<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14521
CONOCO INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE (51-0370352)
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
600 NORTH DAIRY ASHFORD ROAD
HOUSTON, TEXAS 77079
(Address of principal executive offices)
(281) 293-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
190,683,943 shares of Class A Common Stock, $0.01 par value, and
436,543,573 shares of Class B Common Stock, $0.01 par value, were outstanding as
of May 11, 1999.
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CONOCO INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C>
Part I -- Financial Information
Item 1. Financial Statements
Consolidated Statement of Income....................... 1
Consolidated Balance Sheet............................. 2
Consolidated Statement of Cash Flows................... 3
Notes to Consolidated Financial Statements............. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(a) Financial Condition................................ 12
(b) Results of Operations.............................. 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 21
Part II -- Other Information
Item 1. Legal Proceedings................................. 24
Item 4. Submission of Matters to Vote of Security
Holders................................................ 24
Item 5. Other Information
(a) Disclosure Regarding Forward-Looking Information... 25
(b) Split-Off of Conoco from DuPont.................... 26
Item 6. Exhibits and Reports on Form 8-K.................. 26
Signature................................................... 27
Exhibit Index............................................... 28
</TABLE>
i
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONOCO INC.
CONSOLIDATED STATEMENT OF INCOME (NOTES 1 AND 3)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1999 1998
------ ------
(IN MILLIONS,
EXCEPT PER SHARE)
<S> <C> <C>
Revenues
Sales and Other Operating Revenues*....................... $5,311 $5,736
Other Income.............................................. 24 98
------ ------
Total Revenues.................................... 5,335 5,834
------ ------
Cost and Expenses
Cost of Goods Sold and Other Operating Expenses........... 3,005 3,393
Selling, General and Administrative Expenses.............. 186 183
Exploration Expenses...................................... 46 67
Depreciation, Depletion and Amortization.................. 302 267
Taxes Other Than on Income*............................... 1,591 1,417
Interest and Debt Expense................................. 71 1
------ ------
Total Cost and Expenses........................... 5,201 5,328
------ ------
Income Before Income Taxes.................................. 134 506
Provision for Income Taxes.................................. 51 190
------ ------
Net Income (Note 10)........................................ $ 83 $ 316
====== ======
Earnings Per Share (Note 4)
Basic..................................................... $ .13 $ .72
Diluted................................................... $ .13 $ .72
Weighted Average Shares Outstanding (Note 4)
Class A**................................................. 191 --
Class B................................................... 437 437
------ ------
Total Basic....................................... 628 437
Stock Options**........................................... 7 --
------ ------
Total Diluted..................................... 635 437
Dividends Per Share of Common Stock (Note 5)................ $ .14 $ --
</TABLE>
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<TABLE>
<S> <C> <C>
* Includes petroleum excise taxes.......................... $1,546 $1,373
</TABLE>
** Earnings Per Share for the period prior to the Offerings was calculated using
only Class B Common Stock as required by SFAS 128 (See Note 4).
See Notes to Consolidated Financial Statements
1
<PAGE> 4
CONOCO INC.
CONSOLIDATED BALANCE SHEET (NOTES 1 AND 3)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................. $ 425 $ 394
Accounts and Notes Receivable............................. 1,228 1,191
Inventories (Note 6)...................................... 899 807
Prepaid Expenses.......................................... 305 378
------- -------
Total Current Assets.............................. 2,857 2,770
Property, Plant and Equipment............................... 22,031 22,094
Less: Accumulated Depreciation, Depletion and
Amortization.............................................. (10,801) (10,681)
------- -------
Net Property, Plant and Equipment........................... 11,230 11,413
------- -------
Investment in Affiliates.................................... 1,445 1,363
Other Assets................................................ 548 529
------- -------
Total............................................. $16,080 $16,075
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable.......................................... $ 1,355 $ 1,312
Short-Term Borrowings -- Related Parties.................. 926 --
Other Short-Term Borrowings and Capital Lease
Obligations............................................ 29 52
Income Taxes.............................................. 171 199
Other Accrued Liabilities (Note 7)........................ 1,082 1,162
------- -------
Total Current Liabilities......................... 3,563 2,725
Long-Term Borrowings -- Related Parties..................... 3,970 4,596
Other Long-Term Borrowings and Capital Lease Obligations.... 93 93
Deferred Income Taxes....................................... 1,658 1,714
Other Liabilities and Deferred Credits...................... 2,144 2,200
------- -------
Total Liabilities................................. 11,428 11,328
------- -------
Commitments and Contingent Liabilities (Note 8)
Minority Interests.......................................... 310 309
Stockholders' Equity
Preferred Stock, $.01 par value:
250,000,000 shares authorized; none issued................ -- --
Class A Common Stock, $.01 par value:
3,000,000,000 shares authorized; 191,497,821 shares
issued................................................. 2 2
Class B Common Stock, $.01 par value:
1,600,000,000 shares authorized; 436,543,573 shares issued
and outstanding........................................ 4 4
Additional Paid-In Capital................................ 4,975 4,955
Accumulated Deficit....................................... (250) (244)
Accumulated Other Comprehensive Loss (Note 9)............. (367) (274)
Treasury Stock, at cost (1,032,607 and 249,863 Class A
shares at March 31, 1999 and December 31, 1998,
respectively).......................................... (22) (5)
------- -------
Total Stockholders' Equity........................ 4,342 4,438
------- -------
Total............................................. $16,080 $16,075
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 5
CONOCO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (NOTES 1 AND 3)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------ -------
(IN MILLIONS)
<S> <C> <C>
Cash Provided by Operations
Net Income................................................ $ 83 $ 316
Adjustments to Reconcile Net Income to Cash Provided by
Operations:
Depreciation, Depletion and Amortization............... 302 267
Dry Hole Costs and Impairment of Unproved Properties... 17 22
Deferred Income Taxes.................................. (42) 48
Income Applicable to Minority Interest................. 5 5
Other Noncash Charges and Credits -- Net............... 8 (51)
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable........................ (52) 178
Inventories.......................................... (107) (192)
Other Operating Assets............................... 25 (98)
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities..... 113 (379)
Accrued Interest and Income Taxes.................... 41 (104)
----- ------
Cash Provided by Operations....................... 393 12
----- ------
Investment Activities
Purchases of Property, Plant and Equipment................ (457) (389)
Investments in Affiliates................................. (100) (42)
Proceeds from Sales of Assets and Subsidiaries............ 18 275
Net Decrease (Increase) in Short-Term Financial
Instruments............................................ (8) (9)
----- ------
Cash Used for Investment Activities............... (547) (165)
----- ------
Financing Activities
Cash Dividends (Note 5)................................... (88) --
Short-Term Borrowings -- Receipts......................... -- 2
-- Payments..................... (1) (21)
Other Long-Term Borrowings -- Payments.................... (19) (3)
Treasury Stock Purchases.................................. (18) --
Transactions with Related Parties:
Notes Receivable -- Receipts......................... -- 48
-- Payments....................... -- (162)
Borrowings -- Receipts............................... 710 137
-- Payments.............................. (410) --
Net Cash Contribution From (To) Owner................ 19 (258)
Increase (Decrease) in Minority Interests................. (5) (5)
----- ------
Cash Provided by (Used for) Financing
Activities...................................... 188 (262)
----- ------
Effect of Exchange Rate Changes on Cash..................... (3) (3)
----- ------
Increase (Decrease) in Cash and Cash Equivalents............ 31 (418)
Cash and Cash Equivalents at Beginning of Year.............. 394 1,147
----- ------
Cash and Cash Equivalents at March 31....................... $ 425 $ 729
===== ======
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 6
CONOCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
1. BASIS OF PRESENTATION
Conoco Inc., including its consolidated subsidiaries ("Conoco"), is an
integrated, global energy company that is involved in the Upstream and
Downstream operating segments of the petroleum industry. Activities of the
Upstream operating segment include exploring for, and developing, producing and
selling crude oil, natural gas and natural gas liquids. Activities of the
Downstream operating segment 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. Conoco has four
reporting segments for its Upstream and Downstream businesses, reflecting
geographic division between the United States and International. 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 initial public offerings (the "Offerings") of the Class A Common Stock
of Conoco commenced on October 21, 1998, and the Class A Common Stock began
trading on the New York Stock Exchange on October 22, 1998. The Offerings
consisted of 191,456,427 shares of Class A Common Stock issued at a price of $23
per share, and represented E.I. du Pont de Nemours and Company's ("DuPont")
first step in the planned divestiture of Conoco. Through its ownership of 100
percent of Conoco's Class B Common Stock (436,543,573 shares), DuPont owned
approximately 70 percent of Conoco's common stock representing approximately 92
percent of the combined voting power of all classes of voting stock of Conoco at
March 31, 1999. 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 matters to be voted on by stockholders.
Prior to the date of the Offerings, operations were conducted by Conoco
Inc., subsidiaries of Conoco Inc. and, in some cases, subsidiaries of DuPont.
The accompanying consolidated financial statements for this period are presented
on a carve-out basis prepared from DuPont's historical accounting records, and
include the historical operations of both entities owned by Conoco and
operations transferred to Conoco by DuPont at the time of the Offerings. In this
context, no direct ownership relationship existed among all the various units
comprising Conoco. Accordingly, net cash contributions from/to owner prior to
the Offerings included funds transferred between Conoco and DuPont for operating
needs, cash dividends paid and other equity transactions.
Effective at the time of the Offerings, Conoco's capital structure was
established and the transfer to Conoco of certain subsidiaries previously owned
by DuPont was substantially complete, resulting in direct ownership of those
subsidiaries. Accordingly, for periods subsequent to the Offerings, financial
information is presented on a consolidated basis.
