee Directors and Independent Contractors and
to further the interests of the Company and its stockholders by providing
incentives in the form of awards to key Employees, qualified Nonemployee
Directors and qualified Independent Contractors who can contribute materially to
the success and profitability of the Company. The following summary of certain
provisions of the Plan does not purport to be complete and is qualified in its
entirety by reference to the Plan, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is incorporated
herein by reference.
Awards to Employees ("Employee Awards") and awards to Independent
Contractors ("Independent Contractor Awards") generally are treated the same
under the Plan, and the discussion of Employee Awards herein applies, except as
noted, equally to Independent Contractor Awards. Employee Awards may be in the
form of (i) Company Stock Options, (ii) Company SARs, (iii) restricted or
unrestricted grants of Class A Common Stock or units denominated in Class A
Common Stock (collectively, "Stock Awards"), (iv) grants denominated in cash
("Cash Awards") and (v) grants denominated in cash, Class A Common Stock, units
denominated in Class A Common Stock or any other property, the vesting of which
grants are made subject to the attainment of one or more performance goals
("Performance Awards"). Awards to Nonemployee Directors under the Plan
("Director Awards" and, collectively with the Employee Awards and the
Independent Contractor Awards, the "Awards") will be in the form of grants of
Company Stock Options and Stock Awards.
The Plan is not qualified under Section 401(a) of the Code and is not
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
PARTICIPATION AND ELIGIBILITY
Key Employees eligible for Employee Awards under the Plan are employees
holding positions of responsibility with the Company and whose performance, in
the judgment of the Compensation Committee, can have a significant effect on the
success of the Company, as well as individuals who are expected to become
Employees within six months of the date of grant. Directors eligible for
Director Awards under the Plan are those who are not employees of the Company or
DuPont. Independent Contractors eligible for Awards under the Plan are those
providing, or who will provide, services to the Company. Employees who have
previously received DuPont Options and DuPont SARs may also participate through
the Option Program, as described above under "-- Treatment of Outstanding Stock
Options and Stock Appreciation Rights."
SHARES SUBJECT TO THE PLAN
The Company has reserved the greater of (a) shares of Class A Common
Stock or (b) percent of the number of shares of Class A Common Stock
outstanding from time to time, for purposes of the Plan. No more than
shares of Class A Common Stock shall be available for ISOs (defined below). No
Awards shall be granted under the Plan with respect to Class B Common Stock. The
number of shares authorized to be issued under the Plan is subject to adjustment
as described under "-- Certain Provisions Applicable to the Plan and the 1998
Plan -- Adjustments" below. Shares subject to Awards that are forfeited or
terminated, exchanged for Awards that do not involve Class A Common Stock or
expire unexercised, or are settled in cash in lieu of Class A Common Stock, or
otherwise such that the shares covered thereby are not issued, again become
available for Awards. Awards that are issued upon cancellation of an award
previously held by an Employee by reason of the Employee's employment while the
Company was wholly owned by DuPont, as described above under "-- Treatment of
Outstanding Stock Options and Stock Appreciation Rights," shall not count
against the limitations on Class A Common Stock available for Awards.
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<PAGE> 98
TERMS, CONDITIONS AND LIMITATIONS OF AWARDS
Employee Awards
The Compensation Committee will determine the type or types of Employee
Awards made under the Plan and will designate the Employees who are to be the
recipients of such awards. An Employee Award shall be embodied in an agreement
(an "Award Agreement"), which will contain such terms, conditions and
limitations as determined by the Compensation Committee. Employee Awards may be
granted singly, in combination or in tandem. Employee Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under the Plan or any other employee plan of the Company or any of its
subsidiaries, including any acquired entity. An Employee Award may provide for
the grant or issuance of additional, replacement or alternative Employee Awards
upon the occurrence of specified events, including the exercise of the original
Employee Award. At the discretion of the Compensation Committee, an Employee may
be offered an election to substitute an Employee Award for another Employee
Award or Employee Awards of the same or different type. All or part of an
Employee Award may be subject to conditions established by the Compensation
Committee, which may include, but are not limited to, continuous service with
the Company, achievement of specific business objectives, increases in specified
indices, attainment of specified growth rates and other comparable measurements
of performance. Upon the termination of employment by an Employee, any
unexercised, deferred, unvested or unpaid Employee Awards will be treated as set
forth in the applicable Award Agreement.
The Compensation Committee may make an Award to an individual who it
expects to become an Employee of the Company within the next six months, with
such Award being subject to the individual actually becoming an Employee within
such time period and to such other terms and conditions as may be established by
the Compensation Committee.
Company Stock Options. A Company Stock Option granted pursuant to the Plan
may consist of either an incentive stock option ("ISO") that complies with the
requirements of Section 422 of the Code or a non-qualified stock option ("NQSO")
that does not comply with such requirements. Independent Contractor Awards may
not include ISOs. ISOs and NQSOs must have an exercise price per share that is
not less than the Fair Market Value (as defined in the Plan) of the Class A
Common Stock on the date of grant; provided, however, that "Fair Market Value"
in the case of any Award made in connection with the Offerings means the price
per share of Class A Common Stock as set forth in the cover page of this
Prospectus.
Subject to the limitations described under "-- Certain Provisions
Applicable to the Plan and the 1998 Plan -- Exercise of Company Stock Options"
below, the terms, conditions and limitations applicable to any Company Stock
Options, including the term of any Company Stock Options and the date or dates
upon which they become exercisable, will be determined by the Compensation
Committee.
Company SARs. A Company SAR may be granted under the Plan to the holder of
a Company Stock Option with respect to all or a portion of the shares of Class A
Common Stock subject to such Company Stock Option or may be granted separately.
The terms, conditions and limitations applicable to any Company SARs, including
the term of any Company SARs and the date or dates upon which they become
exercisable, will be determined by the Compensation Committee.
Stock Awards. Stock Awards consist of restricted and non-restricted grants
of Class A Common Stock or units denominated in Class A Common Stock. The terms,
conditions and limitations applicable to any Stock Awards will be determined by
the Compensation Committee. Without limiting the foregoing, rights to dividends
or dividend equivalents may be extended to and made part of any Stock Award in
the discretion of the Compensation Committee. The Compensation Committee may
also establish rules and procedures for the crediting of interest or other
earnings on deferred cash payments and dividend equivalents for Stock Awards.
Cash Awards. Cash Awards consist of grants denominated in cash. The terms,
conditions and limitations applicable to any Cash Awards will be determined by
the Compensation Committee.
Performance Awards. Performance Awards consist of grants made to an
Employee subject to the attainment of one or more performance goals. A
Performance Award will be paid, vested or otherwise
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deliverable solely upon the attainment of one or more pre-established, objective
performance goals established by the Compensation Committee prior to the earlier
of (i) 90 days after the commencement of the period of service to which the
performance goals relate and (ii) the lapse of 25 percent of the period of
service, and in any event while the outcome is substantially uncertain. A
performance goal may be based upon one or more business criteria that apply to
the Employee, one or more business units of the Company or the Company as a
whole, and may include any of the following: increased revenue, net income,
stock price, market share, earnings per share, return on equity, return on
assets, decrease in costs, shareholder value, net cash flow, total shareholder
return, return on capital, return on investors' capital, operating income, funds
from operations, cash flow, cash from operations, after-tax operating income,
reserve addition, proceeds from dispositions, production volumes, refinery runs,
net cash flow before financing activities, reserve replacement ratio, finding
and development costs, refinery utilizations and total market value. Prior to
the payment of any compensation based on the achievement of such performance
goals, the Compensation Committee must certify in writing that the applicable
performance goals and any of the material terms thereof were, in fact,
satisfied. Subject to the foregoing, the terms, conditions and limitations
applicable to any Performance Awards will be determined by the Compensation
Committee.
Certain Limitations. The Plan contains certain limitations with respect to
Awards that may be made thereunder. In particular, the Plan provides that the
following limitations shall apply to any Employee Awards (but not to any
Independent Contractor Awards) made thereunder: (i) no participant may be
granted, during any calendar year, Employee Awards consisting of Company Stock
Options or Company SARs that are exercisable for or relate to more than
shares of Class A Common Stock; (ii) no participant may be granted, during any
calendar year, Employee Awards consisting of Stock Awards covering or relating
to more than shares of Class A Common Stock (the limitation set forth in
this clause (ii), together with the limitation set forth in clause (i) above,
being hereinafter collectively referred to as the "Stock-Based Awards
Limitations"); and (iii) no participant may be granted Employee Awards
consisting of cash or in any other form permitted under the Plan (other than
Employee Awards consisting of Company Stock Options or Company SARs or Stock
Awards) in respect of any calendar year having a value determined on the date of
grant in excess of $ .
Director Awards
For information concerning awards to be granted to Directors, see
"-- Election and Compensation of Directors."
CHANGE IN CONTROL
Award Agreements with respect to Awards granted under the Plan are expected
to provide that in the event of a "Change in Control" of the Company (as defined
in the Award Agreement), Company Stock Options held by active employees that
were not previously vested or exercisable will become fully vested and
exercisable and remain exercisable for the remainder of their term.
1998 KEY EMPLOYEE STOCK PERFORMANCE PLAN
GENERAL
The Company also has adopted the 1998 Key Employee Stock Performance Plan
of Conoco Inc. (the "1998 Plan") to attract and retain the services of Employees
and to further the interests of the Company and its stockholders by enhancing
the proprietary and personal interests of Employees in the success and
profitability of the Company. The following summary of certain provisions of the
1998 Plan does not purport to be complete and is qualified in its entirety by
reference to the 1998 Plan, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is incorporated
herein by reference.
Awards to Employees under the 1998 Plan may be in the form of Company Stock
Options and Company SARs. The 1998 Plan is not qualified under Section 401(a) of
the Code and is not subject to the provisions of ERISA.
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<PAGE> 100
PARTICIPATION AND ELIGIBILITY
All Employees are eligible for Awards under the 1998 Plan. Awards may also
be granted to individuals who are expected to become Employees within six months
of the date of grant. Employees are selected to participate in the 1998 Plan
through the grant of Awards by the Compensation Committee in its sole
discretion. Employees who have previously received DuPont Options and DuPont
SARs may also participate through the Option Program, as described above under
"-- Treatment of Outstanding Stock Options and Stock Appreciation Rights."
SHARES SUBJECT TO THE 1998 PLAN
The Company has reserved the greater of (a) shares of Class A Common
Stock or (b) percent of the number of shares of Class A Common Stock
outstanding from time to time, for purposes of the 1998 Plan. No more than
shares of Class A Common Stock shall be available for ISOs. No Awards shall be
granted under the 1998 Plan with respect to Class B Common Stock. The number of
shares authorized to be issued under the 1998 Plan is also subject to adjustment
as described under "-- Certain Provisions Applicable to the Plan and the 1998
Plan -- Adjustments" below. Shares subject to Awards that are forfeited or
terminated, exchanged for Awards that do not involve Class A Common Stock or
expire unexercised, or are settled in cash in lieu of Class A Common Stock, or
otherwise such that the shares covered thereby are not issued, again become
available for Awards. Awards that are issued upon cancellation of an award
previously held by an Employee by reason of the Employee's employment while the
Company was wholly owned by DuPont, as described above under "-- Treatment of
Outstanding Stock Options and Stock Appreciation Rights," shall not count
against the limitations on Class A Common Stock available for Awards.
TERMS, CONDITIONS AND LIMITATIONS OF AWARDS
The Compensation Committee will determine the type or types of Awards made
under the 1998 Plan and will designate the Employees who are to be the
recipients of such awards. An Award shall be embodied in an Award Agreement,
which will contain such terms, conditions and limitations as determined by the
Compensation Committee. Awards may be granted singly, in combination or in
tandem. Awards may also be made in combination or in tandem with, in replacement
of, or as alternatives to, grants or rights under the 1998 Plan or any other
employee plan of the Company or any of its subsidiaries, including any acquired
entity. An Award may provide for the grant or issuance of additional,
replacement or alternative Awards upon the occurrence of specified events,
including the exercise of the original Award. At the discretion of the
Compensation Committee, an Employee may be offered an election to substitute an
Award for another Award or Awards of the same or different type. Upon the
termination of employment by an Employee, any unexercised, deferred, unvested or
unpaid Awards will be treated as set forth in the applicable Award Agreement.
The Compensation Committee may make an Award to an individual who it
expects to become an Employee of the Company within the next six months, with
such Award being subject to the individual actually becoming an Employee within
such time period and to such other terms and conditions as may be established by
the Compensation Committee.
Company Stock Options. A Company Stock Option granted pursuant to the 1998
Plan may consist of either an ISO or a NQSO. ISOs and NQSOs must have an
exercise price per share that is not less than the Fair Market Value (as defined
in the 1998 Plan) of the Class A Common Stock on the date of grant. Subject to
the limitations described under "Certain Provisions Applicable to the Plan and
the 1998 Plan -- Exercise of Company Stock Options" below, the terms, conditions
and limitations applicable to any Company Stock Options, including the term of
any Company Stock Options and the date or dates upon which they become
exercisable, will be determined by the Compensation Committee.
Company SARs. A Company SAR may be granted under the 1998 Plan to the
holder of a Company Stock Option with respect to all or a portion of the shares
of Class A Common Stock subject to such Company Stock Option or may be granted
separately. The terms, conditions and limitations applicable to any Company
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<PAGE> 101
SARs, including the term of any Company SARs and the date or dates upon which
they become exercisable, will be determined by the Compensation Committee.
Award Limit. The 1998 Plan provides that no participant may be granted,
during any calendar year, Awards that are exercisable for more than
shares of Class A Common Stock (the "Award Limit").
CHANGE IN CONTROL
Award Agreements with respect to Awards granted under the 1998 Plan are
expected to provide that in the event of a "Change in Control" of the Company
(as defined in the Award Agreement), Company Stock Options held by active
employees that were not previously vested or exercisable will become fully
vested and exercisable and remain exercisable for the remainder of their term.
CERTAIN PROVISIONS APPLICABLE TO THE PLAN AND THE 1998 PLAN
ADMINISTRATION
The Compensation Committee will administer the Plan and the 1998 Plan. The
Compensation Committee has full and exclusive power to administer the Plan and
the 1998 Plan and take all actions specifically contemplated thereby or
necessary or appropriate in connection with the administration thereof. Except
insofar as the Plan relates to Nonemployee Directors, the Compensation Committee
has the full and exclusive power to interpret the Plan and the 1998 Plan and to
adopt such rules, regulations and guidelines for carrying out the Plan and the
1998 Plan as the Compensation Committee may deem necessary or proper in keeping
with the objectives thereof. The Compensation Committee may, in its discretion,
extend or accelerate the exercisability of, accelerate the vesting of or
eliminate or make less restrictive any restrictions contained in any Employee
Award granted under the Plan or any Award granted under the 1998 Plan, waive any
restriction or other provision of the Plan (insofar as it relates to Employee
Awards) or the 1998 Plan or in any Employee Award granted under the Plan or
Award granted under the 1998 Plan or otherwise amend or modify any Employee
Award granted under the Plan or Award granted under the 1998 Plan in any manner
that is either (i) not adverse to the Employee holding such Award or (ii)
consented to by such Employee. The Compensation Committee may delegate to the
chief executive officer and other senior officers of the Company its duties
under the Plan or the 1998 Plan. The Compensation Committee also may engage or
authorize the engagement of third-party administrators to carry out
administrative functions under the Plan or the 1998 Plan. The Compensation
Committee may also correct any defect or supply any omission or reconcile any
inconsistency in the Plan or the 1998 Plan or in any Employee Award granted
under the Plan or Award granted under the 1998 Plan. Any decision of the
Compensation Committee in the interpretation and administration of the Plan and
the 1998 Plan shall lie within its sole and absolute discretion and shall be
final, conclusive and binding on all parties concerned.
No member of the Compensation Committee or officer of the Company to whom
the Compensation Committee has delegated authority in accordance with the Plan
or the 1998 Plan will be held liable for anything done or omitted to be done by
him or her, by any member of the Compensation Committee or by any officer of the
Company in connection with the performance of any duties under such Plan, except
for his or her own willful misconduct or as expressly provided by statute.
EXERCISE OF COMPANY STOCK OPTIONS
The exercise price of any Company Stock Option must be paid in full at the
time the Company Stock Option is exercised in cash or, if permitted by the
Compensation Committee and elected by the participant, by means of tendering
Class A Common Stock or surrendering another Award (including restricted stock).
The Compensation Committee will determine acceptable methods for tendering Class
A Common Stock or other Awards by a participant to exercise a Company Stock
Option. Unless otherwise provided in the applicable Award Agreement, in the
event shares of restricted stock are tendered as consideration for the exercise
of a Company Stock Option granted under the Plan, a number of the shares issued
upon the exercise of such Company Stock Option, equal to the number of shares of
restricted stock used as consideration therefor, will be subject to the same
restrictions as the restricted stock so submitted as well as any other
restrictions that
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<PAGE> 102
may be imposed by the Compensation Committee. The Compensation Committee may
adopt additional rules and procedures regarding the exercise of Company Stock
Options from time to time, provided that such rules and procedures are not
inconsistent with the provisions of this paragraph.
DEFERRAL OF AWARD PAYMENTS
With the approval of the Compensation Committee, payments in respect of
Awards may be deferred, either in the form of installments or a future lump sum
payment. Any deferred payment of an Award, whether elected by the participant or
specified by the Award Agreement or by the Compensation Committee, may be
forfeited if and to the extent that the Award Agreement so provides.
CASH-OUT OF AWARDS
At the discretion of the Compensation Committee, an Award that is a Company
Stock Option or Company SAR may be settled by a cash payment equal to the
difference between the Fair Market Value per share of Class A Common Stock on
the date of exercise and the exercise price of the Award, multiplied by the
number of shares with respect to which the Award is exercised.
AWARDS ISSUED UPON CANCELLATION OF DUPONT AWARDS
For a description of the issuance of Company Stock Options and Company SARs
upon cancellation of DuPont Stock Options and DuPont SARs pursuant to the Plan
and the 1998 Plan, see "-- Treatment of Outstanding Stock Options and Stock
Appreciation Rights."
ASSIGNMENT OF INTERESTS PROHIBITED
Unless otherwise determined by the Compensation Committee and provided in
the applicable Award Agreement, no Award or any other benefit under the Plan or
the 1998 Plan shall be assignable or otherwise transferable except by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of ERISA, or the rules
thereunder. The Compensation Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under the Plan or the 1998 Plan in violation thereof
will be null and void.
ADJUSTMENTS
In the event of any subdivision or consolidation of outstanding shares of
Class A Common Stock, declaration of a stock dividend payable in shares of Class
A Common Stock or other stock split, each of the Plan and the 1998 Plan provides
for the Compensation Committee to make appropriate, proportionate adjustments to
(i) the number of shares of Class A Common Stock reserved under such Plan, (ii)
the number of shares of Class A Common Stock covered by outstanding Awards,
(iii) the exercise or other price in respect of such Awards, (iv) the
appropriate Fair Market Value and other price determinations for such Awards and
(v) the Stock-Based Awards Limitations (with respect to the Plan) or the Award
Limit (with respect to the 1998 Plan). Furthermore, in the event of any other
recapitalization or capital reorganization of the Company, any consolidation or
merger of the Company with another corporation or entity, the adoption by the
Company of any plan of exchange affecting the Class A Common Stock or any
distribution to holders of Class A Common Stock of securities or property (other
than normal cash dividends or stock dividends), the Board will make appropriate
adjustments to the amounts or other items referred to in clauses (ii), (iii),
(iv) and (v) above to give effect to such transactions, but only to the extent
necessary to maintain the proportionate interest of the holders of the Awards
and to preserve, without increasing, the value thereof. In the event of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board may (x) issue or assume Awards by means
of substitution of new Awards, as appropriate, for previously issued Awards or
assume previously issued Awards as part of such adjustment or (y) cancel Awards
that are Company Stock Options or Company SARs and give the participants who are
the holders of such Awards notice and opportunity to exercise for 30 days prior
to such cancellation.
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AMENDMENT, MODIFICATION AND TERMINATION
The Board may amend, modify, suspend or terminate the Plan or the 1998 Plan
for the purpose of addressing any changes in legal requirements or for any other
purpose permitted by law, except that (i) no amendment that would impair the
rights of any participant with respect to any outstanding Award may be made
without the consent of such participant and (ii) no amendment legally requiring
stockholder approval will be effective until such approval has been obtained.
RESTRICTIONS
Certificates evidencing shares of Class A Common Stock delivered pursuant
to the Plan or the 1998 Plan may be subject to stop transfer orders and other
restrictions as the Compensation Committee may deem advisable under the rules,
regulations and other requirements of the Commission, applicable securities
exchange or transaction reporting system, and any applicable federal or state
securities law. The Compensation Committee may cause a legend or legends to be
placed upon such certificates (if any) to make appropriate reference to such
restrictions.
TAX WITHHOLDING
The Company or its designated third-party administrator will have the right
to deduct applicable taxes from any Employee Award payment under the Plan or any
Award payment under the 1998 Plan and withhold, at the time of delivery (or
vesting, for purposes of the Plan) of cash or shares of Class A Common Stock
under such Plan, an appropriate amount of cash or number of shares of Class A
Common Stock, or combination thereof, for the payment of taxes. The Compensation
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Class A Common Stock previously owned by the holder of such
Award for which withholding is required. The Compensation Committee may provide
for loans, on either a short-term or demand basis, from the Company to an
Employee or Independent Contractor to permit the payment of taxes required by
law.
UNFUNDED PLAN
Both the Plan and the 1998 Plan will be unfunded. Any bookkeeping accounts
that are established with respect to participants for purposes of the Plan or
the 1998 Plan will be used merely as a bookkeeping convenience. The Company is
not required to segregate any assets for purposes of the Plan or the 1998 Plan
or awards thereunder, nor will either Plan be construed as providing for such
segregation, nor will the Company, the Board or the Compensation Committee be
deemed to be a trustee of any benefit granted under either Plan. Any liability
or obligation of the Company to any participant under the Plan or the 1998 Plan
will be based solely on any contractual obligations that may be created by such
Plan and any Award Agreement, and no such liability or obligation of the Company
will be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company, the Board nor the Compensation Committee
will be required to give any security or bond for the performance of any
obligation that may be created by the Plan or the 1998 Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND THE 1998 PLAN
The following discussion summarizes certain U.S. federal income tax
consequences to participants in the Plan and the 1998 Plan. This summary is
based on statutory provisions, Treasury regulations thereunder, judicial
decisions and rulings of the Internal Revenue Service (the "IRS") in effect on
the date hereof. This summary does not purport to be complete, and does not
cover, among other things, state, local or foreign tax treatment of
participation in the Plan or the 1998 Plan. Furthermore, differences in
participants' financial situations may cause federal, state and local tax
consequences of participation in the Plan or the 1998 Plan to vary. Therefore,
each participant is urged to consult his or her own accountant, legal counsel or
other financial advisor regarding individual tax consequences of participation
in the Plan or the 1998 Plan.
Nonqualified Stock Options; Stock Appreciation Rights; Incentive Stock
Options. Participants will not realize taxable income upon the grant of a NQSO
or Company SAR. Upon the exercise of a NQSO or
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Company SAR, the Employee or Nonemployee Director will recognize ordinary income
(subject, in the case of Employees, to withholding by the Company) in an amount
equal to the excess of (i) the amount of cash and the Fair Market Value on the
date of exercise of the Class A Common Stock received over (ii) the exercise
price (if any) paid therefor. The Employee or Nonemployee Director will
generally have a tax basis in any shares of Class A Common Stock received
pursuant to the exercise of a Company SAR, or pursuant to the cash exercise of a
NQSO, that equals the Fair Market Value of such shares on the date of exercise.
Generally, the Company will be entitled to a deduction for U.S. federal income
tax purposes that corresponds as to timing and amount with the compensation
income recognized by the participant under the foregoing rules.
Employees will not have taxable income upon the grant of an ISO. Upon the
exercise of an ISO, the Employee will not have taxable income, although the
excess of the Fair Market Value of the shares of Class A Common Stock received
upon exercise of the ISO ("ISO Stock") over the exercise price will increase the
alternative minimum taxable income of the Employee, which may cause such
Employee to incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an ISO would be allowed as a credit
against the Employee's regular tax liability in a later year to the extent the
Employee's regular tax liability is in excess of the alternative minimum tax for
that year.
Upon the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee will generally
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. However, if an Employee disposes of ISO Stock that has not been held
for the requisite holding period (a "disqualifying disposition"), the Employee
will recognize ordinary income in the year of the disqualifying disposition to
the extent that the Fair Market Value of the ISO Stock at the time of exercise
of the ISO (or, if less, the amount realized in the case of an arm's-length
disqualifying disposition to an unrelated party) exceeds the exercise price paid
by the Employee for such ISO Stock. The Employee would also recognize capital
gain (or, depending on the holding period, additional ordinary income) to the
extent the amount realized in the disqualifying disposition exceeds the Fair
Market Value of the ISO Stock on the exercise date. If the exercise price paid
for the ISO Stock exceeds the amount realized in the disqualifying disposition
(in the case of an arm's-length disposition to an unrelated party), such excess
would ordinarily constitute a capital loss.
The Company will generally not be entitled to any federal income tax
deduction upon the grant or exercise of an ISO, unless the Employee makes a
disqualifying disposition of the ISO Stock. If an Employee makes such a
disqualifying disposition, the Company will generally be entitled to a tax
deduction that corresponds as to timing and amount with the compensation income
recognized by the Employee under the rules described in the preceding paragraph.
Under current rulings, if a participant transfers previously held shares of
Class A Common Stock (other than ISO Stock that has not been held for the
requisite holding period) in satisfaction of part or all of the exercise price
of a NQSO or ISO, the participant will recognize income with respect to the
Class A Common Stock received in the manner described above, but no additional
gain will be recognized as a result of the transfer of such previously held
shares in satisfaction of the NQSO or ISO exercise price. Moreover, that number
of shares of Class A Common Stock received upon exercise which equals the number
of shares of previously held Class A Common Stock surrendered therefor in
satisfaction of the NQSO or ISO exercise price will have a tax basis that
equals, and a holding period that includes, the tax basis and holding period of
the previously held shares of Class A Common Stock surrendered in satisfaction
of the NQSO or ISO exercise price. Any additional shares of Class A Common Stock
received upon exercise will have a tax basis that equals the amount of cash (if
any) paid by the participant, plus, in the case of a NQSO, the amount of
ordinary income recognized by the participant with respect to the Class A Common
Stock received.
Cash Awards; Stock Unit Awards; Stock Awards. An Employee will recognize
ordinary compensation income upon receipt of cash pursuant to a Cash Award or
Performance Award or, if earlier, at the time such cash is otherwise made
available for the Employee to draw upon it. An Employee will not have taxable
income upon the grant of a Stock Award in the form of units denominated in Class
A Common Stock ("Stock Unit
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Award") but rather will generally recognize ordinary compensation income at the
time the Employee receives Class A Common Stock or cash in satisfaction of such
Stock Unit Award in an amount equal to the Fair Market Value of the Class A
Common Stock or cash received. In general, a participant will recognize ordinary
compensation income as a result of the receipt of Class A Common Stock pursuant
to a Stock Award or Performance Award in an amount equal to the Fair Market
Value of the Class A Common Stock when such stock is received; provided,
however, that if the stock is not transferable and is subject to a substantial
risk of forfeiture when received, the participant will recognize ordinary
compensation income in an amount equal to the Fair Market Value of the Class A
Common Stock when it first becomes transferable or is no longer subject to a
substantial risk of forfeiture, unless the participant makes an election to be
taxed on the Fair Market Value of the Class A Common Stock when such stock is
received.
An Employee will be subject to withholding for federal, and generally for
state and local, income taxes at the time the Employee recognizes income under
the rules described above with respect to Class A Common Stock or cash received
pursuant to a Cash Award, Performance Award, Stock Award or Stock Unit Award.
Dividends that are received by a participant prior to the time that the Class A
Common Stock is taxed to the participant under the rules described in the
preceding paragraph are taxed as additional compensation, not as dividend
income. The tax basis of a participant in the Class A Common Stock received will
equal the amount recognized by the Employee as compensation income under the
rules described in the preceding paragraph, and the Employee's holding period in
such shares will commence on the date income is so recognized.
Generally, the Company will be entitled to a deduction for U.S. federal
income tax purposes that corresponds as to timing and amount with the
compensation income recognized by the participant under the foregoing rules.
GLOBAL STOCK PERFORMANCE SHARING PLAN
The Company has adopted the Global Stock Performance Sharing Plan (the
"Global Plan"). The number of shares of Common Stock reserved for issuance under
the Global Plan is generally subject to equitable adjustment upon the occurrence
of any stock dividend, stock split, subdivision or consolidation. Pursuant to
the Global Plan, the Company may grant nonqualified Company Stock Options and
SARs.
The Global Plan will be administered by the Compensation Committee. The
Committee shall have full authority, subject to the provisions of the Global
Plan to, among other things, determine the terms and conditions of Company Stock
Options and SARs and prescribe, amend and rescind rules and regulations relating
to the Global Plan.
Grants of Company Stock Options and SARs may be made under the Global Plan
to all employees of the Company and its present or future subsidiaries, provided
that certain management employees who receive Company Stock Options or SARs
under the 1998 Stock and Performance Incentive Plan as of the time of the
Offerings will not be granted Company Stock Options or SARs under the Global
Plan as of such time. The exercise price per share subject to a Company Stock
Option or SAR may not be less than the fair market value of a share of Class A
Common Stock on the date of grant. Company Stock Options and SARs will have a
term of not more than ten years and will become exercisable with respect to
one-third of the shares of Common Stock subject thereto on each of the first
three anniversaries of the dates of grant.
In the event of a "Change of Control" of the Company (as defined in the
Global Plan), Company Stock Options and SARs held by active employees that were
not previously vested or exercisable will become fully vested and exercisable
and remain exercisable for the remainder of their term.
The Global Plan may, at any time and from time to time, be altered,
amended, suspended, or terminated by the Board of Directors, in whole or in
part, except that (i) no amendment or alteration that would adversely affect the
rights of any participant under any Award previously granted to such participant
shall be made without the consent of such participant and (ii) no amendment or
alteration shall be effective prior to its approval by the stockholders of the
Company to the extent such approval is required by applicable law.
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GRANTS AS OF THE OFFERINGS
The following table sets forth, with respect to (i) each Named Officer,
(ii) the nonemployee members of the Board of Directors as a group (the
"Nonemployee Director Group") and (iii) all other employees as a group ("All
Other Employees"), the outstanding grants held by such persons at the time of
the Offerings.
<TABLE>
<CAPTION>
COMPANY STOCK OPTIONS(1)
------------------------
<S> <C>
Archie W. Dunham(2).........................................
Gary W. Edwards.............................................
Robert E. McKee III.........................................
Robert W. Goldman...........................................
Rick A. Harrington..........................................
Nonemployee Director Group(3) (6 persons)...................
All Other Employees(4)......................................
</TABLE>
- ---------------
(1) The number of Company Stock Options and Company SARs shown in this table is
based on an estimated exercise price of $ , which is the average of the
estimated offering price range of the Class A Common Stock of $ and
$ . The actual number of Company Stock Options and Company SARs will be
adjusted to reflect the actual exercise price at the time of the Offerings.
These Company Stock Options and Company SARs will become exercisable with
respect to one-third of the shares of Class A Common Stock subject thereto
on each of the first three anniversaries of the date of grant.
(2) Mr. Dunham will also receive Company restricted stock units with an
aggregate value of $ , which units will vest on the third anniversary of
the date of grant.
(3) The members of the Nonemployee Director Group will also receive, in the
aggregate, Company restricted stock units with an aggregate value of $ ,
which units will vest on the third anniversary of the date of grant.
(4) The number of Company Stock Options and Company SARs held by the All Other
Employees group has been estimated based on the approximately employees
in the All Other Employees group.
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS
The Company has adopted the Deferred Compensation Plan for Nonemployee
Directors (the "Deferred Compensation Plan"). The purpose of the Deferred
Compensation Plan is to provide nonemployee directors of the Company the
opportunity to defer a portion of their compensation and to provide greater
incentives for those directors to attain and maintain the highest standards of
performance, to further align the interests of such directors with those of the
stockholders generally and to reward such directors for outstanding performance.
The Deferred Compensation Plan will be administered by the Compensation
Committee. The Compensation Committee will supervise the administration and
enforcement of the Deferred Compensation Plan according to the terms and
provisions thereof and will have such powers as are necessary to accomplish the
purposes of the Deferred Compensation Plan.
Under the Deferred Compensation Plan, participants may voluntarily elect to
defer all or a portion of their annual fees and other fees (including restricted
stock units granted under the Plan). An election to defer must generally be made
prior to the commencement of the fiscal year in which it will be earned; once
made, the election is generally irrevocable for the first calendar year with
respect to which the election is made. The deferred amounts will be deemed to be
invested, pursuant to the election of the participant, in Class A Common Stock
or in an interest-bearing account.
Each deferral election will indicate the time (either on the date of
termination of service as a director or on the date that is five years following
such date) and form of payment for the amounts to be deferred. Distributions
will be made in cash or Class A Common Stock to the participant at the time
irrevocably selected on the deferral form, or, in the event of the participant's
death, to the participant's designated
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beneficiary. Upon a Change in Control of the Company (as defined in the Deferred
Compensation Plan), all deferred amounts (including deferred restricted stock
units) can be paid in full.
Each participant or beneficiary will be an unsecured general creditor with
respect to any payments due and owing to such participant pursuant to the
Deferred Compensation Plan.
The Board of Directors of the Company can amend or terminate the Deferred
Compensation Plan at any time, except that no amendment may be made that would
impair the rights of a participant with respect to amounts already deferred or
otherwise allocated to his account.
SHARES ISSUED PURSUANT TO AWARDS
It is currently expected that shares of Class A Common Stock issued upon
exercise of, or otherwise pursuant to, awards granted under the Company's
benefit plans, including the Plan, the 1998 Plan and the Global Plan, will be
comprised of shares previously purchased by the Company in the open market or of
authorized but previously unissued shares. The Company currently expects that it
will periodically purchase shares in the open market so that there will be no
significant increase in the number of issued and outstanding shares of Class A
Common Stock resulting from awards granted under the Company's benefit plans.
SEVERANCE ARRANGEMENTS
On May 10, 1998, the Company entered into a severance agreement (the
"Severance Agreement") with Archie W. Dunham. The Severance Agreement has an
initial term of three years, which term will be extended, if necessary, upon any
"Change in Control" or "Public Offering" of the Company (as each such term is
defined in the Severance Agreement) so that the Severance Agreement will expire
no earlier than 24 months after either such event. The Offerings described
herein will constitute a Public Offering for purposes of the Severance
Agreement. The Severance Agreement provides that if, during the term of the
Severance Agreement, Mr. Dunham's employment is terminated by the Company other
than for cause, or by reason of Mr. Dunham's death or disability, or if Mr.
Dunham terminates his employment for "Good Reason" (as defined in the Severance
Agreement), Mr. Dunham will be entitled to (i) a lump sum severance payment
equal to three times the sum of his base salary and previous year's bonus, (ii)
36 months of benefit continuation, (iii) a pro rata portion of the annual bonus
for which he is eligible in the year of termination and (iv) vesting of any
unvested equity-based awards from the Company. Mr. Dunham will also be entitled
to terminate his employment and receive the foregoing benefits if, prior to the
second anniversary of the occurrence of the Public Offering or after DuPont
reduces its ownership to less than 50 percent, he is not appointed as Chairman
of the Board of the Company (unless his employment had previously terminated by
reason of death, disability or for cause). Mr. Dunham will also be entitled to
receive an additional payment (a "gross-up payment") sufficient to compensate
him for the amount of any excise tax imposed on payments made under the
Severance Agreement or otherwise pursuant to Section 4999 of the Code and for
any taxes imposed on such additional payment.
The Company has established the Conoco Inc. Key Employee Severance Plan
(the "Key Employee Severance Plan"), which covers certain employees of the
Company, including Gary W. Edwards, Robert E. McKee III, Robert W. Goldman and
Rick A. Harrington. The Key Employee Severance Plan provides that if the
employment of a participant in the Key Employee Severance Plan is terminated
within two years of a "Change in Control" of the Company either by the Company
other than for "Cause" or by the participant for "Good Reason" (as such terms
are defined in the Key Employee Severance Plan) the participant will be entitled
to (i) a lump sum severance payment equal to two or three times the sum of his
base salary and previous year's bonus, (ii) 24 or 36 months of benefits
continuation, (iii) a pro rata portion of the annual bonus for which he is
eligible in the year of termination and, if necessary, a gross-up payment
sufficient to compensate the participant for the amount of any excise tax
imposed on payments made under the Key Employee Severance Plan or otherwise
pursuant to Section 4999 of the Code and for any taxes imposed on such an
additional payment. The Key Employee Severance Plan has a three-year term
commencing on May 10, 1998, which term will be extended, if necessary, upon a
Change in Control so that it expires no earlier than 24 months after such an
event. Amounts payable under the Key Employee Severance Plan will be in lieu
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of any payments or benefits which may be payable to the severed employee under
any other severance plan, policy or program of the Company.
The Company has also established both the (i) Conoco Inc. Key Employee
Temporary Severance Plan (the "Key Employee Temporary Severance Plan") and (ii)
the Conoco Inc. Temporary Severance Plan (the "Temporary Severance Plan"), each
of which covers certain employees of the Company, including the Named Officers.
Under the Key Employee Temporary Severance Plan (which expires in 2001), if the
employment of a participant is involuntarily terminated due to a reduction in
force or experiences defined adverse employment changes (including certain
relocation requirements and reductions in pay or position), the individual will
be entitled to one year's base salary and variable bonus. In the same
circumstances as is described under the Key Employee Temporary Severance Plan,
benefits payable under the Temporary Severance Plan are paid to a participant
upon termination of employment, except that benefits upon such a termination are
equal to two weeks' pay for each completed year of service, up to a maximum of
52 weeks' pay. Amounts payable under the Key Employee Temporary Severance Plan
are reduced by amounts payable under the Temporary Severance Plan.
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ARRANGEMENTS BETWEEN THE COMPANY AND DUPONT
In 1998 and prior years, there have been significant transactions between
the Company and DuPont involving services (such as natural gas and gas liquids
supply, cash management, other financial services, purchasing, legal, computer
and corporate activities). For purposes of governing certain on-going
relationships between the Company and DuPont and to facilitate implementation of
the Separation, the Company and DuPont, or their respective subsidiaries, will
enter into various agreements and relationships, including those described
below. The agreements described below were negotiated in the context of a
parent-subsidiary relationship and therefore are not the result of arm's-length
negotiations between independent parties. There can be no assurance, therefore,
that such agreements, or the transactions provided for therein, or any
amendments thereof will be on terms at least as favorable to the Company as
could have been obtained from unaffiliated third parties.
Certain agreements summarized below are included as exhibits to the
Registration Statement of which this Prospectus is a part, and the following
summaries are qualified in their entirety by reference to such exhibits which
are herein incorporated by reference.
RESTRUCTURING, TRANSFER AND SEPARATION AGREEMENT
Prior to the Offerings, DuPont and the Company will have entered into a
Restructuring, Transfer and Separation Agreement (the "Separation Agreement"),
which provides for, among other things, the principal transactions required to
effect the Separation and the Offerings, including the transfer to the Company
of oil and gas assets, the division between DuPont and the Company of certain
liabilities, and certain other agreements governing the relationship between
DuPont and the Company following the Separation and the Offerings.
To effect the Separation, (i) DuPont will transfer or cause its
subsidiaries to transfer assets related to the oil and gas business (including
its equity interests in certain companies) to the Company or to a subsidiary of
the Company and the Company or its subsidiaries will assume substantially all of
the liabilities of the oil and gas business, and (ii) the Company will transfer
or cause its subsidiaries to transfer assets unrelated to the oil and gas
business (including its equity interests in certain companies) to DuPont or a
subsidiary of DuPont and DuPont or its subsidiaries will assume substantially
all of the liabilities associated with such transferred businesses. The
Separation Agreement provides that assets that cannot legally be transferred
prior to the effective date of the Separation (the "Effective Date") will be
transferred as soon as is practical following receipt of all necessary consents
of third parties and regulatory approvals. All transfers between DuPont and the
Company and their respective subsidiaries will be on an "as is, where is" basis,
and without any representations or warranties. As a result, the Company and
DuPont, as the case may be, each have agreed to bear the economic and legal
risks that any conveyances of assets are insufficient to vest in such party good
and marketable title to such assets. The parties have also agreed that following
the Offerings, DuPont and its subsidiaries (excluding the Company and its
subsidiaries) on the one hand, and the Company and its subsidiaries on the other
hand, will transfer, in some instances without additional consideration, to the
other, all assets which, subsequent to the Effective Date, the parties determine
more properly belong in the other's business.
The Separation Agreement provides for assumptions and cross-indemnities
designed to place, as of the Effective Date with certain exceptions, sole
financial responsibility on the Company and its subsidiaries for all
liabilities, known or contingent, associated with the Company's current and
historical businesses and operations (including those conducted prior to and
following DuPont's acquisition of the Company in 1981), including the oil and
gas business, the Company's former chemical business (with limited exceptions),
the Company's interest in the Pocahontas Partnership, and all of the assets
transferred to the Company in connection with the Separation, but excluding the
Company's coal business, and to place sole financial responsibility for DuPont's
other businesses with DuPont and its other subsidiaries. Responsibility for
environmental matters and claims relating to businesses sold to Cain Chemical,
including the operations of Matagorda and Chocolate Bayou, Texas, will not be
assumed by the Company, but will be retained exclusively by DuPont. The parties
have also agreed to bear responsibility in proportion to the relative amounts of
waste deposited by each party on any contaminated off-site location. The
Separation Agreement contains indemnifi
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cation and contribution provisions in connection with (i) the assumption or
retention of liabilities by the Company and DuPont, (ii) the conduct of the
parties' respective businesses subsequent to the Separation, (iii) misstatements
or omissions in the Registration Statement of which this Prospectus is a part
with respect to information provided by the other party and (iv) the use of the
other's trademarks, tradenames, logos or other identifiers.
The Separation Agreement contains certain provisions regarding corporate
governance of the Company, most of which depend on the level of DuPont's
ownership interest in the Company. The Separation Agreement provides that for so
long as DuPont owns 30 percent of the voting power of all of the outstanding
shares of Common Stock of Conoco, Conoco will not, without the prior consent of
DuPont, adopt any amendments to its certificate of incorporation or bylaws or
take any action to recommend to its stockholders certain actions which would,
among other things, limit the legal rights of, or deny any benefit to DuPont or
any of its subsidiaries as Conoco stockholders in a manner not applicable to
Conoco stockholders generally. The Separation Agreement provides that, for so
long as DuPont beneficially owns 50 percent or more of the voting power of the
outstanding Common Stock of the Company, (i) DuPont will have the right to
designate a majority of the nominees for election to the Company's Board of
Directors and (ii) a majority of the members of the Audit and Compliance and
Compensation Committees of the Company's Board of Directors will be required to
be directors designated by DuPont. For so long as DuPont beneficially owns less
than 50 percent but more than 10 percent of the voting power of outstanding
Common Stock of the Company, DuPont will have the right to designate for
nomination a number of directors proportionate to its voting power of the
outstanding Common Stock of the Company, and, so long as DuPont beneficially
owns greater than 10 percent of the voting power, all Committees of the Board of
Directors will be required to include at least one director designated by
DuPont. For so long as DuPont owns any shares of Common Stock of the Company,
the Company will be required to deliver to DuPont certain financial information
of the Company. In addition, as long as DuPont owns 50 percent or more of the
voting power of the outstanding Common Stock of the Company, the Company will
not be permitted to make certain changes in its accounting principles or
practices without the consent of DuPont. The Separation Agreement also generally
provides that, if requested by the Company, DuPont, under certain limited
circumstances, and as long as DuPont determines that it will not adversely
affect DuPont's ability or timing in receiving a favorable ruling from the
Internal Revenue Service ("IRS") with respect to a tax-free spin-off of DuPont's
Class B Common Stock to its stockholders, will (i) seek such ruling on the basis
that it will amend the Certificate of Incorporation of Conoco to include a
provision for the automatic conversion of all Class B Common Stock into Class A
Common Stock under certain circumstances and (ii) amend the Certificate of
Incorporation of Conoco to so provide.
The Separation Agreement provides that the Company will, subject to certain
exceptions, use the proceeds of the incurrence of any indebtedness or of the
issuance of any equity securities by the Company and any of its subsidiaries,
including the proceeds of the Offerings, to repay debt owed to DuPont, including
the $7.5 billion Note described below under the caption "-- Intercompany Notes."
Generally, all one-time costs, including fees and taxes, directly relating to
the Offerings or the Separation and incurred and paid between May 11, 1998 and
24 months following the date on which DuPont's voting power falls below 50
percent of the voting power of all of the outstanding Common Stock of the
Company, are to be paid or reimbursed by DuPont under the terms of the
Separation Agreement.
The Separation Agreement contemplates that all cash generated by Conoco and
its subsidiaries prior to the closing of the Offerings will be for the account
of DuPont, except that DuPont has agreed that immediately following the
application of the net proceeds of the Offerings and the utilization by Conoco
of a portion of its cash and cash equivalents in connection with the matters
discussed below under the caption "-- Intercompany Notes," Conoco and its
subsidiaries will have at least an aggregate of $225 million of cash and cash
equivalents on hand and may have up to $70 million of additional cash and cash
equivalents, which may include certain amounts held by the Company's captive
insurance company in the form of certificates of deposit. The Separation
Agreement requires that the Company use its best efforts to terminate, or have
the Company or a subsidiary of the Company substituted for DuPont, under all
existing guarantees by DuPont of obligations relating to the business of the
Company. Commencing on the earlier of (i) two years following closing of the
Offerings or (ii) the date that DuPont holds less than 50 percent of the voting
power of the
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outstanding Common Stock of the Company, the Company will pay DuPont a fee of
.20 percent per annum on the total amount of any outstanding guarantees. As of
the Effective Date, the amount of such guarantees is agreed to be $ million,
and such amount may only be adjusted at such time as the amount of any such
adjustment exceeds $50 million.
INTERCOMPANY NOTES
On July 20, 1998, a wholly owned subsidiary of the Company issued a
promissory note (the "Note") to DuPont in the aggregate principal amount of $7.5
billion bearing interest at a rate of 6.0125 percent per annum. The Note has a
maturity date of January 2, 2000. The Note may be voluntarily prepaid without
penalty or premium. The Note also provides for mandatory prepayments in the
event cash proceeds are realized by the Company from the incurrence of
indebtedness or the issuance of equity securities by the Company or its
subsidiaries. The Note includes certain covenants and customary events of
default, including failure to pay interest when due, certain events of
bankruptcy of the Company and change of control. The consent of DuPont is also
required prior to the Company entering into certain transactions.
The Company will use the net proceeds of the Offerings and possibly a
portion of its cash and cash equivalents to repay a portion of amounts
outstanding under the Note including principal and accrued interest, such that
immediately following the Offerings, the aggregate principal amount owed by the
Company to DuPont pursuant to the Note will be $4.0 billion. See "Use of
Proceeds." The Company will also use a portion of its cash and cash equivalents
to repay or purchase, or DuPont will contribute to the Company, all of the
remaining principal balance of the Intercompany Notes described in clauses (ii)
and (iii) of "Use of Proceeds." Pursuant to the Employee Matters Agreement and
the Separation Agreement, the Company will also owe DuPont an additional amount,
estimated at $140 million, which will be evidenced by a promissory note. See
"-- Employee Matters Agreement."
Prior to the Offerings, the Company plans to enter into a $500 million
Revolving Credit Facility with DuPont to fund routine working capital
requirements. Terms and conditions of the facility will be similar to the Note.
TAX SHARING AGREEMENT
Following the Offerings, the Company and certain of its subsidiaries may
continue to be included in DuPont's consolidated group (the "Consolidated
Group") for U.S. federal income tax purposes as well as in certain consolidated,
combined or unitary groups which include DuPont and/or certain of its
subsidiaries (a "Combined Group") for state, local and foreign income tax
purposes. Prior to the Offerings, the Company and DuPont will enter into a tax
sharing agreement (the "Tax Sharing Agreement") in connection with the
Offerings. Pursuant to the Tax Sharing Agreement, the Company and DuPont
generally will make payments between them such that, with respect to tax returns
for any taxable period in which the Company or any of its subsidiaries is
included in the Consolidated Group or any Combined Group, the amount of taxes to
be paid by the Company will be determined, subject to certain adjustments, as if
the Company and each of its subsidiaries included in the Consolidated Group or
Combined Group filed their own consolidated, combined or unitary tax return. The
Company and DuPont will jointly prepare pro forma tax returns with respect to
any tax return filed with respect to the Consolidated Group or any Combined
Group in order to determine the amount of tax sharing payments under the Tax
Sharing Agreement. The Company will be responsible for any taxes with respect to
tax returns that include only the Company and its subsidiaries.
DuPont will be primarily responsible for preparing and filing any tax
return with respect to the Consolidated Group or any Combined Group. Pursuant to
the Tax Sharing Agreement, the Company will be responsible for preparing the
portion of any such tax return that relates exclusively to the Company or any of
its subsidiaries; provided, that the Company will be required to submit any such
portions to DuPont for DuPont's review and approval, which approval may not be
unreasonably withheld. The Company will be responsible for preparing and filing
any tax returns that include only the Company and its subsidiaries.
DuPont will be primarily responsible for controlling and contesting any
audit or other tax proceeding with respect to the Consolidated Group or any
Combined Group. Pursuant to the Tax Sharing Agreement, the
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Company will have the right to control and contest any audit or tax proceeding
that relates directly to any tax item included on the portion of any tax return
which the Company is responsible for preparing; provided, that the entering into
by the Company of any settlement or agreement or any decision in connection with
any judicial or administrative tax proceeding will be subject to the review and
approval of DuPont, which approval may not be unreasonably withheld. Disputes
arising between the parties relating to matters covered by the Tax Sharing
Agreement are subject to resolution through specific dispute resolution
provisions.
In general, the Company will be included in the Consolidated Group for so
long as DuPont beneficially owns at least 80 percent of the total voting power
and value of the outstanding stock of the Company. Each member of a consolidated
group for federal income tax purposes is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax Sharing Agreement allocates tax liabilities
between the Company and DuPont, during the period in which the Company is
included in the Consolidated Group, the Company could be liable in the event
that any federal tax liability is incurred, but not discharged, by any other
member of the Consolidated Group.
EMPLOYEE MATTERS AGREEMENT
Prior to the Offerings, DuPont and the Company will have entered into an
agreement (the "Employee Matters Agreement"), which sets forth the understanding
between the parties with respect to current and former employees of DuPont and
the Company, including without limitation claims arising out of or relating to
any employee benefit or compensation plan, agreement, arrangement or program, as
well as collective bargaining agreements, accrued wages and workers'
compensation, holiday, vacation and disability benefits. Except as described
below, the parties have agreed that, as of the Effective Date (a) DuPont, or an
appropriate DuPont subsidiary, will assume and be solely responsible for all
liabilities and obligations whatsoever with respect to current and former
employees of DuPont other than the Transferred Business Employees (as defined
below) and (b) the Company, or an appropriate Company subsidiary, will assume
and be solely responsible for all liabilities and obligations whatsoever with
respect to (x) those persons who are or will be, immediately prior to or
effective as of the Effective Date, officers and employees of the businesses
transferred pursuant to the Separation Agreement and (y) former officers and
employees of such businesses (the "Transferred Business Employees"); provided,
in either case, that if any such person was employed by both DuPont and the
Company, such person will only be deemed a Transferred Business Employee if (i)
such person's employment will be, effective as of the Effective Date, with the
Company or an appropriate Company subsidiary or (ii) such person's employment in
the businesses transferred pursuant to the Separation Agreement terminated later
than such person's employment in the businesses of DuPont not transferred
pursuant to the Separation Agreement. Notwithstanding the preceding, (a) with
respect to any claim of a Transferred Business Employee relating to a liability
or obligation arising under the DuPont Savings and Investment Plan or any DuPont
health benefit plan, which claim arose while such Transferred Business Employee
was a DuPont employee, DuPont, or an appropriate DuPont subsidiary, will retain
all such liabilities and obligations of such Transferred Business Employee and
(b) with respect to any claim of a current or former DuPont employee (other than
the Transferred Business Employees) relating to a liability or obligation
arising under the Thrift Plan for Employees of Conoco Inc. or any Conoco health
benefit plan, which claim arose while such DuPont employee was a Company
employee, the Company, or an appropriate Company subsidiary, shall assume and be
solely responsible for all such liabilities and obligations of such DuPont
employee.
Following the Effective Date, the Transferred Business Employees who
participate in the DuPont Pension Plan will continue to participate in the
DuPont Pension Plan. Effective as of the date DuPont ceases to own securities
representing 80 percent or more of the voting power and ceases to own securities
representing 80 percent or more of the economic value of all outstanding shares
of Common Stock (the "Ownership Reduction Date"), the Company will establish its
own retirement plan (the "Company Retirement Plan"). Within six months following
the Ownership Reduction Date, so long as certain conditions are met, the trustee
of the DuPont Pension Plan will transfer (the date of such transfer, the
"Transfer Date") to the trustee of the Company Retirement Plan an amount
approximately equal to 90 percent of $820 million (plus or minus any investment
gains and losses and benefits payments made between the Effective Date and the
Transfer Date);
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within 90 days of the Transfer Date, the trustee of the DuPont Pension Plan will
transfer the remaining 10 percent, plus interest on such remainder.
Following the Effective Date, the Company will continue to maintain its
"benefit restoration plans" relating to Company Retirement Plan Participants. In
addition, the Company will assume and be solely responsible for the liabilities
and obligations relating to Company Retirement Plan Participants who participate
in DuPont's benefit restoration plans relating to the DuPont Pension Plan.
On or prior to January 1, 1999, the Company will establish a benefit
restoration plan relating to the Company Thrift Plan for the benefit of current
or former employees of the Company who participated in the DuPont Salary
Deferral and Savings Restoration Plan and will assume and be solely responsible
for the liabilities and obligations relating to current or former employees of
the Company who participated in the DuPont Salary Deferral and Savings
Restoration Plan.
Certain Company employees will have the option, subject to specific country
tax and legal requirements, effective as of the closing of the Offerings, to
participate in the Option Program, which involves the cancellation of all or
part of their DuPont Options or DuPont SARs, whether or not vested or
exercisable, and the issuance by the Company upon such cancellation of Company
Stock Options and Company SARs, as applicable. See "Management -- Treatment of
Outstanding Stock Options and Stock Appreciation Rights." Retired employees of
the Company who hold DuPont Options or DuPont SARs will not participate in the
Option Program. All DuPont Options and DuPont SARs held by retired employees,
together with all such Options and SARs held by employees who do not elect to
participate in the Option Program, will continue to be obligations solely of
DuPont. The Separation Agreement provides that the Company will enter into a
promissory note with DuPont to cover (i) an assumed level of future appreciation
of DuPont Options and DuPont SARs held by Conoco employees who do not
participate in the Option Program and (ii) an amount necessary to ensure that
the Company and DuPont equally share the liability resulting from the after-tax
value of all DuPont Options and DuPont SARs held by Conoco employees immediately
prior to the Offerings. The amount to be owed by the Company to DuPont is
currently expected to be approximately $130 million. See " -- Intercompany
Notes."
With respect to any pension plan maintained or sponsored by DuPont for the
benefit of foreign employees in which only Transferred Business Employees
participate, the Company shall assume or retain such plan, the assets thereof
and the sole liability relating to Transferred Business Employees under such
plan.
DuPont employees who transfer to and become employed by the Company, and
Company employees who transfer to and become employed by DuPont, in either case
on the United States payroll, prior to the Ownership Reduction Date shall be
transferred in accordance with the terms of the transfer guidelines in effect
immediately prior to the Effective Date. In consideration of the liabilities
assumed by DuPont under the employee transfer guidelines, the $130 million
referred to above owed from the Company to DuPont shall be increased by an
amount equal to $10.4 million. If a block of 100 or more employees is
transferred at the same time from DuPont to the Company or if a block of 100 or
more employees is transferred at the same time from the Company to DuPont, a
supplemental cash payment will be made to DuPont or the Company as applicable.
The amount of the cash payment will be calculated in accordance with the
Employee Matters Agreement.
Following the Effective Date, Transferred Business Employees shall continue
to participate in the Company Thrift Plan, which shall continue to include
DuPont common stock as an investment option until the Ownership Reduction Date
and then shall continue to retain the DuPont common stock fund for a period of
no less than five years. New investments in DuPont common stock may not be
permitted after the Ownership Reduction Date.
TRANSITIONAL SERVICES AGREEMENT
Prior to the Offerings, DuPont and the Company will enter into certain
agreements (the "Transitional Services Agreements") pursuant to which DuPont or
its subsidiaries (other than the Company and its subsidiaries), on the one hand,
and the Company or its subsidiaries, on the other hand, will agree to continue
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providing various services to each other, including material procurement,
financial and administrative services, consulting and research services, and
employee benefits administration. Each service provided pursuant to the
Transitional Services Agreements will be provided for a specified time period,
ranging from three to 24 months. However, either party and its subsidiaries may
terminate any or all services that they receive under the Transitional Services
Agreements at any time upon 45 days' prior written notice. During the term of
each such service, the parties and their subsidiaries are obligated to take all
steps necessary to establish the processes and systems to enable them to perform
the relevant services on a stand alone basis. The parties and their subsidiaries
will be obligated to pay fees established in the Transitional Services
Agreements based upon the type and amount of services rendered.
INFORMATION SYSTEMS AND TELECOMMUNICATION CARRIER TRANSITIONAL SERVICES
AGREEMENTS AND FACILITIES LEASE AGREEMENTS
DuPont and the Company will enter into a series of United States and
foreign service agreements ("SAs") which will provide for the cross-provision of
information system services and for the provision of telecommunication carrier
services by DuPont to the Company. DuPont and the Company will also enter into a
facilities lease agreement whereby the Company will grant leases to DuPont for
data center and office facilities at the Company's Houston, Texas and Ponca
City, Oklahoma sites. The term of the SAs will be two years for transitional
services. Longer terms, up to nine years, will be provided for telecommunication
services and the facility leases. Under the SAs, DuPont and third party
contractors, such as Computer Sciences Corporation and Andersen Consulting, will
provide services to the Company in accordance with the terms of the SAs, subject
to the terms of the third party agreements. The SAs will provide that services
will be provided at DuPont's cost, or, in the case of third party services, at
the prices and in accordance with the terms and conditions provided for in the
third party agreements, and subject to an administrative fee. The SAs will also
include an obligation for the Company to enter into a long-term services
agreement with Computer Sciences Corporation.
NATURAL GAS SUPPLY AGREEMENT
DuPont consumes approximately 350 million cubic feet per day of natural gas
at its various facilities in the United States. The acquisition of this supply
is currently handled by the Company. DuPont receives the natural gas at cost
plus a nominal management fee. In some limited cases, the Company's natural gas
production equity is used directly in a DuPont facility, but over 95 percent of
this supply has historically been purchased from third parties. Prior to the
Offerings, DuPont and the Company intend to enter into an agreement to continue
this supply management function for a minimum of one year. The associated
management fee will be reflective of market costs for similar supply services.
FEEDSTOCK FOR DUPONT'S SABINE RIVER WORKS PLANT
The Company owns and operates the Mont Belvieu Storage Facility, which is
currently supplying DuPont's Sabine River Works Plant (Ethylene Business Unit)
with its full ethane feedstock requirements, providing storage and throughput
services for both ethane and ethylene and operating DuPont-owned pipelines for
these products. The Company and DuPont have reached agreement for the provision
of ethane and ethylene storage and throughput services for the next 30 years.
Furthermore, under the terms of the agreement, the Company will operate certain
DuPont-owned pipelines for a period of 20 years. The Company will supply DuPont
with its partial requirements of ethane for a minimum of two years.
MOTOR CARRIER AGREEMENT
Prior to the Offerings, the Company and Sentinel Transportation Company, a
wholly-owned subsidiary of DuPont, will enter into a motor carrier agreement
("Motor Carrier Agreement"), for the provision of transportation of commodities
within the United States and Canada. The term of the Motor Carrier Agreement
will be for a one year period. However, either party may terminate such
arrangement at any time upon 90 days' prior written notice.
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REGISTRATION RIGHTS AGREEMENT
Prior to the Offerings, DuPont and the Company will enter into an agreement
(the "Registration Rights Agreement"), pursuant to which the Company will agree
to register on a "shelf" registration statement the sale of Common Stock owned
by DuPont. The Company will agree to keep the shelf registration effective for a
period of two years following the date that the shelf registration comes
effective. In addition, the Company will provide DuPont with three demand
registration rights and certain "piggy-back" registration rights, with respect
to securities owned by DuPont. Such sales may be effected pursuant to one or
more underwritten offerings. The parties will agree to indemnify each other and
any underwriters on standard terms, including for liability under federal
securities laws.
PRINCIPAL STOCKHOLDER
As of the date of this Prospectus, the Company is indirectly wholly owned
by DuPont. After the completion of the Offerings, DuPont will indirectly own 100
percent of the Company's outstanding Class B Common Stock, representing
approximately percent of the combined voting power of all classes of voting
stock of the Company. Under applicable provisions of the Delaware General
Corporation Law, DuPont will therefore be able, acting alone, to elect the
entire Board of Directors of the Company and to approve any action requiring
stockholder approval. The address of DuPont's principal executive office is 1007
Market Street, Wilmington, Delaware 19898. The Company is not aware of any
person or group other than DuPont that will beneficially own more than five
percent of the outstanding shares of Common Stock following the Offerings.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company will consist of (i)
shares of Class A Common Stock, par value $.01 per share, and shares
of Class B Common Stock, par value $.01 per share (the Class A Common Stock and
Class B Common Stock together, the "Common Stock"), and (ii) shares of
Preferred Stock, par value $.01 per share, none of which is outstanding as of
the date hereof. Of the shares of Class A Common Stock,
shares are being offered in the Offerings (or shares if the U.S.
Underwriters exercise their over-allotment option in full). Of the
shares of Class B Common Stock, shares will be outstanding and held by
DuPont or one or more of its affiliates on the Closing Date. A description of
the material terms and provisions of the Company's Certificate of Incorporation
affecting the relative rights of the Class A Common Stock, the Class B Common
Stock and the Preferred Stock is set forth below. The following description of
the capital stock of the Company is intended as a summary only and is qualified
in its entirety by reference to the forms of the Company's Certificate of
Incorporation and By-laws filed with the Registration Statement of which this
Prospectus forms a part, and to Delaware corporate law.
COMMON STOCK
Voting Rights
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock are entitled to five
votes per share on all matters to be voted on by stockholders. Holders of shares
of Class A Common Stock and Class B Common Stock are not entitled to cumulate
their votes in the election of directors. Generally, all matters to be voted on
by stockholders must be approved by a majority of the votes entitled to be cast
by the holders of Class A Common Stock and Class B Common Stock present in
person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. Except as otherwise
provided by law or in the Certificate of Incorporation, and subject to any
voting rights granted to holders of any outstanding Preferred Stock, amendments
to the Certificate of Incorporation must be approved by a majority of the votes
entitled to be cast by the holders of Class A Common Stock and Class B Common
Stock, voting together as a single class. However, amendments of the Certificate
of Incorporation that would alter or change the powers, preferences or special
rights of the Class A Common Stock or the Class B Common Stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class, and holders of Class A Common Stock are not entitled to vote on
any alteration or change in the powers, preferences or special rights of the
Class B Common Stock that would not adversely affect the rights of holders of
Class A Common Stock. For purposes of the foregoing provisions, any provision
for the voluntary, mandatory and other conversion or exchange of the Class B
Common Stock into or for Class A Common Stock on a one-for-one basis shall be
deemed not to adversely affect the rights of the Class A Common Stock.
Notwithstanding the foregoing, any amendment to the Certificate of Incorporation
to increase the authorized shares of any class of capital stock of the Company
requires the approval only of a majority of the votes entitled to be cast by the
holders of Class A Common Stock and Class B Common Stock, voting together as a
single class.
Dividends
Holders of Class A Common Stock and Class B Common Stock will share equally
on a per share basis in any dividend declared by the Board of Directors, subject
to any preferential rights of any outstanding Preferred Stock. Dividends payable
in shares of Common Stock may be paid only as follows: (i) shares of Class A
Common Stock may be paid only to holders of Class A Common Stock, and shares of
Class B Common Stock may be paid only to holders of Class B Common Stock; and
(ii) the number of shares so paid will be equal on a per share basis with
respect to each outstanding share of Class A Common Stock and Class B Common
Stock.
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The Company may not reclassify, subdivide or combine shares of either class
of Common Stock without at the same time proportionally reclassifying,
subdividing or combining shares of the other class.
Conversion
Each share of Class B Common Stock is convertible while held by DuPont or
any of its subsidiaries (excluding the Company) at the option of the holder
thereof into one share of Class A Common Stock. Following any distribution of
Class B Common Stock to stockholders of DuPont in a transaction (including any
distribution in exchange for DuPont shares or securities) intended to qualify as
a tax-free distribution under Section 355 of the Code, or any corresponding
provision of any successor statute (a "Tax-Free Spin-Off"), shares of Class B
Common Stock will no longer be convertible into shares of Class A Common Stock.
Prior to a Tax-Free Spin-Off, any shares of Class B Common Stock
transferred to a person other than DuPont or any of its affiliates (excluding
the Company) will automatically be converted into shares of Class A Common Stock
upon such transfer. Shares of Class B Common Stock transferred to stockholders
of DuPont in a Tax-Free Spin-Off will not be converted into shares of Class A
Common Stock and, following a Tax-Free Spin-Off, shares of Class B Common Stock
will be transferable as Class B Common Stock, subject to applicable laws. DuPont
has no current plans with respect to a Tax-Free Spin-Off of the Class B Common
Stock.
All shares of Class B Common Stock will automatically be converted into
Class A Common Stock if a Tax-Free Spin-Off has not occurred and the number of
outstanding shares of Class B Common Stock owned by DuPont (together with its
subsidiaries (excluding the Company)) falls below 50 percent of the aggregate
number of outstanding shares of Common Stock. This automatic conversion of Class
B Common Stock into Class A Common Stock will prevent DuPont from decreasing its
economic interest in the Company to less than 50 percent while still retaining
control of more than 80 percent of the Company's voting power. All conversions
will be effected on a share-for-share basis.
Other Rights
Unless approved by a majority of the votes entitled to be cast by the
holders of each class of Common Stock, voting separately as a class, in the
event of any reorganization or consolidation of the Company with one or more
corporations or a merger of the Company with another corporation in which shares
of Common Stock are converted into or exchangeable for shares of stock, other
securities or property (including cash), all holders of Common Stock, regardless
of class, will be entitled to receive the same kind and amount of shares of
stock and other securities and property (including cash).
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to receive the
same amount per share with respect to any distribution of assets to holders of
shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock or other
securities of the Company.
Upon closing of the Offerings, all the outstanding shares of Class A Common
Stock and Class B Common Stock will be validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and
with such designations, preferences and other rights for each series as shall be
stated in the resolutions providing for the designation and issue of each such
series adopted by the Board of Directors of the Company. The Board of Directors
is authorized by the Certificate of Incorporation to determine, among other
things, the voting, dividend, redemption, conversion, exchange and liquidation
powers, rights and preferences and the limitations thereon pertaining to such
series. The Board of Directors, without stockholder approval, may issue
Preferred Stock with voting and other rights that could adversely affect the
voting power of the holders of the Common Stock
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and that could have certain anti-takeover effects. The Company has no present
plans to issue any shares of Preferred Stock. The ability of the Board of
Directors to issue Preferred Stock without stockholder approval could have the
effect of delaying, deferring or preventing a change in control of the Company
or the removal of existing management.
For purposes of the Rights Plan described below, the Board of Directors has
designated shares of Series A Junior Participating Preferred Stock,
par value $.01 per share (the "Junior Preferred Shares"). See "-- Anti-Takeover
Effects of Certain Certificate and By-law Provisions -- Rights Plan."
ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE AND BY-LAW PROVISIONS
General
Certain provisions of the Certificate of Incorporation and By-laws
summarized below may be deemed to have an anti-takeover effect and may delay,
deter, or prevent a tender offer or takeover attempt that a stockholder might
consider to be in its best interest, including offers or attempts that might
result in a premium being paid over the market price for the shares held by
stockholders.
Board of Directors
The Certificate of Incorporation and By-laws provide that the Board of
Directors will be divided into three classes of directors, with the classes to
be nearly equal in number as possible. One class will be originally elected for
a term expiring at the annual meeting of stockholders to be held in 1999,
another will be originally elected for a term expiring at the annual meeting of
stockholders to be held in 2000 and another will be originally elected for a
term expiring at the annual meeting of stockholders to be held in 2001. Each
director is to hold office until his or her successor is duly elected and
qualified. Commencing with the 1999 annual meeting of stockholders, directors
elected to succeed directors whose terms then expire will be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until such person's successor
is duly elected and qualified.
The Certificate of Incorporation and By-laws provide that the Board of
Directors shall initially consist of nine members. The Certificate of
Incorporation and By-laws further provide that the number of directors of the
Company shall be fixed from time to time exclusively by resolution adopted by
the affirmative vote of a majority of the entire Board of Directors, but shall
consist of not more than fifteen nor less than six directors. In addition, the
Certificate of Incorporation provides that any vacancies will be filled by the
affirmative vote of a majority of the remaining directors, even if less than a
quorum, or by a sole remaining director, or by stockholders if such vacancy was
caused by the action of stockholders (in which event such vacancy may not be
filled by the directors or a majority thereof).
