UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1997
Commission file number 1-3939
KERR-MCGEE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 73-0311467
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
KERR-MCGEE CENTER, OKLAHOMA CITY, OKLAHOMA 73125
(Address of principal executive offices)
Registrant's telephone number, including area code: (405)270-1313
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock $1 Par Value New York Stock Exchange
8-1/2% Sinking Fund Debentures,
Due June 1, 2006 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $3 billion as of February 28, 1998.
The number of shares of common stock outstanding as of February 28, 1998, was
47,692,473.
DOCUMENTS INCORPORATED BY REFERENCE
Specified sections of the Kerr-McGee Corporation 1997 Annual Report to
Stockholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-K. The definitive Proxy Statement for the 1998 Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997, is incorporated by reference in Part
III of this Form 10-K.
KERR-McGEE CORPORATION
PART I
Items 1. and 2. Business and Properties
GENERAL DEVELOPMENT OF BUSINESS
Kerr-McGee Corporation, an energy and chemical company, had its
beginning in 1929 with the formation of Anderson & Kerr Drilling Company. The
company was incorporated in Delaware in 1932. With oil and gas exploration and
production as its base, the company has expanded into titanium dioxide pigment
manufacturing and marketing and coal and mineral mining and marketing.
Kerr-McGee owns a large inventory of natural resources that includes oil, gas
and coal reserves and chemical and mineral deposits.
For a discussion of recent business developments, reference is made to
the "Pending Transactions" section of Management's Discussion and Analysis in
the 1997 Annual Report to Stockholders, which discussion is incorporated by
reference in Item 7, and the Exploration and Production and Chemicals
discussions on pages 8 and 12, respectively.
INDUSTRY SEGMENTS
For information as to business segments of the company, reference is
made to Note 24 to the Consolidated Financial Statements in the 1997 Annual
Report to Stockholders, which note is incorporated by reference in Item 8.
EXPLORATION AND PRODUCTION
Kerr-McGee Corporation manages oil and gas operations worldwide. The
company acquires leases and concessions and explores for, develops, produces and
markets crude oil and natural gas through its subsidiaries, Kerr-McGee Oil & Gas
Corporation, Kerr-McGee Oil (U.K.) PLC, Kerr-McGee China Petroleum Ltd. and
various other subsidiaries.
The areas of Kerr-McGee's offshore oil and gas exploration and
production activities are the Gulf of Mexico, North Sea and China. Onshore
exploration and/or production operations are in Indonesia, Thailand and Yemen.
- ------------------
Except as indicated under Items 1 through 3, 5 through 8, and 10 through
14, no other information appearing in either the company's 1997 Annual Report to
Stockholders or its 1998 Proxy Statement is deemed to be filed as part of this
annual report on Form 10-K.
<PAGE>
Kerr-McGee's average daily proprietary oil production during 1997 was
57,000 barrels, down from 69,000 barrels in 1996. Kerr-McGee's average oil price
declined 3% to $18.51 per barrel in 1997, compared with 1996.
During 1997, proprietary natural gas sales averaged 184 million cubic
feet per day, compared with 281 million cubic feet in 1996. The average natural
gas price increased 21% from 1996 prices to $2.56 per thousand cubic feet for
1997.
The 1997 proprietary production levels were lower than the prior year
due to the December 31, 1996, merger of the company's North American onshore oil
and gas properties into Devon Energy Corporation (Devon) and the divestiture of
a number of producing properties considered to be nonstrategic. Devon is a
publicly traded oil and gas exploration and production company. The company
received 9,954,000 shares of Devon common stock representing an ownership
interest in Devon of approximately 31%.
Kerr-McGee continued to add to its prospect inventory in selected
domestic and international areas during 1997. Net acreage acquired in 1997
totaled approximately 11 million acres, at a cost of $31 million.
Results of Operations, Sales Prices, Production Costs, Capitalized Costs and
Costs Incurred
Reference is made to Notes 25, 26 and 29 to the Consolidated Financial
Statements in the 1997 Annual Report to Stockholders, which notes are
incorporated by reference in Item 8. These notes contain information on the
results of operations from crude oil and natural gas activities, average sales
prices per unit of crude oil and natural gas and production costs per barrel of
oil equivalent (BOE) for each of the past three years; capitalized costs of
crude oil and natural gas activities at December 31, 1997 and 1996; and costs
incurred in crude oil and natural gas activities for each of the past three
years.
Reserves
Kerr-McGee's estimated proved crude oil, condensate and natural gas
reserves at December 31, 1997, and the changes in net quantities of such
reserves for the three years then ended are shown in Note 28 to the Consolidated
Financial Statements of the 1997 Annual Report to Stockholders, which note is
incorporated by reference in Item 8.
From time to time reports are filed with the United States Department of
Energy relating to the company's reserves. The reserves reported in the Notes to
Financial Statements are consistent with other filings pertaining to proved net
reserves. Minor differences in gas volumes occur due to different pressure bases
being required in the reports. However, the difference in estimates does not
exceed 5% of the total estimated reserves.