On March 22, 1999, Conoco filed a registration statement with the
Securities and Exchange Commission ("SEC") outlining a "split-off" plan to
establish Conoco as a fully independent company. This filing is the next step in
DuPont's planned divestiture of Conoco. The tax-free split-off will be achieved
through an exchange offer in which DuPont stockholders will be given an
opportunity to exchange DuPont common stock for shares of Conoco Class B Common
Stock currently held by DuPont. DuPont announced on April 28, 1999 that its
board of directors had approved the split-off plan. Following a review by the
SEC, and depending on market conditions, the split-off is expected to be
completed in the third quarter of 1999.
These consolidated 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
4
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
period. These interim financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in Conoco's
1998 Annual Report on Form 10-K as amended.
2. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
Effective January 1, 1999, Conoco adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. This Statement requires that costs
related to start-up activities, including organization costs, be expensed as
incurred. Conoco's policy has been one of expensing organization and other
similar costs of start-up operations. Accordingly, we have no cumulative charge
to earnings from a write-off of deferred start-up costs as a result of adoption
of this accounting standard.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") 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. SFAS 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 SFAS 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. Conoco is required to adopt this Statement by the first
quarter of 2000 and is currently assessing its effect on the consolidated
financial statements.
3. RELATED PARTY TRANSACTIONS
The consolidated 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 DuPont organizations. For periods
prior to the Offerings, the costs of services were directly charged or allocated
between Conoco and DuPont using methods management believes are reasonable.
These methods included negotiated usage rates, dedicated asset assignment and
proportionate corporate formulas involving assets, revenues and employees. Such
charges and allocations were 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 $7 and $34
for the first quarter of 1999 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 $7 and $14 for the first quarter
of 1999 and 1998, respectively. These charges to DuPont were treated as
reductions, as appropriate, of cost of goods sold and other operating expenses
and selling, general and administrative expenses.
Interest expense charged by DuPont was $72 and $27 for the first quarter of
1999 and 1998, respectively, and reflects market-based interest rates. A portion
of historical related party interest cost and other interest
5
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
expense of $2 and $28 for the first quarter of 1999 and 1998, respectively, was
capitalized as costs associated with major construction projects. Interest
income from DuPont was $16 for the first quarter of 1998 and also reflects
market-based interest 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 $91 and $110 in the first quarter of 1999 and 1998,
respectively. Also included, for the first quarter of 1998, are revenues of $5
from insurance premiums charged to DuPont for property and casualty coverage
outside the United States. Purchases of products from DuPont during these
periods were not material. Subsequent to the Offerings, these intercompany
arrangements between DuPont and Conoco, excluding insurance coverage provided to
DuPont, are provided 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 Conoco's results of operations or
consolidated financial position.
Accounts and notes receivable include amounts due from DuPont of $48 and
$80 at March 31, 1999, and December 31, 1998, respectively, representing current
month balances of transactions between Conoco and DuPont, mainly product sales
and certain charges billed annually. Accounts payable include amounts due DuPont
of $35 and $52 at March 31, 1999, and December 31, 1998, respectively. Other
liabilities include accrued interest of $122 and $51 due DuPont at March 31,
1999 and December 31, 1998, respectively.
Amounts representing notes receivable or borrowings from DuPont, including
its subsidiary organizations, are identified as related parties and presented
separately in the consolidated balance sheet. At December 31, 1998, Conoco had
long-term borrowings from related parties of $4,596, representing the balance
under two promissory notes due on or before January 2, 2000. At March 31, 1999,
Conoco had aggregate related parties borrowings of $4,896 consisting of
short-term borrowings of $926 and long-term borrowings of $3,970. The short-term
borrowings consisted of $300 under a revolving credit agreement and $626 under
two promissory notes due on or before January 2, 2000. Subsequent to March 31,
1999, the long-term borrowings were refinanced with proceeds from placement of
public debt as described below. Consequently, the senior borrowings have been
classified as long-term pursuant to SFAS 6.
On April 20, 1999, Conoco completed the public offering and sale of $4,000
of senior debt securities. The senior debt securities consisted of three
tranches as follows:
- $1,350 in five-year notes due 2004 with a coupon of 5.90 percent, offered
to the public at 99.856 percent.
- $750 in ten-year notes due 2009 with a coupon of 6.35 percent, offered to
the public at par.
- $1,900 in 30-year notes due 2029 with a coupon of 6.95 percent, offered
to the public at par.
Conoco achieved a weighted average interest rate of 6.49 percent in this
financing. After deducting the note discount and underwriting discounts, the net
proceeds of $3,970 received from the senior debt offerings were used to repay a
portion of the outstanding principal and accrued interest owed to DuPont under
one of the promissory notes. It is expected that the remaining debt owed to
DuPont will be repaid in May 1999 with proceeds from a commercial paper program.
The program provides Conoco with up to $2,000 of borrowing capacity and
gives Conoco the ability to issue commercial paper at any time with various
maturities not to exceed 270 days. As of May 13, 1999, the outstanding balance
borrowed under this program was $400, bearing a weighted average interest rate
of 4.99 percent, and was used to repay debt owed to DuPont.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income (the
numerator) by the weighted average number of common shares outstanding plus the
effects of award and fee deferrals that are invested in Conoco stock units by
certain employees and directors of Conoco (the denominator). Diluted EPS is
similarly computed, except that the denominator is increased to include the
dilutive effects of outstanding stock options awarded under Conoco's
compensation plans.
As described in Note 1, Conoco's capital structure was established at the
time of the Offerings. In accordance with SEC Staff Accounting Bulletin No. 98,
the capitalization of Class B Common Stock has been retroactively reflected for
the purposes of presenting earnings per share for the first quarter of 1998. For
the first quarter of 1999, basic EPS reflects the Class B Common Stock plus the
weighted average number of shares of Class A Common Stock and deferred award
units outstanding at March 31, 1999. Corresponding diluted EPS for the first
quarter of 1999 includes an additional 7,347,178 shares representing the
weighted average dilutive effect of outstanding stock options that resulted from
the concurrent cancellation of DuPont stock options at the date of the Offerings
and issuance of options with respect to Class A Common Stock.
The denominator is based on the following weighted average number of common
shares outstanding:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic...................................................... 627,633,168 436,543,573
Diluted.................................................... 634,980,346 436,543,573
</TABLE>
Variable stock options for 1,724,146 shares of common stock were
outstanding at March 31, 1999, but were not included in the computation of
diluted EPS since the threshold price of $32.88 required for these options to be
vested had not been reached.
Common shares held as treasury stock are deducted in determining the number
of shares outstanding.
For the three months ended March 31, 1999, stock options for 12,736,261
shares of Class A Common Stock are antidilutive and therefore are not included
in the diluted earnings per share calculation because the exercise price is
greater than the average market price.
PRO FORMA EPS
Pro forma EPS for the first quarter of 1998 include the shares of Conoco
Class A and Class B Common Stock and deferred award units outstanding
immediately after the Offerings as if the Offerings had been completed at the
beginning of the period presented. Pro forma basic EPS is based on pro forma net
income for the first quarter of 1998 divided by the total Class A and Class B
Common Stock plus deferred award units outstanding immediately after the
Offerings (basic shares). For pro forma diluted EPS, basic shares have been
adjusted to reflect the effect of outstanding stock options immediately after
the Offerings as though outstanding for the period presented. Pro forma net
income reflects historical income for the period adjusted to give effect to the
transactions substantially completed in October 1998 directly associated with
the Offerings and separation from DuPont.
7
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
The reconciliation of historical net income to pro forma net income with
pro forma adjustments separately identified is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------------------
1999 1998 1998
ACTUAL PRO FORMA ACTUAL
------------ ------------ ------------
<S> <C> <C> <C>
Historical net income.............................. $ 83 $ 316 $ 316
Lower interest income(1)......................... -- (32) --
Incremental interest expense(2).................. -- (46) --
Related tax effects(3)........................... -- 25 --
------------ ------------ ------------
Net income......................................... $ 83 $ 263 $ 316
============ ============ ============
Earnings per share:
Basic............................................ $ .13 $ .42 $ .72
Diluted.......................................... $ .13 $ .41 $ .72
Weighted average shares outstanding:
Basic............................................ 627,633,168 628,195,100 436,543,573
Diluted.......................................... 634,980,346 636,746,186 436,543,573
</TABLE>
- ---------------
(1) Lower interest income due to settlement of related party notes receivable
and the impact of currency exchange rates on certain intercompany loans
purchased by Conoco from DuPont.
(2) Incremental interest expense resulting from Conoco's new debt structure.
(3) Tax effects associated with adjustments in (1) and (2), and the impact of
the calculation of income taxes on a separate return basis.
5. DIVIDENDS
Conoco declared a first quarter cash dividend on January 27, 1999, of $.14
per share on each outstanding share of Class A Common Stock and Class B Common
Stock, payable March 12, 1999, to shareholders of record as of February 12,
1999. This initial dividend was determined on a pro rata basis covering the
period from October 27, 1998 to December 31, 1998, and is equivalent to $.19 per
share for a full quarter.
On April 28, 1999, Conoco declared a quarterly cash dividend of $.19 per
share on each outstanding share of Class A and Class B Common Stock, payable on
June 12, 1999, to stockholders of record on May 14, 1999.
6. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Crude oil and petroleum products............................ $757 $661
Other merchandise........................................... 22 22
Materials and supplies...................................... 120 124
---- ----
$899 $807
==== ====
</TABLE>
7. RESTRUCTURING
In December 1998, Conoco announced, that as a result of a comprehensive
review of its assets and long-term strategy, Conoco was making organizational
realignments consistent with furthering the efficiency of operations and taking
advantage of synergies created by the upgrading of its asset portfolio. The
announced
8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
plans are being implemented in 1999 and will result in a reduction of
approximately 775 Upstream positions and 200 Downstream positions worldwide.
