<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement is not complete and may be +
+changed. This prospectus supplement is not an offer to sell these securities +
+and it is not soliciting an offer to buy these securities in any state where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-65909
Subject to Completion, Dated March 17, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated January 25, 1999)
$400,000,000
[PENNZOIL LOGO APPEARS HERE] [QUAKER STATE LOGO APPEARS HERE]
[PENNZOIL-QUAKER STATE LOGO APPEARS HERE]
$ % Notes due 2009
$ % Debentures due 2029
-----------
The notes due 2009 bear interest at a rate of % per year, and the
debentures due 2029 bear interest at a rate of % per year. Interest on the
notes and the debentures is payable on and of each year,
commencing , 1999. The notes due 2009 will mature on , 2009,
and the debentures due 2029 will mature on , 2029.
We may redeem the notes or the debentures prior to maturity, in whole or in
part, at a redemption price equal to the greater of the principal amount of the
notes or the debentures and the make-whole price described in this prospectus
supplement. We will also pay accrued interest to the date of redemption.
Neither the notes nor the debentures have the benefit of any sinking fund.
The notes and the debentures are unsecured and rank equally with all of our
other unsecured senior indebtedness. We will issue the notes and the debentures
in book entry form through the facilities of The Depository Trust Company in
minimum denominations of $1,000 and integral multiples thereof. We do not
intend to list the notes or the debentures on any securities exchange.
Consider carefully the risk factors beginning on page 2 of the accompanying
prospectus.
-----------
<TABLE>
<CAPTION>
Proceeds, before
Public Underwriting expenses, to the
Offering Price(1) Discount Company(1)
----------------- ------------ ----------------
<S> <C> <C> <C>
Per note due 2009.......... % % %
Total for notes due 2009... $ $ $
Per debenture due 2029..... % % %
Total for debentures due
2029...................... $ $ $
Total for notes and
debentures................ $ $ $
</TABLE>
(l) Plus accrued interest from , 1999, if settlement occurs after that
date
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The notes and the debentures will be ready for delivery in New York, New
York, on or about , 1999.
-----------
Joint Book-Running Managers
Chase Securities Inc. Lehman Brothers Merrill Lynch & Co.
-----------
Deutsche Bank Securities
J.P. Morgan & Co.
Morgan Stanley Dean Witter
NationsBanc Montgomery Securities LLC
PaineWebber Incorporated
Salomon Smith Barney
Warburg Dillon Read LLC
-----------
The date of this prospectus supplement is , 1999.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
Summary.................................................................. S-4
Use of Proceeds.......................................................... S-11
Capitalization........................................................... S-11
Business................................................................. S-12
Pennzoil-Quaker State Company Unaudited Pro Forma Consolidated Statement
of Operations........................................................... S-18
Notes to Pennzoil-Quaker State Company Unaudited Pro Forma Consolidated
Statement of Operations................................................. S-20
Pennzoil-Quaker State Company Supplemental Financial Data................ S-21
Description of Debt Securities........................................... S-23
Underwriting............................................................. S-30
Legal Matters............................................................ S-31
Forward-Looking Statements............................................... S-31
Prospectus
The Company.............................................................. 2
Risk Factors............................................................. 2
Use of Proceeds.......................................................... 3
Ratios of Earnings to Fixed Charges...................................... 3
Description of Debt Securities........................................... 4
Capital Stock............................................................ 14
Plan of Distribution..................................................... 22
Legal Matters............................................................ 23
Experts.................................................................. 23
Where You Can Find More Information...................................... 23
Incorporation of Certain Documents by Reference.......................... 24
</TABLE>
----------------
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus.
Neither we nor the underwriters have authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Neither we nor the
underwriters are making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the
information appearing in this Prospectus Supplement and the accompanying
Prospectus is accurate only as of the date on the front cover of this
Prospectus Supplement and that the information we previously filed with the SEC
and incorporated by reference is accurate only as of the date of the document
incorporated by reference. Our business, financial condition, results of
operations and prospects may have changed since those dates.
S-3
<PAGE>
SUMMARY
This summary highlights information from this Prospectus Supplement and the
accompanying Prospectus, but does not contain all information that is important
to you. This Prospectus Supplement and the accompanying Prospectus include
specific terms of the offering of the Notes and the Debentures, information
about our business and our financial data. We encourage you to read this
Prospectus Supplement and the accompanying Prospectus in their entirety before
making an investment decision.
In this Prospectus Supplement and the accompanying Prospectus, we refer to
Pennzoil-Quaker State Company as "we" or the "Company," and references to the
Company include its subsidiaries, in each case unless the context clearly
indicates otherwise.
The term "Notes" refers to the % Notes due 2009. The term "Debentures"
refers to the % Debentures due 2029. The term "Debt Securities" refers to the
Notes and the Debentures collectively.
The Company
Pennzoil-Quaker State Company is a premier worldwide automotive aftermarket
products and consumer car care company. Pennzoil-Quaker State Company has
strong brand name recognition in key product categories such as motor oil with
Pennzoil(R), Quaker State(R) and Wolf's Head(R), fast oil change centers with
Jiffy Lube(R) and car care products with Slick 50(R), Rain-X(R), Blue Coral(R),
Black Magic(R), Westley's(R), Medo(R), Axius(R), Gumout(R), Fix-A-Flat(R), The
Outlaw(R), Snap(R), Classic(R) car wax and others. Please read "Business"
beginning on page S-12 of this Prospectus Supplement, for a more detailed
discussion of our business.
Pennzoil-Quaker State Company is the result of the consolidation and
separation on December 30, 1998 (the "Spin-off") of the lubricants and consumer
products, base oil and specialty products and Jiffy Lube(R) fast lube
operations of Pennzoil Company, now renamed PennzEnergy Company, and the
acquisition by the Company of Quaker State Corporation ("Quaker State") in a
merger transaction immediately following the separation. Pennzoil-Quaker State
Company had total assets of approximately $3.1 billion and total long-term debt
and capital lease obligations of approximately $1.1 billion as of December 31,
1998.
Pennzoil-Quaker State Company's principal executive offices are located at
Pennzoil Place, P.O. Box 2967, Houston, Texas 77252-2967, and its telephone
number is (713) 546-4000.
The Offering
Securities Offered.................. $ million principal amount of %
Notes due 2009, and
$ million principal amount of %
Debentures due 2029.
Maturity Dates...................... , 2009 for the Notes.
, 2029 for the Debentures.
Interest Payment Dates.............. and of each year,
commencing , 1999.
Optional Redemption................. We may redeem the Debt Securities prior
to maturity, in whole or in part, at a
redemption price equal to the greater of
the principal amount of the Debt
Securities and the make-whole price
described in this Prospectus
S-4
<PAGE>
Supplement. We will also pay accrued
interest to the date of redemption. See
"Description of Debt Securities--
Redemption" beginning on page S-23.
Sinking Fund........................ The Debt Securities do not have the
benefit of any sinking fund.
Ranking............................. The Debt Securities:
. are unsecured;
. rank equally with all of our existing
and future unsecured senior
indebtedness;
. are senior to any future subordinated
indebtedness; and
. are effectively junior to future
secured indebtedness, if any, and to
all existing and future indebtedness
and other liabilities of the Company's
subsidiaries, which as of December 31,
1998 totaled approximately $120
million.
Covenants........................... We will issue the Debt Securities under
an indenture containing covenants for
your benefit. These covenants restrict
our ability to take certain actions. See
"Description of Debt Securities--Certain
Covenants--Limitation on Liens" beginning
on page S-24 and "Description of Debt
Securities--Provisions Applicable to Both
Senior and Subordinated Debt Securities--
Consolidation, Merger and Sale of Assets"
beginning on page 8 of the accompanying
Prospectus.
Use of Proceeds..................... We intend to use the net proceeds of
approximately $396.9 million to reduce
commercial paper borrowings. See "Use of
Proceeds" on page S-11.
Absence of Public Markets for the There is no existing market for the Debt
Debentures.......................... Securities. We cannot provide any
assurance about:
. the liquidity of any markets that may
develop for the Debt Securities;
. your ability to sell your Debt
Securities; or
. the prices at which you will be able to
sell your Debt Securities.
Future trading prices of the Debt
Securities will depend on many factors,
including:
. prevailing interest rates;
. our operating results;
. ratings of the Debt Securities; and
. the market for similar securities.
S-5
<PAGE>
The underwriters have advised us that
they currently intend to make a market in
the Debt Securities after completion of
the offering. They do not, however, have
any obligation to do so, and they may
discontinue any market-making activities
at any time without any notice. We do not
intend to apply for listing of the Debt
Securities on any securities exchange or
for quotation of the Debt Securities in
any automated dealer quotation system.
Risk Factors........................ We urge you to carefully read the "Risk
Factors" section beginning on page 2 of
the accompanying Prospectus before you
make any investment decision.
S-6
<PAGE>
SUMMARY SELECTED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION
Sources of Information
We are providing the following selected financial information about Pennzoil-
Quaker State Company and Quaker State. We derived this information from the
financial statements for Pennzoil-Quaker State Company and Quaker State for the
periods presented. The information is only a summary and you should read it in
conjunction with the financial information included in filings made by the
Company and by Quaker State with the SEC. See "Where You Can Find More
Information" on page 23 of the accompanying Prospectus.
How We Prepared the Unaudited Pro Forma Consolidated Financial Information
We have presented the unaudited pro forma consolidated financial information
to show you how the Company might have looked if it had been an independent
company and had been combined with Quaker State for the periods and on the date
presented. We did not adjust the pro forma financial information for estimated
general and administrative expense savings and operational efficiencies that
may be realized as a result of the acquisition of Quaker State or one-time
costs and expenses necessary to achieve those savings and efficiencies.
Management of the Company expects to realize from $90 million to $125 million
in operating income improvement as a result of elimination of general and
administrative expenses and realization of operational efficiencies. See
"Pennzoil-Quaker State Company Supplemental Financial Data" beginning on page
S-21 and "Forward-Looking Statements" on page S-31. We prepared the pro forma
financial information using the purchase method of accounting for the
acquisition of Quaker State, with the Company treated as the acquiror.
If the Company and Quaker State had been combined in the past, they might
have performed differently. You should not rely on the pro forma financial
information as an indication of the financial position or results of operations
that the Company would have achieved if the Spin-off and the acquisition of
Quaker State had taken place earlier or of the results that the Company will
achieve after the acquisition of Quaker State. See "Pennzoil-Quaker State
Company Unaudited Pro Forma Consolidated Statement of Operations" beginning on
page S-18.
Acquisition-Related Expenses
The calculated purchase price for Quaker State used in the pro forma
financial information includes a total of approximately $100 million in actual
fees and expenses attributed to the Spin-off, the acquisition of Quaker State
and related transactions. The Company will incur certain additional cash and
noncash charges and expenses relating to restructuring and integrating the
operations of the Company and Quaker State. Some of these additional charges
and expenses may result in adjustments to the purchase price for Quaker State
and others may be expensed as incurred. We did not adjust the pro forma
information for these additional charges and expenses or for estimated general
and administrative expense savings and operational efficiencies that may be
realized as a result of the acquisition of Quaker State. See "Pennzoil-Quaker
State Company Supplemental Financial Data" beginning on page S-21.
S-7
<PAGE>
PENNZOIL-QUAKER STATE COMPANY
SELECTED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
Because the acquisition of Quaker State occurred at year-end 1998, statement
of operations data of Pennzoil-Quaker State Company for 1998 do not include
Quaker State's results of operations prior to the acquisition. We have prepared
the following selected unaudited pro forma consolidated statement of operations
data to reflect the Spin-off and the acquisition of Quaker State as if the
Spin-off and the acquisition occurred as of January 1, 1998. We have based this
pro forma statement of operations data on the historical financial statements
of the Company, the historical financial statements of Quaker State and the
estimates and assumptions set forth in the "Notes to Pennzoil-Quaker State
Company Unaudited Pro Forma Consolidated Statement of Operations," which we
have presented in this Prospectus Supplement beginning on page S-20.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
----------------------------------------------------
Pennzoil-
Pennzoil- Quaker State
Quaker State Quaker Pro Forma Company As
Company(1) State Adjustments(2) Adjusted
------------ ---------- -------------- ------------
(Expressed in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Statement of Operations
Data
Revenues................ $1,850,138 $1,171,427 $ -- $3,021,565
Loss before income tax.. (84,205) (86,648) 115,157 (55,696)
Net loss................ (45,867) (74,848) 87,524 (33,191)(3)
Basic and diluted loss
per share.............. (0.43)
Basic and diluted
average shares
outstanding............ 77,620
</TABLE>
- --------
(1) Because the acquisition of Quaker State occurred at year-end 1998,
statement of operations data of Pennzoil-Quaker State Company for 1998 do
not include Quaker State's results of operations prior to the acquisition.
(2) For an explanation of the assumptions used to prepare the pro forma
adjustments, see the "Notes to Pennzoil-Quaker State Company Unaudited Pro
Forma Consolidated Statement of Operations" beginning on page S-20.
(3) The 1998 net loss includes certain nonrecurring after-tax charges of $82.5
million ($124.5 million pretax) related to the acquisition of Quaker State,
impairment of long-lived assets, restructuring and other matters.
S-8
<PAGE>
PENNZOIL-QUAKER STATE COMPANY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information below as of and for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 for Pennzoil-Quaker State
Company reflects the consolidated operations of Pennzoil-Quaker State Company.
Because the acquisition of Quaker State occurred at year-end 1998, statement of
operations data of Pennzoil-Quaker State Company do not include Quaker State's
results of operations prior to the acquisition. Balance sheet data of Pennzoil-
Quaker State Company include the fair value of assets and liabilities of Quaker
State as of December 31, 1998. We have derived this information from the
audited consolidated financial statements and the unaudited consolidated
financial statements of Pennzoil-Quaker State Company.
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ---------- ---------- ----------
(unaudited)
(Expressed in Thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data(1)(2)
Revenues(3)............. $1,748,330 $1,807,702 $1,968,013 $2,013,160 $1,850,138
Net loss(4)............. (16,048) (53,242) (9,189) (589) (45,867)
Basic and diluted net
loss per share......... $ (0.34) $ (1.11) $ (0.19) $ (0.01) $ (0.96)
Balance Sheet Data(5)
Cash and cash
equivalents............ $ 12,514 $ 10,468 $ 15,797 $ 9,132 $ 14,899
Total assets............ 1,056,102 1,278,667 1,370,499 1,559,623 3,144,994
Total debt and capital
lease obligations(6)... 140,031 435,213 458,452 458,620 1,105,617
Shareholders' equity.... 211,741 224,795 235,741 256,380 1,350,207
</TABLE>
- --------
(1) Because the acquisition of Quaker State occurred at year-end 1998,
statement of operations data of Pennzoil-Quaker State Company do not
include Quaker State's results of operations prior to the acquisition.
(2) We have omitted historical dividends per share disclosures because they are
not meaningful, since Pennzoil-Quaker State Company consisted of direct and
indirect wholly owned subsidiaries of Pennzoil Company prior to December
30, 1998.
(3) The decrease in revenues for the year ended December 31, 1998 compared to
the year ended December 31, 1997 was primarily the result of Pennzoil-
Quaker State Company's contribution in October 1997 of most of its
specialty industrial products business to a partnership with Conoco Inc.
called Penreco. Beginning with the fourth quarter of 1997, Pennzoil-Quaker
State Company's share of Penreco's earnings, net of expenses, are reflected
in revenues.