The Certificate of Incorporation and the By-laws provide that, except as
provided below, directors may be removed, with or without cause, by the
affirmative vote of shares representing a majority of the votes entitled to be
cast by the then outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors excluding any class or series of
capital stock only entitled to vote in the event of dividend arrearages thereon
(the "Voting Stock"); provided, however, that during the period (i) beginning on
the first date that DuPont (together with its subsidiaries (excluding the
Company)) ceases to beneficially own shares representing 50 percent or more of
the votes entitled to be cast by Voting Stock (the "First Trigger Date") and
(ii) ending on the first date that DuPont (together with its subsidiaries
(excluding the Company)) ceases to beneficially own shares representing 30
percent or more of the votes entitled to be cast by Voting Stock (the "Second
Trigger Date"), directors may be removed, with or without cause, only by the
affirmative vote of shares representing not less than 66 2/3 percent of the
votes entitled to be cast by Voting Stock. Notwithstanding the foregoing, from
and after the Second Trigger Date, directors of the Company may only be removed
for cause, such removal to be by the affirmative vote of shares representing a
majority of the votes entitled to be cast by Voting Stock. Unless the Board of
Directors has made a determination that removal is in the best interests of the
Company (in which case the following definition shall not apply), "cause" for
removal of a director shall be deemed to exist only if (i) the director whose
removal is proposed has been convicted, or when a director is granted immunity
to testify when another has been convicted, of a felony by a court of
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competent jurisdiction and such conviction is no longer subject to direct
appeal; (ii) such director has been found by the affirmative vote of a majority
of the directors then in office at any regular or special meeting of the Board
of Directors called for that purpose or by a court of competent jurisdiction to
have been guilty of willful misconduct in the performance of his duties to the
Company in a matter of substantial importance to the Company; or (iii) such
director has been adjudicated by a court of competent jurisdiction to be
mentally incompetent, which mental incompetency directly affects his ability as
a director of the Company. Notwithstanding the foregoing, whenever holders of
outstanding shares of one or more series of Preferred Stock are entitled to
elect directors of the Company pursuant to the provisions applicable in the case
of arrearages in the payment of dividends or other defaults contained in the
resolution or resolutions of the Board of Directors providing for the
establishment of any such series, any such director of the Company so elected
may be removed in accordance with the provision of such resolution or
resolutions.
Advance Notice Procedures
The By-laws provide for an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors, as well as for other stockholder proposals to be
considered as annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at such meetings will have to be received
in writing by the Company not less than 90 nor more than 120 days prior to the
anniversary of the previous year's annual meeting of stockholders, and must
contain certain information concerning the person to be nominated or the matters
to be brought before the meeting and concerning the stockholder submitting the
proposal. So long as DuPont owns shares representing 10 percent or more of the
votes entitled to be cast by the Voting Stock, DuPont is exempt from the
foregoing advance notice procedures for director nominations and shareholder
proposals.
Special Meetings
The By-laws provide that, unless otherwise required by the Certificate of
Incorporation, special meetings of stockholders may be called only by certain
specified officers of the Company or by any officer at the request of the Board
of Directors or a committee thereof; special meetings cannot be called by
stockholders. The Certificate of Incorporation and the By-laws expressly deny
stockholders the right to call special meetings after the Second Trigger Date.
In addition, the Certificate of Incorporation and the By-laws provide that,
prior to the Second Trigger Date, any action required or permitted to be taken
by stockholders may be effected by written consent, but that after the Second
Trigger Date, any such action may be effected only at a duly called annual or
special meeting of stockholders and may not be effected by a written consent. No
business other than that stated in the notice of such meeting may be transacted
at any special meeting.
Fair Price Provision
The Certificate of Incorporation includes a "fair price" provision (the
"Fair Price Provision") which prohibits certain Business Combinations (as
defined below) with a Related Person (as defined below), unless (a) the holders
of both classes of Common Stock receive in the Business Combination the same
consideration as the other class and either (i) the same consideration in form
and amount per share as the highest consideration paid by the Related Person in
a tender or exchange offer in which the Related Person acquired at least 50
percent of either the outstanding stock of either the Class A Common Stock or
the outstanding Class B Common Stock and which was consummated not more than one
year prior to the Business Combination or the entering into of a definitive
agreement for the Business Combination or (ii) not less in amount (as to cash)
or fair market value (as to non-cash consideration) than the highest price paid
or agreed to be paid by the Related Person for shares of Class A Common Stock,
Class B Common Stock or Voting Stock in any transaction occurring not more than
one year prior to the Business Combination that either resulted in the Related
Person's beneficially owning 15 percent or more of the Class A Common Stock,
Class B Voting Stock or Voting Stock or was effected at a time when the Related
Person beneficially owned 15 percent or more of the Class A Common Stock, the
Class B Common Stock or Voting Stock, in either case occurring not more than one
year prior to the Business Combination, or (b) the transaction is approved by
(i) a majority of Continuing Directors (as defined below) or (ii) shares
representing (x) not less than 66 2/3 percent of the votes entitled to be cast
by the Voting Stock, (y) not less than 50.01 percent of the votes
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entitled to be cast by the Voting Stock not beneficially owned by the Related
Person, and (z) from and after the First Trigger Date, a majority of the votes
entitled to be cast by the holders of each class of Common Stock (excluding all
shares beneficially owned by any Related Person), voting separately as a class;
provided that, after the Second Trigger Date, the required approval percentages
in clause (b)(ii) (x) and (y) increase to 80 percent and 66 2/3 percent,
respectively. Such approvals are also required to amend the Fair Price
Provisions. The Fair Price Provision will not be applicable at such time as all
shares of Class B Common Stock have been converted into or exchanged for Class A
Common Stock.
Under the Fair Price Provision, a "Related Person" is any person (other
than DuPont and its affiliates and associates) that beneficially owns 15 percent
or more of the Class A Common Stock, Class B Common Stock, or the Voting Stock
outstanding or is an affiliate of the Company and at any time within the
preceding two-year period was the beneficial owner of 15 percent or more of the
Class A Common Stock, Class B Common Stock, or the Voting Stock outstanding. The
relevant "Business Combinations" involving the Company covered by the Fair Price
Provision are (1) any merger, or consolidation of the Company or any subsidiary
of the Company with or into a Related Person or an affiliate of a Related
Person, (2) any sale, lease, exchange, transfer or other disposition of all or
substantially all of the assets of the Company to a Related Person or an
affiliate of a Related Person, (3) certain reclassifications, recapitalizations
and other corporate actions requiring a stockholder vote that have the effect of
increasing by more than one percent the proportionate share of Class A Common
Stock, Class B Common Stock or Voting Stock beneficially owned by the Related
Person or an affiliate of a Related Person and (4) a dissolution of the Company
caused or proposed by a Related Person or an affiliate of a Related Person. A
"Continuing Director" is a director who is unaffiliated with the Related Person
and who was a director before the Related Person became a Related Person, and
any successor of a Continuing Director who is unaffiliated with a Related Person
and is recommended or nominated to succeed a Continuing Director by a majority
of the Continuing Directors.
Amendment
Amendments of a number of the foregoing provisions, including Certificate
of Incorporation and By-law provisions with respect to stockholder action by
written consent, stockholder right to call special meetings, advance notice
procedures, and board classification and removal provisions, require approval by
shares representing not less than 66 2/3 percent of the votes entitled to be
cast by the Voting Stock, voting together as a single class, and, after the
Second Trigger Date, 80 percent of such votes; provided that after the First
Trigger Date, if there are any shares of Class B Common Stock outstanding,
approval by a majority of the votes entitled to be cast by the holders of each
class of Common Stock, voting separately by class, is also required. The By-laws
may also be amended by action of the Board of Directors.
Rights Plan
The Board of Directors currently expects to adopt a Share Purchase Rights
Plan (the "Rights Plan") at or prior to the closing of the Offerings. Pursuant
to the Rights Plan, the Board of Directors will cause to be issued one preferred
share purchase right for each outstanding share of Class A Common Stock and
Class B Common Stock (the "Class A Rights" and "Class B Rights," respectively;
together, the "Rights"). Each Class A Right and each Class B Right will entitle
the registered holder thereof to purchase from the Company one one-thousandth of
a share of the Junior Preferred Shares at a price of $ (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights will be
set forth in a rights agreement (the "Rights Agreement") between the Company and
the designated rights agent (the "Rights Agent"). The description set forth
below is intended as a summary only and is qualified in this entirety by
reference to the form of the Rights Agreement, which will be filed as an exhibit
to the Registration Statement of which this Prospectus is a part. See "Available
Information."
Until the earlier to occur of (i) 10 business days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of (A) 15 percent or more
of the outstanding Class A Common Stock, (B) 15 percent or more of the
outstanding Class B Common Stock or (C) any combination of Class A Common Stock
and Class B Common Stock representing 15 percent or more of the votes of all
shares entitled to vote in the election of
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directors or (ii) 10 business days (or such later date as may be determined by
action of the Board of Directors prior to such time as any person becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in beneficial ownership by a person or group of shares meeting the requirements
set forth in (A), (B) or (C) above (the earlier of such dates being called the
"Rights Distribution Date"), the Rights will be evidenced by the certificates
representing the Common Stock.
The Rights Agreement will provide that, until the Rights Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the respective Class A Common Stock and Class B
Common Stock. Until the Rights Distribution Date (or earlier redemption or
expiration of the Rights), all shares of Common Stock which are issued will have
associated Rights and the Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Class A Rights and Class B Rights (the "Class A Rights Certificates" and "Class
B Rights Certificates", respectively; together, the "Rights Certificates") will
be mailed to holders of record of the Class A Common Stock and the Class B
Common Stock, respectively, as of the close of business on the Rights
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on August 31, 2008 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed by
the Company, in each case, as summarized below.
In the event that any person or group of affiliated or associated persons
become an Acquiring Person, proper provision shall be made so that each holder
of a Class A Right and Class B Right, other than Rights beneficially owned by
the Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of shares of Class A Common Stock and
Class B Common Stock, respectively, having a Current Market Price (as defined in
the Rights Agreement) of two times the exercise price of the Class A Right and
Class B Right, respectively. In the event that the Company is acquired in a
merger or other business combination transaction or 50 percent or more of its
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
will be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a Current Market Price of two times the
exercise price of the Right.
At any time until the tenth business day following the public announcement
that a person or group of affiliated or associated persons has become an
Acquiring Person (meeting the requirements (A)-(C) set forth in the second
paragraph of this summary of the Rights Plan), the Board of Directors may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of the
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors without
the consent of the holders of the Rights prior to the Distribution Date. After
the Distribution Date, the provisions of the Rights Agreement may be amended by
the Board of Directors in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights, or to shorten or
lengthen any time period under the Rights Agreement; provided, however that no
amendment to lengthen a time period relating to when the Rights may be redeemed
may be made at such time as the Rights are not redeemable. In addition, all
amendments require the consent of DuPont, if DuPont holds 30 percent of voting
power of the outstanding shares of Common Stock. In addition, no amendments to
the definition of "Acquiring Person" can be made at any time without DuPont's
consent, if DuPont holds 10 percent of voting power of the outstanding shares of
Common Stock.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
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The number of outstanding Rights and the number of one-thousandths of a
Junior Preferred Share issuable upon exercise of each Right will be subject to
adjustment in the event of a stock split of the Class A Common Stock and Class B
Common Stock or a stock dividend on the Class A Common Stock and Class B Common
Stock payable in Class A Common Stock and Class B Common Stock, respectively, or
subdivisions, consolidations or combinations of the Class A Common Stock and
Class B Common Stock occurring, in any such case, prior to the Rights
Distribution Date.
The Purchase Price payable, and the number of Junior Preferred Shares or
other securities or property issuable, upon exercise of the Rights will also be
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Junior Preferred Shares, (ii) upon the grant to holders of the Junior Preferred
Shares of certain rights or warrants to subscribe for or purchase Junior
Preferred Shares at a price, or securities convertible into Junior Preferred
Shares with a conversion price, less than the then-current market price of the
Junior Preferred Shares or (iii) upon the distribution to holders of the Junior
Preferred Shares of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Junior Preferred Shares) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional Junior Preferred Shares will be
issued (other than fractions which are integral multiples of one one-thousandth
of a Junior Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Junior Preferred Shares on the
last trading day prior to the date of exercise.
Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $.01 per share but will be entitled
to an aggregate dividend of 1,000 times the dividend declared per share of
Common Stock. In the event of liquidation, the holders of the Junior Preferred
Shares will be entitled to a minimum preferential liquidation payment of $1,000
per share but will be entitled to an aggregate payment of 1,000 times the
payment made per share of Class A Common Stock and Class B Common Stock. Each
Junior Preferred Share will have 1,000 votes voting together with the Class A
Common Stock and Class B Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Class A Common Stock and
Class B Common Stock are exchanged, each Junior Preferred Share will be entitled
to receive 1,000 times the amount received per share of the Class A Common Stock
and the Class B Common Stock. These rights are protected by customary
anti-dilution provisions.
Due to the nature of the Junior Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-thousandth interest in a Junior
Preferred Share purchasable upon exercise of each Right should approximate the
value of one share of Class A Common Stock and Class B Common Stock.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group of persons that attempts to acquire
the Company on terms not approved by the Board of Directors. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors prior to the time that a person or group has acquired
beneficial ownership of 15 percent or more of the Class A Common Stock, Class B
Common Stock or voting power of the outstanding shares of Common Stock since the
Rights may be redeemed by the Company at the Redemption Price until such time.
DuPont is excluded from the definition of "Acquiring Person" and therefore
its ownership cannot trigger the distribution of rights under the Rights Plan.
CONTRACTUAL RELATIONS AMONG THE COMPANY, DUPONT AND CERTAIN RELATED ENTITIES
The Certificate of Incorporation provides that, if certain disclosure
conditions are satisfied and if fair as to the Company as of the time it is
authorized, approved or ratified by the Board of Directors, by a committee
thereof or by the stockholders, no contract, agreement, arrangement or
transaction between (a) the Company and DuPont, (b) the Company and one or more
of the directors or officers of the Company, DuPont or a
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Related Entity (as defined below) or (c) the Company and any Related Entity will
be void or voidable solely because DuPont, any Related Entity or any one or more
of the officers or directors of the Company, DuPont or any Related Entity are
parties thereto (or solely because any such directors or officers are present at
or participate in the meeting of the Board of Directors or committee thereof
that authorizes the contract, agreement, arrangement or transaction or solely
because his or their votes are counted for such purpose), and DuPont, any
Related Entity and such directors and officers (a) will have fully satisfied and
fulfilled their fiduciary duties to the Company and its stockholders with
respect thereto, (b) will not be liable to the Company or its stockholders for
any breach of fiduciary duty by reason of the entering into, performance or
consummation of any such contract, agreement, arrangement or transaction, (c)
will be deemed to have acted in good faith and in a manner such persons
reasonably believe to be in and not opposed to the best interests of the Company
and (d) will be deemed not to have breached their duties of loyalty to the
Company and its stockholders and not to have derived an improper personal
benefit therefrom. A "Related Entity" is a corporation, partnership, association
or other organization in which one or more of the Company's directors have a
financial interest.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any "business combination," including in general mergers or
consolidations or acquisitions of additional shares of the corporation, with the
corporation for a three-year period following the time that such stockholder
becomes an interested stockholder unless (i) prior to such time, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the interested stockholder
owned at least 85 percent of the voting stock of the corporation outstanding at
the time the transaction commenced (excluding certain shares), or (iii) on or
subsequent to such time, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3 percent of the outstanding voting stock not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (x) any person that is the owner of 15 percent or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15 percent or more of the outstanding
voting stock of the corporation at any time within three years immediately prior
to the date of determination and (y) the affiliates and associates of any such
person. DuPont and its affiliates, however, are excluded from the definition of
"interested stockholder" under the terms of Section 203. Under certain
circumstances, Section 203 makes it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. The Company has not elected to be exempt
from the restrictions imposed under Section 203.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation provides that no director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases as provided in Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders'
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derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations described
above. The Company's By-laws provide for indemnification of directors and
officers to the maximum extent permitted by Delaware law.
LISTING
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "CLL," subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is First
Chicago Trust Company of New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have shares of
Class A Common Stock and shares of Class B Common Stock outstanding,
without taking into account any outstanding options or options which may be
granted following the closing of the Offerings. Of these shares, the shares sold
in the Offerings will be freely tradeable without restriction or further
registration under the Securities Act of 1933 (the "Securities Act"), unless
they are sold by persons deemed to be "affiliates" of the Company or acting as
"underwriters" as those terms are defined in Rule 144 under the Securities Act.
Shares purchased by affiliates of the Company may generally be sold in
compliance with the volume limitation, availability of public information,
manner of sale and notice of sale requirements of Rule 144.
The shares of Common Stock that will continue to be owned by DuPont
will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act or unless an exemption from registration is available, including
the exemptions contained in Rule 144 and Rule 144A under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated),
including any person who may be deemed an "affiliate" of the Company, who has
beneficially owned restricted shares for at least one year would be entitled to
sell within any three-month period a number of restricted shares that does not
exceed the greater of one percent of the then outstanding shares of Common Stock
or the average weekly trading volume of the Common Stock on the NYSE during the
four calendar weeks immediately preceding such sale, provided that the seller
files a Form 144 with respect to such sale, and complies with certain
requirements concerning availability of public information and manner of sale.
In addition, under Rule 144(k), a person who is not an affiliate of the Company,
and who has not been an affiliate of the Company at any time during the 90 days
preceding any sale, would be entitled to sell restricted shares without regard
to the limitations described above, provided that the restricted shares have
been beneficially owned for at least two years. In addition, DuPont would be
permitted to sell its existing shares of stock to qualified institutional buyers
pursuant to the provisions of Rule 144A.
Each of the Company and DuPont, and certain senior officers of the Company,
has agreed not to sell or otherwise dispose of any shares of the Common Stock
held by them for and days, respectively, after the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated, subject
to certain exceptions. See "Underwriters."
An aggregate of shares of Class A Common Stock are reserved for issuance
to directors, executives, consultants and employees of the Company pursuant to
the 1998 Stock and Performance Incentive Plan (the "Plan"), the 1998 Key
Employee Stock Performance Plan (the "1998 Plan"), the Deferred Compensation
Plan for Non-employee Directors (the "Deferred Compensation Plan") and the
Global Stock Performance Sharing Plan (the "Global Plan"). The Company intends
to file a registration statement on Form S-8 covering the issuance of shares of
Class A Common Stock pursuant to the Plan, the 1998 Plan, the Deferred
Compensation Plan and the Global Plan. Accordingly, shares issues pursuant to
the Plan, the 1998 Plan, the Deferred Compensation Plan and the Global Plan will
be freely tradeable, subject to the restrictions on resale on affiliates by Rule
144.
DuPont has advised the Company that it expects to reduce its ownership
interest in the Company over time, subject to prevailing market and other
conditions. The Company is unable to estimate the amount, timing or nature of
future sales of outstanding Common Stock. Prior to the Offerings, there has been
no market for the Class A Common Stock, and no precise predictions can be made
of the effect, if any, that market sales of shares or the availability of shares
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market may have an adverse effect on the market price thereof. See "Risk
Factors -- Adverse Effect on Market Price Due to Shares Eligible for Future
Sale."
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CERTAIN MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK
The following is a general summary of certain material United States
federal income and estate tax consequences of the purchase, ownership, and sale
or other taxable disposition of the Class A Common Stock by any person or entity
other than (a) a citizen or resident of the United States, (b) a corporation or
other entity taxable as a corporation created or organized in or under the laws
of the United States or of any political subdivision thereof and (c) a person or
entity otherwise subject to United States federal income taxation on income from
sources outside the United States (a "non-U.S. Holder"). This summary does not
address all tax considerations that may be relevant to non-U.S. Holders in light
of their particular circumstances or to certain non-U.S. Holders that may be
subject to special treatment under United States federal income or estate tax
laws. This summary is based upon the Code, existing, temporary and proposed
regulations promulgated thereunder and administrative and judicial decisions,
all of which are subject to change, possibly with retroactive effect. In
addition, this summary does not address the effect of any state, local or
foreign tax laws. Each prospective purchaser of Class A Common Stock should
consult its tax advisor with respect to the tax consequences of purchasing,
owning and disposing of the Class A Common Stock.
DIVIDENDS
Dividends paid to a non-U.S. Holder of Class A Common Stock generally will
be subject to a withholding of United States federal income tax at a 30 percent
rate (or such lower rate as may be specified by an applicable income tax treaty)
unless (i) the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States or (ii) if a tax treaty
applies, is attributable to a United States permanent establishment of the
non-U.S. Holder, in which cases the dividend will be taxed at ordinary federal
income tax rates. If the non-U.S. Holder is a corporation, such effectively
connected income may also be subject to an additional "branch profits tax." A
non-U.S. Holder may be required to satisfy certain certification requirements in
order to claim treaty benefits or otherwise claim a reduction of, or exemption
from, the withholding described above.
SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Class A Common Stock unless (i) the gain is effectively connected
with the conduct of a trade or business of the non-U.S. Holder within the United
States, (ii) in the case of a non-U.S. Holder who is an individual and holds the
Class A Common Stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the disposition and certain
other tests are met, (iii) the non-U.S. Holder is subject to tax pursuant to the
provisions of United States federal income tax law applicable to certain United
States expatriates or (iv) the Company is or has been during certain periods
preceding the disposition a "United States real property holding corporation"
for United States federal income tax purposes and certain other requirements are
met. The Company may be, or may subsequently become, a United States real
property holding corporation for United States federal income tax purposes
because of its ownership of substantial real property in the United States. If
the Company were to be treated as a United States real property holding
corporation at any time during the five-year period preceding the disposition by
a non-U.S. Holder of Class A Common Stock, then any such non-U.S. Holder who has
held, directly or indirectly, more than five percent of the Class A Common Stock
during such five-year period will be subject to United States federal income
taxation on any gain realized from the disposition of such stock, unless an
exemption is provided under an applicable treaty.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual non-U.S.
Holder at the time of death will be includible in the individual's gross estate
for United States federal estate tax purposes, unless an applicable treaty
provides otherwise, and may be subject to United States federal estate tax.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. United States backup withholding tax generally will not apply to
dividends paid on the Class A Common Stock that are subject to the 30 percent or
reduced treaty rate of U.S. withholding tax previously discussed. The Company
must report annually to the Internal Revenue Service and to each non-U.S. Holder
the amount of dividends paid to, and the tax withheld with respect to, such
holder, regardless of whether any tax was withheld. This information may also be
made available to the tax authorities in the non-U.S. Holder's country of
residence.
Sale or Other Disposition of Common Stock. Upon the sale or other taxable
disposition of Class A Common Stock by a non-U.S. Holder to or through a U.S.
office of a broker, the broker must backup withhold at a rate of 31 percent and
report the sale to the Internal Revenue Service, unless the holder certifies its
non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other taxable disposition of Class A Common Stock by
a non-U.S. Holder to or through the foreign office of a United States broker, or
a foreign broker with a certain relationship to the United States, the broker
must report the sale to the Internal Revenue Service (but not backup withhold)
unless the broker has documentary evidence in its files that the seller is a
non-U.S. Holder and/or certain other conditions are met or the holder otherwise
establishes an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules generally are allowable as a refund or credit against a
non-U.S. Holder's U.S. federal income tax liability, if any, provided that the
required information is furnished to the Internal Revenue Service on a timely
basis.
The U.S. Treasury Department has issued regulations generally effective for
payments made after December 31, 1999 that will affect the procedures to be
followed by a non-U.S. Holder in establishing such holder's status as a non-U.S.
Holder for purposes of the withholding, backup withholding and information
reporting rules described herein. The regulations eliminate the general prior
legal presumption that dividends paid to an address in a foreign country are
paid to a resident of that country. In addition, the regulations impose certain
certification and documentation requirements on non-U.S. Holders claiming the
benefit of a reduced withholding rate with respect to dividends under a tax
treaty or otherwise claiming a reduction of, or exemption from, the withholding
obligation described above. To qualify for exemption from backup withholding and
information reporting under the regulations, a non-U.S. Holder may be required
to furnish a new certification of foreign status. Prospective investors should
consult their tax advisors concerning the effect of such regulations on an
investment in the Class A Common Stock.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), each
of the U.S. Underwriters named below for whom Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation, Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Smith Barney
Inc., BT Alex. Brown Incorporated and Schroder & Co. Inc. are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, Credit Suisse First Boston (Europe)
Limited, Goldman Sachs International, Merrill Lynch International Limited, J.P.
Morgan Securities Ltd., Smith Barney Inc., BT Alex. Brown International and J.
Henry Schroder & Co. Limited are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Class A Common Stock set forth
opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Credit Suisse First Boston Corporation....................
Goldman, Sachs & Co. .....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
J.P. Morgan Securities Inc. ..............................
Smith Barney Inc. ........................................
BT Alex. Brown Incorporated...............................
Schroder & Co. Inc. ......................................
Subtotal.............................................
--------
International Underwriters:
Morgan Stanley & Co. International Limited................
Credit Suisse First Boston (Europe) Limited...............
Goldman Sachs International...............................
Merrill Lynch International Limited.......................
J.P. Morgan Securities Ltd. ..............................
Smith Barney Inc. ........................................
BT Alex. Brown International, a division of Bankers Trust
International, PLC.....................................
J. Henry Schroder & Co. Limited...........................
Subtotal.............................................
--------
Total.............................................
========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Class A Common Stock offered
hereby are subject to the approval of
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certain legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all of the shares of Class A
Common Stock offered hereby (other than those covered by the U.S. Underwriters'
over-allotment option described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined below) for the account of anyone
other than a United States or Canadian Person (as defined below) and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to Shares outside the United States
or Canada or to anyone other than a United States or Canadian Person. Pursuant
to the Agreement between U.S. and International Underwriters, each International
Underwriter has represented and agreed that, with certain exceptions: (i) it is
not purchasing any Shares for the account of any United States or Canadian
Person, and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute any prospectus relating to the
Shares in the United States or Canada or to any United States or Canadian
Person. With respect to any Underwriter that is a U.S. Underwriter and an
International Underwriter, the foregoing representation and agreements (i) made
by it in its capacity as a U.S. Underwriter apply only to it in its capacity as
a U.S. Underwriter and (ii) made by it in its capacity as an International
Underwriter apply only to it in its capacity as an International Underwriter.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement between the U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing, or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian person. All
shares of Class A Common Stock to be purchased by the Underwriters are referred
to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold will be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the Closing Date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the
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Shares in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will \only issue or pass on in the United Kingdom any
document received by it in connection with the offering of the Shares to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise be lawfully issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters initially propose to offer part of the Shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
$ per share under the public offering price. Any Underwriter may allow, and
such dealers may reallow, a concession not in excess of $ per share to other
Underwriters or to certain dealers. After the initial offering of the Shares,
the offering price and other selling terms may from time to time be varied by
the Representatives.
The U.S. Underwriters have been granted an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an aggregate of
additional Shares at the price to public set forth on the cover page hereof,
less underwriting discounts and commissions. The additional shares to be
provided under this option may be provided by the Company, DuPont or a
combination of the two. The actual option granted by the Company and/or DuPont
will be described in the final prospectus. The U.S. Underwriters may exercise
such option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of Class A Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Class A Common Stock as the number
set forth next to such U.S. Underwriter's name in the preceding table bears to
the total number of shares of Class A Common Stock set forth next to the names
of all U.S. Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend for
sales to discretionary accounts to exceed five percent of the aggregate number
of shares of Class A Common Stock offered by them.
The Class A Common Stock has been approved for listing on the NYSE under
the trading symbol "CLL," subject to official notice of issuance. In order to
meet the requirements for listing the Class A Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to meet the New York Stock Exchange's
minimum distribution, issuance and aggregate market value requirements.
At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to approximately shares offered hereby
for directors, officers and employees of the Company and certain other persons
designated by the Board of Directors. The number of shares of Class A Common
Stock available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.
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The Company and DuPont have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they will
not, during the period ending days after the date of this Prospectus (the
"Lock-up Period"), (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer, lend or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock whether any such
transaction described in clause (i) or (ii) above is settled by delivery of
Common Stock, or such other securities, in cash or otherwise. Certain senior
officers of the Company have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they will not,
during the period ending days after the date of this Prospectus and subject to
certain exceptions, engage in a transaction described in clause (i) or (ii)
above. The restrictions described in this paragraph do not apply to (x) the sale
of Common Stock to the Underwriters, (y) the issuance by the Company of shares
of Common Stock upon the exercise of an option or warrant or the conversion or
issuance upon cancellation of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing, or (z)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Offering. The restrictions on the Company are subject to
exceptions for the issuance of Company Stock Options and Common Stock pursuant
to existing employee benefit plans.
In order to facilitate the Offerings, the Underwriters may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
Class A Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offerings, creating a short position in the Class A Common
Stock for their own account. In addition, to cover over-allotments or to
stabilize the price of the Class A Common Stock, the Underwriters may bid for,
and purchase, shares of Class A Common Stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an Underwriter
or a dealer for distributing the Class A Common Stock in the Offerings, if the
syndicate repurchases previously distributed Class A Common Stock in
transactions to cover syndicate short positions, in stabilization transactions,
or otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
From time to time, the Underwriters and certain of their affiliates have
provided, and continue to provide, investment banking services and trading
services to DuPont and the Company, for which they receive customary fees.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERINGS
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
between DuPont and the Company on the one hand and the U.S. Representatives on
the other hand. Among the factors to be considered in determining the initial
public offering price will be the future prospects of the Company and its
industry in general, sales, earnings, and certain other financial operating
information of the Company in recent periods, and the price-earnings ratios,
price-sales ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to those of the
Company. The estimated initial public offering price range set forth on the
cover page of this Prospectus is subject to change as a result of market
conditions and other factors.
130
<PAGE> 132
LEGAL MATTERS
The validity of the Class A Common Stock being offered hereby will be
passed upon for the Company by R.A. Harrington, Senior Vice President, Legal,
and General Counsel, and for the Company and DuPont by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York. Certain legal matters will be passed on
for the Underwriters by Cravath, Swaine & Moore, New York, New York. Skadden,
Arps, Slate, Meagher & Flom LLP has in the past and continues to represent
DuPont in connection with various matters, including the Separation. Cravath,
Swaine & Moore has in the past and continues to represent DuPont in connection
with various matters not related to the Separation or the Offerings. Baker &
Botts, L.L.P., Houston, Texas, is representing the Company in connection with
certain aspects of the Separation.
EXPERTS
The combined financial statements as of December 31, 1996 and 1997, and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The summary letter report of DeGolyer and MacNaughton, independent
petroleum engineering consultants, a copy of which appears as Annex A hereto,
has been included herein in reliance upon the authority of that firm as experts
in estimating proved oil and gas reserves.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1, including all amendments and supplements thereto (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are summaries of material terms of such contract, agreement or other
document and are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Items of information omitted from this Prospectus but contained
in the Registration Statement may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of such material may also be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
such materials filed electronically by the Company with the Commission are
available at the Commission's World Wide Web site at http://www.sec.gov. The
Company's periodic reports, proxy statements and other information filed by the
Company with the Commission can also be inspected at the offices of The New York
Stock Exchange, Inc., 20 Broad Street, New York, NY 10005.
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information, in each case prepared in accordance with generally
accepted accounting principles.
131
<PAGE> 133
CONOCO
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Combined Financial Statements
Report of Independent Accountants......................... F-2
Combined Statement of Income -- Years Ended December 31,
1995, 1996 and 1997.................................... F-3
Combined Balance Sheet -- at December 31, 1996 and 1997... F-4
Combined Statement of Cash Flows -- Years Ended December
31, 1995, 1996 and 1997................................ F-5
Combined Statement of Owner's Net Investment and
Accumulated Other Comprehensive Loss -- Years Ended
December 31, 1995, 1996 and 1997....................... F-6
Notes to Combined Financial Statements.................... F-7
Unaudited Financial Information
Supplemental Petroleum Data............................... F-31
Combined Quarterly Financial Data -- 1996 and 1997........ F-37
Unaudited Interim Combined Financial Statements
Interim Combined Statement of Income -- Six Months Ended
June 30, 1997 and 1998................................. F-38
Interim Combined Balance Sheet -- at December 31, 1997 and
June 30, 1998.......................................... F-39
Interim Combined Statement of Cash Flows -- Six Months
Ended June 30, 1997 and 1998........................... F-40
Notes to Interim Combined Financial Statements............ F-41
</TABLE>
Certain supplementary financial statement schedules have been omitted
because the information required to be set forth therein is either not
applicable or is shown in the financial statements or notes thereto.
F-1
<PAGE> 134
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of E. I. du Pont de Nemours and Company
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of cash flows and of owner's net investment and
accumulated other comprehensive loss appearing on pages F-3 through F-30 of this
Registration Statement on Form S-1 present fairly, in all material respects, the
financial position of Conoco, the petroleum business of E. I. du Pont de Nemours
and Company, at December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
July 24, 1998
F-2
<PAGE> 135
FINANCIAL STATEMENTS
CONOCO
COMBINED STATEMENT OF INCOME (NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C>
Revenues
Sales and Other Operating Revenues*....................... $20,328 $24,230 $25,796
Other Income (Note 4)..................................... 190 186 467
------- ------- -------
Total Revenues.................................... 20,518 24,416 26,263
------- ------- -------
Costs and Expenses
Cost of Goods Sold and Other Operating Expenses........... 11,146 14,560 16,226
Selling, General and Administrative Expenses.............. 728 755 726
Exploration Expenses...................................... 331 404 457
Depreciation, Depletion and Amortization.................. 1,067 1,085 1,179
Taxes Other Than on Income* (Note 5)...................... 5,823 5,637 5,532
Interest and Debt Expense (Note 6)........................ 74 74 36
------- ------- -------
Total Costs and Expenses.......................... 19,169 22,515 24,156
------- ------- -------
Income Before Income Taxes.................................. 1,349 1,901 2,107
Provision for Income Taxes (Note 7)......................... 774 1,038 1,010
------- ------- -------
Net Income.................................................. $ 575 $ 863 $ 1,097
======= ======= =======
Unaudited Pro Forma Earnings Per Share (Note 2)
Basic.....................................................
Diluted...................................................
Unaudited Pro Forma Weighted Average Shares Outstanding
(Note 2)..................................................
Basic.....................................................
Diluted...................................................
- ---------------
*Includes petroleum excise taxes............................ $ 5,655 $ 5,461 $ 5,349
</TABLE>
See accompanying Notes to Combined Financial Statements
F-3
<PAGE> 136
FINANCIAL STATEMENTS
CONOCO
COMBINED BALANCE SHEET (NOTE 1)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................. $ 846 $ 1,147
Marketable Securities..................................... 7 7
Accounts and Notes Receivable (Note 8).................... 1,494 1,497
Notes Receivable -- Related Parties (Note 3).............. 322 490
Inventories (Note 9)...................................... 806 830
Prepaid Expenses.......................................... 183 236
------- --------
Total Current Assets............................... 3,658 4,207
Property, Plant and Equipment (Note 10)..................... 19,981 21,229
Less: Accumulated Depreciation, Depletion and
Amortization.............................................. (9,899) (10,401)
------- --------
Net Property, Plant and Equipment........................... 10,082 10,828
------- --------
Investment in Affiliates (Note 11).......................... 703 1,085
Long-Term Notes Receivable -- Related Parties (Note 3)...... 9 450
Other Assets (Note 12)...................................... 774 492
------- --------
Total.............................................. $15,226 $ 17,062
======= ========
LIABILITIES AND OWNER'S NET INVESTMENT AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Current Liabilities
Accounts Payable (Note 13)................................ $ 1,025 $ 1,090
Short-Term Borrowings -- Related Parties (Note 3)......... 176 644
Other Short-Term Borrowings and Capital Lease Obligations
(Note 14)............................................... 32 72
Income Taxes (Note 7)..................................... 453 545
Other Accrued Liabilities (Note 15)....................... 1,110 1,289
------- --------
Total Current Liabilities.......................... 2,796 3,640
Long-Term Borrowings -- Related Parties (Note 3)............ 2,287 1,450
Other Long-Term Borrowings and Capital Lease Obligations
(Note 16)................................................. 101 106
Deferred Income Taxes (Note 7).............................. 1,767 1,739
Other Liabilities and Deferred Credits (Note 17)............ 1,390 1,922
------- --------
Total Liabilities.................................. 8,341 8,857
------- --------
Commitments and Contingent Liabilities (Note 25)
Minority Interests (Note 18)................................ 306 309
Owner's Net Investment...................................... 6,636 8,087
Accumulated Other Comprehensive Loss (Note 19)
Minimum Pension Liability Adjustment...................... (18) (31)
Accumulated Foreign Currency Translation Adjustment....... (39) (160)
------- --------
Total Accumulated Other Comprehensive Loss......... (57) (191)
------- --------
Total Owner's Net Investment and Accumulated Other
Comprehensive Loss................................ 6,579 7,896
------- --------
Total.............................................. $15,226 $ 17,062
======= ========
</TABLE>
See accompanying Notes to Combined Financial Statements
F-4
<PAGE> 137
FINANCIAL STATEMENTS
CONOCO
COMBINED STATEMENT OF CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash Provided by Operations
Net Income................................................ $ 575 $ 863 $ 1,097
Adjustments to Reconcile Net Income to Cash Provided by
Operations:
Depreciation, Depletion and Amortization............... 1,067 1,085 1,179
Dry Hole Costs and Impairment of Unproved Properties... 121 137 169
Deferred Income Taxes (Note 7)......................... 133 10 16
Income Applicable to Minority Interests................ 1 19 24
Other Noncash Charges and Credits -- Net............... 20 66 (271)
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable........................ (39) (280) 127
Inventories.......................................... 57 22 (79)
Other Operating Assets............................... 38 10 (96)
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities..... (3) 362 622
Accrued Interest and Income Taxes (Notes 6 and 7).... (46) 102 88
------- ------- -------
Cash Provided by Operations....................... 1,924 2,396 2,876
------- ------- -------
Investment Activities (Note 21)
Purchases of Property, Plant and Equipment................ (1,714) (1,616) (2,644)
Investments in Affiliates................................. (116) (326) (339)
Proceeds from Sales of Assets and Subsidiaries............ 244 328 565
Net Decrease (Increase) in Short-Term Financial
Instruments............................................ (91) (33) 381
------- ------- -------
Cash Used for Investment Activities............... (1,677) (1,647) (2,037)
------- ------- -------
Financing Activities
Short-Term Borrowings -- Receipts......................... 63 -- 24
-- Payments...................... (70) (90) (2)
Other Long-Term Borrowings -- Receipts.................... 25 38 33
-- Payments............... (311) (1) (3)
Transactions with Related Parties:
Notes Receivable -- Receipts........................... 1,678 402 9
-- Payments......................... (203) (9) (617)
Borrowings -- Receipts................................. 885 706 413
-- Payments................................ (1,286) (520) (695)
Net Cash Contribution From (To) Owner.................. (1,094) (993) 360
Increase (Decrease) in Minority Interests (Note 18)....... -- 280 (21)
------- ------- -------
Cash Used for Financing Activities................ (313) (187) (499)
------- ------- -------
Effect of Exchange Rate Changes on Cash..................... 33 (2) (39)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents............ (33) 560 301
Cash and Cash Equivalents at Beginning of Year.............. 319 286 846
------- ------- -------
Cash and Cash Equivalents at End of Year.................... $ 286 $ 846 $ 1,147
======= ======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements
F-5
<PAGE> 138
FINANCIAL STATEMENTS
CONOCO
COMBINED STATEMENT OF OWNER'S NET INVESTMENT AND
ACCUMULATED OTHER COMPREHENSIVE LOSS (NOTES 1 AND 19)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
OWNER'S NET COMPREHENSIVE COMPREHENSIVE
INVESTMENT INCOME INCOME (LOSS) TOTAL
----------- ------------- ----------------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Years Ended December 31, 1995, 1996 and 1997
Balance January 1, 1995................... $ 7,281 $ (6) $ 7,275
Comprehensive Income
Net Income.............................. 575 $ 575 575
Other Comprehensive Income (Loss):
Minimum Pension Liability
Adjustment......................... (2) (2) (2)
------
Comprehensive Income............ $ 573
======
Net Cash Contribution To Owner............ (1,094) (1,094)
------- ----- -------
Balance December 31, 1995................. 6,762 (8) 6,754
Comprehensive Income
Net Income.............................. 863 $ 863 863
Other Comprehensive Income (Loss):
Minimum Pension Liability
Adjustment......................... (10)
Foreign Currency Translation
Adjustment......................... (39)
------
Other Comprehensive Loss........... (49) (49) (49)
------
Comprehensive Income............ $ 814
======
Net Cash Contribution To Owner............ (993) (993)
Other Transfers From Owner................ 4 4
------- ----- -------
Balance December 31, 1996................. 6,636 (57) 6,579
Comprehensive Income
Net Income.............................. 1,097 $1,097 1,097
Other Comprehensive Income (Loss):
Minimum Pension Liability
Adjustment......................... (13)
Foreign Currency Translation
Adjustment......................... (121)
------
Other Comprehensive Loss........... (134) (134) (134)
------
Comprehensive Income............ $ 963
======
Net Cash Contribution From Owner.......... 360 360
Other Transfers To Owner.................. (6) (6)
------- ----- -------
Balance December 31, 1997................. $ 8,087 $(191) $ 7,896
======= ===== =======
</TABLE>
See accompanying Notes to Combined Financial Statements
F-6
<PAGE> 139
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1. BASIS OF PRESENTATION
On May 11, 1998, E. I. du Pont de Nemours and Company ("DuPont") announced
its intention to offer in an initial public offering a portion of its interest
in the common stock of Conoco Inc., a wholly owned energy subsidiary. This
initial public offering is DuPont's first step in the planned divestiture of its
entire Petroleum business.
Throughout the period covered by the Combined Financial Statements,
operations were conducted by Conoco Inc., subsidiaries of Conoco Inc. and, in
some cases, subsidiaries of DuPont. These operations are collectively referred
to herein as the "Company" or "Conoco". Certain subsidiaries and, in some cases,
assets, liabilities, and related operations not currently owned by Conoco will
be transferred to Conoco.
Conoco is an integrated, global energy company with two principal business
segments. The Upstream segment includes the exploration for, development,
production and sale of crude oil, natural gas and natural gas liquids. The
Downstream segment includes the refining of crude oil and other feedstocks into
petroleum products, buying and selling crude oil and refined products, and
transporting, distributing and marketing petroleum products. Corporate and Other
activities include general corporate expenses, financing costs and other
nonoperating items, and results for electric power and related-party insurance
operations.
The accompanying Combined Financial Statements are presented on a carve-out
basis and include the historical operations of both entities owned by Conoco and
operations to be transferred to Conoco by DuPont. In this context, no direct
ownership relationship existed among all the various units comprising Conoco;
accordingly, DuPont and its subsidiaries' net investment in Conoco ("Owner's Net
Investment") is shown in lieu of Stockholder's Equity in the Combined Financial
Statements. The Combined Financial Statements included herein have been prepared
from DuPont's historical accounting records.
Certain international assets relating primarily to the business of DuPont
may be held by the Company or its subsidiaries at the closing of the Offerings
pending receipt of consents or other approval or satisfaction of other
applicable foreign requirements necessary for the transfer of such assets to
DuPont. In addition, certain international assets relating primarily to the
business of the Company may be held by DuPont or other of its subsidiaries at
the closing of the Offerings pending receipt of consents or approvals or
satisfaction of other applicable foreign requirements necessary for the transfer
of such assets to the Company. Additionally, there are certain subsidiaries of
DuPont which will not be owned by the Company as of the closing of the Offerings
and which DuPont will not thereafter be obligated to transfer to the Company.
DuPont and the Company intend to negotiate for the sale of such subsidiaries
within the six months following the closing of the Offerings at a purchase price
equal to their then fair market value. DuPont and the Company estimate that the
fair market value of such subsidiaries at July, 1998 is approximately $20
million and cannot predict at what price any such sale may occur. All of the
above subsidiaries, which are immaterial to total assets and results of
operations of the Company, have been included in the Combined Financial
Statements.
The Combined Statement of Income includes all revenues and costs directly
attributable to Conoco, including costs for facilities, functions and services
used by Conoco at shared sites and costs for certain functions and services
performed by centralized DuPont organizations and directly charged to Conoco
based on usage. In addition, services performed by Conoco on DuPont's behalf are
directly charged to DuPont. The results of operations also include allocations
of DuPont's general corporate expenses.
All charges and allocations of cost for facilities, functions and services
performed by DuPont organizations for Conoco have been deemed to have been paid
by Conoco to DuPont, in cash, in the period in which the cost was recorded in
the Combined Financial Statements. Allocations of current income taxes
receivable or payable are deemed to have been remitted, in cash, by or to DuPont
in the period the related income taxes were recorded.
All of the allocations and estimates in the Combined Financial Statements
are based on assumptions that management believes are reasonable under the
circumstances. However, these allocations and estimates are
F-7
<PAGE> 140
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
not necessarily indicative of the costs and expenses that would have resulted if
Conoco had been operated as a separate entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Conoco observes the generally accepted accounting principles described
below.
BASIS OF COMBINATION
The accounts of wholly owned and majority-owned subsidiaries are included
in the Combined Financial Statements. The equity method is used to account for
investments in corporate entities, partnerships, and limited liability companies
in which the Company exerts significant influence, generally having a 20-50%
ownership interest. Undivided interests in oil and gas joint ventures and
transportation assets are combined on a pro rata basis. Other investments,
excluding marketable securities, are generally carried at cost.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosures of contingent assets and liabilities. Actual
results may differ from those estimates and assumptions.
CASH EQUIVALENTS
Cash equivalents represent investments with maturities of three months or
less from time of purchase. They are carried at cost plus accrued interest,
which approximates fair value.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is determined
under the last-in, first-out (LIFO) method for inventories of crude oil and
petroleum products. Cost for remaining inventories, principally materials and
supplies, is generally determined by the average cost method. Market is
determined on a regional basis and any lower of cost or market write-down is
recorded as a permanent adjustment to the cost of inventory.
PROPERTY, PLANT AND EQUIPMENT (PP&E)
PP&E is carried at cost. Depreciation of PP&E, other than oil and gas
properties, is generally computed on a straight-line basis over the estimated
economic lives of the facilities, which for major assets range from 14 to 25
years. When assets that are part of a composite group are retired, sold,
abandoned or otherwise disposed of, the cost, net of sales proceeds or salvage
value, is charged against accumulated depreciation, depletion and amortization.
Where depreciation is accumulated for specific assets, gains or losses on
disposal are included in period income.
Maintenance and repairs are charged to expense; replacements and
improvements are capitalized.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting, under
which the costs of property acquisitions, successful exploratory wells, all
development costs, and support equipment and facilities are capitalized. The
costs of producing properties are amortized at the field level on a
unit-of-production method.
Unproved properties which are individually significant are periodically
assessed for impairment, whereas the impairment of individually insignificant
properties is provided by amortizing the costs based on past
F-8
<PAGE> 141
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
experience and the estimated holding period. Exploratory well costs are expensed
in the period the well is determined to be unsuccessful. All other exploration
costs, including geological and geophysical costs, production costs, and
overhead costs are expensed in the period incurred.
The estimated costs of dismantlement and removal of oil and gas related
facilities are recognized over the properties' productive lives using the
unit-of-production method.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets with recorded values that are not expected to be
recovered through future cash flows are written down to current fair value
through additional amortization or depreciation provisions. Fair value is
generally determined from estimated discounted future net cash flows.
ENVIRONMENTAL COSTS
Environmental expenditures are expensed or capitalized, as appropriate,
depending on their future economic benefit. Expenditures that relate to an
existing condition caused by past operations, and that do not have future
economic benefit, are expensed. Liabilities related to these future costs are
recorded on an undiscounted basis when environmental assessments and/or
remediation activities are probable and the costs can be reasonably estimated.
INCOME TAXES
As Conoco is included in the DuPont consolidated tax return, the provision
for income taxes has been determined using the loss benefit method of the asset
and liability approach of accounting for income taxes. Under the loss benefit
method, the current tax provision or benefit is allocated based on the amount
expected to be paid or received from the consolidated group and benefits of
losses and credit carryforwards are recorded when such benefits are expected to
be realized by members of the consolidated group. The provision for income taxes
represents income taxes paid or payable for the current year plus the change in
deferred taxes during the year. The pro forma effect to the Statement of Income
of reflecting the provision for income taxes on a separate return basis is not
material.
Deferred taxes result from differences between the financial and tax bases
of the company's assets and liabilities and are adjusted for changes in tax
rates and tax laws when changes are enacted. Valuation allowances are recorded
to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized by the consolidated group.
Provision has been made for income taxes on unremitted earnings of
subsidiaries and affiliates, except in cases in which earnings are deemed to be
permanently invested.
FOREIGN CURRENCY TRANSLATION
Through December 31, 1995, the company had determined that the United
States dollar was the "functional currency" of its worldwide operations. For
subsidiaries where the United States dollar is the functional currency, all
foreign currency asset and liability amounts are remeasured into United States
dollars at end-of-period exchange rates, except for inventories, prepaid
expenses and property, plant and equipment, which are remeasured at historical
rates. Foreign currency income and expenses are remeasured at average exchange
rates in effect during the year, except for expenses related to balance sheet
amounts which are remeasured at historical exchange rates. Exchange gains and
losses arising from remeasurement of foreign currency-denominated monetary
assets and liabilities are included in current period income.
Effective January 1, 1996, local currency was adopted as the functional
currency for the Company's integrated Western European petroleum operations to
properly reflect changed circumstances in the primary economic environment in
which these subsidiaries operate. For subsidiaries whose functional currency is
the
F-9
<PAGE> 142
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
local currency, assets and liabilities denominated in local currency are
translated into United States dollars at end-of-period exchange rates, and the
resultant translation adjustment is disclosed in the Combined Balance Sheet.
Assets and liabilities denominated in other than the local currency are
remeasured into the local currency prior to translation into United States
dollars, and the resultant exchange gains or losses, together with their related
tax effects, are included in income in the period in which they occur. Income
and expenses are translated into United States dollars at average exchange rates
in effect during the period.
COMMODITY HEDGING AND TRADING ACTIVITIES
The Company enters into energy-related futures, forwards, swaps, and
options in various markets to balance its physical systems, to meet customer
needs, and to manage its exposure to price fluctuations on anticipated crude
oil, natural gas, refined product and electric power transactions.
Under the Company's policy, hedging includes only those transactions that
offset physical positions and reduce overall exposure to prevailing market price
risk. Trading is defined as any transaction that does not meet the definition of
hedging.
Gains and losses on hedging contracts are deferred and included in the
measurement of the related transaction. Changes in market values of trading
contracts are reflected in income in the period the change occurs.
In the event a derivative designated as a hedge is terminated prior to the
maturation of the hedged transaction, gains or losses realized at termination
are deferred and included in the measurement of the hedged transaction. If a
hedged transaction matures, is sold, extinguished or terminated prior to the
maturity of a derivative designated as a hedge of such transaction, gains or
losses associated with the derivative through the date the transaction matured
are included in the measurement of the hedged transaction and the derivative is
reclassified as for trading purposes. Derivatives designated as a hedge of an
anticipated transaction are reclassified as for trading purposes if the
anticipated transaction is no longer likely to occur.
In the Combined Statement of Cash Flows, the Company reports the cash flows
resulting from its hedging activities in the same category as the related item
that is being hedged.
EARNINGS PER SHARE
The Company's historical capital structure is not indicative of its
prospective structure since no direct ownership relationship existed among all
the various units comprising Conoco. Accordingly, historical earnings per share
has not been presented in the Combined Financial Statements.
Unaudited pro forma basic earnings per share includes the shares of both
the Class A and the Class B common shares deemed to be outstanding as of the
date of the Offerings. Unaudited pro forma diluted earnings per share includes
the dilutive effect of the Conoco stock options (see Note 20 to the Combined
Financial Statements), applying the treasury stock method, which are expected to
be issued upon cancellation of outstanding DuPont stock options, using the
anticipated weighted-average exercise price of the outstanding options and the
anticipated initial public offering price. In accordance with SEC Staff
Accounting Bulletin No. 98, pro forma basic and diluted earnings per share have
been presented for the most recent annual and subsequent interim periods only.
RECENT ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The accompanying financial
statements reflect application of the provisions of Statement No. 130. The
Company is required to adopt Statement No. 131 for the 1998 annual report and
disclose segment information on the same basis used internally for evaluating
segment performance and deciding how
F-10
<PAGE> 143
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
to allocate resources to segments. The Company is currently assessing the effect
of Statement No. 131; however, its adoption will have no financial impact on the
Company.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosure About Pension and Other Postretirement
Benefits," that revised disclosure requirements for pension and other
postretirement benefits. It does not affect the measurement of the expense of
the Company's pension and other postretirement benefits. The Company is required
to adopt this Statement for the 1998 annual report and is currently assessing
the effect of the new disclosure.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company is required to adopt this Statement by the first quarter of 2000 and
is currently assessing the effect of the new standard.
Statement No. 133 provides, if certain conditions are met, that a
derivative may be specifically designated as (1) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment (fair value hedge), (2) a hedge of the exposure to variable cash
flows of a forecasted transaction (cash flow hedge), or (3) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
Under Statement No. 133, the accounting for changes in fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change.
3. RELATED PARTY TRANSACTIONS
The Combined Financial Statements include significant transactions with
DuPont involving services (such as cash management, other financial services,
purchasing, legal, computer and corporate aviation) and general corporate
expenses that were provided between Conoco and centralized DuPont organizations.
The costs of services have been directly charged or allocated between Conoco and
DuPont using methods management believes are reasonable. These methods include
negotiated usage rates, dedicated asset assignment, and proportionate corporate
formulas involving assets, revenues, and employees. Such charges and allocations
are not necessarily indicative of what would have been incurred if Conoco had
been a separate entity.
Amounts charged and allocated to Conoco for these services were $103, $101
and $125 for the years 1995, 1996 and 1997, respectively, and are principally
included in Selling, General and Administrative Expenses. Conoco provided DuPont
services such as computer, legal and purchasing, as well as certain technical
and plant operating services, which amounted to $66, $66 and $62 in 1995, 1996
and 1997, respectively. These charges to DuPont were treated as reductions of
Cost of Goods Sold and Other Operating Expenses and Selling, General and
Administrative Expenses.
Interest expense charged by DuPont was $154, $143 and $124 for the years
1995, 1996 and 1997, respectively, and reflects market-based rates. A portion of
this and other interest and debt expense was capitalized as cost associated with
major construction projects. Interest income from DuPont was $47, $57 and $11
for the same years and also reflects market-based rates.
F-11
<PAGE> 144
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
Sales and Other Operating Revenues include sales of products from Conoco to
DuPont, principally natural gas and gas liquids to supply several DuPont plant
sites. These sales totaled $278, $413 and $420 for the years 1995, 1996 and
1997, respectively. Also included are revenues from insurance premiums charged
to DuPont for property and casualty coverage outside the United States. These
revenues totaled $20, $21 and $22 for the years 1995, 1996 and 1997,
respectively. Purchases of products from DuPont during these periods were not
material.
These intercompany arrangements between DuPont and Conoco will continue
after the Offerings under transition service agreements or other long-term
agreements. It is not anticipated that a change, if any, in these costs and
revenues would have a material effect on the company's results of operations or
combined financial position.
Accounts and Notes Receivable include amounts due from DuPont of $110 and
$79 at December 31, 1996 and 1997, respectively, representing current month
balances of transactions between Conoco and DuPont, mainly product sales, net
interest on borrowings, and certain charges billed annually. Accounts Payable
include amounts due DuPont of $5 and $4 at December 31, 1996 and 1997,
respectively.
Amounts representing notes receivable or borrowings from DuPont, including
its subsidiary organizations, are identified for related parties and presented
separately in the Combined Balance Sheet. The current portion of Notes
Receivable represents the accumulation of a variety of cash transfers and
operating transactions with DuPont. These balances are generally interest
bearing and represent net amounts of cash transferred for funding and cash
management purposes and amounts charged between the companies for certain
product and service purchases and asset transfers. The long-term portion of
Notes Receivable and amounts shown for Short-Term and Long-Term Borrowings
represent borrowings between Conoco and DuPont with established due dates at
market-based interest rates, except for certain short-term non-interest bearing
borrowings due DuPont of $168 and $492 at December 31, 1996 and 1997,
respectively. At December 31, 1997, the long-term portion of borrowings from
related parties totaled $1,450 and reflected a weighted average interest rate of
6.6 percent with maturities of $633 in 1999, $430 in 2000, and $387 in 2001.
4. OTHER INCOME
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest income
Related parties (see Note 3).............................. $ 47 $ 57 $ 11
Other, net of miscellaneous interest expense.............. 71 67 66
---- ---- ----
118 124 77
Equity in earnings of affiliates (see Note 11).............. 22 (25) 40
Gain on sales of assets..................................... 63 84 314(1)
Exchange gain (loss)........................................ (44) (5) 27
Other -- net................................................ 31 8 9
---- ---- ----
$190 $186 $467
==== ==== ====
</TABLE>
(1) Includes benefit of $239 from gain on the sale of certain Upstream
North Sea properties.
F-12
<PAGE> 145
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
5. TAXES OTHER THAN ON INCOME
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Petroleum excise taxes
U.S. ..................................................... $1,060 $1,145 $1,201
Non-U.S. ................................................. 4,595 4,316 4,148
------ ------ ------
5,655 5,461 5,349
Payroll taxes............................................... 51 48 43
Property taxes.............................................. 63 55 63
Production and other taxes.................................. 54 73 77
------ ------ ------
$5,823 $5,637 $5,532
====== ====== ======
</TABLE>
6. INTEREST AND DEBT EXPENSE
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest and debt cost incurred
Related parties (see Note 3).............................. $154 $143 $124
Other..................................................... 15 6 6
---- ---- ----
169 149 130
Less: Interest and debt cost capitalized.................... 95 75 94
---- ---- ----
Interest and debt expense................................... $ 74 $ 74 $ 36
==== ==== ====
</TABLE>
Interest paid (net of amounts capitalized) was $80 in 1995, $77 in 1996 and
$33 in 1997.
7. PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Current tax expense:
U.S. federal.............................................. $(45) $ 155 $ 64
U.S. state and local...................................... 1 8 5
Non-U.S. ................................................. 685 865 925
---- ------ ------
Total............................................. 641 1,028 994
---- ------ ------
Deferred tax expense:
U.S. federal.............................................. 112 (78) 80
U.S. state and local...................................... 3 -- 8
Non-U.S. ................................................. 18 88 (72)
---- ------ ------
Total............................................. 133 10 16
---- ------ ------
Provision for Income Taxes.................................. 774 1,038 1,010
Minimum Pension Liability(1)................................ (1) (5) (7)
---- ------ ------
Total Provision................................... $773 $1,033 $1,003
==== ====== ======
</TABLE>
- ---------------
(1) Represents deferred tax provision for minimum pension liability adjustment.
Total income taxes paid worldwide were $745 in 1995, $901 in 1996 and $935
in 1997.
The significant components of deferred tax assets and liabilities at
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------------- ------------------
DEFERRED TAX ASSET LIABILITY ASSET LIABILITY
------------ ----- --------- ------ ---------
<S> <C> <C> <C> <C>
Property, plant and equipment....................... $108 $2,276 $ 182 $2,219
Employee benefits................................... 162 -- 166 --
Other accrued expenses.............................. 277 -- 273 --
Inventories......................................... -- 88 -- 102
Tax loss/tax credit carryforwards................... 408 -- 417 --
</TABLE>
F-13
<PAGE> 146
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
1996 1997
----------------- ------------------
DEFERRED TAX ASSET LIABILITY ASSET LIABILITY
------------ ----- --------- ------ ---------
<S> <C> <C> <C> <C>
Other............................................... 26 52 27 169
---- ------ ------ ------
Total..................................... $981 $2,416 $1,065 $2,490
====== ======
Less: Valuation allowance........................... 414 392
---- ------
Net................................................. $567 $ 673
==== ======
</TABLE>
Valuation allowances, which reduce deferred tax assets to an amount that
will more likely than not be realized, have been increased by $12 and $52 during
the years 1995 and 1996, respectively. These changes, which are reflected in the
provision for income taxes, offset increases in deferred tax assets resulting
primarily from operating losses incurred in exploration and startup operations.
In 1997, the valuation allowance decreased $22, principally reflecting a $37
decrease related to deferred tax assets representing operating losses which the
Company determined will more likely than not be realized in future years. This
decrease was partially offset by an increase of $15 reflecting offsets to
operating losses.
Current deferred tax liabilities (included in the Combined Balance Sheet
caption "Income Taxes") were $107 and $122 at December 31, 1996 and 1997,
respectively.
Current deferred tax assets included in Prepaid Expenses were $25 and $7 at
December 31, 1996 and 1997, respectively. In addition, Other Assets includes
deferred tax assets of $37 at December 31, 1997.
An analysis of the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate...................... 35.0% 35.0% 35.0%
Higher effective tax rate on non-U.S. operations............ 27.0 21.6 13.9
Alternative fuels credit.................................... (4.5) (3.4) (3.0)
Other -- net................................................ (.1) 1.4 2.0
---- ---- ----
Effective income tax rate................................... 57.4% 54.6% 47.9%
==== ==== ====
</TABLE>
Earnings before income taxes shown below are based on the location of the
corporate unit to which such earnings are attributable. However, since such
earnings are often subject to taxation in more than one country, the income tax
provision shown above as U.S. or non-U.S. does not correspond to the earnings
set forth below.
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
U.S........................................................ $ 417 $ 563 $ 740
Other regions.............................................. 932 1,338 1,367
------ ------ ------
$1,349 $1,901 $2,107
====== ====== ======
</TABLE>
At December 31, 1996 and 1997, respectively, unremitted earnings of
non-U.S. subsidiaries totaling $1,210 and $1,645 were deemed to be permanently
invested. No deferred tax liability has been recognized with regard to the
remittance of such earnings. It is not practicable to estimate the income tax
liability that might be incurred if such earnings were remitted to the United
States.
Under the tax laws of various jurisdictions in which the Company operates,
deductions or credits that cannot be fully utilized for tax purposes during the
current year may be carried forward, subject to statutory limitations, to reduce
taxable income or taxes payable in a future year. At December 31, 1997, the tax
effect of such carryforwards approximated $417. Of this amount, $127 has no
expiration date, $11 expires in 1998, $38 expires in 1999, $75 expires in
2000-2001 and $166 expires in 2002.
F-14
<PAGE> 147
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
8. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1997
------ ------
<S> <C> <C>
Trade....................................................... $1,062 $ 916
Related parties (see Note 3)................................ 110 79
Other....................................................... 322 502
------ ------
$1,494 $1,497
====== ======
</TABLE>
See Note 26 for a description of business segment markets and associated
concentrations of credit risk.
9. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
Crude oil and petroleum products............................ $675 $675
Other merchandise........................................... 19 25
Materials and supplies...................................... 112 130
---- ----
$806 $830
==== ====
</TABLE>
The excess of current cost over book value of inventories valued under the
LIFO method was $337 and $152 at December 31, 1996 and 1997, respectively.
Inventories valued at LIFO represented 84 percent and 81 percent of combined
inventories, at December 31, 1996 and 1997, respectively.
During 1995, 1996 and 1997, certain LIFO inventory quantities were reduced
resulting in partial liquidation of the LIFO bases, with no material effect on
net income.
10. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
GROSS NET
----------------- -----------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oil and Gas Properties
Unproved..................................... $ 913 $ 1,491 $ 756 $ 1,230
Proved....................................... 11,914 12,420 5,185 5,480
Other.......................................... 1,045 1,316 609 871
------- ------- ------- -------
Total Upstream............................ 13,872 15,227 6,550 7,581
Refining....................................... 3,831 3,803 2,203 1,952
Marketing & Distribution....................... 2,278 2,199 1,329 1,295
------- ------- ------- -------
Total Downstream.......................... 6,109 6,002 3,532 3,247
------- ------- ------- -------
$19,981 $21,229 $10,082 $10,828
======= ======= ======= =======
</TABLE>
Property, Plant and Equipment includes Downstream gross assets acquired
under capital leases of $41 at December 31, 1996 and 1997; related amounts
included in Accumulated Depreciation, Depletion and Amortization were $7 and $10
at December 31, 1996 and 1997, respectively.
F-15
<PAGE> 148
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
11. SUMMARIZED FINANCIAL INFORMATION FOR AFFILIATED COMPANIES
Summarized combined financial information for affiliated companies for
which Conoco uses the equity method of accounting (see Note 2, "Basis of
Combination") is shown below on a 100 percent basis. Dividends received from
equity affiliates were $42 in 1995, $85 in 1996 and $58 in 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Sales(1)................................................... $4,368 $6,622 $7,521
Earnings before income taxes............................... 380 305 556
Net income................................................. 228 140 345
Conoco's equity in earnings of affiliates (see Note 4)..... 22 (25) 40
</TABLE>
- ---------------
(1) Includes sales to Conoco of $262 in 1995, $359 in 1996 and $568 in 1997.
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1997
------ ------
<S> <C> <C>
FINANCIAL POSITION
Current assets.............................................. $1,503 $2,543
Non-current assets.......................................... 5,218 6,826
------ ------
Total assets...................................... $6,721 $9,369
------ ------
Short-term borrowings*...................................... $ 241 $ 550
Other current liabilities................................... 929 1,308
Long-term borrowings*....................................... 3,097 4,364
Other long-term liabilities................................. 646 645
------ ------
Total liabilities................................. $4,913 $6,867
------ ------
Conoco's investment in affiliates (includes advances)....... $ 703 $1,085
====== ======
</TABLE>
- ---------------
* Conoco's pro rata interest in total borrowings was $935 in 1996 and $1,586 in
1997, of which $453 in 1996 and $826 in 1997 was guaranteed by the Company.
These amounts are included in the guarantees disclosed in Note 25.
At December 31, 1997, Conoco's equity in undistributed earnings of its
affiliated companies was $79.
12. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------
1996 1997
---- ----
<S> <C> <C>
Prepaid pension cost (see Note 23).......................... $ 79 $ 71
Long-term notes receivables................................. 26 74
Other securities and investments............................ 482 100
Other....................................................... 187 247
---- ----
$774 $492
==== ====
</TABLE>
Other securities and investments include $478 and $97 at December 31, 1996
and 1997, respectively, representing marketable securities classified as
available for sale and reported at fair value. The remainder represents numerous
small investments which are reported at cost.
F-16
<PAGE> 149
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
13. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
------ ------
<S> <C> <C>
Trade....................................................... $ 804 $ 969
Payables to banks........................................... 216 117
Related parties (see Note 3)................................ 5 4
------ ------
$1,025 $1,090
====== ======
</TABLE>
Payables to banks represent checks issued on certain disbursement accounts
but not presented to the banks for payment.
14. OTHER SHORT-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31
------------
1996 1997
---- ----
<S> <C> <C>
Industrial development bonds................................ $24 $24
Bank borrowings (foreign currency).......................... -- 21
Long-term borrowings payable within one year................ 4 25
Capital lease obligations................................... 4 2
--- ---
$32 $72
=== ===
</TABLE>
The Company has uncommitted short-term bank credit lines of approximately
$55 and $42 at December 31, 1996 and 1997, respectively. These lines are
denominated in various foreign currencies to support general operating needs in
their respective countries. No advances were outstanding under these lines at
these respective dates.
The weighted average interest rate on other short-term borrowings
outstanding at December 31, 1996 and 1997 was 3.8 percent and 3.7 percent,
respectively.
15. OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
------ ------
<S> <C> <C>
Taxes other than on income.................................. $ 309 $ 376
Operating expenses.......................................... 334 343
Payroll and other employee-related costs.................... 133 135
Accrued postretirement benefits cost (see Note 22).......... 16 24
Other....................................................... 318 411
------ ------
$1,110 $1,289
====== ======
</TABLE>
F-17
<PAGE> 150
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
16. OTHER LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31
------------
1996 1997
---- ----
<S> <C> <C>
5.75% notes due 2026........................................ $ 16 $ 16
6.50% notes due 2008........................................ 7 7
Other loans (various currencies) due 1998-2007*............. 21 30
Capitalization obligations to affiliates due 1998-1999...... 22 20
Capital lease obligations................................... 35 33
---- ----
$101 $106
==== ====
</TABLE>
- ---------------
* Average interest rates were 6.0 percent and 7.3 percent at December 31, 1996
and 1997, respectively.
Maturities of long-term borrowings, together with sinking fund requirements
for years ending after December 31, 1998 are $24, $4, $4, and $4 for the years
1999, 2000, 2001 and 2002, respectively.
17. OTHER LIABILITIES AND DEFERRED CREDITS
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
------ ------
<S> <C> <C>
Deferred gas revenue*....................................... $ -- $ 379
Accrued postretirement benefits cost (see Note 22).......... 327 318
Abandonment costs........................................... 317 310
Accrued pension liability (see Note 23)..................... 165 230
Environmental remediation costs (see Note 25)............... 140 132
Other....................................................... 441 553
------ ------
$1,390 $1,922
====== ======
</TABLE>
- ---------------
* Includes $303 received from a contract for future sales of natural gas to
Centrica, a United Kingdom gas marketing company.
18. MINORITY INTERESTS
In 1996, certain upstream subsidiaries contributed assets with an aggregate
fair value of $613 to Conoco Oil & Gas Associates L.P. (COGA) for a general
partnership interest of 67 percent. The remaining 33 percent was purchased by
Vanguard Energy Investors L.P. (Vanguard) as a limited partner. The net result
of this transaction was to increase minority interests by $297.
Vanguard is entitled to a cumulative annual priority return on its
investment and participation in residual earnings at rates established in the
partnership agreement. The priority return rate, currently 6.52 percent, is
negotiated every four years commencing in 1999. In the event the parties are
unable to agree on a new return rate, the partnership would be liquidated with
resultant cash outflows not expected to be materially different from the
recorded amount of minority interest. Vanguard's share of COGA's earnings was
$18 or 17 percent in 1996 and $22 or 18 percent in 1997.
F-18
<PAGE> 151
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
19. OTHER COMPREHENSIVE INCOME
Changes in related components of other comprehensive income (loss) are
reported net of associated income tax effects as summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------- ------------------------------- -------------------------------
PRETAX INCOME TAX AFTER-TAX PRETAX INCOME TAX AFTER-TAX PRETAX INCOME TAX AFTER-TAX
------ ---------- --------- ------ ---------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Minimum Pension Liability
Adjustment.............. $(3) $(1) $(2) $(15) $(5) $(10) $ (20) $(7) $ (13)
Foreign Currency
Translation
Adjustment*............. (39) -- (39) (121) -- (121)
--- --- --- ---- --- ---- ----- --- -----
Other Comprehensive Income
(Loss).................. $(3) $(1) $(2) $(54) $(5) $(49) $(141) $(7) $(134)
=== === === ==== === ==== ===== === =====
</TABLE>
- ---------------
* Effective January 1, 1996, local currency was adopted as the functional
currency for the Company's integrated Western European petroleum operations to
properly reflect changed circumstances in their primary economic environment.
20. COMPENSATION PLANS
Employees of Conoco participate in stock-based compensation plans that are
administered through DuPont and involve options to acquire DuPont common stock.
Accordingly, option and expense information presented herein represents the
company's portion of the overall plans.