About three quarters of the Upstream positions and about half of the Downstream
positions affected will be in the United States. These reductions largely
reflect the elimination of redundancies at all levels resulting from past and
ongoing consolidation of assets into operations requiring less employee support
as well as better sharing of common services and functions across regions.
Associated with these announcements, Conoco recorded a charge in the fourth
quarter 1998 of $82 pretax ($52 after-tax), nearly all of which represents
termination payments and related employee benefits to be made to persons
affected. During the first quarter, approximately 134 persons in Upstream and 28
persons in Downstream left Conoco under implementation of these realignment
plans. The following table shows the status of, and changes to, the
restructuring reserve for the first quarter of 1999.
<TABLE>
<CAPTION>
UPSTREAM DOWNSTREAM
-------------------- --------------------
U.S. INTERNATIONAL U.S. INTERNATIONAL TOTAL
---- ------------- ---- ------------- -----
<S> <C> <C> <C> <C> <C>
Reserve at December 31, 1998...................... $31 $36 $8 $7 $82
Expenditures.................................... (3) (1) -- -- (4)
New accruals.................................... -- -- -- -- --
--- --- -- -- ---
Reserve at March 31, 1999......................... $28 $35 $8 $7 $78
=== === == == ===
</TABLE>
We expect the restructuring efforts provided for in December 1998 will be
completed by year-end 1999.
8. COMMITMENTS AND CONTINGENT LIABILITIES
Conoco has various purchase commitments for materials, supplies, services
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 March 31, 1999, Conoco had obligations under
international contracts to purchase, over periods up to 20 years, natural gas at
prices that were in excess of market prices at March 31, 1999. No material
annual loss is expected from these long-term commitments.
Conoco 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. As a result of the
separation agreement with DuPont, Conoco has also assumed responsibility for
current and future claims related to certain discontinued chemicals and
agricultural chemicals businesses operated by Conoco in the past. In general,
the effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists. Conoco 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 consolidated financial position of Conoco.
Conoco is also subject to contingencies pursuant to environmental laws and
regulations that in the future may require further action to correct the effects
on the environment of prior disposal practices or releases of petroleum
substances by Conoco or other parties. Conoco has accrued for certain
environmental remediation activities consistent with the policy set forth in
Note 2 to the consolidated financial statements presented in Conoco's 1998 Form
10-K as amended. Conoco has assumed environmental remediation liabilities from
DuPont related to certain discontinued chemicals and agricultural chemicals
businesses operated by Conoco in the past, which are included in the
environmental accrual. At March 31, 1999, such accrual amounted to $130 and, in
management's opinion, was appropriate based on existing facts and circumstances.
Under adverse changes in circumstances, 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 consolidated financial position of Conoco.
9
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
Conoco 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 March 31, 1999, these
indirect guarantees totaled $18 and Conoco or DuPont, on behalf of and
indemnified by Conoco, had directly guaranteed $1,120 of the obligations of
certain affiliated companies and others. Conoco has a multiparty banking
agreement that provides for the indirect guarantee of bank account overdrafts
for itself and its subsidiaries. No material loss is anticipated by reason of
such agreements and guarantees.
9. COMPREHENSIVE (LOSS) INCOME
The following sets forth Conoco's comprehensive income (loss) for the
periods shown:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1999 1998
------ ------
<S> <C> <C>
Net Income.................................................. $ 83 $316
Other Comprehensive Loss:
Foreign Currency Translation Adjustment................... (93) (18)
---- ----
Comprehensive (Loss) Income................................. $(10) $298
==== ====
</TABLE>
10
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
10. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
Conoco is involved in both the Upstream and Downstream operating segments
of the petroleum industry. Activities of the Upstream operating segment include
exploring for, and developing, producing and selling, crude oil, natural gas and
natural gas liquids. Activities of the Downstream operating segment 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. Conoco has four reporting segments for its
Upstream and Downstream businesses, reflecting geographic division between the
United States and International. Corporate and other includes general corporate
expenses, financing costs and other non-operating items, and results for
electric power and related-party insurance operations. Conoco sells its products
worldwide. Major products include crude oil, natural gas and refined products
that are sold primarily in the energy and transportation markets. Conoco's sales
are not materially dependent on a single customer or small group of customers.
Transfers between segments are on the basis of estimated market values.
<TABLE>
<CAPTION>
UPSTREAM DOWNSTREAM
---------------------- ----------------------
UNITED UNITED CORPORATE
SEGMENT INFORMATION STATES INTERNATIONAL STATES INTERNATIONAL AND OTHER CONSOLIDATED
------------------- ------ ------------- ------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999
Sales and Other Operating
Revenues.......................... $706 $479 $1,962 $2,143 $ 21 $5,311
Transfers Between Segments.......... 74 79 18 43 -- --
---- ---- ------ ------ ---- ------
Total Operating
Revenues................ $780 $558 $1,980 $2,186 $ 21 $5,311
==== ==== ====== ====== ==== ======
Net Income (Loss)................... $ 40 $ 68 $ 17 $ 23 $(65) $ 83
THREE MONTHS ENDED MARCH 31, 1998
Sales and Other Operating
Revenues.......................... $863 $456 $2,185 $2,028 $204 $5,736
Transfers Between Segments.......... 89 107 21 47 -- --
---- ---- ------ ------ ---- ------
Total Operating
Revenues................ $952 $563 $2,206 $2,075 $204 $5,736
==== ==== ====== ====== ==== ======
Net Income (Loss)(1)................ $ 88 $143 $ 34 $ 57 $ (6) $ 316
</TABLE>
- ---------------
(1) Includes After-Tax Benefits from Special Items:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1999... $ -- $ -- $ -- $ -- $ -- $ --
THREE MONTHS ENDED MARCH 31, 1998
Asset Sales....................... $ -- $ 23 $ -- $ -- $ -- $ 23
</TABLE>
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY OPERATIONS
Cash provided by operations in the first three months of 1999 increased
$381 million to $393 million versus $12 million in the first three months of
1998. Cash provided by operations before changes in operating assets and
liabilities decreased $234 million compared to the first three months of 1998,
primarily due to lower net realized crude oil and natural gas prices, weaker
refined product margins and increased interest expense resulting from
separation-related debt to DuPont incurred in the second half of 1998, partly
offset by higher volumes. Positive changes to net operating assets and
liabilities of $615 million were due to timing of payments on other operating
liabilities, lower 1999 tax payments and higher 1999 accrued interest, offset by
an increase in accounts receivable due to higher crude oil prices late in the
first quarter of 1999.
INVESTMENT ACTIVITIES
CAPITAL EXPENDITURES AND INVESTMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Upstream:
United States............................................. $113 $149
International............................................. 198 187
---- ----
Total Upstream.................................... $311 $336
Downstream:
United States............................................. $ 32 $ 30
International............................................. 70 65
---- ----
Total Downstream.................................. $102 $ 95
Corporate and Other......................................... 2 0
---- ----
Total Capital Expenditures and Investments........ $415 $431
==== ====
United States............................................. $147 $179
International............................................. 268 252
---- ----
Total............................................. $415 $431
==== ====
</TABLE>
Total capital expenditures and investments (excluding amounts paid in the
first quarter of 1999 for the completion of 1998 acquisitions) were $415
million, a decrease of $16 million, or four percent, versus the first quarter of
1998 of $431 million. The decrease is primarily due to lower spending on
Upstream capital projects in the United States. Described below is a more
detailed analysis of capital expenditures and investments by operating segments
within the United States and International. Capital expenditures and investments
do not include expensed exploration costs.
Upstream
Upstream capital expenditures and investments (excluding amounts paid in
the first quarter of 1999 for the completion of 1998 acquisitions) totaled $311
million in the first three months of 1999. The decrease was $25 million, or
approximately seven percent, compared to $336 million for the first three months
of 1998, primarily a result of an overall reduction in the 1999 capital
expenditure program, including exploration, partly offset by 1999 investments in
Petrozuata, a joint venture in Venezuela.
12
<PAGE> 15
United States
During the first three months of 1999, Conoco spent $113 million on capital
projects in the United States, a decrease of $36 million, or 24 percent from
$149 million in the first three months of 1998. Expenditures in the first three
months of 1999 focused on the continued development of the Lobo field in South
Texas and the completion of the Ursa field in the deepwater Gulf of Mexico.
International
International capital expenditures and investments totaled $198 million in
the first three months of 1999, an increase of $11 million, or six percent, from
$187 million in the first three months of 1998. The 1999 expenditures include
investment in Petrozuata, as well as continued development of various fields in
the U.K. and the Norwegian sector of the North Sea.
Downstream
Downstream capital expenditures and investments totaled $102 million in the
first three months of 1999, an increase of $7 million, or seven percent, versus
$95 million in the first three months of 1998, primarily reflecting increased
expenditures for European and Asia-Pacific refining operations.
United States
During the first three months of 1999, Conoco spent $32 million on
Downstream capital projects in the United States, up $2 million, or seven
percent, from $30 million in the first three months of 1998. The majority of the
funds spent were used to support continuing refining operations.
International
During the first three months of 1999, Conoco spent $70 million on
Downstream international capital expenditures and investments, up $5 million, or
eight percent, from $65 million in the first three months of 1998. Expenditures
in the first three months of 1999 focused on strengthening Conoco's retail
marketing position, as well as investment in the Melaka Refinery in Malaysia and
the Humber Refinery in the U.K.
Corporate and Other
Corporate and other capital expenditures totaled $2 million in the first
three months of 1999, and were associated with the capitalization of new
computer software.