(4) The 1998 net loss includes pretax charges of $10.6 million related to the
December 30, 1998 acquisition of Quaker State, $29.6 million for the
impairment of long-lived assets required under Statement of Financial
Accounting Standards No. 121, $25.0 million for the voluntary withdrawal
and reformulation of Fix-A-Flat(R) tire inflator products and $26.7 million
for litigation settlement expenses, net loss on sales of assets and other
charges. The 1997 net loss includes pretax charges of $22.0 million related
to the unsolicited offer by Union Pacific Resources Group Inc. to acquire
all outstanding shares of common stock of Pennzoil Company. The 1996 net
loss includes a pretax charge of $24.4 million for pre-operating expenses
of Excel Paralubes, a partnership with Conoco Inc. The 1995 net loss
includes pretax charges of $20.0 million relating to a fire at Pennzoil-
Quaker State Company's Rouseville manufacturing facility, $10.0 million for
a settlement of certain franchisee litigation, $9.0 million for pre-
operating expenses of Excel Paralubes, $5.7 million associated with the
shutdown of a crude oil gathering system in West Virginia, $5.7 million
associated with international marketing restructuring charges and $8.2
million associated with a general and administrative cost reduction
program. Results for 1994 include a pretax charge of $32.5 million for the
cessation of crude oil processing at Pennzoil-Quaker State Company's
Roosevelt manufacturing facility.
(5) Balance sheet data of Pennzoil-Quaker State Company include the fair value
of assets and liabilities of Quaker State as of December 31, 1998.
(6) Includes current maturities of long-term debt and current portion of
capital lease obligations.
S-9
<PAGE>
QUAKER STATE CORPORATION
SELECTED FINANCIAL INFORMATION
We have derived the selected financial information below as of and for the
years ended December 31, 1998, 1997, 1996, 1995 and 1994 from Quaker State's
consolidated financial statements.
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
(Expressed in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues............... $641,316 $955,040 $1,121,178 $1,203,860 $1,171,427
Income (loss) from
continuing operations
before extraordinary
item(1)............... 2,345 (4,223) 9,651 (7,389) (74,848)
Income from
discontinued
operations(2)......... 16,421 20,462 4,072 30,477 --
Income before
extraordinary item.... 18,766 16,239 13,723 23,088 (74,848)
Extraordinary item, net
of taxes(3)........... -- (4,139) -- -- --
Net income............. $ 18,766 $ 12,100 $ 13,723 $ 23,088 (74,848)
Per share (basic and
diluted) income (loss)
from continuing
operations before
extraordinary
item(4)............... $ .08 $ (.13) $ .28 $ (.21)
Income from
discontinued
operations per
share(4).............. .58 .64 .12 .87
Extraordinary item, net
of taxes per
share(4).............. -- (.13) -- --
Net income per
share(4).............. $ .66 $ .38 $ .40 $ .66
Balance Sheet Data(5)
Cash and cash
equivalents........... $ 29,805 $ 30,659 $ 29,397 $ 20,205
Total assets........... 614,991 707,651 1,029,009 1,169,715
Total debt and capital
lease obligations(6).. 72,667 125,758 407,408 455,695
Shareholders' equity... 251,850 272,155 298,669 331,901
</TABLE>
- --------
(1) In 1998, Quaker State recorded pretax charges of $125.9 million related to
system integration, merger, restructuring and other special charges. In
1997, Quaker State recorded pretax charges of $48.4 million related to
system integration, restructuring and other special charges. In 1996,
Quaker State recorded pretax charges of $19.5 million related primarily to
asset write-downs and restructuring charges and a $5.0 million pretax gain
upon the settlement of a long-term receivable. In 1995, Quaker State
recorded $22.6 million of pretax restructuring charges and a pretax
settlement of $4.4 million for a class action lawsuit.
(2) Quaker State sold its vehicle safety lighting business in 1997, its
exploration and production business in 1995, and its insurance business in
1994. These businesses are reported as discontinued operations.
(3) Premium on early extinguishment of $50 million principal amount of Quaker
State's 8.73% Senior Notes.
(4) We have omitted per share disclosures for the year ended December 31, 1998
because they are not meaningful, since Quaker State was a wholly owned
subsidiary of Pennzoil-Quaker State Company as of December 31, 1998.
(5) The fair value of assets and liabilities of Quaker State as of December 31,
1998 are included in the December 31, 1998 balance sheet data of Pennzoil-
Quaker State Company on page S-9.
(6) Includes current maturities of long-term debt and current portion of
capital lease obligations.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Debt
Securities are estimated at $396.9 million after the deduction of the
underwriting discount and the estimated expenses payable by the Company. The
Company intends to use the net proceeds to reduce the Company's outstanding
commercial paper borrowings, which have maturities of up to 90 days. At
December 31, 1998, the Company's commercial paper borrowings totaled $488.4
million with a weighted average interest rate of 6.0%.
CAPITALIZATION
The following table sets forth information as of December 31, 1998 with
respect to the capitalization of Pennzoil-Quaker State Company and the adjusted
capitalization of Pennzoil-Quaker State Company after giving effect to the
proposed issuance of $400 million of Debt Securities and the application of the
net proceeds therefrom to reduce the Company's outstanding commercial paper
borrowings.
<TABLE>
<CAPTION>
December 31, 1998
----------------------
As
Historical Adjusted(1)
---------- -----------
(Expressed in
thousands)
<S> <C> <C>
Short-Term Debt
Current maturities of long-term debt and current
portion of capital lease obligations................. $ 5,099 $ 5,099
Long-Term Debt, excluding Current Maturities
Notes due 2005, net of discount....................... 99,578 99,578
Notes due 2009 and debentures due 2029................ -- 400,000
Pollution control bonds, net of discount.............. 50,544 50,544
Commercial paper...................................... 488,409 91,559
Quaker State variable-rate revolving credit
agreements(2)........................................ 370,000 370,000
Capital lease obligations............................. 74,464 74,464
Other................................................. 17,523 17,523
---------- ----------
Total Long-Term Debt................................ 1,100,518 1,103,668
---------- ----------
Shareholders' Equity.................................... 1,350,207 1,350,207
---------- ----------
Total Capitalization.................................... $2,455,824 $2,458,974
========== ==========
</TABLE>
- --------
(1) As adjusted to give effect to the proposed issuance of $400 million of Debt
Securities and the application of the net proceeds therefrom. See "Use of
Proceeds."
(2) In January 1999, the Company repaid these borrowings using borrowings under
its commercial paper facility.
S-11
<PAGE>
BUSINESS
Pennzoil-Quaker State Company (the "Company" or "Pennzoil-Quaker State") is a
premier worldwide automotive aftermarket products and consumer car care
company. The Company is engaged primarily in the manufacturing and marketing of
lubricants, car care products, base oils and specialty industrial products and
in the franchising, ownership and operation of fast lube centers. Pennzoil-
Quaker State has strong brand-name recognition in key product categories such
as motor oil with Pennzoil(R), Quaker State(R) and Wolf's Head(R), fast lube
centers with Jiffy Lube(R) and car care products with Slick 50(R), Rain-X(R),
Blue Coral(R), Black Magic(R), Westley's(R), Medo(R), Axius(R), Gumout(R), Fix-
A-Flat(R), The Outlaw(R), Snap(R), Classic(R) car wax and others.
On a pro forma basis (assuming the Company and Quaker State had been combined
as of January 1, 1998), the Company would have had revenues of more than $3.0
billion in 1998, of which 47% would have been from automotive lubricants, 11%
would have been from car care products, 19% would have been from specialty
industrial products and transportation fuels, 17% would have been from
automotive services and the remaining 6% would have been from international
sales.
The Company's strategy is to be a worldwide leader in providing consumer
products for vehicle care and maintenance and to provide high-quality consumer
brands, specialty industrial products and services to customers. The Company
will pursue this strategy by focusing on:
. Meeting the needs of customers by developing and marketing the highest
quality products and services;
. Leveraging the Company's trademarks and brand name recognition into new
products and categories;
. Developing new products and extending product lines to expand the
Pennzoil(R) and Quaker State(R) brand names into high-growth, high-margin
categories through investment in research, development and marketing
activities as well as through acquisitions;
. Leveraging product technology and category leadership into selling
opportunities across brands, products and services including by
-- enhancing partnerships with key customers,
-- achieving full-line distribution of Pennzoil(R) and Quaker State(R)
products both geographically and within retail outlets,
-- identifying and capitalizing on category trends and
-- capitalizing on competitive advantages;
. Expanding its presence in selected international regions and markets in
lubricants and other automotive products and in fast oil change
operations through a combination of direct operations, licenses,
alliances and joint ventures;
. Pursuing key acquisitions to add established brand names to broaden the
Company's product slate; add high-margin products and leverage its
existing distribution network; and
. Building upon its leading position in the fast lube market by
-- converting Q Lube fast lube service centers to Jiffy Lubes to achieve
single system synergies,
-- increasing consumer product sales made in fast lube service centers
and
-- providing additional services in fast lube service centers using
Company products.
The Company currently has a substantial investment in the refining of crude
oils and in marketing commodities such as transportation fuels. In the future,
however, the Company intends to focus its capital and other resources primarily
on vehicle care products and services and other high margin automotive
aftermarket categories. Capital will be directed to enhance research,
development and marketing of new products and to potentially acquire new
brands.
S-12
<PAGE>
Lubricants and Consumer Products
The Company's lubricants and consumer products segment manufactures and
markets lubricants and other automotive aftermarket consumer products.
Lubricants. The Company manufactures and markets Pennzoil(R), Quaker State(R)
and Wolf's Head(R) motor oil. The Company also manufactures and markets
transmission fluids, gear lubricants and greases, as well as specialty
lubricants designed for sport utility vehicles, heavy duty agricultural and
construction equipment, marine craft, motorcycles and snowmobiles. These other
lubricants are sold under the Pennzoil(R) and Quaker State(R) brand names and
certain private label and proprietary brand names. The Company also markets
automobile consumer products such as oil and air filters and antifreeze
produced by third parties and provides collection, transportation and recycling
services for used oil, antifreeze and used oil filters in certain regions of
the United States.
The primary markets for the Company's lubricants are mass merchandisers, auto
parts stores, lube centers and automobile dealerships. Secondary markets
include convenience stores, drug stores, grocery stores, tire stores and
independent automotive repair facilities. The Company markets its branded motor
oils in packages ranging in size from four ounces to 55 gallons and sells a
significant amount in bulk to the installed market. Packaged motor oil is
primarily sold in one quart plastic bottles.
Consumer marketing for the Company's lubricants focuses primarily on the
driving conditions experienced by vehicle owners and the technical benefits
that lubricants can provide under those conditions. Key components of the
marketing strategy include targeted media, motorsports participation, public
relations and consumer promotions. Targeted media includes national and local
television, radio and print advertising designed to reach specific populations
of consumers based upon their usage. Motorsports participation includes team
sponsorships in NASCAR(R), Indy Racing League(R), NHRA(R) and the sponsorship
of the Pennzoil World of Outlaws(R), a grass roots sprint car racing series. In
addition, several national and local racing events are sponsored by the
Company.
In marketing its lubricants, the Company utilizes a brand management
structure. Under this approach, the Company centralizes all brand-related
activity under a single manager for each brand, allowing coordination of all
strategic and tactical decisions for advertising and promotions, product
packaging and positioning, formulation strategy and pricing. The brand manager
is responsible for developing the annual marketing plan that is designed to
enhance brand equity.
Motor oils and lubricants are produced by the Company by blending additives
and lubricant base oils in thirteen domestic blending and packaging plants.
These plants are located in Portland, Oregon; Vernon, California; Alameda,
California; Carson, California; Shreveport, Louisiana (where two are located);
Rouseville, Pennsylvania; Mundy's Corner, Pennsylvania; St. Louis, Missouri;
Marion, Illinois; Newell, West Virginia; Vicksburg, Mississippi; and San
Antonio, Texas. The Newell, West Virginia location is leased and the other
locations are owned by the Company. Base oils processed by the Company's
blending and packaging plants are purchased at prevailing market prices and
supplied by the Company's manufacturing facilities, Excel Paralubes (either
directly or through exchanges) and other outside suppliers. Substantially all
additives are purchased from outside suppliers. The Company believes that
alternative sources of supply for base oils and additives are readily
available.
Lubricants are distributed domestically through 80 owned and operated
distribution facilities in 29 states. The Company's products are also
distributed through independent distributors and directly from third-party
suppliers.
The Company markets Pennzoil(R) and Quaker State(R) lubricants and car care
products in more than 80 countries outside of the United States through
directly and indirectly wholly and partly owned subsidiary companies, joint
ventures, licensees, distributors and jobbers. During 1998, the Company's
largest national
S-13
<PAGE>
markets outside the United States (by total lubricant sales volume) were
Mexico, Canada, Thailand, India and Indonesia. The Company's motor oil and
other lubricants are blended and packaged by wholly owned subsidiaries of the
Company in Australia and Spain, by a majority owned subsidiary in India, by
joint ventures in Bolivia, Malaysia and Peru, by licensees in Indonesia, the
Philippines and Thailand, and by a third-party contract with a joint venture in
South Africa.
Consumer Products. The Company manufactures and markets automotive polishes,
car wash products and automotive air fresheners, and markets automobile engine
and fuel treatments, automotive window shades, automotive glass treatments,
tire inflators and automotive accessories. These products are marketed under
national brand names such as Slick 50(R), Rain-X(R), Blue Coral(R), Black
Magic(R), Westley's(R), Medo(R), Axius(R), Gumout(R), Snap(R), Fix-A-Flat(R),
The Outlaw(R), Classic(R) car wax and other proprietary brand names. The
divisions of the Company included in the consumer product segment are described
below.
The Blue Coral/Slick 50 division markets Slick 50(R) automotive engine
treatments and related automotive chemical products and manufactures and
markets Blue Coral(R) automobile appearance products. Slick 50(R) branded
products are produced by third party contract manufacturers and distributed
directly to customers or shipped to company locations for distribution to
customers. Blue Coral purchases chemicals, waxes and cleaners from a variety of
suppliers and blends and packages finished products at its leased facility in
Cleveland, Ohio. The Blue Coral/Slick 50 division also markets Rain-X(R), the
leading brand of rain repellant for automobile windows, Black Magic(R) non-
waterbased tire protectant and dressing products and Westley's(R) car washes
and cleaners. The majority of the Rain-X(R), Black Magic(R) and Westley's(R)
brand products are manufactured and distributed by third party contract
manufacturers.
The Medo division designs, manufactures and markets air fresheners primarily
for use in automobiles. Medo purchases paperboard, containers and fragrance
from a variety of suppliers, and manufactures and distributes finished air
fresheners from a leased Baltimore, Maryland facility.
The Axius division designs and markets automotive window sun protection
products and automotive accessories. Axius purchases its automotive window sun
protection and other accessory products from a variety of suppliers and
distributes sunshades and other automotive accessories from a leased Moorepark,
California facility.
The Company's automotive chemicals division manufactures and markets Fix-A-
Flat(R) tire inflators, Gumout(R) fuel additives and cleaners, The Outlaw(R)
fuel additives, Snap(R) fuel additives, cleaners and performance fluids,
Classic(R) car waxes and washes and other private and house brand automotive
chemicals. Fix-A-Flat(R) is the number one seller of tire inflators in the
United States, and Gumout(R) is the number one seller of carburetor spray
cleaners in the United States. Fix-A-Flat(R), Gumout(R), The Outlaw(R), and
Snap(R) products are manufactured through arrangements with third party
contract manufacturers. Classic(R) products are manufactured at a leased
facility in Winter Haven, Florida and by third party contract manufacturers.
The Company's consumer products are marketed primarily to the consumer
through mass merchandisers and auto parts stores, and secondarily through the
installed market (lube centers, service stations, automobile dealerships,
etc.).
Outside the United States, the Company's consumer products are manufactured
by third parties in the United Kingdom. Products are sold in 48 countries
through wholly and partly owned subsidiaries, licensees, sales agents and
distributors.
Base Oil and Specialty Products
Base Oil. The Company owns and operates two base oil and specialty product
manufacturing facilities, one located in Rouseville, Pennsylvania and the other
located in Shreveport, Louisiana. The paraffinic base oil produced by these
manufacturing facilities is used in the blending of motor oil and other
lubricants and for
S-14
<PAGE>
sale to industrial customers. The manufacturing facilities also produce waxes,
petrolatums, special cut kerosenes, transformer oils, process oils and other
naphthenic base oils for use in producing specialty industrial products or for
sale to industrial customers. In addition, the Company markets gasoline and
distillate products in eight states through wholesale distributors to retail
outlets under the Pennzoil(R) brand name or as an unbranded product.