Undeveloped Acreage
As of December 31, 1997, the company had interests in undeveloped oil
and gas leases in the Gulf of Mexico, the United Kingdom sector of the North
Sea, offshore China and onshore in other international areas as follows:
Gross Net
Location Acreage Acreage
Domestic 526,704 318,725
---------- ----------
North Sea 1,047,941 391,317
---------- ----------
China 3,232,132 2,183,368
---------- ----------
Other international -
Yemen 9,880,007 9,248,863
Thailand 1,464,840 461,425
Indonesia 1,380,028 414,008
---------- ----------
12,724,875 10,124,296
---------- ----------
Total Undeveloped Acreage 17,531,652 13,017,706
========== ==========
Developed Acreage
At December 31, 1997, the company had interests in developed oil and gas
acreage in the Gulf of Mexico, the United Kingdom sector of the North Sea,
offshore China and onshore Indonesia as follows:
Gross Net
Location Acreage Acreage
Domestic 364,873 154,827
North Sea 139,100 23,963
China 78,332 19,191
Indonesia 345,007 103,502
------- -------
Total Developed Acreage 927,312 301,483
======= =======
Net Exploratory and Development Wells
Domestic and international exploratory and development wells drilled
during the three years ended December 31, 1997, are as follows. Included in 1996
and 1995 are wells drilled on onshore North American properties that were later
merged into Devon or divested.
1997 1996 1995
---- ---- -----
Exploratory Wells - Net(1)
Domestic
Productive 2.65 4.91 2.00
Dry holes 2.65 .83 6.51
---- ---- -----
5.30 5.74 8.51
---- ---- -----
North Sea
Dry holes .40 2.19 .77
---- ---- -----
China
Dry holes 1.07 - .45
---- ---- -----
Other international
Productive - - 1.71
Dry holes .30 .50 1.43
---- ---- -----
.30 .50 3.14
---- ---- -----
Total 7.07 8.43 12.87
==== ==== =====
Development Wells - Net(1)
Domestic
Productive 5.11 17.26 30.23
Dry holes - 1.00 2.28
----- ------- -------
5.11 18.26 32.51
---- ----- -----
North Sea
Productive .55 1.09 1.26
----- ------- -------
China
Productive 1.72 1.72 2.45
---- ------- -------
Other international
Productive 2.40 1.26 6.92
Dry holes - .04 .67
----- ------- -------
2.40 1.30 7.59
---- ------- -------
Total 9.78 22.37 43.81
==== ===== =====
(1)Net Wells - The total of the company's fractional working interests in "gross
wells" expressed as the equivalent number of full-interest wells.
Gross and Net Wells
The number of productive oil and gas wells in which the company had an
interest at December 31, 1997, is shown in the following table. These wells
include 156 gross or 13.02 net wells associated with improved recovery projects
and 159 gross or 83.46 net wells that have multiple completions but are included
as single wells. Substantially all of the domestic wells are in the Gulf of
Mexico.
Gross Net
Location Wells Wells
Crude Oil
Domestic 237 98.99
North Sea 71 6.47
China 24 5.88
Indonesia 13 3.90
--- ------
345 115.24
--- ------
Natural Gas
Domestic 104 55.14
North Sea 38 2.76
--- ------
142 57.90
--- ------
Total Wells 487 173.14
=== ======
Wells in Process of Drilling
At year-end 1997, the company had wells classified as temporarily
suspended or in the process of drilling as follows:
Gross Net
Wells Wells
Domestic 13 5.25
North Sea 11 1.11
China 5 2.25
Indonesia 6 1.80
Thailand 1 .32
-- -----
Total Wells 36 10.73
== =====
Crude Oil and Natural Gas Sales
The following table summarizes the sales of the company's proprietary
crude oil and natural gas production for the past three years:
(Millions) 1997 1996 1995
------ ------ ------
Crude oil and condensate - barrels
Domestic 8.8 11.2 10.6
North Sea 8.7 11.2 13.6
China 3.2 1.3 -
Other international .2 1.2 1.7
------ ------ ------
20.9 24.9 25.9
====== ====== ======
Crude oil and condensate
Domestic $163.8 $216.4 $165.7
North Sea 162.8 213.1 221.9
China 56.4 25.0 -
Other international 3.1 21.8 26.4
------ ------ ------
$386.1 $476.3 $414.0
====== ====== ======
Natural gas - MCF
Domestic 56.5 83.5 82.2
North Sea 10.6 10.2 7.4
Other international - 9.3 16.5
------ ------ ------
67.1 103.0 106.1
====== ====== ======
Natural gas
Domestic $145.4 $180.5 $127.8
North Sea 26.7 26.8 19.8
Other international - 10.6 14.1
------ ------ ------
$172.1 $217.9 $161.7
====== ====== ======
Sales of Production
All of the company's crude oil and natural gas is sold at market prices.
Kerr-McGee has formed strategic alliances with two energy marketing companies to
sell substantially all proprietary domestic crude oil and natural gas
production.
Improved Recovery
The company continues to initiate and/or participate in improved
recovery projects where geological, engineering and economic conditions are
favorable. As of December 31, 1997, the company was participating in 12 active
improved recovery projects located principally in the United Kingdom sector of
the North Sea. Most of the company's operations outside North America
incorporate water injection. Pressure-maintenance operations began at or near
the time of initial production from these fields.
Exploration and Development Activities
Gulf of Mexico
In 1997, the Gulf of Mexico was the source of 57% of Kerr-McGee's oil
and gas production. The company continues an aggressive lease acquisition,
exploration and exploitation program in the Gulf of Mexico. In 1997, Kerr-McGee
was a successful participant in two government lease sales and was awarded
nearly 111,000 net acres.
Recent activity includes projects in the Viosca Knoll, Ewing Bank and
Garden Banks areas. A summary of the company's key developments in the Gulf of
Mexico is as follows:
Pompano Field (KM 25%), Viosca Knoll 989 area: This deepwater project,
located in 1,300 feet to 1,900 feet of water, averaged gross production of
46,400 barrels of oil per day and 54 million cubic feet of gas per day in 1997.
Planned development and well work has been completed and records for gross daily
production were set in November 1997. At year-end 1997, 22 platform wells and
seven subsea wells were capable of uncurtailed production of about 52,000
barrels of oil per day.