PROCEEDS FROM SALES OF ASSETS AND SUBSIDIARIES
Conoco's investment activities also include proceeds of $18 million for the
first three months of 1999, a decrease of $257 million from the first three
months of 1998, which included $54 million from the sale of North Sea producing
and non-producing properties and $156 million from the sale of various
Downstream assets in the U.S. These proceeds are a result of Conoco's ongoing
strategic portfolio realignment.
FINANCING ACTIVITIES
Conoco's ability to maintain and grow its operating income and cash flow is
dependent upon continued capital spending to replace depleting assets. Conoco
believes its future cash flow from operations and its borrowing capacity should
be sufficient to fund its dividends, if any, capital expenditures and working
capital requirements and to service debt.
Total indebtedness owed to DuPont was $4,896 million as of March 31, 1999,
consisting of $926 million in short-term borrowings and $3,970 million in
long-term borrowings. The short-term borrowings consisted of $300 million due on
the revolving credit agreement discussed below and $626 million representing the
short-term portion of the $4,596 million promissory notes to DuPont.
13
<PAGE> 16
On October 27, 1998, Conoco and DuPont entered into a revolving credit
agreement under which DuPont provides Conoco with a revolving credit facility in
principal amount of up to $500 million. Loans under the revolving credit
agreement are subject to mandatory prepayment to the extent Conoco's cash and
cash equivalents exceed $325 million or such higher amount as Conoco and DuPont
may agree. Loans under this facility bear interest at a rate equal to 30-day
LIBOR plus 0.20 percent per annum and may be voluntarily prepaid without penalty
or premium. At March 31, 1999, the outstanding balance under the revolving
credit agreement was $300 million.
On April 20, 1999, Conoco completed the public offering and sale of $4,000
million of senior debt securities. The senior debt securities consisted of three
tranches as follows:
- $1,350 million in five-year notes due 2004 with a coupon of 5.90 percent,
offered to the public at 99.856 percent.
- $750 million in ten-year notes due 2009 with a coupon of 6.35 percent,
offered to the public at par.
- $1,900 million in 30-year notes due 2029 with a coupon of 6.95 percent,
offered to the public at par.
Conoco achieved a weighted average interest rate of 6.49 percent in this
financing. After deducting the note discount and underwriting discounts, the net
proceeds of $3,970 million received from the senior debt offerings were used to
repay a portion of the outstanding principal and accrued interest owed to DuPont
under one of the promissory notes. It is expected that the remaining debt owed
to DuPont will be repaid in May 1999 with proceeds from a commercial paper
program.
The program provides Conoco with up to $2,000 million of borrowing capacity
and gives Conoco the ability to issue commercial paper at any time with various
maturities not to exceed 270 days. As of May 13, 1999, the outstanding balance
borrowed under this program was $400 million, bearing a weighted average
interest rate of 4.99 percent, and was used to repay debt owed to DuPont.
14
<PAGE> 17
(B) RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
SALES AND OTHER OPERATING REVENUES..........................
Upstream
United States.......................................... $ 706 $ 863
International.......................................... 479 456
------ ------
Total Upstream.................................... $1,185 $1,319
Downstream
United States.......................................... $1,962 $2,185
International.......................................... 2,143 2,028
------ ------
Total Downstream.................................. $4,105 $4,213
Corporate and Other....................................... 21 204
------ ------
Total Sales and Other Operating Revenues.......... $5,311 $5,736
====== ======
AFTER-TAX OPERATING INCOME
Upstream
United States.......................................... $ 40 $ 88
International.......................................... 68 143
------ ------
Total Upstream.................................... $ 108 $ 231
Downstream
United States.......................................... $ 17 $ 34
International.......................................... 23 57
------ ------
Total Downstream.................................. $ 40 $ 91
Corporate and Other Operating............................. (15) (20)
------ ------
Total After-Tax Operating Income.................. $ 133 $ 302
Interest and Other Non-Operating Income (Expenses) Net of
Tax.................................................... (50) 14
------ ------
CONSOLIDATED NET INCOME..................................... $ 83 $ 316
====== ======
</TABLE>
SPECIAL ITEMS
Consolidated net income includes the following non-recurring items
("Special Items") on an after-tax basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
UPSTREAM
Asset sales................................................. $-- $23
--- ---
Total Upstream Special Items...................... $-- $23
=== ===
Total............................................. $-- $23
=== ===
</TABLE>
There were no Special Items for the first three months of 1999. Special
Items for the first three months of 1998 reflect a $23 million gain from the
sale of certain properties in the North Sea.
First Quarter 1999 versus First Quarter 1998
Conoco had first quarter consolidated net income of $83 million in 1999,
down 74 percent from $316 million in the first quarter of 1998. Conoco had
earnings before special items of $83 million in the first quarter of 1999, down
72 percent from $293 million in the first quarter of 1998. Lower earnings
primarily reflect lower net realized crude oil and natural gas prices, weaker
refined product margins and higher interest
15
<PAGE> 18
expenses related to Conoco's debt owed to DuPont, partly offset by higher crude
oil and natural gas volumes, higher refinery throughputs and lower exploration
costs.
Sales and other operating revenues for the first quarter of 1999 were
$5,311 million, down seven percent from $5,736 million in the first quarter of
1998, primarily due to lower crude oil and natural gas prices, lower refined
product prices and reduced power trading revenues, all of which were partly
offset by increased production volumes and refinery throughputs. Conoco's
worldwide net realized crude oil price was $11.00 per barrel for the quarter,
down $2.70 per barrel, or 20 percent, from $13.70 per barrel in the first
quarter of 1998. Worldwide net realized natural gas prices averaged $2.08 per
thousand cubic feet (mcf) for the quarter, compared with $2.64 per mcf in the
same period in 1998, a reduction of 21 percent. Worldwide crude oil and
condensate production in the first quarter of 1999 was 326,000 barrels per day
versus 321,000 barrels per day in the first quarter of 1998, a two percent
increase primarily attributable to new production of condensate from the
Britannia field, crude oil from the Banff field and crude oil from Petrozuata.
Worldwide natural gas deliveries in the first quarter of 1999 were up 40 percent
to 1,816 million cubic feet per day from 1,298 million cubic feet per day in the
first quarter of 1998. U.S. natural gas deliveries were up 20 percent, primarily
as a result of continued development drilling in the Lobo field of South Texas.
International natural gas deliveries were up 71 percent due to the new
production from the Britannia and Viking Phoenix gas fields in the U.K.
Worldwide refined product sales were 1,093,000 barrels per day, up 12 percent
versus 1998. Crude oil and refined product buy/sell and natural gas and electric
power resale activities in the first quarter of 1999 totaled $957 million, down
20 percent compared to $1,200 million in the first quarter of 1998, primarily
due to lower crude oil prices and a reduction in power trading revenues.
Cost of goods sold and other operating expenses for the first quarter of
1999 totaled $3,005 million, a decrease of $388 million, or 11 percent, compared
to $3,393 million in the first quarter of 1998, primarily due to the reduction
in power trading activities and lower refinery feedstock costs.
Exploration expenses for the first quarter of 1999 totaled $46 million, a
decline of $21 million, or 31 percent, compared to $67 million in the first
quarter of 1998, due to lower dry hole costs and lower seismic expenditures.
Depreciation, depletion and amortization for the first quarter of 1999
totaled $302 million, an increase of $35 million, or 13 percent, compared to
$267 million in the first quarter of 1998, primarily due to increased production
volumes.
UPSTREAM SEGMENT RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
After-Tax Operating Income
United States............................................. $ 40 $ 88
International............................................. 68 143
---- ----
After-Tax Operating Income............................. $108 $231
Special Items
United States............................................. $ -- $ --
International............................................. -- (23)
---- ----
Special Items.......................................... $ -- $(23)
Earnings Before Special Items
United States............................................. $ 40 $ 88
International............................................. 68 120
---- ----
Earnings Before Special Items.......................... $108 $208
==== ====
</TABLE>
16
<PAGE> 19
First Quarter 1999 versus First Quarter 1998
Upstream earnings before special items were $108 million in the first
quarter of 1999, down 48 percent from $208 million in the first quarter of 1998.
U.S. Upstream earnings before special items totaled $40 million in the first
quarter of 1999, down 55 percent from $88 million in the comparable period of
1998. Lower U.S. Upstream earnings were due to lower crude oil and natural gas
prices and lower crude oil volumes due to natural declines and the sale of
various small, non-strategic properties in 1998. These factors more than offset
increased natural gas production and lower exploration expenses. Natural gas
volumes in the United States were up 20 percent, as production from the South
Texas fields increased more than production declined elsewhere. International
Upstream earnings before special items were $68 million, down 43 percent, from
$120 million in the comparable period in 1998, primarily attributable to lower
prices for crude oil and natural gas, partly offset by increased natural gas and
condensate production from the Britannia field.
DOWNSTREAM SEGMENT RESULTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
After-Tax Operating Income
United States............................................. $17 $34
International............................................. 23 57
--- ---
After-Tax Operating Income............................. $40 $91
Special Items
United States............................................. $-- $--
International............................................. -- --
--- ---
Special Items.......................................... $-- $--
Earnings Before Special Items
United States............................................. $17 $34
International............................................. 23 57
--- ---
Earnings Before Special Items.......................... $40 $91
=== ===
</TABLE>
First Quarter 1999 versus First Quarter 1998
Downstream earnings before special items were $40 million for the first
three months of 1999, down 56 percent from $91 million in the comparable period
in 1998. U.S. Downstream earnings before special items were $17 million for the
first three months of 1999, down 50 percent from $34 million for the first three
months of 1998, due to weaker refined product margins, partly offset by higher
refinery volumes. International Downstream earnings before special items were
$23 million for the first three months of 1999, down 60 percent from $57 million
in the comparable period in 1998, reflecting significantly lower refinery and
marketing margins that were only partly offset by higher refining volumes.