Subject to completion of the Offerings, the Company and DuPont expect to
give all current employees of the Company the option, subject to specific
country tax and legal requirements, to participate in a program involving the
cancellation of all or part of their options to purchase DuPont common stock or
SARs with respect to DuPont common stock and the issuance by the Company upon
such cancellation of comparable options to acquire Class A Common Stock, or SARs
with respect to Class A Common Stock. Participation in the program will be
deemed a change in the terms of certain awards granted to Conoco employees. As a
result, the Company will incur a non-cash charge to compensation expense, in the
quarter the Offerings are completed, of approximately $100 to 200 after-tax
depending on the market price of DuPont common stock at the time of the
cancellation and issuance and the number of outstanding Conoco employee options
to purchase DuPont common stock canceled.
From time to time, the DuPont Board of Directors has approved the adoption
of a worldwide Corporate Sharing Program. Under these programs, a majority of
the Company's employees received a one-time grant to acquire shares of DuPont
common stock at the fair market value at the date of grant. Option terms are
"fixed" and generally are exercisable one year after date of grant and expire 10
years from date of grant. There are no additional shares that may be subject to
option under existing programs.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for fixed
options.
Stock option awards under the DuPont Stock Performance Plan may be granted
to key employees of the company and may be "fixed" and/or "variable". The
purchase price of shares subject to option is the market price of DuPont stock
at the date of grant. In January 1997, a reload feature was added to the Stock
Performance Plan to accelerate stock ownership by more effectively using stock
options. Participants are eligible for reload options through February 13, 1999
upon the exercise of stock options with the condition that shares received from
the exercise of the original option may not be sold for at least five years.
Reloads are granted at the market price on the reload grant date and have a term
equal to the remaining term of the
F-19
<PAGE> 152
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
original option. The number of new options granted under a reload option is
equal to the number of shares required to satisfy the total exercise price of
the original option.
Generally, fixed options are fully exercisable from one to three years
after date of grant and expire 10 years from date of grant. Beginning in 1998,
shares otherwise receivable from the exercise of nonqualified options can be
deferred as stock units for a designated future delivery.
During 1997 variable stock option grants were made to certain senior
management. These options are subject to forfeiture if, within five years from
the date of grant, the market price of DuPont common stock does not achieve a
price of $75 per share for 50 percent of the options and $90 per share for the
remaining 50 percent. At December 31, 1997, none of the outstanding variable
options were exercisable.
For all related DuPont plans, the maximum number of shares that may be
subject to option for any consecutive five-year period is 72 million shares.
Subject to this limit, additional shares that may have been made subject to
options for the years 1995, 1996 and 1997 were 56,770,460, 59,078,926 and
56,842,462, respectively.
Awards for 1997 under the DuPont Stock Performance Plan (granted to key
employees in 1998) consisted of 1,185,276 fixed options to acquire DuPont common
stock at the fair market value ($59.50 per share) on the date of grant. These
options vest over a three-year period and, except for the last six months of the
ten-year option term, are exercisable when the market price of DuPont common
stock exceeds the option grant price by 20 percent.
The following table summarizes activity for fixed and variable options for
the last three years:
<TABLE>
<CAPTION>
FIXED VARIABLE
--------------------- ---------------------
NUMBER WEIGHTED- NUMBER WEIGHTED-
OF AVERAGE OF AVERAGE
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
January 1, 1995........................... 4,980,083 $20.80 --
Granted................................... 3,556,392 $28.26 -- --
Exercised................................. 614,269 $18.56 -- --
Forfeited................................. 110,659 $28.08 -- --
--------- ------ --------- ------
December 31, 1995......................... 7,811,547 $24.27 -- --
Granted................................... 1,140,780 $39.20 -- --
Exercised................................. 1,781,277 $23.33 -- --
Forfeited................................. 95,330 $26.38 -- --
--------- ------ --------- ------
December 31, 1996......................... 7,075,720 $26.88 -- --
Granted................................... 2,761,416 $52.90 1,259,600 $52.50
Exercised................................. 730,383 $23.97 -- --
Forfeited................................. 116,325 $50.44 -- --
--------- ------ --------- ------
December 31, 1997......................... 8,990,428 $35.14 1,259,600 $52.50
</TABLE>
Fixed options exercisable at the end of the last three years and the
weighted-average fair value of fixed options granted are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Options exercisable at year-end:
Number of shares............................... 4,377,657 5,934,940 6,229,012
Weighted-average price......................... $ 21.14 $ 24.51 $ 27.26
Weighted-average fair value of options granted
during
the year....................................... $ 5.92 $ 9.01 $ 12.84
</TABLE>
F-20
<PAGE> 153
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
The weighted-average fair value of variable options granted during 1997 was
$13.03 per share.
The fair value of options is calculated using the Black-Scholes option
pricing model. Assumptions used were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ----------------
FIXED FIXED FIXED VARIABLE
----- ----- ----- --------
<S> <C> <C> <C> <C>
Dividend yield......................................... 3.4% 2.6% 2.2% 2.2%
Volatility............................................. 20.6% 21.0% 18.6% 18.6%
Risk-free interest rate................................ 7.6% 5.4% 6.4% 6.4%
Expected life (years).................................. 4.5 6.0 5.6 5.7
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable fixed options. For total variable options outstanding at
December 31, 1997, the weighted-average remaining contractual life was 9.1
years.
<TABLE>
<CAPTION>
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
DECEMBER 31, 1997 $13.17-$19.63 $22.63-$33.88 $35.00-$55.50
----------------- ------------- ------------- -------------
<S> <C> <C> <C>
Options outstanding............................ 1,140,519 3,977,927 3,871,982
Weighted-average remaining contractual life
(years)...................................... 2.6 6.2 8.9
Weighted-average price......................... $ 18.37 $ 26.49 $ 48.38
Options exercisable............................ 1,140,519 3,977,927 1,110,566
Weighted-average price......................... $ 18.37 $ 26.49 $ 39.19
</TABLE>
As reported on the New York Stock Exchange, the market price range of
DuPont common stock for the year 1997 was $46 3/8 to $69 3/4 per share and the
closing price on December 31, 1997 was $60 1/16 per share.
Under the Conoco Unit Option Plan, key salaried employees in certain grade
levels who show early evidence of ability to assume significant responsibility
and leadership are offered stock appreciation rights. Annual grants under the
plan are granted to approximately 20 percent of eligible employees who are
awarded appreciation rights on theoretical DuPont stock valued at approximately
40 percent of the employee's annual base pay. These unit options, exercisable
only in cash, have a ten-year life with twenty percent vesting each of the first
five years. At December 31, 1996 and 1997, unit options outstanding were 954,374
and 908,532, respectively. At these same dates, related liability provisions
totaled $18 and $27, respectively. The maximum number of unit options allowed to
be outstanding under the plan is 6,150,000.
Compensation expense recognized in income for stock-based employee
compensation awards was $8, $13 and $26 for 1995, 1996 and 1997, respectively.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", was issued in 1995. The Company has elected not to
adopt the optional recognition provisions of SFAS No. 123. If the Company had
adopted these recognition provisions, net income would have been reduced by $13,
$6 and $28 for 1995, 1996 and 1997, respectively.
Awards under the Variable Compensation Plan may be granted in stock and/or
cash to employees who have contributed most in a general way to the Company's
success, consideration being given to ability to succeed to more important
managerial responsibility. Overall amounts are dependent on financial
performance of DuPont and Conoco and other factors, and are subject to maximum
limits as defined by the plan. Amounts charged against earnings in anticipation
of awards to be made later were $24 in 1995, $38 in 1996 and $38 in 1997. Awards
made for plan years 1995, 1996 and 1997 were $26, $38 and $45, respectively. In
accordance with the terms of the Variable Compensation Plan and similar plans of
subsidiaries 154,918 shares of common stock are awaiting delivery from awards
for 1997 and prior years.
F-21
<PAGE> 154
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
Awards under the separate Conoco Challenge Program may be granted in cash
to employees not covered by the Variable Compensation Plan. This plan provides
awards based on meeting financial goals and upholding Conoco's core values.
Overall amounts are dependent on company earnings and cash provided by
operations and are subject to maximum limits as defined by the plan. Amounts
charged against earnings in anticipation of awards to be made later were $12 in
1995, $47 in 1996 and $49 in 1997. Awards made for plan years 1995, 1996 and
1997 were $20, $47 and $47, respectively.
21. INVESTMENT ACTIVITIES
Purchases of property, plant and equipment in 1997 include $929 for
upstream natural gas properties in South Texas (see Supplemental Petroleum
Data).
Proceeds from sales of assets in 1997 includes $272 from the sale of
certain upstream North Sea properties.
22. OTHER POSTRETIREMENT BENEFITS
Conoco and certain subsidiaries provide medical and life insurance benefits
to retirees and survivors. The associated plans, principally health, are
unfunded, and approved claims are paid from company funds. Under the terms of
these plans, the company reserves the right to change, modify or discontinue the
plans.
Net postretirement benefits cost includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 5 $ 7 $ 6
Interest cost............................................... 18 16 18
Amortization of net gains and prior service credit.......... (7) (5) (5)
--- --- ---
Net postretirement benefits cost............................ $16 $18 $19
</TABLE>
The following provides a reconciliation of the accumulated postretirement
benefit obligation for these plans to the liabilities reflected in the Combined
Balance Sheet (see Notes 15 and 17):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1996 1997
----- -----
<S> <C> <C>
Accumulated postretirement benefit obligation for:
Retirees and survivors.................................... $(152) $(194)
Fully eligible employees.................................. (5) (6)
Other employees........................................... (85) (101)
----- -----
(242) (301)
Unrecognized net loss (gain)................................ (41) 14
Unrecognized prior service credit........................... (60) (55)
----- -----
Accrued postretirement benefits cost........................ $(343) $(342)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1996 1997
---- ----
<S> <C> <C>
FINANCIAL ASSUMPTIONS
Discount rate............................................... 7.75% 7.00%
Long-term rate of compensation increase..................... 5.00% 5.00%
Health care escalation rate................................. 4.50% 4.50%
</TABLE>
F-22
<PAGE> 155
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
Conoco has communicated to plan participants that any increase in the
annual health care escalation rate above 4.5 percent will be borne by the
participants and, therefore, result in no increase to the accumulated
postretirement benefit obligation or the other postretirement benefits cost.
23. PENSIONS
The Company participates in the DuPont U.S. defined benefit plan which
covers substantially all U.S. employees and has separate defined benefit plans
covering certain U.S. and non-U.S. employees. The benefits for these plans are
based primarily on years of service and employees' pay near retirement. The
Company's funding policy is consistent with the funding requirements of federal
law and regulations.
With respect to the DuPont U.S. defined benefit pension plan, the Company
and DuPont agreed upon an amount of approximately $820 at the date of the
Offerings that will eventually be transferred to a separate trust for the
Company's pension plan. This amount, adjusted for benefit payments and
investment return from the date of the Offerings, will be transferred to the
Company within six months following the date which DuPont owns neither 80
percent of the voting power nor 80 percent of the economic value of the Common
Stock, assuming certain conditions are satisfied. The Company allocated the
pension obligations based on the Company's individual employees covered and
allocated the unrecognized prior service cost and unrecognized net gain in
proportion to the Company's projected benefit obligation to the total projected
benefit obligation of the DuPont plan. The projected benefit obligation
approximates $644 and $723 at December 31, 1996 and 1997, respectively, and the
prepaid pension asset is $79 and $71 at December 31, 1996 and 1997,
respectively. The net pension cost components disclosed in the table below
include the net periodic pension cost based on the allocations described above.
Pension coverage for employees of the Company's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans. Obligations
under such plans are systematically provided for by depositing funds with
trustees, under insurance policies or by book reserves.
Net pension cost/(credit) for defined benefit plans includes the following
components:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during the
period..................................... $ 51 $ 55 $ 60
Interest cost on projected benefit
obligation................................. 71 76 88
Return on assets
Actual (gain).............................. $(196) $(134) $(192)
Deferred gain.............................. 122 (74) 43 (91) 94 (98)
----- ----- -----
Amortization of net gains and prior service
cost....................................... (4) (3) 3
---- ---- ----
Net pension cost............................. $ 44 $ 37 $ 53
==== ==== ====
</TABLE>
F-23
<PAGE> 156
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
The funded status of these plans (excluding the DuPont United States
defined benefit plan) was as follows:
<TABLE>
<CAPTION>
ACCUMULATED BENEFIT
EXCEEDING ASSETS
DECEMBER 31
--------------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................. $(485) $(616)
----- -----
Accumulated benefit obligation............................ $(489) $(616)
===== =====
Projected benefit obligation.............................. $(533) $(682)
Plan assets at fair value................................... 323 386
----- -----
Excess of assets over projected benefit obligation.......... (210) (296)
Unrecognized net (gain) loss*............................... 29 109
Unrecognized prior service cost............................. 129 121
Additional minimum liability................................ (113) (164)
----- -----
Accrued pension liability (see Note 17)..................... $(165) $(230)
===== =====
- ---------------
* Includes the unamortized balance of unrecognized net
(gain) at January 1, 1985, the initial application date of
Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions"...................... $ (19) $ (17)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------
UNITED STATES PLAN ASSUMPTIONS 1996 1997
------------------------------ ---- ----
<S> <C> <C>
Discount rate............................................... 7.75% 7.00%
Long-term rate of compensation increase..................... 5.00% 5.00%
Long-term rate of return on plan assets..................... 9.00% 9.00%
</TABLE>
For non-U.S. plans, similar economic assumptions were used. At December 31,
1997, U.S. plan assets consisted principally of common stocks, including 151,611
shares of DuPont.
24. FINANCIAL INSTRUMENTS AND OTHER RISK MANAGEMENT ACTIVITIES
Conoco operates in the worldwide crude oil, refined product, natural gas,
natural gas liquids and electric power markets and is exposed to fluctuations in
hydrocarbon prices, foreign currency rates, and interest rates that can affect
the revenues and cost of operating, investing and financing. Conoco's management
has used and intends to use financial and commodity-based derivative contracts
to reduce the risk in overall earnings and cash flow when the benefits provided
are anticipated to more than offset the risk management costs involved.
The Company has established a Financial Risk Management Policy Framework
that provides guidelines for entering into contractual arrangements
(derivatives) to manage the Company's commodity price, foreign currency rate,
and interest rate risks. The Conoco Risk Management Committee has ongoing
responsibility for the content of this policy and has principal oversight
responsibility to ensure the Company is in compliance with the policy and that
procedures and controls are in place for the use of commodity, foreign currency
and interest rate instruments. These procedures clearly establish derivative
control and valuation processes, routine monitoring and reporting requirements,
and counterparty credit approval procedures. Additionally, the Company's
internal audit group conducts routine reviews of these risk management
activities to assess the adequacy of internal controls. The audit results are
reviewed by the Conoco Risk Management Committee and by line management.
The counterparties to these contractual arrangements are limited to major
financial institutions and other established companies in the petroleum
industry. Although the Company is exposed to credit loss in the event of
nonperformance by these counterparties, this exposure is managed through credit
approvals, limits and
F-24
<PAGE> 157
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
monitoring procedures and limits to the period over which unpaid balances are
allowed to accumulate. The Company has not experienced nonperformance by
counterparties to these contracts and no material loss would be expected from
any such nonperformance.
COMMODITY PRICE RISK
The Company enters into energy-related futures, forwards, swaps and options
in various markets to balance its physical systems, to meet customer needs and
to manage its exposure to price fluctuations on anticipated crude oil, natural
gas, refined product and electric power transactions.
These instruments provide a natural extension of the underlying cash market
and are used to physically acquire a portion of supply requirements as well as
to manage pricing of near-term physical requirements. The commodity futures
market has underlying principles of increased liquidity and longer trading
periods than the cash market and is one method of managing price risk in the
energy business.
From time to time, management may use derivatives to establish longer-term
positions to hedge the price risk for the Company's equity crude oil and natural
gas production as well as refinery margins.
Under the Company's policy, hedging includes only those transactions that
offset physical positions and reduce overall Company exposure to prevailing
market price risk. Trading is defined as any transaction that does not meet the
definition of hedging. After-tax gain/loss from risk trading has not been
material.
FOREIGN CURRENCY RISK
Conoco has foreign currency exchange rate risk resulting from operations in
over 40 countries around the world. Effective January 1, 1996, the Company
determined that the local currency should be the functional currency for its
integrated Western European petroleum operations. At this time, the Company does
not intend to comprehensively hedge its exposure to currency rate changes,
although it may choose to selectively hedge exposures to foreign currency rate
risk resulting from transactions in currencies that are not the functional
currency. Examples include firm commitments for capital projects, certain local
currency tax payments and cash returns from net investments in foreign
affiliates to be remitted within the coming year.
At December 31, 1997, the Company had open forward exchange contracts
designated as a hedge of firm foreign currency commitments. The notional amount
of these contracts was $50 and the estimated fair value was $38. The Company had
no open forward exchange contracts at December 31, 1996.
INTEREST RATE RISK
Prior to this planned offering, the Company had no material interest rate
risk to manage. Subsequent to this offering, however, the Company would intend
to manage any resultant significant interest rate exposure by using a
combination of financial derivative instruments as part of a program to manage
the fixed and floating interest rate mix of the total debt portfolio and related
overall cost of borrowing.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of most financial instruments are based on historical
costs. The carrying values of marketable securities, receivables, payables and
short-term obligations approximate their fair value because of their short
maturity. Long-term receivables from and long-term borrowings due to related
parties approximate fair value because associated interest rates are market
based. Excluding amounts due related parties, the estimated fair value of other
long-term borrowings outstanding at December 31, 1996 and 1997 of $101 and $106,
respectively, was $103 and $108, respectively. These estimates were based on
quoted market prices for the same or similar issues, or the current rates
offered to the Company for issues with the same remaining maturities.
F-25
<PAGE> 158
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
SUMMARY OF OUTSTANDING DERIVATIVE FINANCIAL INSTRUMENTS
Set forth below is a summary of the fair values, carrying amounts and
notional values of outstanding commodity financial instruments at December 31,
1996 and 1997.
Notional amounts represent the face amount of the contractual arrangements
and are not a measure of market or credit exposure. The fair value of swaps and
other over-the-counter instruments are estimated based on quoted market prices
of comparable contracts and approximate the gain or (loss) that would have been
realized if the contracts had been closed out at balance sheet date. Carrying
amounts represent the receivable (payable) recorded in the Combined Balance
Sheet.
<TABLE>
<CAPTION>
FAIR CARRYING NOTIONAL
COMMODITY DERIVATIVES VALUE AMOUNT VALUE
--------------------- ----- -------- --------
<S> <C> <C> <C>
December 31, 1996:
Hedging................................................... $ 2 $ 5 $ 273
Trading................................................... 1 -- 291
December 31, 1997:
Hedging................................................... $10 $12 $1,037
Trading................................................... (2) (1) 1,089
</TABLE>
Estimated fair values for hedging instruments only represent the value of
the hedge component of the transactions and, thus, are not indicative of the
fair value of the Company's overall hedged position.
25. COMMITMENTS AND CONTINGENT LIABILITIES
The Company uses various leased facilities and equipment in its operations.
Future minimum lease payments under noncancelable operating leases are $178,
$156, $119, $106 and $97 for the years 1998, 1999, 2000, 2001 and 2002,
respectively, and $582 for subsequent years, and are not reduced by
noncancelable minimum sublease rentals due in the future in the amount of $120.
Rental expense under operating leases was $124 in 1995, $118 in 1996 and $132 in
1997.
The Company has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary conduct of business. In
the aggregate, such commitments are not at prices in excess of current market.
In addition, at December 31, 1997, the Company has obligations to purchase, over
periods up to twenty-one years, natural gas at prices that were in excess of
year-end 1997 market prices. No material annual loss is expected from these
long-term commitments.
The Company is subject to various lawsuits and claims involving a variety
of matters including, along with other oil companies, actions challenging oil
and gas royalty and severance tax payments based on posted prices, and claims
for damages resulting from leaking underground storage tanks. In general, the
effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists. The Company believes the ultimate
liabilities resulting from such lawsuits and claims may be material to results
of operations in the period in which they are recognized but will not materially
affect the combined financial position of the Company. In addition to the
litigation settlements referenced in Note 26, during the second quarter of 1998
the Company recorded non-recurring after-tax charges of $28 for anticipated
costs to resolve various litigation.
The Company is also subject to contingencies pursuant to environmental laws
and regulations that in the future may require the Company to take further
action to correct the effects on the environment of prior disposal practices or
releases of petroleum substances by the Company or other parties. The Company
has accrued for certain environmental remediation activities consistent with the
policy set forth in Note 2. At December 31, 1996 and 1997, such accrual amounted
to $152 and $144, respectively, and, in management's opinion, was appropriate
based on existing facts and circumstances. Under adverse changes in
circumstances,
F-26
<PAGE> 159
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
potential liability may exceed amounts accrued. In the event future monitoring
and remediation expenditures are in excess of amounts accrued, they may be
significant to results of operations in the period recognized but management
does not anticipate they will have a material adverse effect on the combined
financial position of the Company.
The Company has indirectly guaranteed various debt obligations under
agreements with certain affiliated and other companies to provide specified
minimum revenues from shipments or purchases of products. These indirect
guarantees totaled $19 at December 31, 1996 and 1997. The Company, along with
certain European DuPont subsidiaries, also participates in a multiparty account
banking agreement, which provides for the indirect guarantee of bank account
overdrafts of certain European DuPont subsidiaries. Management believes the
exposure under this agreement is not material and expects to terminate the
agreement prior to completion of the Offerings. In addition, the Company or
DuPont, on behalf of the Company, had directly guaranteed obligations of certain
affiliated companies and others. These guarantees totaled $663 and $1,131 at
December 31, 1996 and 1997, respectively. The increase during 1997 is primarily
related to financing associated with the Petrozuata heavy oil venture in
Venezuela. No material loss is anticipated by reason of such agreements and
guarantees.
The Company's operations, particularly oil and gas exploration and
production, can be affected by changing economic, regulatory and political
environments in the various countries, including the United States, in which it
operates. In certain locations, host governments have imposed restrictions,
controls and taxes, and in others, political conditions have existed that may
threaten the safety of employees and the Company's continued presence in those
countries. Internal unrest or strained relations between a host government and
the Company or other governments may affect the Company's operations. Those
developments have, at times, significantly affected the Company's operations and
related results and are carefully considered by management when evaluating the
level of current and future activity in such countries.
Areas in which the Company has significant operations include the United
States, United Kingdom, Norway, Germany, Venezuela, the United Arab Emirates,
Indonesia, Russia, Canada, the Czech Republic, Malaysia and Nigeria.
26. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company has two principal business segments. The Upstream segment
explores for, develops, produces and markets crude oil and natural gas, and
processes natural gas to recover and market higher-value liquids. The Downstream
segment refines, markets, transports and trades crude oil and petroleum
products. Corporate and Other includes general corporate expenses, financing
costs and other nonoperating items, and results for electric power and
related-party insurance operations. The Company sells its products worldwide;
however, about 55 percent and 41 percent of sales are made in the United States
and Europe, respectively. Major products include crude oil, natural gas and
refined products that are sold primarily in the energy and transportation
markets. The Company's sales are not materially dependent on a single customer
or small group
F-27
<PAGE> 160
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
of customers. Transfers between segments and geographic areas are on the basis
of estimated market values. Corporate assets include cash and cash equivalents.
<TABLE>
<CAPTION>
CORPORATE
SEGMENT INFORMATION UPSTREAM DOWNSTREAM AND OTHER COMBINED
------------------- -------- ---------- --------- --------
<S> <C> <C> <C> <C>
1995
Sales and Other Operating Revenues(1)(2)............ $3,270 $17,038 $ 20 $20,328
Transfers Between Segments.......................... 910 92 -- --
------ ------- ------ -------
Total Revenues............................ $4,180 $17,130 $ 20 $20,328
====== ======= ====== =======
Operating Profit.................................... $1,121 $ 319 $ (110) $ 1,330
Equity in Earnings of Affiliates.................... (5) 27 -- 22
Corporate Nonoperating Items:
Interest and Debt Expense......................... (74) (74)
Interest Income (net of misc. interest expense)... 118 118
Other............................................. (47) (47)
Provision for Income Taxes.......................... (624) (113) (37) (774)
------ ------- ------ -------
Net Income (Loss)(3).............................. $ 492 $ 233 $ (150) $ 575
====== ======= ====== =======
Assets at December 31:
Identifiable Assets............................... $7,059 $ 5,242 $1,473 $13,774
Investment in Affiliates.......................... 171 284 -- 455
------ ------- ------ -------
Total..................................... $7,230 $ 5,526 $1,473 $14,229
====== ======= ====== =======
Depreciation, Depletion and Amortization(4)......... $ 812 $ 286 $ -- $ 1,098
Capital Expenditures and Investments(5)............. $1,224 $ 613 $ -- $ 1,837
1996
Sales and Other Operating Revenues(1)(2)............ $4,726 $19,425 $ 79 $24,230
Transfers Between Segments.......................... 1,159 122 -- --
------ ------- ------ -------
Total Revenues............................ $5,885 $19,547 $ 79 $24,230
====== ======= ====== =======
Operating Profit.................................... $1,559 $ 446 $ (118) $ 1,887
Equity in Earnings of Affiliates.................... (30) 5 -- (25)
Corporate Nonoperating Items:
Interest and Debt Expense......................... (74) (74)
Interest Income (net of misc. interest expense)... 124 124
Other............................................. (11) (11)
Provision for Income Taxes.......................... (848) (162) (28) (1,038)
------ ------- ------ -------
Net Income (Loss)(6).............................. $ 681 $ 289 $ (107) $ 863
====== ======= ====== =======
Assets at December 31:
Identifiable Assets............................... $7,486 $ 5,360 $1,677 $14,523
Investment in Affiliates.......................... 234 469 -- 703
------ ------- ------ -------
Total..................................... $7,720 $ 5,829 $1,677 $15,226
====== ======= ====== =======
Depreciation, Depletion and Amortization(4)......... $ 822 $ 293 $ -- $ 1,115
Capital Expenditures and Investments(5)............. $1,264 $ 680 $ -- $ 1,944
</TABLE>
F-28
<PAGE> 161
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
CORPORATE
SEGMENT INFORMATION UPSTREAM DOWNSTREAM AND OTHER COMBINED
------------------- -------- ---------- --------- --------
<S> <C> <C> <C> <C>
1997
Sales and Other Operating Revenues(1)(2)............ $5,254 $20,033 $ 509 $25,796
Transfers Between Segments.......................... 1,221 108 -- --
------ ------- ------ -------
Total Revenues............................ $6,475 $20,141 $ 509 $25,796
====== ======= ====== =======
Operating Profit.................................... $1,663 $ 472 $ (132) $ 2,003
Equity in Earnings of Affiliates.................... 11 29 -- 40
Corporate Nonoperating Items:
Interest and Debt Expense......................... (36) (36)
Interest Income (net of misc. interest expense)... 77 77
Other............................................. 23 23
Provision for Income Taxes.......................... (790) (194) (26) (1,010)
------ ------- ------ -------
Net Income (Loss)(7).............................. $ 884 $ 307 $ (94) $ 1,097
====== ======= ====== =======
Assets at December 31:
Identifiable Assets............................... $8,538 $ 5,247 $2,192 $15,977
Investment in Affiliates.......................... 411 651 23 1,085
------ ------- ------ -------
Total..................................... $8,949 $ 5,898 $2,215 $17,062
====== ======= ====== =======
Depreciation, Depletion and Amortization(4)......... $ 892 $ 333 $ -- $ 1,225
Capital Expenditures and Investments(5)............. $2,533 $ 558 $ 23 $ 3,114
</TABLE>
- ---------------
(1) Sales exceeding 10 percent of combined sales and other operating revenues:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Refined products........................................ $14,444 $15,953 $15,829
Crude oil............................................... 3,062 4,286 4,879
Natural gas............................................. 1,494 2,378 2,971
</TABLE>
(2) Includes sales of purchased products substantially at cost:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Buy/sell supply transactions settled in cash:
Crude oil................................................ $1,845 $2,820 $3,566
Refined products......................................... 454 729 683
Natural gas resales........................................ 192 560 773
Electric power resales..................................... -- 58 487
</TABLE>
(3) Includes $45 charge ($39 Upstream/$6 Downstream) for write-down of certain
North American and European assets associated with the adoption of new
accounting standards involving the impairment of long-lived assets (SFAS No.
121).
(4) Includes impairment of unproved properties.
(5) Includes investments in affiliates.
(6) Includes charges of $63 for write-down of investment in an Upstream European
natural gas marketing joint venture and $22 ($11 Upstream/$11 Downstream),
principally for employee separation costs in the United States;
substantially offset by Downstream benefits of $44 related to environmental
insurance recoveries and $19 from sale of Ireland operations, and by
Upstream gain of $16 from sale of U.S. producing properties.
(7) Includes combined gain of $240 from sale of Upstream properties in the North
Sea and the United States, and $30 benefit ($19 Upstream/$11 Downstream)
from reduction in foreign tax rate; partly offset
F-29
<PAGE> 162
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
by Upstream charges of $112 for impairment of nonrevenue producing
properties, and Downstream charges of $55 for write-down of an office
building held for sale and $23 for litigation settlements.
<TABLE>
<CAPTION>
UNITED OTHER CORPORATE/
GEOGRAPHIC INFORMATION STATES EUROPE REGIONS NONOPERATING COMBINED
---------------------- ------- ------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
1995
Sales and Other Operating Revenues....... $10,094 $ 9,490 $ 744 $ -- $20,328
Transfers Between Geographical Areas..... 2 1 120 -- --
------- ------- ------ ------ -------
Total.......................... $10,096 $ 9,491 $ 864 $ -- $20,328
======= ======= ====== ====== =======
Net Income............................... $ 335 $ 309 $ 12 $ (81) $ 575
Assets at December 31:
Identifiable Assets.................... $ 5,405 $ 6,285 $ 611 $1,473 $13,774
Investment in Affiliates............... 213 166 76 -- 455
------- ------- ------ ------ -------
Total.......................... $ 5,618 $ 6,451 $ 687 $1,473 $14,229
======= ======= ====== ====== =======
1996
Sales and Other Operating Revenues....... $13,386 $10,049 $ 795 $ -- $24,230
Transfers Between Geographical Areas..... 1 -- 151 -- --
------- ------- ------ ------ -------
Total.......................... $13,387 $10,049 $ 946 $ -- $24,230
======= ======= ====== ====== =======
Net Income............................... $ 447 $ 427 $ 22 $ (33) $ 863
Assets at December 31:
Identifiable Assets.................... $ 5,398 $ 6,692 $ 756 $1,677 $14,523
Investment in Affiliates............... 259 241 203 -- 703
------- ------- ------ ------ -------
Total.......................... $ 5,657 $ 6,933 $ 959 $1,677 $15,226
======= ======= ====== ====== =======
1997
Sales and Other Operating Revenues....... $15,229 $ 9,585 $ 982 $ -- $25,796
Transfers Between Geographical Areas..... 5 -- 191 -- --
------- ------- ------ ------ -------
Total.......................... $15,234 $ 9,585 $1,173 $ -- $25,796
======= ======= ====== ====== =======
Net Income............................... $ 612 $ 647 $ (150)(1) $ (12) $ 1,097
Assets at December 31:
Identifiable Assets.................... $ 6,269 $ 6,757 $ 759 $2,192 $15,977
Investment in Affiliates............... 381 276 428 -- 1,085
------- ------- ------ ------ -------
Total.......................... $ 6,650 $ 7,033 $1,187 $2,192 $17,062
======= ======= ====== ====== =======
</TABLE>
- ---------------
(1) Includes charges of $112 for impairment of nonrevenue producing properties.
27. OTHER FINANCIAL INFORMATION
Research and development expenses were $36, $41 and $44 for the years 1995,
1996 and 1997, respectively.
Maintenance and repair expenses were $356, $337 and $372 for the years
1995, 1996 and 1997, respectively.
28. SUBSEQUENT EVENTS
In July 1998, a dividend of $7,500 was paid by the Company in the form of a
promissory note to all shareholders of record as of July 20, 1998. The
promissory note is due January 2, 2000 and bears interest at an annual interest
rate of 6.0125 percent.
F-30
<PAGE> 163
SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
(DOLLARS IN MILLIONS)
OIL AND GAS PRODUCING ACTIVITIES
Supplemental Petroleum Data disclosures are presented in accordance with
the provisions of Statement of Financial Accounting Standards No. 69,
"Disclosures About Oil and Gas Producing Activities."
Accordingly, volumes of reserves and production exclude royalty interests
of others, and royalty payments are reflected as reductions in revenues.
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
------------------------ --------------------- ----------------------- ---------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997 1995 1996 1997
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED COMPANIES
Revenues:
Sales to unaffiliated
customers............... $1,863 $2,479 $2,603 $ 443 $ 621 $ 787 $ 817 $1,204 $1,181 $ 603 $ 654 $ 635
Transfers to other company
operations.............. 862 927 849 386 363 272 477 566 577 (1) (2) --
Exploration, including dry
hole costs................ (275) (374) (412) (80) (131) (101) (134) (156) (131) (61) (87) (180)
Production.................. (727) (755) (854) (287) (297) (320) (347) (372) (409) (93) (86) (125)
Depreciation, depletion,
amortization and valuation
provisions................ (727) (800) (872) (290) (302) (279) (362) (443) (419) (75) (55) (174)(1)
Other(2).................... 82 69 321 48 48 106 31 (1) 215 3 22 --
Income Taxes................ (626) (912) (847) (24) (47) (109) (242) (436) (393) (360) (429) (345)
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
Results of operations..... 452 634 788 196 255 356 240 362 621 16 17 (189)
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
EQUITY AFFILIATES
Results of operations....... 12 32 30 -- 7 7 12 25 29 -- -- (6)
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
Total............... $ 464 $ 666 $ 818 $ 196 $ 262 $ 363 $ 252 $ 387 $ 650 $ 16 $ 17 $(195)
====== ====== ====== ===== ===== ===== ===== ====== ====== ===== ===== =====
</TABLE>
- ---------------
(1) Includes charges of $112 for impairment of nonrevenue producing properties.
(2) Includes gain/(loss) on disposal of fixed assets and other miscellaneous
revenues and expenses.
F-31
<PAGE> 164
SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
(DOLLARS IN MILLIONS)
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES (1)
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
------------------------ -------------------- ------------------ ------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997 1995 1996 1997
------ ------ ------ ---- ---- ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED COMPANIES
Property acquisitions
Proved(2)........................... $ 96 $ 21 $ 152 $ 95 $ 14 $ 148 $ -- $ -- $ -- $ 1 $ 7 $ 4
Unproved............................ 58 42 831 29 41 723(3) 1 -- 95 28 1 13
Exploration........................... 358 445 450 128 144 107 159 169 135 71 132 208
Development........................... 745 828 921 242 203 289 463 543 568 40 82 64
------ ------ ------ ---- ---- ------ ---- ---- ---- ---- ---- ----
Total combined companies...... 1,257 1,336 2,354 494 402 1,267 623 712 798 140 222 289
------ ------ ------ ---- ---- ------ ---- ---- ---- ---- ---- ----
EQUITY AFFILIATES
Development........................... 14 19 263 4 5 12 10 14 2 -- -- 249(4)
------ ------ ------ ---- ---- ------ ---- ---- ---- ---- ---- ----
Total equity affiliates....... 14 19 263 4 5 12 10 14 2 -- -- 249
------ ------ ------ ---- ---- ------ ---- ---- ---- ---- ---- ----
Total......................... $1,271 $1,355 $2,617 $498 $407 $1,279 $633 $726 $800 $140 $222 $538
====== ====== ====== ==== ==== ====== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) These data comprise all costs incurred in the activities shown, whether
capitalized or charged to expense at the time they were incurred.
(2) Does not include properties acquired through property exchanges.
(3) Includes acquisition costs associated with gas reserves acquired in the
South Texas Lobo trend.
(4) Includes Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE
--------------------------- ------------------------ ------------------------
DECEMBER 31 1995 1996 1997 1995 1996 1997 1995 1996 1997
----------- ------- ------- ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED COMPANIES
Gross costs:
Proved properties....... $11,023 $11,914 $12,420 $4,440 $4,255 $4,676 $5,220 $6,268 $6,276
Unproved properties..... 883 913 1,491 251 262 774(1) 439 444 432
Accumulated depreciation,
depletion, amortization
and valuation
allowances:
Proved properties....... 6,290 6,729 6,940 2,822 2,739 2,836 2,425 2,947 3,001
Unproved properties..... 156 157 261 76 77 71 7 7 7
------- ------- ------- ------ ------ ------ ------ ------ ------
Total net costs of
combined
companies....... 5,460 5,941 6,710 1,793 1,701 2,543 3,227 3,758 3,700
------- ------- ------- ------ ------ ------ ------ ------ ------
EQUITY AFFILIATES
Net costs of equity
affiliates:
Proved properties....... 197 199 441 34 37 45 163 162 147
------- ------- ------- ------ ------ ------ ------ ------ ------
Total............. $ 5,657 $ 6,140 $ 7,151 $1,827 $1,738 $2,588 $3,390 $3,920 $3,847
======= ======= ======= ====== ====== ====== ====== ====== ======
<CAPTION>
OTHER REGIONS
------------------------
DECEMBER 31 1995 1996 1997
----------- ------ ------ ------
<S> <C> <C> <C>
COMBINED COMPANIES
Gross costs:
Proved properties....... $1,363 $1,391 $1,468
Unproved properties..... 193 207 285
Accumulated depreciation,
depletion, amortization
and valuation
allowances:
Proved properties....... 1,043 1,043 1,103
Unproved properties..... 73 73 183
------ ------ ------
Total net costs of
combined
companies....... 440 482 467
------ ------ ------
EQUITY AFFILIATES
Net costs of equity
affiliates:
Proved properties....... -- -- 249(2)
------ ------ ------
Total............. $ 440 $ 482 $ 716
====== ====== ======
</TABLE>
- ---------------
(1) Includes acquisition costs associated with gas reserves acquired in the
South Texas Lobo trend.
(2) Includes Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.
F-32
<PAGE> 165
SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
(IN MILLIONS OF BARRELS)
ESTIMATED PROVED RESERVES OF OIL (1)
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
------------------- ------------------ ------------------ ------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997 1995 1996 1997
---- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND UNDEVELOPED RESERVES
OF COMBINED COMPANIES
Beginning of year......................... 953 933 926 336 294 299 394 408 413 223 231 214
Revisions and other changes............... (1) 55 54 (8) 11 3 (9) 36 43 16 8 8
Extensions and discoveries................ 122 75 62 25 31 12 72 35 44 25 9 6
Improved recovery......................... 4 4 3 1 4 3 3 -- -- -- -- --
Purchase of reserves(2)................... 5 (1) 5 3 (1) 4 -- -- 1 2 -- --
Sale of reserves(3)....................... (33) (12) (27) (33) (10) (11) -- -- (16) -- (2) --
Production................................ (117) (128) (130) (30) (30) (33) (52) (66) (64) (35) (32) (33)
---- ---- ----- --- --- --- --- --- --- --- --- ---
End of year(4)............................ 933 926 893 294 299 277 408 413 421 231 214 195
---- ---- ----- --- --- --- --- --- --- --- --- ---
PROVED DEVELOPED AND UNDEVELOPED RESERVES
OF EQUITY AFFILIATES
Beginning of year......................... 35 44 47 -- -- -- 35 44 47 -- -- --
Revisions and other changes............... 5 8 10 -- -- -- 5 8 10 -- -- --
Extensions and discoveries................ 8 -- 680 -- -- -- 8 -- -- -- -- 680(5)
Production................................ (4) (5) (6) -- -- -- (4) (5) (6) -- -- --
---- ---- ----- --- --- --- --- --- --- --- --- ---
End of year............................... 44 47 731 -- -- -- 44 47 51 -- -- 680
---- ---- ----- --- --- --- --- --- --- --- --- ---
Total............................. 977 973 1,624 294 299 277 452 460 472 231 214 875
---- ---- ----- --- --- --- --- --- --- --- --- ---
PROVED DEVELOPED RESERVES OF COMBINED
COMPANIES
Beginning of year......................... 706 684 630 324 265 258 171 217 185 211 202 187
End of year............................... 684 630 600 265 258 242 217 185 174 202 187 184
PROVED DEVELOPED RESERVES OF EQUITY
AFFILIATES
Beginning of year......................... 28 32 39 -- -- -- 28 32 39 -- -- --
End of year............................... 32 39 43 -- -- -- 32 39 43 -- -- --
</TABLE>
- ---------------
(1) Oil reserves comprise crude oil and condensate and natural gas liquids
expected to be removed for the Company's account from its natural gas
deliveries.
(2) Includes reserves acquired through property exchanges.
(3) Includes reserves disposed of through property exchanges.
(4) Includes reserves of 89 and 87 at year-end 1996 and 1997 attributable to
Conoco Oil & Gas Associates L.P. in which there is a minority interest with
an approximate 17 and 18 percent revenue share at year-end 1996 and 1997,
respectively. See Note 18.
(5) Includes Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.
F-33
<PAGE> 166
SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
(IN BILLION CUBIC FEET)
ESTIMATED PROVED RESERVES OF GAS
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
--------------------- --------------------- --------------------- ---------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997 1995 1996 1997
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED AND
UNDEVELOPED RESERVES OF
COMBINED COMPANIES
Beginning of year............. 4,330 4,709 5,063 1,749 1,891 1,822 2,431 2,649 3,068 150 169 173
Revisions and other changes... 292 41 134 95 79 -- 195 (39) 97 2 1 37
Extensions and discoveries.... 400 780 518 225 176 453 147 574 59 28 30 6
Improved recovery............. 1 -- 1 1 -- 1 -- -- -- -- -- --
Purchase of reserves(1)....... 167 41 270 167 3 264(2) -- 36 -- -- 2 6
Sale of reserves(3)........... (78) (71) (62) (78) (57) (46) -- -- (7) -- (14) (9)
Production.................... (403) (437) (433) (268) (270) (259) (124) (152) (157) (11) (15) (17)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
End of year(4)................ 4,709 5,063 5,491 1,891 1,822 2,235 2,649 3,068 3,060 169 173 196
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
PROVED DEVELOPED AND
UNDEVELOPED RESERVES OF
EQUITY AFFILIATES
Beginning of year............. 344 339 333 344 339 333 -- -- -- -- -- --
Revisions and other changes... -- -- (6) -- -- (6) -- -- -- -- -- --
Extensions and discoveries.... -- -- 49 -- -- 49 -- -- -- -- -- --
Purchase of reserves.......... -- -- -- -- -- -- -- -- -- -- -- --
Sale of reserves.............. -- -- -- -- -- -- -- -- -- -- -- --
Production.................... (5) (6) (6) (5) (6) (6) -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
End of year................... 339 333 370 339 333 370 -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total................. 5,048 5,396 5,861 2,230 2,155 2,605 2,649 3,068 3,060 169 173 196
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
PROVED DEVELOPED RESERVES OF
COMBINED COMPANIES
Beginning of Year............. 2,496 2,933 2,843 1,687 1,733 1,672 683 1,071 1,041 126 129 130
End of year................... 2,933 2,843 3,061 1,733 1,672 1,801 1,071 1,041 1,091 129 130 169
PROVED DEVELOPED RESERVES OF
EQUITY AFFILIATES...........
Beginning of Year............. 45 40 36 45 40 36 -- -- -- -- -- --
End of year................... 40 36 40 40 36 40 -- -- -- -- -- --
</TABLE>
- ---------------
(1) Includes reserves acquired through property exchanges.
(2) Includes reserves acquired in the South Texas Lobo trend.
(3) Includes reserves disposed of through property exchanges.
(4) Includes reserves of 104 and 115 at year-end 1996 and 1997, respectively,
attributable to Conoco Oil & Associates L.P. in which there is a minority
interest with an approximate 17 percent and 18 percent revenue share at
year-end 1996 and 1997, respectively. See Note 18.
F-34
<PAGE> 167
SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The information on the following page has been prepared in accordance with
Statement of Financial Accounting Standards No. 69, which requires the
standardized measure of discounted future net cash flows to be based on year-end
sales prices, costs and statutory income tax rates and a 10 percent annual
discount rate. Specifically, the per-barrel oil sales prices used to calculate
the December 31, 1997, data averaged $15.34 for the United States, $16.11 for
Europe and $14.92 for Other Regions, and the gas prices per thousand cubic feet
averaged approximately $2.07 for the United States, $2.75 for Europe and $1.52
for Other Regions. Because prices used in the calculation are as of December 31,
the standardized measure could vary significantly from year to year based on
market conditions at that specific date.
The projections should not be viewed as realistic estimates of future cash
flows nor should the "standardized measure" be interpreted as representing
current value to the Company. Material revisions to estimates of proved reserves
may occur in the future, development and production of the reserves may not
occur in the periods assumed, actual prices realized are expected to vary
significantly from those used and actual costs may also vary. The Company's
investment and operating decisions are not based on the information presented on
the following page, but on a wide range of reserve estimates that includes
probable as well as proved reserves, and on different price and cost assumptions
from those reflected in this information.
Beyond the above considerations, the "standardized measure" is also not
directly comparable with asset balances appearing elsewhere in the financial
statements because any such comparison would require reconciling adjustments,
including reduction of the asset balances for related deferred income taxes.
F-35
<PAGE> 168
SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)
(DOLLARS IN MILLIONS)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE
---------------------------- --------------------------- ---------------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997
------- -------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED COMPANIES
Future cash flows:
Revenues............. $26,766 $ 34,366 $26,666 $ 7,631 $10,044 $ 8,355 $14,995 $19,364 $15,119
Production costs..... (9,152) (10,406) (9,251) (3,038) (3,085) (2,997) (5,154) (6,378) (5,387)
Development costs.... (1,583) (1,669) (1,586) (218) (283) (446) (1,234) (1,294) (1,094)
Income tax expense... (7,404) (10,364) (6,822) (1,169) (2,041) (1,175) (3,758) (5,179) (3,921)
------- -------- ------- ------- ------- ------- ------- ------- -------
Future net cash
flows................ 8,627 11,927 9,007 3,206 4,635 3,737 4,849 6,513 4,717
Discounted to present
value at a 10% annual
rate................. (3,469) (4,638) (3,384) (1,456) (2,088) (1,552) (1,813) (2,317) (1,679)
------- -------- ------- ------- ------- ------- ------- ------- -------
Total*......... 5,158 7,289 5,623 1,750 2,547 2,185 3,036 4,196 3,038
------- -------- ------- ------- ------- ------- ------- ------- -------
EQUITY AFFILIATES
Future cash flows:
Revenues............. 1,401 1,971 8,520 647 968 893 754 1,003 651
Production costs..... (617) (597) (2,640) (246) (242) (267) (371) (355) (315)
Development costs.... (237) (180) (1,300) (205) (157) (174) (32) (23) (30)
Income tax expense... (209) (496) (1,090) (51) (193) (161) (158) (303) (170)
------- -------- ------- ------- ------- ------- ------- ------- -------
Future net cash
flows................ 338 698 3,490 145 376 291 193 322 136
Discounted to present
value at a 10% annual
rate................. (187) (398) (2,886) (116) (277) (226) (71) (121) (44)
------- -------- ------- ------- ------- ------- ------- ------- -------
Total.......... 151 300 604 29 99 65 122 201 92
------- -------- ------- ------- ------- ------- ------- ------- -------
Total.......... $ 5,309 $ 7,589 $ 6,227 $ 1,779 $ 2,646 $ 2,250 $ 3,158 $ 4,397 $ 3,130
======= ======== ======= ======= ======= ======= ======= ======= =======
<CAPTION>
OTHER REGIONS
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
COMBINED COMPANIES
Future cash flows:
Revenues............. $ 4,140 $ 4,958 $ 3,192
Production costs..... (960) (943) (867)
Development costs.... (131) (92) (46)
Income tax expense... (2,477) (3,144) (1,726)
------- ------- -------
Future net cash
flows................ 572 779 553
Discounted to present
value at a 10% annual
rate................. (200) (233) (153)
------- ------- -------
Total*......... 372 546 400
------- ------- -------
EQUITY AFFILIATES
Future cash flows:
Revenues............. -- -- 6,976
Production costs..... -- -- (2,058)
Development costs.... -- -- (1,096)
Income tax expense... -- -- (759)
------- ------- -------
Future net cash
flows................ -- -- 3,063
Discounted to present
value at a 10% annual
rate................. -- -- (2,616)
------- ------- -------
Total.......... -- -- 447
------- ------- -------
Total.......... $ 372 $ 546 $ 847
======= ======= =======
</TABLE>
- ---------------
* Includes $686 and $372 at year-end 1996 and 1997, respectively, attributable
to Conoco Oil & Gas Associates L.P. in which there is a minority interest with
an approximate 17 and 18 percent revenue share at year-end 1996 and 1997,
respectively. See Note 18.
SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
COMBINED COMPANIES EQUITY AFFILIATES
--------------------------- -----------------------
1995 1996 1997 1995 1996 1997
------- ------- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1............................ $ 4,275 $ 5,158 $ 7,289 $ 145 $ 151 $ 300
Sales and transfers of oil and gas produced, net
of production costs........................... (1,998) (2,647) (2,583) (42) (73) (56)
Development costs incurred during the period.... 745 828 921 14 20 218
Net changes in prices and in development and
production costs.............................. 675 2,525 (4,974) 81 119 (1,242)
Extensions, discoveries and improved recovery,
less related costs............................ 1,219 1,630 818 -- 4 1,181
Revisions of previous quantity estimates........ 375 553 439 68 83 37
Purchases (sales) of reserves in place -- net... (62) (54) 36 -- -- --
Accretion of discount........................... 753 931 1,312 13 25 55
Net change in income taxes...................... (897) (1,676) 2,285 (108) (152) 16
Other........................................... 73 41 80 (20) 123 95
------- ------- ------- ----- ----- -------
Balance at December 31.......................... $ 5,158 $ 7,289 $ 5,623 $ 151 $ 300 $ 604
======= ======= ======= ===== ===== =======
</TABLE>
F-36
<PAGE> 169
COMBINED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
HISTORICAL
Sales and Other Operating Revenues(1)............. $5,474 $5,994 $5,999 $6,763
Cost of Goods Sold and Other Expenses(2).......... 5,091 5,548 5,509 6,293
Interest & Debt Expense........................... 22 18 16 18
Net Income........................................ 207(3) 188(4) 267(5) 201
PRO FORMA AS ADJUSTED(6)
Total Revenues.................................... $5,524 $5,968 $6,067 $6,834
Cost of Goods Sold and Other Expenses(2).......... 5,081 5,547 5,505 6,291
Interest & Debt Expense........................... 49 44 43 43
Net Income........................................ 194 157 247 209
1997
HISTORICAL
Sales and Other Operating Revenues(1)............. $6,560 $5,915 $6,671 $6,650
Cost of Goods Sold and Other Expenses(2).......... 5,898 5,501 6,269 6,452
Interest & Debt Expense........................... 15 9 7 5
Net Income........................................ 341 246(7) 289(8) 221(9)
PRO FORMA AS ADJUSTED(6)
Total Revenues.................................... $6,556 $5,958 $6,688 $6,955
Cost of Goods Sold and Other Expenses(2).......... 5,896 5,499 6,266 6,451
Interest & Debt Expense........................... 43 40 38 39
Net Income........................................ 288 207 280 178
Pro Forma Earnings Per Share (see Note 2)
Basic...........................................
Diluted.........................................
Pro Forma Weighted Average Shares Outstanding (see
Note 2)
Basic...........................................
Diluted.........................................
</TABLE>
- ---------------
(1) Excludes other income of $64, $10, $74 and $38 in each of the quarters in
1996 and $55, $70, $28 and $314 in each of the quarters in 1997.
(2) Excludes provision for income taxes.
(3) Includes gain of $16 from sale of U.S. producing properties.
(4) Includes a net charge of $41 reflecting: a charge of $63 for write-down of
investment in a European natural gas marketing joint venture; a charge of
$22 principally for employee separation costs; and a benefit of $44 related
to environmental insurance recoveries.
(5) Includes gain of $19 from sale of Ireland marketing operations.
(6) The Pro Forma as Adjusted financial data illustrate the estimated effects of
the Offerings, the Separation and related transactions on the Income
Statement. See "Pro Forma Combined Financial Statements."
(7) Includes gain of $24 from sale of U.S. producing properties.
(8) Includes net benefit of $37 reflecting: gain of $30 from sale of North Sea
properties; benefit of $30 from foreign tax rate change; and charge of $23
for litigation settlements.
(9) Includes a net benefit of $19 reflecting: a gain of $186 from the sale of
North Sea and U.S. Upstream properties; a charge of $112 for impairment of
nonrevenue producing properties; and a charge of $55 for write-down of an
office building held for sale.
F-37
<PAGE> 170
INTERIM COMBINED FINANCIAL STATEMENTS
CONOCO
COMBINED STATEMENT OF INCOME (NOTES 1 AND 2)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------
1997 1998
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE)
<S> <C> <C>
Revenues
Sales and Other Operating Revenues*....................... $12,475 $11,348
Other Income.............................................. 125 138
------- -------
Total Revenues.................................... 12,600 11,486
------- -------
Costs and Expenses
Cost of Goods Sold and Other Operating Expenses........... 7,667 6,754
Selling, General and Administrative Expenses.............. 355 370
Exploration Expenses...................................... 192 176
Depreciation, Depletion and Amortization.................. 516 505
Taxes Other Than on Income*............................... 2,669 2,896
Interest and Debt Expense................................. 24 1
------- -------
Total Costs and Expenses.......................... 11,423 10,702
------- -------
Income Before Income Taxes.................................. 1,177 784
Provision for Income Taxes.................................. 590 254
------- -------
Net Income (Note 3)......................................... $ 587 $ 530
======= =======
Pro Forma Earnings Per Share(Note 4)........................
Basic.....................................................
Diluted...................................................
Pro Forma Weighted Average Shares Outstanding(Note 4).......
Basic.....................................................
Diluted...................................................
- ---------------
* Includes petroleum excise taxes........................... $ 2,577 $ 2,806
</TABLE>
See accompanying Notes to Interim Combined Financial Statements
F-38
<PAGE> 171
INTERIM COMBINED FINANCIAL STATEMENTS
CONOCO
COMBINED BALANCE SHEET (NOTES 1 AND 2)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998
DECEMBER 31, --------------------------
1997 HISTORICAL PRO FORMA (5)
------------ ---------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents............................. $ 1,147 $ 829 $ 1,185
Marketable Securities................................. 7 7 7
Accounts and Notes Receivable......................... 1,497 1,252 1,252
Notes Receivable -- Related Parties................... 490 465 --
Inventories (Note 6).................................. 830 981 981
Prepaid Expenses...................................... 236 305 305
-------- -------- --------
Total Current Assets.......................... 4,207 3,839 3,730
Property, Plant and Equipment........................... 21,229 21,569 21,569
Less: Accumulated Depreciation, Depletion and
Amortization.......................................... (10,401) (10,521) (10,521)
-------- -------- --------
Net Property, Plant and Equipment....................... 10,828 11,048 11,048
-------- -------- --------
Investment in Affiliates................................ 1,085 1,141 1,141
Long-Term Notes Receivable -- Related Parties........... 450 612 --
Other Assets............................................ 492 524 461
-------- -------- --------
Total......................................... $ 17,062 $ 17,164 $ 16,380
======== ======== ========
LIABILITIES AND OWNER'S NET INVESTMENT AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Current Liabilities
Accounts Payable...................................... $ 1,090 $ 1,129 $ 1,129
Short-Term Borrowings -- Related Parties.............. 644 1,087 --
Other Short-Term Borrowings and Capital Lease
Obligations........................................ 72 51 51
Income Taxes.......................................... 545 253 253
Other Accrued Liabilities............................. 1,289 1,043 1,043
-------- -------- --------
Total Current Liabilities..................... 3,640 3,563 2,476
Long-Term Borrowings -- Related Parties................. 1,450 1,181 1,259
Long-Term Borrowings -- Other Related Party (Note 5).... -- -- 7,500
Other Long-Term Borrowings and Capital Lease
Obligations........................................... 106 103 103
Deferred Income Taxes................................... 1,739 1,861 1,837
Other Liabilities and Deferred Credits.................. 1,922 1,925 1,925
-------- -------- --------
Total Liabilities............................. 8,857 8,633 15,100
-------- -------- --------
Commitments and Contingent Liabilities (Note 8)
Minority Interests...................................... 309 308 308
Owner's Net Investment.................................. 8,087 8,441 1,190
Accumulated Other Comprehensive Loss (Note 7)........... (191) (218) (218)
-------- -------- --------
Total Owner's Net Investment and Accumulated
Other Comprehensive Loss.................... 7,896 8,223 980
-------- -------- --------
Total......................................... $ 17,062 $ 17,164 $ 16,380
======== ======== ========
</TABLE>
See accompanying Notes to Interim Combined Financial Statements
F-39
<PAGE> 172
INTERIM COMBINED FINANCIAL STATEMENTS
CONOCO
COMBINED STATEMENT OF CASH FLOWS (NOTES 1 AND 2)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1997 1998
--------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash Provided by Operations
Net Income................................................ $ 587 $ 530
Adjustments to Reconcile Net Income to Cash Provided by
Operations:
Depreciation, Depletion and Amortization............... 516 505
Dry Hole Costs and Impairment of Unproved Properties... 67 68
Deferred Income Taxes.................................. 113 107
Income Applicable to Minority Interests................ 13 11
Other Noncash Charges and Credits -- Net............... (77) (55)
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable........................ 191 85
Inventories.......................................... (189) (153)
Other Operating Assets............................... (120) (90)
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities..... (121) (191)
Accrued Interest and Income Taxes.................... (125) (269)
------- ------
Cash Provided by Operations....................... 855 548
------- ------
Investment Activities
Purchases of Property, Plant and Equipment................ (1,611) (941)
Investments in Affiliates................................. (204) (109)
Proceeds from Sales of Assets............................. 134 348
Net Decrease (Increase) in Short-Term Financial
Instruments............................................ (32) (16)
------- ------
Cash Used for Investment Activities............... (1,713) (718)
------- ------
Financing Activities
Short-Term Borrowings -- Receipts........................ -- --
-- Payments.................... (1) (19)
Other Long-Term Borrowings -- Receipts.................... -- --
-- Payments............... (1) (2)
Transactions with Related Parties:
Notes Receivable -- Receipts........................... 322 25
-- Payments......................... (44) (162)
Borrowings -- Receipts................................. 670 260
-- Payments................................ (327) (62)
Net Cash Contribution From (To) Owner.................. 335 (177)
Increase (Decrease) in Minority Interests................. (11) (12)
------- ------
Cash Provided by (Used for) Financing
Activities....................................... 943 (149)
------- ------
Effect of Exchange Rate Changes on Cash..................... (42) 1
------- ------
Increase (Decrease) in Cash and Cash Equivalents............ $ 43 $ (318)
Cash and Cash Equivalents at Beginning of Year.............. 846 1,147
------- ------
Cash and Cash Equivalents at June 30........................ $ 889 $ 829
======= ======
</TABLE>
See accompanying Notes to Interim Combined Financial Statements
F-40
<PAGE> 173
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
On May 11, 1998, E. I. du Pont de Nemours and Company ("DuPont") announced
its intention to offer in an initial public offering a portion of its interest
in the common stock of Conoco Inc., a wholly owned energy subsidiary. This
initial public offering is DuPont's first step in the planned divestiture of its
entire petroleum business.
Throughout the period covered by the Combined Financial Statements,
operations were conducted by Conoco Inc., subsidiaries of Conoco Inc. and, in
some cases, subsidiaries of DuPont. These operations are collectively referred
to herein as the Company or "Conoco". Certain subsidiaries and, in some cases,
assets, liabilities, and related operations not currently owned by Conoco will
be transferred to Conoco. The accompanying Combined Financial Statements are
presented on a carve-out basis and include the historical operations of entities
owned by Conoco and operations to be transferred to Conoco by DuPont. In this
context, no direct ownership relationship existed among all the various units
comprising Conoco; accordingly, DuPont and its subsidiaries' net investment in
Conoco ("Owner's Net Investment") is shown in lieu of Stockholder's Equity in
the Combined Financial Statements. The Combined Financial Statements included
herein have been prepared from DuPont's historical accounting records.
These Combined Interim Financial Statements are unaudited, but reflect all
adjustments that, in the opinion of management, are necessary to provide a fair
presentation of the financial position, results of operations and cash flows for
the dates and periods covered. All such adjustments are of a normal recurring
nature. Interim period results are not necessarily indicative of results of
operations or cash flows for a full-year period. These interim statements should
be read in conjunction with the Audited Combined Financial Statements for the
years ended December 31, 1995, 1996 and 1997 presented herein.
2. RELATED PARTY TRANSACTIONS
The Combined Financial Statements include significant transactions with
DuPont involving services (such as cash management, other financial services,
purchasing, legal, computer and corporate aviation) that were provided between
Conoco and centralized DuPont organizations. The costs of services have been
directly charged or allocated between Conoco and DuPont using methods management
believes are reasonable. Such charges and allocations are not necessarily
indicative of what would have been incurred if Conoco had been a separate
entity. Amounts charged and allocated to Conoco for these services were $63 and
$72 for the first six months of 1997 and 1998, respectively, and are principally
included in Selling, General and Administrative Expenses. Conoco provided DuPont
services such as computer, legal and purchasing, as well as certain technical
and plant operating services, which amounted to $31 and $25 in first six months
of 1997 and 1998, respectively. These charges to DuPont were treated as
reductions of Cost of Goods Sold and Other Operating Expenses and Selling,
General and Administrative Expenses.
Interest expense charged by DuPont was $65 and $55 for the first six months
of 1997 and 1998, respectively, and reflects market-based rates. A portion of
historical related party interest cost and other interest expense of $44 and $57
was capitalized as cost associated with major construction projects in the first
six months of 1997 and 1998, respectively. Interest income from DuPont was $6
and $33 for the same periods and also reflects market-based rates.
Sales and Other Operating Revenues include sales of products from Conoco to
DuPont, principally natural gas and gas liquids to supply several DuPont plant
sites. These sales totaled $231 and $209 for the first six months of 1997 and
1998, respectively. Also included are revenues from insurance premiums charged
DuPont for property and casualty coverage outside the United States. These
revenues totaled $11 and $10 for the first six months of 1997 and 1998,
respectively. Purchases of products from DuPont during these periods were not
material.
F-41
<PAGE> 174
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS)
These intercompany arrangements between DuPont and Conoco will continue
after the offering under transition service agreements or other long-term
agreements. It is not anticipated that a change, if any, in these costs and
revenues would have a material effect on the company's results of operations or
combined financial position.
Accounts and Notes Receivable include amounts due from DuPont of $79 and
$34 at December 31, 1997, and June 30, 1998, respectively, representing current
month balances of transactions between Conoco and DuPont, mainly product sales
and net interest on borrowings. Accounts Payable include amounts due DuPont of
$4 and $40 at December 31, 1997, and June 30, 1998, respectively.
Amounts representing notes receivable or borrowings from DuPont, including
its subsidiary organizations, are identified for related parties and presented
separately in the Combined Balance Sheet. The current portion of Notes
Receivable represents the accumulation of a variety of cash transfers and
operating transactions with DuPont. These balances are generally
interest-bearing and represent net amounts of cash transferred for funding and
cash management purposes and amounts charged between the companies for certain
product and service purchases and asset transfers. The long-term portion of
Notes Receivable and amounts shown for Short-Term and Long-Term Borrowings
represent borrowings between Conoco and DuPont with established due dates at
market-based interest rates, except for certain short-term non-interest bearing
borrowings due DuPont of $492 at December 31, 1997, and June 30, 1998.
3. SPECIAL ITEMS
Net income for the first six months of 1997 included a gain of $24 from the
sale of certain Upstream North Sea properties. Net income for the first six
months of 1998 included a gain of $23 from the sale of certain Upstream North
Sea properties and a $31 tax benefit from the sale of an international Upstream
subsidiary, partly offset by a $28 charge for U.S. Downstream litigation.
4. EARNINGS PER SHARE
The Company's historical capital structure is not indicative of its
prospective structure since no direct ownership relationship existed among all
the various units comprising Conoco. Accordingly, historical earnings per share
has not been presented in the interim Combined Financial Statements.
Unaudited pro forma basic earnings per share includes the shares of both
the Class A and Class B common shares deemed to be outstanding as of the date of
the Offerings. Unaudited pro forma diluted earnings per share includes the
dilutive effect of the Conoco stock options (see Note 20 to the Combined
Financial Statements), applying the treasury stock method, which are expected to
be issued upon cancellation of outstanding DuPont stock options, using the
anticipated weighted-average exercise price of the outstanding options and the
anticipated initial public offering price. In accordance with SEC Staff
Accounting Bulletin No. 98, pro forma basic and diluted earnings per share have
been presented for the most recent annual and subsequent interim periods only.
5. INTERIM PRO FORMA COMBINED BALANCE SHEET
The unaudited pro forma column on the accompanying combined balance sheet
reflects the application of pro forma adjustments to the historical amounts as
of June 30, 1998. In July 1998, a dividend of $7,500 was declared and paid by
the Company in the form of a promissory note to all shareholders of record as of
July 20, 1998. The promissory note is due January 2, 2000 and bears interest at
an annual interest rate of 6.0125 percent. Prior to or concurrent with the
Offerings, DuPont and Conoco will enter into a Restructuring, Transfer and
Separation Agreement and certain other agreements with respect to employee
benefit arrangements, information management, the provision of interim services,
financing arrangements, tax sharing, environmental liabilities and various
commercial arrangements. These agreements generally provide for settlement of
certain intercompany loans, purchase or transfer of certain subsidiaries, and
other arrangements to be undertaken in connection with the Separation and the
Offerings.
F-42
<PAGE> 175
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS)
The unaudited pro forma column reflects the dividend and adjustments, as
provided for in the Separation Agreement, for (a) the settlement of intercompany
loans, (b) the purchase of certain subsidiaries from DuPont and the refund of
prepaid insurance premiums to DuPont in the amount of $267, and (c) the effect
of the separate return income tax method reflecting a reduction in Deferred
Income Taxes ($24) resulting from the transfer of international production
subsidiaries from the original tax jurisdiction to another tax jurisdiction.
6. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
<S> <C> <C>
Crude oil and petroleum products............................ $675 $821
Other merchandise........................................... 25 24
Materials and supplies...................................... 130 136
---- ----
$830 $981
==== ====
</TABLE>
7. OTHER COMPREHENSIVE INCOME
The following sets forth the Company's comprehensive income for the periods
shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
----------------------------
1997 1998
------------- ------------
<S> <C> <C>
Net Income.................................................. $ 587 $530
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustment................... (113) (27)
Minimum Pension Liability Adjustment...................... -- --
------ ----
Comprehensive Income........................................ $ 474 $503
====== ====
</TABLE>
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary conduct of business. In
the aggregate, such commitments are not at prices in excess of current market.
In addition, at June 30, 1998, the Company has obligations to purchase, over
periods up to twenty years, natural gas at prices that were in excess of current
market prices. No material annual loss is expected from these long-term
commitments.
The Company is subject to various lawsuits and claims involving a variety
of matters including, along with other oil companies, actions challenging oil
and gas royalty and severance tax payments based on posted prices, and claims
for damages resulting from leaking underground storage tanks. In general, the
effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists. The Company believes the ultimate
liabilities resulting from such lawsuits and claims may be material to results
of operations in the period in which they are recognized but will not materially
affect the combined financial position of the Company. In the six months of
1998, the Company recorded non-recurring after-tax charges of $28 for
anticipated costs to resolve various litigation.
The Company is also subject to contingencies pursuant to environmental laws
and regulations that in the future may require the Company to take further
action to correct the effects on the environment of prior disposal practices or
releases of petroleum substances by the Company or other parties. The Company
has accrued for certain environmental remediation activities consistent with the
policy set forth in Note 2 to the Combined Financial Statements. At June 30,
1998, such accrual amounted to $140 and, in management's opinion, was
appropriate based on existing facts and circumstances. Under adverse changes in
circumstances,
F-43
<PAGE> 176
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS)
potential liability may exceed amounts accrued. In the event future monitoring
and remediation expenditures are in excess of amounts accrued, they may be
significant to results of operations in the period recognized but management
does not anticipate they will have a material adverse effect on the combined
financial position of the Company.
The Company has indirectly guaranteed various debt obligations under
agreements with certain affiliated and other companies to provide specified
minimum revenues from shipments or purchases of products. At June 30, 1998,
these indirect guarantees totaled $19, and the company or DuPont, on behalf of
the company, had directly guaranteed $1,168 of the obligations of certain
affiliated companies and others. The Company, along with certain European DuPont
subsidiaries, also participates in a multiparty account banking agreement, which
provides for the indirect guarantee of bank account overdrafts of certain
European DuPont subsidiaries. Management believes the exposure under this
agreement is not material and expects to terminate the agreement prior to
completion of the Offerings. No material loss is anticipated by reason of such
agreements and guarantees.
F-44
<PAGE> 177
ANNEX A
DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS, TEXAS 75206
July 20, 1998
Conoco Inc.
600 North Dairy Ashford
Houston, Texas 77001-6651
Gentlemen:
Pursuant to your request, we have prepared estimates of the proved oil,
condensate, natural gas liquids, and natural gas reserves, as of December 31,
1997, of certain properties in Canada, Nigeria, Norway, Russia, the United
Kingdom, the United States, and Venezuela owned by Conoco Inc. (Conoco). The
properties consist of working interests located in Alberta, Canada, in the
offshore waters of Nigeria, Norway, and the United Kingdom, in northern European
Russia, in Colorado, New Mexico, Virginia, Texas and in the offshore waters of
Louisiana of the United States, and in the Orinoco Heavy Oil Belt of Venezuela.
The estimates are discussed in detail in our "Report as of December 31, 1997 on
Proved Reserves of Certain Properties owned by Conoco Inc.," (the Report). We
also have reviewed Conoco's estimates of the reserves, as of December 31, 1997,
of the same properties included in the Report.
Proved reserves estimated by us and referred to herein are judged to be
economically producible in future years from known reservoirs under existing
economic and operating conditions and assuming continuation of current
regulatory practices using conventional production methods and equipment. Proved
reserves are defined as those that have been proved to a high degree of
certainty by reason of actual completion, successful testing, or in certain
cases by adequate core analyses and electrical-log interpretation when the
producing characteristics of the formation are known from nearby fields. These
reserves are defined areally by reasonable geological interpretation of
structure and known continuity of oil- or gas-saturated material. This
definition is in agreement with the definition of proved reserves prescribed by
the Securities and Exchange Commission of the United States.