Ewing Bank 910 (40%): Production is scheduled to start in late 1998 and
peak at 16,000 barrels of oil and 23 million cubic feet of gas per day in
mid-1999. The platform, to be installed in 550 feet of water, will be the
tallest conventional processing facility operated by Kerr-McGee. The company
operates eight surrounding blocks, and additional exploratory drilling will be
conducted after the platform is in place.
Garden Banks 65 (60%): Plans for development were approved and
development activities were under way in 1997. First production is projected for
mid-1998 at an expected rate of 60 million cubic feet of gas per day.
Kerr-McGee, as operator, entered into an alliance with a pipeline company that
will lease the gas production and processing facility to Kerr-McGee,
significantly reducing the company's new-field development cost for this
project.
North Sea
North Sea holdings are a core area for Kerr-McGee. As of December 31,
1997, the company had interests averaging 33% in 39 blocks covering 281,900
undeveloped net acres in the United Kingdom area of the North Sea. Kerr-McGee
operates 22 of these blocks. The company holds an additional 109,400 net
undeveloped acres offshore Ireland and is the designated operator of these
blocks. The United Kingdom portfolio includes prospective exploration blocks and
quality exploitation opportunities on producing properties.
In March 1998, Kerr-McGee announced the signing of a definitive
agreement to purchase the United Kingdom North Sea operations of Gulf Canada
Resources Limited (Gulf Canada). The transaction is expected to be complete in
mid-May subject to regulatory approval. The acquisition of these assets will
significantly increase the company's North Sea reserve base and increase current
production by 80% to more than 42,000 barrels of crude oil per day.
In 1997, the North Sea accounted for 41% of Kerr-McGee's liquids
production, primarily from the Gryphon, Scott, Brae area and Ivanhoe/Rob Roy
fields. Sales of North Sea natural gas averaged 29 million cubic feet per day in
1997, primarily from the Brae area and Scott field.
A summary of the company's key developments in the North Sea is as
follows:
Janice field, Block 30/17a (50.9%): A floating production unit is being
outfitted in the United Kingdom for installation in mid-1998. The field is being
developed with horizontal oil-production and water-injection wells. Production
is expected to begin in the third quarter of 1998 and peak at about 55,000
barrels of oil per day later in the year. Extra processing capacity will allow
use of the Janice facility as a hub for future developments in the area. In
February 1998, Kerr-McGee acquired a 55% interest in the adjoining Block 30/22b.
Gryphon field, Block 9/18b (25%): Kerr-McGee operates this field, the
first to use a permanently moored floating production, storage and offloading
vessel (FPSO) and to be developed totally with horizontal production wells.
Production averaged 28,700 barrels of oil per day in 1997. An exploration well,
drilled in late 1997, encountered oil pay that may indicate a substantial
extension to the field. Evaluation of this potential extension is continuing.
Interest in this field will increase to 46.5% upon closing of the Gulf Canada
transaction discussed above.
Scott field (5.2%), blocks 15/21/a and 15/22: Production averaged
116,000 barrels of oil per day in 1997.
Brae area, blocks 16/3a, 16/7a (both 8%) and 16/3b (5%): More than 12%
of Kerr-McGee's 1997 total net oil production flowed from six fields in the Brae
area of the North Sea.
China and Other International
China:
The company acquired two new blocks in the South China Sea. Block 26/06
(100%) covers more than 1.1 million acres. Block 15/35 (38%) covers
approximately 234,000 acres. Kerr-McGee is the operator for Block 15/35, and an
exploration well is planned for 1998. The company now operates three blocks in
this area.
Liuhua 11-1 field (24.5%), South China Sea: Located in 1,000 feet of water
130 miles southeast of Hong Kong, the field was developed entirely with
horizontal wells. Production began in 1996 and averaged 43,000 barrels per day
in 1997.
Block 04/36 (45%), Bohai Bay: First discovered in 1996, three successful
appraisal wells were drilled in 1997. A 150 square kilometer 3-D seismic survey
was started in 1997 and is continuing in 1998. Development options for this area
are being evaluated.
Indonesia:
Jabung Block (30%), Sumatra: The North Geragai field came on stream in
August 1997 and averaged more than 6,000 barrels per day at year-end. Production
rates are expected to increase in 1998 and reach a peak of about 10,000 barrels
per day in 1999. In the Makmur field, approval for a plan of development was
received from Indonesian government authorities. Production commenced in January
1998 and, after permanent production facilities are added, peak production is
forecast at approximately 10,000 barrels per day later in the year. Appraisal
drilling commenced during the year in the Northeast Betara gas field and will
continue into 1998. Negotiations are continuing for marketing the production.
Thailand:
Block 5440/38 (31.5%): An exploration well was spudded in 1997 and is
drilling in the first quarter of 1998. Block W7/38 (42.5%), Andaman Sea:
Kerr-McGee will be the operator and received formal notification in early 1998
that it was awarded this nearly 4.9 million-acre offshore block.
Yemen:
Kerr-McGee has signed two production-sharing agreements in Yemen.
Acquired were Block 50, Hazar (95%), which covers more than 8 million acres, and
Block 51, East Al Hajr (87.5%), covering nearly 2 million acres. Seismic data
acquisition commenced during 1997, and the company plans exploratory drilling in
1998.
CHEMICALS
Kerr-McGee's chemical operations produce and market inorganic industrial
and specialty chemicals, heavy minerals and forest products. Many of these
products are processed using proprietary technology developed by the company.