CORPORATE AND OTHER SEGMENT RESULTS
CORPORATE AND OTHER OPERATING
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
After-Tax Operating Income (Loss)........................... $(15) $(20)
Special Items............................................... -- --
---- ----
Earnings (Losses) Before Special Items...................... $(15) $(20)
==== ====
</TABLE>
17
<PAGE> 20
First Quarter 1999 versus First Quarter 1998
Corporate and other operating losses were $15 million for the first quarter
of 1999, improved 25 percent from a loss of $20 million for the comparable
period in 1998, resulting from lower administrative costs.
INTEREST AND OTHER CORPORATE NON-OPERATING INCOME (EXPENSES) NET OF TAX
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Interest Expense on Debt.................................. $(47) $ --
Interest Income........................................... 5 19
Exchange Gains (Losses)................................... 2 7
Other Corporate Expenses(1)............................... (10) (12)
---- ----
Total............................................. $(50) $ 14
==== ====
</TABLE>
- ---------------
(1) Includes other non-operating items.
First Quarter 1999 versus First Quarter 1998
Interest and other corporate non-operating expenses for the first quarter
of 1999 were a loss of $50 million compared to income of $14 million in the
comparable period in 1998, primarily reflecting an increase in interest expense
resulting from separation-related debt to DuPont incurred in the second half of
1998 and lower interest income.
TAX MATTERS
As a result of the separation and the Offerings, Conoco is no longer able
to combine the results of its operations with those of DuPont in reporting
income for U.S. federal income tax purposes and for state and non-U.S. income
tax purposes in certain states and countries. Conoco believes this will not have
a material adverse effect on its earnings.
In late March 1999, the Internal Revenue Service ruled DuPont's proposed
split-off of Conoco Inc. would be a tax-free transaction. Under the proposed
split-off, DuPont shareholders will be allowed to exchange DuPont stock for
shares of Conoco Class B Common Stock held by DuPont. The IRS ruling was a key
condition of the split-off that is discussed in more detail in Part II, Item
5(b).
During the period ended March 31, 1999, Conoco's net deferred tax assets
increased, primarily as a result of the recognition of $62 million of
carryforwards related to foreign tax credits, alternative fuels tax credits and
the U.S. alternative minimum tax. Conoco believes it is more likely than not
that the additional deferred tax assets related to these foreign tax credits and
alternative fuels tax credits will be realized in the current year. Further,
Conoco believes it is more likely than not that the alternative minimum tax
credits will be realized in future years.
YEAR 2000
Historically, many computerized systems have used 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.
Conoco 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 Conoco by its individual business units, and progress is
reported periodically to management and the Board of Directors.
18
<PAGE> 21
Conoco 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 production, plant,
transportation and marketing facilities. External parties include any third
party with whom Conoco interacts. Most of the resources committed to this work
are internal.
Managing Year 2000 risk is being handled in three tiers -- through Year
2000 Compliance Plans, Mitigation Plans and Emergency Recovery Plans. The Year
2000 Compliance Plans include inventorying and assessing risk, and outlining
action to be taken for each of these items. Year 2000 Compliance Plans have been
developed and are being implemented for all business units. Mitigation Plans
outline a list of actions that will be taken at specified times to further
minimize risk. These plans are currently being developed for areas in which the
Year 2000 Compliance Plans may not adequately address all of the relevant risk
issues. For example, Conoco cannot be guaranteed that external partners will be
ready for the Year 2000. Therefore, operations that rely heavily on external
partners will develop Mitigation Plans. Mitigation Plans will be developed, as
needed, for all business units by the end of the third quarter of 1999.
Emergency Recovery Plans already exist in many of Conoco's operations to
address other issues such as oil tanker spills and plant explosions. Typically,
the Emergency Recovery Plans address the results of single events. These plans
are designed to facilitate the resumption of normal operations following a
disruption. In contrast to a "normal" disruption, the scope of Year 2000 issues
may cause multiple concurrent events. Accordingly, the Emergency Recovery Plans
will be reviewed and supplemented to address Year 2000 risks for all business
units by the end of the third quarter of 1999. The progress reported below
covers only the replacement or upgrade of existing non-compliant systems.
Replacement projects planned and managed outside of the Year 2000 Program have
been excluded. Approximately 79 percent of the work required to fix Year 2000
issues identified by the Year 2000 Program has been completed.
In the information technology area, inventory and assessment audits have
been completed. Corrective action in the mainframe and midrange environments
will be completed by the end of the second quarter of 1999, in the
telecommunications and desktop areas by the end of the third quarter of 1999,
and business application software by the end of the fourth quarter of 1999.
In the plant systems area, all but one of Conoco's business units have
completed their inventory and assessment audits; the remaining unit is expected
to complete this work by the end of the second quarter of 1999. Conoco is
relying on vendor testing of hardware, software and embedded chips, with
certification and validation through limited internal testing and/or industry
test results. Downtime for normally scheduled plant maintenance will be used to
conduct testing, with completion of corrective action expected by the end of the
third quarter of 1999.
With respect to external parties, the inventory of critical external
parties is complete. Risks are being assessed and will be addressed in
contingency plans. Monitoring of risk in this area will continue throughout
1999.
The total cost of Year 2000 activities is not expected to be material to
Conoco's operations, liquidity or capital resources. Costs are being managed
within each business unit. The total estimated cost for Conoco's Year 2000 work
is $46 million. 1997 costs were $5 million, 1998 costs were $25 million and
first quarter 1999 costs were $4 million. This includes costs for the
replacement or upgrade of existing non-compliant systems. Replacement projects
planned and managed outside of the Year 2000 program have been excluded.
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 to address a Year 2000 issue could result in
business disruption that could materially affect Conoco's operations, liquidity
or capital resources. There is still uncertainty around the scope of the Year
2000 issue. At this time Conoco cannot quantify the potential impact of these
failures. Conoco's Year 2000 program is in place. Conoco is developing
contingency plans to address issues within Conoco's control. The program
minimizes, but does not eliminate, the issues of external parties.
19
<PAGE> 22
This disclosure is provided pursuant to Securities Exchange Act Release No.
39-40277. As such, it is protected as a forward-looking statement under Section
21E of the Securities Exchange Act of 1934. See Item 5(a) "Disclosure Regarding
Forward-Looking Information." This disclosure is also subject to protection
under the Year 2000 Information and Readiness Disclosure Act of 1998, Public Law
105-271, as a "Year 2000 Statement" and "Year 2000 Readiness Disclosure" as
defined therein.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (the "EMU")
introduced a new currency, the Euro, on January 1, 1999. The new currency is in
response to the EMU's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
Conoco 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 Conoco operates. Existing legacy accounting and
business systems and other business assets have been reviewed for Euro
compliance. Progress regarding Euro implementation is reported periodically to
management. Amounts spent to date and expected to be spent in the future are not
material.
Because of the staggered introduction of the Euro regarding non-cash and
cash transactions, Conoco has developed its plans to address first its
accounting and business systems and second, its business assets. Conoco
undertook steps to be Euro compliant within its accounting and business systems
by the end of 1998 relative to the conversion rules when performing translations
between EMU currencies. The accounting systems were modified so that EMU
currencies are converted to other EMU currencies via the Euro rather than
directly. Conoco was in a position to conduct electronic transfers in Euros
commencing January 1, 1999. Conoco has an implementation plan to convert its
accounting and reporting systems from legacy currency to the Euro by January 1,
2002 for those operations that are in EMU countries. The plan also incorporates
steps to ensure the corresponding business assets are fully compliant by that
date, in preparation for being able to conduct business involving Euro notes and
coins.
Consistent with regulations and steps the industry is taking to get the
public familiar with the Euro, conversion at the retail outlets has already
begun. The conversion program varies between countries, and ranges from
displaying conversion tables between EMU legacy currencies and the Euro at
gasoline stations, placing stickers on the gasoline pumps with the equivalent
Euro price per liter, installing "Euro corners" in the shop part of the station
with calculators and examples so that customers can practice converting from
their EMU legacy currency to the Euro, and showing the Euro equivalent total at
the bottom of receipts issued from cash registers. The business assets
conversion program will continue throughout the transition period, and in its
final stages will include new or modified pole price signs, electronic Euro
price displays at the pump, new or modified automatic cash machines, and
receipts which give a detailed itemized breakdown in Euros.
Conoco does not currently expect to experience any significant operational
disruptions or to incur any significant costs, including any currency risk,
which could materially affect Conoco's liquidity or capital resources. Conoco 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, Conoco 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.
RESTRUCTURING
Conoco has begun implementation of plans announced in December 1998 to
reduce staffing in most business operations in order to yield cost efficiencies
available from recent structural improvements. Through March 31, 1999,
approximately 162 persons of the expected 975 have left Conoco with plans for
the remainder
20
<PAGE> 23
to leave by the end of 1999. These reductions are expected to reduce costs about
$100 million annually once fully implemented. For additional information, see
Note 7 to the consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
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, electric power 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.
Conoco has established a Financial Risk Management Policy Framework that
provides guidelines for entering into contractual arrangements (derivatives) to
manage Conoco'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 Conoco 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, Conoco'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
management.
The counterparties to these contractual arrangements are limited to major
financial institutions and other established companies in the petroleum
industry. Although Conoco 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. Conoco has not experienced
nonperformance by counterparties to these contracts, and no material loss would
be expected from any such nonperformance.
Commodity Price Risk
Conoco 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 price exposure 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.