Conoco represents that its estimates of the proved reserves, as of December
31, 1997, net to its leasehold interests in the properties included in the
Report are as follows, expressed in millions of barrels (MMbbl) or billions of
cubic feet (Bcf):
<TABLE>
<CAPTION>
OIL, CONDENSATE, AND
NATURAL GAS LIQUIDS NATURAL GAS NET EQUIVALENT
(MMbbl) (Bcf) (MMbbl)
- -------------------- ----------- --------------
<S> <C> <C>
1,260 4,523 2,014
</TABLE>
Note: Net-equivalent million barrels is based on 6,000 cubic
feet of gas being equivalent to 1 barrel of oil,
condensate, or natural gas liquids.
Conoco has advised us, and we have assumed, that its estimates of proved
oil, condensate, natural gas liquids, and natural gas reserves are in accordance
with the rules and regulations of the Securities and Exchange Commission.
A-1
<PAGE> 178
DEGOLYER AND MACNAUGHTON
Our estimates of the proved reserves, as of December 31, 1997, of the
properties included in the Report are as follows, expressed in millions of
barrels (MMbbl) or billions of cubic feet (Bcf):
<TABLE>
<CAPTION>
OIL, CONDENSATE, AND
NATURAL GAS LIQUIDS NATURAL GAS NET EQUIVALENT
(MMbbl) (Bcf) (MMbbl)
- -------------------- ----------- --------------
<S> <C> <C>
1,255 4,498 2,005
</TABLE>
Note: Net-equivalent million barrels is based on 6,000 cubic
feet of gas being equivalent to 1 barrel of oil,
condensate, or natural gas liquids.
In comparing the detailed reserves estimates prepared by us and those
prepared by Conoco for the properties involved, we have found differences, both
positive and negative, in reserves estimates for individual properties. These
differences appear to be compensating to a great extent when considering the
reserves of Conoco in the properties included in the Report, resulting in
overall differences not being substantial. It is our opinion that the reserves
estimates prepared by Conoco on the properties reviewed by us and referred to
above, when compared on the basis of net equivalent million barrels of oil, do
not differ materially from those prepared by us.
Submitted,
/s/ DeGOLYER and MacNAUGHTON
DeGOLYER and MacNAUGHTON
[SEAL]
/s/ W.G. McGILVRAY, P.E.
W.G. McGilvray, P.E.
Executive Vice President
DeGolyer and MacNaughton
A-2
<PAGE> 179
CONOCO LOGO
<PAGE> 180
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued September 10, 1998
[CONOCO LOGO]
Shares
Conoco Inc.
CLASS A COMMON STOCK
------------------------
Of the shares of the Class A Common Stock of Conoco Inc. (the "Company"
or "Conoco") being offered, shares are being offered initially in the United
States and Canada by the U.S. Underwriters (the "U.S. Offering") and
shares are being offered initially outside the United States and Canada by the
International Underwriters (the "International Offering" and, together with the
U.S. Offering, the "Offerings"). Each share of Class A Common Stock will have
attached one Preferred Share Purchase Right (a "Right") which will initially
trade together with the share. All of the shares of Class A Common Stock offered
hereby are being sold by the Company. The price to public and the underwriting
discount per share will be identical for both Offerings. Prior to these
Offerings, there has been no public market for the Class A Common Stock. It is
currently estimated that the public offering price per share will be between
$ and $ . See "Underwriters" for a discussion of the factors to be
considered in determining the initial public offering price.
The Company has two classes of authorized common stock consisting of Class A
Common Stock offered hereby and Class B Common Stock (collectively, the "Common
Stock"). See "Description of Capital Stock." Holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to five votes per share on each matter submitted to a vote of stockholders.
Prior to the Offerings, E.I. du Pont de Nemours and Company ("DuPont")
indirectly owned 100 percent of the outstanding shares of the Company's Common
Stock, and upon completion of the Offerings, DuPont, through its ownership of
100 percent of the outstanding Class B Common Stock, will indirectly own
approximately percent of the Company's Common Stock representing approximately
percent of the combined voting power of all classes of voting stock of the
Company (or percent if the U.S. Underwriters exercise their over-allotment
option in full). Accordingly, DuPont will continue to control the Company. See
"Arrangements between the Company and DuPont" and "Principal Stockholder."
------------------------
The Class A Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the trading symbol "CLL," subject to official notice of
issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR INFORMATION CONCERNING CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
-------- ---------------------- -----------
<S> <C> <C> <C>
Per Share................................................... $ $ $
Total(3).................................................... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The U.S. Underwriters have been granted an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of
additional shares of Class A Common Stock at the price to public
shown above less underwriting discounts and commissions for the purpose
of covering over-allotments, if any. If the U.S. Underwriters exercise
such option in full, the total price to public and the underwriting
discounts and commissions will be $ and $ , respectively.
The additional shares to be sold under this option may, at the
discretion of DuPont, be sold either by the Company or DuPont or a
combination of the Company and DuPont. If the U.S. Underwriters exercise
such option in full, and the shares are sold only by the Company, the
proceeds to the Company will be $ . If such shares are sold only
by DuPont, the Company will not receive any of the proceeds from the
sale of such shares by DuPont. The actual option granted by the Company
and/or DuPont will be described in the final prospectus. See
"Underwriters."
------------------------
The Class A Common Stock is offered, subject to prior sale, when, as, and if
accepted by the Underwriters named herein and, subject to approval of certain
legal matters by Cravath, Swaine & Moore, counsel for the Underwriters, and to
certain other conditions. It is expected that delivery of the Class A Common
Stock will be made on or about , 1998 at the offices of Morgan
Stanley & Co. Incorporated, New York, New York, against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
J.P. MORGAN SECURITIES LTD. SALOMON SMITH BARNEY INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL SCHRODERS
, 1998
<PAGE> 181
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the registration fee for the Securities and
Exchange Commission, the filing fee for the National Association of Securities
Dealers, Inc., the listing fee for the New York Stock Exchange and estimates of
all other expenses to be incurred in connection with the issuance and
distribution of the securities described in this Registration Statement, other
than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee........................................ $92,756
NASD filing fee............................................. 30,500
NYSE listing fee............................................ *
Blue sky fees and expenses.................................. *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and registrar fees........................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To follow by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than as action by or in the right of the corporation -- a "derivative action"),
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute required court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, By-laws,
disinterested director vote, stockholder vote, agreement or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personably liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit.
Article 5E(2) of the Registrant's Certificate of Incorporation provides
that no director shall be personally liable to the Company or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. Any
amendment to or repeal of such Article 5E(2) shall not adversely affect any
right or protection of a director of the registrant for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
The Company's By-laws provide for indemnification of directors and officers to
the maximum extent permitted by Delaware law.
II-1
<PAGE> 182
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation.***
3.2 -- By-laws of the Company***
4.1 -- Specimen Certificate for shares of Class A Common Stock
of the Registrant***
4.2 -- Specimen Certificate for shares of Class B Common Stock
of the Registrant***
4.3 -- Preferred Share Purchase Rights Agreement***
4.4 -- Promissory Note and Guaranty to DuPont Energy Company***
4.5 -- Promissory Note to DuPont Chemical and Energy Operations
Inc. (Norway)*
4.6 -- Promissory Note to DuPont Chemical and Energy Operations
Inc. (United Kingdom and Poland)***
4.7 -- Promissory Note to DuPont Energy Company*
4.8 -- Revolving Credit Agreement*
5.1 -- Opinion as to the legality of the Class A Common Stock
being offered***
10.1 -- Restructuring, Transfer and Separation Agreement between
DuPont and Conoco*
10.2 -- Tax Sharing Agreements between DuPont and Conoco*
10.3 -- Employee Matters Agreement between DuPont and Conoco*
10.4 -- Information Systems and Telecommunications Carrier
Transitional Services and Facilities Lease Agreement
between DuPont and Conoco*
10.5 -- Transitional Services Agreement between DuPont and the
Company***
10.6 -- Registration Rights Agreement between DuPont and Conoco*
10.7 -- Natural Gas Supply Agreement between DuPont and Conoco***
10.8 -- Severance Agreement, dated May 10, 1998, between Conoco
and Archie W. Dunham***
10.9 -- 1998 Stock and Performance Incentive Plan***
10.10 -- 1998 Key Employee Stock Performance Plan***
10.11 -- Global Stock Performance Sharing Plan*
10.12 -- Deferred Compensation Plan for Nonemployee Directors***
10.13 -- Conoco Inc. Key Employee Severance Plan***
10.14 -- Conoco Inc. Key Employee Temporary Severance Plan***
10.15 -- Conoco Salary Deferral & Savings Restoration Plan*
10.16 -- Directors' Charitable Gift Plan***
10.17 -- Motor Carrier Contract between Sentinel and Conoco***
10.18 -- Mount Belvieu Agreements*
11.1 -- Statement regarding computation of per share earnings*
21.1 -- List of Principal Subsidiaries of the Registrant*
23.1 -- Consent of PricewaterhouseCoopers LLP***
23.2 -- Consent of DeGolyer and MacNaughton**
24 -- Power of Attorney**
27 -- Financial Data Schedule**
99 -- Consents of Proposed Directors***
</TABLE>
- ---------------
* To follow by amendment
** Filed previously
*** Filed herein
(b) Financial Data Schedules:
The following financial statement schedules are filed herewith:
II-2
<PAGE> 183
Summary Financial Information -- Balance Sheet and Income Statement
at December 31, 1997
Summary Financial Information -- Balance Sheet and Income Statement
at June 30, 1998
Schedules have been omitted because the information required to be set
forth therein is either not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
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 undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
(3) It will provide to the underwriters at the closing specified in
the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-3
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on September 9, 1998.
CONOCO INC.
By: /s/ ARCHIE W. DUNHAM
----------------------------------
Name: Archie W. Dunham
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities indicated on September 9, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ARCHIE W. DUNHAM President, Chief Executive Officer and
- ----------------------------------------------------- Director
Archie W. Dunham
/s/ ROBERT W. GOLDMAN Senior Vice President, Finance, and Chief
- ----------------------------------------------------- Financial Officer (Principal Financial
Robert W. Goldman Officer and Principal Accounting Officer)
* Chairman of the Board and Director
- -----------------------------------------------------
Edgar S. Woolard, Jr.
* Director
- -----------------------------------------------------
Gary M. Pfeiffer
*By: /s/ ROBERT W. GOLDMAN
------------------------------------------------
Robert W. Goldman
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 185
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation.***
3.2 -- By-laws of the Company***
4.1 -- Specimen Certificate for shares of Class A Common Stock
of the Registrant***
4.2 -- Specimen Certificate for shares of Class B Common Stock
of the Registrant***
4.3 -- Preferred Share Purchase Rights Agreement***
4.4 -- Promissory Note and Guaranty to DuPont Energy Company***
4.5 -- Promissory Note to DuPont Chemical and Energy Operations
Inc. (Norway)*
4.6 -- Promissory Note to DuPont Chemical and Energy Operations
Inc. (United Kingdom and Poland)***
4.7 -- Promissory Note to DuPont Energy Company*
4.8 -- Revolving Credit Agreement*
5.1 -- Opinion as to the legality of the Class A Common Stock
being offered***
10.1 -- Restructuring, Transfer and Separation Agreement between
DuPont and Conoco*
10.2 -- Tax Sharing Agreements between DuPont and Conoco*
10.3 -- Employee Matters Agreement between DuPont and Conoco*
10.4 -- Information Systems and Telecommunications Carrier
Transitional Services and Facilities Lease Agreement
between DuPont and Conoco*
10.5 -- Transitional Services Agreement between DuPont and the
Company***
10.6 -- Registration Rights Agreement between DuPont and Conoco*
10.7 -- Natural Gas Supply Agreement between DuPont and Conoco***
10.8 -- Severance Agreement, dated May 10, 1998, between Conoco
and Archie W. Dunham***
10.9 -- 1998 Stock and Performance Incentive Plan***
10.10 -- 1998 Key Employee Stock Performance Plan***
10.11 -- Global Stock Performance Sharing Plan*
10.12 -- Deferred Compensation Plan for Nonemployee Directors***
10.13 -- Conoco Inc. Key Employee Severance Plan***
10.14 -- Conoco Inc. Key Employee Temporary Severance Plan***
10.15 -- Conoco Salary Deferral & Savings Restoration Plan*
10.16 -- Directors' Charitable Gift Plan***
10.17 -- Motor Carrier Contract between Sentinel and Conoco***
10.18 -- Mount Belvieu Agreements*
11.1 -- Statement regarding computation of per share earnings*
21.1 -- List of Principal Subsidiaries of the Registrant*
23.1 -- Consent of PricewaterhouseCoopers LLP***
23.2 -- Consent of DeGolyer and MacNaughton**
24 -- Power of Attorney**
27 -- Financial Data Schedule**
99 -- Consents of Proposed Directors***
</TABLE>
- ---------------
* To follow by amendment
** Filed previously
*** Filed herein
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CONOCO INC.
(ORIGINALLY INCORPORATED UNDER THE NAME
"CONOCO ENERGY COMPANY" on _________, 19___)
FIRST: The name of the Corporation is Conoco
Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: A. The total number of shares of stock that the
Corporation shall have authority to issue is [_______] of which (i) [_______]
shares shall be shares of Class A Common Stock, par value $.0l per share (the
"Class A Common Stock"), and [__________] shares shall be shares of Class B
Common Stock, par value $.0l per share (the "Class B Common Stock") (the Class A
Common Stock and the Class B Common Stock being collectively referred to herein
as the "Common Stock"), and (ii) [________] shares shall be shares of Preferred
Stock, par value $.0l per share (the "Preferred Stock").
B. Preferred Stock The Board of Directors is expressly authorized to
provide for the issuance of all or any shares of the Preferred Stock in one or
more classes or series, and to fix for each such class or series the voting
powers (if any) and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated
<PAGE> 2
and expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the GCL, including, without limitation, the authority to provide that any such
class or series may be (i) subject to redemption at such time or times and at
such price or prices; (ii) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any other
class or classes of stock, of the Corporation at such price or prices or at such
rates of exchange and with such adjustments; all as may be stated in such
resolution or resolutions.
C. Common Stock The following is a statement of the relative powers,
preferences and participating, optional or other special rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this Article FOURTH, the
relative powers, preferences and participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Class A
Common Stock and Class B Common Stock shall be identical in all respects.
(2) Subject to the rights of the holders of Preferred Stock, and
subject to any other provisions of this Certificate of Incorporation, holders of
Class A Common Stock and Class B Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock of any corporation (other than
Common Stock of the Corporation) or property of the Corporation as may be
declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor and shall share equally on a
per share basis in all such dividends and other distributions. In the case of
dividends or other distributions payable in Common Stock, including
distributions pursuant to stock splits or divisions of Common Stock of the
Corporation,
2
<PAGE> 3
only shares of Class A Common Stock shall be paid or distributed with respect to
Class A Common Stock and only shares of Class B Common Stock shall be paid or
distributed with respect to Class B Common Stock. The number of shares of Class
A Common Stock and Class B Common Stock so distributed on each share shall be
equal in number. Neither the shares of Class A Common Stock nor the shares of
Class B Common Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in the
same proportion for each class.
(3) (a) At every meeting of the stockholders of the Corporation
every holder of Class A Common Stock shall be entitled to one vote in person or
by proxy for each share of Class A Common Stock standing in his or her name on
the transfer books of the Corporation, and every holder of Class B Common Stock
shall be entitled to five votes in person or by proxy for each share of Class B
Common Stock standing in his or her name on the transfer books of the
Corporation in connection with the election of directors and all other matters
submitted to a vote of stockholders. Except as may be otherwise required by law
or by this Certificate of Incorporation, the holders of Class A Common Stock and
Class B Common Stock shall vote together as a single class and their votes shall
be counted and totaled together, subject to any voting rights which may be
granted to holders of Preferred Stock, on all matters submitted to a vote of
stockholders of the Corporation. Notwithstanding any other provision of this
Certificate of Incorporation to the contrary, holders of Class A Common Stock
shall not be eligible to vote on any alteration or change in the powers,
preferences, or special rights of the Class B Common Stock that would not
adversely affect the rights of the Class A Common Stock; provided that, for the
foregoing purposes, any provision for the voluntary, mandatory or other
conversion or exchange of the Class B Common Stock into or for Class A Common
Stock on a one for one basis shall be deemed not to adversely affect the rights
of the Class A Common Stock.
(b) Except as otherwise provided by law, and subject to any
rights of the holders of Preferred Stock, the provisions of this Certificate of
Incorporation shall not be modified, revised, altered or amended, repealed or
rescinded in whole or in part, without the
3
<PAGE> 4
approval of a majority of the votes entitled to be cast by the holders of the
Class A Common Stock and the Class B Common Stock, voting together as a single
class (except as otherwise provided in paragraph (C)(3)(a) above); provided,
however, that with respect to any proposed amendment of this Certificate of
Incorporation which would alter or change the powers, preferences or special
rights of the shares of Class A Common Stock or Class B Common Stock so as to
affect them adversely, the approval of a majority of the votes entitled to be
cast by the holders of the shares affected by the proposed amendment, voting
separately as a class, shall be obtained in addition to the approval of a
majority of the votes entitled to be cast by the holders of the Class A Common
Stock and the Class B Common Stock voting together as a single class as
hereinbefore provided. The affirmative vote of shares representing (x) not less
than 66 2/3% (or, from and after the Second Trigger Date (as defined in
paragraph (C) of Article FIFTH), 80%) of the votes entitled to be cast by the
Voting Stock and (y) in addition, from and after the First Trigger Date (as
defined in paragraph (C) of Article FIFTH) (if there are at such time any shares
of Class B Common Stock outstanding), a majority of the votes entitled to be
cast by the holders of each class of Common Stock, voting separately by class,
shall be required to alter, amend or adopt any provision inconsistent with or
repeal Article FIFTH or Article EIGHTH or any provision of this paragraph
(C)(3)(b). "Voting Stock" shall mean the then outstanding shares of capital
stock entitled to vote generally on the election of directors and shall exclude
any class or series of capital stock only entitled to vote in the event of
dividend arrearages thereon, whether or not at the time of determination there
are any such dividend arrearages. To the fullest extent permitted by law, any
increase in the authorized number of shares of any class or classes of stock of
the Corporation or creation, authorization or issuance of any securities
convertible into, or warrants, options or similar rights to purchase, acquire or
receive, shares of any such class or classes of stock shall be deemed not to
affect adversely the powers, preferences or special rights of the shares of
Class A Common Stock or Class B Common Stock.
(c) Every reference in this Certificate of Incorporation to a
majority or other proportion of shares, or a majority or other proportion of the
votes of
4
<PAGE> 5
shares, of Voting Stock, Common Stock, Class A Common Stock, or Class B Common
Stock shall refer to such majority or other proportion of the votes to which
such shares of Voting Stock, Common Stock, Class A Common Stock or Class B
Common Stock are entitled.
(d) At any meeting of stockholders, the presence in person or by
proxy of the holders of shares entitled to cast a majority of all the votes
which could be cast at such meeting by the holders of all of the outstanding
shares of stock of the Corporation entitled to vote on every matter that is to
be voted on at such meeting shall constitute a quorum.
(4) In the event of any dissolution, liquidation or winding up of
the affairs of the Corporation, whether voluntary or involuntary, after payment
in full of the amounts required to be paid to the holders of Preferred Stock,
the remaining assets and funds of the Corporation shall be distributed pro rata
to the holders of Common Stock, and the holders of Class A Common Stock and the
holders of Class B Common Stock will be entitled to receive the same amount per
share in respect thereof. For purposes of this paragraph (C)(4), the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the assets of
the Corporation or a consolidation or merger of the Corporation with one or more
other corporations (whether or not the Corporation is the corporation surviving
such consolidation or merger) shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
(5) Except as shall otherwise be approved by a majority of the votes
entitled to be cast by the holders of each class of Common Stock voting
separately as a class, in case of any reorganization or any consolidation of the
Corporation with one or more other corporations or a merger of the Corporation
with another corporation in which shares of Class A Common Stock or Class B
Common Stock are converted into (or entitled to receive with respect thereto)
shares of stock and/or other securities or property (including cash), each
holder of a share of Class A Common Stock shall be entitled to receive with
respect to such share the same kind and amount of shares of stock and other
securities and property (including cash) receivable upon such reorganization,
consolidation
5
<PAGE> 6
or merger by a holder of a share of Class B Common Stock and each holder of a
share of Class B Common Stock shall be entitled to receive with respect to such
share the same kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reorganization, consolidation or
merger by a holder of a share of Class A Common Stock. In the event that the
holders of Class A Common Stock (or of Class B Common Stock) are granted rights
to elect to receive one of two or more alternative forms of consideration, the
foregoing provision shall be deemed satisfied if holders of Class A Common Stock
and holders of Class B Common Stock are granted substantially identical election
rights.
(6) (a) Prior to the date on which shares of Class B Common
Stock are transferred to stockholders of the DuPont Company in a Tax-Free
Spin-Off (as defined in paragraph (C)(6)(b) below), each record holder of shares
of Class B Common Stock may convert any or all of such shares into an equal
number of shares of Class A Common Stock by surrendering the certificates for
such shares, accompanied by any payment required for documentary, stamp or
similar issue or transfer taxes and by a written notice by such record holder to
the Corporation stating that such record holder desires to convert such shares
of Class B Common Stock into the same number of shares of Class A Common Stock
including for the purpose of the sale or other disposition of such shares of
Class A Common Stock, and requesting that the Corporation issue all of such
shares of Class A Common Stock to persons named therein, setting forth the
number of shares of Class A Common Stock to be issued to each such person and
the denominations in which the certificates therefor are to be issued. To the
extent permitted by law, such voluntary conversion shall be deemed to have been
effected at the close of business on the date of such surrender. Following a
Tax-Free Spin-Off, shares of Class B Common Stock shall no longer be convertible
into shares of Class A Common Stock.
(b) Prior to a Tax-Free Spin-Off, each share of Class B Common
Stock shall automatically be converted into one share of Class A Common Stock
upon the transfer of such share if, after such transfer, such share is not
beneficially owned by DuPont. Shares of Class B Common stock shall not convert
into shares of Class A Common Stock (i) in any transfer effected in
6
<PAGE> 7
connection with a distribution of Class B Common Stock to stockholders of the
DuPont Company in a transaction (including any distribution in exchange for
shares of capital stock or securities of the DuPont Company) in tended to
qualify as a tax-free distribution under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor provision (a "Tax-Free
Spin-Off") or (ii) in any transfer after a Tax-Free Spin- Off. For purposes of
this paragraph (C)(6), a Tax-Free Spin-Off shall be deemed to have occurred at
the time shares are first transferred to stockholders of the DuPont Company
following receipt of an affidavit described in clause (iii) of the first
sentence of paragraph (C)(6)(d) below. For purposes of this paragraph (C)(6),
each reference to a "person" shall be deemed to include not only a natural
person, but also a corporation, partnership, joint venture, association, or
legal entity of any kind; each reference to a "natural person" (or to a "record
holder" of shares, if a natural person) shall be deemed to include in his or her
representative capacity a guardian, committee, executor, administrator or other
legal representative of such natural person or record holder.
For purposes of this Certificate of Incorporation:
1. The "DuPont Company" shall mean E.I. du Pont de
Nemours & Company, Inc., a Delaware corporation, and
all its successors by way of merger, consolidation or
sale of all or substantially all of its assets;
2. The term "subsidiary" shall mean, as to any person or
entity, a corporation, part ownership, joint venture,
association or other entity in which such person or
entity beneficially owns (directly or indirectly) 50%
or more of the outstanding voting stock, voting
power, partnership interests or similar voting
interests;
3. "DuPont" shall mean the DuPont Company and all its
subsidiaries, but shall not include the Corporation
and its subsidiaries; and
7
<PAGE> 8
4. "affiliate" and "beneficial ownership" shall have the
respective meanings given to such terms in Rule 13d-3
promulgated under the Securities Exchange Act of
1934, as amended.
Each share of Class B Common Stock shall automatically be
converted into one share of Class A Common Stock on the date on which the
outstanding shares of Class B Common Stock owned by DuPont represent less than
50% of the aggregate number of shares of the then out standing Common Stock,
provided that a Tax-Free Spin-Off has not occurred. For the avoidance of doubt,
paragraph (C)(3)(c) of this Article FOURTH shall not apply to the preceding
sentence.
The Corporation will provide notice of any automatic
conversion of all outstanding shares of Class B Common Stock to holders of
record of the Common Stock as soon as practicable following such conversion;
provided, however, that the Corporation may satisfy such notice requirement by
providing such notice prior to such conversion. Such notice shall be provided
by mailing notice of such conversion first class postage prepaid, to each holder
of record of the Common Stock, at such holder's address as it appears on the
transfer books of the Corporation; provided, however, that no failure to give
such notice nor any defect therein shall affect the validity of the automatic
conversion of any shares of Class B Common Stock. Each such notice shall state,
as appropriate, the following:
(i) the automatic conversion date;
(ii) that all outstanding shares of Class B
Common Stock are automatically converted;
(iii) the place or places where certificates
for such shares may be surrendered in exchange for
certificates representing Class A Common
Stock.
Immediately upon such conversion, the rights of the holders of
shares of Class B Common Stock as such
8
<PAGE> 9
shall cease and such holders shall be treated for all purposes as having become
the record owners of the shares of Class A Common Stock issuable upon such
conversion; provided, however, that such persons shall be entitled to receive
when paid any dividends declared on the Class B Common Stock as of a record date
preceding the time of such conversion and unpaid as of the time of such
conversion, subject to paragraph (C)(6)(f) below.
(c) Prior to a Tax-Free Spin-Off, holders of shares
of Class B Common Stock may (i) sell or other wise dispose of or transfer any or
all of such shares held by them, respectively, only in connection with a
transfer which meets the qualifications of paragraph (C)(6)(d) below, and under
no other circumstances, or (ii) convert any or all of such shares into shares of
Class A Common Stock, including for the purpose of effecting the sale or
disposition of such shares of Class A Common Stock to any person as provided in
paragraph (C)(6)(a) above. Prior to a Tax-Free Spin-Off, no one other than those
persons in whose names shares of Class B Common Stock become registered on the
original stock ledger of the Corporation by reason of their record ownership of
shares of common stock of the Corporation which are reclassified into shares of
Class B Common Stock as provided in paragraph (C)(6)(l) below, or transferees
or successive transferees who receive shares of Class B Common Stock in
connection with a transfer which meets the qualifications set forth in paragraph
(C)(6)(d) below, shall by virtue of the acquisition of a certificate for shares
of Class B Common Stock have the status of an owner or holder of shares of Class
B Common Stock or be recognized as such by the Corporation or be other wise
entitled to enjoy for his or her own benefit the special rights and powers of a
holder of shares of Class B Common Stock.
Holders of shares of Class B Common Stock may at any and all
times transfer to any person the shares of Class A Common Stock issuable upon
conversion of such shares of Class B Common Stock.
(d) Prior to a Tax-Free Spin-Off, shares of Class B
Common Stock shall be transferred on the books of the Corporation and a new
certificate therefor issued, upon presentation at the office of the Secretary of
the Corporation (or at such additional place or places as may
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from time to time be designated by the Secretary or any Assistant Secretary of
the Corporation) of the certificate for such shares, in proper form for transfer
and accompanied by all requisite stock transfer tax stamps, only if such
certificate when so presented shall also be accompanied by any one of the
following:
(i) an affidavit from the DuPont Company
stating that such certificate is being presented to
effect a transfer by the DuPont Company of such
shares to a subsidiary of the DuPont Company; or
(ii) an affidavit from the DuPont Company
stating that such certificate is being presented to
effect a transfer by any subsidiary of the DuPont
Company of such shares to the DuPont Company or
another subsidiary of the DuPont Company; or
(iii) an affidavit from the DuPont Company
stating that such certificate is being presented to
effect a transfer by the DuPont Company of such
shares to the stockholders of the DuPont Company in
connection with a Tax-Free Spin-Off.
Each affidavit of a record holder furnished pursuant to this
paragraph (C)(6)(d) shall be verified as of a date not earlier than five days
prior to the date of delivery thereof, and, where such record holder is a
corporation or partnership, shall be verified by an officer of the corporation
or by a general partner of the partnership, as the case may be.
If a record holder of shares of Class B Common Stock shall
deliver a certificate for such shares, endorsed by him or her for transfer or
accompanied by an instrument of transfer signed by him or her, to a person who
receives such shares in connection with a transfer which does not meet the
qualifications set forth in this paragraph (C)(6)(d), then such person or any
successive transferee of such certificate may treat such endorsement or
instrument as authorizing him or her on behalf of such
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record holder to convert such shares in the manner above provided for the
purpose of the transfer to himself or herself of the shares of Class A Common
Stock issuable upon such conversion, and to give on behalf of such record holder
the written notice of conversion above required, and may convert such shares of
Class B Common Stock accordingly.
If such shares of Class B Common Stock shall improperly have
been registered in the name of a person not meeting the qualifications set forth
in this paragraph (C)(6)(d)(or in the name of any successive transferee of
such certificate) and a new certificate therefor issued, such person or
transferee shall surrender such new certificate for cancellation, accompanied by
the written notice of conversion above required, in which case (A) such person
or transferee shall be deemed to have elected to treat the endorsement on (or
instrument of transfer accompanying) the certificate so delivered by such former
record holder as authorizing such person or transferee on behalf of such former
record holder so to convert such shares and so to give such notice, (B) the
shares of Class B Common Stock registered in the name of such former record
holder shall be deemed to have been surrendered for conversion for the purpose
of the transfer to such person or transferee of the shares of Class A Common
Stock issuable upon conversion, and (C) the appropriate entries shall be made
on the books of the Corporation to reflect such action.
In the event that the Board of Directors of the Corporation
(or any committee of the Board of Directors, or any officer of the Corporation,
designated for the purpose by the Board of Directors) shall determine, upon the
basis of facts not disclosed in any affidavit or other document accompanying the
certificate for shares of Class B Common Stock when presented for transfer, that
such shares of Class B Common Stock have been registered in violation of the
provisions of paragraph (C)(6), or shall determine that a person is enjoying for
his or her own benefit the special rights and powers of shares of Class B Common
Stock in violation of such provisions, then the Corporation shall take such
action at law or in equity as is appropriate under the circumstances. An
unforeclosed pledge made to secure a bona fide obligation shall not be deemed to
violate such provisions. Prior to the occurrence of a Tax-Free Spin-Off, no
transfer of
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<PAGE> 12
title to shares of Class B Common Stock to a pledgee or other person (other than
DuPont) may occur without compliance with the foregoing provisions of this
paragraph (C)(6)(d).
(e) Prior to the occurrence of a Tax-Free Spin-Off,
every certificate for shares of Class B Common Stock shall bear a legend on the
face thereof reading as follows:
"The shares of Class B Common Stock represented by this certificate may
not be transferred to any person in connection with a transfer that
does not meet the qualifications set forth in paragraph (C)(6)(d) of
Article FOURTH of the Certificate of Incorporation of this corporation
and no person who receives such shares in connection with a transfer
which does not meet the qualifications prescribed by paragraph
(C)(6)(d) of said Article FOURTH is entitled to own or to be registered
as the record holder of such shares of Class B Common Stock, but the
record holder of this certificate may at such time and in the manner
set forth in said Article FOURTH of the Certificate of Incorporation
convert such shares of Class B Common Stock into the same number of
shares of Class A Common Stock for purposes of effecting the sale or
other disposition of such shares of Class A Common Stock to any person.
Each holder of this certificate, by accepting the same, accepts and
agrees to all of the foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off,
shares of Class B Common Stock shall no longer bear the legend set forth above
in this paragraph (C)(6)(e).
(f) Upon any conversion of shares of Class B Common
Stock into shares of Class A Common Stock pursuant to the provisions of this
paragraph (C)(6), any dividend, for which the record date or payment date shall
be subsequent to such conversion, which may have been declared on the shares of
Class B Common Stock so converted shall be deemed to have been declared, and
shall be payable, with respect to the shares of Class A Common Stock into or for
which such shares of Class B Common
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<PAGE> 13
Stock shall have been so converted, and any such dividend which shall have been
declared on such shares payable in shares of Class B Common Stock shall be
deemed to have been declared, and shall be payable, in shares of Class A Common
Stock.
(g) The Corporation shall not reissue or resell any
shares of Class B Common Stock which shall have been converted into shares of
Class A Common Stock pursuant to or as permitted by the provisions of this
paragraph (C)(6), or any shares of Class B Common Stock which shall have been
acquired by the Corporation in any other manner. The Corporation shall, from
time to time, take such appropriate action as may be necessary to retire such
shares and to reduce the authorized amount of Class B Common Stock accordingly.
The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, such number of shares of Class
A Common Stock as would become issuable upon the conversion of all shares of
Class B Common Stock then outstanding.
(h) In connection with any transfer or conversion of
any stock of the Corporation pursuant to or as permitted by the provisions of
this paragraph (c)(6), or in connection with the making of any determination
referred to in this paragraph (c)(6):
(i) the Corporation shall be under no obligation
to make any investigation of facts unless an
officer, employee or agent of the Corporation
responsible for making such transfer or determination
or issuing Class A Common Stock pursuant to such
conversion has substantial reason to believe, or
unless the Board of Directors (or a committee of the
Board of Directors designated for the purpose)
determines that there is substantial reason to
believe, that any affidavit or other document is
incomplete or incorrect in a material respect or
that an investigation would disclose facts upon which
any determination referred to in para-
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<PAGE> 14
graph (C)(6)(f) above should be made, in either of
which events the Corporation shall make or cause to
be made such investigation as it may deem necessary
or desirable in the circumstances and have a
reasonable time to complete such investigation; and
(ii) neither the Corporation nor any director,
officer, employee or agent of the Corporation shall
be liable in any manner for any action taken or
omitted in good faith.
(i) The Corporation will not be required to pay any
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Class A Common Stock on the conversion of shares
of Class B Common Stock pursuant to this paragraph (C)(6), and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(j) All rights to vote and all voting power
(including, without limitation thereto, the right to elect directors) shall be
vested exclusively in the holders of Common Stock, voting together as a single
class, except as otherwise expressly provided in this Certificate of
Incorporation, in a Certificate of Designation with respect to any Preferred
Stock or as other wise expressly required by applicable law.
(k) No stockholder shall be entitled to exercise any
right of cumulative voting.
(l) Immediately upon the effectiveness of this
Certificate of Incorporation, each share of common stock of the Corporation
issued and outstanding immediately prior to such effectiveness, shall be
changed into and reclassified as_________shares of Class B Common Stock.
FIFTH: A. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors initially
consisting of nine direc-
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tors, the exact number of directors to be not less than six nor more than
fifteen as determined from time to time by resolution adopted by affirmative
vote of a majority of the entire Board of Directors. The directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. Class I
directors shall be elected initially for a one-year term, Class II directors
initially for a two-year term and Class III directors initially for a
three-year term. At each succeeding annual meeting of stockholders beginning in
1999, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until the annual meeting of the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation or removal from office. Any vacancy on the Board of
Directors may be filled by a majority of the directors then in office, even if
less than a quorum, or by a sole remaining director or by stockholders if such
vacancy was caused by the action of stockholders (in which event such vacancy
may not be filled by the directors or a majority thereof).
Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of his predecessor.
B. Any director or the entire Board of Directors may be removed, with
or without cause, by the affirmative vote of shares representing a majority of
the votes entitled to be cast by the Voting Stock; provided, how ever that
during the Trigger Period (as defined in para graph (C) below), a director may
be removed, with or without cause, only by the affirmative vote of shares
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<PAGE> 16
representing not less than 66 2/3% of the votes entitled to be cast by the
Voting Stock; provided, further, however, that from and after the Second Trigger
Date (as defined in paragraph (C) below), a director may only be removed for
cause, such removal to be by the affirmative vote of the shares representing a
majority of the votes entitled to be cast by the Voting Stock. Unless the Board
of Directors has made a determination that removal is in the best interests of
the Corporation (in which case the following definition shall not apply),
"cause" for removal of a director shall be deemed to exist only if (i) the
director whose removal is proposed has been convicted, or when a director is
granted immunity to testify when another has been convicted, of a felony by a
court of competent jurisdiction and such conviction is no longer subject to
direct appeal; (ii) such director has been found by the affirmative vote of a
majority of the Directors then in office at any regular or special meeting of
the Board of Directors called for that purpose, or by a court of competent
jurisdiction to have been guilty of willful misconduct in the performance of his
duties to the Corporation in a matter of substantial importance to the
Corporation; or (iii) such director has been adjudicated by a court of
competent jurisdiction to be mentally incompetent, which mental incompetency
directly affects his ability as a director of the Corporation. Notwithstanding
the foregoing, whenever holders of outstanding shares of one or more series of
Preferred Stock are entitled to elect directors of the Corporation pursuant to
the provisions applicable in the case of arrearages in the payment of dividends
or other defaults contained in the resolution or resolutions of the Board of
Directors providing for the establishment of any such series, any such director
of the Corporation so elected may be removed in accordance with the provisions
of such resolution or resolutions.
C. For purposes of this Certificate of Incorporation, "Trigger Period"
shall mean the period that begins on and after the day following the First
Trigger Date and ends on the Second Trigger Date: (i) "First Trigger Date" shall
mean the first date on which DuPont ceases to beneficially own shares
representing 50% or more of the votes entitled to be cast by the Voting Stock
and (ii) "Second Trigger Date" shall mean the first date on which DuPont ceases
to beneficially own shares representing 30% or more of the votes entitled to be
cast by the Voting Stock (First Trigger Date and Second Trigger Date, each a
"Trigger Date").
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D. Promptly upon becoming aware of the occurrence of a Trigger Date,
the Corporation shall promptly notify stockholders of such occurrence in any
reasonably practicable manner.
E. The following provisions are inserted for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stock holders:
(1) The By-Laws of the Corporation may be altered, amended or
repealed and new By-Laws may be adopted (i) by the affirmative vote of
the shares representing a majority of the votes entitled to be cast by
the Voting Stock; provided, however, that any proposed alteration,
amendment or repeal of, or the adoption of any By-Law inconsistent
with, Sections 3, 7, 10 or 11 of Article II of the By-Laws or Sections
1, 2 or 11 of Article III (in each case, as in effect on the date
hereof) of the By-Laws or this sentence, by the stockholders shall
require the affirmative vote of shares representing (x) not less than
662/3% (or, from and after the Second Trigger Date, 80%) of the votes
entitled to be cast by the Voting Stock and (y) in addition, from and
after the First Trigger Date (if there are any shares of Class B Common
Stock outstanding), a majority of the votes entitled to be cast by the
holders of each class of Common Stock, voting separately by class; and
provided, further, however, that in the case of any such stockholder
action at a special meeting of stockholders, notice of the proposed
alteration, amendment, repeal or adoption of the new By-Law or By-Laws
must be contained in the notice of such special meeting, or (ii) by
action of the Board of Directors of the Corporation.
(2) No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability
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<PAGE> 18
(i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL or (iv) for any transaction
from which the director derived an improper personal benefit. Any
repeal or modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occur ring prior to
such repeal or modification.
(3) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; provided, however, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
SIXTH: A. In anticipation that (i) the Corporation will cease
to be a wholly owned subsidiary of the DuPont Company, but that DuPont will
remain a stock holder of the Corporation and have continued contractual,
corporate and business relations with the Corporation, and in anticipation that
the Corporation and DuPont may enter into contracts or otherwise transact
business with each other and that the Corporation may derive benefits therefrom
and (ii) the Corporation may from time to time enter into contractual, corporate
or business relations with one or more of its directors, or one or more
corporations, partnerships, associations or other organizations in which one or
more of its directors have a financial interest (collectively, "Related
Entities"), the provisions of this Article SIXTH are set forth to regulate and
define certain contractual relations of the Corporation as they may involve
DuPont, Related Entities and their respective officers and directors, and the
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<PAGE> 19
powers, rights, duties and liabilities of the Corporation and its officers,
directors and stockholders in connection therewith. The provisions of this
Article SIXTH are in addition to, and not in limitation of, the provisions of
the GCL and the other provisions of this Certificate of Incorporation. Any
contract or business relation which does not comply with the procedures set
forth in this Article SIXTH shall not by reason thereof be deemed void or
voidable or result in any breach of fiduciary duty or duty of loyalty or failure
to act in good faith or in the best interests of the Corporation or derivation
of any improper personal benefit, but shall be governed by the provisions of
this Certificate of Incorporation, the By-Laws, the GCL and other applicable
law.
B. No contract, agreement, arrangement or transaction (or any
amendment, modification or termination thereof) between the Corporation and
DuPont or between the Corporation and one or more of the directors or officers
of the Corporation, DuPont or any Related Entity or between the Corporation and
any Related Entity shall be void or voidable solely for the reason that DuPont,
any Related Entity or any one or more of the officers or directors of the
Corporation, DuPont or any Related Entity are parties thereto, or solely because
any such directors or officers are present at or participate in the meeting of
the Board of Directors or committee thereof which authorizes the contract,
agreement, arrangement or transaction (or the amendment, modification or
termination thereof), or solely because his or their votes are counted for such
purpose, and DuPont, any Related Entity and such directors and officers (a)
shall have fully satisfied and fulfilled their fiduciary duties to the
Corporation and its stockholders with respect thereto, (b) shall not be liable
to the Corporation or its stockholders for any breach of fiduciary duty by
reason of the entering into, performance or consummation of any such contract,
agreement, arrangement or transaction (or amendment, modification or
termination thereof), (c) shall be deemed to have acted in good faith and in a
manner such persons reasonably believe to be in and not opposed to the best
interests of the Corporation and (d) shall be deemed not to have breached their
duties of loyalty to the Corporation and its stockholders and not to have
derived in improper personal benefit therefrom, if:
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<PAGE> 20
(i) the material facts as to the contract,
agreement, arrangement, transaction, amendment,
modification or termination are disclosed or are
known to the Board of Directors or the committee
thereof which authorizes the contract, agreement,
arrangement or transaction (or the amendment,
modification or termination thereof), and the Board
of Directors or such committee in good faith
authorizes the contract, agreement, arrangement or
transaction (or the amendment, modification or
termination thereof) by the affirmative vote of a
majority of the disinterested directors, even though
the disinterested directors be less than a quorum;
(ii) the material facts as to the contract,
agreement, arrangement or transaction (or the
amendment, modification or termination thereof) are
disclosed or are known to the holders of Voting Stock
entitled to vote thereon, and the contract,
agreement, arrangement, or transaction (or the
amendment, modification or termination thereof) is
specifically approved in good faith by vote of the
holders of a majority of the then outstanding Voting
Stock not owned by the DuPont Company or a Related
Entity, as the case may be; or
(iii) such contract, agreement, arrangement
or transaction (or the amendment, modification or
termination thereof) is fair as to the Corporation
as of the time it is authorized, approved or
ratified by the Board of Directors, a committee
thereof or the stockholders of the Corporation.
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C. Directors of the Corporation who are also directors or officers of
DuPont or any Related Entity may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract, agreement, arrangement or transaction (or the amendment,
modification or termination thereof). Voting Stock owned by DuPont and any
Related Entities may be counted in determining the presence of a quorum at a
meeting of stockholders which authorizes the contract, agreement, arrangement or
transaction.
D. Any person or entity purchasing or otherwise acquiring any interest
in any shares of capital stock of the Corporation will be deemed to have notice
of and to have consented to the provisions of this Article SIXTH.
E. For purposes of this Article SIXTH, any contract, agreement,
arrangement or transaction (or amendment, modification or termination thereof)
with any corporation, partnership, joint venture, association or other entity in
which the Corporation owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or similar
ownership interests, or with any officer or director thereof, shall be deemed to
be a contract, agreement, arrangement or transaction with the Corporation.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH: Any action required or permitted to be taken by the
stockholders of the Corporation may be effected by a consent in writing by such
holders in accordance with Section 228 of the GCL; provided, however, that on
and after the Second Trigger Date, any action required or permitted to be taken
by the stockholders of the Corporation may be effected only at a duly called
annual or special meeting of such holders and may not be effected by a consent
in writing by such holders in lieu of such a meeting. Effective on and after the
Second Trigger Date, except as otherwise required by law, special meetings of
stockholders of the Corporation for
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any purpose or purposes may be called only by the Board of Directors pursuant to
a resolution stating the purpose or purposes thereof or by the Chairman of the
Board of Directors of the Corporation and, effective on and after the Second
Trigger Date, any power of stockholders to call a special meeting is
specifically denied. No business other than that stated in the notice of such
meeting shall be transacted at any special meeting.
NINTH: A. In addition to any affirmative vote that may be required
by law, this Certificate of Incorporation or the By-Laws of the
Corporation, and except as otherwise expressly provided in paragraph (B) of
this Article NINTH:
(i) any merger or consolidation of the Corporation or any subsidiary of
the Corporation with or into (A) any Related Person or (B) any Person that is an
Affiliate of a Related Person; or
(ii) any sale, lease, exchange, transfer or other disposition by the
Corporation to any Related Person or any Affiliate of any Related Person of all
or substantially all of the assets of the Corporation; or
(iii) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation for which the approval of
shareholders of the Corporation is otherwise required, or any merger,
consolidation or share exchange of the Corporation with any of its subsidiaries
for which the approval of shareholders of the Corporation is otherwise
required, which has the effect, either directly or indirectly, of increasing by
more than 1% the proportionate share of the Class A Common Stock, Class B Common
Stock or Voting Stock Beneficially Owned by any Related Person or any Affiliate
of any Related Person; or
(iv) any dissolution of the Corporation voluntarily caused or proposed
by or on behalf of a Related Person or any Affiliate of any Related Person,
shall require the affirmative vote of shares representing (x) not less than 80%
of the votes entitled to be cast by the Voting Stock, (y) not less than
66 2/3% of the Voting Stock not Beneficially Owned, directly or indirectly, by
any Related Person, and (z) in addition, from and
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after the First Trigger Date, a majority of the votes entitled to be cast by
the holders of each class of Common Stock (excluding all shares Beneficially
Owned, directly or indirectly, by any Related Person), voting separately as a
class, with respect to such Business Combination; provided that, at any time
prior to the Second Trigger Date, the required percentage in clause (x) shall be
66 2/3% and the required percentage in clause (y) shall be 50.01%. Such
affirmative vote shall be required, notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law, else where in
this Certificate of Incorporation, in the By-laws of the Corporation or in any
agreement with any national securities exchange or otherwise. Notwithstanding
anything to the contrary set forth herein, the provisions of this Article NINTH
shall not be applicable at such time as all shares of Class B Common Stock have
been converted into, or exchanged for, Class A Common Stock.
B. The provisions of paragraph (A) shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by law, the By-Laws of the Corporation
and any other provision of the Certificate of Incorporation, if all of the
conditions specified in either of the following paragraphs (B)(i) and (B)(ii)
are met:
(i) the cash, property, securities or other consideration to be
received per share by holders of the Class A Common Stock and Class B Common
Stock in the Business Combination is the same with respect to both classes and
is either (A) the same in form and amount per share as the highest consideration
paid by the Related Person in a tender or exchange offer in which such Related
Person acquired at least 50% of the outstanding stock of either the Class A
Common Stock or the Class B Common Stock and which was consummated not more than
one year prior to the date of such Business Combination, or if earlier, the
entering into of a definitive agreement providing therefor or (B) not less in
amount (as to cash) or Fair Market Value (as to consideration other than cash)
as of the date of the determination of the Highest Per Share Price (as to
property, securities or other consideration) than the Highest Per Share Price;
provided that, in the event of any Business Combination
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in which the Corporation survives, any shares retained by the holders thereof
shall constitute consideration other than cash for purposes of this paragraph
(B)(i); or
(ii) a majority of the Continuing Directors shall have expressly
approved such Business Combination either in advance of or subsequent to such
Related Person's having become a Related Person.
In the case of any Business Combination with a Related Person to which
paragraph (B)(ii) above does not apply, a majority of the Continuing Directors,
promptly following the request of a Related Person, shall determine the Highest
Per Share Price for each class or series of stock of the Corporation. Such
determination shall be announced not less than five days prior to the meeting at
which holders of shares vote on the Business Combination. Such determination
shall be final, unless the Related Person becomes the Beneficial Owner of
additional shares of Common Stock after the date of the earlier determination,
in which case the Continuing Directors shall make a new determination as to the
Highest Per Share Price for each class or series of shares prior to the
consummation of the Business Combination.
A Related Person shall be deemed to have acquired a share at the time
that such Related Person became the Beneficial Owner thereof. With respect to
shares owned by Affiliates, Associates and other Persons whose ownership is
attributable to a Related Person, if the price paid by such Related Person for
such shares is not determinable by a majority of the Continuing Directors, the
price so paid shall be deemed to be the higher of (i) the price paid upon the
acquisition thereof by the Affiliate, Associate or other Person or (ii) the
Share Price of the shares in question at the time when the Related Person became
the Beneficial Owner thereof.
C. For purposes of this Article NINTH and notwithstanding anything to
the contrary set forth in this Certificate of Incorporation:
(i) The term "Affiliate," used to indicate a relationship to a
specified Person, shall mean a Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with, such specified Person.
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(ii) The term "Associate," used to indicate a relationship with a
specified Person, shall mean (A) any corporation, partnership, limited liability
company, association, joint venture or other organization (other than the
Corporation or any wholly owned subsidiary of the Corporation) of which such
specified Person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of 10% or more of any class of equity securities; (B) any trust
or other estate in which such specified Person has a beneficial interest of 10%
or more or as to which such specified Person serves as trustee or in a similar
fiduciary capacity; (C) any Person who is a director or officer of such
specified Person or any of its parents or subsidiaries (other than the
Corporation or any wholly owned subsidiary of the Corporation); and (D) any
relative or spouse of such specified Person or of any of its Associates, or any
relative of any such spouse, who has the same home as such specified Person or
such Associate.
(iii) A Person shall be a "Beneficial Owner" of any stock (A) which
such Person or any of its Affiliates or Associates beneficially owns, directly
or indirectly; or (B) which such Person or any of its Affiliates or Associates
has, directly or indirectly, (1) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (2) the right to
vote pursuant to any agreement, arrangement or understanding; or (C) which is
beneficially owned, directly or indirectly, by any other Person, with which such
Person or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of such
stock; or (D) of which such Person would be the Beneficial Owner pursuant to the
terms of Rule 13d-3 of the Exchange Act, as in effect on September 30, 1998.
Stock shall be deemed "Beneficially Owned" by the Beneficial Owner or Owners
thereof.
(iv) The term "Business Combination" shall mean any transaction which
is referred to in any one or more of clauses (i) through (iv) of paragraph (A)
of this Article NINTH.
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<PAGE> 26
(v) The term "Continuing Director" shall mean, with respect to a
Business Combination with a Related Person, any director of the Corporation who
is unaffiliated with the Related Person and was a director prior to the time
that the Related Person became a Related Person, and any successor of a
Continuing Director who is unaffiliated with the Related Person and is
recommended or nominated to succeed a Continuing Director by a majority of the
Continuing Directors. Without limiting the generality of the foregoing, a
director shall be deemed to be affiliated with a Related Person if such
director (A) is an officer, director, employee or general partner of such
Related Person; (B) is an Affiliate or Associate of such Related Person; (C) is
a relative or spouse of such Related Person or of any such officer, director,
general partner, Affiliate or Associate; (D) performs services, or is a member,
employee, greater than 5% stockholder or other equity owner of any organization
(other than the Corporation and its subsidiaries) which performs services for
such Related Person or any Affiliate of such Related Person, or is a relative or
spouse of any such Person; or (E) was nominated for election as a director by
such Related Person. Notwithstanding anything to the contrary set forth herein,
any person nominated with the approval of the DuPont Company shall be deemed to
be a Continuing Director.
(vi) The term "Fair Market Value" shall mean, in the case of
securities, the average of the closing sales prices during the 30-day period
immediately preceding the date in question of such security on the principal
United States securities exchange registered under the Exchange Act on which
such security is listed (or the composite tape therefor) or, if such securities
are not listed on any such exchange, the average of the last reported sales
price (if so reported) or the closing bid quotations with respect to such
security during the 30-day period preceding the date in question on the New
York Stock Exchange or, if no such quotations are available, the fair market
value on the date in question of such security as determined in good faith by a
majority of the Continuing Directors; and in the case of property other than
cash or securities, the fair market value of such property on the date in
question as determined in good faith by a majority of the Continuing Directors.
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(vii) The term "Highest Per Share Price" shall mean, with respect to a
Related Person, the highest price that can be determined to have been paid or
agreed to be paid for any share or shares of the Class A Common Stock, Class B
Common Stock, or Voting Stock by such Related Person in a transaction that
either (1) resulted in such Related Person's Beneficially Owning 15% or more of
the Class A Common Stock, Class B Common Stock, or Voting Stock outstanding or
(2) was effected at a time when such Related Person Beneficially Owned 15% or
more of the Class A Common Stock, Class B Common Stock, or Voting Stock
outstanding, in either case occurring not more than one year prior to the date
of the Business Combination. In determining the Highest Per Share Price,
appropriate adjustment will be made to take into account (w) distributions paid
or payable in stock, (x) subdivisions of outstanding stock, (y) combinations of
shares of stock into a smaller number of shares and (z) similar events.
(viii) The term "Person" shall mean any individual, corporation,
limited liability company, association, partnership, joint venture, trust,
estate or other entity or organization.
(ix) The term "Related Person" shall mean any Person (other than the
Corporation or any subsidiary of the Corporation and other than any profit
sharing, employee ownership or other employee benefit plan of the Corporation
or any subsidiary of the corporation or any trustee of or fiduciary with respect
to any such plan when acting in such capacity) who or which (A) is the
Beneficial Owner of 15% or more of the Class A Common Stock, Class B Common
Stock or Voting Stock outstanding; or (B) is an Affiliate of the Corporation and
at any time within the two-year period immediately prior to the date in question
was the Beneficial Owner of 15% or more of the Class A Common Stock, Class B
Common Stock or Voting Stock outstanding. For the purposes of determining
whether a Person is a Related Person, the number of shares of any class or
series deemed to be outstanding shall include shares of such class or series of
which the Person is deemed the Beneficial Owner, but shall not include any other
shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
otherwise. Notwithstanding anything to the contrary herein, neither DuPont nor
its Affiliates or Associates shall be deemed to be Related Persons.
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<PAGE> 28
D. Nothing contained in this Article NINTH shall be construed to
relieve any Related Person from any fiduciary obligation imposed by law.
E. Notwithstanding any other provision of this Certificate of
Incorporation (and notwithstanding that a lesser percentage may be specified by
law), the affirmative vote of shares representing (x) not less than 80% of the
Voting Stock, (y) not less than 66 2/3% of the Voting Stock not Beneficially
Owned, directly or indirectly, by any Related Person and (z) in addition, from
and after the First Trigger Date, a majority of the votes entitled to be cast by
the holders of each class of Common Stock (excluding all shares Beneficially
Owned, directly or indirectly, by any Related Person), voting separately by
class, shall be required to amend or re peal, or adopt any provisions
inconsistent with, this Article NINTH; provided that, at any time prior to the
Second Trigger Date, the required percentage in clause (x) shall be 66 2/3% and
the required percentage in clause (y) shall be 50.01%.
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IN WITNESS WHEREOF, this Restated Certificate of Incorporation which
restates, integrates and amends the provisions of the Certificate of
Incorporation of the Corporation, and which has been duly adopted in accordance
with Sections 242 and 245 of the Delaware General Corporation Law, has been
executed by an authorized officer of the Corporation this ____ day of October,
1998.
Conoco Inc.
By:
----------------------------------
[Name]
[Title]
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
CONOCO INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors.
<PAGE> 2
Section 2. Annual Meetings. The annual meetings of
stockholders for the election of directors shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors.
Any other proper business may be transacted at the annual meeting of
stockholders.
Section 3. Special Meetings. Unless otherwise required by
law or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (including any Certificates of Designation with
respect to any Preferred Stock, the "Certificate of Incorporation"), special
meetings of stockholders, for any purpose or purposes, may be called by
either(i) the Chairman, if there be one, or (ii) the President, (iii) any Vice
President, if there be one, (iv) the Secretary or (v) any Assistant Secretary,
if there be one, and shall be called by any such officer at the request in
writing of (i) the Board of Directors or (ii) a committee of the Board of
Directors that has been duly designated by the Board of Directors and whose
powers and authority include the power to call such meetings, which request
shall state the purpose or purposes of the proposed meeting; provided, however,
that effective on and after the Second Trigger Date (as hereinafter defined),
special
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<PAGE> 3
meetings of stockholders may only be called by the Board of Directors pursuant
to a resolution stating the purpose or purposes thereof or by the Chairman, if
there be one, and, effective on and after the Second Trigger Date, any power of
stockholders to call a special meeting is specifically denied. Written notice
of a special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting. Only such business shall be
conducted at a special meeting as shall be specified in the notice of meeting
(or any supplement thereto). For purposes of these By-Laws:
1. "Second Trigger Date" shall mean the first date on which
DuPont ceases to beneficially own shares representing 30% or more of the votes
entitled to be cast by the Voting Stock;
2. "Voting Stock" shall mean the shares of the then
outstanding capital stock entitled to vote generally on the election of
directors and shall exclude any class or series of capital stock only entitled
to vote in the event of dividend arrearages thereon, whether or not at the time
of determination there are any such dividend
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<PAGE> 4
arrearages;
3. "DuPont Company" shall mean E.I. du Pont de Nemours &
Company, Inc., a Delaware corporation, and all its successors by way of merger,
consolidation or sale of all or substantially all of its assets;
4. "DuPont" shall mean the DuPont Company and all its
subsidiaries, but shall not include the Corporation and its subsidiaries;
5. "subsidiary" shall mean, as to any person or entity, a
corporation, partnership, joint venture, association or other entity in which
such person or entity beneficially owns (directly or indirectly) 50% or more of
the outstanding voting stock, voting power, partnership interests or similar
voting interests; and
6. "affiliate" and "beneficial ownership" shall have the
respective meanings given to such terms in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Section 4. Adjournments. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place,
and notice need not be given of any such adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the
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<PAGE> 5
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 5. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the presence in person or by proxy of the holders
of shares of capital stock entitled to cast a majority of all the votes which
could be cast at such meeting by the holders of all of the outstanding shares
of capital stock entitled to vote on every matter that is to be voted on at
such meeting shall constitute a quorum at all meetings of the stockholders for
the transaction of business. A quorum, once established, shall not be broken
by the withdrawal of enough votes to leave less than a quorum. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, in the manner provided in Section 4, until a quorum shall be present or
represented.
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<PAGE> 6
Section 6. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By- Laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the votes of shares of capital
stock represented and entitled to vote thereat, voting as a single class.
Every reference in these By-Laws to a majority or other proportion of shares,
or a majority or other proportion of the votes of shares, of capital stock
shall refer to such majority or other proportion of the votes to which such
shares of capital stock are entitled as provided in the Certificate of
Incorporation. Votes of stockholders entitled to vote at a meeting of
stockholders may be cast in person or by proxy but no proxy shall be voted on
or after three years from its date, unless such proxy provides for a longer
period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
Section 7. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the Certificate of Incorporation, any action
required or permitted to be
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<PAGE> 7
taken at any annual or special meeting of stockholders of the Corporation, may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this Section 8 to
the Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation by delivery to its registered
office in the
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<PAGE> 8
state of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents signed
by a sufficient number of holders to take the action were delivered to the
Corporation as provided above in this section. Notwithstanding anything to the
contrary set forth in these By-Laws, on and after the Second Trigger Date, any
action required or permitted to be taken by the stockholders of the Corporation
may be effected only at a duly called annual or special meeting of such holders
and may not be effected by a consent in writing by such holders in lieu of such
a meeting.
Section 8. List of Stockholders Entitled to Vote. The
officer of the Corporation who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to
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<PAGE> 9
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
Section 9. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 10. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise
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<PAGE> 10
provided in the Certificate of Incorporation of the Corporation with respect to
the right of holders of preferred stock of the Corporation to nominate and
elect a specified number of directors in certain circumstances. Nominations of
persons for election to the Board of Directors may be made at any annual
meeting of stockholders (a) by or at the direction of the Board of Directors
(or any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 10 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder (other than DuPont so long as DuPont
beneficially owns shares representing 10% or more of the votes entitled to be
cast by the Voting Stock), such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not
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<PAGE> 11
less than ninety (90) days nor more than one hundred and twenty (120) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the
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<PAGE> 12
Exchange Act and the rules and regulations promulgated thereunder; and (b) as
to the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination (s) are to be made by
such stockholder, (iv) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to nominate the persons named in
its notice and (v) any other information relating to such stockholder that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in
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<PAGE> 13
accordance with the procedures set forth in this Section 10. If the chairman of
the annual meeting determines that a nomination was not made in accordance with
the foregoing procedures, the chairman shall declare to the meeting that the
nomination was defective and such defective nomination shall be disregarded.
Notwithstanding anything to the contrary set forth herein, so
long as DuPont beneficially owns shares representing 10% or more of the votes
entitled to be cast by the Voting Stock, nominations by DuPont shall not be
subject to the notice procedures of this Section 10.
Section 11. Business at Annual Meetings. No business may be
transacted at an annual meeting of stockholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date
of the giving of the notice provided for in this
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<PAGE> 14
Section 11 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 11.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder (other than
DuPont so long as DuPont beneficially owns shares representing 10% or more of
the votes entitled to be cast by the Voting Stock), such stockholder must have
given timely notice thereof in proper written form to be Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred and twenty
(120) days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or
after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th)
day following the day on which such notice
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<PAGE> 15
of the date of the annual meeting was mailed or such public disclosure of the
date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder
and any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set
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<PAGE> 16
forth in this Section 11, provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 11 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Notwithstanding anything to the contrary set forth herein, so
long as DuPont beneficially owns shares representing 10% or more of the votes
entitled to be cast by the Voting Stock, business brought before an annual
meeting by DuPont shall not be subject to the notice procedures of this Section
11.
Section 12. Conduct of Meetings. The Board of Directors of
the Corporation may adopt by resolution such rules and regulations for the
conduct of the meeting of the stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted by
the Board of Directors, the chairman of any meeting of the stockholders shall
have the right and
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<PAGE> 17
authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the
meeting to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for
the commencement thereof; and (vi) limitations on the time allotted to
questions or comments by participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of
Directors shall consist initially of nine
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members, the exact number of which shall be not less than six nor more than
fifteen as determined from time to time by the Board of Directors as provided
in the Certificate of Incorporation. The directors shall be divided into three
classes, designated Class I, Class II and Class III, as provided in the
Certificate of Incorporation. Any director may resign at any time upon written
notice to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. Unless otherwise required by law or
the Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, or by the stockholders if such vacancy resulted from
the action of stockholders (in which event such vacancy may not be filled by
the directors or a majority thereof), and the directors so chosen shall hold
office until the next election for such class and until their successors are
duly elected and qualified, or until their earlier death, resignation or
removal.
Section 3. Duties and Powers. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors which may
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<PAGE> 19
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be
called by the Chairman, if there be one, the President, or by any director.
Notice thereof stating the place, date and hour of the meeting shall be given
to each director either by mail not less than forty-eight (48) hours before the
date of the meeting, by telephone or telegram on twenty-four (24) hours'
notice, or on such shorter notice as the person or persons calling such meeting
may deem necessary or appropriate in the circumstances.
Section 5. Quorum. Except as otherwise required by law or
the Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of
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the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present.
Section 6. Actions by Written Consent of the Board. Unless
otherwise provided in the Certificate of Incorporation, or these By-Laws, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if all
the members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
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<PAGE> 21
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 7 shall constitute presence in person at such
meeting.
Section 8. Standing Committees. The Board of Directors, by
resolution adopted by a majority of the entire Board, shall appoint from among
its members (i) an Audit and Compliance Committee and (ii) a Compensation
Committee (together, the "Standing Committees") each consisting of three (3)
directors, to perform the functions traditionally performed by such Board
committees; provided, however that prior to the First Trigger Date (as
hereinafter defined), a majority of the Directors on each Standing Committee
shall be directors designated by the DuPont Company; and provided, further,
however that on and after the First Trigger Date but so long as DuPont
beneficially owns shares representing 10% or more of the votes entitled to be
cast by all of the outstanding shares of common stock of the Corporation, each
Standing Committee shall include at least one director designated by the DuPont
Company. For purposes of these By-Laws, "First Trigger Date" shall mean the
first date on which DuPont ceases to beneficially own shares representing 50%
or more of the votes entitled to be cast by the Voting Stock.
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Section 9. Committees. The Board of Directors may designate
one or more other committees (in addition to the mandatory Standing Committees
as set forth in Section 8 of this Article III), each such other committee to
consist of one or more of the directors of the Corporation; provided, however
that on and after the First Trigger Date but so long as DuPont beneficially
owns shares representing 10% or more of the votes entitled to be cast by all of
the outstanding shares of common stock of the Corporation, each such other
committee shall include at least one director designated by the DuPont Company.
With respect to all Board committees (including Standing Committees), the Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. With respect to all Board committees (including Standing
Committees), in the absence or disqualification of a member of a committee, and
in the absence of a designation by the Board of Directors of an alternate
member to replace the absent or disqualified member, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the
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Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee (including any Standing Committee), to the
extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. Each committee (including each Standing
Committee) shall keep regular minutes and report to the Board of Directors when
required.
Section 10. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
shall receive such compensation for their services as directors as shall be
determined by the Board of Directors. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
Section 11. Removal. Any director or the entire Board of Directors
may be removed, with or without cause, by the affirmative vote of shares
representing a
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majority of the votes entitled to be cast by the Voting Stock; provided,
however that during the Trigger Period (as defined below), a director may be
removed, with or without cause, only by the affirmative vote of shares
representing not less than 66 2/3% of the votes entitled to be cast by the
Voting Stock; provided, further, however that from and after the Second Trigger
Date, a director may only be removed for cause, such removal to be by the
affirmative vote of the shares representing a majority of the votes entitled to
be cast by the Voting Stock. Unless the Board of Directors has made a
determination that removal is in the best interests of the Corporation (in
which case the following definition shall not apply), "cause" for removal of a
director shall be deemed to exist only if (i) the director whose removal is
proposed has been convicted, or when a director is granted immunity to testify
when another has been convicted, of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (ii)
such director has been found by the affirmative vote of a majority of the
Directors then in office at any regular or special meeting of the Board of
Directors called for that purpose, or by a court of competent jurisdiction to
have been guilty of willful misconduct in
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the performance of his duties to the Corporation in a matter of substantial
importance to the Corporation; or (iii) such director has been adjudicated by a
court of competent jurisdiction to be mentally incompetent, which mental
incompetency directly affects his ability as a director of the Corporation. As
used herein, "Trigger Period" shall mean the period that begins on and after
the day following the First Trigger Date and ends on the Second Trigger Date.
Notwithstanding the foregoing, whenever holders of outstanding shares of one or
more series of Preferred Stock are entitled to elect directors of the
Corporation pursuant to the provisions applicable in the case of arrearages in
the payment of dividends or other defaults contained in the resolution or
resolutions of the Board of Directors providing for the establishment of any
such series, any such director of the Corporation so elected may be removed in
accordance with the provisions of such resolution or resolutions.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The
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Board of Directors, in its discretion, also may choose a Chairman of the Board
of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law or
the Certificate of Incorporation. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first
meeting held after each Annual Meeting of Stockholders (or action by written
consent of stockholders in lieu of the Annual Meeting of Stockholders, if
permitted by the Certificate of Incorporation) shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier death,
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of the Board of Directors.
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Any vacancy occurring in any office of the Corporation shall be filled by the
Board of Directors.
Section 3. Voting Securities Owned by the Corporation.
Powers of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President or any other officer authorized to do so by the Board of Directors
and any such officer may, in the name of and on behalf of the Corporation, take
all such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman
of the Board of Directors, if there be one,
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shall preside at all meetings of the stockholders and of the Board of
Directors. Except where by law the signature of the President is required, the
Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President.
The Chairman of the Board of Directors shall also perform such other duties and
may exercise such other powers as may from time to time be assigned by these
By-Laws or by the Board of Directors.
Section 5. President. The President shall be the chief
executive officer of the Corporation and, subject to the control of the Board
of Directors, shall have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may
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sign and execute documents when so authorized by these By-Laws, the Board of
Directors or the President. In the absence or disability of the Chairman of
the Board of Directors, or if there be none, the President shall preside at all
meetings of the stockholders and the Board of Directors. The President shall
also perform such other duties and may exercise such other powers as may from
time to time be assigned to such officer by these By-Laws or by the Board of
Directors.
Section 6. Vice Presidents. At the request of the President
or in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the
Vice President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform
such other duties and have such other powers as the Board of Directors from
time to time may prescribe. If there be no Chairman of the Board of Directors
and no Vice President, the Board of Directors shall designate the officer of
the Corporation who, in the absence of the President or in the event of the
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inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
all the proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board of Directors or the President,
under whose supervision the Secretary shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have
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authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by the signature of the Secretary or by the signature of any
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest to the
affixing by such officer's signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the
Corporation. If re-
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quired by the Board of Directors, the Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of the Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in the
Treasurer's possession or under the Treasurer's control belonging to the
Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any
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Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Assistant Treasurer and for the restoration to the
Corporation, in case of the Assistant Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the Assistant Treasurer's possession or
under the Assistant Treasurer's control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
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ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in
the Corporation shall be entitled to have a certificate signed, in the name of
the Corporation (i) by the President or a Vice President and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by such stockholder
in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the
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person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or the owner's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed
or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers
of stock shall be made on the books of the Corporation only by the person named
in the certificate or by such person's attorney lawfully constituted in writing
and upon the surrender of the certificate therefor, which shall be cancelled
before a new certificate shall be issued. No transfer of stock shall be valid
as against the Corporation for any purpose until it shall have been entered in
the stock records of
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the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
providing, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
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(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be more than
ten days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in this
State, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is re-
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quired by law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolutions
taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 6. Record Owners. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on
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its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise required by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is
required by law, the Certificate of Incorporation or these By-Laws, to be given
to any director, member of a committee or stockholder, a waiver thereof in
writing, signed, by the person or persons entitled to
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said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting, present in person or
represented by proxy, shall constitute a waiver of notice of such meeting,
except where the person attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of
the Corporation, subject to the requirements of the DGCL and the provisions of
the Certificate of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting of the Board of Directors (or any
action by written consent in lieu thereof in accordance with Section 6 of
Article III hereof), and may be paid in cash, in property, or in shares of the
Corporation's capital stock. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or
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reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for any proper purpose, and
the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money
and notes of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or
Proceedings other than Those by or in the Right of the Corporation. Subject to
Section 3 of this Article VIII, the Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any
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action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was a director or officer of
the Corporation serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in con-
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nection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standard of conduct
set forth in Section 1 or Section 2 of this Article VIII, as the case may be.