Industrial chemicals include titanium dioxide pigment, synthetic rutile,
manganese products, sodium chlorate and ammonium perchlorate. Specialty
chemicals are boron trichloride and elemental boron. Heavy minerals produced are
ilmenite, rutile, zircon and leucoxene. Forest products operations treat
railroad crossties and other hardwood products and provide other wood-treating
services.
Pigment
The company's primary product is titanium dioxide pigment, which is
produced by the company's proprietary chloride-process technology. Kerr-McGee is
one of four companies that own chloride technology. The coatings and plastics
industries prefer the optical qualities of chloride pigment over pigment
produced by the older sulfate process.
The company's titanium dioxide pigment plant at Hamilton, Mississippi,
has a production capacity of 160,000 tons per year. An expansion of 30,000 tons
per year was completed during 1997, and preliminary engineering for another
expansion began in early 1998. The feedstock for the Hamilton plant is synthetic
rutile, which is produced at the company's plant at Mobile, Alabama. In late
1997, the annual production capacity at Mobile was increased from 162,000 tons
to 220,000 tons.
Heavy minerals are mined from a 10,350-acre lease in Western Australia.
The property's remaining 177 million tons of sand contain 3.7% heavy minerals.
The valuable heavy minerals contained within this 6.5 million-ton heavy-mineral
deposit are composed of 4.5% rutile, 61.3% ilmenite, 3.3% leucoxene and 11.1%
zircon, with the remaining 19.8% of minerals presently having no value.
Delineation drilling on the lease during 1997 confirmed additional recoverable
heavy minerals, resulting in an upward reserve revision. Additional drilling is
required to determine the actual quantities and grade of heavy minerals
contained in a second 2,540-acre property and the extent to which it may be
feasible to mine this deposit. The company holds a 50% interest in both
properties.
The heavy minerals are processed at the separation mill, which has a
capacity of 559,000 tons per year. The recovered ilmenite is processed into
synthetic rutile at a facility adjoining the separation mill. The synthetic
rutile facility has a capacity of 200,000 tons per year. Production from the
synthetic rutile plant serves as feedstock for the pigment plants in Australia
and Saudi Arabia. The annual production capacity of the pigment plants in
Australia and Saudi Arabia, in which the company owns interests of 50% and 25%,
respectively, is 90,000 and 72,000 tons, respectively.
For information regarding heavy-mineral reserves, production and average
market prices for each of the years 1993 through 1997, reference is made to Note
30 in the Consolidated Financial Statements of the 1997 Annual Report to
Stockholders, which note is incorporated by reference in Item 8.
In January 1998, the company announced its intention to acquire an 80%
interest in Bayer AG's European titanium dioxide pigment business, including
plants at Uerdingen, Germany, and Antwerp, Belgium. The Uerdingen plant has
annual capacity of 110,000 tons, and the Antwerp plant's annual capacity is
33,000 tons. This acquisition will increase Kerr-McGee's titanium dioxide
pigment production capacity 55%. The company plans to install its chloride
technology at the Uerdingen plant.
Electrolytic Products
In March 1998, Kerr-McGee sold its ammonium perchlorate business. In
January 1998, the company signed a letter of intent to negotiate the sale of the
remaining electrolytic operations.
Facilities at the Hamilton, Mississippi, complex include a sodium
chlorate plant with a production capacity of 143,000 tons per year and a
manganese metal plant that has capacity of 12,000 tons per year.
At Henderson, Nevada, the facilities include electrolytic cells and
processing equipment for the manufacture of manganese dioxide and a specialty
boron products plant. Annual production capacity for each product is as follows:
manganese dioxide - 28,500 tons; boron trichloride - 750,000 pounds and
elemental boron - 80,000 pounds.
Forest Products
In March 1998, the company signed an agreement in principle to sell its
forest products operations. The agreement covers marketing and operations at the
company's six crosstie-treating plants.
The principal forest product is treated railroad crossties. Other
products include crossing materials, bridge timbers and utility poles. The six
wood-preserving plants are located along major railways in Madison, Illinois;
Indianapolis, Indiana; Columbus, Mississippi; Springfield, Missouri; The Dalles,
Oregon; and Texarkana, Texas.
Marketing
Titanium dioxide pigment is the world's preferred white opacifier and is
used primarily in coatings, plastics and paper. The company's plant at Hamilton,
Mississippi, primarily serves the Americas. Most of the pigment production from
the joint venture in Western Australia is sold in the Far East and Australia.
The production from the plant located in Saudi Arabia is sold primarily to
customers located in the Middle East and Europe. The production from the
Uerdingen, Germany, and Antwerp, Belgium, operations will primarily be sold in
Europe. The Bayer AG acquisition will increase Kerr-McGee's gross titanium
dioxide pigment capacity to about 10% of global capacity. World demand for
pigments is expected to increase by an average of more than 3% per year during
the next several years.
Manganese dioxide is a major component of alkaline batteries. The
company's share of the North American manganese dioxide market is approximately
one-third. Demand is projected to grow 5% to 8% annually through the year 2000.
The demand is driven by the need for alkaline batteries for portable electronic
devices.
Sodium chlorate is used in the environmentally preferred chlorine dioxide
process for bleaching pulp. U.S. demand for sodium chlorate is expected to
increase approximately 5% per year in the near term as the pulp and paper
industry continues conversion to the chlorine dioxide process. The company has
about a 10% share of the U.S. market.
Manganese metal is used in aluminum, specialty and stainless steel
alloys. The largest use of manganese metal is for alloying aluminum can sheet.
The company has a 50% share of the U.S. aluminum industry manganese
requirements.
Kerr-McGee is the world's largest producer of elemental boron, which is
used primarily in automobile airbags. Kerr-McGee is also the largest producer of
boron trichloride, which is used to produce boron filament for sports equipment
and composites for high-performance aircraft.