Conoco policy is to generally be exposed to market pricing for commodity
purchases and sales. From time to time, management may use derivatives to
establish longer-term positions to hedge the price risk for Conoco's equity
crude oil and natural gas production as well as refinery margins.
Under Conoco's policy, hedging includes only those transactions that offset
physical positions and reduce overall company exposure to price risk. Trading is
defined as any transaction that does not meet the definition of hedging. Much of
the portfolio is reported in the trading category and, thereby, receives
mark-to-market accounting. As a consequence, current revenues and costs reflect
the full effect of price movement on most of Conoco's trading activity. Those
activities that qualify as hedges use deferral accounting.
21
<PAGE> 24
The fair value gain (loss) of outstanding derivative commodity instruments
and the change in fair value that would be expected from a ten percent adverse
price change are shown in the table below:
<TABLE>
<CAPTION>
CHANGE IN FAIR VALUE
FROM 10% ADVERSE
FAIR VALUE PRICE CHANGE
---------- --------------------
(IN MILLIONS)
<S> <C> <C>
AT MARCH 31, 1999
Crude Oil and Refined Products
Hedging............................................... $ (2) $ (1)
Trading............................................... 24 (3)
---- ----
Combined.............................................. $ 22 $ (4)
Natural Gas
Hedging............................................... $ (5) $(16)
Trading............................................... -- 1
---- ----
Combined.............................................. $ (5) $(15)
AT DECEMBER 31, 1998
Crude Oil and Refined Products
Hedging............................................... $ (1) $ (5)
Trading............................................... 3 3
---- ----
Combined.............................................. $ 2 $ (2)
Natural Gas
Hedging............................................... $(25) $(20)
Trading............................................... (2) (1)
---- ----
Combined.............................................. $(27) $(21)
</TABLE>
The fair values of 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 the end of the reporting period.
All hedge positions offset physical positions exposed to the cash market;
none of these offsetting physical positions is included in the above table.
Price-risk sensitivities were calculated by assuming an across-the-board
ten 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 ten percent change in prompt month
crude or natural gas prices, the fair value of Conoco's derivative portfolio
would typically change less than that shown in the table due to lower volatility
in out-month prices.
Foreign Currency Risk
Conoco has foreign currency exchange rate risk resulting from operations in
approximately 40 countries around the world. Conoco does not comprehensively
hedge its exposure to currency rate changes, although it may choose to
selectively hedge exposure to foreign currency exchange rate risk. 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. There were no open forward exchange contracts
at the end of the reporting period.
Interest Rate Risk
Prior to the Offerings, Conoco had no significant interest rate risk to
manage. In March 1999, Conoco hedged interest rate exposure on a portion of
public debt that was issued in April 1999 (see Note 3). The hedge was
accomplished by purchasing put options on U.S. Treasury securities with a
maturity date matching
22
<PAGE> 25
the expected pricing date of the debt offering and having a total notional
amount of $2.5 billion spread over five-year, ten-year and 30-year maturities
proportional to the expected tranches of company debt to be issued. Fair value
of the put options at March 31 was $7 million. In April 1999, subsequent to
purchasing the put options, U.S. Treasury interest rates decreased and the put
options expired out of the money. Before the public debt issuance, Conoco
entered into interest rate lock agreements proportional to the expected tranches
of debt to be issued. Overall, the two hedging transactions resulted in an
immaterial net gain that will be amortized against interest expense over the
life of the various debt maturities.
23
<PAGE> 26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 40 percent 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. The parties have
reached an agreement to settle the case that requires the parties to pay a
penalty of $165,000 and construct a fish passageway in the Jocko River to
enhance the Bull Trout population. Final settlement documents were lodged with
the Court on March 30, 1999. The Notice of Lodging, which commenced the thirty
day comment period, was published in the Federal Register on April 13, 1999.
On January 5, 1999, Conoco paid $105,000 in penalties and agreed to perform
certain remediation at a cost of $200,000 to settle allegations made on June 18,
1998, by the New Mexico Environmental Department that Conoco had failed to
obtain a Clean Air Act permit and violated certain conditions in existing
permits at the Maljamar Gas Plant and the MCA field.
On August 31, 1998, the Louisiana Department of Environmental Quality
("LDEQ") issued a notice of violation against Conoco for failure to maintain
control equipment to control emissions from the sulfur pits at the Lake Charles
Refinery. On November 11, 1998, the LDEQ notified Conoco that it is seeking a
fine of $300,000. Conoco is contesting these allegations and the proposed
penalty and is seeking a hearing in this manner.
On February 18, 1999, the Oklahoma Department of Environmental Quality
issued a Notice of Violation to Conoco's Ponca City refinery alleging certain
violations of the Oklahoma Air Pollution Control Rules. This Notice of Violation
may result in the Department seeking monetary sanctions in excess of $100,000.
Conoco intends to vigorously defend the matter.
Conoco 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. As a result of its
separation from DuPont, Conoco has also assumed responsibility for current and
future claims related to certain discontinued chemicals and agricultural
chemicals businesses operated by Conoco in the past. In general, the effect on
future financial results is not subject to reasonable estimation because
considerable uncertainty exists. We believe 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
consolidated financial position of Conoco.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Conoco's annual meeting of stockholders was held on May 12, 1999 for the
purpose of (1) electing three directors, (2) approving the 1998 Stock and
Performance Incentive Plan, (3) approving the 1998 Key Employee Stock
Performance Plan and (4) ratifying the appointment of PricewaterhouseCoopers LLP
as Conoco's independent public accountants for 1999.
24
<PAGE> 27
1. Election of Directors
Stockholders elected Ruth R. Harkin, Frank A. McPherson and Gary M.
Pfeiffer, each for a three-year term expiring at the 2002 Annual Meeting. The
vote tabulation for each individual director was as follows:
<TABLE>
<CAPTION>
VOTES CAST VOTES CAST AGAINST
DIRECTOR FOR OR WITHHELD
- -------- ------------- ------------------
<S> <C> <C>
Ruth R. Harkin........................................ 2,349,266,804 1,651,292
Frank A. McPherson.................................... 2,349,246,183 1,671,913
Gary M. Pfeiffer...................................... 2,347,922,130 2,995,966
</TABLE>
Directors continuing in office were Archie W. Dunham, William K. Reilly,
William R. Rhodes, Franklin A. Thomas and Edgar S. Woolard, Jr.
2. Proposal approving the 1998 Stock and Performance Incentive Plan of Conoco
Inc.
<TABLE>
<S> <C>
For......................................................... 2,314,078,440
Against..................................................... 36,170,753
Abstain..................................................... 668,903
Broker Non-Votes............................................ 0
</TABLE>
3. Proposal approving the 1998 Key Employee Stock Performance Plan of Conoco
Inc.
<TABLE>
<S> <C>
For......................................................... 2,324,703,352
Against..................................................... 25,757,626
Abstain..................................................... 457,118
Broker Non-Votes............................................ 0
</TABLE>
4.Proposal ratifying the appointment of PricewaterhouseCoopers LLP as Conoco's
independent public accountants for 1999.
<TABLE>
<S> <C>
For......................................................... 2,350,436,014
Against..................................................... 219,053
Abstain..................................................... 263,029
</TABLE>
ITEM 5. OTHER INFORMATION
(A) DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. You can identify our forward-looking
statements by the words "expects," "intends," "plans," "projects," "believes,"
"estimates" and similar expressions.
We have based the forward-looking statements relating to our operations on
our current expectations, estimates and projections about us and the petroleum
industry in general. We caution you that these statements are not guarantees of
future performance and involve risks, uncertainties and assumptions that we
cannot predict. In addition, we have based many of these forward-looking
statements on assumptions about future events that may prove to be inaccurate.
Accordingly, our actual outcomes and results may differ materially from what we
have expressed or forecast in the forward-looking statements. Any differences
could result from a variety of factors including the following:
- fluctuations in crude oil and natural gas prices and refining and
marketing margins
- failure or delays in achieving expected production from oil and gas
development projects
- uncertainties inherent in predicting oil and gas reserves and oil and gas
reservoir performance
25
<PAGE> 28
- lack of exploration success
- disruption or interruption of our production facilities due to accidents
or political events
- international monetary conditions and exchange controls
- liability for remedial actions under environmental regulations
- disruption to our operations due to untimely or incomplete resolution of
Year 2000 issues by us or other entities
- liability resulting from litigation
- world economic and political conditions
- changes in tax and other laws applicable to our business
(B) SPLIT-OFF OF CONOCO FROM DUPONT
On March 22, 1999, Conoco filed a registration statement with the
Securities and Exchange Commission outlining a "split-off" plan to establish
Conoco as a fully independent company. This filing is the next step in DuPont's
planned divestiture of Conoco. The split-off will be achieved through an
exchange offer in which DuPont stockholders will be given an opportunity to
exchange DuPont common stock for shares of Conoco Class B Common Stock currently
held by DuPont. In late March 1999, the Internal Revenue Service ruled that
DuPont's proposed split-off of Conoco Inc. would be a tax-free transaction.
DuPont announced on April 28, 1999 that its board of directors had approved the
split-off plan. Following a review by the SEC, and depending on market
conditions, the split-off is expected to be completed in the third quarter of
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The exhibit index filed with this Form 10-Q is on page 28.
(B) REPORTS ON FORM 8-K
On March 23, 1999, Conoco filed a Current Report on Form 8-K for the
following:
Item 5. Other Events and Item 7. Financial Statements and Exhibits with
respect to an unaudited pro forma statement of income for year ended December
31, 1998. This pro forma statement of income was prepared by Conoco to
illustrate the estimated effects of the initial public offering and the
separation and related transactions from DuPont as if they had occurred as of
the beginning of the period (January 1, 1998) rather than on October 21, 1998.