Such determination shall be made, with respect to a person who is a director or
officer at the time of such determina-
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tion, (i) by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or (ii) by a
committee of such directors designated by a majority vote of such directors,
even though less than a quorum, or (iii) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion or
(iv) by the stockholders. Such determination shall be made, with respect to
former directors and officers, by any person or persons having the authority to
act on the matter on behalf of the Corporation. To the extent, however, that a
present or former director or officer of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to
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be in or not opposed to the best interests of the Corporation, or, with respect
to any criminal action or proceeding, to have had no reasonable cause to
believe such person's conduct was unlawful, if such person's action is based on
the records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another enterprise. The
term "another enterprise" as used in this Section 4 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be.
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Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery in the State of Delaware
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable
standards of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be. Neither a contrary determination in the specific case under
Section 3 of this Article VIII nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the
director or officer seeking indemnification has not met any applicable standard
of conduct. Notice of any application for indemnification pursuant to this
Section 5 shall be given to the Corporation promptly upon the filing of such
application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
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Section 6. Expenses Payable in Advance. Expenses incurred by
a director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under the Certificate of Incorporation, any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that
indemnification of the persons specified in Sections 1 and 2 of this Article
VIII shall be made to the fullest extent permitted by law. The provisions of
this Article
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VIII shall not be deemed to preclude the indemnification of any person who is
not specified in Section 1 or 2 of this Article VIII but whom the Corporation
has the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger
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which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers, so that any person who is or
was a director or officer of such constituent corporation, or is or was a
director or officer of such constituent corporation serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, shall stand in the same position under the provisions of
this Article VIII with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this Article VIII,
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit
50
<PAGE> 51
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide
51
<PAGE> 52
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article VIII to
directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended
or repealed, in whole or in part, and new By-Laws may be adopted (i) by the
affirmative vote of the shares representing a majority of the votes entitled to
be cast by the Voting Stock; provided, however, that any proposed alteration,
amendment or repeal of, or the adoption of any By-Law inconsistent with,
Sections 3, 7, 10 or 11 of Article II of these By-Laws or Sections 1, 2 or 11
of Article III of these By-Laws or this sentence, by the stockholders shall
require the affirmative vote of shares representing (x) not less than 66 2/3%
(or, from and after the Second Trigger Date, 80%) of the votes entitled to be
cast by the Voting Stock and, in addition, from and after the First Trigger
Date (if there are any shares of Class B Common Stock outstanding), (y) a
majority of the votes entitled to be cast by the holders of each class of
Common Stock, voting separately by class; and provided
52
<PAGE> 53
further, however, that in the case of any such stockholder action at a meeting
of stockholders, notice of the proposed alteration, amendment, repeal or
adoption of the new By-Law or By-Laws must be contained in the notice of such
meeting, or (ii) by action of the Board of Directors of the Corporation. The
provisions of this Section 1 are subject to any contrary provisions and any
provisions requiring a greater vote that are set forth in the Certificate of
Incorporation.
Section 2. Entire Board of Directors. As used in these
By-Laws generally, the term "entire Board of Directors" means the total number
of directors which the Corporation would have if there were no vacancies.
* * *
Adopted as of:
----------------------
Last Amended as of:
-----------------
53
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS CLASS A
OF THE STATE OF DELAWARE COMMON STOCK
PAR VALUE $.01
NUMBER SHARES
[GRAPHIC]
CA
THIS CERTIFICATE IS TRANSFERABLE CUSIP 208251 30 6
IN NEW YORK, NEW YORK SEE REVERSE FOR
CERTAIN DEFINITIONS
CONOCO INC.
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF
Conoco Inc., transferable on the books of the Company by the holder
hereof in person or by duly authorized attorney, upon surrender of
this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation and all amendments
thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
[CONOCO LOGO] [SEAL]
Witness the facsimile corporate seal and the facsimile
signatures of its duly authorized officers.
PRESIDENT AND CEO
TREASURER
SECRETARY
DATED
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
American Bank Note Company
<PAGE> 2
CONOCO INC.
The Company will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock of the Company or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request may be made to the Transfer Agent
named on the face of this certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT
MIN ACT--___________Custodian___________
TEN ENT -- as tenants by the (Cust) (Minor)
entireties
under Uniform Gifts to Minors
JT TEN -- as joint tenants
with right of Act _________________________
survivorship and not (State)
as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING
NUMBER OF ASSIGNEE
/____________________________/ _________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Company
with full power of substitution in the premises.
Dated, _______________________
X_____________________________________
(Signature)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE ----
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER. X_____________________________________
(Signature)
================================================================================
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
================================================================================
<PAGE> 1
EXHIBIT 4.2
CLASS B COMMON STOCK
NUMBER SHARES
CB
THIS CERTIFICATE IS TRANSFERABLE PAR VALUE $.01
IN NEW YORK, NEW YORK
SEE REVERSE FOR
CONOCO INC. CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS B COMMON STOCK OF
Conoco Inc., transferable on the books of the Company by the holder
hereof in person or by duly authorized attorney, upon surrender of
this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation and all amendments
thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile corporate seal and the facsimile
signatures of its duly authorized officers.
PRESIDENT AND CEO
TREASURER
SECRETARY
DATED
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
CONOCO INC.
The Company will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock of the Company or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request may be made to the Transfer Agent
named on the face of this certificate.
The shares of Class B Common Stock represented by this certificate may not
be transferred to any person in connection with a transfer that does not meet
the qualifications set forth in paragraph (C)(6)(d) of Article FOURTH of the
Certificate of Incorporation of this corporation and no person who receives such
shares in connection with a transfer which does not meet the qualifications
prescribed by paragraph (C)(6)(d) of said Article FOURTH is entitled to own or
to be registered as the record holder of such shares of Class B Common Stock,
but the record holder of this certificate may at such time and in the manner set
forth in said Article FOURTH of the Certificate of Incorporation convert such
shares of Class B Common Stock into the same number of shares of Class A Common
Stock for purposes of effecting the sale or other disposition of such shares of
Class A Common Stock to any person. Each holder of this certificate, by
accepting the same, accepts and agrees to all of the foregoing.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT
MIN ACT--___________Custodian___________
TEN ENT -- as tenants by the (Cust) (Minor)
entireties
under Uniform Gifts to Minors
JT TEN -- as joint tenants
with right of Act _________________________
survivorship and not (State)
as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING
NUMBER OF ASSIGNEE
/____________________________/ _________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Company
with full power of substitution in the premises.
Dated, _______________________
X_____________________________________
(Signature)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE ----
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER. X_____________________________________
(Signature)
================================================================================
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
================================================================================
<PAGE> 1
EXHIBIT 4.3
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of ____________, 1998 (the
"Agreement"), between Conoco Inc. (formerly known as Conoco Energy Company), a
Delaware corporation (the "Company"), and __________________, a ___________
banking corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on ______________, 1998 (the "Rights Dividend
Declaration Date"), the Board of Directors of the Company authorized and
declared dividend distributions of one Class A Right (as hereinafter defined)
for each share of Class A Common Stock, par value $.01 per share, and one Class
B Right (as hereinafter defined) for each share of Class B Common Stock, par
value $.01 per share, (the Class A Common Stock and the Class B Common Stock
together, the "Common Stock") outstanding at the close of business on
____________, 1998 (the "Record Date"), and has authorized the issuance of one
Class A Right and one Class B Right, respectively, (as such numbers may
hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for
each share of Class A Common Stock and Class B Common Stock, respectively,
issued between the Record Date (whether
<PAGE> 2
originally issued or delivered from the Company's treasury) and the
Distribution Date (as hereinafter defined) each Right (as hereinafter defined)
initially representing the right to purchase one one-thousandth of a share of
Series A Junior Participating Preferred Stock of the Company having the rights,
powers and preferences set forth in the form of Certificate of Designation,
Preferences and Rights attached hereto as Exhibit A, upon the terms and subject
to the conditions hereinafter set forth (the Class A Rights and the Class B
Rights together, the "Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who
or which, together with all Affiliates and Associates of such Person, shall be
the Beneficial Owner of (A) 15% or more of the shares of Class A Common Stock
then outstanding, (B) 15% or more of the shares of Class B Common Stock then
outstanding, or (C) shares of Common Stock which have the right to cast 15% or
more of the
2
<PAGE> 3
votes that may be cast by all outstanding shares for the election of directors
of the Company, but shall not include (i) the Company, (ii) any Subsidiary of
the Company, (iii) any employee benefit plan of the Company, or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan, (iv)
DuPont, (v) any Person who becomes the Beneficial Owner of shares that meet the
requirements set forth in (A), (B), or (C) above as a result of (i) a reduction
in the number of shares of Common Stock outstanding due to the repurchase of
shares of Common Stock by the Company or (ii) the conversion by stockholders of
the Company of any or all outstanding shares of Class B Common Stock into
shares of Class A Common Stock, unless and until (in the case of both (i) and
(ii)) such Person, after becoming aware that such Person has become the
Beneficial Owner of shares that meet the requirements set forth in (A), (B), or
(C) above (and without regard to which of (A), (B) or (C) has been met)
acquires beneficial ownership of additional shares representing (x) one percent
(1%) or more of the Class A Common Stock then outstanding, (y) one percent (1%)
or more of the Class B Common Stock then outstanding, or (z) shares of Common
Stock which have the
3
<PAGE> 4
right to cast 1% or more of the votes that may be cast by all outstanding
shares outstanding for the election of directors or (vi) any such Person who
has reported or is required to report such ownership (but less than 20%) on
Schedule 13G under the Securities and Exchange Act of 1934, as amended and in
effect on the date of the Agreement (the "Exchange Act") (or any comparable or
successor report) or on Schedule 13D under the Exchange Act (or any comparable
or successor report) which Schedule 13D does not state any intention to or
reserve the right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such schedule
(other than the disposition of the Common Stock) and, within 10 Business Days
of being requested by the Company to advise it regarding the same, certifies to
the Company that such Person acquired shares that meet the requirements set
forth in (A), (B), or (C) above inadvertently or without knowledge of the terms
of the Rights and who, together with all Affiliates and Associates, thereafter
does not acquire additional shares of Common Stock while the Beneficial Owner
of shares meeting the requirements set forth in (A), (B) or (C) above;
provided, however, that if the Person requested to so certify fails to do so
within 10 Business Days, then
4
<PAGE> 5
such Person shall become an Acquiring Person immediately after such
10-Business-Day period.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act.
(d) A Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such
Person's Affiliates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (A) securities
tendered pursuant to a tender or exchange offer made by such
5
<PAGE> 6
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, (B)
securities issuable upon exercise of Rights at any time prior to the
occurrence of a Triggering Event (as hereinafter defined), or (C)
securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights were acquired by such
Person or any of such Person's Affiliates or Associates prior to the
Distribution Date (as hereinafter defined) or pursuant to Section 3(a)
or Section 22 hereof (the "Original Rights") or pursuant to Section
11(i) hereof in connection with an adjustment made with respect to any
Original Rights;
(ii) which such Person or any of such
Person's Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act), including pursuant to any agreement,
arrangement or understanding, whether or
6
<PAGE> 7
not in writing; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement, arrangement
or understanding to vote such security if such agreement, arrangement
or understanding: (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules
and Regulations under the Exchange Act, and (B) is not reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding (whether
or not in writing), for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in the proviso to
subparagraph (ii) of this paragraph (d)) or disposing
7
<PAGE> 8
of any voting securities of the Company; provided, however, that
nothing in this paragraph (d) shall cause a Person engaged in business
as an underwriter of securities to be the "Beneficial Owner" of, or to
"beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until
the expiration of forty days after the date of such acquisition, and
then only if such securities continue to be owned by such Person at
such expiration of forty days;
provided, however that any Affiliates, Associates or other Persons who may be
deemed representatives of DuPont serving as directors of the Company shall not
be deemed to beneficially own securities held by DuPont as a result of (i) their
serving as directors or taking any action in connection therewith or (ii)
discussing the status of DuPont's shares with the Company, absent an express
agreement among DuPont and such stockholders to act in concert with one another
as stockholders so as to cause, in the good faith judgment of the Board of
Directors, each such stockholder to be the Beneficial Owner of the shares held
by DuPont or the other stockholders.
8
<PAGE> 9
(e) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
(f) "Class A Rights Certificate" shall have the
meaning set forth in Section 3(a) hereof.
(g) "Class B Rights Certificate" shall have the
meaning set forth in Section 3(a) hereof.
(h) "Class A Common Stock" shall mean the Class A
Common Stock, par value $.01, of the Company.
(i) "Class B Common Stock" shall mean the Class B
Common Stock, par value $.01, of the Company.
(j) "Class A Rights" shall have the meaning set
forth in the WHEREAS clause at the beginning of the Agreement.
(k) "Class B Rights" shall have the meaning set
forth in the WHEREAS clause at the beginning of the Agreement.
(l) "Close of business" on any given date shall mean
5:00 P.M., New York City time, on such date; provided, however, that if
such date is not a Business Day, it shall mean 5:00 P.M., New York City time,
on the next succeeding Business Day.
9
<PAGE> 10
(m) "Common Stock" shall mean the Class A Common
Stock and the Class B Common Stock, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital stock of
such Person with the greatest voting power, or the equity securities or other
equity interest having power to control or direct the management, of such
Person.
(n) "Common Stock Equivalents" shall have the
meaning set forth in Section 11(a)(iii) hereof.
(o) "Current Market Price" shall have the meaning
set forth in Section 11(d)(i) hereof.
(p) "Current Value" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(q) "Distribution Date" shall have the meaning
set forth in Section 3(a) hereof.
(r) "DuPont" shall mean the DuPont Company, all
successors to the DuPont Company by way of merger, consolidation or sale of all
or substantially all of its assets, and all corporations, partnerships, joint
ventures, associations and other entities in which the DuPont Company owns
(directly or indirectly) fifty percent of the outstanding voting stock, voting
power, partnership interests or similar ownership interests, but shall not
include the Company.
10
<PAGE> 11
(s) "DuPont Company" shall mean E.I. du Pont de
Nemours & Company, Inc., a Delaware corporation.
(t) "Equivalent Preferred Stock" shall have the
meaning set forth in Section 11(b) hereof.
(u) "Exchange Act" shall mean the Securities and
Exchange Act of 1934.
(v) "Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(w) "Final Expiration Date" shall have the
meaning set forth in Section 7(a) hereof.
(x) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(y) "Preferred Stock" shall mean shares of Series
A Junior Participating Preferred Stock, par value $.01 per share, of the
Company, and, to the extent that there are not a sufficient number of shares of
Series A Junior Participating Preferred Stock authorized to permit the full
exercise of the Rights, any other series of preferred stock of the Company
designated for such purpose containing terms substantially similar to the terms
of the Series A Junior Participating Preferred Stock.
(z) "Principal Party" shall have the meaning set
forth in Section 13(b) hereof.
11
<PAGE> 12
(aa) "Purchase Price" shall have the meaning set
forth in Section 4(a)(ii) hereof.
(ab) "Record Date" shall have the meaning set
forth in the WHEREAS clause at the beginning of this Agreement.
(ac) "Rights" shall have the meaning set forth in
the WHEREAS clause at the beginning of this Agreement.
(ad) "Rights Agent" shall have the meaning set
forth in the parties clause at the beginning of this Agreement.
(ae) "Rights Certificates" shall mean the Class A
Rights Certificates and the Class B Rights Certificates.
(aa) "Rights Dividend Declaration Date" shall have
the meaning set forth in the WHEREAS clause at the beginning of this Agreement.
(bb) "Section 11(a)(ii) Event" shall mean any
event described in Section 11(a)(ii) hereof.
(cc) "Section 13 Event" shall mean any event
described in clauses (x), (y) or (z) of Section 13(a) hereof.
(dd) "Spread" shall have the meaning set forth in
Section 11(a)(iii) hereof.
12
<PAGE> 13
(ee) "Stock Acquisition Date" shall mean the first
date of public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed or amended pursuant to Section
13(d) under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such.
(ff) "Subsidiary" shall mean, with reference to
any Person, any corporation of which an amount of voting securities sufficient
to elect at least a majority of the directors of such corporation is
beneficially owned, directly or indirectly, by such Person, or otherwise
controlled by such Person.
(gg) "Substitution Period" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(hh) "Summary of Rights" shall have the meaning set
forth in Section 3(b) hereof.
(ii) "Trading Day" shall have the meaning set forth
in Section 11(d)(i) hereof.
(jj) "Triggering Event" shall mean any
Section 11(a)(ii) Event or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, in accordance with Section 3 hereof, shall prior to the
13
<PAGE> 14
Distribution Date also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-rights agents
as it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of (i) the close of
business on the tenth Business Day after the Stock Acquisition Date (or, if the
tenth Business Day after the Stock Acquisition Date occurs before the Record
Date, the close of business on the Record Date), or (ii) the close of business
on the tenth Business Day (or such later date as the Board shall determine)
after the date that a tender or exchange offer by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any
such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would become an Acquiring Person (the earlier
of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the
Class A Rights
14
<PAGE> 15
and the Class B Rights, respectively, will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Class A Common Stock and the Class B Common Stock, respectively, registered in
the names of the holders of such class of Common Stock (which certificates for
such class of Common Stock shall be deemed also to be certificates for such
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including transfers to the Company). As soon as practicable
after the Distribution Date, the Rights Agent will send by first-class,
postage-prepaid mail, to each record holder of Class A Common Stock and Class B
Common Stock, respectively, as of the close of business on the Distribution
Date, at the address of such holder shown on the records of the Company, one or
more right certificates, in substantially the form of Exhibit B and C hereto,
evidencing one Class A Right for each share of Class A Common Stock (a "Class A
Rights Certificate") and one Class B Right for each share of Class B Common
Stock (a "Class B Rights Certificate"), respectively, so held, subject to
adjustment as provided herein. In the event that any adjustment in the number
of Rights per share of Common Stock
15
<PAGE> 16
has been made pursuant to Section 11(p) hereof, at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution
Date, the Rights will be evidenced solely by such Rights Certificates.
(b) The Company will make available, as promptly
as practicable following the Record Date, a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit C (the "Summary of Rights")
to any holder of Rights who may so request from time to time prior to the
Expiration Date. With respect to certificates for the Class A Common Stock and
the Class B Common Stock , respectively, outstanding as of the Record Date, or
issued subsequent to the Record Date, unless and until the Distribution Date
shall occur, the Class A Rights and the Class B Rights will be evidenced by
such certificates for such class of Common Stock and the registered holders of
the Common Stock shall also be the registered holders of the associated Rights.
Until the earlier of the Distribution Date or the Expiration Date (as such term
is
16
<PAGE> 17
defined in Section 7(a) hereof), the transfer of any certificates representing
shares of Common Stock in respect of which Rights have been issued shall also
constitute the transfer of the Rights associated with such shares of Common
Stock.
(c) Rights shall be issued in respect of all
shares of Common Stock which are issued (whether originally issued or from the
Company's treasury) after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date (including an issuance of Class A
Common Stock upon the conversion, whether automatic or voluntary, of Class B
Common Stock into Class A Common Stock (and for purposes of the foregoing, any
deemed conversion of Class B Common Stock upon the transfer of such shares or
otherwise shall be deemed to be an issuance of Class A Common Stock)).
Certificates representing such shares of Class A Common Stock shall also be
deemed to be certificates for the associated Class A Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof
to certain Class A Rights as set forth in the Rights Agreement between
Conoco Inc. (the "Company") and __________________________ (the
"Rights Agent") dated as of ____________, 199_ (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
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<PAGE> 18
the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Class A Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement, as in effect on the date of mailing, without
charge, promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Class A
Rights issued to, or held by, any Person who is, was or becomes an
Acquiring Person or any Affiliate or Associate thereof (as such terms
are defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may become null and
void.
Certificates representing such shares of Class B Common Stock shall also be
deemed to be certificates for the associated Class B Rights, and shall bear the
following legend:
This certificate also evidences and entitles the holder hereof
to certain Class B Rights as set forth in the Rights Agreement between
Conoco Inc. (the "Company") and __________________________ (the
"Rights Agent") dated as of ____________, 199_ (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Class B Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement, as in effect on the date of mailing, without
charge, promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Class B
Rights issued to, or held by, any Person who is, was or becomes an
Acquiring Person
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<PAGE> 19
or any Affiliate or Associate thereof (as such terms are defined in
the Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legends, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of
election to purchase and of assignment to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B and Exhibit C
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made
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<PAGE> 20
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one
one-thousandths of a share of Preferred Stock as shall be set forth therein at
the price set forth therein (such exercise price per one one-thousandth of a
share, the "Purchase Price"), but the amount and type of securities purchasable
upon the exercise of each Right and the Purchase Price thereof shall be subject
to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to
Section 3(a), Section 11(i) or Section 22 hereof that represents Rights
beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate
of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person
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<PAGE> 21
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Rights Certificate
referred to in this sentence, shall contain (to the extent feasible) the
following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of the Rights
Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on
behalf of the Company by its Chairman of the Board, its President or any Vice
President, either manually or by facsimile signature, and shall have affixed
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<PAGE> 22
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Rights Certificates shall be countersigned by the
Rights Agent, either manually or by facsimile signature and shall not be valid
for any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Rights Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights
Agent will keep, or cause to be kept, at its
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<PAGE> 23
principal office or offices designated as the appropriate place for surrender
of Rights Certificates upon exercise or transfer, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show
the names and addresses of the respective holders of the Rights Certificates,
the number of Rights evidenced on its face by each of the Rights Certificates
and the date of each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b),
Section 7(e) and Section 14 hereof, at any time after the close of business on
the Distribution Date, and at or prior to the close of business on the
Expiration Date, any Rights Certificate or Certificates may be transferred,
split up, combined or exchanged for another Rights Certificate or Certificates,
entitling the registered holder to purchase a like number of one
one-thousandths of a share of Preferred Stock (or, following a Triggering
Event, Common Stock, other securities, cash or other assets, as the case may
be) as the Rights Certificate or Certificates surrendered then entitles such
holder (or former holder in the case of a transfer) to
23
<PAGE> 24
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged
at the principal office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Section 4(b), Section 7(e), and Section 14
hereof, countersign and deliver to the Person entitled thereto a Rights
Certificate or Rights Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any
24
<PAGE> 25
transfer, split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent
of evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights.
(a) Subject to Section 7(e) hereof, at any time
after the Distribution Date the registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on exercisability set forth in
Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part
upon surrender of the Rights Certificate, with the form
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<PAGE> 26
of election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the principal office or offices of the Rights
Agent designated for such purpose, together with payment of the aggregate
Purchase Price with respect to the total number of one one-thousandths of a
share (or other securities, cash or other assets, as the case may be) as to
which such surrendered Rights are then exercisable, at or prior to the earlier
of (i) 5:00 P.M., New York City time, on [date that is 10 years from Record
Date], or such later date as may be established by the Board of Directors prior
to the expiration of the Rights (such date, as it may be extended by the Board,
the ("Final Expiration Date"), or (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being
herein referred to as the "Expiration Date").
(b) The Purchase Price for each one
one-thousandth of a share of Preferred Stock pursuant to the exercise of a
Right shall initially be $_______,* and shall be subject to adjustment from
time to time as
__________________________________
* The initial exercise price is usually set at a price which
DuPont/Conoco and Morgan can support as representing the potential
long-term value of Conoco.
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<PAGE> 27
provided in Section 11 and Section 13(a) hereof and shall be payable in
accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate
representing exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect to each Right
so exercised, of the Purchase Price per one one-thousandth of a share of
Preferred Stock (or other shares, securities, cash or other assets, as the case
may be) to be purchased as set forth below and an amount equal to any
applicable transfer tax, the Rights Agent shall, subject to Section 20(k)
hereof, thereupon promptly (i) (A) requisition from any transfer agent of the
shares of Preferred Stock (or make available, if the Rights Agent is the
transfer agent for such shares) certificates for the total number of one
one-thousandths of a share of Preferred Stock to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company shall have elected to deposit the total number
of shares of Preferred Stock issuable upon exercise of the Rights hereunder
with a depositary agent, requisition from the depositary agent depositary
receipts representing such number of one one- thousandths of a share of
Preferred Stock as
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<PAGE> 28
are to be purchased (in which case certificates for the shares of Preferred
Stock represented by such receipts shall be deposited by the transfer agent
with the depositary agent) and the Company will direct the depositary agent to
comply with such request, (ii) requisition from the Company the amount of cash,
if any, to be paid in lieu of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or, upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, and (iv) after receipt thereof, deliver such cash, if any, to or
upon the order of the registered holder of such Rights Certificate. The
payment of the Purchase Price (as such amount may be reduced pursuant to
Section 11(a)(iii) hereof) shall be made in cash or by certified bank check or
bank draft payable to the order of the Company. In the event that the Company
is obligated to issue other securities (including Common Stock) of the Company,
pay cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other securities,
cash and/or other property are available for distribution by the Rights Agent,
if
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<PAGE> 29
and when appropriate. The Company reserves the right to require prior to the
occurrence of a Triggering Event that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock would be
issued.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to, or upon the
order of, the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to
the contrary, from and after the first occurrence of a Section 11(a)(ii) Event,
any Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently
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<PAGE> 30
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the
Board of Directors of the Company has determined is part of a plan, arrangement
or understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to insure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or any other Person as a result
of its failure to make any determinations with respect to an Acquiring Person
or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to
the contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action
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<PAGE> 31
with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall
have (i) completed and signed the certificate contained in the form of election
to purchase set forth on the reverse side of the Rights Certificate surrendered
for such exercise, and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the purpose of exercise,
transfer, split-up, combination or exchange shall, if surrendered to the
Company or any of its agents, be delivered to the Rights Agent for cancellation
or in cancelled form, or, if surrendered to the Rights Agent, shall be
cancelled by it, and no Rights Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any other Rights Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all
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<PAGE> 32
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will
cause to be reserved and kept available out of its authorized and unissued
shares of Preferred Stock (and, following the occurrence of a Triggering Event,
out of its authorized and unissued shares of Class A and Class B Common Stock
and/or other securities or out of its authorized and issued shares held in its
treasury), the number of shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Class A and Class B Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Class A and Class B Common Stock
and/or other securities) issuable and deliverable upon the exercise of
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<PAGE> 33
the Rights may be listed on any national securities exchange, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the first
occurrence of a Section 11(a)(ii) Event on which the consideration to be
delivered by the Company upon exercise of the Rights has been determined in
accordance with Section 11(a)(iii) hereof, a registration statement under the
Act, with respect to the securities purchasable upon exercise of the Rights on
an appropriate form, (ii) cause such registration statement to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the
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<PAGE> 34
various states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time not to exceed ninety (90)
days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension has been rescinded. In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date, the Company may temporarily suspend
the exercisability of the Rights until such time as a registration statement
has been declared effective. Notwithstanding any provision of this Agreement
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law, or a registration
statement shall not have been declared effective.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to
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<PAGE> 35
ensure that all one one-thousandths of a share of Preferred Stock (and,
following the occurrence of a Triggering Event, Class A and Class B Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that
it will pay when due and payable any and all federal and state transfer taxes
and charges which may be payable in respect of the issuance or delivery of the
Rights Certificates and of any certificates for a number of one one-thousandths
of a share of Preferred Stock (or Class A and Class B Common Stock and/or other
securities, as the case may be) upon the exercise of Rights. The Company shall
not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Rights Certificates to a Person other
than, or the issuance or delivery of a number of one one-thousandths of a share
of Preferred Stock (or Class A and Class B Common Stock and/or other securities,
as the case may be) in respect of a name other than that of the registered
holder of the Rights Certificates evidencing
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<PAGE> 36
Rights surrendered for exercise or to issue or deliver any certificates for a
number of one one-thousandths of a share of Preferred Stock (or Class A and
Class B Common Stock and/or other securities, as the case may be) in a name
other than that of the registered holder upon the exercise of any Rights until
such tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established
to the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in
whose name any certificate for a number of one one-thousandths of a share of
Preferred Stock (or Class A and Class B Common Stock and/or other securities,
as the case may be) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of such fractional
shares of Preferred Stock (or Class A and Class B Common Stock and/or other
securities, as the case may be) represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and all
applicable transfer taxes) was made; provided, however, that if the date of
such surrender and payment is a date
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<PAGE> 37
upon which the Preferred Stock (or Class A and Class B Common Stock and/or
other securities, as the case may be) transfer books of the Company are closed,
such Person shall be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or Class A and Class B
Common Stock and/or other securities, as the case may be) transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and
shall not be entitled to receive any notice of any proceedings of the Company,
except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
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<PAGE> 38
(a)(i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the
Preferred Stock payable in shares of Preferred Stock, (B) subdivide
the outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares, or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and
kind
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<PAGE> 39
of shares of Preferred Stock or capital stock, as the case may be,
which, if such Right had been exercised immediately prior to such date
and at a time when the Preferred Stock transfer books of the Company
were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any
such plan), alone or together with its Affiliates and Associates, shall, at any
time after the Rights Dividend Declaration Date, become an Acquiring Person,
unless the event causing the requirements set
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<PAGE> 40
forth in (A), (B) or (C) of the definition of "Acquiring Person" (set forth in
Section 1 hereof) to be met is a transaction set forth in Section 13(a) hereof,
then, promptly following the occurrence of such event, proper provision shall
be made so that each holder of a Class A Right and each holder of a Class B
Right, respectively, (except, in both cases, as provided below and in Section
7(e) hereof) shall thereafter have the right to receive, upon exercise thereof
at the then current Purchase Price in accordance with the terms of this
Agreement, in lieu (in both cases) of a number of one one-thousandths of a
share of Preferred Stock, such number of shares of Class A Common Stock and
Class B Common Stock, respectively, as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product (which, following such first occurrence, shall thereafter
be referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement) by 50% of the Current Market Price (determined pursuant to
Section 11(d) hereof) per share of such class of Common Stock for which a Right
is exercisable on the date of
40
<PAGE> 41
such first occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares
of Common Stock (either or both of Class A Common Stock or Class B
Common Stock) which are authorized by the Company's certificate of
incorporation but which are not outstanding or reserved for issuance
for purposes other than upon exercise of the Rights, are not
sufficient to permit the exercise in full of all Rights in accordance
with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall (A) determine the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), and (B)
with respect to each Right (subject to Section 7(e) hereof), make
adequate provision to substitute for the Adjustment Shares, upon the
exercise of a Right and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) such class of Common
Stock for which a Right is exercisable or other equity securities of
the Company (including, without limitation, shares, or units of
shares,
41
<PAGE> 42
of preferred stock, such as the Preferred Stock, which the Board has
deemed to have essentially the same value or economic rights as shares
of such class of Common Stock for which a Right is exercisable (such
shares of preferred stock being referred to as "Common Stock
Equivalents")), (4) debt securities of the Company, (5) other assets,
or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value (less the amount of any reduction in the
Purchase Price), where such aggregate value has been determined by the
Board based upon the advice of a nationally recognized investment
banking firm selected by the Board; provided, however, that if the
Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Section 11(a)(ii) Event and (y)
the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to
herein as the "Section 11(a)(ii) Trigger Date"), then the Company
shall be
42
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obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of such class
of Common Stock for which a Right is exercisable (to the extent
available) and then, if necessary, cash or shares of the other class
of Common Stock, which shares (of the class of Common Stock for which
a Right is exercisable and/or the other class of Common Stock) and/or
cash have an aggregate value equal to the Spread. For purposes of the
preceding sentence, the term "Spread" shall mean the excess of (i) the
Current Value over (ii) the Purchase Price. If the Board determines
in good faith that it is likely that sufficient additional shares of
Class A Common Stock and/or Class B Common Stock, as the case may be,
could be authorized for issuance upon exercise in full of all Rights,
the thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek shareholder
approval for the authorization of such
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additional shares (such thirty (30) day period, as it may be extended,
is herein called the "Substitution Period"). To the extent that
action is to be taken pursuant to the first and/or third sentences of
this Section 11(a)(iii), the Company (1) shall provide, subject to
Section 7(e) hereof, that such action shall apply uniformly to all
outstanding Rights, and (2) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to
seek such shareholder approval for such authorization of additional
shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value
thereof. In the event of any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. For purposes of
this Section 11(a)(iii), the value of each Adjustment Share shall be
the current market price per share of the class of Common Stock for
which a Right is
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<PAGE> 45
exercisable on the Section 11(a)(ii) Trigger Date and the per share or
per unit value of any Common Stock Equivalent shall be deemed to equal
the current market price per share of such class of Common Stock on
such date.
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or
shares having the same rights, privileges and preferences as the shares of
Preferred Stock ("Equivalent Preferred Stock")) or securities convertible into
Preferred Stock or Equivalent Preferred Stock at a price per share of Preferred
Stock or per share of Equivalent Preferred Stock (or having a conversion price
per share, if a security convertible into Preferred Stock or Equivalent
Preferred Stock) less than the Current Market Price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of
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<PAGE> 46
shares of Preferred Stock outstanding on such record date, plus the number of
shares of Preferred Stock which the aggregate offering price of the total
number of shares of Preferred Stock and/or Equivalent Preferred Stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such Current Market Price, and
the denominator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of additional shares of
Preferred Stock and/or Equivalent Preferred Stock to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be
paid by delivery of consideration, part or all of which may be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on
the Rights Agent and the holders of the Rights. Shares of Preferred Stock
owned by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is
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<PAGE> 47
fixed, and in the event that such rights or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be
in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for
a distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation), cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or evidences of indebtedness, or
of subscription rights or warrants (excluding those referred to in Section
11(b) hereof), the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the Current
Market Price (as determined pursuant to Section 11(d) hereof) per share of
Preferred Stock on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed
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<PAGE> 48
with the Rights Agent) of the portion of the cash, assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to a share of Preferred Stock, and the denominator of which shall be
such Current Market Price (as determined pursuant to Section 11(d) hereof) per
share of Preferred Stock. Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such distribution is not so
made, the Purchase Price shall be adjusted to be the Purchase Price which would
have been in effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder,
other than computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share on any date of such class of Common Stock for which a
Right is exercisable shall be deemed to be the average of the daily closing
prices per share of such class of Common Stock for which a Right is exercisable
for the thirty (30) consecutive Trading Days immediately prior to such date,
and for purposes of computations made pursuant to Section 11(a)(iii) hereof,
the Current Market Price per share of such class of Common Stock on any date
shall be deemed to be the average of the daily closing prices
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<PAGE> 49
per share of such class of Common Stock for the ten (10) consecutive Trading
Days immediately following such date; provided, however, that in the event that
the Current Market Price per share of such class of Common Stock for which a
Right is exercisable is determined during a period following the announcement
by its issuer of (A) a dividend or distribution on such class of Common Stock
payable in shares of Common Stock or securities convertible into shares of
Common Stock (other than the Rights), or (B) any subdivision, combination or
reclassification of such class of Common Stock, and the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification shall not have occurred prior to the
commencement of the requisite thirty (30) Trading Day or ten (10) Trading Day
period, as set forth above, then, and in each such case, the Current Market
Price shall be properly adjusted to take into account ex-dividend trading. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock
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Exchange or, if the shares of such class of Common Stock are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of such class of
Common Stock are listed or admitted to trading or, if the shares of such class
of Common Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or such other system then in use, or, if on any such date the shares of such
class of Common Stock are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in such class of Common Stock selected by the Board. If on any
such date no market maker is making a market in the class of Common Stock for
which a Right is exercisable, the fair value of such shares on such date as
determined in good faith by the Board shall be used. The term "Trading Day"
shall mean a day on which the principal national securities exchange on which
the
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<PAGE> 51
shares of the class of Common Stock for which a Right is exercisable are listed
or admitted to trading is open for the transaction of business or, if the
shares of such class of Common Stock are not listed or admitted to trading on
any national securities exchange, a Business Day. If the class of Common Stock
for which a Right is exercisable is not publicly held or not so listed or
traded, Current Market Price per share shall mean the fair value per share as
determined in good faith by the Board, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes. Anything in this Agreement to the contrary notwithstanding, if the
Current Market Price per share of the Class B Common Stock is otherwise
determined to be lower than the Current Market Price per share of the Class A
Common Stock, then the Current Market Price per share of the Class B Common
Stock shall be deemed to equal the Current Market Price per share of the Class
A Common Stock.
(ii) For the purpose of any computation
hereunder, the Current Market Price per share of Preferred Stock shall
be determined in the same manner as set forth above for the Common
Stock in clause (i) of this Section
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11(d) (other than the last two sentences thereof). If the Current
Market Price per share of Preferred Stock cannot be determined in the
manner provided above or if the Preferred Stock is not publicly held
or listed or traded in a manner described in clause (i) of this
Section 11(d), the Current Market Price per share of Preferred Stock
shall be conclusively deemed to be an amount equal to 1000 (as such
number may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the Current
Market Price per share of the Class A Common Stock. If neither the
Class A Common Stock nor the Preferred Stock is publicly held or so
listed or traded, Current Market Price per share of the Preferred
Stock shall mean the fair value per share as determined in good faith
by the Board, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
For all purposes of this Agreement, the Current Market
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<PAGE> 53
Price of a Unit shall be equal to the Current Market Price of one
share of Preferred Stock divided by 1000.
(e) Anything herein to the contrary
notwithstanding, no adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least one percent
(1%) in the Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
ten-thousandth of a share of Common Stock or other share or one-millionth of a
share of Preferred Stock, as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three (3) years from the date of
the transaction which mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant
to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right
thereafter exercised shall become entitled to receive any shares of capital
stock other
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<PAGE> 54
than Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price, the number of
one one-thousandths of a share of Preferred Stock purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c), each
Right outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of one
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one-thousandths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one
one-thousandths of a share covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of
any adjustment of the Purchase Price to adjust the number of Rights, in lieu of
any adjustment in the number of one one-thousandths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights outstanding
after the adjustment in the number of Rights shall be exercisable for the
number of one one-thousandths of a share of Preferred Stock for which a Right
was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that
number of Rights (calculated to the nearest one-ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price. The Company shall make a public
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announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and
may bear, at the
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option of the Company, the adjusted Purchase Price) and shall be registered in
the names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in
the Purchase Price or the number of one one-thousandths of a share of Preferred
Stock issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the Purchase Price
per one one-thousandth of a share and the number of one one-thousandth of a
share which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if any, of
the number of one one-thousandths of a share of Preferred Stock issuable upon
exercise of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable such number of one one-
thousandths of a share of Preferred Stock at such adjusted Purchase Price.
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(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised
after such record date the number of one one-thousandths of a share of
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the number of one one-thousandths of
a share of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares (fractional or otherwise)
or securities upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall
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determine to be advisable in order that any (i) consolidation or subdivision of
the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred
Stock at less than the Current Market Price, (iii) issuance wholly for cash of
shares of Preferred Stock or securities which by their terms are convertible
into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v)
issuance of rights, options or warrants referred to in this Section 11,
hereafter made by the Company to holders of its Preferred Stock shall not be
taxable to such stockholders.
(n) The Company covenants and agrees that it
shall not, at any time after the Distribution Date, (i) consolidate with any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), (ii) merge with or into any other Person
(other than a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to
sell or transfer), in one transaction, or a series of related transactions,
assets, cash flow or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company
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and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after
the Distribution Date, it will not, except as permitted by Section 23 or
Section 25 hereof, take (or permit any Subsidiary to take) any action if at the
time such action is taken it is reasonably foreseeable that such action will
diminish substantially or otherwise eliminate the benefits intended to be
afforded by the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company
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shall at any time after the Rights Dividend Declaration Date and prior to the
Distribution Date and in accordance with its certificate of incorporation (i)
declare a dividend on the outstanding shares of Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or
(iii) combine the outstanding shares of Common Stock into a smaller number of
shares, the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the Distribution
Date, shall be proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event shall equal
the result obtained by multiplying the number of Rights associated with each
share of Common Stock immediately prior to such event by a fraction the
numerator which shall be the aggregate number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the aggregate number of shares of Common Stock
outstanding immediately following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 and
Section 13 hereof, the
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Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent, and with each transfer agent for the Preferred
Stock and the Common Stock, a copy of such certificate and (c) if a
Distribution Date has occurred, mail a brief summary thereof to each holder of
a Rights Certificate (or, if prior to the Distribution Date, to each holder of
a Certificate representing shares of Common Stock). The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment
therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets Cash Flow or Earning Power.
(a) In the event that, following the time an
Acquiring Person becomes such, directly or indirectly, (x) the Company shall
consolidate with, or merge with and into, any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), and the Company shall not be the continuing or surviving corporation
of such consolidation or merger, (y) any Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o) hereof) shall
consolidate with, or merge with or
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into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets, cash
flow or earning power aggregating more than 50% of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a whole) to any
Person or Persons (other than the Company or any Subsidiary of the Company in
one or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case, proper provision shall be made so that: (i) each
holder of a Right, except as provided in Section 7(e) hereof, shall thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, such number of
validly authorized and issued, fully paid, non-assessable and freely tradeable
shares of Common Stock of the Principal Party (as such term is hereinafter
defined), not subject to any liens,
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encumbrances, rights of first refusal or other adverse claims, as shall be
equal to the result obtained by (1) multiplying the then current Purchase Price
by the number of one one-thousandths of a share of Preferred Stock for which a
Right is exercisable immediately prior to the first occurrence of a Section 13
Event (or, if a Section 11(a)(ii) Event has occurred prior to the first
occurrence of a Section 13 Event, multiplying the number of such one
one-thousandths of a share for which a Right was exercisable immediately prior
to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in
effect immediately prior to such first occurrence), and dividing that product
(which, following the first occurrence of a Section 13 Event, shall be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by (2) 50% of the Current Market Price (determined pursuant to
Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party
on the date of consummation of such Section 13 Event; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such Section 13
Event, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such
Principal Party, it being
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specifically intended that the provisions of Section 11 hereof shall apply only
to such Principal Party following the first occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps (including, but not limited to,
the reservation of a sufficient number of shares of its Common Stock) in
connection with the consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the first occurrence of any
Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described
in clause (x) or (y) of the first sentence of Section 13(a), the
Person that is the issuer of any securities into which shares of
Common Stock of the Company are converted in such merger or
consolidation, and if no securities are so issued, the Person that is
the other party to such merger or consolidation; and
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(ii) in the case of any transaction
described in clause (z) of the first sentence of Section
13(a), the Person that is the party receiving the greatest
portion of the assets, cash flow or earning power transferred
pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
twelve (12) month period registered under Section 12 of the Exchange Act, and
such Person is a direct or indirect Subsidiary of another Person the Common
Stock of which is and has been so registered, "Principal Party" shall refer to
such other Person; and (2) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stocks of two or more of which
are and have been so registered, "Principal Party" shall refer to whichever of
such Persons is the issuer of the Common Stock having the greatest aggregate
market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which have not been
issued or reserved for issuance to permit the exercise in
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full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for
the terms set forth in paragraphs (a) and (b) of this Section 13 and
further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of
this Section 13, the Principal Party will
(i) prepare and file a registration
statement under the Act, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an
appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act)
until the Expiration Date; and
(ii) take such all such other action
as may be necessary to enable the Principal Party to issue the
securities purchasable upon exercise of the Rights, including
but not limited to the registration or qualification of
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such securities under all requisite securities laws of
jurisdictions of the various states and the listing of such
securities on such exchanges and trading markets as may be
necessary or appropriate; and
(iii) will deliver to holders of the
Rights historical financial statements for the Principal Party
and each of its Affiliates which comply in all respects with
the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii)
Event, the Rights which have not theretofore been exercised shall thereafter
become exercisable in the manner described in Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights, except prior to the Distribution Date as provided in
Section 11(p) hereof, or to distribute Rights Certificates which evidence
fractional
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Rights. In lieu of such fractional Rights, the Company shall pay to the
registered holders of the Class A Rights Certificates or the Class B Rights
Certificates, as the case may be, with regard to which such fractional Rights
would otherwise be issuable, an amount in cash equal to the same fraction of
the current market value of a whole Class A Right or Class B Right, as the case
may be. For purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price of the Class A Rights and the Class B
Rights, as the case may be, for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if such Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which such Rights are listed or admitted to
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trading, or if such Rights are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by NASDAQ or such other system then in use or, if on any such date
such Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
market in such Rights, selected by the Board of Directors of the Company. If
on any such date no such market maker is making a market in such Rights, the
fair value of such Rights on such date as determined in good faith by the Board
of Directors of the Company shall be used. Notwithstanding the foregoing, if
the current market value of a Class B Right is otherwise determined to be lower
than the current market value of a Class A Right, then the current market value
of a Class B Right shall be deemed to equal the current market value of a Class
A Right.
(b) The Company shall not be required to issue
fractions of shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock) upon exercise of
the Rights or to distribute certificates which evidence
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fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock). In lieu of
fractional shares of Preferred Stock that are not integral multiples of one
one- thousandth of a share of Preferred Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one one-thousandth of a share of Preferred Stock. For purposes
of this Section 14(b), the current market value of one one-thousandth of a
share of Preferred Stock shall be one one-thousandth of the closing price of a
share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof)
for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering
Event, the Company shall not be required to issue fractions of shares of Common
Stock upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Common Stock. In lieu of fractional shares of Common
Stock, the Company may pay to the registered holders of Rights Certificates at
the time such Rights are exercised as herein provided an amount in cash
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equal to the same fraction of the current market value of one (1) share of such
class of Common Stock for which a Right is exercisable. For purposes of this
Section 14(c), the current market value of one share of Common Stock for which
a Right is exercisable shall be the closing price of one share of such class of
Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of
the Rights expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
Section 15. Rights of Action. All rights of action in
respect of this Agreement are vested in the respective registered holders of
the Rights Certificates (and, prior to the Distribution Date, the registered
holders of the Common Stock); and any registered holder of any Rights
Certificate (or, prior to the Distribution Date, any registered holder of the
Common Stock), without the consent of the Rights Agent or of the holder of any
other Rights Certificate (or, prior to the Distribution Date, any registered
holder of the Common Stock), may, in
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his own behalf and for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Company to enforce, or otherwise act
in respect of, his right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a
Right by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights
will be transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the principal
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office or offices of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f)
hereof, the Company and the Rights Agent may deem and treat the person in whose
name a Rights Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Rights Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the last
sentence of Section 7(e) hereof, shall be required to be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to
the contrary, neither the Company nor the Rights Agent shall have any liability
to any holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling issued by
a court of
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competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation; provided, however, the Company must
use its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Rights Certificate shall be entitled
to vote, receive dividends or be deemed for any purpose the holder of the
number of one one-thousandths of a share of Preferred Stock or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24 hereof), or to
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receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from
time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken, suffered or omitted
by it in connection with its administration of this Agreement in reliance
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upon any Rights Certificate or certificate for Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.
(a) Any corporation into which the Rights Agent
or any successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Rights Agent or any successor Rights Agent shall be a party, or any
corporation succeeding to the corporate trust or stock transfer or other
shareholder services business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; but only if such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor
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Rights Agent shall succeed to the agency created by this Agreement, any of the
Rights Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of a predecessor Rights
Agent and deliver such Rights Certificates so countersigned; and in case at
that time any of the Rights Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Rights Certificates either in the
name of the predecessor or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights
Agent shall be changed and at such time any of the Rights Certificates shall
have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall
not have been countersigned, the Rights Agent may countersign such Rights
Certificates either in its prior name or in its changed name; and in all such
cases such Rights Certificates shall have the
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full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal
counsel (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties
under this Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of Current Market Price) be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may (except with regard to matters requiring the
approval or concurrence of the
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DuPont Company) be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, or the Secretary of the Company and delivered to the
Rights Agent; and subject to the aforesaid, such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate. With respect to matters requiring the approval or concurrence of
the DuPont Company, a certificate to such effect signed by the Chairman of the
Board, the President, any Vice President, the Treasurer or the Secretary of the
DuPont Company shall be full authorization to the Rights Agent to the extent
the authorization, approval or concurrence of the DuPont Company is required
for any action taken or suffered in good faith by the Rights Agent under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder
only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or
by reason of any of the statements of fact or recitals contained in this
Agreement or in the Rights
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Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11, or Section 13 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Rights Certificates after actual notice
of any such adjustment); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock or Preferred Stock to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any
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shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform,
execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the President, any Vice President,
the Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
(h) The Rights Agent and any stockholder,
director, officer or employee of the Rights Agent may buy, sell or deal in any
of the Rights or other securities of the Company or become pecuniarily
interested in
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any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or for any other
legal entity.
(i) The Rights Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights Agent
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
resulting from any such act, default, neglect or misconduct; provided, however,
reasonable care was exercised in the selection and continued employment
thereof.
(j) No provision of this Agreement shall require
the Rights Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
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(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise or transfer without first consulting
with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and
to each transfer agent of the Common Stock and Preferred Stock, by registered
or certified mail, and, if such resignation occurs after the Distribution Date,
to the registered holders of the Rights Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Stock, by registered or certified mail, and, if such removal occurs
after the Distribution Date, to the holders of the
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Rights Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of thirty (30) days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a legal business
entity organized and doing business under the laws of the United States or of
the State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York), in good standing, having a principal office in the State of
New York, which is authorized under such laws to exercise corporate trust, or
stock transfer shareholder services powers and is subject to supervision or
examination by federal or state authority
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and which has at the time of its appointment as Rights Agent a combined capital
and surplus of at least [$100,000,000] or (b) an affiliate of a legal business
entity described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and, if such appointment occurs after the Distribution Date,
mail a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
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Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind
or class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of
the Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or under any employee
plan or arrangement, granted or awarded as of the Distribution Date, or upon
the exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number and class of Rights in connection with such issuance or
sale; provided, however, that (i) no such Rights Certificate shall be issued
if, and to the
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extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company
or the Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at
its option, at any time prior to the earlier of (i) the close of business on
the tenth Business Day following the Stock Acquisition Date (or, if the Stock
Acquisition Date shall have occurred prior to the Record Date, the close of
business on the tenth Business Day following the Record Date), or (ii) the
Final Expiration Date, redeem all but not less than all of the then outstanding
Rights at a redemption price of [$.01] per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price." Notwithstanding anything
contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Section 11(a)(ii)
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Event until such time as the Company's right of redemption hereunder has
expired. The Company may, at its option, pay the Redemption Price in cash,
shares of the relevant Common Stock for which a Right is exercisable (based on
the Current Market Price, as defined in Section 11(d)(i) hereof, of the
relevant Common Stock at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors, including shares of
the other class of Common Stock; provided, however that the Redemption Price
shall first be paid in shares of the relevant Common Stock for which a Right is
exercisable to the extent of the authorized shares of the relevant Common Stock
for which a Right is exercisable (excluding all such shares that are
outstanding or reserved for issuance for purposes other than the exercise of
the Rights).
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights, evidence of
which shall have been filed with the Rights Agent and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the
Board of
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Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the Rights Agent and the holders of the then outstanding
Rights by mailing such notice to all such holders at each holder's last address
as it appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the Redemption
Price will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any
time after the Distribution Date, (i) to pay any dividend payable in stock of
any class to the holders of Preferred Stock or to make any other distribution
to the holders of Preferred Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the Company), or (ii) to offer to the
holders of Preferred Stock rights or warrants to subscribe for or to purchase
any additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or (iii) to effect any reclassification
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of its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (iv) to effect any
consolidation or merger into or with any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
to effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one transaction or a
series of related transactions, of more than 50% of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(o) hereof),
or (v) to effect the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 25 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the
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holders of the shares of Preferred Stock, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered by clause (i)
or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock whichever
shall be the earlier.
(b) In case any of the events set forth in
Section 11(a)(ii) hereof shall occur, then, in any such case, (i) the Company
shall as soon as practicable thereafter give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 25 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof,
and (ii) all references in the preceding paragraph to Preferred Stock shall be
deemed thereafter to refer to Common Stock and/or, if appropriate, other
securities.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Rights Certificate
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to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Rights Agent with the Company) as follows:
Conoco Inc.
-------------------------------------------
[Address]
-------------------------------------------
-------------------------------------------
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Rights Agent with the Company) as follows:
[Rights Agent]
-------------------------------------------
-------------------------------------------
Attention: Corporate Trust Department
[Stock Transfer Administration]
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any Rights Certificate
(or, if prior to the Distribution Date, to the holder of certificates
representing shares of Common Stock) shall be sufficiently
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given or made if sent by first-class mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry books of the
Company.
Section 26. Supplements and Amendments. Prior to the
Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing shares of Common Stock.
From and after the Distribution Date, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder or (iv) to change or supplement
the provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Rights Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person); provided, from and after the Distribution
Date, this Agreement may not be supplemented or amended to lengthen, pursuant
to clause (iii) of this sentence, any
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time period hereunder unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of, and/or the benefits to, the holders of
Rights. Anything in this Agreement to the contrary notwithstanding, (i) no
supplement or amendment of any provision of this Agreement shall be effected
without the prior written consent of the DuPont Company unless DuPont
beneficially owns shares of Common Stock representing less than thirty percent
(30%) of the voting power of the outstanding shares of Common Stock at the time
of such supplement or amendment, and (ii) no supplement or amendment of the
definition of "Acquiring Person" (set forth in Section 1 hereof) shall be
effected without the prior written consent of the DuPont Company unless DuPont
beneficially owns less than ten percent (10%) of the voting power of the
outstanding shares of Common Stock at the time of such supplement or amendment.
Upon the delivery of a certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is in compliance with
the terms of this Section 26, the Rights Agent shall execute such supplement or
amendment. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of the
underlying Common
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Stock. Notwithstanding anything herein to the contrary, this Agreement may not
be amended at a time when the Rights are not redeemable.
Section 27. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 28. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of the voting power of
the outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement,
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and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement); provided however that no action,
calculation, interpretation or determination of the Board of Directors shall
limit the rights of the DuPont Company hereunder pursuant to Section 26. All
such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board in good faith, shall, subject to the rights
of the DuPont Company aforesaid, (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties, and
(y) not subject the Board, or any of the directors on the Board to any
liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the
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Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock).
Section 30. 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;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing
the invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23
hereof shall be reinstated and shall not expire until the close of business on
the tenth Business Day following the date of such determination by the Board of
Directors.
Section 31. Governing Law. This Agreement, each Right and
each Rights Certificate issued hereunder shall be deemed to be a contract made
under the laws of
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the State of Delaware and for all purposes shall be governed by and construed
in accordance with the laws of such State applicable to contracts made and to
be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of
the several sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed , and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
Attest: [CONOCO INC.]
By By
--------------------------- ---------------------------
Name: Name:
Title: Title:
Attest: [THE RIGHTS AGENT]
By By
--------------------------- ---------------------------
Name: Name:
Title: Title:
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<PAGE> 1
EXHIBIT 4.4
PROMISSORY NOTE, dated as of July 20, 1998, by Conoco Inc., a
Delaware corporation (the "Issuer"), in favor of Du Pont Energy
Company, a Delaware corporation (the "Payee").
Section 1. Principal. Issuer, for value received, hereby
promises to pay to the order of Payee, the sum of Seven Billion Five
Hundred Million Dollars ($7,500,000,000) (the "Principal") and any
and all interest thereon as provided in Section 2 below in accordance
with the terms hereof. The Principal shall be repaid in full by the
Issuer, without premium or penalty, on January 2, 2000 (the "Final
Maturity Date"), to the extent not previously paid in accordance with
Section 3.
Section 2. Interest. The Issuer agrees to pay interest in
respect of the unpaid Principal from the date hereof until paid in
full at a rate equal to 6.0125 percent per annum, such interest to be
computed on the basis of a 360-day year, and paid for the actual
number of days elapsed. In the event that, and for so long as, an
Event of Default under Section 7 shall have occurred and be
continuing, the outstanding Principal and, to the extent permitted by
law, overdue interest in respect thereof, shall bear interest at a
rate per annum equal to the prime rate of J.P. Morgan as in effect in
New York City on the date of the Event of Default (as defined below)
plus three percentage points, such interest to be computed on the
basis of a 360-day year, and paid for the actual number of days
elapsed. Accrued interest on the outstanding Principal amount (up
through and including the day prior to any payment other than a
payment on the Final Maturity Date) shall be due and payable on the
<PAGE> 2
Final Maturity Date and, if payments of Principal are made prior to
the Final Maturity Date, including pursuant to Section 3, on the date
of any payment of the Principal and on the date of any acceleration of
the payment of the Principal pursuant to Section
Section 3. Payments.
(a) Mandatory Prepayments. On the first business day
after the date of the receipt thereof by the Issuer or any of its
Subsidiaries, an amount equal to 100% of the cash proceeds of (i)
contributions received by the Issuer of proceeds of the issuance of
equity securities or the incurrence of Indebtedness by a Parent
Company, (ii) the issuance or sale of equity securities by the Issuer
or any of its Subsidiaries (net of underwriting discounts and
commissions and other reasonable costs associated therewith, such
other reasonable costs to be mutually agreed upon by the Issuer and
Payee) and (iii) the incurrence of Indebtedness by the Issuer or any
of its Subsidiaries (net of underwriting discounts and commissions and
other reasonable costs associated therewith, such other reasonable
costs to be mutually agreed upon by the Issuer and Payee), except for
the incurrence of Indebtedness pursuant to a revolving credit facility
provided to the Issuer by DuPont Energy Company (the "Revolving Credit
Facility"), in each case, shall be applied as a mandatory repayment of
Principal and accrued interest on the amount of such Principal, except
to the extent such proceeds are used to repay any other Indebtedness
of the Issuer, Conoco Energy Company ("Conoco") and any of their
Subsidiaries (the "Conoco Entities") to E.I. du Pont de Nemours and
Company ("DuPont") and any of its Subsidiaries (other than any Conoco
Entities) to the extent that both Conoco and Payee consent to the
2
<PAGE> 3
repayment of such Indebtedness in lieu of payment under this Note.
Notwithstanding the foregoing, the provisions of Sections 3(a)(i) and
(ii) shall not apply to the net proceeds received from the exercise of
stock options granted to directors, officers and employees of the
relevant entity.
(b) Voluntary Prepayments. The Issuer shall have the right
to prepay the Principal and accrued interest on the amount of such
Principal in whole or in part from time to time, without premium or
penalty.
(c) Method and Place of Payment. All payments under this
Note shall be made to the Payee not later than 12:00 noon, New York
time, on the date when due in U.S. dollars in immediately available
funds to such account as may be specified from time to time in writing
by the Payee to the Issuer, and any funds received after such time
shall, for all purposes hereof, be deemed to have been paid on the
next succeeding business day. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a business
day, the due date thereof shall be extended to the next succeeding
business day and, with respect to payments of principal, interest
shall be payable at the applicable rate during such extension. The
Issuer shall not have any right of setoff or counterclaim, and all
payments made by the Issuer hereunder shall be made irrespective of,
and without any reduction for, any setoff or counterclaims.
Section 4. Representations and Warranties. In order to
induce the Payee to accept the Note, the Issuer makes the following
representations and warranties, which shall survive the execution and
delivery of this Note: the Issuer (a) is a duly
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<PAGE> 4
organized and validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation, (b) has the corporate
power and authority to own its property and assets and to transact the
business in which it is engaged or presently proposes to engage and
(c) has the corporate power and authority to execute, deliver and
carry out the terms and provisions of this Note and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it hereof. The Issuer has duly executed and delivered
this Note, and this Note constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms. Neither the
execution, delivery or performance by the Issuer of this Note nor
compliance by it with the terms and provisions hereof nor the
consummation of the transactions contemplated hereby, (a) will
contravene any applicable provision of any law, statute, rule,
regulation (including Regulations U, T and X of the Board of Governors
of the Federal Reserve System), order, writ, injunction or decree of
any court or governmental instrumentality or (b) will conflict or be
inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or result in the creation or imposition of (or the obligation to
create or impose) any lien upon any of the property or assets of the
Issuer pursuant to the terms of any indenture, mortgage, deed of
trust, agreement or other instrument to which the Issuer is a party or
by which it or any of its property or assets is bound or to which it
may be subject (other than this Note), or (c) will violate any
provision of the Issuer's Certificate of Incorporation or By-Laws.
The Issuer and its Subsidiaries have incurred no Indebtedness other
than the obligations incurred hereunder and the
4
<PAGE> 5
Indebtedness set forth on Schedules I and II hereto.
Section 5. Affirmative Covenants. The Issuer covenants and
agrees that until the Principal and all other obligations under this
Note are paid in full: (a) the Issuer will furnish the Payee within
nine (9) business days after the end of each quarter and eleven (11)
business days after the end of each fiscal year, the unaudited balance
sheet and income statement, or consolidated balance sheet and income
statement, if any, of the Issuer and its Subsidiaries as at the end of
such period in the form and substance consistent with the current
practice of the Issuer; (b) (i) the Issuer shall furnish to the Payee
such financial information or documents in the possession of the
Issuer or any of its Subsidiaries as the Payee may reasonably request,
(ii) the Issuer shall furnish to the Payee on a monthly basis such
management and other periodic reports related to financial information
in the form and substance consistent with the current practice of the
Issuer and (iii) will provide the Payee reasonable access to the books
and records of the Issuer and any of its Subsidiaries as the Payee may
from time to time reasonably request; (c) the Issuer and its
Subsidiaries shall keep proper books of record and account in
conformity with GAAP and all requirements of applicable law; and (d)
the Issuer shall, and shall cause each of its Subsidiaries to, comply
in all material respects with all applicable laws, rules, statutes,
regulations, decrees and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect
of the conduct of their business and the ownership of their property.
5
<PAGE> 6
Section 6. Negative Covenants.
(a) Restriction on Fundamental Changes. Without the
Payee's prior written consent, the Issuer will not, and will not
permit its Significant Subsidiaries to enter into any merger or
consolidation, or liquidate, windup or dissolve (or suffer any
liquidation or dissolution), discontinue its business or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or
series of transactions, all or substantially all of its business or
property, whether now or hereafter acquired.
(b) Limitation on Liens. Without the Payee's prior
written consent, the Issuer agrees that neither it nor any of its
Subsidiaries will issue, assume or guarantee any notes, bonds,
debentures or other similar evidences of Indebtedness for money
borrowed secured by a mortgage, lien, pledge or other encumbrance
("Mortgages") upon any Restricted Property without effectively
providing that concurrently with issuance, assumption or guaranty of
any such Indebtedness that the Note (together with, if the Issuer so
determines, any other Indebtedness or obligation then existing or
thereafter created ranking equally with the Note) shall be secured
equally and ratably with (or prior to) such Indebtedness so long as
such Indebtedness shall be so secured, except that this restriction
will not apply to: (i) Mortgages relating to pollution control or
industrial revenue bonds; and (ii) Mortgages required by any contract
or statute in order to permit the Issuer or any of its Subsidiaries to
perform any contract or subcontract made by it with or at the request
of the United States of America, any state or any department, agency
or instrumentality or political subdivision of either.
6
<PAGE> 7
The Issuer agrees that if, upon any consolidation or merger of
the Issuer with or into any other corporation, or upon any sale or
conveyance of all or substantially all of its property to any other
corporation, any of the Restricted Property of the Issuer or of any of
its Subsidiaries would thereupon become subject to any Mortgage, the
Issuer will first secure the Note equally and ratably with any
obligations of the Issuer or any of its Subsidiaries then entitled
thereto, by a direct lien on all such property prior to all liens
other than any theretofore existing thereon.
For the purposes of this Section, the following types of
transactions shall not be deemed to create Indebtedness secured by a
Mortgage; the sale or other transfer of (i) oil, gas, coal, uranium,
copper or other minerals in place for a period of time until, or in an
amount such that, the purchaser will realize therefrom a specified
amount of money (however determined) or a specified amount of such
minerals, or (ii) any other interest in property of the character
commonly referred to as a "production payment".
(c) Limitation on Subsidiaries' Borrowing. Without
the prior written consent of the Payee, the Issuer will not permit any
of its Subsidiaries to, and the Subsidiaries of the Issuer will not,
incur any Indebtedness other than Indebtedness owed to the Issuer or
to a wholly owned Subsidiary of the Issuer.
Section 7. Events of Default. Each of the following events,
acts, occurrences or conditions shall constitute an Event of Default
under this Note:
(a) The Issuer shall default in the payment when
due of any principal of or interest on the Indebtedness evidenced by
this Note and such default shall continue for five days.
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<PAGE> 8
(b) Any representation or warranty made by the
Issuer herein or in any certificate or statement delivered pursuant
hereto shall prove to be false or misleading in any material respect
at any time.
(c) The Issuer shall fail to perform or observe
any other agreement, covenant or obligation arising hereunder;
provided, that any failure pursuant to Section 5 hereof shall be
continuing fifteen days after notice thereof to Issuer.
(d) The Issuer, any of its Subsidiaries or a
Parent Company shall default in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) of any amount owing in respect of any Indebtedness for
borrowed money in excess, in the aggregate, of Fifty Million Dollars
($50,000,000) in principal outstanding Indebtedness and such default
continues after any applicable grace period; or the Issuer, any of its
Subsidiaries or a Parent Company shall default in the performance or
observance of any obligation or condition with respect to any such
Indebtedness or any other event shall occur or condition shall exist,
if the effect of such default, event or condition is to accelerate the
maturity of any Indebtedness having an aggregate principal amount in
excess of Fifty Million Dollars ($50,000,000), or to permit the holder
or holders thereof, or any trustee or agent for such holders, to
accelerate the maturity of any Indebtedness having an aggregate
principal amount in excess of Fifty Million Dollars ($50,000,000), or
any Indebtedness having an aggregate principal amount in excess of
Fifty Million Dollars ($50,000,000) shall become or be declared to be
due and payable
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<PAGE> 9
prior to its stated maturity other than as a result of a regularly
scheduled payment.
(e) (i) The Issuer shall commence a voluntary case
concerning itself under the Bankruptcy Code; or (ii) an involuntary
case is commenced against the Issuer and the petition is not dismissed
within 30 days after commencement of the case; or (iii) a custodian
(as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or substantially all of the property of the Issuer or the
Issuer commences any other proceedings under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Issuer or there is
commenced against the Issuer any such proceeding which remains
undismissed for a period of 30 days; or (iv) any order of relief or
other order approving any such case or proceeding is entered; or (v)
the Issuer is adjudicated insolvent or bankrupt; or (vi) the Issuer
suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed
for a period of 30 days; or (vii) the Issuer makes a general
assignment for the benefit of creditors; or (viii) the Issuer shall
fail to pay, or shall state that it is unable to pay, its debts
generally as they become due; or (ix) the Issuer shall call a meeting
of its creditors with a view to arranging a composition or adjustment
of its debts; or (x) the Issuer shall by any act or failure to act
consent to, approve of or acquiesce in any of the foregoing; or (xi)
any corporate action is taken by the Issuer for the purpose of
effecting any of the foregoing; or
(f) A Change of Control of a Parent Company.
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<PAGE> 10
Upon the occurrence and during the continuance of any Event of
Default, the Payee may in its sole discretion (except in the case of
an Event of Default occurring under clause (e) above, in which case
the following will occur automatically) declare the unpaid principal
amount of and any and all accrued and unpaid interest on the
Indebtedness evidenced by this Note and any and all other obligations
pursuant to this Note, and the same shall thereupon be, immediately
due and payable with all additional interest from time to time accrued
thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or
accelerate and notice of acceleration), all of which are hereby
expressly waived by Issuer.
Section 8. Payment of Expenses; Indemnity. Except for
outofpocket costs and expenses incurred by each party in connection
with the negotiation, preparation, execution and delivery of this
Note, the Issuer shall indemnify the Payee, its officers, directors,
partners, stockholders, employees, representatives and agents (each an
"Indemnitee") from, and hold each of them harmless against, any and
all losses, liabilities, claims, damages, expenses, obligations,
penalties, actions, judgments, suits, costs or disbursements of any
kind or nature whatsoever (including, without limitation, the fees and
disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or
threatened, whether or not such Indemnitee shall be designated a party
thereto) that may at any time (including, without limitation, at any
time following the payment of the obligations) be imposed on, asserted
against or incurred by any Indemnitee as a
10
<PAGE> 11
result of, or arising out of, or in any way related to or by reason
of, (i) performance of this Note and (ii) the exercise by the Payee of
its rights and remedies hereunder (but excluding, as to any
Indemnitee, any such losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or
disbursements incurred solely by reason of the gross negligence or
willful misconduct of such Indemnitee as finally determined by a court
of competent jurisdiction). The Issuer's obligations under this
paragraph shall survive the termination of this Note and the payment
of the obligations.
Section 9. No Waiver; Remedies Cumulative. No failure or
delay on the part of the Payee in exercising any right, power or
privilege hereunder and no course of dealing between the parties
hereto shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof of the exercise of any other
right, power or privilege hereunder. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or
remedies which the Payee would otherwise have. No notice to or demand
on the Issuer in any case shall entitle the Issuer to any other or
further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Payee to any other or further
action in any circumstances without notice or demand.
Section 10. Miscellaneous. This Note shall be binding upon
and inure to the benefit of the Payee and the Issuer and their
respective successors and assigns, except that the Issuer may not
assign or transfer any of its rights or obligations under
11
<PAGE> 12
this Note without the prior written consent of the Payee. This Note
may not be amended, supplemented, modified or waived except in a
writing executed by the Issuer and the Payee. The headings of the
several Sections and subsections of this Note are inserted for
convenience only and shall not in any way affect the meaning or
construction of any provision of this Note. In case any provision in
or obligation under this Note shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any
way be affected or impaired thereby.
Section 11. Notices. The Issuer agrees that all notices and
deliveries to be made to the Payee pursuant to this Note will be made
to the person and at the address as may be specified from time to time
by the Payee to the Issuer in writing. All notices and deliveries to
be made to the Issuer pursuant to this Note will be made to the person
and at the address as may be specified from time to time by the Issuer
to the Payee in writing.
Section 12. Certain Definitions.
As used in this Note, capitalized terms shall have the following
meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Change of Control" with respect to a Parent Company shall occur
if (A) the Permitted Holders (x) cease to be the beneficial owner,
directly or indirectly, of at least 50% of the aggregate total voting
power of each Parent Company, whether as a
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result of issuance of securities of a Parent Company, any merger,
consolidation, liquidation or dissolution of a Parent Company, any
direct or indirect transfer of securities by any Permitted Holders or
otherwise, or (y) do not have the ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board
of Directors of each Parent Company or (B) the Issuer ceases to be
wholly owned, directly or indirectly, by each Parent Company.