The company's share of the U.S. railroad crosstie market is in excess of
40%. Domestic crosstie demand is expected to remain relatively flat at about 13
million to 15 million ties per year.
COAL
In January 1998, the company announced that its board of directors has
authorized management to exit the coal business. The timing and manner of
exiting the business has not been determined.
Coal operations are conducted by Kerr-McGee Coal Corporation, which
produces coal from Jacobs Ranch Mine, a surface mine in the Wyoming Powder River
Basin, and from Galatia Mine, an underground mine in the Illinois Basin. Most
1997 sales were to electric utilities under long-term sales contracts, with the
balance being sold on a spot basis to domestic customers.
Reserves and Production
The company owns or leases coal reserves in Wyoming and Illinois. As of
December 31, 1997, the company's coal reserves were as follows (millions of
tons):
In-Place Recoverable
Demonstrated Demonstrated Classifi- Mining
State/Mining Unit Tons Tons cation Method
Wyoming -
Jacobs Ranch Mine 253 240 Steam Surface
Illinois -
Galatia Mine - Met./ Under-
Harrisburg No. 5 71 52 Steam ground
Under-
Herrin No. 6 330 214 Steam ground
--- ---
654 506
=== ===
Most of the Wyoming reserves are held under Federal leases, with a small
portion being leased from the State of Wyoming. The Illinois coal reserves are
owned by Kerr-McGee or held under leases with private parties.
The Clovis Point Mine, a Wyoming surface mining operation, was sold
effective June 1, 1997, resulting in no material gain or loss to the company.
The lease area held approximately 290 million recoverable tons of coal reserves.
Production from Kerr-McGee mines for 1997 and 1996 was as follows:
(Millions of tons) 1997 1996
---- ----
Jacobs Ranch Mine 27.1 24.5
Galatia Mine 5.0 6.6
Clovis Point Mine - .2
---- ----
Total production 32.1 31.3
==== ====
For information regarding coal reserves, production and average market
prices for each of the years 1993 through 1997, reference is made to Note 30 to
the Consolidated Financial Statements in the 1997 Annual Report to Stockholders,
which note is incorporated by reference in Item 8.
Jacobs Ranch Mine
Jacobs Ranch Mine is located 50 miles southeast of Gillette, Wyoming, in
the South Powder River Basin. The company owns coal rights on 8,154 acres, of
which 2,759 acres are underlain by 240 million recoverable tons of coal. The
company owns surface rights to 14,116 acres in and around the mine block. The
mine permit was renewed in August 1994 for a five-year period and expanded to
incorporate additional leased acreage and the buffer zone. In February 1995, the
Bureau of Land Management approved the consolidation of three Federal coal
leases into one logical mining unit to allow use of the most effective mining
sequence for the combined leases. In July 1997, the Wyoming State Land Board
approved the transfer of a state coal lease adjacent to Jacobs Ranch Mine to
Kerr-McGee. This transfer added 5.2 million recoverable tons to the reserves
with a favorable royalty rate.
A preparation plant expansion was completed in September 1997, which
increased the annual plant capacity of Jacobs Ranch Mine by 50% to 39 million
tons of low-sulfur coal. Actual production levels will increase as the market
dictates.
Shipments began in 1978 and, through December 1997, totaled more than
291 million tons. All deliveries were made by rail, with both Burlington
Northern Santa Fe and Union Pacific railroads servicing the mine. Jacobs Ranch
Mine coal meets Phase II emission requirements of the Clean Air Act Amendments
of 1990 and is sold primarily under long-term contracts for ultimate use by
electric utilities. Jacobs Ranch Mine is presently the fourth-largest coal mine
in the United States. Productivity continues to increase through the use of
larger, more efficient equipment and more productive mining operations.
Galatia Mine
The Galatia Mine is located in southern Illinois near the town of
Galatia in Saline County. It produces coal from the Harrisburg No. 5 seam, which
can be used as either a high-Btu, relatively low-sulfur steam coal or a
semi-soft coking coal. Its use as a steam coal allows utilities to comply with
Phase I of the Clean Air Act Amendments of 1990 without installing flue gas
desulfurization units or blending with other coals.
Shipments from the mine began in January 1984 and totaled more than 47
million tons through December 1997. Shipments are primarily by rail, although
the mine loadout is capable of loading trucks, and weighing facilities are
onsite. The Illinois Central Railroad is the originating carrier for rail
shipments.
Within the mine area, Kerr-McGee controls approximately 33,600 acres
through leases and mineral ownership. This includes control of the Herrin No. 6
seam. Declining demand for this higher-sulfur content coal led to the cessation
of mining in the No. 6 seam in 1994. Galatia Mine has an annual production
capacity of 6.6 million tons of high-Btu, relatively low-sulfur coal.
Marketing
Bituminous and sub-bituminous steam coals are sold under long-term
contracts and spot purchase agreements to utilities in 18 states, primarily in
the central and southeastern United States. Coal sales include sales of coal
produced by third parties.
Although developments in 1997 indicate some market firming, coal markets
continue to experience competitive pricing. Existing long-term contracts provide
stable earnings under these competitive conditions and are the basis for the
expansion of business with key domestic electric utilities. Existing production
capacity should permit participation in the expected growth in domestic demand
for lower-sulfur coal, as well as to make selected export sales.
OTHER
Research and Development
The company's Technical Center in Oklahoma City performs research and
development in support of its existing businesses and in the pursuit of new
products and processes. These programs continue to concentrate on improvements
to chemical plant processes and products.
Employees
On December 31, 1997, the company had 3,746 employees, none of whom was
represented by a collective bargaining agreement.