The Company and Conoco are equal partners in Excel Paralubes, which operates
a state-of-the-art base oil hydrocracker facility located at Conoco's refinery
near Lake Charles, Louisiana. The facility is capable of producing
approximately 18,000 barrels per day of high-quality base oils, the base
ingredient in finished lubricants. Conoco operates the plant with support
positions staffed by both Conoco and the Company. The Company purchases 50% of
base oil production volume of Excel Paralubes at contract rates based on
prevailing market prices.
Specialty Products. The Company and Conoco are partners in Penreco. The
Company contributed to Penreco its operations related to petrolatums, white
oils, ink solvents, sulfonates and other specialty petroleum products,
including its manufacturing facilities in Karns City, Pennsylvania and
Dickinson, Texas. Conoco contributed to Penreco its solvents business, which
sells products primarily into the drilling fluids, mining and cleaning products
markets and as carrier oils for many consumer products. Products from Penreco
are marketed under the Penreco(R), Magie Bros(R), Conosol(R) and LVT(R) brand
names. Penreco markets to manufacturers and end-users directly and through
licensed distributors.
The Company and Baker Petrolite Corporation, the specialty chemicals division
of Baker Hughes Incorporated, are equal partners in Bareco(R) Products, which
markets a broad line of wax products to domestic and international purchasers
of paraffin, microcrystalline and related synthetic waxes. The Company
transports partially refined feedstock from Utah to its Rouseville
manufacturing facility, which produces paraffinic and microcrystalline waxes
and related products. These wax products, along with certain waxes from Baker
Petrolite, waxes from the Company's Shreveport manufacturing facility and waxes
purchased from other suppliers, are marketed through the partnership under the
Be Square(R) and other brand names.
The Company is currently evaluating its manufacturing assets and investments
and their importance to the Company's strategic plan and future direction. As a
result of this evaluation, the Company may determine to dispose of or
discontinue the operations of some or all of its manufacturing assets and
investments. The Company cannot currently predict the timing or the financial
impact of any such dispositions or discontinuances, which could result in cash
or non-cash charges, depending on the manner and timing of any such
dispositions or discontinuances.
Fast Lube Operations
The Company provides fast automotive preventive maintenance services in the
United States through Jiffy Lube(R) and Q Lube(R) service centers.
As of December 31, 1998, 1,588 Jiffy Lube(R) service centers were open in
metropolitan areas throughout the United States with a heavy concentration of
centers in the northeastern and eastern part of the United States. Franchisees
operated 1,009 of these service centers and the other 579 service centers were
owned and operated by Jiffy Lube, including 31 franchised service centers and
134 company-operated service centers at Sears Auto Centers across the country.
As of December 31, 1998, 619 Q Lube(R) service centers were open in 28
states, primarily in the western, midwestern and southern United States and in
Canada. Franchisees operated 123 of these service centers, 438 of these service
centers were owned and operated by Q Lube and the other 58 service centers were
operated by joint ventures between Q Lube and franchisees. Fast lube centers
owned by Q Lube and its franchisees are operated under the names Q Lube(R),
McQuik's Oilube(R) or Quaker State Minit-Lube(R). During the next two years,
the Company intends to rebrand all existing Q Lube(R) centers to Jiffy Lube(R)
service centers to achieve single system synergies.
S-15
<PAGE>
Jiffy Lube's standard full service includes an oil change and filter
replacement; chassis lubrication; checking for proper tire inflation; window
washing; interior vacuuming; checking and topping off transmission,
differential, windshield washer, battery and power steering fluid levels; and
air filter and windshield wiper examination. The standard full service can
generally be performed in ten minutes or less. Jiffy Lube service centers also
provide other authorized services and products at an additional cost. Pennzoil
motor oil is the featured motor oil in Company-operated service centers and
most franchise-operated centers. Pennzoil supplied approximately 87% of the
lubricants to Jiffy Lube centers in 1998.
Jiffy Lube has been recognized as a "super brand" in BrandWeek's annual
rating of the top 2000 brands in America. Jiffy Lube has been named first in
growth in the automotive aftercare market (Entrepreneur Magazine, February,
1998), the number one franchise in the automotive oil change category
(Entrepreneur Magazine, January, 1998) and in the fast oil change industry
(Franchise Times, December, 1997).
Competition
The lubricants business is highly competitive. The major competitors of the
Company and their principal brands of motor oil in the United States are
Ashland Inc. (Valvoline(R)), Texaco, Inc. (Havoline(R)), Burmah Castrol PLC
(Castrol(R)), and Mobil Oil Corporation (Mobil(R)). The Company also competes
with a number of independent blending and packaging companies. Outside of the
United States, the Company also competes with major fuels marketers and state-
owned petroleum companies. The principal methods of competition in the motor
oil business are breadth of product portfolio, product quality, price,
distribution capability, advertising and sales promotion. Some of the
competitors, particularly the major integrated oil companies, have greater
financial resources than the Company.
The car care consumer products business is highly competitive and very
fragmented. The car care industry is composed of several categories, such as
maintenance chemicals, appearance chemicals, tire cleaners and air fresheners.
Major branded competitors in these categories are STP(R), primarily a
maintenance chemical, and appearance products Armor All(R) and Turtle Wax(R).
Many other national brands exist in each of the various categories, although,
in general, they have small market shares. Private label brands also compete
with the national brands with respect to certain car care products. The
principal methods of competition in car care products are specific product
benefits, distribution capability and advertising and sales promotion.
The base oil and specialty products business is highly competitive. The major
competitors are Witco Corporation, Petro-Canada and Lyondell Chemical Company
in the white oils business and several major integrated oil companies in the
base oil (primarily Exxon and Equilon) and the solvents business. Wax products
major competitors are Moore and Munger, Allied Signal Inc., International Group
Inc. and National Wax, a division of Burmah Castrol. Specialty industrial
products compete on the basis of product quality, customer service and price.
The fast lube business is highly competitive. Major competitors include
Ashland Inc. through its Valvoline Instant Oil Change(R) centers. A large
number of independent fast lube chains also compete with Jiffy Lube and Q Lube
on a regional or local basis. In addition to competing with other fast lube
centers, Jiffy Lube(R) and Q Lube(R) service centers compete with automobile
dealers, service stations and garages. The principal methods of competition are
quality of service, speed, location, warranty, price, convenience, reliability
and sales promotion.
Patents and Trademarks
Most of the Company's brand name consumer products are protected by
registered trademarks. Pennzoil-Quaker State's brand names and trademarks are
extremely important to its business, and the Company pursues a course of
vigorous action against apparent infringements. The Company's numerous
trademarks have been registered in the United States and throughout the world
where the Company's products are sold. The Company's rights in these trademarks
endure for as long as they are used or registered.
The Company currently has 110 active patents related to lubricants, synthetic
lubricants, lubricant additives, hydrocarbon gel and automotive chemicals.
Although some products are covered by patents, the Company does not believe
that patents are material to its business.
S-16
<PAGE>
Research and Development
Research and development activities are directed toward continued improvement
of motor oils, other lubricants and engine additives and the development of new
products. Research and development personnel develop quality control programs
to assure the continuous production of high quality products and provide
extensive technical services to the manufacturing, packaging, sales and
marketing operations as well as to customers and consumers.
The Company spent approximately $12.1 million on research activities and
quality testing in 1998. These activities are carried out in a 65,700 square
foot facility in The Woodlands, Texas. The Company also operates a state-of-
the-art base oil refinery pilot plant at this location. A 6,200 square foot
mechanical automotive testing laboratory, including an engine dynamometer, was
added in early 1998.
Employees
As of December 31, 1998 the Company and its subsidiaries had approximately
13,200 employees, of whom approximately 9,300 were full-time employees and
approximately 3,900 were temporary and part-time employees. Approximately 4
percent of the Company's employees are represented by various labor unions.
Collective bargaining agreements are in force with most of the unions.
S-17
<PAGE>
PENNZOIL-QUAKER STATE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations has
been prepared to reflect the Spin-off and the acquisition of Quaker State. This
pro forma statement of operations is based on the historical financial
statements of Pennzoil-Quaker State Company, the historical financial
information of Quaker State and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma consolidated statement of
operations.
The unaudited pro forma consolidated statement of operations has been
prepared as if the Spin-off and the acquisition of Quaker State occurred as of
January 1, 1998.
The pro forma adjustments are based on estimates, available information and
certain assumptions. The unaudited pro forma consolidated statement of
operations presented herein is not necessarily indicative of the results that
would have actually occurred if the Spin-off and the acquisition of Quaker
State had been consummated as of January 1, 1998 or of results that the Company
may attain in the future. The unaudited pro forma consolidated statement of
operations should be read in conjunction with the Pennzoil-Quaker State Company
historical financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
The unaudited pro forma consolidated statement of operations does not reflect
adjustments for any estimated general and administrative expense savings,
operational efficiencies and one-time costs included in "Pennzoil-Quaker State
Company Supplemental Financial Data" on page S-21.
S-18
<PAGE>
PENNZOIL-QUAKER STATE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(Expressed in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Pennzoil-
Pennzoil- Quaker State
Quaker State Quaker Pro Forma Company
Company(a) State Adjustments As Adjusted
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Net sales............. $1,801,676 $1,162,111 $ -- $2,963,787
Other income, net..... 48,462 9,316 -- 57,778
---------- ---------- -------- ----------
Total............... 1,850,138 1,171,427 -- 3,021,565
COSTS AND EXPENSES
Cost of sales......... 1,279,220 713,284 -- 1,992,504
Purchases from
affiliate............ 115,703 -- -- 115,703
Selling, general and
administrative....... 339,799 341,632 -- 681,431
Depreciation and
amortization......... 77,210 48,073 11,289 (b) 136,572
Impairments of long-
lived assets......... 29,613 -- -- 29,613
Restructuring, systems
integration and other
special charges...... 10,645 125,874 (98,199)(c) 38,320
Taxes, other than
income............... 12,210 -- -- 12,210
Affiliated interest
charges.............. 56,372 -- (56,372)(d) --
Interest charges,
net.................. 13,571 29,212 28,125 (e) 70,908
---------- ---------- -------- ----------
Total............... 1,934,343 1,258,075 (115,157) 3,077,261
---------- ---------- -------- ----------
LOSS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAX............. (84,205) (86,648) 115,157 (55,696)
Income tax provision.... (38,338) (11,800) 27,633 (f) (22,505)
---------- ---------- -------- ----------
LOSS FROM CONTINUING
OPERATIONS............. $ (45,867) $ (74,848) $ 87,524 $ (33,191)(g)
========== ========== ======== ==========
Basic and Diluted Loss
Per Share.............. $ (0.43)(h)
==========
Basic and Diluted--
Average shares
outstanding............ 77,620 (h)
==========
</TABLE>
See Notes to Pennzoil-Quaker State Company Unaudited Pro Forma
Consolidated Statement of Operations.
S-19
<PAGE>
NOTES TO PENNZOIL-QUAKER STATE COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(a) Because the acquisition of Quaker State occurred at year-end 1998,
statement of operations data of Pennzoil-Quaker State Company for 1998 do not
include Quaker State's results of operations prior to the acquisition.
(b) Depreciation and amortization--Represents the amortization of goodwill
resulting from the acquisition of Quaker State over a 40-year estimated useful
life.
The acquisition of Quaker State has been accounted for under the purchase
method of accounting, with the Company treated as the acquiror. Pro forma
goodwill of $451.6 million has been allocated to reflect 100% of the excess of
the purchase price over the estimated fair value of Quaker State's assets and
liabilities. Such goodwill was determined assuming a purchase price of $812.1
million, which was based upon the market capitalization of Quaker State, using
an average trading price of Quaker State capital stock for a reasonable period
of time immediately before and after the acquisition was announced, plus
estimated transaction costs. Transaction costs include capitalized costs of
$6.0 million (pretax) for the Company and $80.6 million in after-tax expenses
($98.2 million pretax) for Quaker State.
The Company is in the process of estimating the allocation of purchase cost
to individual assets and liabilities of Quaker State; however, it does not
anticipate making significant adjustments to the book values of such assets and
liabilities. The recording of goodwill and the associated amortization period
of 40 years are supported by longstanding brand-name recognition, trademarks,
trade names and other intangible assets.
(c) Restructuring, systems integration and other special charges--Represents
expenses of $98.2 million incurred by Quaker State related to the acquisition.
The expenses include the buyout of outstanding stock options, payouts under
long-term incentive plans, payouts for change of control provisions, investment
banker fees and other acquisition-related costs. The after-tax adjustment to
goodwill related to these expenses was $80.6 million.
(d) Affiliated interest charges--Represents the elimination of interest
associated with affiliated debt that was repaid by the Company or contributed
to the capital of the Company in connection with the Spin-off.
(e) Interest charges, net--Represents interest at an assumed rate of 6.25% on
debt incurred by the Company to repay indebtedness to Pennzoil Company, $5.0
million of interest on borrowings to pay certain acquisition transaction costs
and interest of industrial revenue bonds totaling $5.7 million transferred from
Pennzoil Company to the Company immediately prior to the Spin-off.
(f) Income tax provision--Represents the incremental provision for federal
and state income taxes related to pro forma adjustments. The amortization of
goodwill related to the acquisition of Quaker State is assumed to be
nondeductible for tax purposes resulting in a total effective tax benefit rate
of 24% for the year ended December 31, 1998. The provision for net taxable
adjustments, excluding the amortization of goodwill, was computed using a 38%
tax rate.
(g) Loss from continuing operations--The 1998 loss includes certain
nonrecurring after-tax charges of $82.5 million ($124.5 million pretax) related
to the acquisition of Quaker State, impairment of long-lived assets,
restructuring and other matters.
(h) Basic and diluted loss per share--The weighted average shares of the
Company's common stock outstanding as of December 31, 1998 are used to compute
basic and diluted loss per share. At December 31, 1998, options to purchase 3.4
million shares of the Company's common stock and 137.6 thousand conditional
stock awards were outstanding, but were not included in the computation of
diluted loss per share because the impact of these options and conditional
stock awards would be antidilutive.
S-20
<PAGE>
PENNZOIL-QUAKER STATE COMPANY
SUPPLEMENTAL FINANCIAL DATA
The Pennzoil-Quaker State Company Unaudited Pro Forma Consolidated Statement
of Operations included elsewhere herein give effect to certain pro forma
adjustments to historical amounts as described in the notes thereto. In
evaluating the notes, the additional supplemental financial data summarized
below should be considered.
The supplemental financial data include the audited historical consolidated
statement of operations of Pennzoil-Quaker State Company and the historical
consolidated statement of income of Quaker State for the twelve month period
ended December 31, 1998, adjusted for general and administrative expense
savings and operational efficiencies that may be realized on an annualized
basis as a result of the acquisition of Quaker State. Although the table below
sets forth combined recent earnings for the two companies net of expected
expense savings and efficiencies, the savings and efficiencies are expected to
require at least two years to achieve. Additionally, in order to set forth the
impact of the expense savings and efficiencies alone, the table below omits
significant one-time costs and expenses that will be incurred in order to
realize these benefits. See "Risk Factors--Potential Difficulties Resulting
from the Merger" on page 2 of the accompanying Prospectus and "Forward-Looking
Statements" on page S-31 of this Prospectus Supplement.
The table below sets forth (1) a base case calculated on a pro forma basis
(using a methodology consistent with the Pennzoil-Quaker State Company
Unaudited Pro Forma Consolidated Statement of Operations that does not include
adjustments for expense savings and efficiencies), (2) a case that assumes $90
million in annual expense savings and efficiencies over the base case and (3) a
case that assumes $125 million in annual expense savings and efficiencies over
the base case.