"Permitted Holders" are DuPont, DuPont Energy Company and any other
Subsidiary of DuPont.
As used herein, "control" when used with respect to any specified
person means the power to direct the management and policies of such
person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise.
"GAAP" means United States generally accepted accounting
principles in effect from time to time.
"Indebtedness" of any person shall mean, (a) all obligations of
such person for borrowed money, including Indebtedness under this Note
or with respect to deposits or advances of any kind, (b) all
obligations of such person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such person upon which
interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements
relating to property or assets purchased by such person, (e) all
obligations of such person issued or assumed as the deferred purchase
price of property or services, (f) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Mortgage on
property owned or acquired by such
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person, whether or not the obligations secured thereby have been
assumed, (g) all guarantees by such person of Indebtedness of others
which in the aggregate exceed Two Billion Dollars ($2,000,000,000)
(provided that the Issuer will promptly notify the Payee of the
incurrence by the Payee or one of its Subsidiaries of any guarantee of
Indebtedness of others), (h) all capital lease obligations of such
person, and (i) all securities or other similar instruments
convertible or exchangeable into any of the foregoing, but excluding
(1) industrial revenue bonds, (2) operating leases, (3) in the case of
the Issuer, the Revolving Credit Facility and (4) daily cash
overdrafts associated with routine cash operations.
"Parent Company" means Conoco Energy Company or any other person
that, directly or indirectly, through one or more intermediaries,
controls the Issuer, other than DuPont, DuPont Energy Company, and
other Subsidiaries of DuPont. For purposes of this definition, Conoco
Energy Company and its Subsidiaries shall not be deemed to be
Subsidiaries of DuPont.
"Restricted Property" means any shares of capital stock of a
Subsidiary of the Issuer and any manufacturing plant or facility or
any mineral, oil or gas producing property or any research facility
owned by the Issuer or any of its Subsidiaries except any such plant
or facility or property or research facility which, in the opinion of
the Board of Directors of Conoco Energy Company is not a material
asset of the Issuer or its Subsidiaries within the meaning of GAAP.
"Significant Subsidiary" shall have the meaning given to such
term under Rule 1-02 of Regulation S-X.
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"Subsidiary" means (a) any corporation at least a majority of the
outstanding securities of which having ordinary voting power to elect
a majority of the board of directors of such corporation is at the
time owned or controlled directly or indirectly by such party and (b)
any partnership, joint venture, association, joint stock company,
trust, unincorporated organization or other entity, in which such
party, directly or indirectly, has the power to elect or direct the
election of a majority of the members of the governing body of such
entity or otherwise has control over such entity (e.g., as the
managing partner of a partnership).
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW).
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<PAGE> 16
IN WITNESS WHEREOF, the Issuer has caused its duly authorized
officer to execute and deliver this Note as of the date first above
written.
CONOCO INC.
By:
------------------------------
Name: R.W. Goldman
Title: Vice President
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<PAGE> 17
GUARANTY
Conoco Inc. (formerly Conoco Energy Company) (the "Guarantor"), as primary
obligor and not merely as surety, hereby unconditionally guarantees (the
"Guarantee") (i) the due and punctual payment of the principal of and interest
on that certain Promissory Note of Conoco Inc. dated July 20, 1998 (the
"Note"), subject to any applicable grace periods, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Note, to the extent lawful, and
the due and punctual performance of all other obligations of the Issuer all in
accordance with the terms set forth in the Note and (ii) in case of any
extension of time of payment or renewal of the Note or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise (all such obligations guaranteed hereby
by the Guarantor being the "Guaranteed Obligations").
This Guaranty is irrevocable, absolute, present and unconditional. The
Guarantor guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of the Note regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of the Payee with respect thereto. The obligations of the
Guarantor under this Guaranty are independent of the Guaranteed Obligations,
and a separate action or actions may be
<PAGE> 18
brought and prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against the Issuer or any other
guarantor or whether the Issuer or any other guarantor is joined in any such
action or actions. The liability of the Guarantor under this Guaranty shall be
absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note with respect
to the Issuer or any agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from the Note;
(iii) the failure to give notice to the Guarantor of the occurrence
of an Event of Default under the provisions of the Note;
(iv) any failure, omission, delay by or inability on the part of
the Payee to assert or exercise any right, power or remedy conferred on
the Payee in the Note;
(v) any change in the corporate structure, or termination,
dissolution, consolidation or merger of the Issuer or any guarantor with
or into any other entity, the voluntary or involuntary
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<PAGE> 19
liquidation, dissolution, sale or other disposition of all or
substantially all the assets of the Issuer or the Guarantor, the
marshaling of the assets and liabilities of the Issuer or any guarantor,
the receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition with creditors, or
readjustment of, or other similar proceedings affecting the Issuer or any
guarantor, or any of the assets of any of them;
(vi) the assignment of any right, title or interest of the Payee in
the Note to any other person; or
(vii) any other event or circumstance (including any statute of
limitations), whether foreseen or unforeseen and whether similar or
dissimilar to any of the foregoing, that might otherwise constitute a
defense available to, or a discharge of, the Issuer or a guarantor, other
than payment in full of the Guaranteed Obligations; it being the intent of
the Guarantor that its obligations hereunder shall not be discharged
except by payment of all amounts owing pursuant to the Note.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment or performance with respect to any of the
Guaranteed Obligations is rescinded or must otherwise be returned by the Payee,
upon the insolvency, bankruptcy or reorganization of the Issuer or otherwise,
all as though such payment or performance had not been made or occurred. The
obligations of the
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Guarantor under this Guaranty shall not be subject to reduction, termination or
other impairment by any set-off, recoupment, counterclaim or defense or for any
other reason.
The Guarantor hereby irrevocably waives, to the extent permitted by
applicable law:
(i) promptness, diligence, notice of acceptance and any other notice
with respect to any of the Guaranteed Obligations and this Guaranty;
(ii) any requirement that the Payee or any other person protect,
secure, perfect or insure any lien or any property subject thereto or
exhaust any right or take any action against the Issuer or any other
person or any collateral, or obtain any relief pursuant to the Note or
pursue any other available remedy;
(iii) all right to trial by jury in any action, proceeding or
counterclaim arising out of or relating to the Note;
(iv) any defense arising by reason of any claim or defense based
upon an election of remedies by the Payee which in any manner impairs,
reduces, releases or otherwise adversely affects its subrogation,
contribution or reimbursement rights or other rights to proceed against
the Issuer or any other person; and
(v) any duty on the part of the Payee to disclose to the Guarantor
any matter, fact or thing relating to the business, operation or condition
of the Issuer and its assets now
4
<PAGE> 21
known or hereafter known by the Payee.
IN WITNESS WHEREOF, the Guarantor has caused its duly authorized officer
to execute and deliver this Guarantee as of JULY 24, 1998.
CONOCO INC.
(FORMERLY CONOCO ENERGY COMPANY)
By:
---------------------------------
Name: R.W. Goldman
Title: Senior Vice President
5
<PAGE> 1
EXHIBIT 4.6
PROMISSORY NOTE, dated as of August 31, 1998, by Conoco Inc.
(formerly known as Conoco Energy Company), a Delaware corporation (the
"Issuer"), in favor of Du Pont Chemical and Energy Operations, Inc, a Delaware
corporation (the "Payee").
Section 1. Principal. The Issuer, for value received, hereby promises
to pay to the order of Payee, the sum of Eight Hundred Twenty Seven Million Four
Hundred Forty Seven Thousand Seven Hundred Ten Dollars and Eighty Five Cents
($827,447,710.85) (the "Principal") and any and all interest thereon as provided
in Section 2 below in accordance with the terms hereof. The Principal shall be
repaid in full by the Issuer, without premium or penalty, on January 2, 2000
(the "Final Maturity Date"), to the extent not previously paid in accordance
with Section 3.
Section 2. Interest. The Issuer agrees to pay interest in respect of
the unpaid Principal from the date hereof until paid in full at a rate equal to
the six-month LIBOR plus 0.375 percent per annum, such interest to be computed
on the basis of a 360-day year, and paid for the actual number of days elapsed.
In the event that, and for so long as, an Event of Default under Section 7 shall
have occurred and be continuing, the outstanding Principal and, to the extent
permitted by law, overdue interest in respect thereof, shall bear interest at a
rate per annum equal to the prime rate of J.P. Morgan as in effect in New York
City on the date of the Event of Default (as defined below) plus three
percentage points, such interest to be computed on the basis of a 360-day year,
and paid for the actual number of days elapsed. Accrued
<PAGE> 2
interest on the outstanding Principal amount (up through and including the day
prior to any payment other than a payment on the Final Maturity Date) shall be
due and payable on the Final Maturity Date and, if payments of Principal are
made prior to the Final Maturity Date, including pursuant to Section 3, on the
date of any payment of the Principal and on the date of any acceleration of the
payment of the Principal pursuant to Section 7.
Section 3. Payments.
(a) Mandatory Prepayments. On the first business day after the
date of the receipt thereof by the Issuer or any of its Subsidiaries, an amount
equal to 100% of the cash proceeds of (i) the issuance or sale of equity
securities by the Issuer or any of its Subsidiaries (net of underwriting
discounts and commissions and other reasonable costs associated therewith, such
other reasonable costs to be mutually agreed upon by the Issuer and Payee) and
(ii) the incurrence of Indebtedness by the Issuer or any of its Subsidiaries
(net of underwriting discounts and commissions and other reasonable costs
associated therewith, such other reasonable costs to be mutually agreed upon by
the Issuer and Payee), except for the incurrence of Indebted ness pursuant to a
revolving credit facility provided to Conoco Inc. by DuPont Energy Company (the
"Revolving Credit Facility"), in each case, shall be applied as a mandatory
repayment of Principal and accrued interest on the amount of such Principal,
except to the extent such proceeds are used to repay any other Indebted ness of
the Issuer and any of its Subsidiaries (the "Conoco Entities") to E.I. du Pont
de Nemours and Company ("DuPont") and any of its Subsidiaries (other than any
2
<PAGE> 3
Conoco Entities) to the extent that both the Issuer and Payee consent to the
repayment of such Indebtedness in lieu of payment under this Note.
Notwithstanding the foregoing, the provisions of Sections 3(a)(i) shall not
apply to the net proceeds received from the exercise of stock options granted to
directors, officers and employees of the relevant entity.
(b) Voluntary Prepayments. The Issuer shall have the right to
prepay the Principal and accrued interest on the amount of such Principal in
whole or in part from time to time, without premium or penalty.
(c) Method and Place of Payment. All payments under this Note
shall be made to the Payee not later than 12:00 noon, New York time, on the date
when due in U.S. dollars in immediately available funds to such account as may
be specified from time to time in writing by the Payee to the Issuer, and any
funds received after such time shall, for all purposes hereof, be deemed to have
been paid on the next succeeding business day. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a business day, the
due date thereof shall be extended to the next succeeding business day and, with
respect to payments of principal, interest shall be payable at the applicable
rate during such extension. The Issuer shall not have any right of setoff or
counterclaim, and all payments made by the Issuer hereunder shall be made
irrespective of, and without any reduction for, any setoff or counterclaims.
Section 4. Representations and Warranties. In order to induce the
Payee to accept the Note, the Issuer makes the following representations and
warranties,
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<PAGE> 4
which shall survive the execution and delivery of this Note: the Issuer (a) is a
duly organized and validly existing corporation in good standing under the laws
of the jurisdiction of its incorporation, (b) has the corporate power and
authority to own its property and assets and to transact the business in which
it is engaged or presently proposes to engage and (c) has the corporate power
and authority to execute, deliver and carry out the terms and provisions of this
Note and has taken all necessary corporate action to authorize the execution,
delivery and performance by it hereof. The Issuer has duly executed and
delivered this Note, and this Note constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms. Neither the execution,
delivery or performance by the Issuer of this Note nor compliance by it with the
terms and provisions hereof nor the consummation of the transactions
contemplated hereby, (a) will contravene any applicable provision of any law,
statute, rule, regulation (including Regulations U, T and X of the Board of
Governors of the Federal Reserve System), order, writ, injunction or decree of
any court or govern mental instrumentality or (b) will conflict or be
inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any lien upon
any of the property or assets of the Issuer pursuant to the terms of any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Issuer is a party or by which it or any of its property or assets is bound or to
which it may be subject (other than this Note), or (c) will violate any
provision of the Issuer's Certificate of Incorporation or By-Laws. The Issuer
and its Subsidiaries
4
<PAGE> 5
have incurred no Indebtedness other than the obligations incurred hereunder and
the Indebtedness set forth on Schedules I and II hereto.
Section 5. Affirmative Covenants. The Issuer covenants and agrees that
until the Principal and all other obligations under this Note are paid in full:
(a) the Issuer will furnish the Payee within nine (9) business days after the
end of each quarter and eleven (11) business days after the end of each fiscal
year, the unaudited balance sheet and income statement, or consolidated balance
sheet and income statement, if any, of the Issuer and its Subsidiaries as at the
end of such period in the form and substance consistent with the current
practice of the Issuer; (b) (i) the Issuer shall furnish to the Payee such
financial information or documents in the possession of the Issuer or any of its
Subsidiaries as the Payee may reasonably request, (ii) the Issuer shall furnish
to the Payee on a monthly basis such management and other periodic reports
related to financial information in the form and substance consistent with the
current practice of the Issuer and (iii) will provide the Payee reasonable
access to the books and records of the Issuer and any of its Subsidiaries as the
Payee may from time to time reasonably request; (c) the Issuer and its
Subsidiaries shall keep proper books of record and account in conformity with
GAAP and all requirements of applicable law; and (d) the Issuer shall, and shall
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, statutes, regulations, decrees and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of their business and the ownership of their
property.
5
<PAGE> 6
Section 6. Negative Covenants.
(a) Restriction on Fundamental Changes. Without the Payee's
prior written consent, the Issuer will not, and will not permit its Significant
Subsidiaries to enter into any merger or consolidation, or liquidate, wind-up or
dissolve (or suffer any liquidation or dissolution), discontinue its business or
convey, lease, sell, transfer or otherwise dispose of, in one transaction or
series of transactions, all or substantially all of its business or property,
whether now or hereafter acquired.
(b) Limitation on Liens. Without the Payee's prior written
consent, the Issuer agrees that neither it nor any of its Subsidiaries will
issue, assume or guarantee any notes, bonds, debentures or other similar
evidences of Indebtedness for money borrowed secured by a mortgage, lien, pledge
or other encumbrance ("Mortgages") upon any Restricted Property without
effectively providing that concurrently with issuance, assumption or guaranty of
any such Indebtedness that the Note (together with, if the Issuer so determines,
any other Indebtedness or obligation then existing or thereafter created ranking
equally with the Note) shall be secured equally and ratably with (or prior to)
such Indebtedness so long as such Indebtedness shall be so secured, except that
this restriction will not apply to: (i) Mortgages relating to pollution control
or industrial revenue bonds; and (ii) Mortgages required by any contract or
statute in order to permit the Issuer or any of its Subsidiaries to perform any
contract or subcontract made by it with or at the request of the United States
of America, any state or any department, agency or instrumentality or political
6
<PAGE> 7
subdivision of either.
The Issuer agrees that if, upon any consolidation or merger of the
Issuer with or into any other corporation, or upon any sale or conveyance of all
or substantially all of its property to any other corporation, any of the
Restricted Property of the Issuer or of any of its Subsidiaries would thereupon
become subject to any Mortgage, the Issuer will first secure the Note equally
and ratably with any obligations of the Issuer or any of its Subsidiaries then
entitled thereto, by a direct lien on all such property prior to all liens other
than any theretofore existing thereon.
For the purposes of this Section, the following types of transactions
shall not be deemed to create Indebtedness secured by a Mortgage; the sale or
other transfer of (i) oil, gas, coal, uranium, copper or other minerals in place
for a period of time until, or in an amount such that, the purchaser will
realize therefrom a specified amount of money (however determined) or a
specified amount of such minerals, or (ii) any other interest in property of the
character commonly referred to as a "production payment".
(c) Limitation on Subsidiaries' Borrowing. Without the prior
written consent of the Payee, the Issuer will not permit any of its Subsidiaries
to, and the Subsidiaries of the Issuer will not, incur any Indebtedness other
than Indebtedness owed to the Issuer or to a wholly owned Subsidiary of the
Issuer.
7
<PAGE> 8
Section 7. Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this Note:
(a) The Issuer shall default in the payment when due of any
principal of or interest on the Indebtedness evidenced by this Note and such
default shall continue for five days.
(b) Any representation or warranty made by the Issuer herein or
in any certificate or statement delivered pursuant hereto shall prove to be
false or misleading in any material respect at any time.
(c) The Issuer shall fail to perform or observe any other
agreement, covenant or obligation arising hereunder; provided, that any failure
pursuant to Section 5 hereof shall be continuing fifteen days after notice
thereof to the Issuer.
(d) The Issuer or any of its Subsidiaries shall default in the
payment when due (whether by scheduled maturity, required prepayment, acceler-
ation, demand or otherwise) of any amount owing in respect of any Indebtedness
for borrowed money in excess, in the aggregate, of Fifty Million Dollars
($50,000,000) in principal outstanding Indebtedness and such default continues
after any applicable grace period; or the Issuer or any of its Subsidiaries
shall default in the performance or observance of any obligation or condition
with respect to any such Indebtedness or any other event shall occur or
condition shall exist, if the effect of such default, event or condition is to
accelerate the maturity of any Indebtedness having an aggregate principal amount
in excess of Fifty Million Dollars ($50,000,000), or to permit the
8
<PAGE> 9
holder or holders thereof, or any trustee or agent for such holders, to
accelerate the maturity of any Indebtedness having an aggregate principal amount
in excess of Fifty Million Dollars ($50,000,000), or any Indebtedness having an
aggregate principal amount in excess of Fifty Million Dollars ($50,000,000)
shall become or be declared to be due and payable prior to its stated maturity
other than as a result of a regularly scheduled payment.
(e) (i) The Issuer shall commence a voluntary case concerning
itself under the Bankruptcy Code; or (ii) an involuntary case is commenced
against the Issuer and the petition is not dismissed within 30 days after
commencement of the case; or (iii) a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Issuer or the Issuer commences any other proceedings under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Issuer or there is commenced against the
Issuer any such proceeding which remains undismissed for a period of 30 days; or
(iv) any order of relief or other order approving any such case or proceeding is
entered; or (v) the Issuer is adjudicated insolvent or bankrupt; or (vi) the
Issuer suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 30 days; or (vii) the Issuer makes a general assignment for the
benefit of creditors; or (viii) the Issuer shall fail to pay, or shall state
that it is unable to pay, its debts generally as they become due; or (ix) the
Issuer shall call a meeting of its credi-
9
<PAGE> 10
tors with a view to arranging a composition or adjustment of its debts; or (x)
the Issuer shall by any act or failure to act consent to, approve of or
acquiesce in any of the foregoing; or (xi) any corporate action is taken by the
Issuer for the purpose of effecting any of the foregoing; or
(f) A Change of Control.
Upon the occurrence and during the continuance of any Event of Default,
the Payee may in its sole discretion (except in the case of an Event of Default
occurring under clause (e) above, in which case the following will occur
automatically) declare the unpaid principal amount of and any and all accrued
and unpaid interest on the Indebtedness evidenced by this Note and any and all
other obligations pursuant to this Note, and the same shall thereupon be,
immediately due and payable with all additional interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Issuer.
Section Payment of Expenses; Indemnity. Except for out-of-pocket
costs and expenses incurred by each party in connection with the negotiation,
preparation, execution and delivery of this Note, the Issuer shall indemnify the
Payee, its officers, directors, partners, stockholders, employees,
representatives and agents (each an "Indemnitee") from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judg-
10
<PAGE> 11
ments, suits, costs or disbursements of any kind or nature whatsoever
(including, without limitation, the fees and disbursements of counsel for such
Indemnitee in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto) that may at any time (including, without limitation,
at any time following the payment of the obligations) be imposed on, asserted
against or incurred by any Indemnitee as a result of, or arising out of, or in
any way related to or by reason of, (i) performance of this Note and (ii) the
exercise by the Payee of its rights and remedies hereunder (but excluding, as to
any Indemnitee, any such losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements
incurred solely by reason of the gross negligence or willful misconduct of such
Indemnitee as finally determined by a court of competent jurisdiction). The
Issuer's obligations under this paragraph shall survive the termination of this
Note and the payment of the obligations.
Section 9. No Waiver; Remedies Cumulative. No failure or delay on the
part of the Payee in exercising any right, power or privilege hereunder and no
course of dealing between the parties hereto shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof of the exercise of any
other right, power or privilege hereunder. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Payee would otherwise have. No notice to or demand on the Issuer in
any case shall entitle the Issuer to any other or
11
<PAGE> 12
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Payee to any other or further action in any
circumstances without notice or demand.
Section 10. Miscellaneous. This Note shall be binding upon and inure
to the benefit of the Payee and the Issuer and their respective successors and
assigns, except that the Issuer may not assign or transfer any of its rights or
obligations under this Note without the prior written consent of the Payee. This
Note may not be amended, supplemented, modified or waived except in a writing
executed by the Issuer and the Payee. The headings of the several Sections and
subsections of this Note are inserted for convenience only and shall not in any
way affect the meaning or construction of any provision of this Note. In case
any provision in or obligation under this Note shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 11. Notices. The Issuer agrees that all notices and deliveries
to be made to the Payee pursuant to this Note will be made to the person and at
the address as may be specified from time to time by the Payee to the Issuer in
writing. All notices and deliveries to be made to the Issuer pursuant to this
Note will be made to the person and at the address as may be specified from time
to time by the Issuer to the Payee in writing.
Section 12. Certain Definitions.
12
<PAGE> 13
As used in this Note, capitalized terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Change of Control" shall occur if the Permitted Holders (x) cease to
be the beneficial owner, directly or indirectly, of at least 50% of the
aggregate total voting power of the Issuer, whether as a result of issuance of
securities of the Issuer, any merger, consolidation, liquidation or dissolution
of the Issuer, any direct or indirect transfer of securities by any Permitted
Holders or otherwise, or (y) do not have the ability by voting power, contract
or otherwise to elect or designate for election a majority of the Board of
Directors of the Issuer. "Permitted Holders" are DuPont, DuPont Energy Company
and any other Subsidiary of DuPont.
As used herein, "control" when used with respect to any specified
person means the power to direct the management and policies of such person,
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise.
"GAAP" means United States generally accepted accounting principles in
effect from time to time.
"Indebtedness" of any person shall mean, (a) all obligations of such
person for borrowed money, including Indebtedness under this Note or with
respect to deposits or advances of any kind, (b) all obligations of such person
evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such person upon which interest charges are customarily paid, (d)
all obligations of such person under conditional sale or other title retention
agreements relating to property or
13
<PAGE> 14
assets purchased by such person, (e) all obligations of such person issued or
assumed as the deferred purchase price of property or services, (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or other wise, to be secured by) any Mortgage
on property owned or acquired by such person, whether or not the obligations
secured thereby have been assumed, (g) all guarantees by such person of
Indebtedness of others which in the aggregate exceed Two Billion Dollars
($2,000,000,000) (provided that the Issuer will promptly notify the Payee of the
incurrence by the Payee or one of its Subsidiaries of any guarantee of Indebted
ness of others), (h) all capital lease obligations of such person, and (i) all
securities or other similar instruments convertible or exchangeable into any of
the foregoing, but excluding (1) industrial revenue bonds, (2) operating leases,
(3) in the case of Conoco Inc., the Revolving Credit Facility and (4) daily cash
overdrafts associated with routine cash operations.
"Restricted Property" means any shares of capital stock of a Subsidiary
of the Issuer and any manufacturing plant or facility or any mineral, oil or gas
producing property or any research facility owned by the Issuer or any of its
Subsidiaries except any such plant or facility or property or research facility
which, in the opinion of the Board of Directors of the Issuer is not a material
asset of the Issuer or its Subsidiaries within the meaning of GAAP.
"Significant Subsidiary" shall have the meaning given to such term
under Rule 1-02 of Regulation S-X.
"Subsidiary" means (a) any corporation at least a majority of the
outstanding
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<PAGE> 15
securities of which having ordinary voting power to elect a majority
of the board of directors of such corporation is at the time owned or controlled
directly or indirectly by such party and (b) any partnership, joint venture,
association, joint stock company, trust, unincorporated organization or other
entity, in which such party, directly or indirectly, has the power to elect or
direct the election of a majority of the members
of the governing body of such entity or otherwise has control over such entity
(e.g., as the managing partner of a partnership).
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (WITH OUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING
TO CONFLICTS OF LAW).
15
<PAGE> 16
IN WITNESS WHEREOF, the Issuer has caused its duly authorized
officer to execute and deliver this Note as of the date first above written.
CONOCO INC.
(FORMERLY KNOWN AS CONOCO
ENERGY COMPANY)
By:
-----------------------------
Name:
Title:
16
<PAGE> 1
EXHIBIT 5.1
- --------------------------------------------------------------------------------
R. A. Harrington Conoco Inc.
Sr. Vice President, Legal, and General Counsel P.O. Box 4783
Houston, Texas 77210-4783
Phone: (281) 293-1085
Fax: (281) 293-1440
September 9, 1998
Board of Directors
Conoco Inc.
600 North Dairy Ashford
Houston, TX 77079
Dear Directors:
I am Senior Vice President, Legal, and General Counsel of Conoco Inc., a
Delaware corporation formerly named Conoco Energy Company ("Conoco"). Pursuant
to Item 601 (b)(5) of Regulation S-K under the Securities Act of 1933, as
amended (the "Act"), I am rendering this opinion in connection with the initial
public offering by Conoco of shares (the "Shares") of Conoco's Class A Common
Stock, par value $.01 per share (the "Class A Common Stock").
In connection with this opinion, I have examined, directly or indirectly
through staff or otherwise, originals or copies, certified or otherwise
identified to my satisfaction, of each of the following documents:
1. the Registration Statement on Form S-1 (File No. 333-60119) as
filed with the Securities and Exchange Commission (the "SEC")
on July 29, 1998 under the Act;
2. Amendment No. 1 to the Registration Statement on Form S-1 as
filed with the SEC on August 21, 1998 under the Act;
3. Amendment No. 2 to the Registration Statement on Form S-1 as
filed with the SEC on September 9, 1998 under the Act (such
Registration Statement on Form S-1, as so amended, being
hereinafter referred to as the "Registration Statement");
4. the form of Underwriting Agreement proposed to be entered into
among Conoco, as U.S. issuer, and Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston Corporation, Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J.P. Morgan Securities Inc., Smith Barney Inc.,
BT Alex. Brown Incorporated, and Schroder & Co. Inc. as
representatives of the several underwriters named therein (the
"U.S. Underwriters"), and Morgan Stanley and Co.
International Limited, Credit Suisse First Boston (Europe)
Limited, Goldman Sachs International, Merrill Lynch
International Limited, J.P. Morgan Securities Ltd., Smith
Barney Inc.,
<PAGE> 2
Opinion Re Legality
September 9, 1998
Page 2
BT Alex. Brown International and J. Henry Schroder & Co.
Limited (together with the U.S. Underwriters, the
"Underwriters") filed as an exhibit to the Registration
Statement (the "Underwriting Agreement");
5. a specimen certificate representing the Class A Common Stock;
6. Conoco's Certificate of Incorporation, as presently in effect
and the form of Amended and Restated Certificate of
Incorporation to become effective upon consummation of the
offerings contemplated by the Registration Statement;
7. Conoco's By-Laws, as presently in effect and the form of
Amended and Restated By-Laws to become effective upon
consummation of the offerings contemplated by the Registration
Statement;
8. certain resolutions of Conoco's sole shareholder and the
Conoco Board of Directors relating to the adoption of the
Amended and Restated Certificate of Incorporation; and
9. certain resolutions of the Conoco Board of Directors and
drafts of certain resolutions (the "Draft Resolutions") of the
Pricing Committee of the Conoco Board of Directors (the
"Pricing Committee") relating to the issuance and sale of the
Shares and related matters.
I have also examined, directly or indirectly through staff or otherwise,
originals or copies, certified or otherwise identified to my satisfaction, of
such corporate records, certificates and other documents, such governmental
approvals and filings, and such questions of law, as I have considered
necessary or appropriate for the purposes of this opinion.
In giving the opinion below, I have assumed that the signatures on all
documents (other than those of Conoco, as to which I make no such assumption)
examined by me are genuine, an assumption which I have not independently
verified. I have also assumed (without investigation on my part) the legal
capacity of all natural persons, the authenticity of all documents submitted
for review as originals, the conformity to original documents of all documents
submitted for review as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making my
examination of documents executed or to be executed by parties other than
Conoco, I have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and I have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof.
<PAGE> 3
Opinion Re Legality
September 9, 1998
Page 3
Based upon the foregoing it is my opinion that the issuance and sale of the
Shares will have been duly authorized, and the Shares will be legally issued,
fully paid and non-assessable when:
1. Conoco's Amended and Restated Certificate of Incorporation in
the form examined by me has been filed with the Secretary of
State of Delaware and has become effective;
2. the Registration Statement has become effective;
3. the Draft Resolutions have been adopted by the Pricing
Committee;
4. the price at which the Shares are to be sold to the
Underwriters pursuant to the Underwriting Agreement and other
matters relating to the issuance and sale of the Shares have
been approved by the Pricing Committee in accordance with the
Draft Resolutions;
5. the Underwriting Agreement has been duly executed and
delivered; and
6. certificates representing the Shares in the form of the
specimen certificates examined by me have been manually signed
by an authorized officer of the transfer agent and registrar
for the Class A Common Stock and registered by such transfer
agent and registrar, and delivered to and paid for by the
Underwriters at a price per share not less than the per share
par value of the Class A Common Stock as contemplated by the
Underwriting Agreement.
The foregoing opinion is limited to the laws of the United States and the laws
of the State of Delaware and I am expressing no opinion as to the effect of the
laws of any other jurisdiction. Further, this opinion is furnished by me for
the benefit of the addressees and is not to be made available to, nor may it be
relied upon, by any other person, firm or entity.
Very truly yours,
R. A. Harrington
Sr. Vice President, Legal, and General Counsel
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EXHIBIT 10.5
DRAFT
TRANSITIONAL SERVICES AGREEMENT
This AGREEMENT, entered into and effective as of the ____ day of
____________, 1998 (the "Effective Date"), by and between E. I. DU PONT DE
NEMOURS AND COMPANY, a Delaware corporation, with its principal place of
business at 1007 Market Street, Wilmington, Delaware 19898 ("DuPont"), and
Conoco Inc., (formerly known as Conoco Energy Company) a Delaware corporation,
with its principal place of business at 600 North Dairy Ashford, Houston, Texas
77079 ("Conoco") (Conoco and DuPont are at times referred to herein
individually as a "Party" and collectively as the "Parties").
Whereas, prior to the initial public offering (IPO) of Conoco
(pursuant to the Restructuring, Transfer and Separation Agreement as of even
date herewith) DuPont has heretofore provided certain Transitional Services (as
hereinafter defined) to Conoco and Conoco has heretofore provided certain
Transitional Services to DuPont; and
Whereas, DuPont and Conoco have both requested from each that certain
such services continue pursuant to this Agreement; and
Whereas, DuPont and Conoco agreed to provide or caused each other to
be provided with these services on terms and conditions set forth herein.
Subject to the terms, conditions, covenants and provisions of this
Agreement, DuPont and Conoco mutually covenant and agree as follows:
ARTICLE 1
SERVICES PROVIDED
1.01 Transitional Services. (a) Upon the terms and subject to the
conditions set forth in this Agreement, DuPont or Conoco as the case may be
(hereinafter the "Service Provider") will provide to DuPont or Conoco as the
case may be (hereinafter the "Service Receiver") those administrative and
support services listed in Appendix A and B attached hereto (hereinafter
referred to individually as a "Transitional Service", and collectively as the
"Transitional Services"), during the time period for each Transitional Service
set forth on Appendix A or B, (hereinafter referred to as the "Time Periods"
for all of the Transitional Services, and the "Time Period" for each
Transitional Service).
(b) Service Provider shall perform the Transitional Services
exercising the same degree of care as it exercises in performing the same or
similar services for its own account, with priority equal to that provided to
its own businesses or those of any of its affiliates, subsidiaries or
divisions. Nothing in this Agreement shall require Service Provider to favor
Service Receiver over Service Provider's businesses or those of any of its
affiliates, subsidiaries or divisions.
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(c) In no event shall Service Receiver be entitled to any new
service or to increase its use of any of the Transitional Services above that
level of use specified in the Appendices without the prior written consent of
Service Provider, which consent may be withheld by Service Provider for any or
no reason in its sole and absolute discretion. Service Provider shall not be
required to provide Service Receiver extraordinary levels that are above the
ordinary levels which existed prior to the Effective Date of Transitional
Services, special studies, training, or the like or the advantage of systems,
equipment, facilities, training, or improvements procured, obtained or made
after the Effective Date by Service Provider.
(d) In addition to being subject to the terms and conditions
of this Agreement for the provision of the Transitional Services, Service
Receiver agrees that the Transitional Services provided by third parties shall
be subject to the terms and conditions of any agreements between Service
Provider and such third parties.
(e) The Parties acknowledge and agree that in respect of
Transitional Services performed outside the United States the Service Provider
and Service Receiver will in most cases not be DuPont or Conoco but one of
their respective subsidiary corporations (after implementation of the
Restructuring, Transfer and Separation Agreement). The obligations of DuPont
and Conoco hereunder in such situations will not be to provide or receive such
Transitional Services themselves but rather to use their best efforts to
require such subsidiaries to (i) provide or receive such services, as the case
may be, on the same terms and conditions as set out in this Transitional
Services Agreement and (ii) enter into agreements to provide or receive such
services, as the case may be, mutatis mutandis in form and substance the same
as this Transitional Services Agreement except to the extent it is necessary or
appropriate to modify such agreements to comply with local laws.
1.02 Representatives. DuPont and Conoco shall each nominate a
representative to act as the primary contact person for the provision of all of
the Transitional Services (collectively, the "Primary Coordinators"). The
initial Primary Coordinators shall be ____________________ for Conoco and
____________________ for DuPont. The initial coordinators for each Party for
each Transitional Service shall be the individuals named in the description of
such Transitional Service in Appendix A or B (the "Service Coordinators").
Each Party shall advise the other Party in writing of any change in the
Primary Coordinators and any Service Coordinator. DuPont and Conoco agree that
all communications relating to the provision of the Transitional Services shall
be directed to both the respective Service Coordinators and Primary
Coordinators for such Transitional Service.
1.03 Personnel. (a) In providing the Transitional Services, Service
Provider, as it deems necessary or appropriate in its sole discretion, may (i)
use its personnel or that of its affiliates, and (ii) employ the services of
third parties to the extent such third party services are routinely utilized to
provide similar services to other Service Provider businesses or are reasonably
necessary for the efficient performance of any of the Transitional Services.
(b) Service Receiver agrees that in the provision of the
Transitional Services, Service Provider shall be entitled to use a reasonable
amount of the services of those former
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employees of Service Provider, who will be employed by Service Receiver as a
result of the initial public offering of Conoco, which employees shall be made
available by Service Receiver to Service Provider for this purpose for
consideration, to be agreed provided, that Service Provider's use of such
employees shall not unreasonably interfere with the duties of such employees
for Service Receiver.
1.04 No Obligation to Continue to Use Transitional Services. (a)
Service Receiver shall have no obligation to continue to use any of the
Transitional Services and may delete any Transitional Service by providing to
Service Provider the written notice described in subsection (b) below. If any
Transitional Service is terminated by Service Receiver, Service Provider shall
have the option, in its sole and absolute discretion, to discontinue any
related Transitional Services (as specified in Appendix A or B) by providing
written notice to Service Receiver.
(b) For the purposes of this Section, unless otherwise
specifically set forth in Appendix A or B as the case may be, written notice of
the termination of a Transitional Service must be provided by Service Receiver
prior to the fifteenth (15th) day of a calendar month with such notice to be
effective as of the last day of the following calendar month.
(c) If any Transitional Service is terminated by Service
Receiver as described herein, Service Receiver does not have the right to
unilaterally reinstitute such Transitional Service.
1.05 Service Provider Access. To the extent reasonably required for
Service Provider's personnel to perform the Transitional Services, Service
Receiver shall provide Service Provider's personnel with access to its
equipment, office space, plants, and any other areas and equipment necessary
for the provision of the Transitional Services; provided, that such access
shall not unreasonably interfere with Service Receiver's conduct of its
business.
ARTICLE 2
COMPENSATION
2.01 Consideration. As consideration for the Transitional Services,
Service Receiver shall pay to Service Provider the amount specified for each
Transitional Service as set forth in Appendix A or B as the case may be. If
the amount to be paid for any Transitional Service is described in Appendix A
or B as "cost", the use of the term "cost" does not mean Service Provider's
cost to provide that Transitional Service, but the cost to Service Receiver to
receive such Transitional Service from Service Provider. Upon the termination
of any Transitional Service in accordance with Section 1.04 above, the
compensation to be paid under this Section 2.01 shall be reduced by the amount
specified for such terminated Transitional Service.
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2.02 Taxes.
(a) Income, Profits, and Capital Gains Taxes. Service
Provider shall pay all income and profits taxes and taxes on capital gains, and
related fines, penalties and interest thereon assessed or levied against
Service Provider by any government authority or any political subdivision
thereof or by the government of any other country against Service Provider or
Service Provider's subcontractors in respect of the Transitional Services
performed under this Agreement.
(b) Other Taxes. All other taxes (other than those specified
in 2.02(a) above), assessed on the provision of Transitional Services shall be
paid by Service Receiver.
2.03 Invoicing and Payment. (a) Service Receiver shall initiate
payment of all undisputed amounts contained in Service Provider's invoices
within 30 days after receipt thereof less any amount Service Receiver is
required by law to withhold or deduct. Such payment shall not prejudice
Service Receiver's right to subsequently dispute any part of an invoice. In
the event Service Receiver disputes an item billed, Service Receiver shall,
within 60 days of receipt of Service Provider's invoice, notify Service
Provider of the item in dispute, specifying Service Receiver's complaint.
Service Receiver may withhold payment of items in dispute without interest
until the dispute is resolved. The undisputed amount, however, shall be paid
without delay.
(b) Where applicable, Service Receiver and Service Provider
shall agree in advance on the gross lump sum amount to be charged or the "cost"
for the services to be provided, as specified in Appendix A or B, inclusive of
charges, overheads, handling fees and mark ups. These sums will then be
calculated and apportioned on a monthly basis and submitted by Service Provider
to Service Receiver as described above. In those areas where work cannot be
agreed on a lump sum basis, the variable basis (described in terms of readily
identifiable metrics) of billing and the required supporting documentation
shall be agreed as part of the service description. Such documentation will be
retained by Service Provider for a reasonable period subject to verification by
Service Receiver upon audit.
(c) Service Receiver, billing address and addressee shall be
set forth in Appendix A or B as the case may be.
(d) If any payment is not paid when due, Service Provider
shall have the right, without any liability to Service Receiver, or anyone
claiming by or through Service Receiver, to immediately cease providing the
Transitional Service(s) for which payment has not been made until the payment
in full of all such payments, which right may be exercised by Service Provider
in its sole and absolute discretion and shall not affect Service Provider's
right or ability to terminate this Agreement as set forth in Article 5 below.
2.04 Audits: Each Party, at its sole cost and expense, shall have
the right to audit the other Party's books of account and other records
pertaining to the cost of Transitional Services (including invoiced and
reimbursed costs) pursuant to this Agreement for a period of twenty-
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four (24) months following the end of the calendar year in which such
Transitional Services were rendered.
ARTICLE 3
LIMITATION OF LIABILITY AND WARRANTY
3.01 Transitional Services. (a) In the absence of gross negligence
or reckless or willful misconduct on Service Provider's part, and whether or
not it is negligent, Service Provider shall not be liable for any claims,
liabilities, damages, losses, costs, expenses (including, but not limited to,
settlements, judgments, court costs and reasonable attorneys' fees), fines and
penalties, arising out of any actual or alleged injury, loss or damage of any
nature whatsoever in providing or failing to provide the Transitional Services
to Service Receiver. Notwithstanding anything to the contrary contained
herein, in the event Service Provider commits an error with respect to or
incorrectly performs or fails to perform any Transitional Service, at Service
Receiver's request, Service Provider shall use reasonable efforts to correct
such error, re-perform or perform such Transitional Service; provided, that
Service Provider shall have no obligation to recreate any lost or destroyed
data to the extent the same cannot be cured by the re-performance of the
Transitional Service in question.
(b) Service Provider's liability for damages to Service
Receiver for any cause whatsoever, and regardless of the form of action,
whether in contract or in tort, including negligence, gross negligence or
willful misconduct, shall be limited to the payments made hereunder for the
specified Transitional Service that allegedly caused the damage during the
period in which the alleged damage was incurred by Service Receiver. In no
event shall Service Provider be liable for any damages caused by Service
Receiver's failure to perform Service Receiver's responsibilities hereunder.
Service Provider will not be liable to Service Receiver for any act or omission
of any other entity (other than due to a default by Service Provider in any
agreement between Service Provider and such other entity) furnishing any
Transitional Service
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN
OR AT LAW OR IN EQUITY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION
OR ANY OTHER LOSS) ARISING FROM OR RELATING TO ANY CLAIM MADE UNDER THIS
AGREEMENT OR REGARDING THE PROVISION OF OR THE FAILURE TO PROVIDE THE
TRANSITIONAL SERVICES.
ARTICLE 4
CONFIDENTIALITY
4.01 Obligation. (a) In addition to any obligations of
confidentiality pursuant to other agreements between the Parties, without the
prior written consent of the other Party, each Party shall hold in confidence
and not disclose to any third party (i) any confidential information received
by it from the other Party during the provision of the Transitional Services,
including, without limitation, information which is not related to the
Transitional Services; and (ii) with
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regard to Service Receiver, the specific terms, conditions and information
contained in this Agreement and any attachment hereto.
(b) Each Party agrees that it shall only use the confidential
information received by it from the other Party in connection with the
provision or receipt of the Transitional Services, and for no other purpose
whatsoever.
(c) For the purposes of this Agreement, confidential
information shall not include information:
(i) which is or becomes part of the public domain
other than through breach of this Agreement or through the fault of the
receiving Party;
(ii) which is or becomes available to the receiving
Party from a source other than the disclosing Party, which source has no
obligation of confidentiality to the disclosing Party in respect thereof;
(iii) which is required to be disclosed by law or
governmental order; or
(iv) the disclosure of which is mutually agreed to
by the Parties.
4.02 Effectiveness. The foregoing obligation of confidentiality
shall be in effect during the term of this Agreement and any extensions thereof
and for a period of twenty (20) years after the termination or expiration of
this Agreement.
4.03 Care and Inadvertent Disclosure. With respect to any
confidential information, each Party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held in
confidence; and
(b) upon the discovery of any inadvertent disclosure or
unauthorized use of said information, or upon obtaining notice of such a
disclosure or use from the other Party, it shall take all necessary actions to
prevent any further inadvertent disclosure or unauthorized use, and, subject to
the provisions of Article 3 above, such other Party shall be entitled to pursue
any other remedy which may be available to it.
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ARTICLE 5
TERM AND TERMINATION
5.01 Term. This Agreement shall become effective on the Effective
Date and shall remain in force until the expiration of the longest Time Period
(plus any extension in accordance with the provisions of Section 5.02 below)
unless all of the Transitional Services are terminated by Service Receiver in
accordance with Section 1.04 above, or this Agreement is terminated under
Section 5.03, 7.07 or 7.11 below prior to the end of such period.
5.02 Extension. Subject to the earlier termination of this Agreement
in accordance with Section 5.03, 7.07 or 7.11 below, Service Receiver may
extend each Time Period for one (1) additional thirty (30) day period by
providing Service Provider with at least forty-five (45) days' prior written
notice before the end of the Time Period in question.
5.03 Termination. (a) If a Party (hereafter called the "Defaulting
Party") shall fail to perform or default in the performance of any of its
obligations under any applicable Transitional Service (other than as described
in subsection (b) below), the other Party (hereinafter called the
"Non-Defaulting Party") may give written notice to the Defaulting Party
specifying the nature of such failure or default and stating that the
Non-Defaulting Party intends to terminate any affected Transitional Service if
such failure or default is not cured within forty five (45) days of such
written notice. If any failure or default so specified is not cured within
such forty five (45) day period, the Non-Defaulting Party may elect to
immediately terminate the affected Transitional Services; provided, however,
that if the failure or default relates to a good faith dispute by the
Defaulting Party, the Non-Defaulting Party may not terminate any such
Transitional Service pending the resolution of such dispute. Such termination
shall be effective upon giving a written notice of termination from the
Non-Defaulting Party to the Defaulting Party and shall be without prejudice to
any other remedy which may be available to the Non-Defaulting Party against the
Defaulting Party.
(b) Either Party may immediately terminate this Agreement by
written notice to the other Party without any prior notice upon the occurrence
of any of the following events:
(i) the other Party enters into proceedings in
bankruptcy or insolvency;
(ii) the other Party shall make an assignment for
benefit of creditors;
(iii) a petition shall be filed against the other
Party under a bankruptcy law, a corporate reorganization law, or any other law
for relief as a debtor (or similar law in purpose or effect); or
(iv) the other Party enters into liquidation or
dissolution proceedings.
5.04 Administrative and Support Services. (a) Service Receiver
acknowledges that Service Provider is providing the Transitional Services as an
accommodation to Service Receiver to allow Service Receiver a period of time to
obtain its own administrative and support
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services for its businesses. During the term of this Agreement, Service
Receiver agrees that it shall take all steps necessary to obtain its own
administrative and support services prior to the expiration of the Time Period
for each other Transitional Service.
(b) SERVICE PROVIDER SHALL HAVE NO LIABILITY OF ANY KIND OR
NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, INDIRECT, CONSEQUENTIAL,
SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES) TO SERVICE RECEIVER, OR TO ANYONE
CLAIMING BY OR THROUGH SERVICE RECEIVER, FOR SERVICE PROVIDER'S CEASING TO
PROVIDE (OR HAVE A THIRD PARTY PROVIDE) ANY TRANSITIONAL SERVICE UPON THE
EXPIRATION OF THE TIME PERIOD (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH
SECTION 5.02). SERVICE RECEIVER SHALL HOLD SERVICE PROVIDER HARMLESS AND
WAIVES ANY AND ALL RIGHTS, AT LAW OR IN EQUITY, THAT IT MAY HAVE TO BRING ANY
SUIT, INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF, OR TO ANY CLAIMS,
DAMAGES, LOSS, COSTS (INCLUDING ATTORNEY FEES), ACTIONS, OR LIABILITY AGAINST
SERVICE PROVIDER OR SERVICE PROVIDER'S EMPLOYEES, AGENTS, ASSIGNEES,
SUBSIDIARIES OR AFFILIATES ARISING OUT OF SERVICE PROVIDER'S CEASING TO PROVIDE
ANY TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE TIME PERIOD (AND ANY
EXTENSION THEREOF IN ACCORDANCE WITH SECTION 5.02) FOR SUCH TRANSITIONAL
SERVICE OR THE TERMINATION OF THIS AGREEMENT.
5.05 Survival of Certain Obligations. Without prejudice to the
survival of the other agreements of the Parties, the following obligations
shall survive the termination of this Agreement: (a) for the period set forth
therein, the obligations of each Party under Articles 4, 5 and 6, and (b)
Service Provider's right to receive the compensation for the Transitional
Services provided, and reimbursement of the costs and expenditures described in
Section 2.01 above incurred, prior to the effective date of termination.
5.06 Conditions. Consummation of the transactions and Appendices
provided in this Agreement are conditioned upon and shall only be effected
after, (i) the final approval of the Separation, the Restructuring (as such
terms are defined in the Restructuring, Transfer and Separation Agreement), and
the IPO by the Board of Directors of DuPont and (ii) the closing of the IPO.
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ARTICLE 6
INDEMNITIES
6.01 Indemnity by Service Receiver. Subject to the limitation set
forth in Article 3.01(c) above, Service Receiver shall indemnify, defend and
hold Service Provider harmless against any and all claims, liabilities, damages
losses, costs, expenses (including, but not limited to, settlements, judgments,
court costs and reasonable attorneys' fees), fines and penalties arising out of
any injury or death, and any loss or damage of any nature whatsoever
(including, without limitation, loss of or damage to property, or damage to the
environment) due or relating to the operations and activities of Service
Receiver, except for losses, liabilities, obligations, costs, expenses or
damages which are the direct and sole result of gross negligence or willful
misconduct of the personnel of Service Provider and/or any contract personnel
who are managed and directed by Service Provider.
6.02 Indemnity by the Parties for Claims by Employees. Service
Provider and Service Receiver mutually agree to defend, indemnify and hold
harmless each other from and against any and all claims or causes of action for
injury to or death of their respective employees which may arise in connection
with the performance of this Agreement, regardless of the cause or reason
thereof, and regardless of the negligence of the other.
6.03 Term of Indemnity and Filing of Actions. The indemnities
contained in this Article shall survive for a period of three (3) year after
the termination of this Agreement for any reason, and any claim for indemnity
under this Article must be made by written notice to the indemnifying Party
within one (1) year after the discovery thereof.
ARTICLE 7
MISCELLANEOUS
7.01 Amendments. This Agreement shall not be supplemented, amended or
modified in any manner whatsoever (including by course of dealing or of
performance or usage of trade) except in writing signed by the Parties.
7.02 Successors and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party shall assign this Agreement or any rights herein
without the prior written consent of the other Party, which may be withheld for
any or no reason.
7.03 Texas Deceptive Trade Practices - Consumer Protection Act.
(a) DuPont and Conoco have each assessed their respective
rights, liabilities, and obligations under the Texas Deceptive Trade Practices
- - Consumer Protection Act as set out in Texas Business & Commerce Code
Annotated Section 17.41 et seq. (Vernon's) as interpreted by applicable case
law (the "Act"). DuPont and Conoco each agree that the Act does not apply to
either DuPont or Conoco because neither DuPont nor Conoco qualifies as a
"Consumer" under Section 17.45(4) of the Act. However, in the event that
either DuPont or Conoco is found to be
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a consumer under the Act, each of them waive their rights under the Act
pursuant to Section 7.03(b) below. In this regard, DuPont and Conoco each
represent to one another that (i) neither of them is in a significantly
disparate bargaining position and (ii) each of them is represented by legal
counsel in seeking or acquiring the goods or services.
(b) WAIVER OF CONSUMER RIGHTS. EACH OF DUPONT AND CONOCO
WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION
ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE CODE, A LAW THAT GIVES
CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. EACH OF DUPONT AND CONOCO, AFTER
CONSULTATION WITH AN ATTORNEY OF ITS OWN SELECTION, VOLUNTARILY CONSENTS TO
THIS WAIVER.
7.04 Notices. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subsection (c) below; or (b) on the next business day after delivery to a
nationally-recognized express delivery service with instructions and payment
for overnight delivery; or (c) on the fifth (5th) day after deposited in any
depository regularly maintained by the United States postal service, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the following addresses (i.e., the Primary Coordinators and to the respective
Service Coordinators as identified in the applicable Appendix) or to such other
address as the Party to be notified shall have specified to the other Party in
accordance with this section:
If to DuPont:
E. I. du Pont de Nemours and Company
1007 Market Street
Wilmington, Delaware 19898, USA
Attention:
Fax Number:
If to Conoco:
Conoco Inc.
600 North Dairy Ashford
Houston, TX 77079
Attention:
Fax Number:
7.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the United States of America and the
State of Delaware, and shall not be governed by the United Nations Convention
on Contracts for the International Sale of Goods.
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7.06 Headings. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the
Articles or Sections in which they appear or to which they relate.
7.07 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law. If any portion of this Agreement is declared invalid for
any reason in any jurisdiction, such declaration shall have no effect upon the
remaining portions of this Agreement, which shall continue in full force and
effect as if this Agreement had been executed with the invalid portions thereof
deleted; provided, that the entirety of this Agreement shall continue in full
force and effect in all other jurisdictions. Notwithstanding the foregoing, if
the portion of this Agreement which is declared invalid has the effect of
reducing the compensation due hereunder or preventing the reimbursement of the
costs and expenditures described in Section 2.01(b) above, Service Provider, at
its sole discretion, may terminate this Agreement by providing thirty (30) days
written notice to Service Receiver.
7.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
7.09 Rights of the Parties. Nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give any person or
entity, other than the Parties and their respective subsidiaries and
affiliates, as the case my be, any rights or remedies under or by reason of
this Agreement or any transaction contemplated thereby.
7.10 Reservation of Rights. Either Party's waiver of any of its
rights or remedies afforded hereunder or at law is without prejudice and shall
not operate to waive any other rights or remedies which that Party shall have
available to it, nor shall such waiver operate to waive the Party's rights to
any remedies due to a future breach, whether of a similar or different nature.
The failure or delay of a Party in exercising any rights granted to it
hereunder shall not constitute a waiver of any such right and that Party may
exercise that right at any time. Any single or partial exercise of any
particular right by Service Provider shall not exhaust the same or constitute a
waiver of any other right.
7.11 Force Majeure. Any failure or omission by a Party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such Party, including, but not limited to, the
following, which, for purposes of this Agreement shall be regarded as beyond
the control of each of the Parties hereto: acts of God, fire, storm, flood,
earthquake, governmental regulation or direction, acts of the public enemy,
war, rebellion, insurrection riot, invasion, strike or lockout; provided,
however, that such Party shall resume the performance whenever such causes are
removed. Notwithstanding the foregoing, if such Party cannot perform under
this Agreement for a period of forty-five (45) days due to such cause or
causes, either Party may terminate this Agreement by providing written notice
to the other Party.
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7.12 Relationship of the Parties. It is expressly understood and
agreed that in rendering the Transitional Services hereunder, Service Provider
is acting as an independent contractor and that this Agreement does not
constitute either Party as an employee, agent or other representative of the
other Party for any purpose whatsoever. Neither Party has the right or
authority to enter into any contract, warranty, guarantee or other undertaking
in the name or for the account of the other Party, or to assume or create any
obligation or liability of any kind, express or implied, on behalf of the other
Party, or to bind the other Party in any manner whatsoever, or to hold itself
out as having any right, power or authority to create any such obligation or
liability on behalf of the other or to bind the other Party in any manner
whatsoever (except as to any actions taken by either Party at the express
written request and direction of the other Party).
7.13 Setoff. Subject to 2.03, if Service Receiver fails to pay any
amount owing to Service Provider when due, Service Provider is hereby
authorized at any time from time to time, without notice to Service Receiver
(any such notice being expressly waived by Service Receiver), to set off and
apply (or cause any affiliate of Service Provider to set off and apply) any and
all amounts at any time held and any indebtedness at any time owing by Service
Provider or such affiliate to or for the credit of the account of Service
Receiver, against any or all of such amounts, and any amount due under this
Agreement, any promissory note or otherwise, irrespective of whether or not
Service Provider shall have made any demand and although such obligations may
be unmatured. The rights stated in this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off or
lien) that Service Provider may have.
7.14 Conflict. In case of conflict between the terms and conditions
of this Agreement and any Appendix, the terms and conditions of such Appendix
shall control and govern as it relates to the Transitional Service to which
those terms and conditions apply.
7.15 Entire Agreement. All understandings, representations,
warranties and agreements, if any, heretofore existing between the Parties
regarding the Transitional Services are merged into this Agreement, including
the Appendices attached hereto, which fully and completely express the
agreement of the Parties with respect to the subject matter hereof. The
Parties have entered into this Agreement after adequate investigation with
neither Party relying upon any statement or representation not contained in
this Agreement, or Appendices attached hereto.
7.16 Language. This Agreement is executed in the English language,
and any interpretation or construction of this Agreement shall be based solely
on the English language official text.
7.17 Waiver of Jury Trial and Consent to Jurisdiction. EACH PARTY
HEREBY (a) WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION
WITH ANY MATTER OR RIGHT ARISING UNDER THIS AGREEMENT OR RELATING TO THE
TRANSITIONAL SERVICES, (b) CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE
OR FEDERAL COURT WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREES THAT ALL
ACTIONS OR PROCEEDINGS
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ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE TRANSITIONAL SERVICES SHALL
BE LITIGATED IN ANY SUCH COURT, AND (c) WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED UPON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDINGS IN ANY SUCH COURT.
ARTICLE 8
MONITORING COMMITTEE
8.01 Establishment. Both Primary Coordinators of the Parties shall
constitute the Monitoring Committee.
8.02 Purpose. The purpose of the Monitoring Committee is to review
the implementation of this Agreement and to use all reasonable efforts to
resolve issues in an effort to ensure the smooth and efficient operation of
this Agreement.
8.03 Frequency of Meetings. The Monitoring Committee shall meet once
a month or as necessary throughout the duration of this Agreement (other than
where the Parties agree that such a periodic meeting is not necessary) and as
otherwise reasonably requested by either Party.
8.04 Meeting Procedure. The Monitoring Committee shall keep minutes
of its meetings and develop a reasonable procedure if needed.
ARTICLE 9
DISPUTE RESOLUTION
9.01 Alternative Dispute Resolution
(a) The Parties understand and appreciate that their mutual
interests will be best served by effecting a rapid and fair resolution of any
claims or disputes which may arise out of this Agreement or from any dispute
concerning this Agreement's terms. Therefore, each Party agrees, to use its
best efforts to resolve all such disputes as rapidly as possible on a fair and
equitable basis. Toward this end each Party agrees to develop and follow a
process for presenting, rapidly assessing, and settling claims and other
disputes on a fair and equitable basis.
(b) If any dispute or claim arising under this Agreement
cannot be readily resolved by the Parties pursuant to Section 9.01(a), the
Parties agree to refer the matter to the Monitoring Committee which shall meet
and attempt to resolve the dispute within fifteen (15) days from the date the
dispute was brought before its attention.
(c) If any dispute or claim arising under this Agreement
cannot be resolved by the Monitoring Committee pursuant to Section 9.01(b), the
Parties agree to refer the matter to a panel consisting of one (1) senior
executive from each Party for review and resolution. The senior executive
shall not have been directly involved in the claim or dispute. A copy of the
Agreement terms, relevant facts, areas of disagreement and a concise summary of
basis of each
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<PAGE> 14
side's contention will be provided to both executives who shall review the
same, and attempt to reach a mutual resolution of the issue. The senior
executives shall meet and resolve the dispute within thirty (30) days of their
appointment.
IN WITNESS WHEREOF, the parties hereto have caused this Transitional
Services Agreement to be executed the day and year first above written.
E. I. DU PONT DE NEMOURS AND COMPANY
By:
------------------------------------------
Title:
---------------------------------------
CONOCO INC.
By:
------------------------------------------
Title:
---------------------------------------
14
<PAGE> 1
EXHIBIT 10.07
NATURAL GAS SUPPLY AGREEMENT
This Agreement is effective October 1, 1998 between Conoco Inc., a Delaware
corporation, ("Conoco") and E. I. du Pont de Nemours and Company, ("DuPont"), a
Delaware corporation.
1. SCOPE OF SERVICE
1.1 Gas Procurement: Conoco will contract for the purchase,
transportation and delivery of all of the natural gas supply
requirements for DuPont's facilities listed on Exhibit A ("Plants"),
including the negotiation, execution and management of such
contracts. The intent will be to minimize DuPont's gas costs
commensurate with the degree of supply security agreed between the
parties. Any contract in excess of a one-year term will require
DuPont's concurrence.
1.2 Scheduling and Dispatching: Conoco will provide all dispatching
services for gas supply to the Plants, including nomination,
scheduling and adjustment of each Plant's daily gas supply delivered
into the Plants' facilities. DuPont will have the right to adjust
its quantities during the Month by notifying Conoco of such
adjustments, and Conoco will use its best efforts to effect such
adjustments.
1.3 Gas Balancing: Conoco will manage and reconcile all transportation
and supplier contracts for DuPont's gas supply, including
maintaining accounts and records of transportation and storage of
the gas, maintaining receipts and deliveries in compliance with the
applicable pipeline imbalance and scheduling tolerances of the
transporters, managing any imbalances within the period allowed for
cure, and determining the validity of any imbalance penalty charge.
This service will include management of that certain Natural Gas
Transfer Agreement, dated December 12, 1991, between DuPont and
Beaumont Methanol Corporation relating to delivery of gas at
DuPont's Beaumont Works Plant in Jefferson County, Texas.
1.4 Transportation Capacity: Conoco will manage any pipeline capacity
owned by DuPont, including monitoring such capacity reallocations
and available open access storage.
1.5 Accounting: Conoco will provide all accounting and administrative
services required in connection with DuPont's gas supply, including
preparing monthly reports, verifying the accuracy of invoices,
monitoring the telemetry readings for the Texas Plants, and
monitoring utility banking and balancing. Conoco will also prepare
monthly invoices for each Plant and periodic reports of gas usage
and costs.
<PAGE> 2
1.6 Consulting: Conoco will provide consulting services to DuPont in
connection with state and federal regulatory requirements, analyzing
daily, monthly and yearly supply requirements, projecting gas supply
costs, and operating the Plants so as to minimize gas costs.
1.7 Power of Attorney: DuPont will appoint designated personnel of
Conoco as agents and attorneys-in-fact to exercise those powers
necessary to perform the services described in this Contract,
pursuant to the Power of Attorney for Natural Gas Supply attached
hereto as Exhibit B.
2. COMPENSATION
2.1 DuPont will reimburse Conoco for all direct costs incurred by Conoco
in the acquisition, transportation, storage, delivery or other
handling of gas delivered to DuPont, including, but not limited to,
the purchase price for the gas, transportation and distribution
charges, reservation charges, deficiency charges, pipeline imbalance
charges, storage and parking fees, and Taxes imposed with respect to
the gas prior to delivery at the Plant(s).
2.2 The parties anticipate that Conoco will acquire gas supplied to
DuPont pursuant to this Agreement from sources other than Conoco's
own production. However, the parties recognize that Conoco produced
or controlled gas may from time to time be sold to DuPont at
applicable market prices.
2.3 DuPont will pay Conoco a Service Charge of $0.012 per mmbtu of gas
delivered to the Texas Plants and $0.042 per mmbtu of gas delivered
to the non-Texas Plants.
2.4 Conoco will be entitled to receive the Fees payable by Beaumont
Methanol Corporation under the DuPont/BMC Agreement.
3. TERM
3.1 This Agreement will be effective from October 1, 1998 for a primary
term of one year, and shall continue thereafter until terminated by
either party upon not less than 180 days written notice.
3.2 Notwithstanding the foregoing, if either party issues a notice to
terminate this Agreement and DuPont negotiates with a third party to
provide all or part of the supply services contemplated under this
Agreement, Conoco shall have the right to match such third party's
bonafide offer; provided that Conoco matches the offer within 30
days after written notice from DuPont providing reasonable detail of
the terms and conditions of the third party offer.
2
<PAGE> 3
3.3 During the first month following a notice of termination, Conoco
will provide DuPont with copies of all supply and transportation
agreements between Conoco and third parties that relate solely to
gas supply to the Plant(s) and are in effect at the time of notice
of termination. During the last six months of this Agreement, Conoco
will follow DuPont's direction with regard to the continuance or
termination of such agreements as permitted by their terms. Upon
termination of this Agreement, DuPont agrees to receive assignment
of any such agreements still in effect as of the termination date.
4. COMMUNICATIONS
4.1 No less than once per year, appropriate representatives of DuPont
and Conoco will meet to review and agree upon the gas supply
strategy for each Plant, including the appropriate blend of firm and
spot supply contracts and the amount of swing required in the firm
supply contracts, and any transportation requirements.
4.2 No later than ten days prior to each Month, each Plant will notify
Conoco of its anticipated gas supply requirements for the following
Month, including its minimum and maximum daily requirements and any
other operational information which could have a significant effect
on the Plant's gas requirements during the Month. Conoco will
arrange for gas supply to the Plant(s) in accordance with such
notification and information.
4.3 Conoco and DuPont will cooperate in communicating throughout the
Month regarding any material changes in a Plant's gas requirements.
4.4 Upon DuPont's request from time to time, Conoco will provide DuPont
with reports of plant consumption volumes, weighted average cost of
gas, published gas prices, and other industry data.
4.5 Communications to DuPont will be directed to the appropriate
representatives for each Plant and/or business unit, as designated
by DuPont from time to time.
4.6 Payments from DuPont to Conoco will be made per directions on the
invoice. Other communications to Conoco will be directed to the
appropriate representative as listed below. Conoco may modify these
communication instructions at any time upon written notice.
Manager Gas Marketing
Natural Gas & Gas Products
Conoco Inc.
P. O. Box 2197 CH1066
Houston, TX 77252
600 North Dairy Ashford (77079-6651)
Telephone (281) 293-1189
Fax: (281) 293-1720
3
<PAGE> 4
5. BILLING AND PAYMENT
5.1 Conoco shall invoice DuPont for gas delivered in the preceding Month
and for any other applicable charges, providing supporting
documentation acceptable in industry practice to support the amount
charged. If the actual quantity delivered is not known by the
billing date, billing will be prepared based on the quantity of gas
confirmed for delivery by the Delivering Transporter. The invoiced
quantity will then be adjusted to the actual quantity on the
following Month's billing or as soon thereafter as actual delivery
information is available.
5.2 DuPont shall remit the amount due by electronic funds transfer (EFT)
initiated on or before 10 days after receipt of Conoco's invoice;
provided that if the tenth day is not a Business Day, the EFT shall
be initiated on or before the next Business Day. If DuPont fails to
remit the full amount payable by it when due, interest on the unpaid
portion shall accrue at a rate equal to the lower of (i) the
then-effective prime rate of interest published under "Money Rates"
by The Wall Street Journal, plus two percent per annum from the date
due until the date of payment; or (ii) the maximum applicable lawful
interest rate. If DuPont, in good faith, disputes the amount of any
such statement or any part thereof, DuPont will pay to Conoco such
amount as DuPont concedes to be correct against Conoco's invoice for
that amount; provided, however, if DuPont disputes the amount due,
DuPont must provide supporting documentation acceptable in industry
practice to support the amount paid or disputed.
5.3 Any party shall have the right, at its own expense, upon reasonable
notice and at reasonable times, to examine the books and records of
the other party to the extent reasonably necessary to verify the
accuracy of any statement, charge, payment, or computation made
under the Agreement. This examination right shall not be available
with respect to proprietary information not directly relevant to
transactions under this Agreement. All invoices and billings shall
be conclusively presumed final and accurate unless objected to in
writing, with adequate explanation and/or documentation, within two
years after the Month of gas delivery. All retroactive adjustments
shall be paid in full by the party owing payment within 30 days of
notice and substantiation of such inaccuracy.
6. QUALITY AND MEASUREMENT
All gas supplied by Conoco shall meet the quality and heat content
requirements of the Delivering Transporters. The unit of quantity
measurement for purposes
4
<PAGE> 5
of this Agreement shall be one mmbtu dry. Measurement of gas
quantities hereunder shall be in accordance with the established
procedures of the Delivering Transporter.
7. TAXES
DuPont shall pay or cause to be paid all Taxes on or with respect to
the gas upon and after delivery at the Plant(s). If Conoco is
required to remit or pay Taxes that are DuPont's responsibility
hereunder, DuPont shall reimburse Conoco for such Taxes in
accordance with Article 5. If any Plant is entitled to an exemption
from any such Taxes or charges, DuPont shall furnish the Conoco any
necessary documentation thereof.
8. TITLE, WARRANTY AND INDEMNITY
8.1 Except for gas acquired by Conoco as agent for DuPont, title to gas
delivered to DuPont shall pass from Conoco to DuPont at the inlet
flange of DuPont's facilities at the Plants. Conoco shall have
responsibility for and assume any liability with respect to the gas
prior to its delivery to DuPont at the Plants. Conoco shall have no
responsibility for and no liability with respect to said gas after
its delivery to DuPont at the Plants.
8.2 Conoco warrants that it will have the right to convey and will
transfer good and merchantable title to all gas delivered by it to
DuPont free and clear of all liens, encumbrances, and claims.
8.3 Conoco agrees to indemnify DuPont and save it harmless from all
losses, liabilities or claims, including attorney's fees and costs
of court ("Claims") from any or all persons, arising from or out of
claims of title, personal injury or property damage from the gas or
other charges thereon which attach before title passes to DuPont,
except to the extent that any such Claim, injury, or damage is
caused by the negligence, willful misconduct or breach of this
Agreement by DuPont. DuPont agrees to indemnify Conoco and save it
harmless from all Claims from any or all persons arising from or out
of claims regarding payment, personal injury or property damage from
said gas or other charges thereon which attach after title passes to
DuPont, except to the extent that any such Claim, injury, or damage
is caused by the negligence, willful misconduct or breach of this
Agreement by Conoco.
9. FORCE MAJEURE
9.1 Neither party shall be liable to the other for failure to perform an
obligation under this Agreement to the extent such failure was
caused by Force Majeure; provided that a Force Majeure will excuse a
delay in making payment due hereunder, but not the underlying
obligation to pay. The term "Force Majeure" as employed herein means
any cause not
5
<PAGE> 6
reasonably within the control of the party claiming suspension, as
further defined in Section 9.2.
9.2 Force Majeure shall include but not be limited to the following: (i)
physical events such as acts of God, landslides, lightning,
earthquakes, fires, storms or storm warnings such as hurricanes
which result in evacuation of the affected area, floods, washouts,
explosions, breakage or accident or necessity of repairs to
machinery or equipment or lines of pipe; (ii) weather related events
affecting an entire geographic region, such as low temperatures
which cause freezing or failure of wells or lines of pipe; (iii)
interruption of firm transportation and/or storage by transporters;
(iv) acts of others such as strikes, riots, sabotage, insurrections
or wars; and (v) governmental actions such as necessity for
compliance with any court order, law, statute, ordinance, or
regulation promulgated by a governmental authority having
jurisdiction. Each party shall make reasonable efforts to avoid the
adverse impacts of a Force Majeure and to resolve the event or
occurrence once it has occurred in order to resume performance.
9.3 Neither party shall be entitled to the benefit of the provisions of
Force Majeure to the extent the party claiming excuse failed to
remedy the condition and to resume the performance of such covenants
or obligations with reasonable dispatch.
9.4 Notwithstanding anything to the contrary herein, the parties agree
that the settlement of strikes, lockouts or other industrial
disturbances shall be entirely within the sole discretion of the
party experiencing such disturbance.