Competitive Conditions
In the petroleum industry, competition exists from the initial process
of bidding for leases to the sale of crude oil and natural gas. Competitive
factors include finding and developing petroleum hydrocarbons, transporting raw
materials and developing successful marketing strategies. The volatility of
crude oil and natural gas prices during the past several years has placed
increased emphasis on all competitive aspects of the petroleum industry.
The titanium dioxide pigment business has been very competitive. The
number of competitors in the industry is decreasing due to consolidations now
under way. Worldwide, the company is one of four companies that own chloride
technology to produce titanium dioxide pigment. It is expected that many of the
older sulfate plants will be converted to the chloride technology. Demand for
pigment is expected to increase by an average of more than 3% per year over the
next several years.
Most of the company's coal customers are domestic electric utilities, an
extremely competitive market. Cost efficiencies, transportation strategies and
product quality, such as Btu and sulfur content, are key competitive factors in
the coal industry.
It is not possible to predict the effect of future competition on
Kerr-McGee's operating and financial results.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL RESERVES
General
The company is subject to extensive regulation by Federal, state, local
and foreign governments. The production and sale of crude oil and natural gas in
the United States are subject to regulation by Federal and state authorities,
particularly with respect to allowable rates of production, offshore production
and environmental matters. Stringent environmental-protection laws and
regulations apply to almost all of the company's operations. In addition, there
are special taxes that apply to the oil, gas and coal mining industries.
Environmental Matters
Federal, state and local laws and regulations relating to environmental
protection affect almost all company plants and facilities. During 1997, direct
capital and operating expenditures related to environmental protection and
cleanup of existing sites totaled $37 million. Additional expenditures totaling
$94 million were charged to environmental reserves. While it is extremely
difficult to estimate the total direct and indirect costs to the company of
government environmental regulations, it is presently estimated that the direct
capital and operating expenditures and expenditures charged to reserves will be
approximately $145 million in 1998 and $125 million in 1999. Some expenditures
to reduce the occurrence of releases to the environment may result in increased
efficiency; however, most of these expenditures produce no significant increase
in production capacity, efficiency or revenue. Operation of pollution-control
equipment installed for these purposes usually entails additional expense.
Based on present information, the company believes that it has accrued
and is accruing reasonable reserves for expenditures that may have to be paid in
the future for environmental matters. Because of continually changing laws and
regulations, the nature of the company's businesses and pending proceedings, it
is not possible to reliably estimate the amount or timing of all future
expenditures relating to environmental matters. The company provides for costs
related to environmental contingencies when a loss is probable and the amount is
reasonably estimable. Although management believes adequate reserves have been
provided for all known environmental contingencies, it is possible, due to the
above noted uncertainties, that additional reserves could be required in the
future.
Also see "Item 3. Legal Proceedings," which follows.
Item 3. Legal Proceedings
The company continues its efforts to decommission a facility located in
West Chicago, Illinois, which processed thorium ores and was closed in 1973. For
a discussion of contingencies, including a detailed discussion of the West
Chicago matter, reference is made to the Environmental Matters section of
Management's Discussion and Analysis and Note 10 to the Consolidated Financial
Statements in the 1997 Annual Report to Stockholders, which discussion and note
are incorporated by reference in Item 7 and Item 8, respectively.
Item 4. Submission of Matters to a Vote of Security Holders
None submitted during the fourth quarter of 1997.
Executive Officers of the Registrant
<TABLE>
The following is a list of executive officers, their ages, and their
positions and offices as of January 1, 1998:
<CAPTION>
Name Age Office
<S> <C> <C>
Luke R. Corbett 50 Chairman of the Board and Chief Executive Officer since
1997. President and Chief Operating Officer from 1995
until 1997. Group Vice President from 1992 until 1995.
Tom J. McDaniel 59 Vice Chairman of the Board since 1997. Senior Vice
President from 1986 until 1997. Corporate Secretary from
1989 until 1997.
John C. Linehan 58 Executive Vice President since 1997. Chief Financial
Officer since 1987. Senior Vice President from 1987 until
1997.
Kenneth W. Crouch 54 Senior Vice President since 1996. Senior Vice President,
Exploration, Kerr-McGee Oil & Gas Corporation since 1996.
Senior Vice President, North America and International
Exploration, Exploration and Production Division during
1996. Vice President, Gulf of Mexico and International
Exploration, Exploration and Production Division from 1995
until 1996. Vice President and Managing Director of
Exploration for North Sea Operations, Exploration and
Production Division from 1993 until 1995.
James F. Guion 52 Senior Vice President since April 1997. Senior Vice
President, Production, Kerr-McGee Oil & Gas Corporation
since April 1997. Vice President and Managing Director,
United Kingdom Operations, Exploration and Production
Division from January 1993 until March 1997.
William D. Hake 48 Senior Vice President since 1996. Vice President of
Operations for Kerr-McGee Coal Corporation from 1991 until
1996.
Russell G. Horner, Jr. 58 Senior Vice President and Corporate Secretary since 1997.
General Counsel since 1986. Vice President from 1986
until 1997.
Michael G. Webb 50 Senior Vice President since 1993. Senior Vice President,
Exploration, Exploration and Production Division from 1993
until 1996. Vice President, Exploration from 1992 to 1993.
Julius C. Hilburn 47 Vice President, Human Resources since 1996. Manager,
Benefits Administration from 1992 until 1996.
Deborah A. Kitchens 41 Vice President and Controller since 1996. Controller,
Exploration and Production Division from 1992 until 1996.
J. Michael Rauh 48 Treasurer since 1996. Vice President since 1987.
Controller from 1987 until 1996.