<TABLE>
<CAPTION>
Data for the Twelve Months Ended December 31, 1998
(Expressed in Millions, Except Per Share Amounts)
(Unaudited)
--------------------------------------------------------------
Assuming No Expense Assuming $90 Million Assuming $125 Million
Savings and of Expense Savings of Expense Savings
Efficiencies and Efficiencies and Efficiencies
------------------- -------------------- ---------------------
<S> <C> <C> <C>
Statement of Operations
Data:
Revenues.............. $3,021.6 $3,021.6 $3,021.6
Operating income...... 15.2 105.2(1) 140.2(1)
Net income (loss)..... (33.2) 22.6 44.3
Basic and diluted
earnings (loss) per
share(2)............. (0.43) 0.29 0.57
Other Data:
Earnings before
interest and income
taxes................ 15.2 105.2 140.2
Depreciation and
amortization......... 136.6 136.6 136.6
-------- -------- --------
EBITDA(3)............. $151.8 $241.8 $276.8
</TABLE>
- --------
(1) Represents unaudited historical results adjusted for general and
administrative expense savings and operational efficiencies that may be
realized as a result of the acquistion of Quaker State. These savings and
efficiencies are expected to require at least two years to achieve. Full
general and administrative expense and operational efficiency savings are
assumed for the entire year. Potential one-time costs and expenses of
approximately $132 million associated with the initial implementation of
savings and efficiency initiatives have been excluded.
(2) See note (h) of "Notes to Pennzoil-Quaker State Company Unaudited Pro Forma
Consolidated Statement of Operations" on page S-20.
(3) EBITDA is defined as income before interest and taxes plus depreciation and
amortization. The computation of EBITDA as presented may not be comparable
to computations presented by other companies. This information does not
represent and should not be considered as an alternative to net income, any
other measure of performance as determined by generally accepted accounting
principles or an indicator of operating performance.
S-21
<PAGE>
The foregoing adjustments give effect to approximately $90 million to $125
million of annual expense savings and efficiencies that may be realized as a
result of combining the operations of the Company with those of Quaker State,
as follows:
General and Administrative Expense Savings. Management of the Company expects
to eliminate approximately $30 million to $39 million in general and
administrative expenses following the acquisition of Quaker State. These
savings are expected to be realized through the consolidation of various
support functions, including, but not limited to, accounting, finance/treasury,
environmental safety and health, human resources, information technology,
legal, corporate secretary, corporate communications, executive and general,
and government relations. Savings are expected to be realized through the
elimination of duplicate infrastructure in these areas and the associated
personnel. Management expects to realize 45% to 70% of these cost savings by
the end of the first 12 months after the acquisition and full savings by the
end of the second year.
Operational Efficiencies. Management of the Company expects to realize
approximately $60 million to $86 million in operational efficiencies after the
acquisition of Quaker State. These expected efficiencies include savings from
combining and optimizing marketing, manufacturing, purchasing and research and
development operations, and from consolidating sales and distribution
organizations and facilities. Specific cost savings include reducing marketing
expenses associated with auto racing; eliminating redundant overhead costs
related to marketing; closing certain blending and packaging plants; shifting
production to underutilized facilities; improving logistics and consolidating
purchasing for manufacturing; reducing direct market sales and distribution
expenses by combining sales forces and eliminating redundant sales offices and
distribution centers; and rationalizing the national distribution network for
the Company products. Management of the Company expects to realize 35% to 50%
of these cost savings by the end of the first 12 months after the acquisition
and full savings by the end of the second year.
The supplemental financial data do not purport to be indicative of the
combined financial position or combined results of operations of the Company
that might have occurred, nor are they indicative of the future financial
position or results of operations of the Company.
These savings and synergies are expected to be realized over time as the
consolidation of the businesses of Pennzoil-Quaker State Company and Quaker
State is completed. Because the markets in which Pennzoil-Quaker State Company
and Quaker State operate are highly competitive and because of the inherent
uncertainties associated with merging two large companies, there can be no
assurance that the combined entity will be able fully to realize the synergies
and cost savings currently expected as a result of the acquisition or that such
synergies and cost savings will be realized at the times currently anticipated.
Moreover, there can be no assurance that cost savings that are realized will
not be offset by losses in revenues or other charges to earnings.
S-22
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the Notes and the Debentures supplements, and to
the extent inconsistent therewith replaces, the description of the general
terms and provisions of the Senior Debt Securities set forth in the
accompanying Prospectus, to which description reference is hereby made. The
Notes and the Debentures are to be issued as separate series of Senior Debt
Securities under the Indenture dated as of February 1, 1999 (the "Indenture")
between the Company and Chase Bank of Texas, National Association, as Trustee
(the "Trustee"), which is more fully described in the accompanying Prospectus.
The Debt Securities will be issued pursuant to a resolution of the Board of
Directors of the Company (a "Board Resolution") setting forth specific terms
applicable to the Debt Securities. The statements under this caption relating
to the Debt Securities, the Indenture and the Board Resolution are brief
summaries only, are not complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture and the Debt
Securities, forms of which are available from the Company. Capitalized terms
used and not defined herein have the meaning set forth in the accompanying
Prospectus or the Indenture.
General
The Notes will be limited to $ in aggregate principal amount
and will mature on , 2009. The Debentures will be limited to
$ in aggregate principal amount and will mature on ,
2029. Each series of Debt Securities will bear interest from , 1999, at
the annual rate for such series set forth on the cover page of this Prospectus
Supplement. Interest will be payable semiannually on and
of each year, commencing , 1999, to the holders of
record of the Debt Securities at the close of business on the preceding
or , whether or not such day is a business day. All
payments of interest and principal will be payable in United States dollars.
Each series of Debt Securities will be issued only in book-entry form. See
"Description of Debt Securities--Provisions Applicable to Both Senior and
Subordinated Debt Securities--Securities in Global Form" on page 10 of the
accompanying Prospectus.
The Debt Securities will be senior unsecured obligations and will rank
equally in right of payment to all other unsecured senior indebtedness of the
Company. The Debt Securities will rank senior to any future subordinated
indebtedness of the Company and will be effectively junior to future secured
indebtedness, if any, of the Company and to all existing and future
indebtedness and other liabilities of subsidiaries of the Company. The
Company's subsidiaries currently have approximately $120 million of
indebtedness. As of December 31, 1998, as adjusted to give effect to the
issuance of the Debt Securities and the anticipated use of proceeds therefrom,
the Company would have had an aggregate of $1.1 billion of consolidated
indebtedness.
Except as provided above, the terms and provisions set forth in this
"Description of the Debt Securities" shall apply to each series of Debt
Securities independently.
Redemption
The Debt Securities will be redeemable as a whole or in part, at the option
of the Company at any time at a redemption price equal to the greater of (i)
100% of the principal amount of the Debt Securities to be redeemed and (ii) the
sum of the present values of the remaining scheduled payments of principal and
interest on the Debentures discounted to the redemption date on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate (as defined below) plus basis points for the Notes and
basis points for the Debentures, plus in each case accrued interest thereon to
the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such redemption date.
S-23
<PAGE>
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes or the Debentures that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Notes or Debentures, as applicable. "Independent
Investment Banker" means one of the Reference Treasury Dealers appointed by the
Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Company obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer" means each of Chase Securities Inc., Lehman
Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and their
respective successors and, at the option of the Company, additional Primary
Treasury Dealers; provided, however, that if any of the foregoing shall cease
to be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by such Reference Treasury Dealer at 3:30 p.m., New York
time, on the third business day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of Debt Securities to be
redeemed.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date interest will cease to accrue on the Debt Securities or
portions thereof called for redemption.
The Debt Securities are not subject to a sinking fund.
Certain Covenants
The Indenture does not limit the amount of indebtedness or other obligations
that may be incurred by the Company and its subsidiaries. The Indenture does
not contain any covenants or other provisions that are intended to afford
holders of the Debt Securities special protection in the event of a highly
leveraged transaction by the Company or a decline in the credit rating of the
Company's debt securities resulting from a takeover, recapitalization or
similar restructuring.
Limitation on Liens. The Company will covenant that, as long as any Debt
Securities are outstanding, it will not, and will not permit any of its
Material Subsidiaries to, pledge, mortgage, hypothecate or grant a security
interest in, or permit any Lien upon, any property or assets owned by the
Company or any Material Subsidiary to secure any Indebtedness, without making
effective provision whereby the Debt Securities shall (so long as such other
Indebtedness shall be so secured) be equally and ratably secured with any and
all such other Indebtedness and any other indebtedness similarly entitled to be
equally and ratably secured (including any other series of outstanding Senior
Debt Securities under the Indenture).
S-24
<PAGE>
The only current Material Subsidiaries of the Company are Quaker State and
Jiffy Lube. Therefore, the restriction on Liens only applies to the Company,
Quaker State and Jiffy Lube and does not apply to any other Subsidiaries. The
Indenture contains no restriction on the disposition by the Company of the
stock or assets of a Material Subsidiary or any other Subsidiary. Moreover, the
Indenture does not prohibit the Company or any Material Subsidiary from (a)
doing business through any existing or new Subsidiary that is not a Material
Subsidiary and therefore, not subject to the restriction on Liens in the
Indenture or (b) transferring assets or businesses to those Subsidiaries.
The restrictions on Liens will not apply to:
(a) any Lien upon any property or assets (together with receivables and
intangibles related to such property or assets and the cash proceeds thereof)
created at the time of the acquisition or construction of such property or
assets by the Company or any Material Subsidiary or within one year after such
time to secure all or a portion of the purchase price or construction costs (or
Indebtedness incurred to finance such purchase price or construction costs) for
such property or assets;
(b) any Lien upon any property or assets (together with receivables and
intangibles related to such property or assets and the cash proceeds thereof),
existing thereon at the time of the acquisition thereof by the Company or any
Material Subsidiary (whether or not the obligations secured thereby are assumed
by the Company or any Subsidiary);
(c) any Lien upon any property or assets (together with receivables and
intangibles related to such property or assets and the cash proceeds thereof),
whenever acquired, of any Person that becomes a Material Subsidiary after the
date of the first issuance of the Debt Securities, provided that (i) the
instrument creating such Lien shall be in effect prior to the time such Person
becomes a Material Subsidiary and (ii) such Lien shall only apply to properties
or assets (together with receivables and intangibles related to such property
or assets and the cash proceeds thereof) owned by such Person at the time it
becomes a Material Subsidiary or thereafter acquired by it from sources other
than the Company or another Material Subsidiary;
(d) any extension, renewal or refunding of any Lien permitted by clause (a),
(b) or (c) above on substantially the same property or assets theretofore
subject thereto;
(e) any Lien in favor of the Company and any Lien created or assumed by a
Subsidiary in favor of another Subsidiary;
(f) any Lien created or assumed by the Company or a Material Subsidiary in
connection with the issuance of debt securities, the interest on which is
excludable from gross income of the holder of such security pursuant to the
Internal Revenue Code of 1986, as amended, for the purpose of financing, in
whole or in part, the acquisition or construction of property or assets to be
used by the Company or a Subsidiary;
(g) any Lien existing in connection with any sale, securitization or
monetization of receivables or other rights to receive payment of the Company
and any of its Subsidiaries, so long as such sale, securitization or
monetization is treated as a sale pursuant to applicable financial accounting
standards; or
(h) any Lien securing any Indebtedness in an amount which, together with all
other Indebtedness secured by a Lien that is not otherwise permitted under the
terms of clause (a), (b), (c), (d), (e) or (f) above does not at the time of
the incurrence of the Indebtedness so secured exceed 5% of Consolidated Net
Tangible Assets as of the end of the most recent quarter.
Consolidation, Merger and Sale of Assets. See "Description of Debt
Securities--Provisions Applicable to Both Senior and Subordinated Debt
Securities--Consolidation, Merger and Sale of Assets" beginning on page 8 of
the accompanying Prospectus for terms of the Debentures relating to
consolidation, merger or sale of assets.
S-25
<PAGE>
Definitions
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for as
capital leases on a balance sheet of such Person under generally accepted
accounting principles, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with generally accepted
accounting principles.
"Consolidated Net Tangible Assets" means the total amount of assets,
including all cash received from asset sales during the 12 months prior to the
date of determination to the extent that such cash has not been reinvested, of
the Company and its Subsidiaries on a consolidated basis (less applicable
reserves and other properly deductible items) after deducting therefrom (a) all
current liabilities (excluding any which are, by their terms, extendable or
renewable at the option of the obligor thereon to a time more than 12 months
after the time as of which the amount thereof is being computed) and (b) all
goodwill, trade names, trademarks, patents, unamortized debt premium or
discount and expense and other like intangible assets, determined in accordance
with generally accepted accounting principles.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Indebtedness or other obligation or (d) as an account party in respect of
any letter of credit or letter of guaranty issued to support such Indebtedness
or obligation; provided, that the term Guarantee shall not include endorsements
for collection or deposit in the ordinary course of business.
"Indebtedness" of any Person means, without duplication, (a) all obligations
of such Person for borrowed money or with respect to deposits or advances of
any kind, (b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of such Person upon which
interest charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (g) all Guarantees by such Person of Indebtedness or others, (h)
all Capital Lease Obligations of such Person, (i) all obligations, contingent
or otherwise, of such Person as an account party in respect of letters of
credit and letters of guaranty and (j) all obligations, contingent or
otherwise, of such Person in respect of bankers acceptances. The Indebtedness
of any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such
Person is liable therefor as a result of such Person's ownership interest in or
other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Lien" means (x) with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset and (b) the interest of a vendor or a lessor under any
conditional sale agreement or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset, and (y) the interest of the lessor under a lease incurred after
the date of the first issuance of the debentures with a term of three years or
more that should be, in accordance with generally accepted accounting
principles, recorded as a capital lease.
S-26
<PAGE>
"Material Subsidiary" means each of (a) any Subsidiary of the Company whose
percentage of the Consolidated Net Tangible Assets represented by such
Subsidiary's portion of such Consolidated Net Tangible Assets (after
intercompany eliminations) exceeds 10% as of the end of the most recently
completed fiscal quarter, and (b) any other Subsidiary which at the time shall
have been designated by the Company as a Material Subsidiary in an officers'
certificate delivered to the Trustee for such purpose.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Subsidiary" means, with respect to the Company at any date, any corporation,
limited liability company, partnership, association or other entity, the
accounts of which would be consolidated with those of the Company in the
Company's consolidated financial statements if such financial statements were
prepared in accordance with generally accepted accounting principles as of such
date, as well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise controlled, by the Company or one or
more subsidiaries of the Company or by the Company and one or more subsidiaries
of the Company.
Discharge and Defeasance
The terms of the Debt Securities provide that the Company will be permitted
to terminate certain of its obligations under the Indenture, including the
covenants described above under "--Certain Covenants," pursuant to the
Indenture's covenant defeasance provisions only if the Company delivers to the
Trustee an opinion of counsel that covenant defeasance will not cause holders
of the Debt Securities to recognize income, gain or loss for United States
federal income tax purposes.
The terms of the Debt Securities also provide for legal defeasance. Legal
defeasance is permitted only if the Company shall have received from, or there
shall have been published by, the United States Internal Revenue Service a
ruling to the effect that legal defeasance will not cause holders of the Debt
Securities to recognize income, gain or loss for United States federal income
tax purposes.
For additional information with respect to the provisions of the Indenture
regarding covenant defeasance and legal defeasance, see "Description of Debt
Securities--Provisions Applicable to Both Senior and Subordinated Debt
Securities--Discharge and Defeasance" on page 9 of the accompanying Prospectus.
Book-Entry Systems
Each of the Notes and the Debentures will be issued in fully registered form
initially in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"). One or more fully registered certificates will be issued as Global
Notes for the Notes in the aggregate principal amount of the Notes, and one or
more fully registered certificates will be issued as Global Debentures for the
Debentures in the aggregate principal amount of the Debentures. Such Global
Debt Securities will be deposited with DTC and may not be transferred except as
a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any nominee to a successor of DTC or a nominee of
such successor.
DTC has advised the Company and the Underwriters as follows:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" under the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended.
S-27
<PAGE>
DTC holds securities that its participants ("Direct Participants") deposit
with DTC. DTC also facilitates the clearance and settlement among Direct
Participants of securities transactions, such as transfers and pledges, in
deposited securities, through electronic computerized book-entry changes in
Direct Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and
certain other organizations. DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to
DTC and its Direct Participants are on file with the Securities and
Exchange Commission.