9.5 The party whose performance is prevented by Force Majeure must
provide notice to the other party. Initial notice may be given
orally; however, written notification with reasonably full
particulars of the event or occurrence is required as soon as
reasonably possible. Upon providing written notification of Force
Majeure to the other party, the affected party will be relieved of
its obligation to the extent and for the duration of the Force
Majeure, and neither party shall be deemed to have failed in such
obligations to the other during such occurrence or event.
10. MISCELLANEOUS
10.1 Confidentiality. DuPont and Conoco agree to maintain the
confidentiality of this Agreement and all information acquired in
the performance of the Agreement relating to the activities or
operations of the other party. DuPont and Conoco each agree not to
divulge any such information to any third party without the express
written consent of the other party, except as required by law.
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<PAGE> 7
10.2 Assignment. This Agreement shall be binding upon the successors,
assigns, personal representatives and heirs of the respective
parties hereto, and the covenants, conditions, rights and
obligations of this Agreement shall run for the full term of this
Agreement. No assignment of this Agreement, in whole or in part,
will be made without the prior written consent of the non-assigning
party, which consent will not be unreasonably withheld or delayed;
provided, either party may transfer its interest to any parent or
affiliate by assignment, merger or otherwise without the prior
approval of the other party. Upon any transfer and assumption, the
transferor shall not be relieved of or discharged from any
obligations hereunder.
10.3 Severability. If any provision in this Agreement is determined to be
invalid, void or unenforceable by any court having jurisdiction,
such determination shall not invalidate, void, or make unenforceable
any other provision, agreement or covenant of this Agreement.
10.4 Waiver. No waiver of any breach of this Agreement shall be held to
be a waiver of any other or subsequent breach.
10.5 Entire Agreement. This Agreement sets forth all understandings
between the parties respecting the subject matter hereof, and any
prior contracts, understandings and representations, whether oral or
written, relating to such transactions are replaced and superseded
by this Agreement. This Agreement may be amended only by a writing
executed by both parties.
10.6 Laws and Regulation. This Agreement and all provisions herein will
be subject to all applicable and valid statutes, rules, orders and
regulations of any Federal, State, or local governmental authority
having jurisdiction over the parties, their facilities, gas supply,
this Agreement or any provisions thereof.
10.7 No Third Party Beneficiary. There is no third party beneficiary to
this Agreement.
10.8 Further Assurances. The parties agree to execute and deliver from
time to time such further instruments and do such other acts as may
be reasonably necessary to effectuate the purposes of this
Agreement.
11. DEFINITIONS
"BUSINESS DAY" shall mean any day except Saturday, Sunday or Federal
Reserve Bank holidays.
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<PAGE> 8
"CONOCO" shall mean Conoco Inc., a Delaware corporation, issued
Charter No. 523126 by the Secretary of State of the state of
Delaware, with primary offices in Houston, Texas.
"DELIVERING TRANSPORTER" shall mean any Transporter delivering gas
into a Plant's facilities, except that for the Texas Plants,
Delivering Transporter shall mean the Transporter delivering gas to
Longhorn Pipeline Company.
"DUPONT/BMC AGREEMENT" shall mean that certain Natural Gas Transfer
Agreement dated December 12, 1991, between DuPont and Beaumont
Methanol Corporation, relative to the receipt and delivery of gas at
DuPont's Beaumont Plant, located in Jefferson County, Texas.
"MMBTU" shall mean 1,000,000 British thermal units.
"PLANT(S)" shall mean the DuPont owned and operated facilities
listed on Exhibit A.
"MONTH" shall mean a calendar month.
"TAXES" shall mean all taxes, fees, levies, penalties, licenses or
charges imposed by any governmental authority.
As evidence of the parties' agreement to the terms and conditions of this
Agreement, the appropriate representative of each party has executed this
Agreement in the spaces provided below.
E. I. DU PONT DE NEMOURS AND COMPANY
By:
---------------------------------
Name: Samir A. Hamdan
Title: Director Global Sourcing,
Raw Materials, Energy & Packaging
Date:
---------------------------------
CONOCO INC.
By:
---------------------------------
Name: R. E. Thompson
Title: General Manager - Natural Gas
Date:
---------------------------------
Signature page to that certain Natural Gas Supply Agreement, dated October 1,
1998 between Conoco Inc. and E. I. du Pont de Nemours and Company.
8
<PAGE> 9
EXHIBIT A
TO
NATURAL GAS SUPPLY AGREEMENT
OCTOBER 1, 1998
PLANTS
(CITY, COUNTY/PARISH, STATE)
<TABLE>
<CAPTION>
TEXAS NON-TEXAS EAST NON-TEXAS WEST
----- -------------- --------------
<S> <C> <C>
Beaumont, Jefferson Athens, Clarke, GA Antioch, Contra Costa, CA
Corpus Christi, San Patricio Barley Mill Plaza, Wilmington, DE Axis, Mobile, AL
Deer Park, Harris (4) Belle, Kanawha, WV (3) Burnside, Ascension Parish, LA
La Porte, Harris Cedar Creek, Cumberland, NC (1) De Lisle, Harrison, MS
La Porte (Cogen), Harris Chambers Works, Salem, NJ East Chicago, Cook, IN
Sabine, Orange Chattanooga, Hamilton, TN El Paso, Woodford, IL
Victoria, Victoria Circleville, Pickaway, OH Flint, Genesee, MI
Edge Moor, New Castle, DE Ft. Madison, Lee, IA
Experimental Station, Wilmington, DE Louisville, Jefferson, KY (2)
Florence, Florence, SC Memphis, Shelby, TN (1)(2)
Front Royal, Warren, VA Montague, Muskegon, MI
Hopewell, Prince George, VA (1) Mt. Clemens, Macomb, MI
Kinston, Lenoir, NC Pontchartrain, St.John Baptist Parish, LA
Martinsville, Henry, VA Troy, Oakland, MI
May, Kershaw, SC
New Johnsonville, Humphreys, TN
Niagara Falls, Niagara, NY
Old Hickory, Wilson, TN
Parkersburg, Wood, WV
Repauno, Gloucester, NJ
Research Triangle, Durham, NC
Rochester, Monroe, NY
Seaford, Sussex, DE
Spruance, Chesterfield, VA
Stine-Haskell Research Center, Newark, DE
Toledo, Lucas, OH
Towanda, Bradford, PA
Waynesboro, Augusta, VA
Yerkes, Niagara, NY
</TABLE>
Notes:
(1) Includes ICI plants located in the same city.
(2) Includes Protein Technology, Inc. Plants located in the same city.
(3) Includes Praxair Plant also located in the same city.
(4) DuPont Acetylene Plant located within the Rohm & Haas facility at Deer
Park.
9
<PAGE> 10
EXHIBIT B
POWER OF ATTORNEY FOR NATURAL GAS SUPPLY
E. I. du Pont de Nemours and Company (DuPont), a Delaware corporation with
principal offices in Wilmington, Delaware, hereby appoints certain designated
personnel of Conoco Inc., formerly Continental Oil Company, (Conoco), a Delaware
corporation identified by Charter No. 523126 with principal offices in Houston,
Texas, as DuPont's true and lawful agents and attorneys-in-fact to exercise the
powers listed below in DuPont's name and place, all in support of Conoco's
natural gas supply service to DuPont.
1. Designated Powers:
1.1 To negotiate and execute any contracts for the purchase, sale,
exchange, storage or transportation of natural gas.
1.2 To amend, extend, renew or cancel any contracts relating to natural
gas.
1.3 To do all other things and perform all other acts as may be
necessary, appropriate or convenient for the purchase, acquisition, use or
consumption of natural gas by or on behalf of DuPont, including the
transportation, storage and delivery of natural gas.
1.4 To tender, pay, demand, collect, receive or accept all sums of money
due or payable under or arising from any contract for the purchase, sale,
exchange, storage or transportation of natural gas.
1.5 To do or perform any act or thing necessary, appropriate or
convenient concerning any ruling or regulation by any court, agency or
governmental entity in relation to or in connection with any of the
matters herein.
2. Designated Personnel:
The following personnel of Conoco Natural Gas & Gas Products business unit, and
their successors and assigns, are designated DuPont's agents by this power of
attorney: Vice President and General Manager, Manager Gas Marketing, and
Director Gas Marketing.
3. Adoption and Ratification:
DuPont hereby declares that each and every thing done, acts performed, and
instrument executed and delivered by its said agents and attorneys-in-fact in
connection with the exercise of any the powers designated above shall be good,
valid and effectual to all intents and purposes as if the same had been done,
performed,
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<PAGE> 11
executed or delivered by DuPont in its corporate presence; and DuPont
hereby ratifies whatsoever said agents and attorneys-in-fact shall lawfully do
by virtue hereof.
4. Term
This power of attorney shall be valid as of October 1, 1998 for a primary term
of one year, unless extended by written notice from DuPont.
E. I. DU PONT DE NEMOURS AND COMPANY
By:
--------------------------------------------
Samir A. Hamdan
Director Global Sourcing,
Raw Materials, Energy & Packaging
ATTEST:
- --------------------------------
Assistant Secretary
11
<PAGE> 1
EXHIBIT 10.8
SEVERANCE AGREEMENT
THIS AGREEMENT, dated May 10, 1998, is made by and between
Conoco Inc., a Delaware corporation (the "Company"), and Archie W. Dunham (the
"Executive").
WHEREAS, the Company considers it essential to its best
interests to foster the continued employment of the Executive; and
WHEREAS, the Board recognizes that the possibility of a Change
in Control exists and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders;
and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree
as follows:
<PAGE> 2
1. Defined Terms. The definitions of capitalized terms used
in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall
commence on the date hereof and shall continue in effect through the third
anniversary thereof; provided, however, that if a Change in Control shall have
occurred during the Term, the Term shall be extended and shall expire no
earlier than twenty-four (24) months beyond the month in which such Change in
Control occurred; and provided, further, that if a Public Offering shall have
occurred during the Term, the Term shall be extended and shall expire no
earlier than twenty-four (24) months beyond the month in which such Public
Offering occurred.
3. Company's Covenants. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein.
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<PAGE> 3
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change in Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason or by reason of death or Disability, or (iv) the
termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 During the Term, during any period that the Executive
fails to perform the Executive's full-time duties with the Company as a result
of incapacity due to physical or mental illness, the Company shall pay the
Executive's full salary to the Executive at the rate in effect at the
commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during such period, until the
Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any
reason during the Term, the Company shall pay the Executive's full salary to
the Executive
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through the Date of Termination at the rate in effect immediately prior to the
Date of Termination, together with all compensation and benefits payable to the
Executive or accrued by the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination.
6. Severance Payments.
6.1 If the Executive's employment is terminated during the
Term either (i) by the Executive following a Special Termination Event or with
Good Reason, or (ii) by the Company other than (a) for Cause, (b) by reason of
death or (c) by reason of Disability, then the Company shall pay the Executive
the amounts, and provide the Executive the benefits, described in this Section
6.1 ("Severance Payments") and Section 6.2, in addition to any payments and
benefits to which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to have
been terminated following a Change in Control by the Executive with Good
Reason, if the Executive terminates his employment for Good Reason following a
Potential Change in Control and prior to a Change in Control (whether or not a
Change in Control ever occurs) and the
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<PAGE> 5
circumstance or event which constitutes Good Reason occurs at the request or
direction of a Person who has entered into a written agreement with the Company
or an Affiliate of the Company, or made a public announcement relating to a
transaction, the consummation of which would constitute a Change in Control.
(A) In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and
in lieu of any severance benefit otherwise payable to the Executive,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to three (3) times the sum of (i) the Executive's base
salary as in effect immediately prior to the Date of Termination
(without regard to any reductions thereto which constitute Good
Reason), and (ii) the annual bonus earned by the Executive pursuant to
any annual bonus or incentive plan maintained by the Company in
respect of the fiscal year ending immediately prior to the fiscal year
in which occurs the Date of Termination.
(B) For the 36 month period immediately
following the Date of Termination, the Company shall arrange to
provide the Executive and his dependents life, disability, accident
and health
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insurance benefits substantially similar to those provided to the
Executive and his dependents immediately prior to the Date of
Termination, at no greater cost to the Executive than the cost to the
Executive immediately prior to such date. Benefits otherwise
receivable by the Executive pursuant to this Section 6.1 (B) shall be
reduced to the extent benefits of the same type are received by or
made available to the Executive during the 36 month period following
the Executive's termination of employment (and any such benefits
received by or made available to the Executive shall be reported to
the Company by the Executive); provided, however, that the Company
shall reimburse the Executive for the excess, if any, of the cost of
such benefits to the Executive over such cost immediately prior to the
Date of Termination.
(C) Notwithstanding any provision of the
Company's annual incentive plan to the contrary, the Company shall pay
to the Executive a lump sum amount, in cash, equal to a pro rata
portion to the Date of Termination of the aggregate value of the
annual incentive compensation award to the Executive for the then
uncompleted fiscal year,
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under such plan, calculated by multiplying the award earned by the
Executive during the most recent completed fiscal year, by the
fraction obtained by dividing the number of full months and any
fractional portion of a month during such fiscal year through the Date
of Termination by twelve.
(D) With respect to any of the Executive's
options or other equity based awards which relate to securities of the
Parent, the Executive shall be treated as having retired from the
Parent as of the Date of Termination for the purposes of all
applicable option and other equity based award plans and agreements.
With respect to any of the Executive's options or other equity based
awards which relate to securities of the Company, all such options and
other equity based awards shall become fully vested and, where
applicable, exercisable as of the Date of Termination and any option
shall remain exercisable for the remainder of its original term.
6.2 (A) If the Executive becomes entitled to the
Severance Payments, then if any of the payments or benefits received or
to be received by the Executive (whether pursuant to the terms of this
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<PAGE> 8
Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (such payments or
benefits, excluding the Gross-Up Payment, being hereinafter referred
to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal,
state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments.
(B) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the
Company, within five (5) business days following the time that the
amount of such reduction in the Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction, plus
interest on the amount of such repayment at 120% of the rate provided
in section 1274(b)(2)(B) of the Code.
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In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions payable by the Executive
with respect to such excess) within five (5) business days following
the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the
other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with
respect to the Total Payments.
6.3 The payments provided in subsections (A) and (C) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
tenth business day following immediately following the expiration of the
revocation period, if any, applicable to the Executive's release, described in
Section 6.5; provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay
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to the Executive on such day an estimate, as determined in good faith by the
Company of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest on the unpaid remainder (or on all such payments to the extent the
Company fails to make such payments when due) at 120% of the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth (5th) business day
after demand by the Company (together with interest at 120% of the rate
provided in section 1274(b)(2)(B) of the Code).
6.4 The Company also shall pay to the Executive all legal
fees and expenses incurred by the Executive in successfully (whether such
success is full or partial) seeking to obtain or enforce any benefit or right
provided by this Agreement.
6.5 Notwithstanding anything in this Agreement to the
contrary, the Executive shall not be entitled to receive Severance Payments or
other benefits pursuant to this Agreement unless he shall have executed a
written release substantially in the form attached as Exhibit A hereto.
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7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. During the Term, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment during the Term,
shall mean the date specified in the Notice of Termination (which, in the case
of a termination by the Company, shall not be less than thirty (30) days
(except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than thirty (30) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
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8. No Mitigation. The Company agrees that, if the
Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section
6 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to
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obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to terminate his employment within 30 days immediately following the date that
such succession becomes effective and receive compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for
Good Reason, except that, for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
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10. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Conoco Inc.
600 North Dairy Ashford
Houston, TX 77079
Attention: Corporate Secretary
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
of any lack of compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions
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at the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof which have been made by either party.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Delaware (without regard to the
conflicts of laws provisions thereof). All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by
their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 6
and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
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13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Board and shall be in
writing. Any denial by the Board of a claim for benefits under this Agreement
shall be delivered to the Executive in writing and shall set forth the specific
reasons for the denial and the specific provisions of this Agreement relied
upon.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction.
15. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
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<PAGE> 17
(B) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Executive pursuant to Section
7.1 hereof) or (ii) the willful engaging, not in good faith, by the Executive
in conduct which is materially injurious to the Company or its subsidiaries,
monetarily or otherwise.
(E) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company)
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<PAGE> 18
representing 30% or more of the combined voting power of the
Company's then outstanding securities, excluding any Person
who becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph (III) below;
or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
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(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any Affiliate of the Company, at least
50% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then
outstanding securities; or
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(IV) the stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity, at least 50% of the combined voting power of the
voting securities of which are owned by stockholders of the
Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
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(F) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(G) "Company" shall mean Conoco Inc. and, except in
determining whether or not any Change in Control of the Company has occurred,
shall include any successor to its business and/or assets which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(H) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(I) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of
the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, the Company shall
have given the Executive a Notice of Termination for Disability, and, within
thirty (30) days after such Notice of Termination is given, the Executive shall
not have returned to the full-time performance of the Executive's duties.
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(J) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(K) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(L) "Executive" shall mean Archie W. Dunham.
(M) "Good Reason" means the occurrence, without the
Executive's written consent, of (i) the Executive involuntarily ceasing to
serve as the Chief Executive Officer and President of the Company; (ii) a
reduction by the Company in the Executive's annual base salary or any adverse
change in the Executive's aggregate annual and long term incentive compensation
opportunity from that in effect immediately prior to the date hereof, which
change is not pursuant to a program generally applicable to all senior
executives of the Company; (iii) the relocation of the Executive's principal
place of employment to a location more than thirty-five (35) miles from the
Executive's principal place of employment immediately prior to the date hereof
or (iv) the assignment (on or after the date of a Change in Control or prior to
a Change in Control under the circumstances described in the second sentence of
Section 6.1 hereof (treating all references in this paragraph (iv) to a "Change
in Control" as a reference to a "Potential Change in Control")), to the
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Executive of duties in the aggregate that are inconsistent with the Executive's
level of responsibility immediately prior to the date of the Change in Control
or any diminution in the nature or status of the Executive's responsibilities
from those in effect immediately prior to the date of the Change in Control;
provided, however, that in any case "Good Reason" shall not be deemed to have
occurred if the Company shall have cured such occurrence prior to the Date of
Termination.
(N) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(O) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(P) "Parent" shall mean E.I. du Pont de Nemours and Company.
(Q) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
Affiliates (including, without limitation, the Parent), (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
any of its Affiliates, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or
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(iv) a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of
the Company.
(R) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
(I) the Parent or the Company enters into a
written agreement, the consummation of which would result in
the occurrence of a Change in Control; or
(II) the Company or any Person publicly
announces an intention to take or to consider taking actions
which, if consummated, would constitute a Change in Control.
(S) "Public Offering" shall mean the initial sale of common
equity securities of the Company pursuant to an effective registration
statement (other than a registration on Form S-4 or S-8 or any successor or
similar forms) filed under the Securities Act of 1933.
(T) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(U) "Special Termination Event" shall mean the failure of the
Company, if, prior to a Change in Control and during the Term, either (a) a
Public Offering occurs
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or (b) the Company ceases to be, directly or indirectly, a wholly owned
subsidiary of the Parent in a transaction that does not constitute a Change in
Control, (the first to occur of these, a "Special Transaction"), to appoint the
Executive as Chairman of the Board not later than the earlier to occur of (i)
the second anniversary of such Special Transaction, or (ii) the date following
the Special Transaction on which the Parent ceases to beneficially own at least
fifty percent (50%) of the combined voting power of the Company's then
outstanding securities; unless, in either case, the Executive's employment with
the Company had terminated prior to such date by reason of death, Disability,
or for Cause.
(V) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
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(W) "Total Payments" shall mean those payments so described
in Section 6.2 hereof.
Conoco Inc.
By:
-------------------------------------
Name:
Title:
----------------------------------------
Archie W. Dunham
Address:
----------------------------------------
----------------------------------------
----------------------------------------
(Please print carefully)
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EXHIBIT 10.9
1998 STOCK AND PERFORMANCE INCENTIVE PLAN
OF
CONOCO INC.
1. Plan. This 1998 Stock and Performance Incentive Plan of Conoco Inc.
(the "Plan") was adopted by Conoco Inc. (the "Company") to reward certain
corporate officers and key employees of Conoco Inc., certain independent
contractors and nonemployee directors of Conoco Inc. by providing for certain
cash benefits and by enabling them to acquire shares of common stock of Conoco
Inc.
2. Objectives. The purpose of this 1998 Stock and Performance
Incentive Plan of Conoco Inc. is to further the interests of the Company, its
Subsidiaries and its shareholders by providing incentives in the form of awards
to key employees, independent contractors and directors who can contribute
materially to the success and profitability of the Company and its Subsidiaries
and to provide for issuance of awards in connection with the "Option Program"
under which certain existing DuPont awards will be canceled at the election of
the holder. Such awards will recognize and reward outstanding performances and
individual contributions and give Participants in the Plan an interest in the
Company parallel to that of the shareholders, thus enhancing the proprietary and
personal interest of such Participants in the Company's continued success and
progress. This Plan will also enable the Company and its Subsidiaries to attract
and retain such employees, independent contractors and directors.
3. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:
"Annual Director Award Date" means, for each year beginning on or
after the IPO Closing Date, the first business day of the month next succeeding
the date upon which the annual meeting of stockholders of the Company is held in
such year.
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award Agreement,
where applicable).
"Award" means an Employee Award, a Director Award or an Independent
Contractor Award.
"Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
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"Cash Award" means an award denominated in cash.
"Chairman" means the Chairman of the Board as of the IPO Pricing Date.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan; provided, however, that prior to the IPO Closing Date, Committee shall
mean the Compensation Committee of the Board of Directors of DuPont.
"Common Stock" means the Class A or Class B Common Stock, par value
$.01 per share, of the Company.
"Company" means Conoco Inc., a Delaware corporation.
"Director Award" means a Director Option or Stock Unit.
"Director Award Agreement" means a written agreement setting forth the
terms, conditions and limitations applicable to a Director Award.
"Director Option" means a Nonqualified Stock Option granted to a
Nonemployee Director pursuant to paragraph 9 hereof.
"Directors Deferred Compensation Plan" means the Conoco Inc. Deferred
Compensation Plan for Nonemployee Directors established under the Plan.
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a member of the Board for a continuous period
of more than three months by reason of any medically determinable physical or
mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"DuPont" means E. I. du Pont de Nemours and Company, a Delaware
corporation.
"DuPont Award" means an option, stock appreciation right or other form
of stock award granted by DuPont pursuant to the DuPont Stock Performance Plan.
"Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an employee of the Company or any of
its
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Subsidiaries and is expected to become such an employee within the following six
months.
"Employee Award" means any Option, SAR, Stock Award, Cash Award or
Performance Award granted, whether singly, in combination or in tandem, to a
Participant who is an Employee pursuant to such applicable terms, conditions and
limitations (including treatment as a Performance Award) as the Committee may
establish in order to fulfill the objectives of the Plan.
"Employee Award Agreement" means a written agreement setting forth the
terms, conditions and limitations applicable to an Employee Award.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the next succeeding date on which such a sale was so reported, or,
at the discretion of the Committee, the price prevailing on the exchange at the
time of exercise, (ii) if shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market, the mean between the highest and lowest
sales price per share of Common Stock reported by the Nasdaq National Market on
that date, or, if there shall have been no such sale so reported on that date,
on the next succeeding date on which such a sale was so reported, or, at the
discretion of the Committee, the price prevailing on the Nasdaq National Market
at the time of exercise, (iii) if the Common Stock is not so listed or quoted,
the mean between the closing bid and asked price on that date, or, if there are
no quotations available for such date, on the next succeeding date on which such
quotations shall be available, as reported by the Nasdaq Stock Market, or, if
not reported by the Nasdaq Stock Market, by the National Quotation Bureau
Incorporated or (iv) if shares of Common Stock are not publicly traded, the most
recent value determined by an independent appraiser appointed by the Company for
such purpose; provided that, notwithstanding the foregoing, "Fair Market Value"
in the case of any Award granted in connection with the IPO means the price per
share of Common Stock set on the IPO Pricing Date, as set forth in the final
prospectus relating to the IPO.
"Grant Date" means the date an Award is granted to a Participant
pursuant to the Plan.
"Grant Price" means the price at which a Participant may exercise his
or her right to receive cash or Common Stock, as applicable, under the terms of
an Award.
"Incentive Stock Option" means an Option that is intended to comply
with the requirements set forth in Section 422 of the Code.
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"Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries, or who will provide such services, except an
Employee or Nonemployee Director.
"Independent Contractor Award" means any Nonqualified Stock Option,
SAR, Stock Award, Cash Award or Performance Award granted, whether singly, in
combination or in tandem, to a Participant who is an Independent Contractor
pursuant to such applicable terms, conditions and limitations as the Committee
may establish in order to fulfill the objectives of the Plan.
"Independent Contractor Award Agreement" means a written agreement
setting forth the terms, conditions and limitations applicable to an Independent
Contractor Award. "IPO" means the first time a registration statement filed
under the Securities Act of 1933 and respecting an underwritten primary offering
by the Company of shares of Common Stock is declared effective under that Act
and the shares registered by that registration statement are issued and sold by
the Company (otherwise than pursuant to the exercise of any overallotment
option).
"IPO Closing Date" means the date on which the Company first receives
payment for the shares of Common Stock it sells in the IPO.
"IPO Pricing Date" means the date of the execution and delivery of an
underwriting or other purchase agreement among the Company and the underwriters
relating to the IPO setting forth the price at which shares of Common Stock will
be issued and sold by the Company to the underwriters and the terms and
conditions thereof.
"Nonemployee Director" means an individual serving as a member of the
Board who is not an employee of DuPont or any of its Subsidiaries or the Company
or any of its Subsidiaries.
"Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified Grant Price, which may be an Incentive Stock Option
or a Nonqualified Stock Option.
"Option Program" means a program involving the cancellation of certain
existing DuPont Awards, and the issuance upon such cancellation of comparable
awards with respect to Common Stock, in which the Company and DuPont will give
certain employees the option to participate in connection with the IPO.
"Option Program Award" means an Option, SAR or Stock Award granted
pursuant to Section 8(d) in connection with the Option Program.
"Option Value" means the value of a Director Option as determined on
the basis of a generally accepted valuation methodology as determined by the
Board.
"Participant" means an Employee, Director or Independent Contractor to
whom an Award has been granted under this Plan.
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"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor that is subject to the
attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means Common Stock that is restricted or subject to
forfeiture provisions.
"Restriction Period" means a period of time beginning as of the Grant
Date of an Award of Restricted Stock and ending as of the date upon which the
Common Stock subject to such Award is no longer restricted or subject to
forfeiture provisions.
"Stock Appreciation Right" or "SAR" means a right to receive a
payment, in cash or Common Stock, equal to the excess of the Fair Market Value
or other specified valuation of a specified number of shares of Common Stock on
the date the right is exercised over a specified Grant Price, in each case, as
determined by the Committee. "Stock Award" means an Award in the form of shares
of Common Stock or units denominated in shares of Common Stock, including an
award of Restricted Stock.
"Stock Unit" means a unit equal to one share of Common Stock (as
adjusted pursuant to Section 3.6 of the Directors Deferred Compensation Plan)
granted to a Nonemployee Director.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing 50% or more
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which the Company directly or indirectly owns 50% or
more of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).
4. Eligibility.
(a) Employees. Employees eligible for the grant of Employee Awards
under this Plan are those who hold positions of responsibility and whose
performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries.
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<PAGE> 6
(b) Directors. Members of the Board eligible for the grant of Director
Awards under this Plan are those who are Nonemployee Directors.
(c) Independent Contractors. All Independent Contractors are eligible
for the grant of Independent Contractor Awards under this Plan.
5. Common Stock Available for Awards.
(a) Subject to the provisions of paragraph 15 hereof, no Award shall
be granted if it shall result in the aggregate number of shares of Class A
Common Stock issued under the Plan plus the number of shares of Class A
Common Stock covered by or subject to Awards then outstanding (after giving
effect to the grant of the Award in question) to exceed the greater of (a)
____ shares or (b) ___% of the number of shares of Class A Common Stock
outstanding at the time of granting such Award. No more than _______ shares
of Class A Common Stock shall be available for Incentive Stock Options. No
Awards shall be granted under this Plan with respect to Class B Common
Stock. The number of shares of Common Stock that are the subject of Awards
under this Plan that are forfeited or terminated, expire unexercised, are
settled in cash in lieu of Common Stock or in a manner such that all or
some of the shares covered by an Award are not issued to a Participant or
are exchanged for Awards that do not involve Common Stock, shall again
immediately become available for Awards hereunder. The Committee may from
time to time adopt and observe such procedures concerning the counting of
shares against the Plan maximum as it may deem appropriate. The Board and
the appropriate officers of the Company shall from time to time take
whatever actions are necessary to file any required documents with
governmental authorities, stock exchanges and transaction reporting systems
to ensure that shares of Common Stock are available for issuance pursuant
to Awards.
(b) Option Program Awards shall not be subject to the limitations in
paragraph 8(b), nor shall such Awards count against the limitations on
Common Stock available for Awards set forth in paragraph 5(a). Option
Program Awards shall be subject to such terms and conditions as the
Committee may establish in accordance with Section 8(d), but shall in all
events comply with the applicable provisions of that certain Separation
Agreement dated as of ______________, 1998 between DuPont and the Company
and shall in all respects comply with the provisions of Exhibit ___ thereto
(the Employee Matters Agreement).
6. Administration.
(a) This Plan shall be administered by the Committee except as
otherwise provided herein.
(b) Subject to the provisions hereof, insofar as this Plan relates to
Employee Awards or Independent Contractor Awards, the Committee shall have
full and exclusive power and authority to administer this Plan and to take
all
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<PAGE> 7
actions that are specifically contemplated hereby or are necessary or
appropriate in connection with the administration hereof. Insofar as this
Plan relates to Employee Awards or Independent Contractor Awards, the
Committee shall also have full and exclusive power to interpret this Plan
and to adopt such rules, regulations and guidelines for carrying out this
Plan as it may deem necessary or proper, all of which powers shall be
exercised in the best interests of the Company and in keeping with the
objectives of this Plan. The Committee may, in its discretion, provide for
the extension of the exercisability of an Employee Award or Independent
Contractor Award, accelerate the vesting or exercisability of an Employee
Award or Independent Contractor Award, eliminate or make less restrictive
any restrictions applicable to an Employee Award or Independent Contractor
Award, waive any restriction or other provision of this Plan (insofar as
such provision relates to Employee Awards or to Independent Contractor
Awards) or an Employee Award or Independent Contractor Award or otherwise
amend or modify an Employee Award or Independent Contractor Award in any
manner that is either (i) not adverse to the Participant to whom such
Employee Award or Independent Contractor Award was granted or (ii)
consented to by such Participant. The Committee may grant an Award to an
Employee who it expects to become an employee of the Company or any of its
Subsidiaries within the following six months, with such Award being subject
to the individual's actually becoming an employee within such time period,
and subject to such other terms and conditions as may be established by the
Committee. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any Employee Award or
Independent Contractor Award in the manner and to the extent the Committee
deems necessary or desirable to further the Plan purposes. Any decision of
the Committee in the interpretation and administration of this Plan shall
lie within its sole and absolute discretion and shall be final, conclusive
and binding on all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to be
done by him or her, by any member of the Committee or by any officer of the
Company in connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish. The Committee may engage or authorize the engagement of a third party
administrator to carry out administrative functions under the Plan.
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<PAGE> 8
8. Employee and Independent Contractor Awards.
(a) The Committee shall determine the type or types of Employee Awards
to be made under this Plan and shall designate from time to time the
Employees who are to be the recipients of such Awards. Each Employee Award
shall be embodied in an Employee Award Agreement, which shall contain such
terms, conditions and limitations as shall be determined by the Committee
in its sole discretion and, if required by the Committee, shall be signed
by the Participant to whom the Employee Award is granted and by an
Authorized Officer for and on behalf of the Company. Employee Awards may
consist of those listed in this paragraph 8(a) and may be granted singly,
in combination or in tandem. Employee Awards may also be granted in
combination or in tandem with, in replacement of, or as alternatives to,
grants or rights under this Plan or any other employee plan of the Company
or any of its Subsidiaries, including the plan of any acquired entity. An
Employee Award may provide for the grant or issuance of additional,
replacement or alternative Employee Awards upon the occurrence of specified
events, including the exercise of the original Employee Award granted to a
Participant. All or part of an Employee Award may be subject to conditions
established by the Committee, which may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attainment of
specified growth rates and other comparable measurements of performance.
Upon the termination of employment by a Participant who is an Employee, any
unexercised, deferred, unvested or unpaid Employee Awards shall be treated
as set forth in the applicable Employee Award Agreement.
(i) Option. An Employee Award may be in the form of an Option,
which may be an Incentive Stock Option or a Nonqualified Stock Option.
The Grant Price of an Option shall be not less than the Fair Market
Value of the Common Stock on the Grant Date. Subject to the foregoing
provisions, the terms, conditions and limitations applicable to any
Options awarded to Employees pursuant to this Plan, including the
Grant Price, the term of the Options and the date or dates upon which
they become exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Rights. An Employee Award may be in the
form of an SAR. The terms, conditions and limitations applicable to
any SARs awarded to Employees pursuant to this Plan, including the
Grant Price, the term of any SARs and the date or dates upon which
they become exercisable, shall be determined by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a
Stock Award. The terms, conditions and limitations applicable to any
Stock Awards granted pursuant to this Plan shall be determined by the
Committee.
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<PAGE> 9
(iv) Cash Award. An Employee Award may be in the form of a Cash
Award. The terms, conditions and limitations applicable to any Cash
Awards granted pursuant to this Plan shall be determined by the
Committee.
(v) Performance Award. Without limiting the type or number of
Employee Awards that may be made under the other provisions of this
Plan, an Employee Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable
solely on account of the attainment of one or more pre-established,
objective Performance Goals established by the Committee prior to the
earlier to occur of (x) 90 days after the commencement of the period
of service to which the Performance Goal relates and (y) the lapse of
25% of the period of service (as scheduled in good faith at the time
the goal is established), and in any event while the outcome is
substantially uncertain. A Performance Goal is objective if a third
party having knowledge of the relevant facts could determine whether
the goal is met. Such a Performance Goal may be based on one or more
business criteria that apply to the Employee, one or more business
units of the Company, or the Company as a whole, and may include one
or more of the following: increased revenue, net income, stock price,
market share, earnings per share, return on equity, return on assets,
decrease in costs, shareholder value, net cash flow, total shareholder
return, return on capital, return on investors' capital, operating
income, funds from operations, cash flow, cash from operations,
after-tax operating income, reserve addition, proceeds from
dispositions, production volumes, refinery runs, net cash flow before
financing activities, reserve replacement ratio, finding and
development costs, refinery utilizations and total market value.
Unless otherwise stated, such a Performance Goal need not be based
upon an increase or positive result under a particular business
criterion and could include, for example, maintaining the status quo
or limiting economic losses (measured, in each case, by reference to
specific business criteria). In interpreting Plan provisions
applicable to Performance Goals and Performance Awards, it is the
intent of the Plan to conform with the standards of Section 162(m) of
the Code and Treasury Regulation Section 1.162-27(e)(2)(i), and the
Committee in establishing such goals and interpreting the Plan shall
be guided by such provisions. Prior to the payment of any compensation
based on the achievement of Performance Goals, the Committee must
certify in writing that applicable Performance Goals and any of the
material terms thereof were, in fact, satisfied. Subject to the
foregoing provisions, the terms, conditions and limitations applicable
to any Performance Awards made pursuant to this Plan shall be
determined by the Committee.
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<PAGE> 10
(b) Notwithstanding anything to the contrary contained in this Plan
excluding paragraph 5(b), the following limitations shall apply to any
Employee Awards made hereunder:
(i) no Participant may be granted, during any calendar year,
Employee Awards consisting of Options or SARs that are
exercisable for more than ________ shares of Common Stock;
(ii) no Participant may be granted, during any calendar
year, Stock Awards covering or relating to more than ________
shares of Common Stock (the limitation set forth in this clause
(ii), together with the limitation set forth in clause (i) above,
being hereinafter collectively referred to as the "Stock Based
Awards Limitations"); and
(iii) no Participant may be granted Employee Awards
consisting of cash or in any other form permitted under this Plan
(other than Employee Awards consisting of Options or SARs or
Stock Awards) in respect of any calendar year having a value
determined on the Grant Date in excess of $_________.
(c) The Committee shall have the sole responsibility and authority to
determine the type or types of Independent Contractor Awards to be made
under this Plan and the terms, conditions and limitations applicable to
such Awards.
(d) Holders of DuPont Awards who elect to participate in the Option
Program shall be granted Option Program Awards under this Plan. An Option
Program Award shall generally be subject to the same terms and conditions
as the canceled DuPont Award, with appropriate adjustments to exercise
price and the number of shares subject to the Option Program Award, subject
to such other terms as are determined by the Committee.
9. Director Awards. Each Nonemployee Director of the Company shall be
granted Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreements. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be granted in any year in which a
sufficient number of shares of Common Stock are not available to make all such
scheduled Awards under this Plan.
(a) Initial Director Options. On the IPO Closing Date, each
Nonemployee Director other than the Chairman shall be automatically granted
a Director Option on that number of shares of Common Stock such that the
aggregate Option Value is $30,000, and the Chairman shall be automatically
awarded a Director Option on that number of shares of Common Stock such
that the aggregate Option Value is $1,300,000.
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<PAGE> 11
(b) Annual Director Options. On each Annual Director Award Date, each
Nonemployee Director other than the Chairman shall automatically be granted
a Director Option such that the aggregate Option Value is $30,000.
(c) Terms of Director Option. Each Director Option shall have a term
of ten years following the Grant Date. The Grant Price of each share of
Common Stock subject to a Director Option shall be equal to the Fair Market
Value of the Common Stock on the Grant Date. All Director Options shall be
fully vested upon grant. All Director Options shall become exercisable in
increments of one-third of the total number of shares of Common Stock that
are subject thereto (rounded up to the nearest whole number) on the first
and second anniversaries of the Grant Date and of all remaining shares of
Common Stock that are subject thereto on the third anniversary of the Grant
Date. Notwithstanding the foregoing exercise schedule, all Director Options
held by a Nonemployee Director shall immediately become fully exercisable
if the Nonemployee Director terminates his or her status as a member of the
Board by reason of the director's death or Disability.
(d) Director Option Agreements. Any Award of Director Options shall be
embodied in a Director Award Agreement, which shall contain the terms,
conditions and limitations set forth above and shall be signed by an
Authorized Officer for and on behalf of the Company.
(e) Initial Stock Units. On the IPO Closing Date, each Nonemployee
Director other than the Chairman shall be automatically granted that number
of Stock Units under the Director's Deferred Compensation Plan determined
by dividing $95,000 by the Fair Market Value of Class A Common Stock on the
IPO Closing Date, and the Chairman shall be automatically granted that
number of Stock Units under the Director's Deferred Compensation Plan
determined by dividing $100,000 by the Fair Market Value of Class A Common
Stock on the IPO Closing Date.
(f) Other Stock Unit Grants. From and after the IPO Closing Date, on
the date of his or her first appointment or election to the Board, a
Nonemployee Director shall automatically be granted that number of Stock
Units determined by dividing $95,000 by the Fair Market Value of Class A
Common Stock on the date of election to the Board. In addition, on each
Annual Director Award Date, each Nonemployee Director other than the
Chairman shall automatically be granted an additional number of Stock Units
determined by dividing $20,000 by the Fair Market Value of Class A Common
Stock on such date.
(g) Terms of Stock Units. Stock Units granted under this Plan shall be
accounted for and subject to the terms and conditions of the Director's
Deferred Compensation Plan, including provisions that the Stock Units
cannot be distributed or made available to the Nonemployee Director before
the expiration of three years from the Grant Date, except by reason of
death or Disability of the
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director, and that dividend equivalents shall be accumulated and reinvested
in additional Stock Units.
(h) Stock Unit Agreements. Any Award of Stock Units shall be embodied
in a Director Award Agreement, which shall contain the terms and conditions
and limitations set forth above, and applicable terms and conditions from
the Director's Deferred Compensation Plan, and shall be signed by the
Participant to whom the Stock Units are granted and by an Authorized
Officer for and on behalf of the Company.
10. Payment of Awards.
(a) General. Payment made to a Participant pursuant to an Award may be
made in the form of cash or Class A Common Stock, or a combination thereof,
and may include such restrictions as the Committee shall determine,
including, in the case of Common Stock, restrictions on transfer and
forfeiture provisions. If such payment is made in the form of Restricted
Stock, the applicable Award Agreement relating to such shares shall specify
whether they are to be issued at the beginning or end of the Restriction
Period. In the event that shares of Restricted Stock are to be issued at
the beginning of the Restriction Period, the certificates evidencing such
shares (to the extent that such shares are so evidenced) shall contain
appropriate legends and restrictions that describe the terms and conditions
of the restrictions applicable thereto. In the event that shares of
Restricted Stock are to be issued at the end of the Restricted Period, the
right to receive such shares shall be evidenced by book entry registration
or in such other manner as the Committee may determine. Payment of Stock
Units awarded to Nonemployee Directors shall be governed by the Director's
Deferred Compensation Plan.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards or
any other compensation otherwise payable by the Company in accordance with
procedures established by the Committee. Any deferred payment pursuant to
an Award, whether elected by the Participant or specified by the Award
Agreement or by the Committee, may be forfeited if and to the extent that
the Award Agreement so provides.
(c) Dividends, Earnings and Interest. Rights to dividends or Dividend
Equivalents may be extended to and made part of any Stock Award, subject to
such terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of
interest or other earnings on deferred cash payments and Dividend
Equivalents for Stock Awards.
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(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee or Independent Contractor may be offered an
election to substitute an Employee Award or Independent Contractor Award
for another Employee Award or Independent Contractor Award or Employee
Awards or Independent Contractor Awards of the same or different type.
(e) Cash-out of Awards. At the discretion of the Committee, an Award
that is an Option or SAR may be settled by a cash payment equal to the
difference between the Fair Market Value per share of Common Stock on the
date of exercise and the Grant Price of the Award, multiplied by the number
of shares with respect to which the Award is exercised.
11. Option Exercise. The Grant Price shall be paid in full at the time
of exercise in cash or, if permitted by the Committee and elected by the
optionee, the optionee may purchase such shares by means of tendering Common
Stock or surrendering another Award, including Restricted Stock, valued at Fair
Market Value on the date of exercise, or any combination thereof. The Committee
shall determine acceptable methods for Participants to tender Common Stock or
other Awards. The Committee may provide for procedures to permit the exercise or
purchase of such Awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an Award. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted Stock are tendered
as consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of Restricted
Stock used as consideration therefor, shall be subject to the same restrictions
as the Restricted Stock so submitted as well as any additional restrictions that
may be imposed by the Committee. The Committee may adopt additional rules and
procedures regarding the exercise of Options from time to time, provided that
such rules and procedures are not inconsistent with the provisions of this
paragraph.
12. Taxes. The Company or its designated third party administrator
shall have the right to deduct applicable taxes from any Employee Award payment
and withhold, at the time of delivery or vesting of cash or shares of Common
Stock under this Plan, an appropriate amount of cash or number of shares of
Common Stock or a combination thereof for payment of taxes or other amounts
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes. The
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the
Employee Award with respect to which withholding is required. If shares of
Common Stock are used to satisfy tax withholding, such shares shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
The Committee may provide for loans, on either a short term or demand basis,
from the Company to a Participant who is an Employee or Independent Contractor
to permit the payment of taxes required by law.
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13. Amendment, Modification, Suspension or Termination of the Plan.
The Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is
required by applicable legal requirements.
14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 14
shall be null and void.
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes
in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Class A Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards, (iii) the Grant Price or other price in
respect of such Awards, (iv) the appropriate Fair Market Value and other
price determinations for such Awards, and (v) the Stock Based Awards
Limitations shall each be proportionately adjusted by the Board as
appropriate to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity,
the adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common
Stock), the Board shall make appropriate adjustments to (i) the number of
shares of Common Stock covered by Awards, (ii) the Grant Price or other
price in
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respect of such Awards, (iii) the appropriate Fair Market Value and other
price determinations for such Awards, and (iv) the Stock Based Awards
Limitations to reflect such transaction; provided that such adjustments
shall only be such as are necessary to maintain the proportionate interest
of the holders of the Awards and preserve, without increasing, the value of
such Awards. In the event of a corporate merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation, the Board
shall be authorized (x) to issue or assume Awards by means of substitution
of new Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment or (y) to cancel Awards
that are Options or SARs and give the Participants who are the holders of
such Awards notice and opportunity to exercise for 30 days prior to such
cancellation.
16. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
17. Unfunded Plan. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants under this Plan, any
such accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets for purposes of this Plan or
Awards hereunder, nor shall the Company, the Board or the Committee be deemed to
be a trustee of any benefit to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to an Award under this
Plan shall be based solely upon any contractual obligations that may be created
by this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
18. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
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19. Effectiveness. The Plan, as approved by the Board, shall be
effective as set forth herein as of ______________, 1998, but all Awards granted
hereunder on or before the IPO Closing Date shall be conditioned upon the
occurrence of the IPO Closing Date on or before _________________, _________,
and if the IPO Closing Date does not occur by that date, all Awards shall be
null and void. This Plan was approved by the stockholder of the Company on
______________, 1998.
<PAGE> 1
EXHIBIT 10.10
1998 KEY EMPLOYEE STOCK PERFORMANCE PLAN
OF
CONOCO INC.
1. Plan. This 1998 Key Employee Stock Performance Plan of Conoco Inc.
(the "Plan") was adopted by Conoco Inc. (the "Company") to reward certain
employees of the Company by enabling them to acquire shares of common stock of
the Company or receive payments determined by reference to such common stock.
2. Objectives. The purpose of this 1998 Stock Performance Plan of
Conoco Inc. is to further the interests of the Company, its Subsidiaries and its
shareholders by providing incentives in the form of awards to employees and to
provide for issuance of awards in connection with the "Option Program" under
which certain existing DuPont awards will be canceled at the election of the
holder. Such awards will give Participants in the Plan an interest in the
Company parallel to that of the shareholders, thus enhancing the proprietary and
personal interest of such Participants in the Company's continued success and
progress.
3. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either of them shall delegate the authority to execute any Award Agreement,
where applicable).
"Award" means any Option or SAR granted to a Participant pursuant to
such applicable terms, conditions and limitations as the Committee may establish
in order to fulfill the objectives of the Plan
"Award Agreement" means a written agreement setting forth the terms,
conditions and limitations applicable to an Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan; provided, however, that prior to the IPO Closing Date, Committee shall
mean the Compensation Committee of the Board of Directors of DuPont.
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"Common Stock" means the Class A or Class B Common Stock, par value
$.01 per share, of the Company.
"Company" means Conoco Inc., a Delaware corporation.
"Director" means an individual serving as a member of the Board.
"DuPont" means E. I. du Pont de Nemours and Company, a Delaware
corporation.
"DuPont Award" means an option or stock appreciation right granted by
DuPont pursuant to the DuPont Stock Performance Plan.
"Employee" means an employee of the Company or any of its Subsidiaries
and an individual who has agreed to become an employee of the Company or any of
its Subsidiaries and is expected to become such an employee within the following
six months.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the next succeeding date on which such a sale was so reported, or,
at the discretion of the Committee, the price prevailing on the exchange at the
time of exercise, (ii) if shares of Common Stock are not so listed but are
quoted on the Nasdaq National Market, the mean between the highest and lowest
sales price per share of Common Stock reported by the Nasdaq National Market on
that date, or, if there shall have been no such sale so reported on that date,
on the next succeeding date on which such a sale was so reported, or, at the
discretion of the Committee, the price prevailing on the Nasdaq National Market
at the time of exercise, (iii) if the Common Stock is not so listed or quoted,
the mean between the closing bid and asked price on that date, or, if there are
no quotations available for such date, on the next succeeding date on which such
quotations shall be available, as reported by the Nasdaq Stock Market, or, if
not reported by the Nasdaq Stock Market, by the National Quotation Bureau
Incorporated or (iv) if shares of Common Stock are not publicly traded, the most
recent value determined by an independent appraiser appointed by the Company for
such purpose; provided that, notwithstanding the foregoing, "Fair Market Value"
in the case of any Award granted in connection with the IPO means the price per
share of Common Stock set on the IPO Pricing Date, as set forth in the final
prospectus relating to the IPO.
"Grant Date" means the date an Award is granted to a Participant
pursuant to the Plan.
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"Grant Price" means the price at which a Participant may exercise his
or her right to receive cash or Common Stock, as applicable, under the terms of
an Award.
"Incentive Stock Option" means an Option that is intended to comply
with the requirements set forth in Section 422 of the Code.
"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by the
Company of shares of Common Stock is declared effective under that Act and the
shares registered by that registration statement are issued and sold by the
Company (otherwise than pursuant to the exercise of any overallotment option).
"IPO Closing Date" means the date on which the Company first receives
payment for the shares of Common Stock it sells in the IPO.
"IPO Pricing Date" means the date of the execution and delivery of an
underwriting or other purchase agreement among the Company and the underwriters
relating to the IPO setting forth the price at which shares of Common Stock will
be issued and sold by the Company to the underwriters and the terms and
conditions thereof.
"Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified Grant Price, which may be an Incentive Stock Option
or a Nonqualified Stock Option.
"Option Program" means a program involving the cancellation of certain
existing DuPont Awards, and the issuance upon such cancellation of comparable
awards with respect to Common Stock, in which the Company and DuPont will give
certain employees the option to participate in connection with the IPO.
"Option Program Award" means an Option, SAR or Stock Award granted
pursuant to Section 8(c) in connection with the Option Program.
"Participant" means an Employee to whom an Award has been granted
under this Plan.
"Stock Appreciation Right" or "SAR" means a right to receive a
payment, in cash or in Common Stock, equal to the excess of the Fair Market
Value or other specified valuation of a specified number of shares of Common
Stock on the date the right is exercised over a specified Grant Price, in each
case, as determined by the Committee.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing 50% or more
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which the Company directly or indirectly owns 50% or
more of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).
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4. Eligibility. All Employees are eligible for the grant of Awards
under this Plan.
5. Common Stock Available for Awards.
(a) Subject to the provisions of paragraph 14 hereof, no Award shall
be granted if it shall result in the aggregate number of shares of Class A
Common Stock issued under the Plan plus the number of shares of Class A
Common Stock covered by or subject to Awards then outstanding (after giving
effect to the grant of the Award in question) to exceed the greater of (a)
____ shares or (b) ____ % of the number of shares of Class A Common Stock
outstanding at the time of granting such Award. No more than _______ shares
of Class A Common Stock shall be available for Incentive Stock Options. No
Awards shall be granted under this Plan with respect to Class B Common
Stock. The number of shares of Common Stock that are the subject of Awards
under this Plan that are forfeited or terminated, expire unexercised, are
settled in cash in lieu of Common Stock or in a manner such that all or
some of the shares covered by an Award are not issued to a Participant,
shall again immediately become available for Awards hereunder. The
Committee may from time to time adopt and observe such procedures
concerning the counting of shares against the Plan maximum as it may deem
appropriate. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file any required
documents with governmental authorities, stock exchanges and transaction
reporting systems to ensure that shares of Common Stock are available for
issuance pursuant to Awards.
(b) Option Program Awards shall not be subject to the limitations in
paragraph 8(b), nor shall such Awards count against the limitations on Common
Stock available for Awards set forth in paragraph 5(a). Option Program Awards
shall be subject to such terms and conditions as the Committee may establish in
accordance with Section 8(c), but shall in all events comply with the applicable
provisions of that certain Separation Agreement dated as of ______________, 1998
between DuPont and the Company and shall in all respects comply with the
provisions of Exhibit ___ thereto (the Employee Matters Agreement).
6. Administration.
(a) The Plan shall be administered by the Committee.
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(b) The Committee shall have full and exclusive power and authority to
administer this Plan and to take all actions that are specifically
contemplated hereby or are necessary or appropriate in connection with the
administration hereof. The Committee shall also have full and exclusive
power to interpret this Plan and to adopt such rules, regulations and
guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the Company
and in keeping with the objectives of this Plan. The Committee may, in its
discretion, provide for the extension of the exercisability of an Award,
accelerate the vesting or exercisability of an Award, eliminate or make
less restrictive any restrictions applicable to an Award, waive any
restriction or other provision of this Plan or otherwise amend or modify an
Award in any manner that is either (i) not adverse to the Participant to
whom such Award was granted or (ii) consented to by such Participant. The
Committee may grant an Award to an Employee who it expects to become an
employee of the Company or any of its Subsidiaries within the following six
months, with such Award being subject to the individual's actually becoming
an employee within such time period, and subject to such other terms and
conditions as may be established by the Committee. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in
this Plan or in any Award in the manner and to the extent the Committee
deems necessary or desirable to further the Plan purposes. Any decision of
the Committee in the interpretation and administration of this Plan shall
lie within its sole and absolute discretion and shall be final, conclusive
and binding on all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to be
done by him or her, by any member of the Committee or by any officer of the
Company in connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish. The Committee may engage or authorize the engagement of a third party
administrator to carry out administrative functions under the Plan.
8. Awards.
(a) The Committee shall determine the type or types of Awards to be
made under this Plan and shall designate from time to time the Employees
who are to be the recipients of Awards. Each Award shall be embodied in an
Award Agreement, which shall contain such terms, conditions and limitations
as shall be determined by the Committee in its sole discretion and, if
required by the Committee, shall be signed by the Participant to whom the
Award is granted and
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by an Authorized Officer for and on behalf of the Company. Awards may
consist of those listed in this paragraph 8(a) and may be granted singly,
in combination or in tandem. Awards may also be granted in combination or
in tandem with, in replacement of, or as alternatives to, grants or rights
under this Plan or any other employee plan of the Company or any of its
Subsidiaries, including the plan of any acquired entity. An Award may
provide for the grant or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events, including the exercise of
the original Award granted to a Participant. All or part of an Award may be
subject to conditions established by the Committee, which may include, but
are not limited to, continuous service with the Company and its
Subsidiaries, achievement of specific business objectives, increases in
specified indices, attainment of specified growth rates and other
comparable measurements of performance. Upon the termination of employment
by a Participant, any unexercised, deferred, unvested or unpaid Awards
shall be treated as set forth in the applicable Award Agreement.
(i) Options. An Award may be in the form of an Option, which may
be an Incentive Stock Option or a Nonqualified Stock Option. The Grant
Price of an Incentive Stock Option shall be not less than the Fair
Market Value of the Common Stock on the Grant Date. Subject to the
foregoing provisions, the terms, conditions and limitations applicable
to any Options awarded to Employees pursuant to this Plan, including
the Grant Price, the term of the Options and the date or dates upon
which they become exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Rights. An Award may be in the form of an
SAR. The terms, conditions and limitations applicable to any SARs
awarded to Employees pursuant to this Plan, including the Grant Price,
the term of any SARs and the date or dates upon which they become
exercisable, shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan
excluding paragraph 5(b), no Participant may be granted, during any
calendar year, Awards that are exercisable for more than ______ shares of
Common Stock.
(c) Holders of DuPont Awards who elect to participate in the Option
Program shall be granted Option Program Awards under the Plan. An Option
Program Award shall generally be subject to the same terms and conditions
as the canceled DuPont Award, with appropriate adjustments to exercise
price and the number of shares subject to the Option Program Award, subject
to such other terms as are determined by the Committee.
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9. Payment of Awards.
(a) General. Payment made to a Participant pursuant to an Award may be
made in the form of cash or Class A Common Stock, or a combination thereof,
and may include such restrictions as the Committee shall determine,
including, in the case of Common Stock, restrictions on transfer and
forfeiture provisions.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards or
any other compensation otherwise payable by the Company in accordance with
procedures established by the Committee. Any deferred payment pursuant to
an Award, whether elected by the Participant or specified by the Award
Agreement or by the Committee, may be forfeited if and to the extent that
the Award Agreement so provides.
(c) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type.
(d) Cash-out of Awards. At the discretion of the Committee, an Award
may be settled by a cash payment equal to the difference between the Fair
Market Value per share of Common Stock on the date of exercise and the
Grant Price of the Award, multiplied by the number of shares with respect
to which the Award is exercised.
10. Option Exercise. The Grant Price shall be paid in full at the time
of exercise in cash or, if permitted by the Committee and elected by the
optionee, the optionee may purchase such shares by means of tendering Common
Stock or surrendering another Award valued at Fair Market Value on the date of
exercise, or any combination thereof. The Committee shall determine acceptable
methods for Participants to tender Common Stock or other Awards. The Committee
may provide for procedures to permit the exercise or purchase of such Awards by
use of the proceeds to be received from the sale of Common Stock issuable
pursuant to an Award. The Committee may adopt additional rules and procedures
regarding the exercise of Options from time to time, provided that such rules
and procedures are not inconsistent with the provisions of this paragraph.
11. Taxes. The Company or its designated third party administrator
shall have the right to deduct applicable taxes from any payment hereunder and
withhold, at the time of delivery of cash or shares of Common Stock under this
Plan, an appropriate amount of cash or number of shares of Common Stock or a
combination thereof for payment of taxes or other amounts required by law or to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for withholding of such
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taxes. The Committee may also permit withholding to be satisfied by the transfer
to the Company of shares of Common Stock theretofore owned by the holder of the
Award with respect to which withholding is required. If shares of Common Stock
are used to satisfy tax withholding, such shares shall be valued based on the
Fair Market Value when the tax withholding is required to be made. The Committee
may provide for loans, on either a short term or demand basis, from the Company
to a Participant to permit the payment of taxes required by law.
12. Amendment, Modification, Suspension or Termination of the Plan.
The Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is
required by applicable legal requirements.
13. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 13
shall be null and void.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes
in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Class A Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
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(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards, (iii) the Grant Price in respect of such
Awards, (iv) the appropriate Fair Market Value and other price
determinations for such Awards, and (v) the Award limitations shall each be
proportionately adjusted by the Board as appropriate to reflect such
transaction. In the event of any other recapitalization or capital
reorganization of the Company, any consolidation or merger of the Company
with another corporation or entity, the adoption by the Company of any plan
of exchange affecting the Common Stock or any distribution to holders of
Common Stock of securities or property (other than normal cash dividends or
dividends payable in Common Stock), the Board shall make appropriate
adjustments to (i) the number of shares of Common Stock covered by Awards,
(ii) the Grant Price in respect of such Awards, (iii) the appropriate Fair
Market Value and other price determinations for such Awards, and (iv) the
Award limitations to reflect such transaction; provided that such
adjustments shall only be such as are necessary to maintain the
proportionate interest of the holders of the Awards and preserve, without
increasing, the value of such Awards. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization
or liquidation, the Board shall be authorized (x) to issue or assume Awards
by means of substitution of new Awards, as appropriate, for previously
issued Awards or to assume previously issued Awards as part of such
adjustment or (y) to cancel Awards that are Options or SARs and give the
Participants who are the holders of such Awards notice and opportunity to
exercise for 30 days prior to such cancellation.
15. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
16. Unfunded Plan. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants under this Plan, any
such accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets for purposes of this Plan or
Awards hereunder, nor shall the Company, the Board or the Committee be deemed to
be a trustee of any benefit to be granted under this Plan. Any liability or
obligation of the Company
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to any Participant with respect to an Award under this Plan shall be based
solely upon any contractual obligations that may be created by this Plan and any
Award Agreement, and no such liability or obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company nor the Board nor the Committee shall be required
to give any security or bond for the performance of any obligation that may be
created by this Plan.
17. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
18. Effectiveness. The Plan, as approved by the Board, shall be
effective as set forth herein as of ______________, 1998, but all Awards granted
hereunder on or before the IPO Closing Date shall be conditioned upon the
occurrence of the IPO Closing Date on or before ____________, _______, and if
the IPO Closing Date does not occur by that date, all Awards shall be null and
void. This Plan was approved by the stockholder of the Company on _____________,
1998.
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EXHIBIT 10.12
CONOCO INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSES OF PLAN AND DEFINITIONS
1.1 Purpose. Conoco Inc., a Delaware corporation, hereby establishes
the Conoco Inc. Deferred Compensation Plan for Non-Employee Directors (the
"Plan") for the purpose of providing non-employee directors of the Company the
opportunity to defer a portion of their compensation and to provide greater
incentives for those Directors to attain and maintain the highest standards of
performance, to attract and retain Directors of outstanding competence and
ability, to stimulate the active interest of such persons in the development and
financial success of the Company, to further the identity of interests of such
Directors with those of the Company's stockholders generally, and to reward such
Directors for outstanding performance.
1.2 Definitions.
"Applicable Annual Rate" will initially be 7.14% and will be adjusted
as of January 1 of each year to that rate which is equal to 120% of the
applicable federal long-term rate for the month of January of such year as
published by the Internal Revenue Service pursuant to Section 1274(d) of the
Code.
"Award" means any incentive award made to a Participant under the Plan
or any other Plan of the Company.
"Beneficiary" means the person(s) or entity(ies) designated by the
Participant, as provided in Section 4.5, to receive any payments otherwise due
the Participant under this Plan in the event of the Participant's death.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Cash Compensation" means all of the cash compensation payable to a
Participant, including annual, meeting and other fees.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
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"Committee" means such committee of the Board as is designated by the
Board to administer the Plan in accordance with Article II, but shall initially
be the Compensation Committee of the Board.
"Common Stock" means the Class A Common Stock, par value $.01 per
share, of the Company.
"Company" means Conoco Inc.
"Deferred Compensation Period" means such period of 365 days (or such
longer or shorter period) as shall from time to time be prescribed by the
Committee for which Participants shall be entitled to defer receipt of all or
any part of their Cash Compensation.
"Deferred Interest Bearing Account" means the bookkeeping account
maintained for each Participant to record certain amounts deferred by the
Participant in accordance with Article III hereof.
"Determination Date" means the date on which payment of a
Participant's deferred compensation is made or commences, as determined in
accordance with Section 4.1.
"Director" means an individual who is serving as a member of the
Board.
"Effective Date" means the IPO Closing Date.
"Election Effective Date" means the date upon which a Participant's
deferred compensation is credited to his Deferred Interest Bearing Account
pursuant to Section 3.3 of this Plan.
"Eligible Director" means each Director who is not an employee of E.I.
duPont de Nemours and Company or of any of its subsidiaries, or of the Company
or of any of the Company's subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if shares of Common Stock are listed on a national
securities exchange, the mean between the highest and lowest sales price per
share of Common Stock on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the next succeeding date on which such a sale was so reported,
(ii) if shares of Common
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Stock are not so listed but are quoted on the Nasdaq National Market, the mean
between the highest and lowest sales price per share of Common Stock reported by
the Nasdaq National Market on that date, or, if there shall have been no such
sale so reported on that date, on the next succeeding date on which such a sale
was so reported, (iii) if the Common Stock is not so listed or quoted, the mean
between the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the next succeeding date on which such
quotations shall be available, as reported by the Nasdaq Stock Market, or, if
not reported by the Nasdaq Stock Market, by the National Quotation Bureau
Incorporated or (iv) if shares of Common Stock are not publicly traded, the most
recent value determined by an independent appraiser appointed by the Company for
such purpose; provided that, notwithstanding the foregoing, "Fair Market Value"
in the case of any Award made in connection with the IPO, means the price per
share to the public of the Common Stock in the IPO, as set forth in the final
prospectus relating to the IPO. "Fair Market Value" of a Stock Unit means, as of
a particular date, the Fair Market Value of a share of Common Stock on such
date.
"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by the
Company of shares of common stock of the Company is declared effective under
that Act and the shares registered by that registration statement are issued and
sold by the Company (otherwise than pursuant to the exercise of any
overallotment option).
"IPO Closing Date" means the date on which the Company first receives
payment for the shares of common stock of the Company it sells in the IPO.
"Participant" means an Eligible Director who elects to participate in
the Plan or is otherwise credited with Stock Units pursuant to Article III.
"Stock Account" means the bookkeeping account maintained for each
Participant to record certain amounts deferred by the Participant in accordance
with Article III hereof.
"Stock Unit" means a unit equal to one share of Common Stock (as
adjusted pursuant to Section 3.6), utilized for the purpose of measuring the
benefits payable under Section 4.3.
"Total Deferred Unit Amount" means the aggregate Fair Market Value on
the Valuation Date coinciding with or immediately preceding the Determination
Date of the number of Stock Units then credited to a Participant's Stock
Account.
"Valuation Date" means the Effective Date and the first day of each
month thereafter or, in the event the Common Stock is traded or quoted on a
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national securities exchange or in the over-the-counter market, each day on
which a sale or sales of the Common Stock is reported or a quotation for the
Common Stock is available (as the case may be).
"1998 Incentive Plan" means the 1998 Stock and Performance Incentive
Plan of Conoco Inc.
ARTICLE II
ADMINISTRATION OF THE PLAN
2.1 Committee. This Plan shall be administered by the Committee. The
Committee shall consist of at least two members of the Board.
2.2 Committee's Powers. Subject to the provisions hereof, the
Committee shall have full and exclusive power and authority to administer this
Plan and to take all actions which are specifically contemplated hereby or are
necessary or appropriate in connection with the administration hereof. The
Committee shall also have full and exclusive power to interpret this Plan and to
adopt such rules, regulations and guidelines for carrying out this Plan as it
may deem necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee may, in its discretion, determine the eligibility of individuals to
participate herein, determine the amount of Cash Compensation a Participant may
elect to defer, or waive any restriction or other provision of this Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan in the manner and to the extent the Committee deems
necessary or desirable to carry it into effect.
2.3 Committee Determinations Conclusive. Any decision of the Committee
in the interpretation and administration of this Plan shall lie within its sole
and absolute discretion and shall be final, conclusive and binding on all
parties concerned.
2.4 Committee Liability. No member of the Committee or officer of the
Company to whom the Committee has delegated authority in accordance with the
provisions of Section 2.5 of this Plan shall be liable for anything done or
omitted to be done by him or her, by any member of the Committee or by an
officer of the Company in connection with the performance of any duties under
this Plan, except for his or her own willful misconduct or as expressly provided
by statute.
2.5 Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.
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ARTICLE III
ACCOUNTS
3.1 Establishment of Accounts. The Company shall set up an appropriate
record (hereinafter called the "Deferred Interest Bearing Account") which will
from time to time reflect the name of each Participant and the amounts deferred
by such Participant to an interest bearing account pursuant to Section 3.2. The
Company shall also set up an appropriate record (hereinafter called the "Stock
Account") which will from time to time reflect the name of each Participant, the
number of Stock Units credited to such Participant pursuant to Section 3.2, and
the Fair Market Value of that number of Stock Units credited to the Participant.
3.2 Deferred Compensation.
(a) A Participant may elect to defer receipt of all or any part
of the Cash Compensation payable to the Participant for serving on the
Board of Directors for any Deferred Compensation Period. At the
election of the Participant, the amount deferred shall be credited to:
(a) his or her Deferred Interest Bearing Account; (b) his or her Stock
Account; or (c) a combination of both. If a Participant chooses to
receive a credit to his Stock Account, a number of Stock Units
(rounded up to the nearest whole number) having a Fair Market Value on
the Election Effective Date equal to the dollar amount of fees the
Participant elects to forego in the applicable Deferred Compensation
Period in exchange for Stock Units shall be credited to such account.
A Participant may only elect to defer Cash Compensation which is
otherwise payable after an election to defer compensation is made
pursuant to Section 5.1 hereof.
(b) As additional deferred compensation and pursuant to the
requirements of paragraph 9 of the 1998 Incentive Plan, each Eligible
Director shall be credited with certain Stock Units on the later to
occur of the IPO Closing Date or the initial election of an individual
as an Eligible Director and on each subsequent Annual Director Award
Date, as provided for in paragraph 9 of the 1998 Incentive Plan.
3.3 Crediting of Deferred Amounts.
(a) Any Cash Compensation credited to a Participant's Deferred
Interest Bearing Account or Stock Account shall be credited to such
account on the last day of the month in which the deferred Cash
Compensation would otherwise have been paid (the "Election Effective
Date"). For example, if a Participant effectively elects to defer Cash
Compensation to his Deferred Interest Bearing Account for a Deferred
Compensation Period of 365 days beginning January 1 by notifying the
Company in the manner provided in Section 5.1, the Cash Compensation
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which accrues for the month of January shall be credited to such
Participant's Deferred Interest Bearing Account on January 31.
(b) Any Stock Units credited under the 1998 Incentive Plan to a
Participant as described in Section 3.2(b) hereof shall be credited to
the Participant's Stock Account as of the date specified in Section
3.2(b) hereof.
3.4 Interest on Deferred Interest Bearing Accounts. The amount of
deferred compensation credited to a Participant's Deferred Interest Bearing
Account will bear interest from (but excluding) the date so credited, to (and
including) the Determination Date, at a rate per annum equal to the Applicable
Annual Rate in effect from time to time, compounded monthly, and such interest
shall be credited to the Deferred Interest Bearing Account as of the last day of
each calendar month during the applicable Deferred Compensation Period and the
last day of the calendar month in which such period ends (or, if applicable, the
Determination Date). Interest so credited shall similarly bear interest from
(but excluding) the date so credited, to (and including) the Determination Date,
at a rate per annum equal to the Applicable Annual Rate in effect from time to
time, compounded monthly and credited as of the last day of each calendar month
during the applicable Deferred Compensation Period and the last day of the
calendar month in which such period ends (or, if applicable, the Determination
Date).
3.5 Dividends. As of each date that dividends are paid with respect to
Common Stock, a Participant who has any outstanding Stock Units credited to his
Stock Account shall have a number of Stock Units credited to his Stock Account
with respect to such dividends. The Stock Units credited in respect of dividends
shall have a Fair Market Value equal to the dollar amount of the dividend paid
per share of Common Stock as of such dividend payment date multiplied by the
number of Stock Units credited to the Participant's Stock Account immediately
prior to such dividend payment date.
3.6 Adjustments.
(a) Exercise of Corporate Powers. The existence of this Plan and
any outstanding Stock Units credited hereunder shall not affect in any
manner the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the capital stock of the Company
or its business or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock
(whether or not such issue is prior to, on a parity with or junior to
the Common Stock) or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding of any kind, whether or not of a
character similar to that of the acts or proceedings enumerated above.