Donald F. Schiesz 60 Vice President, Safety and Environment since 1994. Senior
Vice President of Kerr-McGee Chemical Corporation from
1991 until 1994.
Jean B. Wallace 43 Vice President, General Administration since 1996. Vice
President, Human Resources from 1989 until 1996.
W. Peter Woodward 49 Senior Vice President since June 1997. Senior Vice
President for Kerr-McGee Chemical since June 1997. Senior
Vice President Chemical Marketing for Kerr-McGee Chemical
Corporation from May 1996 until May 1997. Director Pigment
Business Management, Kerr-McGee Chemical Corporation from
1993 until 1996. Vice President Total Quality Management
for Kerr-McGee Chemical Corporation from 1992 until 1993.
</TABLE>
There is no family relationship between any of the executive officers.
FORWARD-LOOKING INFORMATION
This report contains forward-looking statements and assumptions
concerning Kerr-McGee's future results and prospects. These statements are based
on current expectations and are subject to certain events and risks that may be
beyond the company's control. In addition, the company may from time to time
make oral forward-looking statements. In connection with the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, the company
is hereby identifying important factors that could cause actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of the company. Any such statement is qualified by reference to the
following cautionary statements.
Such events and risks include the success of the oil and gas exploration
program, ultimate volume of recoverable oil and gas reserves, success of
cost-control efforts, general economic conditions, timely development and market
acceptance of customer products for which Kerr-McGee supplies raw materials, and
other risk factors discussed in this annual report on Form 10-K and the
company's 1997 Annual Report to Stockholders. Actual results and developments
may differ from those expressed or implied in this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information relative to the market in which the company's common stock
is traded, the high and low sales prices of the common stock by quarters for the
past two years, and the approximate number of holders of common stock is
furnished in Note 31 to the Consolidated Financial Statements in the 1997 Annual
Report to Stockholders, which note is incorporated by reference in Item 8.
Quarterly dividends declared totaled $1.80 per share for the year 1997,
$1.64 per share for the year 1996 and $1.55 per share for the year 1995. Cash
dividends have been paid continuously since 1941 and totaled $85 million in
1997, $83 million in 1996 and $79 million in 1995.
Item 6. Selected Financial Data
Information regarding selected financial data required in this item is
presented in the schedule captioned "Six-Year Financial Summary" in the 1997
Annual Report to Stockholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
"Management's Discussion and Analysis" in the 1997 Annual Report to
Stockholders is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
For information required under this section, reference is made to the
"Market Risks" section of Management's Discussion and Analysis in the 1997
Annual Report to Stockholders, which discussion is incorporated by reference
above.
Item 8. Financial Statements and Supplementary Data
The following financial statements and supplementary data included in
the 1997 Annual Report to Stockholders are incorporated herein by reference:
Report of Independent Public Accountants
Consolidated Statement of Income
Consolidated Statement of Retained Earnings
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Financial Statements
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of directors -
For information required under this section, reference is made to the
"Election of Directors" section of the company's proxy statement for
1998 made in connection with its Annual Stockholders' Meeting to be
held on May 12, 1998.
(b) Identification of executive officers -
The information required under this section is set forth in the
caption "Executive Officers of the Registrant" on pages 17, 18 and 19
of this Form 10-K pursuant to Instruction 3 to Item 401(b) of
Regulation S-K and General Instruction G(3) to Form 10-K.
(c) Compliance with Section 16(a) of the 1934 Act -
For information required under this section, reference is made to the
"Compliance with Section 16(a) of the Securities Exchange Act of
1934" section of the company's proxy statement for 1998 made in
connection with its Annual Stockholders' Meeting to be held on May
12, 1998.
Item 11. Executive Compensation
For information required under this section, reference is made to the
"Executive Compensation and Other Information" section of the company's proxy
statement for 1998 made in connection with its Annual Stockholders' Meeting to
be held on May 12, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
For information required under this section, reference is made to the
"Security Ownership" portion of the "Election of Directors" section of the
company's proxy statement for 1998 made in connection with its Annual
Stockholders' Meeting to be held on May 12, 1998.
Item 13. Certain Relationships and Related Transactions
For information required under this section, reference is made to the
"Election of Directors" and "Certain Relationships and Related Transactions"
sections of the company's proxy statement for 1998 made in connection with its
Annual Stockholders' Meeting to be held on May 12, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements -
The following consolidated financial statements of Kerr-McGee
Corporation and its subsidiary companies, included in the
company's 1997 Annual Report to Stockholders, are incorporated by
reference in Item 8:
Report of Independent Public Accountants
Consolidated Statement of Income for the Years Ended December
31, 1997, 1996 and 1995
Consolidated Statement of Retained Earnings for the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheet at December 31, 1997 and 1996
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
(a) 2. Financial Statement Schedules -
Report of Independent Public Accountants on Financial
Statement Schedule
Schedule II - Valuation Accounts and Reserves for the Years
Ended December 31, 1997, 1996 and 1995
Schedules I, III, IV and V are omitted as the subject matter
thereof is either not present or is not present in amounts
sufficient to require submission of the schedules in accordance
with instructions contained in Regulation S-X.
(a) 3. Exhibits -
The following documents are filed under Commission file number
1-3939 as a part of this report.
Exhibit No.
Exhibit No.
3.1 Restated Certificate of Incorporation of
Kerr-McGee Corporation, filed as Exhibit 3.1
to the report on Form 10-Q for the quarter
ended June 30, 1987, and incorporated herein
by reference.
3.2 Bylaws of Kerr-McGee Corporation as approved
March 10, 1998.