Purchases of Debt Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Debentures
on DTC's records. The ownership interest of each actual purchaser of Debt
Securities ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected
to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct and Indirect
Participants through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Debt Securities are to
be accomplished by entries made on the books of Direct Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Debt Securities,
except in the event that use of the book-entry system for the Debt
Securities is discontinued.
To facilitate subsequent transfers, all Debt Securities deposited by
Direct Participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Debt Securities with DTC and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the Debt
Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Debt Securities are credited, which may
or may not be the Beneficial Owners. The Direct Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Notes or
the Debentures are being redeemed, DTC's practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Global Debt Securities. Under its usual procedures, DTC mails an Omnibus
Proxy to the issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Debt Securities are credited on the
record date (identified in the listing attached to the Omnibus Proxy).
Principal and interest payments on the Global Debt Securities will be
made to Cede & Co., as nominee of DTC. The Company expects that DTC, upon
receipt of any payment of principal, premium or interest in respect of a
Global Debt Security, will credit immediately Direct Participants' accounts
with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Debt Security as shown on
DTC's records. The Company also expects that payments by Direct
Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the
accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Direct Participant and not of DTC, the
Company or the Trustee, subject to any statutory or regulatory requirements
as may be in effect from time to time.
S-28
<PAGE>
DTC may discontinue providing its service as securities depositary with
respect to the Debt Securities at any time by giving reasonable notice to
the Company or the Trustee. In addition, the Company may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor securities depositary). Under such circumstances, if a successor
securities depositary is not obtained, Debt Securities certificates in
fully registered form are required to be printed and delivered to
Beneficial Owners of the Global Debt Securities representing such Debt
Securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable
(including DTC), but the Company takes no responsibility for the accuracy
thereof.
Neither the Company, the Trustee nor the Underwriters will have any
responsibility or obligation to Direct Participants, or the persons for whom
they act as nominees, with respect to the accuracy of the records of DTC, its
nominee or any Direct Participant with respect to any ownership interest in the
Debt Securities, or payments to, or the providing of notice to Direct
Participants or Beneficial Owners.
The Debt Securities will trade in DTC's Same-Day Funds Settlement System and
secondary market trading activity in the Debt Securities will, therefore,
settle in immediately available funds. All applicable payments of principal,
premium (if any) and interest on the Debt Securities issued as Global Debt
Securities will be made by the Company in immediately available funds.
For other terms of the Debt Securities, see "Description of Debt Securities"
beginning on page 4 of the accompanying Prospectus.
S-29
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") dated , 1999, among the Company and
the several Underwriters named below (the "Underwriters"), the Company has
agreed to sell to the Underwriters and the Underwriters have severally agreed
to purchase from the Company, the following respective principal amounts of
Debt Securities:
<TABLE>
<CAPTION>
Principal Principal Amount
Amount of the of the
Underwriter Notes Debentures
----------- --------------- ----------------
<S> <C> <C>
Chase Securities Inc. ................... $ $
Lehman Brothers Inc. ...................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ...................
Deutsche Bank Securities, Inc. ..........
J.P. Morgan Securities Inc. .............
Morgan Stanley & Co. Incorporated .......
NationsBanc Montgomery Securities LLC ...
PaineWebber Incorporated ................
Salomon Smith Barney Inc. ...............
Warburg Dillon Read LLC .................
--------------- ----------------
Total .............................. $ $
=============== ================
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Debt Securities
offered hereby if any of the Debt Securities are purchased.
The Underwriters have advised the Company that they propose initially to
offer the Debt Securities to the public at the offering prices set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of % of the principal amount of the Notes
and % of the principal amount of the Debentures. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of % of the principal
amount of the Notes and % of the principal amount of the Debentures to
certain other dealers. After the initial public offering, the public offering
prices, concessions and discounts may be changed.
In the ordinary course of business, certain of the Underwriters and their
affiliates have in the past and may in the future provide investment banking,
general financing and banking or other services to the Company and its
affiliates. An affiliate of Chase Securities Inc. is the Trustee under the
Indenture.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments which the Underwriters might be required
to make in respect thereof.
In connection with the offering and sale of the Debt Securities, the
Underwriters may engage in overallotment, stabilizing transactions and
syndicate covering transactions in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended. Overallotment involves sales in
excess of the offering size, which creates a short position for the
Underwriters. Stabilizing transactions permit bids to purchase the Debt
Securities in the open market for the purpose of pegging, fixing or maintaining
the price of the Debt Securities. Syndicate covering transactions involve
purchases of the Debt Securities in the open market after the distribution has
been completed in order to cover short positions. Such stabilizing transactions
and syndicate covering transactions may cause the prices of the Debt Securities
to be higher than they would otherwise be in the absence of such transactions.
Such activities, if commenced, may be discontinued at any time.
S-30
<PAGE>
Each of the Notes and the Debentures is a new series of securities with no
established trading market. The Company does not intend to apply for listing of
the Debt Securities on any securities exchange or for quotation of the Debt
Securities in any automated dealer quotation system. The Underwriters have
advised the Company that they intend to make a market in each series of Debt
Securities, but the Underwriters are under no obligation to do so and such
market-making activities may be terminated at any time without notice.
Therefore, no assurance can be given as to the liquidity of, or the trading
market for, the Debt Securities.
The Company estimates that it will spend $ for fees and expenses
associated with the offering of the Debt Securities.
LEGAL MATTERS
Certain legal matters in connection with the Debt Securities offered hereby
will be passed upon for the Company by Baker & Botts, L.L.P., Houston, Texas,
and for the Underwriters by Andrews & Kurth L.L.P., Houston, Texas.
FORWARD-LOOKING STATEMENTS
This Prospectus Summary includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that reflect the
Company's current views on future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified in "Risk Factors" in the accompanying Prospectus, as
well as the following:
. general economic, financial and business conditions, which could affect
the Company's financial condition and results of operations;
. commodity pricing variations, including crude oil prices, which affect,
directly or indirectly, margins, supply and demand, and results of
operations in the Company's motor oil and refined products segment;
. vigorous competition within the Company's product market, including
pricing and promotional, advertising or other activities designed to
preserve or gain market share, the timing and intensity of which cannot
be foreseen;
. the costs, effects and liabilities associated with legal, regulatory or
administrative proceedings and any required remedial action, anticipated
or unanticipated; and
. the impact of special charges resulting from the Spin-off and the
Merger, ongoing evaluation of business strategies, asset valuations and
organizational and corporate structures, and the implementation of
restructuring plans.
These risks and uncertainties could cause actual results or events to differ
materially from historical results or those anticipated. You can identify
forward-looking statements by the use of words such as "expect," "estimate,"
"intend," "project," "budget," "forecast," "anticipate," "plan" and similar
expressions. Forward-looking statements include all statements regarding the
Company's expected financial position, results of operations, cash flows,
dividends, financing plans, business strategies, operating efficiencies or
synergies, budgets, capital and other expenditures, competitive positions,
growth opportunities for existing products, plans and objectives of management,
and markets for stock. We caution you not to place undue reliance on these
forward-looking statements, which speak only as of their dates. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
S-31
<PAGE>
PROSPECTUS
$1,000,000,000
Pennzoil-Quaker State Company
Debt Securities
Common Stock
Preferred Stock
Warrants
Pennzoil-Quaker State Company may offer from time to time its (1) unsecured
debt securities consisting of senior notes and debentures and subordinated
notes and debentures, and/or other unsecured evidences of indebtedness in one
or more series; (2) shares of common stock; (3) shares of preferred stock, in
one or more series, which may be convertible into or exchangeable for common
stock or debt securities; and (4) warrants to purchase debt securities,
preferred stock, common stock or other securities.
The aggregate initial offering price of the securities that we offer will not
exceed $1,000,000,000. We will offer the securities in amounts, at prices and
on terms to be determined by market conditions at the time of our offering.
We will provide the specific terms of the securities in supplements to this
Prospectus. You should read this Prospectus and the Prospectus Supplements
carefully before you invest in the securities. This Prospectus may not be used
to consummate sales of securities unless accompanied by a Prospectus
Supplement.
Consider carefully the risk factors beginning on page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this Prospectus is January 25, 1999
<PAGE>
THE COMPANY
Pennzoil-Quaker State Company (the "Company") is a premier worldwide
automotive aftermarket products and consumer car care company. The Company has
strong brand-name recognition in key product categories, such as motor oil with
Pennzoil(R) and Quaker State(R), fast oil changes with Jiffy Lube(R) and Q
Lube(R), and car care products with Slick 50(R), Rain-X(R), Blue Coral(R),
Black Magic(R), Westley's(R), Medo(R), Axius(R), Gumout(R), Fix-A-Flat(R),
Outlaw(R), Snap(R), Classic(R) Car Wax and others.
The Company is the result of the consolidation and separation (the "Spin-
off") of the motor oil, refined products and Jiffy Lube(R) fast lube operations
of PennzEnergy Company, formerly Pennzoil Company ("PennzEnergy"), and the
subsequent acquisition by the Company of Quaker State Corporation ("Quaker
State") through a merger (the "Merger").
The Company, incorporated in Delaware, maintains its principal executive
offices at Pennzoil Place, P.O. Box 2967, Houston, Texas 77252-2967, and its
telephone number is 713/546-4000.
RISK FACTORS
Potential Difficulties Resulting from the Merger
The Company and Quaker State have previously operated separately. The
management team of the Company has little experience with the combined
business. The Company may not be able to integrate the operations of the
Company and Quaker State without a loss of key employees, customers,
franchisees or suppliers; loss of revenues; increase in operating or other
costs; or other difficulties. In addition, the Company may not be able to
realize the operating efficiencies and other benefits sought from the Merger.
The Company will evaluate any plans to restructure its subsidiaries and
determine what aspects, if any, of those plans to undertake.
The franchise agreements used by Jiffy Lube and Q Lube, Inc. grant certain
exclusive territorial rights to the franchisees. In addition to these rights,
some franchisees of Jiffy Lube and Q Lube, Inc. have additional exclusive
territories encompassing larger geographic areas; there are 16 such additional
exclusive territories. Franchisees may claim that contractual or other rights
are impaired as a result of the Merger, even if the Company and Quaker State
franchise operations are each operated post-Merger on an independent, stand-
alone basis.
Recent Losses
The Company incurred net losses from continuing operations for each of the
years ended December 31, 1997, 1996, 1995 and 1994. Quaker State incurred net
losses from continuing operations before extraordinary items for the years
ended December 31, 1997 and 1995. There can be no assurance that the Company
will be profitable.
Different Factors Affecting the Company's Business
The combined businesses of the Company and Quaker State include a range of
products and services, scope of operations, customers, competitors and
suppliers that is more diverse than those of either the Company or Quaker State
before the Merger. Accordingly, the results of operations and prospects for the
Company following the Merger, as well as its stock price, may be affected by
factors that are different from those that have affected the Company or Quaker
State in the past.
Year 2000 Issues
Like most other companies, the Company strives to ensure that its information
systems are able to recognize and process date-sensitive information properly
as the year 2000 approaches. Systems that do not properly recognize and process
this information could generate erroneous data or even fail. The Company is
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conducting reviews of its key computer systems and has identified a number of
systems that could be affected by the year 2000 issue. The Company is
undertaking to upgrade these systems to allow them to function properly. If
these steps are not completed successfully in a timely manner, the Company's
operations and financial performance could be adversely affected through
disruptions in operations.
Tax Risks
If the Spin-off is considered part of a plan or a series of related
transactions pursuant to which one or more persons acquire, directly or
indirectly, a 50% or greater interest in the Company or PennzEnergy (an
"Ownership Change"), PennzEnergy will recognize gain under section 355(e) of
the Internal Revenue Code of 1986, as amended, as if it had sold the stock of
the Company for an amount equal to its fair market value. Under a tax
separation agreement between the Company and PennzEnergy, the Company will be
liable to PennzEnergy for any such tax arising from an Ownership Change of the
Company, unless the Ownership Change results from an act of PennzEnergy or any
of its subsidiaries or affiliates. The amount of this liability could be
substantial. The Company believes that there is no plan that would cause gain
to be recognized in this manner. Acquisitions that occur within the four-year
period beginning two years before the date of the Spin-off will be presumed to
be part of such a plan, however, and such a plan could be deemed to exist even
if the Company is not aware of it.
Certain Antitakeover Provisions
The Restated Certificate of Incorporation and Amended and Restated By-laws of
the Company, among other things, provide for a classified Board of Directors
with staggered terms, restrict the ability of stockholders to take action by
written consent and authorize the Board of Directors to set the terms of
preferred stock. In addition, the Company's Restated Certificate of
Incorporation and the Delaware General Corporation Law contain provisions that
impose restrictions on business combinations with interested parties. The
Company has also adopted a stockholders' rights plan. The stockholders' rights
plan, the provisions of the Restated Certificate of Incorporation and Amended
and Restated By-laws of the Company, and the Delaware General Corporation Law
may have the effect of delaying, deferring or preventing a change in control of
the Company.
USE OF PROCEEDS
Except as otherwise described in any Prospectus Supplement, the net proceeds
from the sale of securities offered from time to time using this Prospectus
("Securities") will be used for general corporate purposes, which may include
repayment or refinancing of indebtedness, working capital, capital
expenditures, acquisitions and repurchases and redemptions of securities.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the computation of ratio of earnings to fixed
charges for the periods shown (a) on a pro forma basis as if the merger with
Quaker State occurred as of January 1, 1997 and (b) on a historical basis for
the Company.
<TABLE>
<CAPTION>
Pennzoil-Quaker State
Company Pennzoil-Quaker State Company
Pro Forma Historical
- ---------------------------- -------------------------------------------------
Nine months Nine months
ended Year ended ended
September 30, December 31, September 30, Years ended December 31,
- ------------- ------------ ------------- ---------------------------------
1998 1997 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1.80 1.09 1.25 -- -- -- -- 1.24
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing earnings
available for fixed charges (earnings before income taxes plus fixed charges
and amortization of capitalized interest less capitalized interest and
undistributed equity earnings (losses) of joint ventures) by fixed charges
(interest expense plus capitalized
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interest and the portion of rental expense that represents the interest
factor). On a historical basis, the Company's fixed charges exceed earnings by
approximately $.5 million for the year ending December 31, 1997, $5.7 million
for the year ending December 31, 1996, $73.5 million for the year ending
December 31, 1995 and $17.1 million for the year ending December 31, 1994.
DESCRIPTION OF DEBT SECURITIES
The following description of the Company's unsecured debt securities, which
may consist of senior notes and debentures and subordinated notes and
debentures (the "Debt Securities"), sets forth certain general terms and
provisions of the Debt Securities to which any Prospectus Supplement may relate
("Offered Debt Securities"). The particular terms of the Offered Debt
Securities and the extent to which such general provisions may apply will be
described in a Prospectus Supplement relating to such Offered Debt Securities.
The Debt Securities will be general unsecured obligations of the Company and
will constitute either senior debt securities or subordinated debt securities.
In the case of Debt Securities that will be senior debt securities ("Senior
Debt Securities"), the Debt Securities will be issued under an Indenture (the
"Senior Indenture") between the Company and Chase Bank of Texas, National
Association ("Chase"), Trustee under the Senior Indenture (the "Senior
Trustee"). In the case of Debt Securities that will be subordinated debt
securities ("Subordinated Debt Securities"), the Debt Securities will be issued
under an Indenture (the "Subordinated Indenture") between the Company and
Chase, Trustee under the Subordinated Indenture (the "Subordinated Trustee").
The Senior Indenture and the Subordinated Indenture are sometimes hereinafter
referred to herein individually as an "Indenture" and collectively as the
"Indentures," and the Senior Trustee and the Subordinated Trustee are sometimes
referred to as the "Trustee." The statements under this caption relating to the
Debt Securities and the Indentures are summaries only and do not purport to be
complete. Such summaries make use of terms defined in the Indentures. Wherever
such terms are used herein or particular provisions of the Indentures are
referred to, such terms or provisions, as the case may be, are incorporated by
reference as part of the statements made herein, and such statements are
qualified in their entirety by such reference. Certain defined terms in the
Indentures are capitalized herein.