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(b) Recapitalizations, Reorganizations and Other Activities. In
the event of any subdivision or consolidation of outstanding shares of
Common Stock, declaration of a dividend payable in shares of Common
Stock or other stock split, then (i) the number of Stock Units and
(ii) the appropriate Fair Market Value and other price determinations
for such Stock Units shall each be proportionately adjusted by the
Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or
entity, the adoption by the Company of any plan of exchange affecting
the Common Stock or any distribution to holders of Common Stock of
securities or property (other than normal cash dividends or dividends
payable in Common Stock), the Board shall make appropriate adjustments
to (i) the number of Stock Units and (ii) the appropriate Fair Market
Value and other price determinations for such Stock Units to give
effect to such transaction; provided that such adjustments shall only
be such as are necessary to preserve, without increasing, the value of
such units. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume units by
means of substitution of new units, as appropriate, for previously
issued units or an assumption of previously issued units as part of
such adjustment.
ARTICLE IV
PAYMENTS
4.1 Period of Deferral. A Participant may elect that payment of
amounts credited to the Participant under the Plan be made or commence at (a) a
date that is five years following the date of the termination of the
Participant's status as a Director of the Company, or (b) the date of the
termination of the Participant's status as a Director of the Company (either of
such dates elected by the Participant to be known as the "Determination Date").
If alternative (a) is elected by the Participant, payment will be made or will
commence within sixty (60) days after the date that is five years after
termination of the Participant's status as a Director of the Company. If
alternative (b) is elected by the Participant, payment will be made or will
commence within sixty (60) days after termination of the Participant's status as
a Director of the Company. Notwithstanding the foregoing, no amount may be
distributed in respect of a Stock Unit awarded under the 1998 Incentive Plan
until such Stock Unit has been held under this Plan for three years.
4.2 Payment of Amounts in Deferred Interest Bearing Account. As of the
Determination Date, the sum of the amounts theretofore credited to a
Participant's Deferred Interest Bearing Account for each Deferred Compensation
Period plus all interest accrued thereon to, and including, the Determination
Date (the "Total Deferred
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Compensation Amount") shall be calculated. A Participant shall receive payment
of his Total Deferred Compensation Amount with respect to each Deferred
Compensation Period in the form he has previously elected under Section 4.4.
4.3 Payment of Amounts in Stock Account. As of the Determination Date,
the aggregate Fair Market Value on the Valuation Date coinciding with or
immediately preceding the Determination Date of that number of Stock Units
credited to a Participant's Stock Account as of such Determination Date with
respect to each Deferred Compensation Period and with respect to each Award
under the 1998 Incentive Plan shall be calculated. The result is the "Total
Deferred Unit Amount." A Participant shall receive payment of his Total Deferred
Unit Amount with respect to each Deferred Compensation Period or 1998 Incentive
Plan Award in the form he has previously elected under Section 4.4.
4.4 Form of Payment. Payment to a Participant of amounts in his
Deferred Interest Bearing Account shall be made in the form of cash. Payment to
a Participant in respect of a Stock Unit in his Stock Account shall be made in
the form of Common Stock; provided that under conditions established by the
Committee, a Participant may elect to receive an amount payable in respect of a
Stock Unit in the form of cash. Payment to a Participant of amounts in both
accounts shall be made by one of the following methods: (a) a lump sum, (b)
three substantially equal consecutive annual installments, or (c) five
substantially equal consecutive annual installments; subject to the requirements
of Section 4.1 hereof that no amount is distributable in respect of a Stock Unit
Award under the 1998 Incentive Plan until it has been held for three years. The
Total Deferred Compensation Amount and the Total Deferred Unit Amount that is to
be distributed in cash shall bear interest from, but excluding, the
Determination Date to, and including, the date paid at the Applicable Annual
Rate as in effect from time to time, compounded monthly, and the payment of each
annual installment shall be accompanied by payment of the amount of interest
accrued thereon.
4.5 Death Prior to Payment. In the event that a Participant dies prior
to payment of all of the amounts payable pursuant to the Plan, any remaining
amounts together with all interest accrued thereon, shall be paid to the
Participant's designated Beneficiary in a lump sum within sixty (60) days
following the Company's notification of the Participant's death. If no
Beneficiary has been designated, such payment shall be made to the Participant's
estate. A beneficiary designation, or revocation of a prior beneficiary
designation, shall be effective only if it is made in writing on a form provided
by the Company, signed by the Participant and received by the Committee. In the
event that a Participant dies prior to payment of all of the amounts payable
pursuant to the Plan, and the designated Beneficiary dies prior to payment of
all the amounts payable pursuant to the Plan, payment shall be made to the
Participant's estate in a lump sum within sixty (60) days of notification of the
Beneficiary's death.
4.6 Payments to Minors and Incompetents. Should the Participant become
incompetent or should the Participant designate a Beneficiary who is a minor or
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incompetent, the Company shall be authorized to pay such funds to a parent or
guardian of such minor or incompetent, or directly to such minor or incompetent,
whichever manner the Committee shall determine in its sole discretion.
ARTICLE V
ELECTING DEFERRALS
5.1 Manner of Electing Deferral. Each election made by a Participant
to defer Cash Compensation under the Plan (i) shall take the form of a written
document (provided by the Company) signed by the Participant and filed with the
Committee, (ii) shall designate the Deferred Compensation Period for which
deferral is elected, the account to which such deferral shall be credited, the
period of deferral and the form and manner of payment, (iii) shall only apply to
Cash Compensation payable after the date of such election and (iv) may not be
revoked or modified without the prior written approval of the Committee if the
proposed revocation or modification applies to amounts deferred with respect to
a Deferred Compensation Period which has already commenced at the time such
revocation or modification is proposed to be effected. With respect to each
award of Stock Units made to a Participant under the 1998 Incentive Plan, as
described in Section 3.2(b) hereof, the Participant shall make an election which
(i) shall take the form of a written document (provided by the Company) signed
by the Participant and filed with the Committee, (ii) shall designate the period
of deferral and the form and manner of payment elected by the Participant, and
(iii) may not be revoked or modified without the prior written approval of the
Committee. The Committee shall be authorized to adopt such rules and limitations
as it shall determine are necessary or appropriate with respect to the timing of
elections to defer compensation under the Plan.
ARTICLE VI
MISCELLANEOUS
6.1 Unfunded Plan. Nothing contained herein shall be deemed to create
a trust of any kind or create any fiduciary relationship. This Plan shall be
unfunded. Funds invested hereunder shall continue for all purposes to be part of
the general funds of the Company. To the extent that a Participant acquires a
right to receive payments from the Company under the Plan, such right shall not
be greater than the right of any unsecured general creditor of the Company and
such right shall be an unsecured claim against the general assets of the
Company. Although bookkeeping accounts may be established with respect to
Participants, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash or rights thereto, nor shall this Plan be
construed as providing for such segregation, nor shall the Company, the Board or
the Committee be deemed to be a trustee of any cash or rights thereto to be
granted under this Plan. Any liability or obligation of the Company to any
Participant with respect to cash or rights thereto under this Plan shall be
based solely upon any contractual obligations
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that may be created by this Plan, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
6.2 Title to Funds Remains with Company. Amounts credited to each
Participant's Deferred Interest Bearing Account and Stock Account shall not be
specifically set aside or otherwise segregated, but will be combined with
corporate assets. Title to such funds will remain with the Company and the
Company's only obligation will be to make timely payments to Participants in
accordance with the Plan.
6.3 Statement of Account. A statement will be furnished to each
Participant annually on such date as may be determined by the Committee stating
the balance of the Participant's Deferred Interest Bearing Account and Stock
Account and accrued interest thereon as of a recent date designated by the
Committee.
6.4 Assignability. Except as provided in Section 4.5, no right to
receive payment hereunder shall be transferable or assignable by a Participant
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. Any attempted assignment of any benefit under this Plan in violation
of this Section 6.4 shall be null and void.
6.5 Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that no amendment, modification or termination shall, without the
consent of the Participant, impair the rights of any Participant to the balance
in such Participant's Deferred Interest Bearing Account or Stock Account or the
amount of interest accrued thereon as of the date of such amendment,
modification or termination. The Board may at any time and from time to time
delegate to the Committee any or all of this authority under this Section 6.5.
6.6 Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
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EXHIBIT 10.13
CONOCO INC.
KEY EMPLOYEE SEVERANCE PLAN
The Company hereby adopts the Conoco Inc. Key Employee Severance Plan
for the benefit of certain employees of the Company and its subsidiaries, on the
terms and conditions hereinafter stated. All capitalized terms used herein are
defined in Section 1 hereof. This Plan is intended to be a plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees, within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, as amended and shall be
interpreted in a manner consistent with such intention.
SECTION 1. DEFINITIONS. As hereinafter used:
1.1 "Affiliate" shall have the meaning set forth in Rule 12(b)(2)
promulgated under Section 12 of the Exchange Act.
1.2 "Beneficial Owner" shall have the meaning set forth in
Rule 13(d)(3) under the Exchange Act.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Cause" means (i) the willful and continued failure by the
Eligible Employee to substantially perform the Eligible Employee's duties with
the Employer (other than any such failure resulting from the Eligible Employee's
incapacity due to physical or mental illness), or (ii) the willful engaging, not
in good faith, by the Eligible Employee in conduct which is demonstrably
injurious to the Company or its subsidiaries, monetarily or otherwise.
1.5 "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company) representing 30% or more of the combined
voting power of the Company's then outstanding securities, excluding
any Person who becomes such a Beneficial Owner in
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connection with a transaction described in clause (A) of paragraph
(iii) below; or
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by
the Company's stockholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(iii) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (A) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof) , in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any subsidiary of the Company, at least 50% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
30% or more of the combined voting power of the Company's then
outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 50% of the combined voting
power of the
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voting securities of which are owned by stockholders of the Company
in substantially the same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
1.6 "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.7 "Company" means the Conoco, Inc. or any successors thereto.
1.8 "Eligible Employee" means any employee that is a Tier 1 Employee
or a Tier 2 Employee. An Eligible Employee becomes a "Severed Employee" once he
or she incurs a Severance.
1.9 "Employer" means the Company or any of its subsidiaries.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
1.11 "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
1.12 "Good Reason" means the occurrence, on or after the date of a
Change in Control or prior to a Change in Control under the circumstances
described in clauses (x) or (y) of the third sentence of Section 1.19 hereof
(treating all references in paragraphs (i) through (iii) below to a "Change in
Control" as references to a "Potential Change in Control"), and without the
Eligible Employee's written consent, of (i) the assignment to the Eligible
Employee of duties in the aggregate that are inconsistent with the Eligible
Employee's level of responsibility immediately prior to the date of the Change
in Control or any diminution in the nature or status of the Eligible Employee's
responsibilities from those in effect immediately prior to the date of the
Change in Control; (ii) a reduction by the Company in the Eligible Employee's
annual base salary or any adverse change in the Eligible Employee's aggregate
annual
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and long term incentive compensation opportunity from that in effect immediately
prior to the Change in Control which change is not pursuant to a program
applicable to all comparably situated executives of the Company; or (iii) the
relocation of the Eligible Employee's principal place of employment to a
location more than thirty-five (35) miles from the Eligible Employee's principal
place of employment immediately prior to the date of the Change in Control.
1.13 "Gross-Up Payment" shall have the meaning set forth in Section
2.4 hereof.
1.14 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its Affiliates
(including, without limitation, E.I. du Pont de Nemours and Company), (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
1.15 "Plan" means the Conoco, Inc. Key Employee Severance Plan, as
set forth herein, as it may be amended from time to time.
1.16 "Plan Administrator" means the person or persons appointed from
time to time by the Board which appointment may be revoked at any time by the
Board.
1.17 "Potential Change in Control" shall be deemed to have occurred
if:
(a) the Company enters into a written agreement, the consummation
of which would result in the occurrence of a Change in
Control; or
(b) any Person (including the Company) publicly announces an
intention to take or to consider taking actions which if
consummated would constitute a Change in Control.
1.18 "Public Offering" shall mean the initial sale of common equity
securities of the Company pursuant to an effective registration statement (other
than a
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registration on Form S-4 or S-8 or any successor or similar forms) filed under
the Securities Act of 1933.
1.19 "Severance" means the termination of an Eligible Employee's
employment with the Employer on or within two years following the date of the
Change in Control, (i) by the Employer other than for Cause, or (ii) by the
Eligible Employee for Good Reason. An Eligible Employee will not be considered
to have incurred a Severance if his employment is discontinued by reason of the
Eligible Employee's death or a physical or mental condition causing such
Eligible Employee's inability to substantially perform his duties with the
Employer, including, without limitation, such condition entitling him or her to
benefits under any sick pay or disability income policy or program of the
Employer. For purposes of this Plan, the Eligible Employee's employment shall be
deemed to have been terminated following a Change in Control by the Employer
without Cause or by the Eligible Employee with Good Reason, if (x) the Eligible
Employee's employment is terminated by the Employer without Cause following a
Potential Change in Control and prior to a Change in Control (whether or not a
Change in Control ever occurs) and such termination was at the request or
direction of a Person who has entered into a written agreement with the Company
or an Affiliate of the Company the consummation of which would constitute a
Change in Control or (y) the Eligible Employee terminates his employment for
Good Reason following a Potential Change in Control and prior to a Change in
Control (whether or not a Change in Control ever occurs) and the circumstance or
event which constitutes Good Reason occurs at the request or direction of such
Person. Notwithstanding anything herein to the contrary, Good Reason shall not
be deemed to have occurred unless the Company shall have been given (1) written
notice of the Eligible Employee's assertion that an event constituting Good
Reason has occurred, which notice shall be given not less than 30 days prior to
the Severance Date to which such notice relates, and (2) a reasonable
opportunity to cure such occurrence during such 30 day period.
1.20 "Severance Date" means the date on or after the date of the
Change in Control on which an Eligible Employee incurs a Severance.
1.21 "Severance Pay" means the payment determined pursuant to
Section 2.1 hereof.
1.22 "Tier 1 Employee" means any employee of the Employer listed on
Schedule A attached hereto.
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1.23 "Tier 2 Employee" means any employee of the Employer listed on
Schedule B attached hereto.
SECTION 2. BENEFITS.
2.1 Each Tier 1 Employee and Tier 2 Employee who incurs a Severance
shall be entitled to receive Severance Pay equal to the sum of his or her annual
base salary and annual incentive compensation, multiplied by (i) 3, in the case
of a Tier 1 Employee and (ii) 2, in the case of a Tier 2 Employee. For purposes
of this Section, annual base salary shall be determined immediately prior to the
Severance Date (without regard to any reductions therein which constitute Good
Reason) and annual incentive compensation shall be deemed to equal the annual
incentive compensation earned by such employee pursuant to the annual bonus or
incentive plan maintained by the Company in respect of the fiscal year ending
immediately prior to such employee's Severance Date. The Severance Pay shall be
in lieu of any payments or benefits which may otherwise be payable to the
Severed Employee pursuant to any severance plan, policy or program of the
Company.
2.2 Severance Pay (as well as any amount payable pursuant to Section
2.5 hereof) shall be paid to an eligible Severed Employee in a cash lump sum, as
soon as practicable following the Severance Date, but in no event later than 10
business days immediately following the expiration of the revocation period, if
any, applicable to the Severed Employee's release, described in Section 2.8.
2.3 For a period immediately following the Severance Date of (i) 36
months for Tier 1 Employees and (ii) 24 months for Tier 2 Employees, the Company
shall arrange to provide the Eligible Employee and his dependents life,
disability, accident and health insurance benefits substantially similar to
those provided to the Eligible Employee and his dependents immediately prior to
the Severance Date, at no greater cost to the Eligible Employee than the cost to
the Eligible Employee immediately prior to such date. Benefits otherwise
receivable by the Eligible Employee pursuant to this Section 2.3 shall be
reduced to the extent benefits of the same type are received by or made
available to the Eligible Employee during the applicable period (and any such
benefits received by or made available to the Eligible Employee shall be
reported to the Company by the Eligible Employee).
2.4 If a Severed Employee becomes entitled to Severance Pay, then if
any of the payments or benefits received or to be received by such Severed
Employee in connection with the Change in Control or his termination of
employment (whether pursuant to the terms of this Plan or any other plan,
arrangement or agreement) (such
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payments or benefits, excluding the Gross-Up Payment, being hereinafter referred
to as the "Total Payments") will be subject to the Excise Tax, the Company shall
pay to the Severed Employee an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Severed Employee, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income and
employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the
Total Payments. The Gross-Up Payment, if any, shall be paid to an eligible
Severed Employee in a cash lump sum, as soon as practicable following the
Severance Date, but, in any event, not later than 10 business days immediately
following the expiration of the revocation period, if any, applicable to the
Severed Employee's release, described in Section 2.8.
In the event that the Excise Tax is finally determined to be less
than the amount taken into account hereunder in calculating the Gross-Up
Payment, the Severed Employee shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the Excise
Tax is finally determined, the portion of the Gross-Up Payment attributable to
such reduction, plus interest on the amount of such repayment at 120% of the
semiannual compounding short term Applicable Federal Rate published with respect
to the month in which occurs the Severance Date. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Severed
Employee with respect to such excess) within five (5) business days following
the time that the amount of such excess is finally determined. The Severed
Employee shall notify the Company immediately of the assertion by any taxing
authority of any underpayment of tax. The Severed Employee and the Company shall
each reasonably cooperate with the other in connection with any administrative
or judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments and in resolving any dispute with
any taxing authority regarding any asserted underpayment of Excise Tax.
2.5 Each Tier 1 Employee and Tier 2 Employee who incurs a Severance
shall be entitled to receive the employee's full salary through the Severance
Date and, notwithstanding any provision of the Company's annual incentive plan
to the contrary, a cash lump sum amount equal to a pro rata portion to the
Severance Date of the aggregate value of the annual incentive compensation award
to such Severed Employee for the then uncompleted fiscal year under such plan,
calculated by multiplying the award earned by the Severed Employee during the
most recently completed fiscal year, by the fraction obtained by dividing the
number of full months
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and any fractional portion of a month during said fiscal year through the
Severance Date by twelve.
2.6 The Company will pay to each Eligible Employee all reasonable
legal fees and expenses incurred by such Eligible Employee in pursuing any claim
under the Plan, which claim is successful in any part.
2.7 The Company shall be entitled to withhold from amounts to be
paid to the Severed Employee hereunder any federal, state or local withholding
or other taxes or charges which it is from time to time required to withhold.
2.8 No Severed Employee shall be eligible to receive Severance Pay
or other benefits under the Plan unless he or she first executes a written
release substantially in the form attached as Exhibit A hereto, (or, if the
Severed Employee was not a United States employee, a similar release which is in
accordance with the applicable laws in the relevant jurisdiction).
SECTION 3. PLAN ADMINISTRATION.
3.1 The Plan Administrator shall administer the Plan and may
interpret the Plan, prescribe, amend and rescind rules and regulations under the
Plan and make all other determinations necessary or advisable for the
administration of the Plan, subject to all of the provisions of the Plan.
3.2 In the event of a claim by an Eligible Employee as to the amount
or timing of any payment or benefit, such Eligible Employee shall present the
reason for his or her claim in writing to the Plan Administrator. The Plan
Administrator shall, within fourteen (14) days after receipt of such written
claim, send a written notification to the Eligible Employee as to its
disposition. Except as provided in the preceding portion of this Section 3.2,
all disputes under this Plan shall be settled exclusively by binding arbitration
in Houston, Texas, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
3.3 The Plan Administrator may delegate any of its duties hereunder
to such person or persons from time to time as it may designate.
3.4 The Plan Administrator is empowered, on behalf of the Plan, to
engage accountants, legal counsel and such other personnel as it deems necessary
or advisable to assist it in the performance of its duties under the Plan. The
functions of
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any such persons engaged by the Plan Administrator shall be limited to the
specified services and duties for which they are engaged, and such persons shall
have no other duties, obligations or responsibilities under the Plan. Such
persons shall exercise no discretionary authority or discretionary control
respecting the management of the Plan. All reasonable expenses thereof shall be
borne by the Employer.
SECTION 4. PLAN TERM; AMENDMENT.
The Plan shall be effective as of May 10, 1998 and shall terminate
on the third anniversary thereof; provided, however, that if a Change in Control
shall have occurred on or prior to such third anniversary, the Plan shall
terminate no earlier than twenty-four (24) months beyond the month in which such
Change in Control occurred. The Plan may be amended by the Board.
Notwithstanding the foregoing, the Plan may not be amended, if such amendment
would be adverse to the interests of any Eligible Employee, without such
Eligible Employee's written consent. No Plan termination shall affect the rights
of any Eligible Employee under this Plan, without such Eligible Employee's
written consent. Notwithstanding anything to the contrary contained herein,
additional Eligible Employees may be added to Schedule A and Schedule B attached
hereto prior to a Public Offering by the Compensation Committee of E.I. du Pont
de Nemours and Company, and following a Public Offering by the Board.
SECTION 5. GENERAL PROVISIONS.
5.1 Except as otherwise provided herein or by law, no right or
interest of any Eligible Employee under the Plan shall be assignable or
transferable, in whole or in part, either directly or by operation of law or
otherwise, including without limitation by execution, levy, garnishment,
attachment, pledge or in any manner; no attempted assignment or transfer thereof
shall be effective; and no right or interest of any Eligible Employee under the
Plan shall be liable for, or subject to, any obligation or liability of such
Eligible Employee. When a payment is due under this Plan to a Severed Employee
who is unable to care for his or her affairs, payment may be made directly to
his or her legal guardian or personal representative.
5.2 If the Company is obligated by law or by contract to pay
severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law to provide advance notice of separation ("Notice
Period"), then any Severance Pay hereunder shall be reduced by the amount of any
such severance pay, termination indemnity, notice pay or the like, as
applicable, and by the amount of any compensation received during any Notice
Period.
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5.3 Neither the establishment of the Plan, nor any modification
thereof, nor the creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any Eligible Employee, or any person
whomsoever, the right to be retained in the service of the Employer, and all
Eligible Employees shall remain subject to discharge to the same extent as if
the Plan had never been adopted.
5.4 If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be construed and enforced as if such
provisions had not been included.
5.5 This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties, including each Eligible
Employee, present and future, and any successor to the Employer.
5.6 The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
5.7 The Plan shall not be funded. No Eligible Employee shall have
any right to, or interest in, any assets of any Employer which may be applied by
the Employer to the payment of benefits or other rights under this Plan.
5.8 Any notice or other communication required or permitted pursuant
to the terms hereof shall have been duly given when delivered or mailed by
United States Mail, first class, postage prepaid, addressed to the intended
recipient at his, her or its last known address.
5.9 This Plan shall be construed and enforced according to the laws
of the State of Delaware.
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Exhibit A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payments to be made to me by
Conoco Inc., a Delaware corporation (the "Company") or any of its subsidiaries,
pursuant to the Severance Agreement between the Company and me dated as of May
11, 1998 (the "Agreement"), which I acknowledge that I would not otherwise be
entitled to receive, I hereby waive any claims I may have for employment or
re-employment by the Company or any subsidiary or parent of the Company after
the date hereof, and I further agree to and do release and forever discharge the
Company or any subsidiary or parent of the Company, and their respective past
and present officers, directors, shareholders, employees and agents from any and
all claims and causes of action, known or unknown, arising out of or relating to
my employment with the Company or any subsidiary or parent of the Company, or
the termination thereof, including, but not limited to, wrongful discharge,
breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in
Employment Act, Employee Retirement Income Security Act, Americans with
Disabilities Act, or any other federal, state or local legislation or common law
relating to employment or discrimination in employment or otherwise.
Notwithstanding the foregoing or any other provision hereof, nothing
in this Waiver and Release of Claims shall adversely affect (i) my rights under
the Agreement; (ii) my rights to benefits other than severance benefits under
plans, programs and arrangements of the Company or any subsidiary or parent of
the Company which are accrued but unpaid as of the date of my termination; or
(iii) my rights to indemnification under any indemnification agreement,
applicable law and the certificates of incorporation and bylaws of the Company
and any subsidiary or parent of the Company, and my rights under any director's
and officers' liability insurance policy covering me.
I acknowledge that I have signed this Waiver and Release of Claims
voluntarily, knowingly, of my own free will and without reservation or duress
and that no promises or representations have been made to me by any person to
induce me to do so other than the promise of payment set forth in the first
paragraph above and the Company's acknowledgement of my rights reserved under
the second paragraph above.
Signature:_____________________________ Dated:______________
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<PAGE> 1
EXHIBIT 10.14
CONOCO INC.
KEY EMPLOYEE TEMPORARY SEVERANCE PLAN
The Company hereby adopts the Conoco Inc. Key Employee
Temporary Severance Plan for the benefit of certain employees of the Company
and its subsidiaries, on the terms and conditions hereinafter stated. All
capitalized terms used herein are defined in Section 1 hereof. This Plan is
intended to be a welfare plan maintained primarily for a select group of
management or highly compensated employees, within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, as amended and shall be
interpreted in a manner consistent with such intention.
SECTION 1. DEFINITIONS. As hereinafter used:
1.1 "Affiliate" shall have the meaning set forth in Rule
12(b)(2) promulgated under Section 12 of the Exchange Act.
1.2 "Beneficial Owner" shall have the meaning set forth
in Rule 13(d)(3) under the Exchange Act.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Change in Control" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:
(i) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially
owned by such Person any securities acquired directly
from the Company) representing 30% or more of the
combined voting power of the Company's then
outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (A) of paragraph
(iii) below; or
(ii) the following individuals cease for any
reason to constitute a majority of the number of
directors then serving: individuals who, on the date
hereof, constitute the Board and any new director
(other than a director whose initial assumption of
office is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of the Company) whose appointment or
election by the Board or nomination for election by
the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment,
election or nomination for election was previously so
approved or recommended; or
(iii) there is consummated a merger or
consolidation of the Company or any direct or
indirect subsidiary of the Company with any other
corporation other than (A) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the
<PAGE> 2
surviving entity or any parent thereof), in
combination with the ownership of any trustee or
other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the
Company, at least 50% of the combined voting power of
the securities of the Company or such surviving
entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger
or consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing 30% or more of
the combined voting power of the Company's then
outstanding securities; or
(iv) the stockholders of the Company approve
a plan of complete liquidation or dissolution of the
Company or there is consummated an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets, other than
a sale or disposition by the Company of all or
substantially all of the Company's assets to an
entity, at least 50% of the combined voting power of
the voting securities of which are owned by
stockholders of the Company in substantially the same
proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions
1.5 "Code" means the Internal Revenue Code of 1986, as it
may be amended from time to time.
1.6 "Company means the Conoco Inc. or any successors
thereto.
1.7 "Employer" means the Company or any of its
subsidiaries.
1.8 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
1.9 "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company or any of its
Affiliates (including, without limitation, E.I. du Pont de Nemours and
Company), (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
1.10 "Plan" means the Conoco Inc. Key Employee Temporary
Severance Plan, as set forth herein, as it may be amended from time to time.
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1.11 "Plan Administrator" means the person or persons
appointed from time to time by the Board which appointment may be revoked at
any time by the Board.
1.12 "Potential Change in Control" shall be deemed to have
occurred if:
(a) the Company enters into a written agreement, the
consummation of which would result in the occurrence
of a Change in Control; or
(b) any Person (including the Company) publicly announces
an intention to take or to consider taking action
which if consummated would constitute a Change in
Control.
1.13 "Public Offering" shall mean the initial sale of
common equity securities of the Company pursuant to an effective registration
statement (other than a registration on Form S-4 or S-8 or any successor or
similar forms) filed under the Securities Act of 1933.
SECTION 2. ELIGIBILITY REQUIREMENTS
You must be in Salary Grade 8 or above and meet both of the following
requirements at the time of your termination to be eligible for Key Employee
Temporary Severance Plan benefits:
o You must be a regular, full-time employee or a regular, part-time employee
(but you must have worked at least 1 year as a regular, full-time employee
immediately before going to regular part-time status) and
o You must have at least 1 full year of service from your most recent date of
employment or reemployment.
If you are not in Salary Grade 8 or above and do not meet both of these
requirements, you are not eligible to participate in the Plan or to receive
severance benefits.
SECTION 3. QUALIFYING EVENTS
You must meet the eligibility requirements and at least one of the
qualifying events outlined below to receive Plan benefits.
o You are terminated due to a reduction in force or
o Your current job is abolished or restructured to the extent it is not a
comparable position(1) or
o Your current job is moved, essentially as it currently exists, to a
location outside the immediate geographic area(2) or
- ----------------------------------
(1) A job is considered a comparable position if it is within one salary grade
(or equivalent) of your current salary grade and the base salary is at least 80
percent of your base salary.
(2) A job is considered in the immediate geographic area if the distance from
your residence to the location of the new position is not more than 35 miles
greater than the distance from your residence to the location of your previous
position.
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<PAGE> 4
o You are displaced by an individual returning from a Company-approved leave
of absence (such as military or educational leave), or
o After a Change in Control, your Salary Grade level is reduced so that you
are no longer eligible for benefits under this Plan.
You will not be eligible to receive Plan benefits if you have any
"disqualifying events," even if you have met the eligibility requirements and
have a qualifying event.
SECTION 4. DISQUALIFYING EVENTS
You are not eligible to receive Plan benefits if any of the following
events apply, even if you have met the eligibility requirements and a
qualifying event has occurred.
You are disqualified if you are:
o Discharged by the Company for cause or if you resign;
o Offered and refuse a comparable position in the immediate geographic area
with Conoco, DuPont, or an affiliated company;
o On a temporary assignment (including an expatriate assignment) or "special
project" (including domestic assignments) and are offered and refuse a
comparable position at the location from which you departed.
o Terminated or if you resign prior to the Company-designated termination
date;
o Terminated while on personal leave of absence;
o A Conoco store employee;
o Represented by a collective bargaining agreement;
o Scheduled off temporarily due to emergencies beyond management's control,
such as fire, flood, strike, power failure, or transportation difficulty
(including transportation strikes that force total or partial suspension of
operations);
o Disabled on the date of termination and have qualified for Social Security
disability benefits or, in the opinion of the Integrated Health Services
Division, will qualify for such benefits as a result of a disability that
exists on the date you are terminated;
o Offered employment under an agreement between Conoco, DuPont, or an
affiliated company and a
1. purchaser or recipient of Company assets, entered into in connection
with the transfer or sale of such assets, or
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<PAGE> 5
2. third-party provider of services to Conoco, entered into in connection
with the "outsourcing" or provision of such services,
if you:
a. accept the offered employment or
b. reject the offered employment and the offered employment is a
comparable position(1) in the immediate geographic area.(2)
The important points to remember are that to be eligible for Plan benefits,
you must meet the eligibility requirements, have a disqualifying event, and not
have a disqualifying event.
SECTION 5. AMOUNT OF SEVERANCE PAY
Plan benefits shall be equal to the sum of an employee's annual base
salary and most recent annual global variable compensation payment. For
purposes of this Section, annual base salary shall be determined immediately
prior to the date a qualifying event occurs and annual global variable
compensation shall be deemed to equal the annual global variable compensation
earned by such employee pursuant to the annual bonus or global variable
compensation plan maintained by the Company in respect to the fiscal year
ending immediately prior to the date a qualifying event occurs. Plan benefits
shall be in lieu of any payments or benefits which may otherwise be payable
pursuant to any other severance plan, policy or program of the Company. It is
determined that an employee has a right to a payment pursuant to any other
severance plan, policy or program of the Company, the amount of benefits
payable under this Plan shall be reduced by the amount payable pursuant to any
other severance plan, policy or program of the Company.
The Company shall be entitled to withhold from amounts to be paid
hereunder, any federal, state or local withholding or other taxes or charges
which it is from time to time required to withhold.
SECTION 6. PAYMENT OPTIONS
You have four optional forms of payment:
o Lump sum at time of departure;
o 50 percent at time of departure and 50 percent the following January,
without interest.
o 50 percent in the January after departure and 50 percent in the following
January, without interest; or
o Semimonthly payments until equivalent severance amount is paid, without
interest.
SECTION 7. REEMPLOYMENT AS A REGULAR EMPLOYEE
If you have received severance pay from Conoco, DuPont, or any
affiliated company and are reemployed as a regular, full-time employee or a
regular, part-time employee by any of these companies, you will be required to
reimburse the respective company a pro rata amount of
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<PAGE> 6
severance pay for any unexpired period. The reimbursement amount will be
determined by multiplying the number of days absent times the daily rate of
severance pay (determined by U.S. HR Leveraged Services). For example, if you
received 6 weeks (30 days) of severance pay and were reemployed on a regular,
full-time basis after 4 weeks (20 days), you would be required to pay 2 weeks
(10 days) of severance pay.
If you are reemployed, terminated, and again qualify for severance
pay, the benefit calculation will be based on your total years of service
(including the second or subsequent service period), rather than solely on the
length of the second or subsequent service period. The second severance amount
paid will be the amount resulting from the following calculation: total
severance pay benefits (based on equated employment date and total full years
of service) minus any previous severance payments already received and not
repaid to the Company.
SECTION 8. PLAN ADMINISTRATION
The Plan Administrator shall administer the Plan and may interpret the
Plan, prescribe, amend and rescind rules and regulations under the Plan and
make all other determinations necessary or advisable for the administration of
the Plan, subject to all of the provisions of the Plan.
The Plan Administrator may delegate any of its duties hereunder to
such persons or persons from time to time as it may designate
The Plan Administrator is empowered, on behalf of the Plan, to engage
accountants, legal counsel and such other personnel as it deems necessary or
advisable to assist it in the performance of its duties under the Plan. The
functions of any such persons engaged by the Plan Administrator shall be
limited to the specified services and duties for which they are engaged, and
such persons shall have no other duties, obligations or responsibilities under
the Plan. Such persons shall exercise no discretionary authority or
discretionary control respecting the management of the Plan. All reasonable
expenses thereof shall be borne by the Employer.
In carrying out its responsibilities under the Plan, including, but
not limited to the review of all claims for benefits under the Plan, the Plan
Administrator shall have full and exclusive discretionary authority to
interpret the terms of the Plan and to determine all issues concerning
eligibility for and entitlement to Plan benefits in accordance with the terms
of the Plan.
SECTION 9. PLAN TERMINATION AND/OR AMENDMENT
The Plan shall be effective as of May 10, 1998 and shall terminate on
the third anniversary thereof. The Plan may be amended by the Board or its
delegee; provided, however, that any such amendment during the period that E.I.
du Pont de Nemours and Company owns at least (50%) of the combined voting power
of the Company's then outstanding securities must be approved by E.I. du Pont
de Nemours and Company. Notwithstanding the foregoing, after a Change of
Control, the Plan may not be amended, if such amendment would be adverse to the
interest of any eligible employee, without such eligible employee's written
consent. After a Change in Control, no Plan termination, except as provided in
the first sentence of this Section 9., shall affect the rights of any eligible
employee under this Plan, without such eligible employee's written consent.
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<PAGE> 7
SECTION 10. GENERAL PROVISIONS
Except as otherwise provided herein or by law, no right or
interest of any employee under the Plan shall be assignable or transferable, in
whole or in part, either directly or by operation of law or otherwise,
including without limitation by execution, levy, garnishment, attachment,
pledge or in any manner, no attempted assignment or transfer thereof shall be
effective; and no right or interest of any employee under the Plan shall be
liable for, or subject to, any obligation or liability of such employee. When
a payment is due under this Plan to an employee who is unable to care for his
or her affairs, payment may be made directly to his or her legal guardian or
personal representative.
If the Company is obligated by law or by contract to pay severance
pay, a termination indemnity, notice pay, or the like, or if the Company is
obligated by law to provide advance notice of separation ("Notice Period"),
then any payment hereunder shall be reduced by the amount of any such severance
pay, termination indemnity, notice pay or the like, as applicable, and by the
amount of any compensation received during any Notice Period.
Neither the establishment of the Plan, nor any modification
thereof, nor the creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any employee, or any person whomsoever,
the right to be retained in the service of the Employer, and all employees
shall remain subject to discharge to the same extent as if the Plan had never
been adopted.
If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be construed and enforced as if such
provisions had not been included
This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties, including each employee,
present and future, and any successor to the Employer.
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
The Plan shall not be funded. No employee shall have any right
to, or interest in, any assets of any Employer which may be applied by the
Employer to the payment of benefits or other rights under this Plan.
Any notice or other communication required or permitted pursuant
to the terms hereof shall have been duly given when delivered or mailed by
United States Mail, first class, postage prepaid, addressed to the intended
recipient at his, her or its last known address.
This Plan shall be construed and enforced according to the laws of
the State of Delaware.
SECTION 11. ADMINISTRATIVE PROCEDURES IF A CLAIM IS DENIED
Claims for benefits from the Plan must be submitted in writing to
the Plan Administrator.
If a claim is wholly or partial denied, you will be notified in
writing of the denial within 90 calendar days after U.S. HR Leveraged Services
in Ponca City receives the claim, unless special circumstances require an
extension. If an extension is required, you will be
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<PAGE> 8
notified in writing of the extension within 90 calendar days after filing the
claim. The written notice will explain the reason for the delay and estimate a
decision date. In no case will the extension period exceed 180 calendar days
from date of receipt of the claim.
You will be advised in writing by the Plan Administrator or the
insurance carrier of the specific reasons for such denial, referred to
pertinent Plan provisions on which the denial is based and provided a
description of any additional material or information required to perfect the
claim, an explanation of why such material or information is necessary, and
appropriate information as to the steps to be taken if you wish to submit your
claim for review.
By written request to the Plan Administrator within 60 calendar
days after receipt of notice of denial or partial denial, you may seek review
by the Plan Administrator of such denial or partial denial. You, or your duly
authorized representative, may review pertinent documents relating to the
denial and submit issues and comments in writing.
The Plan Administrator will render a written decision to you
within 60 calendar days following receipt of the review request, unless special
circumstances require an extension of time. In that case, a decision will be
rendered no later than 120 calendar days following receipt of your request. If
such an extension is required, written notice of the extension will be
furnished to you prior to the start of the extension.
The Plan Administrator's decision will be furnished to you in
writing and will contain specific reasons for the decision and specific
references to pertinent Plan provisions on which the denial is based.
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<PAGE> 1
EXHIBIT 10.16
CONOCO INC.
DIRECTORS' CHARITABLE GIFT PLAN
1. PURPOSE OF THE PLAN
The purpose of the Directors' Charitable Gift Plan (the "Plan") is to
acknowledge the service of members of the Board of Directors (the "Board")
of Conoco Inc. (the "Company"); recognize the mutual interest of the
Company and its Directors in support of eligible educational and
charitable organizations; and enhance the Directors' total compensation
package.
Each eligible Director of the Company will recommend that the Company make
a donation of up to $1,000,000 to the eligible tax-exempt organization(s)
(the "Organization(s)") designated by the Director. The donation will be
made in the Director's name in five equal annual installments, with the
first installment to be made as soon as practicable after the death of the
Director or former Director.
2. ELIGIBILITY
Each member of the Board of Directors who serves for a minimum of one year
shall be eligible to participate in the Plan. Employee Directors may elect
to participate in the Plan provided they bear their allocable cost of the
Plan. The Plan will not be effective for a Director until he or she
completes all required enrollment procedures for the Plan.
3. DIRECTOR'S RECOMMENDATION
Each eligible Director shall make a written recommendation to the Company,
on a form approved by the Company for this purpose, designating the
Organization(s) which he or she intends to be the recipient(s) of the
Company's donation to be made in the Director's name. A Director may
revise or revoke such recommendation prior to his or her death by signing
a new recommendation form and submitting it to the Company.
4. ORGANIZATIONS
In order to be eligible to a receive a donation, an Organization must
initially, and at the time a donation is to be made in whole or in part,
qualify to receive tax-deductible donations under the Internal Revenue
Code and be reviewed and approved by the Company. An Organization will be
approved by the Company unless it determines, in the exercise of good
faith judgment, that a donation to the Organization would be detrimental
to the best interests of the Company. Private foundations are not eligible
to receive donations under the Plan.
5. AMOUNT AND TIMING OF DONATION
Each Director may recommend one Organization to receive a Company donation
of $1,000,000, or two or more Organizations to receive donations
aggregating $1,000,000. Each Organization must be recommended to receive a
donation of at least $100,000. The donation will be made by the Company in
five equal annual installments, with the first installment to be made as
soon as practicable after the death of the Director or former Director. If
a Director recommends more than one Organization to receive a donation,
each will receive a prorated portion of each annual
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<PAGE> 2
installment. Each annual installment payment will be divided among the
Organizations in the same proportion as the total donation amount has been
allocated among the Organizations by the Director.
6. VESTING
Each Director will be fully vested in the Plan upon completion of one year
of service as a Director. For an employee Director, Board service during
the time he or she is bearing the cost of participating in the Plan will
count for vesting service.
The Board has authority not to make a donation if it determines that a
Former Director has willfully engaged in activity which is harmful to the
Company's interest.
7. FUNDING AND PLAN ASSETS
The Company may fund the Plan, or it may choose not to fund the Plan. If
the Company elects to fund the Plan in any manner, neither the Directors
nor their recommended Organization(s) shall have any rights or interests
in any assets of the Company identified for such purpose. Nothing
contained in the Plan shall create, or be deemed to create, a trust,
actual or constructive, for the benefit of a Director or any organization
recommended by a Director to receive a donation, or shall give, or be
deemed to give, any Director or recommended Organization any interest in
any assets of the Plan or the Company. If the Company elects to fund the
Plan through life insurance policies, a participating Director agrees to
cooperate and fulfill the enrollment requirements necessary to obtain
insurance on his or her life.
8. AMENDMENT OR TERMINATION
The Board of Directors may amend, suspend, or terminate this Plan at any
time without the consent of the Directors or former Directors
participating in the Plan.
9. ADMINISTRATION
Except as otherwise specifically provided, the Plan shall be administered
by the Company. The Company's determination with respect to any questions
arising as to interpretation of the Plan shall be final, conclusive, and
binding on all interested parties.
Rev. August 1998
S-1 Version
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EXHIBIT 10.17
Rev. 8/24/98
MOTOR CARRIER CONTRACT
THIS CONTRACT, made and entered into pursuant to authority granted
under 49 U.S.C. 14101(b), this 1ST day of August, 1998, by and between SENTINEL
TRANSPORTATION COMPANY, a Delaware corporation, having its principal offices at
3525 Silverside Road, Concord Plaza, Read Building, Suite #101, Wilmington,
Delaware 19810 (hereinafter referred to as SENTINEL), and CONOCO INC., having
its principal offices at 600 North Dairy Ashford Road, Houston, Texas 77079,
(hereinafter referred to as CONOCO).
SENTINEL is a contract carrier by motor vehicle licensed by the Interstate
Commerce Commission ("ICC") under motor carrier permit number MC 294124,
authorizing operations as a contract carrier as set forth therein.
WITNESSETH:
WHEREAS, SENTINEL has represented to CONOCO that it possesses the
expertise, qualified personnel, facilities and equipment to properly and
lawfully transport freight by motor vehicle for CONOCO; and
WHEREAS, SENTINEL holds appropriate motor carrier authority to
transport freight by motor vehicle between such points and places within the
continental United States and Canada as are set forth in Exhibit "A" hereto; and
WHEREAS, SENTINEL is aware of the distinct needs of CONOCO and has
designed its transportation offering, as reflected in the balance of the
Contract and of the Exhibits attached thereto, specifically to satisfy these
needs, and
WHEREAS, CONOCO desires to engage the services of SENTINEL for
transportation of freight as hereinafter set forth;
NOW THEREFORE, in consideration of the premises and mutual benefits to
be derived by the Parties from this Contract and the mutual promises made and
exchanged between the Parties, the Parties do hereby covenant and agree as
follows:
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1. REPLACEMENT OF PRIOR CONTRACTS
This Contract shall take the place of and entirely supersede any oral
or written contracts/arrangements that deal with the same subject matter as
referenced herein.
2. SCOPE OF SERVICE
SENTINEL agrees to transport commodities between such points and places
among, within and between the states and provinces of the United States and
Canada and perform such other related services as are designated by CONOCO and
defined in Exhibit "A."
3. PERIOD OF CONTRACT
This Contract shall become effective on 1st day of September, 1998, and
shall continue in full force and effect through 1st day of September, 1999,
unless earlier terminated by CONOCO or SENTINEL pursuant to other provisions in
the Contract or by either Party without cause upon ninety (90) days' prior
written notice. Such termination, which shall be accomplished without penalty
unless otherwise specifically stated herein, shall not relieve or release either
CONOCO or SENTINEL from any rights, liabilities, or obligations that may have
accrued under the law or terms of this Contract prior to the date of such
termination.
Upon written notice given at least ninety (90) days' prior to the
expiration of this Contract or any extensions thereof, both Parties shall have
the right to mutually extend this Contract for additional periods up to two (2)
years each upon the same terms and conditions as are then in force hereunder.
4. COMPENSATION
Rules, rates and charges for transportation services hereunder are set
forth in Exhibit "A" attached hereto. Shipments made under the provisions of
this Contract may include outbound shipments prepaid and inbound shipments
collect. Changes in compensation level must be cost or otherwise justified and
agreeable to CONOCO. Any proposed change in compensation level must be received
by CONOCO in writing at least thirty (30) days prior to the effective date of
the change. Any amendment to Exhibit "A" of this Contract must be approved by
signature of both Parties. In no case will contract rate changes be retroactive.
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5. PAYMENT
SENTINEL shall furnish CONOCO a summary invoice referencing CONOCO bill
of lading for outbound prepaid shipments and the delivery document number which
corresponds exactly with the document left at the receiving location for inbound
collect shipments. If the above information is not available, SENTINEL will
attach a copy of the shippers bill of lading or inbound delivery receipt for
reference.
SENTINEL will direct all invoices for services performed hereunder to:
Conoco Inc.
Downstream Finance
410-45 South Tower
P.O. Box 1267
Ponca City, OK 74602-1267
Payment will be made by CONOCO within thirty (30) days from receipt of
a complete, legible invoice. Invoices not meeting above criteria will be
returned to SENTINEL.
6. EQUIPMENT
SENTINEL shall provide all equipment necessary to perform the transport
necessary to meet those distinct needs as set forth in this Agreement which
shall:
a. be suitable for the particular transportation required, and
include any special equipment that is requested and agreed to by CONOCO when the
shipping order is placed;
b. comply with the equipment specifications for such transportation
prescribed by any applicable governmental regulations (including those of the
U.S. Department of Transportation); and
c. be tendered and maintained by SENTINEL in good, safe, and
serviceable condition.
If SENTINEL is not in breach of this Agreement, and CONOCO terminates
SENTINEL's service at a terminal, SENTINEL will use its best efforts to redeploy
the vehicles to another SENTINEL terminal. If SENTINEL is unable to redeploy the
vehicles, then CONOCO will pay SENTINEL the difference between the book value of
the vehicle and the sales price of the vehicle (net of commissions, or other
selling commissions, if any). If there is a lease cancellation fee, CONOCO will
pay the cancellation fee. CONOCO will also be liable for terminal closing costs
i.e., lease cancellation, severance, etc., related to such termination.
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7. RULES AND REGULATIONS
a. SENTINEL hereby agrees to abide by all federal, state, and local
laws and regulations, and to abide by all rules and instructions promulgated by
CONOCO and furnished to SENTINEL in writing, with respect to SENTINEL's
activities hereunder.
b. SENTINEL further agrees to send to CONOCO's points of origin and
destination only such employees, agents, and others acting at its request, as
have been instructed in the safe handling methods of the commodity to be loaded
and hauled. All plant or site safety rules must be adhered to.
c. SENTINEL warrants that only vehicles meeting U.S. Department of
Transportation, ICC, and Environmental Protection Agency (or their state and
local counterparts) requirements and standards shall enter the points of origin
and destination to receive or deliver shipments.
d. Vehicles shall be compatible with the loading and unloading
equipment at the points of origin and destination. All licenses, permits, and
fees required for transportation shall be procured by SENTINEL
e. The maximum weight per loaded trailer and tractor shall not exceed
the limitations imposed by the states from, to, or through which the vehicle
moves.
8. SAFETY PRACTICES
8.1 CONOCO is vitally interested in the safe transportation of its
products and materials. Safe transportation includes all aspects of a carrier's
service including loading, transit, and pickup/delivery.
8.2 Pick and delivery of products at CONOCO and customer sites
must be performed in a safe manner. All plant or site safety rules must be
adhered to.
a. CONOCO shall have the right to audit periodically the safety
practices of SENTINEL, its subcontractors, and agents with
respect to records, equipment condition and operation, and
employee training and performance. When on CONOCO premises,
SENTINEL, its employees, subcontractors, and agents shall
comply with the safety practices (as amended from time to
time) provided in writing for general application, or at the
premises or during any CONOCO briefing session. While on the
premises of CONOCO's customers and vendors, SENTINEL, its
subcontractors, and agents shall comply with the safety
practices provided verbally or in writing by such customers
and vendors. Noncompliance
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with any such rule may result in immediate suspension,
contract termination, or removal of SENTINEL employee from the
CONOCO site.
b. SENTINEL recognizes that hazards can be involved in performing
the services hereunder. The methods employed and the
precautions taken to handle CONOCO owned or leased equipment
and commodities shall be determined and rest solely with
SENTINEL. SENTINEL agrees to provide its employees with a safe
and healthy workplace using, but not limited to, such
information as is or may be provided by CONOCO.
8.3 SENTINEL agrees to advise its employees and the employees of
its subcontractors and agents performing work under this Contract that (1) it
is the policy of CONOCO to prohibit the use, possession, manufacture,
dispensing, sale and distribution of alcohol, drugs, and other controlled
substances on its premises and on or in conjunction with equipment used to
transport material or product to or from CONOCO controlled sites and to
prohibit the presence of an individual with such substances in the body for
non-medical reasons in workplaces controlled by CONOCO; (2) entry onto CONOCO
property constitutes consent to an inspection of such person, his/her vehicle,
and personal effects when entering, while on, or upon exiting CONOCO property;
and (3) any SENTINEL employee, agent or subcontractor employee who is found to
be in violation of the policy or who refuses to permit inspection may be
removed and barred from performing further work for CONOCO or from entering
property at the discretion of CONOCO.
8.4 SENTINEL also agrees to develop and implement procedures to
test truck drivers and mechanics, to the extent permitted by law, performing
functions under this Contract that can affect the health and safety of the
general population, CONOCO employees or the environment for drug and controlled
substance use, on a) pre-assignment, b) for cause, and c) random basis. At its
option, SENTINEL shall comply either with the Minimally Accepted Drug Testing
Standards attached hereto as Exhibit "B" or with applicable drug testing
requirements imposed on interstate motor carrier drivers by the United States
Department of Transportation (DOT) regulations. Compliance with the DOT
regulations, found at 49 CFR 391, for truck drivers and/or included employees
shall be regarded as complying with this paragraph.
8.5 SENTINEL agrees to take whatever steps are necessary to
facilitate and shall permit CONOCO or its authorized agent to audit SENTINEL's
Drug Testing Program to ensure compliance with applicable requirements.
8.6 SENTINEL further agrees not to assign (or re-assign) any
individual to perform functions under this Contract, that can affect the health
and safety of the general population, CONOCO employees or the environment,
unless such individual has taken a drug screen, is subject to SENTINEL's ongoing
Drug Testing Program and has not tested (on a confirmed basis) positive for drug
or controlled substance usage.
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9. COMMITMENT
CONOCO shall tender to SENTINEL for shipment a minimum of ten percent
(10%) of the outbound prepaid bulk trucking requirements of CONOCO during each
annual period this Contract is in effect. SENTINEL shall agree to transport up
to one hundred percent (100%) of the requirements during such period. If
SENTINEL is unable to accept shipments tendered due to lack of equipment or
drivers, SENTINEL will dispatch only to other CONOCO approved carriers. Where no
dispatch authority has been granted to SENTINEL for CONOCO shipments, SENTINEL
will promptly notify the appropriate CONOCO dispatch location.
10. INDEMNIFICATION
Each Party will indemnify the other for liability (judgments and
settlements), fines, penalties, losses and expenses incurred by the other Party
which results from an act or omission (which is negligent, in violation of any
law, willful misconduct or for which strict liability applies) of that Party,
its agents, subcontractors or assigns in the performance under this Agreement.
The Party seeking indemnity shall provide prompt notice to the other of the
event which gives rise to its claim under this provision, fully cooperate in its
defense, and assign the right to defend and/or settle any such claim to the
responsible Party. In the event both Parties are jointly at fault, each shall
indemnify the other in proportion to their relative fault.
Neither Party shall be required to indemnify the other for the acts of
independent third parties over which that Party has no control (or the right to
control) or responsibility. Further, neither Party shall be liable to the other
for Special, Indirect, or Consequential Damages.
Pursuant to the terms of this contract, SENTINEL's maximum liability
per incident (such as an accident, injury or spill) will be the lesser of actual
cost or $1 million. SENTINEL's total liability from all CONOCO related incidents
shall not exceed $2 million cumulative cost during the period of this agreement.
11. INSURANCE
Sentinel will satisfy all insurance coverages required by law,
remaining self-insured where possible.
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12. CLAIMS
a. Overcharges and Undercharges
Claims for overcharges or undercharges will be made in writing,
supported by proper documentation, by the Party requesting an adjustment within
eighteen (18) months of the billing date. Each Party shall acknowledge its
receipt in writing within thirty (30) days after the date of receipt of each
claim. Both Parties agree that each shall pay, decline to pay, or settle each
overcharge, or undercharge claim within sixty (60) days after its receipt. Both
parties hereto specifically waive their respective rights under 49 USC 13710 (a)
(3) (A) and (B) as applicable regarding the pursuit of under or overcharges
hereunder.
b. Loss and Damage
Notification of loss or obvious damage to material or products will be
reported to SENTINEL'S local office within thirty (30) days after delivery of
the shipment. SENTINEL shall be afforded an opportunity to inspect the damaged
material or product in the shipment at a time mutually agreeable to SENTINEL and
CONOCO, but within thirty (30) days of receipt of notice.
Under no circumstances is SENTINEL to dispose of CONOCO'S material or
product without CONOCO'S prior written consent.
Written notification and documentation in support of all loss and
damage claims will be filed with SENTINEL within 270 days after delivery of the
damaged material or product or within 240 days after delivery should have been
made. In the case of lost or missing product or material, SENTINEL shall
acknowledge receipt in writing to CONOCO within thirty (30) days after the date
of receipt of each loss and damage claim. SENTINEL will pay, decline, or make a
firm compromise offer in writing to CONOCO within 120 days after receipt of loss
and damage claim.
13. ALTERNATIVE DISPUTE RESOLUTION
Both Parties understand and appreciate that their long term mutual
interests will be best served by affecting a rapid and fair resolution of any
claims or disputes which may arise out of Services performed under this Contract
or from any dispute concerning Contract terms. Therefore, both Parties agree to
use their best efforts to resolve all such disputes as rapidly as possible on a
fair and equitable basis. Toward this end, both Parties agree to develop and
follow a process for presenting, rapidly accessing, and settling claims on a
fair and equitable basis.
If any dispute or claim arising under this Contract cannot be readily
resolved by the Parties pursuant to the process referenced in section noted
above, the Parties agree to refer the
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matter to a panel consisting of one (1) senior executive from each Party not
directly involved in the claim or dispute for review and resolution. A copy of
the Contract terms, agreed upon facts (and areas of disagreement), and concise
summary of the basis for each side's contentions will be provided to both
executives who shall review the same, confer, and attempt to reach a mutual
resolution of the issue.
If the dispute cannot be resolved under the process set forth in the
two sections noted above, the Parties may elect to resolve the dispute through
non-binding mediation. If mediation is to be utilized, the Parties shall select
a single unrelated but qualified mediator who shall hold a hearing (not to
exceed one day) during which each Party shall present its version of the facts
(supported, if desired, by sworn, written testimony, and other relevant
documents provided to their senior executives under the second paragraph noted
above) at least ten (10) days prior to the scheduled date of the mediation
hearing. The Parties may also provide the Mediator with copies of any laws or
regulations which they feel are relevant to the dispute. A copy of the Contract
will be provided to the Mediator. Formal written arguments, legal memorandum,
and live testimony are discouraged, but may be permitted at the discretion of
the Mediator. Both Parties agree to make any involved employees or documents
available to the other Party for its review and use in preparing its position
under this clause without the need for subpoena or other court order.
The Mediator, within ten (10) days of the completion of the hearing,
will meet with both Parties and provide each of them, on a confidential basis,
with his/her written views of the strengths and weaknesses of their respective
positions. The Parties will then reconvene and, with the assistance of the
Mediator, attempt to resolve the matter. If resolution cannot be achieved by the
Parties within forty-eight (48) hours of this second meeting, the Mediator will,
within ten (10) additional days, issue a written, non-binding decision on the
issue.
Each Party shall, within five (5) days of the Mediator's written
decision, notify the other in writing whether it will accept or reject that
decision. If the matter has not been resolved utilizing the processes set forth
in this clause and the Parties are unwilling to accept the nonbinding decision
of the mediator, either or both Parties may elect to pursue resolution through
litigation.
The selected Mediator shall execute a confidentiality agreement,
satisfactory to all Parties, prior to his/her active participation in the
mediation. The costs of the Mediator shall be shared equally by the parties.
Each Party will bear its own costs of mediation.
If the Parties cannot agree upon a choice of a mediator within ten (10)
days of the date of the panel's conference pursuant to the second paragraph of
this section, either or both Parties may elect to directly pursue litigation.
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All statements, correspondence, memorandum, briefs, decisions,
testimony, communications, and materials, whether written or oral, submitted to
or generated by the panel and/or mediator in connection with the processes set
forth above shall be deemed to be in furtherance of settlement negotiations and
shall be privileged and shielded from production and disclosure in any
subsequent litigation. Notwithstanding the foregoing, documents prepared in the
normal course of business, such as invoices, waybills, and freight bills, shall
be subject to discovery in subsequent litigation in accordance with applicable
law.
14. CONFIDENTIALITY
No Party hereto shall disclose any information of any nature regarding
any part of this Agreement or any amendments, attachments or addenda hereto
except that either Party may make such disclosures as are specifically required
by law.
15. EMERGENCY REPORTING RESPONSE INFORMATION
SENTINEL shall be responsible to assure that a current edition of the
Department of Transportation (DOT) Emergency Response Guidebook or equivalent
emergency response information conforming to the requirements of Title 49 Code
of Federal Regulations (CFR), Section 172.602, shall be carried in the power
unit of all vehicles which are used to transport hazardous materials which are
tendered for transportation
SENTINEL shall insure that, for all Hazardous Materials or Dangerous
Goods originating at CONOCO sites or transported under SENTINEL control, all
Bills of Lading, Hazardous Materials Waste Manifests, and shipping papers
generated by it or its agents (including interline or intermodal carriers)
clearly identify CONOCO as the knowledgeable person who should be contacted in
the event of a release or other emergency involving the Hazardous or Dangerous
Materials. CONOCO shall accomplish this by placing the following language in a
prominent place on all Bills of Lading, Hazardous Materials Waste Manifests, or
other shipping papers generated by it or its agents:
"For a chemical emergency (spill, leak, acute exposure, fire or
accident) contact CONOCO - day or night - by calling: CHEMTREC at (800) 424-9300
(toll free), or outside Continental USA call (703) 527-3887 (collect)."
A chemical emergency is defined as an incident involving any placarded
truck (loaded or empty) containing DOT regulated hazardous materials, substances
or waste belonging to CONOCO where there is a reportable loss of regulated
hazardous material and the truck is not upright or has sustained body or shell
damage.
CONOCO shall also insure that all Bills of Lading, Hazardous Materials
Waste Manifests, or other shipping papers generated by it or its agents for
Hazardous or Dangerous Materials originating from or designated to move to a
CONOCO location pursuant to the terms of this Contract include the full
technical shipping description (see 49 CFR 172.602) for all
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Hazardous or Dangerous Materials covered by the shipping papers and are in all
other respects in full compliance with 49 CFR Parts 171, 172, and 173 before
such materials are loaded, transported, or stored in transit.
SENTINEL shall not accept for shipment to a CONOCO location any
Hazardous or Dangerous Materials unless accompanied by Bills of Lading,
Hazardous Materials Waste Manifests, or other shipping papers that are in full
compliance with 49 CFR Parts 171, 172, and 173, and which contain a telephone
number, monitored at all times by a person who is knowledgeable of the hazards
and characteristics of the Hazardous or Dangerous Material being shipped.
SENTINEL shall promptly notify CONOCO through CHEMTREC - Chemical
Manufacturers Association, 1300 Wilson Blvd., Arlington, VA, 22209, by telephone
- - day or night - if a chemical emergency (spill, leak, acute exposure, fire or
accident) involving one of CONOCO's products or other Hazardous or Dangerous
Materials transported pursuant to the terms of this Contract occurs. CHEMTREC
can be reached at:
Within the USA 1-800-424-9300 (toll-free)
Outside the USA 1-703-527-3887 (call-collect)
16. OIL SPILL PREVENTION AND RESPONSE PLANS
If SENTINEL transports oil, as defined in 49 CFR 130.5 on behalf of
CONOCO, SENTINEL shall have in place a written response plan that fully complies
with the requirements of 49 CFR 130.31 et al.
17. BILL OF LADING
Each shipment shall be tendered to SENTINEL on a standard Uniform Bill
of Lading. Unless otherwise provided herein, the Uniform Standard Bill of Lading
shall govern the rights and responsibilities of CONOCO and SENTINEL in their
performance hereunder. In the event of a conflict between the terms of the Bill
of Lading and this Agreement, the terms of this Agreement shall govern.
18. FORCE MAJEURE
No liability shall result to either Party from delay in performance or
from nonperformance caused by circumstances beyond the control of the Party who
has delayed performance or not performed. Such circumstances shall include, but
are not limited to: Acts of God, fire, flood, explosion, war, or action or
requests of government authority. The nonperforming Party shall be diligent in
attempting to remove any such cause and shall promptly notify the other Party of
its extent and probable duration.
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If the nonperforming Party, due to circumstances beyond its control,
is unable to supply the total demands for the goods or services required by the
Contract, then that nonperforming Party shall allocate its available supply
among all purchasers in proportion to the amounts previously provided to those
purchasers.
If the nonperforming Party who has delayed performance or not
performed on account of circumstances beyond its control, is unable to remove
the causes within seven (7) days, the other Party shall have the right to
terminate or suspend, at its option, this entire Contract or any portion of it,
without imposition of penalty.
19. INDEPENDENT CONTRACTOR
It is understood that employees, methods, facilities, and equipment of
SENTINEL shall at all times be under its exclusive direction and control.
SENTINEL's relationship to CONOCO shall be that of an independent contractor.
Nothing in the Contract shall be construed to constitute SENTINEL, or any of its
employees, as an agent, associate, joint venturer, or partner of CONOCO.
As a limited exception to the INDEPENDENT CONTRACTOR article, SENTINEL
may be considered CONOCO's agent for the limited purpose of acting as a
"shipper" or "receiver" of MATERIAL, PRODUCT, or other goods. As such SENTINEL
may sign or certify that it has properly classified, described, packaged, marked
and labeled MATERIAL, PRODUCT, or other goods for shipment and that they are in
proper condition for transportation according to the applicable regulations of
the Department of Transportation. Similarly, SENTINEL may certify and
acknowledge receipt, after ascertaining the accuracy of CONOCO's count and the
delivered condition of the MATERIALS, PRODUCTS, or other goods involved.
20. NOTICES
Any notice given in writing under this Contract shall be considered as
having been given by either Party to the other Party upon the mailing thereof to
such other Party by registered United States mail at the below appropriate
address. A Post Office receipt showing the deposit of such notice and the date
thereof shall be prima facie evidence of the giving of such notice on the date
of such deposit.
CONOCO SENTINEL
Conoco Inc. Sentinel Transportation
Commercial Transportation 3525 Silverside Road
P.O. Box 2197 Concord Plaza, Read Bldg., Suite 101
Houston, TX 77252 Wilmington, DE 19810
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21. GOVERNING LAW
This Agreement will be governed by and construed in accordance with the
laws of the state of Delaware without giving effect to principles of conflict of
law and the courts within Delaware will be the only courts of competent
jurisdiction. The Parties do hereby irrevocably submit themselves to the
personal jurisdiction of the Delaware courts process upon them. This Agreement
will not be governed by the U.N. Convention on Contracts for the International
Sale of Goods.
The Parties hereby reciprocally and irrevocably waive in advance any
and all objections to the Delaware courts as forums based upon any question of:
venue; the doctrine of forum non conveniens; the present or future pendency of
any other case or proceeding elsewhere; the compulsory counterclaim rule or any
other doctrine, statute, rule of practice, or fact.
22. DEFAULT
In the event either Party to this Contract shall default in the
performance of any obligations specified, the nondefaulting Party shall notify
the other Party in writing, and if such default is not remedied with reasonable
promptness, then the nondefaulting Party shall have the right to terminate this
Contract immediately. Termination under this Article, or under any other Article
of this Contract, shall not relieve or release either Party from any liability
which accrued prior to the date of such termination.
23. WAIVER
Failure of either Party to insist upon the performance of any of the
terms, covenants, or conditions of the Contract or to exercise any right or
privilege herein, or the waiver by either Party of any breach of any of the
terms, covenants, or conditions of this Contract, shall not be construed as
thereafter waiving any such terms, covenants, conditions, rights or privileges,
but the same shall continue and remain in full force and effect the same as if
no such forbearance or waiver had occurred.
24. TAXES
CONOCO agrees either to pay directly all property taxes, licenses,
charges and assessments properly levied by any properly constituted governmental
authority upon the CONOCO-owned Material, Equipment, and Product hereunder, or
to reimburse SENTINEL therefore if paid by SENTINEL at SENTINEL's written
direction. SENTINEL assumes full responsibility for the payment of all foreign,
United States federal and state taxes of whateversort, social security and
unemployment compensation taxes, withholding taxes, and all other taxes or
charges applicable to SENTINEL's actions, employees, facilities, and materials
for performing Services hereunder or applicable to SENTINEL's income hereunder.
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25. SUCCESSORS AND ASSIGNMENT
The rights and obligations covered herein are personal to each Party
hereto and for this reason this Agreement shall not be assignable, including
assignment to a successor in interest of all or part of the assets of such Party
by way of merger, by either Party in whole or in part, without the prior written
consent of the other Party.
26. SEVERABILITY
In the event that any Article of this Contract shall be found to be
void or unenforceable, such findings shall not be construed to render any other
Article of this Contract either void or unenforceable, and all other Articles
shall remain in full force and effect unless the Article(s) which is/are invalid
or unenforceable shall substantially affect the rights or obligations granted to
or undertaken by either Party.
27. YEAR 2000 COMPLIANCE
Each party covenants and agrees that it will not permit a Year 2000
Problem to computer systems, software or equipment owned, leased or licensed by
it, its affiliates or subsidiaries to interfere with its performance under this
Agreement. This undertaking is subject to any standard of performance or any
excuse for non-performance provided in this Agreement, at law, or in equity.
Each party further agrees, to the extent that the party deems it appropriate, to
request, from those of its suppliers whose performance may materially affect
that party's performance hereunder, that each such supplier undertake the same
obligation with respect to such material performance. The parties will use
reasonable commercial efforts to cooperate and share information to further
comply with this Article, and to minimize the impact of any Year 2000 Problem on
performance of this Agreement. Each party will inform the other party of any
circumstance indicating a possible obstacle to such compliance, and the steps
being taken to avoid or overcome the obstacle.
Provided a party complies with the paragraph above, it will not be
liable to the other party for any failure to perform obligations under this
Agreement to the extent such failure arises from a Year 2000 Problem (1)
affecting one of the non-performing party's suppliers or (2) beyond that party's
reasonable control (e.g., a Year 2000 Problem affecting a governmental entity).
IN PARTICULAR, SUCH NON-PERFORMING PARTY SHALL HAVE NO LIABILITY FOR ANY
DAMAGES, INCLUDING DIRECT, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES.
A "Year 2000 Problem" means a date handling problem relating to the
Year 2000 date change that would cause a computer system, software or equipment
to fail to correctly perform, process and handle date-related data for the dates
within and between the twentieth and twenty-first centuries and all other
centuries.
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28. ENTIRETY
THIS CONTRACT together with the attachments and Exhibits specifically
referenced and attached hereto embodies the entire understanding between CONOCO
and SENTINEL and there are no Contracts, understandings, conditions, or
representations, oral or written, with reference to the subject matter hereof
which are not merged herein. Except as otherwise specifically stated, no
modifications hereto shall be of any force or effect unless (1) reduced to
writing and signed by both Parties hereto, and (2) expressly referred to as
being modifications of this Contract.
IN WITNESS WHEREOF, the Parties have hereto caused this Agreement to be
duly executed in duplicate originals the day and year first above written.
WITNESS: SENTINEL TRANSPORTATION COMPANY
By:
- ------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
WITNESS: CONOCO INC.
By:
- ------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-1 (No. 333-60119) of our
report dated July 24, 1998 relating to the combined financial statements of
Conoco, which appear in such Prospectus. We also consent to the references to
us under the headings "Experts" and "Selected Historical and Pro Forma
Financial Information" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Historical and Pro Forma Financial Information."
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
September 9, 1998
<PAGE> 1
EXHIBIT 99
CONSENT OF PROPOSED DIRECTOR
I consent to having my name listed as a proposed director under the
caption "Management" in the Registration Statement on Form S-1 and related
Prospectus of Conoco Inc.
/s/ WILLIAM K. REILLY
-------------------------------
Name: William K. Reilly
Date: August 5, 1998
<PAGE> 2
CONSENT OF PROPOSED DIRECTOR
I consent to having my name listed as a proposed director under the
caption "Management" in the Registration Statement on Form S-1 and related
Prospectus of Conoco Inc.
/s/ RUTH R. HARKIN
-------------------------------
Name: Ruth R. Harkin
Date: August 5, 1998
<PAGE> 3
CONSENT OF PROPOSED DIRECTOR
I consent to having my name listed as a proposed director under the
caption "Management" in the Registration Statement on Form S-1 and related
Prospectus of Conoco Inc.
/s/ FRANKLIN A. THOMAS
-------------------------------
Name: Franklin A. Thomas
Date: July 30, 1998
<PAGE> 4
CONSENT OF PROPOSED DIRECTOR
I consent to having my name listed as a proposed director under the
caption "Management" in the Registration Statement on Form S-1 and related
Prospectus of Conoco Inc.
/s/ FRANK A. MCPHERSON
-------------------------------
Name: Frank A. McPherson
Date: August 5, 1998
<PAGE> 5
CONSENT OF PROPOSED DIRECTOR
I consent to having my name listed as a proposed director under the
caption "Management" in the Registration Statement on Form S-1 and related
Prospectus of Conoco Inc.
/s/ WILLIAM R. RHODES
-------------------------------
Name: William R. Rhodes
Date: August 5, 1998