26
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONOCO INC.
(Registrant)
By: /s/ W. DAVID WELCH
----------------------------------
(As Duly Authorized Officer and
Principal Accounting Officer)
Date: May 13, 1999
27
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Second Amended and Restated Certificate of Incorporation
of Conoco Inc.*
3.2 -- By-laws of Conoco Inc., as amended May 12, 1999**
4.1 -- Form of Indenture between the Company and the Trustee
relating to the debt securities***
10.1 -- Deferred Compensation Plan for Non-employee Directors, as
amended May 12, 1999**
10.2 -- 1998 Stock and Performance Incentive Plan, as amended May
12, 1999**
10.3 -- 1998 Key Stock Performance Plan, as amended May 12,
1999**
12 -- Computation of Ratio of Earnings to Fixed Charges**
27 -- Financial Data Schedule**
</TABLE>
- ---------------
* Incorporated by reference to exhibit of the same number filed as part of
Conoco's Form 10-Q for the quarterly period ended September 30, 1998.
** Filed herein.
*** Incorporated by reference to exhibit of the same number filed as part of
Conoco's Registration Statement on Form S-3, File No. 333-72291.
28
<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.
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
1
<PAGE> 2
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 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
2
<PAGE> 3
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;
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 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.
3
<PAGE> 4
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.
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.
4
<PAGE> 5
Section 7. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be 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 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
5
<PAGE> 6
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 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 provided in the
Certificate of Incorporation of the Corporation with respect to
6
<PAGE> 7
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 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
7
<PAGE> 8
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
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 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.
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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 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,
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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 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 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.
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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 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.
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ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall consist initially of nine 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 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
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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 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
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persons 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) (or such
greater number as the Board of Directors may designate) 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.
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
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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 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 majority of the votes entitled
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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 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
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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 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. Any vacancy occurring in
any office of the Corporation shall be filled by the Board of Directors.
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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, 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
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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 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 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
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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 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
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of all transactions as Treasurer and of the financial condition of the
Corporation. If required 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 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
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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.
ARTICLE V
STOCK
Section 1. Uncertificated and Certificated Shares; Form of
Certificates. Effective at such time as the President or any Vice President or
the Treasurer of the Corporation designates in writing to the Corporate
Secretary and any transfer agents of the Corporation with respect to any class
of stock of the Corporation, the shares of such class shall be uncertificated
shares, provided that the foregoing shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation and
provided upon request every holder of uncertificated shares shall be entitled,
to the extent provided in Section 158 of the Delaware General Corporation Law,
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
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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 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 as the holder
thereof on the stock records of the Corporation by such person's attorney
lawfully constituted in writing, and in the case of shares represented by a
certificate upon the surrender of the certificate therefor, which shall be
canceled 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 the Corporation by an entry showing from and to
whom transferred. To the extent designated by the President or any Vice
President or the Treasurer of the Corporation, the Corporation may recognize the
transfer of fractional
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uncertificated shares, but shall not otherwise be required to recognize the
transfer of fractional shares.
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.
(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
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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 required 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 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.
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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 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
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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 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.
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
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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 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
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such person in connection 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 determination, (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
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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 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 good faith reliance 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.
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
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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.
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
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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 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 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
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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 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.
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Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide 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 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.
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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 : October 18, 1998
Last Amended as of: May 12, 1999
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EXHIBIT 10.1
CONOCO INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED EFFECTIVE AS OF MAY 12, 1999)
ARTICLE I
PURPOSES OF PLAN AND DEFINITIONS
1.1 Purpose. Pursuant to the 1998 Stock and Performance
Incentive Plan, Conoco Inc., a Delaware corporation, established 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. The Plan has been amended effective May 12, 1999.
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.
"Change in Control" means a Change in Control as defined in
the Conoco Inc. Key Employee Severance Plan, as amended from time to
time.
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"Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of the Company.
"Class B Common Stock" means the Class B Common Stock, par
value $.01 per share, of the Company.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" means such committee of the Board as is designated
by the Board to administer the Plan in accordance with Article II, but
(i) prior to the IPO shall be the Board or such other persons as are
authorized by the Board and (ii) after the IPO shall initially be the
Compensation Committee of the Board.
"Common Stock" means the Class A Common Stock or Class B
Common Stock, except where the context requires that the reference is
to one of such classes.
"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.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" of a share of Class A Common Stock or
Class B Common Stock means, as of a particular date, (i) if shares of
that class of Common Stock are listed on a national securities
exchange, the mean between the highest and lowest sales price per share
of such Common Stock on the consolidated transaction reporting system
for the principal national securities exchange on which shares of such
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 that class 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 such class 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 that class of 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 that class 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 the applicable class 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.
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"Stock Unit" means a unit equal to one share of Class A Common
Stock or Class B Common Stock (as determined in accordance with Section
3.2) (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 applicable class of Common
Stock is traded or quoted on a national securities exchange or in the
over-the-counter market, each day on which a sale or sales of such
Common Stock is reported or a quotation for such 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 shall determine whether, and under what conditions, Stock Units are to
relate to either or both of Class A Common Stock or Class B Common Stock. 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.
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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.
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 (distinguished by whether the Stock
Unit relates to Class A Common Stock or Class B Common Stock) 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) relating to either Class A Common Stock
or Class B Common Stock, as elected by the Participant with the consent
of the Committee, 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
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Director shall be credited with certain Stock Units on the later to
occur of the IPO Pricing 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
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 a class of Common Stock, a Participant who has any outstanding Stock
Units relating to that class of Common Stock credited to his Stock Account shall
have a number of Stock Units relating to that class of Common Stock 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 relating to that class of
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Common Stock 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 existing 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) Recapitalizations, Reorganizations and Other Activities.
In the event of any subdivision or consolidation of outstanding shares
of either class of Common Stock, declaration of a dividend payable in
shares of either class of Common Stock or other stock split, then (i)
the number of Stock Units relating to such class of Common Stock 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
any class of Common Stock or any distribution to holders of any class
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 relating to
such class of Common Stock 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.
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<PAGE> 8
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 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 60 days
after termination of the Participant's status as a Director of the Company.
Notwithstanding the foregoing, except in the case of death or disability of a
Director, 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 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 that class of Common Stock to which the unit relates; 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
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<PAGE> 9
been held for three years, except in the case of death or disability of a
Director. 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 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 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 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.
4.7 Change in Control. Participants may elect that upon a
Change in Control, the entire amounts payable under Sections 4.2 and 4.3 be made
in a lump sum payment within 60 days of the Change in Control.
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 such deferral is elected, the account to which such deferral shall be
credited, the class of Common Stock to which any Stock Unit is to relate, 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
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<PAGE> 10
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 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
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<PAGE> 11
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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<PAGE> 1
EXHIBIT 10.2
27 October, 1998
1998 STOCK AND PERFORMANCE INCENTIVE PLAN
OF
CONOCO INC.
(AS AMENDED EFFECTIVE AS OF MAY 12, 1999)
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., and the Plan has been amended effective May 12, 1999.
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.
<PAGE> 2
"Award Agreement" means any Employee Award Agreement, Director
Award Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Chairman" means the Chairman of the Board as of the IPO
Pricing Date.
"Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of the Company.
"Class B Common Stock" means the Class B Common Stock, par
value $.01 per share, 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, except for
purposes of any action to be taken by the Committee under the Option Program,
"Committee" shall mean the Compensation Committee of the Board of Directors of
DuPont. For any action to be taken under the Option Program prior to the IPO
Closing Date, the Compensation Committee of the Board of Directors of DuPont
shall function as the "Committee" solely with respect to Participants residing
in the United States.
"Common Stock" means the Class A Common Stock or Class B
Common Stock, except where the context requires that the reference is to one of
such classes.
"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.
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<PAGE> 3
"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, the DuPont Variable Compensation Plan, the DuPont Corporate
Sharing Plan or the Conoco Unit Option 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.
"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 Class A Common Stock or
Class B Common Stock means, as of a particular date, (i) if shares of that class
of Common Stock are listed on a national securities exchange, the mean between
the highest and lowest sales price per share of such Common Stock on the
consolidated transaction reporting system for the principal national securities
exchange on which shares of such 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 that class 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 such class 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 that class of 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
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<PAGE> 4
Incorporated or (iv) if shares of that class 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.
"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 over-allotment
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.
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<PAGE> 5
"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 Class A Common Stock, in which certain
employees will be given 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.
"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 Class A Common
Stock or Class B Common Stock (as determined by the Committee) (as adjusted
pursuant to Section 3.6 of the Directors Deferred Compensation Plan) granted to
a Nonemployee Director.
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<PAGE> 6
"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.
(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 Common
Stock issued under the Plan plus the number of shares of 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) 20,000,000 shares or (b) 3.3% of
the number of shares of Common Stock (including both Class A and Class B)
outstanding at the time of granting such Award. No more than 7,000,000 shares of
Class A Common Stock and Class B Common Stock (in the aggregate) shall be
available for Incentive Stock Options. 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
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<PAGE> 7
as the Committee may establish in accordance with Section 8(d), but shall in all
events comply with the applicable provisions of that certain Restructuring,
Transfer, and Separation Agreement to which the Company and DuPont are parties
and shall in all respects comply with the provisions of Exhibit 10.3 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, 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 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 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
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<PAGE> 8
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. 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 subject to such Option 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.
(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 2,500,000 shares of Common Stock (whether Class A Common
Stock, Class B Common Stock, or a combination of such classes);
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<PAGE> 10
(ii) no Participant may be granted, during any calendar year,
Stock Awards covering or relating to more than 150,000 shares of Common
Stock (whether Class A Common Stock, Class B Common Stock, or a
combination of such classes) (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 $7,500,000.