Provisions Applicable to Both Senior and Subordinated Debt Securities
General
The Indentures do not limit the aggregate principal amount of Debt Securities
which can be issued thereunder and provide that Debt Securities may be issued
from time to time thereunder in one or more series, each in an aggregate
principal amount authorized by the Company prior to issuance. The Indentures do
not limit the amount of other unsecured indebtedness or securities which may be
issued by the Company. Unless otherwise indicated in a Prospectus Supplement,
the Debt Securities will not benefit from any covenant or other provision that
would afford Holders of such Debt Securities special protection in the event of
a highly leveraged transaction involving the Company.
Reference is made to the Prospectus Supplement for the following terms of the
Offered Debt Securities, which will be issued in registered form:
(1) the title of the Offered Debt Securities, which may include medium-
term notes, and the aggregate principal amount of the Offered Debt
Securities;
(2) whether such Offered Debt Securities will be issued in the form of
one or more global securities and whether such global securities are to be
issuable in temporary global form or permanent global form;
(3) the date or dates on which the principal of and premium, if any, on
the Offered Debt Securities is payable or the method of determination
thereof;
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(4) the rate or rates, or the method of determination thereof, at which
the Offered Debt Securities will bear interest, if any;
(5) whether and under what circumstances Additional Amounts with respect
to the Offered Debt Securities will be payable;
(6) the date or dates from which such interest will accrue;
(7) the interest payment dates on which such interest will be payable and
the record date for the interest payable on any Offered Debt Securities on
any interest payment date;
(8) the place or places where the principal of, premium and interest, if
any, on and any Additional Amounts with respect to the Offered Debt
Securities will be payable;
(9) the period or periods within which, the price or prices at which and
the terms and conditions upon which Offered Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have that option;
(10) the obligation, if any, of the Company to redeem or purchase Offered
Debt Securities pursuant to any sinking fund or analogous provisions or at
the option of a holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which Offered
Debt Securities will be redeemed or purchased in whole or in part pursuant
to such obligation;
(11) the currency or currencies (including composite currencies), if
other than U.S. dollars, or the form, including equity securities, other
debt securities (including Debt Securities), warrants or any other
securities or property of the Company or any other Person, in which payment
of principal of, premium (if any) and interest on and any Additional
Amounts with respect to the Offered Debt Securities will be payable;
(12) if such payments are to be payable, at the election of the Company
or a holder thereof, in a currency or currencies other than that in which
the Offered Debt Securities are stated to be payable, the currency or
currencies in which such payments as to which such election is made will be
payable, and the periods within which and the terms and conditions upon
which such election is to be made;
(13) if the amount of such payments may be determined with reference to
any commodities, currencies or indices, values, rates or prices or any
other index or formula, the manner in which such amounts will be
determined;
(14) if other than the entire principal amount thereof, the portion of
the principal amount of Offered Debt Securities that will be payable upon
declaration of acceleration of the maturity thereof;
(15) any additional means of satisfaction and discharge of the applicable
Indenture with respect to the Offered Debt Securities and any additional
conditions to discharge;
(16) any deletions or modifications of or additions to the definitions,
Events of Default or covenants of the Company pertaining to the Offered
Debt Securities;
(17) if the Offered Debt Securities are to be convertible into or
exchangeable for equity securities, other debt securities (including Debt
Securities), warrants or any other securities or property of the Company or
any other Person, at the option of the Company or the Holder or upon the
occurrence of any condition or event, the terms and conditions for such
conversion or exchange;
(18) whether any of the Offered Debt Securities will be subject to
certain optional interest rate reset provisions;
(19) the additions or changes, if any, to the Indenture with respect to
the Offered Debt Securities as shall be necessary to permit or facilitate
the issuance of the Offered Debt Securities in bearer form, registered or
not registrable as to principal, and with or without interest coupons; and
(20) any other terms of the Offered Debt Securities.
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Reference is also made to the Prospectus Supplement for information with
respect to any material United States federal income tax consequences with
respect to the ownership and disposition of Offered Debt Securities.
No service charge will be made for any registration of transfer or exchange
of the Offered Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
The Company conducts some of its operations through subsidiaries. The Holders
of Debt Securities will have a junior position to any creditors of the
Company's subsidiaries.
Offered Debt Securities may be sold at a discount (which may be substantial)
below their stated principal amount bearing no interest or interest at a rate
that at the time of issuance is below market rates. Any material United States
federal income tax consequences and other special considerations applicable
thereto will be described in the Prospectus Supplement relating to any such
Offered Debt Securities.
If any of the Offered Debt Securities are sold for any foreign currency or
currency unit or if the principal of, or premium or interest, if any, on, or
any Additional Amounts with respect to any of the Offered Debt Securities is
payable in any foreign currency or foreign currency unit, the restrictions,
elections, tax consequences, specific terms and other information with respect
to such Offered Debt Securities and such foreign currency or foreign currency
unit will be set forth in the Prospectus Supplement relating thereto.
Events of Default
Unless otherwise provided with respect to any series of Debt Securities, the
following are or will be Events of Default under each Indenture with respect to
the Debt Securities of such series issued under such Indenture:
(1) failure to pay principal of or premium, if any, on any Debt Security
of such series when due;
(2) failure to pay any interest on or any Additional Amounts with respect
to any Debt Security of such series when due, continued for 30 days;
(3) failure to deposit any sinking fund payment, when due, in respect of
the Debt Securities of such series, continued for 30 days;
(4) failure to perform any other covenant of the Company in the
applicable Indenture (other than a covenant included in such Indenture for
the benefit of a series of Debt Securities other than such series),
continued for 90 days after written notice as provided in such Indenture;
(5) certain events of bankruptcy, insolvency or reorganization; and
(6) any other Event of Default as may be specified with respect to Debt
Securities of such series.
If an Event of Default with respect to any outstanding series of Debt
Securities occurs and is continuing, either the Trustee or the Holders of at
least 25% in principal amount of the outstanding Debt Securities of such series
(in the case of an Event of Default described in clause (1), (2), (3) or (6)
above) or at least 25% in principal amount of all outstanding Debt Securities
under the applicable Indenture (in the case of an Event of Default described in
clause (4) above) may declare the principal amount of all the Debt Securities
of the applicable series (or of all outstanding Debt Securities under the
applicable Indenture, as the case may be) to be due and payable immediately. If
an Event of Default described in clause (5) above occurs, the principal amount
of the outstanding Debt Securities of all series ipso facto shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. At any time after a declaration of acceleration has
been made, but before a judgment has been obtained, the Holders of a majority
in principal amount of the outstanding Debt Securities of such series (or of
all outstanding Debt Securities under the
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applicable Indenture, as the case may be) may, under certain circumstances,
rescind and annul such acceleration. Depending on the terms of other
indebtedness of the Company outstanding from time to time, an Event of Default
under the Indentures may give rise to cross defaults on such other indebtedness
of the Company.
Each Indenture provides that, within 90 days after the occurrence of a
default with respect to any series of Debt Securities, the Trustee will give to
the Holders of the Debt Securities of such series notice of all uncured and
unwaived defaults known to it; provided, however, that, except in the case of a
default in the payment of the principal of or premium, if any, or any interest
on, or any Additional Amounts or sinking fund installment with respect to, any
Debt Securities of such series, the Trustee will be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the interest of the Holders of the Debt Securities of such series; and
provided, further, that such notice shall not be given until at least 30 days
after the occurrence of a default in the performance or breach of any covenant
or warranty of the Company under such Indenture other than for the payment of
the principal of or premium, if any, or any interest on, or any Additional
Amounts or sinking fund installment with respect to, any Debt Securities of
such series. For the purpose of this provision, "default" with respect to Debt
Securities of any series means any event that is, or after notice or lapse of
time, or both, would become, an Event of Default with respect to the Debt
Securities of such series.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt Securities
under the applicable Indenture) have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the Debt
Securities of such series (or of all outstanding Debt Securities under the
applicable Indenture), subject to certain limitations specified in the
applicable Indenture. Each Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee shall exercise such of its rights
and powers under the applicable Indenture and use the same degree of care and
skill in its exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such provisions,
the Trustee will not be under an obligation to exercise any of its rights or
powers under the respective Indenture at the request of any of the Holders of
the Debt Securities unless they have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities that might be incurred
by it in compliance with such request.
The Holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt Securities
under the applicable Indenture) may on behalf of the Holders of all Debt
Securities of such series (or of all outstanding Debt Securities under the
applicable Indenture) waive any past default under the applicable Indenture,
except (1) a default in the payment of the principal of or premium, if any, or
interest on or any Additional Amounts with respect to any Debt Security or (2)
in respect of a provision that under the applicable Indenture cannot be
modified or amended without the consent of the Holder of each outstanding Debt
Security affected. The Holders of a majority in principal amount of the
outstanding Debt Securities affected thereby may on behalf of the Holders of
all such Debt Securities waive compliance by the Company with certain
restrictive provisions of the Indentures.
The Company is required to furnish to the Trustee annually a statement as to
the performance by the Company of certain of its obligations under the
applicable Indenture and as to any default in such performance.
Remedies
The Indentures provide that no Holder of any Debt Security of any series will
have any right to institute any proceeding, judicial or otherwise, with respect
to the respective Indenture, or for the appointment of a receiver or trustee,
or for any other remedy thereunder, unless
(1) an Event of Default with respect to Debt Securities of that series
has occurred and continues and such Holder has previously given written
notice to the Trustee of the continuing Event of Default;
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(2) the Holders of not less than 25% in principal amount of the
outstanding Debt Securities of that series have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in
principal amount of the outstanding Debt Securities of that series.
Modification
Modifications and amendments of each Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in principal amount
of the outstanding Debt Securities under the applicable Indenture affected
thereby; provided, however, that no such modification or amendment may, without
the consent of the Holder of each outstanding Debt Security affected thereby,
(1) change the stated maturity date of the principal of, or any
installment of principal of or interest on, or any Additional Amounts with
respect to any Debt Security,
(2) reduce the principal amount of, or the premium (if any) or interest
on, or any Additional Amounts with respect to any Debt Security,
(3) change the place or currency, currencies, or currency unit or units
of payment of principal of, or premium (if any) or interest on, or any
Additional Amounts with respect to any Debt Security,
(4) impair the right to institute suit for the enforcement of any payment
on or with respect to any Debt Security or
(5) reduce the percentage in principal amount of outstanding Debt
Securities, the consent of the Holders of which is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indentures or for waiver of certain defaults.
Each Indenture provides that the Company and the Trustee may, without the
consent of any Holders of Debt Securities, enter into supplemental indentures
for the purposes, among other things, of adding to the Company's covenants,
adding additional Events of Default, establishing the form or terms of Debt
Securities or curing ambiguities or inconsistencies in the applicable
Indenture, provided that such action to cure ambiguities or inconsistencies
shall not adversely affect the interests of the Holders of the Debt Securities
in any material respect.
Consolidation, Merger and Sale of Assets
Without the consent of any Holders of outstanding Debt Securities, the
Company may consolidate with or merge into, or convey, transfer or lease its
properties and assets substantially as an entirety to, any Person, provided
that
(1) the Person formed by such consolidation or into which the Company is
merged or that acquires or leases the properties and assets of the Company
substantially as an entirety is a Person that assumes by supplemental
indenture the Company's obligations on the Debt Securities and under each
Indenture,
(2) after giving effect to the transaction, no Event of Default and no
event that, after notice or lapse of time or both, would become an Event of
Default has occurred and is continuing, and
(3) certain other conditions are met.
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Upon compliance with these provisions by a successor Person, the Company will
(except in the case of a lease) be relieved of its obligations under each
Indenture and the Debt Securities.
Discharge and Defeasance
The Company may terminate its obligations under each Indenture, other than
its obligation to pay the principal of, premium, if any, and interest on and
any Additional Amounts with respect to the Debt Securities of any series and
certain other obligations, provided that it
(1) irrevocably deposits or causes to be irrevocably deposited with the
Trustee as trust funds money or U.S. Government Obligations maturing as to
principal and interest sufficient to pay the principal of, premium, if any,
and any interest on, and any Additional Amounts and mandatory sinking funds
with respect to, all outstanding Debt Securities of such series on the
stated maturity of such payments or on any redemption date and
(2) complies with any additional conditions specified to be applicable
with respect to the covenant defeasance of Debt Securities of such series.
The terms of any series of Debt Securities may also provide for legal
defeasance pursuant to the applicable Indenture. In such case, if the Company
(1) irrevocably deposits or causes to be irrevocably deposited money or
U.S. Government Obligations as described above,
(2) makes a request to the Trustee to be discharged from its obligations
on the Debt Securities of such series and
(3) complies with any additional conditions specified to be applicable
with respect to legal defeasance of Debt Securities of such series,
then the Company shall be deemed to have paid and discharged the entire
indebtedness on all the outstanding Debt Securities of such series, the
obligations of the Company under the applicable Indenture and the Debt
Securities of such series to pay the principal of, premium, if any, and
interest on and any Additional Amounts with respect to the Debt Securities of
such series shall cease, terminate and be completely discharged, and the
Holders thereof shall thereafter be entitled only to payment out of the money
or U.S. Government Obligations deposited with the Trustee as aforesaid, unless
the Company's obligations are revived and reinstated because the Trustee is
unable to apply such trust fund by reason of any legal proceeding, order or
judgment.
The term "U.S. Government Obligations" is or will be defined in each
Indenture as direct noncallable obligations of, or noncallable obligations the
payment of principal of and interest on which is guaranteed by, the United
States of America, or to the payment of which obligations or guarantees the
full faith and credit of the United States of America is pledged, or beneficial
interests in a trust the corpus of which consists exclusively of money or such
obligations or a combination thereof.
Form, Exchange, Registration and Transfer
Debt Securities of any series will be exchangeable for other Debt Securities
of the same series and of a like aggregate principal amount and tenor of
different authorized denominations. Debt Securities may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by the Company for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in the applicable Indenture. Such transfer or
exchange will be effected upon the Security Registrar or such transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the Person making the request. The Company will appoint the Trustee under each
Indenture as Security Registrar for Debt Securities issued thereunder. If a
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Prospectus Supplement refers to any transfer agents (in addition to the
Security Registrar) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which
any such transfer agent acts. The Company is required to maintain an office or
agency for registration of transfer or exchange in each Place of Payment for
such series. The Company may at any time designate additional offices or
agencies for registration of transfer or exchange with respect to any series of
Debt Securities.
In the event of any redemption in part, the Company shall not be required to
(1) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days prior to the
selection of Debt Securities of that series for redemption and ending on the
close of business on the day of mailing of the relevant notice of redemption or
(2) register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part.
Payment and Paying Agents
Unless otherwise indicated in an applicable Prospectus Supplement, payment of
principal of, premium, if any, and interest on and any Additional Amounts with
respect to Debt Securities will be made in the designated currency or currency
unit at the office of such Paying Agent or Paying Agents as the Company may
designate from time to time, except that, at the option of the Company, payment
of any interest may be made by check mailed to the address of the Person
entitled thereto as such address appears in the Security Register. Unless
otherwise indicated in an applicable Prospectus Supplement, payment of any
installment of interest on Debt Securities will be made to the Person in whose
name such Debt Security is registered at the close of business on the Regular
Record Date for such interest.
Unless otherwise indicated in an applicable Prospectus Supplement, the
Corporate Trust Office of the Trustee in New York, New York will be designated
as a Paying Agent for the Company for payments with respect to Debt Securities
issued under the applicable Indenture. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Company will be required to maintain a Paying Agent in each Place of
Payment for such series.
All moneys paid by the Company to a Paying Agent for the payment of principal
of, premium, if any, or interest on and any Additional Amounts with respect to
any Debt Security that remain unclaimed at the end of three years after such
principal, premium, interest or Additional Amounts have become due and payable
will (subject to applicable escheat laws) be repaid to the Company, and the
Holder of such Debt Security or any coupon will thereafter look only to the
Company for payment thereof.
Securities in Global Form
The Debt Securities of a series may be issued, in whole or in part, in the
form of one or more global Debt Securities that would be deposited with a
depositary or its nominee identified in the applicable Prospectus Supplement.
Global Debt Securities may be issued in either temporary or permanent form. The
specific terms of any depositary arrangement with respect to any portion of a
series of Debt Securities and the rights of, and limitations on, owners of
beneficial interests in any such global Debt Security representing all or a
portion of a series of Debt Securities will be described in the applicable
Prospectus Supplement.
Meetings
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series. A meeting may be called at any time by the
Trustee, and also, upon request, by the Company or the Holders of at least 10%
in principal amount of the Outstanding Debt Securities of such series, in any
such case upon notice given as described under "--Notices" below. Except for
any consent that must be given by the Holder of each
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Outstanding Debt Security affected thereby, as described under "--Modification"
above, any resolution presented at a meeting or adjourned meeting at which a
quorum is present may be adopted by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series;
provided, however, that, except for any consent that must be given by the
Holder of each Outstanding Debt Security affected thereby, as described under
"--Modification" above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority in principal amount of the Outstanding Debt Securities of a
series, may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Debt Securities of
that series. Subject to the proviso set forth above, any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the applicable Indenture will be binding on all Holders
of Debt Securities of that series and any related coupons. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series.
Governing Law
Each Indenture and the Debt Securities will be governed by and construed in
accordance with the laws of the State of New York.
Notices
Notices to Holders of Debt Securities will be given by mail to the addresses
of such Holders as they appear in the Security Register.
Trustee
Each Indenture contains certain limitations on the right of the Trustee, as a
creditor of the Company, to obtain payment of claims in certain cases and to
realize on certain property received with respect to any such claims, as
security or otherwise. The Trustee is or will be permitted to engage in other
transactions, except that, if it acquires any conflicting interest (as
defined), it must eliminate such conflict or resign.
The Trustee has made loans to the Company and its subsidiaries and affiliates
from time to time in the ordinary course of business and at prevailing interest
rates under agreements with commercial bank groups. In addition, the Trustee
may from time to time serve as a depositary of funds of, and perform other
services for, the Company.
Provisions Applicable Solely to Subordinated Debt Securities
The payment of the principal of, premium, if any, and interest on and any
Additional Amounts with respect to the Subordinated Debt Securities will be
expressly subordinated, to the extent and in the manner set forth in the
Subordinated Indenture, to the prior payment in full of all Senior Indebtedness
of the Company.
The Subordinated Indenture will provide that no payment may be made by the
Company on account of the principal of, premium, if any, or interest on or any
Additional Amounts with respect to the Subordinated Debt Securities, or to
acquire any of the Subordinated Debt Securities (including repurchases of
Subordinated Debt Securities at the option of the Holder thereof) for cash or
property (other than certain junior securities of the Company), or on account
of the redemption provisions of the Subordinated Debt Securities, in the event
of (1) default in the payment of any principal of, premium, if any, or interest
on any Senior Indebtedness of the Company when it becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise (a "Payment Default"), unless and until such Payment Default has been
cured or waived or otherwise has ceased to exist, or (2) any other event of
default with respect to any Designated Senior
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Indebtedness permitting the holders of such Designated Senior Indebtedness (or
a trustee or other representative on behalf of the holders thereof) to declare
such Designated Senior Indebtedness due and payable prior to the date on which
it would otherwise have become due and payable, upon written notice thereof to
the Company and the Subordinated Trustee by any holders of such Designated
Senior Indebtedness (or a trustee or other representative on behalf of the
holders thereof) (the "Payment Notice"), unless and until such event of default
shall have been cured or waived or otherwise has ceased to exist, provided that
such payments may not be prevented under clause (2) above for more than 179
days after an applicable Payment Notice has been received by the Subordinated
Trustee unless the Designated Senior Indebtedness in respect of which such
event of default exists has been declared due and payable in its entirety, in
which case no such payment may be made until such acceleration has been
rescinded or annulled or such Designated Senior Indebtedness has been paid in
full. No event of default that existed or was continuing on the date of any
Payment Notice (whether or not such event of default is on the same issue of
Designated Senior Indebtedness) may be made the basis for the giving of a
second Payment Notice, and only one such Payment Notice may be given in any
365-day period.
In the event that, notwithstanding the foregoing, any payment or distribution
of assets of the Company (other than certain Junior Securities of the Company)
is received by the Subordinated Trustee or the Holders of Subordinated Debt
Securities at a time when such payment or distribution is prohibited by the
foregoing provisions, then, unless such payment or distribution is no longer
prohibited by the foregoing provisions, such payment or distribution shall be
received and held in trust by the Subordinated Trustee or such Holders or the
Paying Agent for the benefit of the holders of Senior Indebtedness of the
Company, and shall be paid or delivered by the Subordinated Trustee or such
Holders or the Paying Agent, as the case may be, to the holders of the Senior
Indebtedness of the Company remaining unpaid or unprovided for or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
of the Company may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the Company held or
represented by each, for application to the payment of all Senior Indebtedness
in full after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors, (1) the
holders of all Senior Indebtedness of the Company will first be entitled to
receive payment in full before the Holders of Subordinated Debt Securities are
entitled to receive any payment on account of the principal of, premium, if
any, and interest on or any Additional Amounts with respect to the Subordinated
Debt Securities (other than certain junior securities of the Company) and (2)
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than certain junior securities
of the Company) to which the Holders of Subordinated Debt Securities or the
Subordinated Trustee on behalf of such Holders would be entitled, except for
the subordination provisions contained in the Subordinated Indenture, will be
paid by the liquidating trustee or agent or other person making such a payment
or distribution directly to the holders of Senior Indebtedness of the Company
or their representative, ratably according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full of all such Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
No provision of the Subordinated Indenture or the Subordinated Debt
Securities will affect the obligation of the Company, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
and any Additional Amounts with respect to the Subordinated Debt Securities.
The subordination provisions of the Subordinated Indenture and the Subordinated
Debt Securities will not prevent the occurrence of any default or Event of
Default under the Subordinated Indenture or limit the rights of the
Subordinated Trustee or any Holder of Subordinated Debt Securities, subject to
the two preceding paragraphs, to pursue any other rights or remedies with
respect to the Subordinated Debt Securities.
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As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshaling of assets or liabilities of the Company
and its subsidiaries, Holders of Subordinated Debt Securities may receive
ratably less than other creditors.
The term "Indebtedness," as applied to any Person, unless otherwise provided
with respect to the Subordinated Debt Securities of a series and described in
the Prospectus Supplement relating thereto, will be defined in the Subordinated
Indenture as, without duplication, the following:
(1) all liabilities and obligations, contingent or otherwise, of any such
Person
(a) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a
portion thereof),
(b) evidenced by bonds, notes, debentures or similar instruments,
(c) representing the balance deferred and unpaid of the purchase
price of any property or services, except such as would constitute
trade payables to trade creditors in the ordinary course of business
that are not more than 90 days past their original due date,
(d) evidenced by banker's acceptances or similar instruments issued
or accepted by banks,
(e) for the payment of money relating to rental obligations under a
lease required to be capitalized in accordance with generally accepted
accounting principles or
(f) evidenced by a letter of credit or a reimbursement obligation of
such Person with respect to any letter of credit;
(2) all net obligations of such Person under certain interest swap and
hedging obligations;
(3) all liabilities of others of the kind described in the preceding
clause (1) or (2) that such Person has guaranteed or that is otherwise its
legal liability and all obligations to purchase, redeem or acquire any
capital stock of any Person; and
(4) any and all deferrals, renewals, extensions, refinancings, refunds
(whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clause (1), (2) or (3), or this clause (4), whether or not between or among
the same parties.
The term "Senior Indebtedness" of the Company, unless otherwise provided with
respect to the Subordinated Debt Securities of a series and described in the
Prospectus Supplement relating thereto, will be defined in the Subordinated
Indenture as
(1) all Indebtedness of the Company unless, by the terms of the
instrument creating or evidencing such Indebtedness, it is provided that
such Indebtedness is not superior in right of payment to the Subordinated
Debt Securities or to other Indebtedness which is pari passu with or
subordinated to the Subordinated Debt Securities and
(2) any modifications, refunding, deferrals, renewals or extensions of
any such Indebtedness or securities, notes or other evidences of
Indebtedness issued in exchange for such Indebtedness; provided that in no
event shall "Senior Indebtedness" include
(a) Indebtedness of the Company owed or owing to any subsidiary of
the Company or any officer, director or employee of the Company or any
subsidiary of the Company,
(b) Indebtedness to trade creditors or
(c) any liability for taxes owed or owing by the Company.
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The term "Designated Senior Indebtedness," unless otherwise provided with
respect to the Subordinated Debt Securities of a series and described in the
Prospectus Supplement relating thereto, will be defined in the Subordinated
Indenture to mean any Senior Indebtedness of the Company that (1) in the
instrument evidencing the same or the assumption or guarantee thereof (or
related documents to which the Company is a party) is expressly designated as
"Designated Senior Indebtedness" for purposes of the Subordinated Indenture or
(unless otherwise provided) the Indenture governing the Company's convertible
subordinated debentures, and (2) satisfies such other conditions as may be
provided with respect to the Subordinated Debt Securities of such series
(provided that such instrument or documents may place limitations and
conditions on the rights of the holders of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness).
If Subordinated Debt Securities are issued under the Subordinated Indenture,
the aggregate principal amount of Senior Indebtedness outstanding as of a
recent date will be set forth in the Prospectus Supplement. The Subordinated
Indenture will not restrict the amount of Senior Indebtedness that the Company
may incur.
CAPITAL STOCK
The authorized capital stock of the Company consists of 100 million shares of
Common Stock, par value $0.10 per share (the "Common Stock"), and 10 million
shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock").
The following summary of the material terms of the capital stock of the Company
does not purport to be complete and is qualified by reference to the Company's
Restated Certificate of Incorporation and Amended and Restated Bylaws, which
are filed as exhibits to the Registration Statement of which this Prospectus is
a part.
Provisions of the Certificate of Incorporation and By-Laws
The Company's Restated Certificate of Incorporation provides for a classified
Board of Directors, consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual stockholders'
meeting for election of directors following the most recent election of such
class. The Company's Restated Certificate of Incorporation also provides that
no action required or permitted to be taken at any annual or special meeting of
stockholders of the Company may be taken without a meeting, and the power of
stockholders to act by written consent is specifically denied. The Company's
Amended and Restated By-Laws provide that special meetings of stockholders may
be called only by the Chairman of the Board of Directors, the President, or by
the Board of Directors pursuant to a resolution adopted by a majority of the
then-authorized number of directors.
Section 203 of the Delaware General Corporation Law
The Company is a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law (the "DGCL"). Generally, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
(1) prior to such date, either the business combination or such transaction
which resulted in the stockholder becoming an interested stockholder is
approved by the board of directors of the corporation, (2) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (3) on or after such date, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within three years, did own) 15% or more
of the corporation's outstanding voting stock.
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Limitation on Changes in Control
Certain of the above provisions of the Company's Restated Certificate of
Incorporation and Amended and Restated By-Laws and the provisions of Section
203 of the DGCL could have the effect of delaying, deferring or preventing a
change in control of the Company or the removal of existing management or
deterring potential acquirors from making an offer to stockholders of the
Company. This could be the case notwithstanding that a majority of the
stockholders might benefit from such a change in control or offer. In addition,
the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holder to block such a transaction, or facilitate a business
combination by including voting rights that would provide a required percentage
vote of the stockholders. In addition, under certain circumstances, the
issuance of Preferred Stock could adversely affect the voting power of the
holders of Common Stock.
Common Stock
Each share of Common Stock possesses ordinary voting rights for the election
of directors and for other corporate matters, each share being entitled to one
vote. Cumulative voting rights are denied. The Common Stock does not carry
preemptive rights and is not convertible, redeemable or assessable, or entitled
to the benefits of any sinking fund. Subject to any preferential rights of the
Preferred Stock, the holders of Common Stock are entitled to receive dividends
in such amounts and at such times as may be declared by the Board of Directors
out of funds legally available therefor and to share ratably in the assets of
the Company legally available for distribution to its stockholders in the event
of its liquidation, dissolution or winding-up.
The Company's Restated Certificate of Incorporation provides that
stockholders may not act by written consent in lieu of a meeting. The Restated
Certificate of Incorporation further provides that the number of directors
shall not be fewer than three (3) nor more than fifteen (15) and provides for a
classified Board of Directors, consisting of three classes as nearly equal in
size as practicable. Each class holds office until the third annual
stockholders' meeting for election of directors following the most recent
election of such class, except that the initial terms of the three classes
expire in 1999, 2000 and 2001, respectively. A director may not be removed
without cause and may only be removed for cause by the affirmative vote of the
holders of 75% or more of the combined voting power of the then-outstanding
shares of voting stock, voting together as a single class. Special meetings of
the stockholders may be called by the Chairman of the Board, the President or
the Board of Directors, but may not be called by stockholders. The provisions
relating to capital stock, the Board of Directors, the Board of Directors'
power to amend the Bylaws, the calling of special meetings, actions taken by
written consent and limitation of liability of directors may be amended only by
the vote of the holders of at least 80% of the capital stock entitled to vote
for the election of directors.
Preferred Stock
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix or alter the designation, number,
voting powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations or restrictions of such rights.
Among the specific matters that may be determined by the Board of Directors are
the rate of dividends; the redemption price, if any; the terms of a sinking
fund or redemption or purchase account, if any; the amount payable in the event
of any voluntary liquidation, dissolution or winding up of the affairs of the
Company; conversion or exchange rights, if any; and voting powers, if any.
Although the Company has no present intention to issue additional shares of
Preferred Stock, the issuance of shares of the Preferred Stock, or the issuance
of rights to purchase such shares, could be used to discourage an unsolicited
acquisition proposal. For instance, the issuance of a series of Preferred Stock
might impede a
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business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to
make any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or even a majority of the stockholders might believe to be in their
best interests or in which stockholders might receive a premium for their stock
over the then market price of such stock. The Board of Directors does not at
present intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market
on which the Company's securities are traded.
Depositary Shares
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares (as defined below) and Depositary Receipts (as defined below) does not
purport to be complete and is subject to and qualified in its entirety by
reference to the forms of Deposit Agreement and Depositary Receipts relating to
each series of Preferred Stock which have been or will be filed with the
Commission in connection with the offering of such series of Preferred Stock.
General
The Company may, at its option, elect to offer fractional interests in shares
of Preferred Stock, rather than shares of Preferred Stock. In the event such
option is exercised, the Company will provide for the issuance by a Depositary
to the public of receipts for depositary shares ("Depositary Shares"), each of
which will represent fractional interests of a particular series of Preferred
Stock (which will be set forth in the Prospectus Supplement relating to a
particular series of Preferred Stock).
The shares of any series of Preferred Stock underlying the Depositary Shares
will be deposited under a separate Deposit Agreement (the "Deposit Agreement")
between the Company and a bank or trust company selected by the Company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000 (the "Depositary"). The Prospectus Supplement
relating to a series of Depositary Shares will set forth the name and address
of the Depositary. Subject to the terms of the Deposit Agreement, each owner of
Depositary Shares will be entitled, in proportion to the applicable fractional
interests in shares of Preferred Stock underlying such Depositary Shares, to
all the rights and preferences of the Preferred Stock underlying such
Depositary Shares (including dividend, voting, redemption, conversion and
liquidation rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement (the "Depositary Receipts"). Depositary
Receipts will be distributed to those persons purchasing the fractional
interests in shares of the related series of Preferred Stock in accordance with
the terms of the offering described in the related Prospectus Supplement.
Dividends and Other Distributions
The Depositary will distribute all cash dividends or other cash distributions
received in respect of Preferred Stock to the record holders of Depositary
Shares relating to such Preferred Stock in proportion to the numbers of such
Depositary Shares owned by such holders on the relevant record date. The
Depositary shall distribute only such amount, however, as can be distributed
without attributing to any holder of Depositary Shares a fraction of one cent,
and any balance not so distributed shall be added to and treated as part of the
next sum received by the Depositary for distribution to record holders of
Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
the Company, sell such property and distribute the net proceeds from such sale
to such holders.