(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 may 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 Pricing Date, each
Nonemployee Director, other than the Chairman, and each person who has agreed to
become a Nonemployee Director in connection with the IPO shall be automatically
granted a Director Option on that number of shares of Class A 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 Class A
Common Stock such that the aggregate Option Value is $1,300,000, but in the case
of a person who is not a Nonemployee Director on such date, subject to that
person becoming a Nonemployee Director no later than the next regularly
scheduled meeting of the Board.
(b) Annual Director Options. On each Annual Director Award
Date, each Nonemployee Director other than the Chairman shall automatically be
granted a Director Option (on either of Class A Common Stock or Class B Common
Stock, as determined by the Committee) such that the aggregate Option Value is
$30,000.
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<PAGE> 11
(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 subject to such Option on the Grant Date. All Director
Options shall be fully vested after 6 months of service as a Nonemployee
Director. 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 Pricing Date, each
Nonemployee Director, other than the Chairman, and each person who has agreed to
become a Nonemployee Director in connection with the IPO 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 Pricing 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 Pricing Date; provided, however, that in the case of a person who is
not a Nonemployee Director on such date, the grant under this subparagraph (e)
shall be subject to that person becoming a Nonemployee Director no later than
the next regularly scheduled meeting of the Board. Initial Stock Units shall
relate to Class A Common Stock.
(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
(relating to Class A Common Stock or Class B Common Stock as determined by the
Committee) determined by dividing $95,000 by the Fair Market Value of the
applicable 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
(relating to Class A Common Stock or Class B Common Stock as determined by the
Committee) determined by dividing $20,000 by the Fair Market Value of the
applicable class of 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
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<PAGE> 12
the 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 the appropriate class of 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 and may provide that such deferred
compensation may be payable in shares of Common Stock. 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.
(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
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<PAGE> 13
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 the applicable class 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.
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.
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<PAGE> 14
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 existing 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 either class of Common Stock, declaration of a dividend
payable in shares of either class of Common Stock or other stock split, then (i)
the number of shares of such class of Common Stock reserved under this Plan,
(ii) the number of shares of such class 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 any class of Common
Stock or any distribution to holders of any class 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 such class of Common Stock covered by Awards, (ii) the Grant Price or other
price in 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.
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<PAGE> 15
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.
19. Effectiveness. The Plan, as approved by the Board, was effective as
of October 16, 1998. This Plan was approved by the stockholder of the Company on
October 19, 1998. The amendments to the Plan to permit the grant of Awards
denominated in Class B Common Stock shall be effective on May 12, 1999 and are
conditioned upon the approval of the stockholders of the Company prior to
December 31, 1999.
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<PAGE> 1
EXHIBIT 10.3
1998 KEY EMPLOYEE STOCK PERFORMANCE PLAN
OF
CONOCO INC.
(AS AMENDED EFFECTIVE AS OF MAY 12, 1999)
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, and the Plan has been amended effective May 12, 1999.
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.
"Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of the Company.
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<PAGE> 2
"Class B Common Stock" means the Class B Common Stock, par
value $.01 per share, 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, except for
purposes of any action to be taken by the Committee under the Option Program or
with respect to Option Program Awards.
"Common Stock" means the Class A Common Stock or Class B
Common Stock, except where the context requires that the reference is to one of
such classes.
"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, the DuPont
Variable Compensation Plan, the DuPont Corporate Sharing Plan or the Conoco Unit
Option 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 Class A Common Stock or
Class B Common Stock means, as of a particular date, (i) if shares of that class
of Common Stock are listed on a national securities exchange, the mean between
the highest and lowest sales price per share of such Common Stock on the
consolidated transaction reporting system for the principal national securities
exchange on which shares of such 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 that class 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 such class 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 that class of 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 that class of Common Stock
are not publicly traded, the most recent
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<PAGE> 3
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.
"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 Class A Common Stock, in which certain
employees will be given the option to participate in connection with the IPO.
"Option Program Award" means an Option or SAR 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
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<PAGE> 4
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).
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 Common
Stock issued under the Plan plus the number of shares of 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) 18,000,000 shares or (b) 3.0% of
the number of shares of Common Stock (including both Class A and Class B)
outstanding at the time of granting such Award. No more than 6,000,000 shares of
Class A Common Stock and Class B Common Stock (in the aggregate) shall be
available for Incentive Stock Options. 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 Restructuring, Transfer,
and Separation Agreement to which the Company and DuPont are parties and shall
in all respects comply with the provisions of Exhibit 10.3 thereto (the Employee
Matters Agreement).
6. Administration.
(a) The Plan shall be administered by the Committee.
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<PAGE> 5
(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 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
-5-
<PAGE> 6
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 subject to such Option 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 200,000
shares of Common Stock (whether Class A Common Stock, Class B Common
Stock, or a combination of such classes).
(c) Holders of DuPont Awards who elect to participate in the
Option Program may 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. Payment of Awards.
(a) General. Payment made to a Participant pursuant to an
Award may be made in the form of cash or the appropriate class of
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
-6-
<PAGE> 7
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 and may provide that such deferred
compensation may be payable in shares of Common Stock. 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 the applicable class 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 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
-7-
<PAGE> 8
(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 existing 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 either class of Common Stock, declaration of a
dividend payable in shares of either class of Common Stock or other
stock split, then (i) the number of shares of such class of Common
Stock reserved under this Plan, (ii) the number of shares of such class
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
any class of Common Stock or any distribution to holders of any class
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 such class 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
-8-
<PAGE> 9
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 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, was
effective as of October 16, 1998. This Plan was approved by the stockholder of
the Company on October 19, 1998. The amendments to the Plan to permit the grant
of Awards denominated in Class B Common Stock shall be effective on May 12, 1999
and are conditioned upon the approval of the stockholders of the Company prior
to December 31, 1999.
-9-
<PAGE> 1
CONOCO
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Months
Ended March 31 Year Ended December 31
--------------- -----------------------------------------------
1999 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 83 $ 450 $ 1,097 $ 863 $ 575 $ 422
Provision for Income Taxes 51 244 1,010 1,038 774 551
Equity in Earnings of Investees 4 (22) (40) 25 (22) (25)
------- ------- ------- ------- ------- -------
Pre-tax income before Adjustment for Minority Interest
in Consolidated Subsidiaries or Income or Loss from
Equity Investees 138 672 2,067 1,926 1,327 948
Fixed Charges (see below) 86 337 174 188 210 160
Amortization of Capitalized Interest 12 40 46 53 53 49
Distributed Income in Equity Investees 7 105 58 85 42 75
Capitalized Interest (2) (72) (94) (75) (95) (59)
------- ------- ------- ------- ------- -------
Total Adjusted Earnings Available for Payment of
Fixed Charges (a)(b) $ 241 $ 1,082 $ 2,251 $ 2,177 $ 1,537 $ 1,173
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 2.8 3.2 12.9 11.6 7.3 7.3
Fixed Charges:
Interest and Debt Expense - Borrowings $ 71 $ 199 $ 36 $ 74 $ 74 $ 63
Capitalized Interest 2 72 94 75 95 59
Rental Expense Representative of Interest Factor 13 66 44 39 41 38
------- ------- ------- ------- ------- -------
Total Fixed Charges $ 86 $ 337 $ 174 $ 188 $ 210 $ 160
======= ======= ======= ======= ======= =======
Ratio of Earnings to Fixed Charges Excluding Special Items:
Earnings From Above $ 241 $ 1,082 $ 2,251 $ 2,177 $ 1,537 $ 1,173
Special Items (pre-tax)(c) 0 454 (91) (22) 71 113
------- ------- ------- ------- ------- -------
Earnings Adjusted For Special Items $ 241 $ 1,536 $ 2,160 $ 2,155 $ 1,608 $ 1,286
======= ======= ======= ======= ======= =======
Fixed Charges From Above $ 86 $ 337 $ 174 $ 188 $ 210 $ 160
======= ======= ======= ======= ======= =======
Ratio of Earnings Adjusted For Special Items to Fixed Charges 2.8 4.6 12.4 11.5 7.7 8.0
</TABLE>
- ----------
a) No pre-tax losses of equity Investees for which charges arising from
guarantees are included in fixed charges.
b) No fixed charges in subsidiaries with minority interests.
c) Special items include material non-recurring items and generally consist of
asset sales, property impairments, tax rate changes, employee separation
costs, inventory write-downs, environmental insurance litigation
recoveries, environmental litigation charges and in 1998, stock option
provision. See 1998 Form 10-K as amended for prior years.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarterly period ended March 31, 1999, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 425
<SECURITIES> 0
<RECEIVABLES> 1,228
<ALLOWANCES> 0
<INVENTORY> 899
<CURRENT-ASSETS> 2,857
<PP&E> 22,031
<DEPRECIATION> 10,801
<TOTAL-ASSETS> 16,080
<CURRENT-LIABILITIES> 3,563
<BONDS> 4,063<F1>
0
0
<COMMON> 6
<OTHER-SE> 4,342
<TOTAL-LIABILITY-AND-EQUITY> 16,080
<SALES> 5,311
<TOTAL-REVENUES> 5,335
<CGS> 3,005<F2>
<TOTAL-COSTS> 5,130<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 134
<INCOME-TAX> 51
<INCOME-CONTINUING> 83
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<FN>
<F1>Includes Long-Term Borrowings-Related Parties of $3,970.
<F2>Includes Other Expenses.
<F3>Cost of Goods Sold and Other Operating Expenses; Selling, General and
Administrative; Exploration Expense; Depreciation, Depletion and Amortization;
and Taxes other than on Income.
</FN>
</TABLE>