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The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the Preferred Stock shall be made available to the holders of Depositary
Shares.
Redemption of Depositary Shares
If a series of the Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Depositary resulting from the redemption, in whole or in part,
of such series of the Preferred Stock held by the Depositary. The Depositary
shall mail notice of redemption not less than 30 and not more than 60 days
prior to the date fixed for redemption to the record holders of the Depositary
Shares to be so redeemed at their respective addresses appearing in the
Depositary's books. The redemption price per Depositary Share will be equal to
the applicable fraction of the redemption price per share payable with respect
to such series of the Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares relating to shares of
Preferred Stock so redeemed. If less than all of the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by lot or
pro rata as may be determined by the Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys, securities or other property payable upon such redemption and any
money, securities or other property to which the holders of such Depositary
Shares were entitled upon such redemption upon surrender to the Depositary of
the Depositary Receipts evidencing such Depositary Shares.
Voting the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Shares
relating to such Preferred Stock. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the number of shares of Preferred Stock
underlying such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the number of shares of Preferred Stock
underlying such Depositary Shares in accordance with such instructions, and the
Company will agree to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so.
Amendment and Termination of Depositary Agreement
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment which materially
and adversely alters the rights of the existing holders of Depositary Shares
will not be effective unless such amendment has been approved by the record
holders of at least a majority of the Depositary Shares then outstanding. A
Deposit Agreement may be terminated by the Company or the Depositary only if
(1) all outstanding Depositary Shares relating thereto have been redeemed or
(2) there has been a final distribution in respect of the Preferred Stock of
the relevant series in connection with any liquidation, dissolution or winding
up of the Company and such distribution has been distributed to the holders of
the related Depositary Shares.
Charges of Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and any redemption of the Preferred Stock. Holders of
Depositary Shares will pay transfer and other taxes and governmental charges
and such other charges as are expressly provided in the Deposit Agreement to be
for their accounts.
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Resignation and Removal of Depositary
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
Miscellaneous
The Depositary will forward to the holders of Depositary Shares all reports
and communications from the Company which are delivered to the Depositary and
which the Company is required to furnish to the holders of the Preferred Stock.
Neither the Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Stock for deposit, holders of Depositary Shares or other persons
believed to be competent and on documents believed to be genuine.
Warrants
The Company may issue warrants (the "Warrants"), including Warrants to
purchase Debt Securities ("Debt Warrants"), Warrants to purchase Common Stock
or Preferred Stock ("Stock Warrants"), and Warrants to purchase equity
securities issued by an unaffiliated corporation or other entity and held by
the Company. Warrants may be issued independently of or together with any other
Securities and may be attached to or separate from such Securities. Each series
of Warrants will be issued under a separate Warrant Agreement (each a "Warrant
Agreement") to be entered into between the Company and a Warrant Agent
("Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrant of such series and will not assume any
obligation or relationship of agency for or with holders or beneficial owners
of Warrants. The following sets forth certain general terms and provisions of
the Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreement will be set forth in the applicable Prospectus Supplement.
Debt Warrants
The applicable Prospectus Supplement will describe the terms of any Debt
Warrants, including the following:
(1) the title of such Debt Warrants;
(2) the offering price for such Debt Warrants, if any;
(3) the aggregate number of such Debt Warrants;
(4) the designation and terms of such Debt Securities purchasable upon
exercise of such Debt Warrants;
(5) if applicable, the designation and terms of the Securities with which
such Debt Warrants are issued and the number of such Debt Warrants issued
with each such Security;
(6) if applicable, the date from and after which such Debt Warrants and
any Securities issued therewith will be separately transferable;
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(7) the principal amount of Debt Securities purchasable upon exercise of
a Debt Warrant and the price at which such principal amount of Debt
Securities may be purchased upon exercise;
(8) the date on which the right to exercise such Debt Warrants shall
commence and the date on which such right shall expire;
(9) if applicable, the minimum or maximum amount of such Debt Warrants
which may be exercised at any one time;
(10) whether the Debt Warrants represented by the Debt Warrant
certificates or Debt Securities that may be issued upon exercise of the
Debt Warrants will be issued in registered or bearer form;
(11) information with respect to book-entry procedures, if any;
(12) the currency, currencies or currency units in which the offering
price, if any, and the exercise price are payable;
(13) if applicable, a discussion of certain United States federal income
tax considerations;
(14) the antidilution provisions of such Debt Warrants, if any;
(15) the redemption or call provisions, if any, applicable to such Debt
Warrants; and
(16) any additional terms of the Debt Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Debt Warrants.
Stock and Other Warrants
The applicable Prospectus Supplement will describe the terms of any Stock
Warrants or other Warrants to purchase equity securities issued by an
unaffiliated corporation or other entity and held by the Company, including the
following:
(1) the title of such Stock Warrants or other Warrants;
(2) the offering price of such Stock Warrants or other Warrants, if any;
(3) the aggregate number of such Stock Warrants or other Warrants;
(4) the designation and terms of the Common Stock, Preferred Stock or
equity securities issued by an unaffiliated corporation or other entity and
held by the Company purchasable upon exercise of such Stock Warrants or
other Warrants;
(5) if applicable, the designation and terms of the Securities with which
such Stock Warrants or other Warrants are issued and the number of such
Stock Warrants or other Warrants issued with each such Security;
(6) if applicable, the date from and after which such Stock Warrants or
other Warrants and any Securities issued therewith will be separately
transferrable;
(7) the number of shares of Common Stock, Preferred Stock or equity
securities issued by an unaffiliated corporation or other entity and held
by the Company purchasable upon exercise of a Stock Warrant or other
Warrant and the price at which such shares may be purchased upon exercise;
(8) the date on which the right to exercise such Stock Warrants or other
Warrants shall commence and the date on which such right shall expire;
(9) if applicable, the minimum or maximum amount of such Stock Warrants
or other Warrants which may be exercised at any one time;
(10) the currency, currencies or currency units in which the offering
price, if, any, and the exercise price are payable;
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(11) if applicable, a discussion of certain United States federal income
tax considerations;
(12) the antidilution provisions of such Stock Warrants or other
Warrants, if any;
(13) the redemption or call provisions, if any, applicable to such Stock
Warrants or other Warrants; and
(14) any additional terms of such Stock Warrants or other Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Stock Warrants or other Warrants.
Stockholder Rights Plan
Each share of Common Stock includes one right to purchase Preferred Stock of
the Company ("Right"). Each Right entitles the registered holder to purchase
from the Company a unit consisting of one one-hundredth of a share (a
"Fractional Share") of Series A Junior Participating Preferred Stock, par value
$1.00 per share, of the Company (the "Series A Preferred Stock"), at a purchase
price per Fractional Share of $90, subject to adjustment (the "Purchase
Price"). The following summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
between the Company and The Chase Manhattan Bank, Rights Agent (the "Rights
Agreement"), the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is incorporated herein by
reference.
The Rights will be separated from the Common Stock and a "Rights Distribution
Date" will occur, with certain exceptions, upon the earlier of (1) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
the Company's Common Stock (the date of the announcement being the "Stock
Acquisition Date"), or (2) 10 business days following the commencement of a
tender offer or exchange offer that would result in a person becoming an
Acquiring Person. In certain circumstances, the Rights Distribution Date may be
deferred by the Board of Directors of the Company. Certain inadvertent
acquisitions will not result in a person becoming an Acquiring Person if the
person promptly divests itself of sufficient Common Stock. Until the Rights
Distribution Date, (1) the Rights are evidenced by the certificates
representing outstanding shares of Common Stock and will be transferred with
and only with such certificates, which contain a notation incorporating the
Rights Agreement by reference, and (2) the surrender for transfer of any
certificate for Common Stock will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.
The Rights are not exercisable until the Rights Distribution Date and will
expire at the close of business 10 years after the Rights are issued, unless
earlier redeemed or exchanged by the Company as described below.
As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Rights Distribution Date and, from and after the
Rights Distribution Date, the separate Rights Certificates alone will represent
the Rights. All shares of Common Stock issued prior to the Rights Distribution
Date will be issued with Rights. Shares of Common Stock issued after the Rights
Distribution Date in connection with certain employee benefit plans or upon
conversion of certain securities will be issued with Rights. Except as
otherwise determined by the Board of Directors of the Company, no other shares
of the Common Stock issued after the Rights Distribution Date will be issued
with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of
Common Stock at a price and on terms that a majority of the independent
directors of the Company determines to be fair to and otherwise in the best
interests of the Company and its stockholders (a "Permitted Offer")), each
holder of a Right will thereafter have the right to receive, upon exercise of
such Right, a number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a Current Market
Price (as defined in the Rights Agreement) equal to two times the exercise
price of the Right as set by the Company's Board of Directors. Notwithstanding
the foregoing, following the occurrence of any Triggering Event (as defined
below), all Rights
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that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by or transferred to an Acquiring Person (or by
certain related parties) will be null and void in the circumstances set forth
in the Rights Agreement. Rights are not exercisable following the occurrence of
any Flip-In Event, however, until such time as the Rights are no longer
redeemable by the Company as set forth below.
In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (1) the Company is acquired in a merger or
other business combination transaction (other than certain mergers that follow
a Permitted Offer) or (2) 50% or more of the Company's assets or earning power
is sold or transferred, each holder of a Right (except Rights that are voided
as set forth above) shall thereafter have the right to receive, upon exercise,
a number of shares of common stock of the acquiring company having a Current
Market Price equal to two times the exercise price of the Right as set by the
Company's Board of Directors. Flip-In Events and Flip-Over Events are
collectively referred to as "Triggering Events."
The number of outstanding Rights associated with a share of Common Stock, or
the number of Fractional Shares of Series A Preferred Stock issuable upon
exercise of a Right and the Purchase Price, are subject to adjustment in the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the Common Stock occurring prior to the Rights Distribution Date. The
Purchase Price payable, and the number of Fractional Shares of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution in the
event of certain transactions affecting the Series A Preferred Stock.
At any time until ten days following the first date of public announcement of
the occurrence of a Flip-In Event, the Company may redeem the Rights in whole,
but not in part, at a price of $0.01 per Right, payable, at the option of the
Company, in cash, shares of Common Stock or such other consideration as the
Board of Directors of the Company may determine. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of
the Rights, the Rights will terminate and the only right of the holders of
Rights will be to receive the $0.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding or the occurrence of a Flip-Over Event, the Company may exchange
the Rights (other than Rights owned by an Acquiring Person or an affiliate or
an associate of an Acquiring Person, which will have become void), in whole or
in part, at an exchange ratio of one share of Common Stock, and/or other equity
securities deemed to have the same value as one share of Common Stock, per
Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights should not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration of the Company) or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company as long as
the Rights are redeemable. Thereafter, the provisions of the Rights Agreement
other than the redemption price may be amended by the Board of Directors in
order to cure any ambiguity, defect or inconsistency, to make changes that do
not materially adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
lengthen the time period governing redemption shall be made at such time as the
Rights are not redeemable.
The Rights have certain antitakeover effects. They will cause substantial
dilution to any person or group that attempts to acquire the Company without
the approval of the Company's Board of Directors. As a result, the overall
effect of the Rights may be to render more difficult or discourage any attempt
to acquire the
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Company, even if such acquisition may be favorable to the interests of the
Company's stockholders. Because the Board of Directors of the Company can
redeem the Rights or approve a Permitted Offer, the Rights should not interfere
with a merger or other business combination approved by the Board. The Rights
were issued to protect the Company's stockholders from coercive or abusive
takeover tactics and inadequate takeover offers and to afford the Company's
Board of Directors more negotiating leverage in dealing with prospective
acquirors.
PLAN OF DISTRIBUTION
The Company may sell the Securities in and/or outside the United States: (1)
through underwriters or dealers; (2) directly to a limited number of purchasers
or to a single purchaser; or (3) through agents. The Prospectus Supplement with
respect to the Securities offered will set forth the terms of the offering,
including the name or names of any underwriters or agents, the purchase price
of the Securities offered and the proceeds to the Company from such sale, any
delayed delivery arrangements, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale, the Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of Securities to be named in the Prospectus
Supplement relating to such offering and, if an underwriting syndicate is used,
the managing underwriter or underwriters will be set forth on the cover of such
Prospectus Supplement. Unless otherwise set forth in the Prospectus Supplement
relating thereto, the obligations of the underwriters to purchase the
Securities offered will be subject to conditions precedent and the underwriters
will be obligated to purchase all the Securities offered if any are purchased.
If dealers are utilized in the sale of Securities in respect of which this
Prospectus is delivered, the Company will sell such Securities to the dealers
as principals. The dealers may then resell such Securities to the public at
varying prices to be determined by such dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
The Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of the Securities in respect to which this Prospectus is delivered will be
named, and any commissions payable by the Company to such agent will be set
forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
The Securities may be sold directly by the Company to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase Securities from the Company at the public offering
price set forth in the Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
Such contracts will be subject only to those conditions set forth in the
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
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Agents, dealers and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, dealers or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may be
customers of, engage in transactions with, or perform services for the Company
in the ordinary course of business.
The Securities may or may not be listed on a national securities exchange. No
assurances can be given that there will be a market for the Securities.
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby will
be passed upon for the Company by Baker & Botts, L.L.P., counsel to the
Company, located at 910 Louisiana, Houston, Texas 77002.
EXPERTS
The Pennzoil Products Group combined financial statements incorporated by
reference in this Prospectus and elsewhere in the Registration Statement to the
extent and for the periods indicated in their report have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The consolidated financial statements and financial statement schedule of
Quaker State Corporation and its subsidiaries as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Registration Statement, have been
incorporated by reference herein in reliance on the report of
PricewaterhouseCoopers LLP, independent public accountants, given on the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
The Company files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). You may read and copy
any document filed by the Company at the Commission's public reference rooms
located at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C.
20549; at regional offices of the Commission at the Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and at 7
World Trade Center, New York, New York 10048. The Company's filings are also
available to the public from the Commission's Internet web site at
http://www.sec.gov. Information concerning the Company also may be inspected at
the New York Stock Exchange offices located at 20 Broad Street, New York, New
York 10005.
We have filed with the Commission a Registration Statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Securities. This Prospectus does not contain all of
the information in the Registration Statement. For further information with
respect to the Company and the Securities, you should read the Registration
Statement and the exhibits attached to the Registration Statement.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows the Company to "incorporate by reference" the
information it files with them, which means that the Company can disclose
important information to you by referring you to those documents that are
considered part of this Prospectus. Later information the Company files with
the Commission will automatically update and supersede this information. The
Company incorporates by reference the following documents filed with the
Commission (File No. 1-14501):
(1) The Company's Form 10, as amended, declared effective by the
Commission on December 2, 1998;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998;
(3) The description of rights to purchase preferred stock contained in
the Company's Registration Statement on Form 8-A filed with the Commission
on December 18, 1998; and
(4) The Company's Current Reports on Form 8-K filed with the Commission
on December 18, 1998, December 29, 1998, and January 13, 1999, as amended
on January 20, 1999.
Any future filings we make with the Commission under Section 13(a), 13(c), 14
or 15(d) of the Exchange Act are incorporated by reference in this Prospectus
until we complete any offering of the securities.
We will provide, without charge, to each person to whom a copy of this
Prospectus has been delivered, a copy of any of the documents referred to above
as being incorporated by reference. You may request a copy by writing or
telephoning Ms. Linda F. Condit, Corporate Secretary, Pennzoil Place, P.O. Box
2967, Houston, Texas 77252-2967 (telephone 713/546-4000).
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$400,000,000
[PENNZOIL LOGO APPEARS HERE] [QUAKER STATE LOGO APPEARS HERE]
[PENNZOIL-QUAKER STATE LOGO APPEARS HERE]
$ % Notes due 2009
$ % Debentures due 2029
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
Joint Book-Running Managers
Chase Securities Inc.
Lehman Brothers
Merrill Lynch & Co.
----------------
Deutsche Bank Securities
J.P. Morgan & Co.
Morgan Stanley Dean Witter
NationsBanc Montgomery Securities LLC
PaineWebber Incorporated
Salomon Smith Barney
Warburg Dillon Read LLC
, 1999
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