4.1 Amended and Restated Rights Agreement dated
as of July 9, 1996, filed as Exhibit 1 to
the report on Form 8-K dated July 9, 1996,
and incorporated herein by reference.
4.2 Indenture dated as of June 1, 1976, between
the company and Citibank, N.A., as trustee,
relating to the company's 8-1/2% Sinking
Fund Debentures due June 1, 2006 filed as
Exhibit 2 to Form S-7, effective June 10,
1976, Registration No. 2-53878, and
incorporated herein by reference.
4.3 Indenture dated as of November 1, 1981,
between the company and United States Trust
Company of New York, as trustee, relating to
the company's 7% Debentures due November 1,
2011 filed as Exhibit 4 to Form S-16,
effective November 16, 1981, Registration
No. 2-772987, and incorporated herein by
reference.
4.4 Indenture dated as of August 1, 1982 filed
as Exhibit 4 to Form S-3, effective August
27, 1982, Registration Statement No.
2-78952, and incorporated herein by
reference, and its first supplement dated
May 7, 1996, between the company and
Citibank, N.A., as trustee, relating to the
company's 6.625% notes due October 15, 2007,
and 7.125% debentures due October 15, 2027;
4.5 The $325 million Credit Agreement dated as
of December 4, 1996, providing for a
five-year revolving credit facility with a
bullet maturity on the fifth anniversary of
the execution of the Credit Agreement;
4.6 The company agrees to furnish to the
Securities and Exchange Commission, upon
request, copies of each of the following
instruments defining the rights of the
holders of certain long-term debt of the
company: the Note Agreement dated as of
November 29, 1989, among the Kerr-McGee
Corporation Employee Stock Ownership Plan
Trust (the Trust) and several lenders,
providing for a loan guaranteed by the
company of $125 million to the Trust; the
Amended and restated Credit Agreement dated
as of April 28, 1997, among Kerr-McGee
Corporation, Kerr-McGee Oil (U.K.) PLC, and
several banks providing for revolving credit
of up to a total of $225 million -- $75
million through April 24, 1998, and $150
million through April 28, 2002; and the
Revolving Credit Agreement dated as of
February 20, 1997, between Kerr-McGee China
Petroleum Ltd., as borrower, and Kerr-McGee
Corporation, as guarantor, and several banks
providing for revolving credit of up to $105
million through March 6, 2000. The total
amount of securities authorized under each
of such instruments does not exceed 10% of
the total assets of the company and its
subsidiaries on a consolidated basis.
4.7 Kerr-McGee Corporation Direct Purchase and
Dividend Reinvestment Plan filed on Form S-3
effective August 19, 1993, Registration
No. 33-66112, and incorporated herein by
reference.
10.1* Deferred Compensation Plan for Non-Employee
Directors as amended and restated effective
October 1, 1990, filed as Exhibit 10(1) to
the report filed on Form 10-K for the year
ended December 31, 1990, and incorporated
herein by reference.
10.2* Kerr-McGee Corporation Stock Deferred
Compensation Plan for Non-Employee Directors
as amended and restated effective August 1,
1995, filed on Form 10-K for the year ended
December 31, 1995, and incorporated herein
by reference.
10.3* Description of the company's Annual
Incentive Compensation Plan, filed on Form
10-K for the year ended December 31, 1995,
and incorporated herein by reference.
10.4* The Long Term Incentive Program as amended
and restated effective May 9, 1995, filed as
Exhibit 4.2 on Form 10-Q for the quarter
ended March 31, 1995, and incorporated
herein by reference.
10.5* Benefits Restoration Plan as amended and
restated effective September 13, 1989, filed
as Exhibit 10(6) to the report on Form 10-K
for the year ended December 31, 1992, and
incorporated herein by reference.
10.6* Kerr-McGee Corporation Executive Deferred
Compensation Plan as amended and restated
effective January 1, 1996, filed as Exhibit
10.6 to the report on Form 10-K for the year
ended December 31, 1995, and incorporated
herein by reference.
10.7* Kerr-McGee Corporation Supplemental
Execu-tive Retirement Plan as amended and
restated effective May 3, 1994, filed as
Exhibit 10.8 on Form 10-K for the year ended
December 31, 1994, and incorporated herein
by reference.
10.8* Amended and restated Agreement, restated as
of December 31, 1992, between the company
and John C. Linehan filed as Exhibit 10(10)
on Form 10-K for the year ended December
31, 1992, and incorporated herein by
reference.
10.9* Amended and restated Agreement, restated as
of December 31, 1992, between the company
and Luke R. Corbett filed as Exhibit 10(11)
on Form 10-K for the year ended December
31, 1992, and incorporated herein by
reference.
10.10* Amended and restated Agreement, restated as
of December 31, 1992, between the company
and Tom J. McDaniel filed as Exhibit 10.13
on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
10.11* Amended and restated Agreement, restated
as of December 31, 1992, between the company
and Russell G. Horner, Jr.
10.12* Amended and restated Agreement, restated
as of December 31, 1992, between the company
and Kenneth W. Crouch.
10.13* Consulting agreement, as of February 1997,
between the company and Frank A. McPherson
filed as Exhibit 10.13 on Form 10-K for the
year ended December 31, 1996, and
incorporated herein by reference.
10.14* Form of agreement, amended and restated as
of December 31, 1992, between the company
and certain executive officers not named in
the Summary Compensation Table contained in
the company's definitive Proxy Statement for
the 1998 Annual Meeting of Stockholders,
filed as Exhibit 10(14) on Form 10-K for the
year ended December 31, 1992, and
incorporated herein by reference.
12 Computations of ratio of earnings to fixed
charges.
13 1997 Annual Report to Stockholders.
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule (electronic filing
only).
*These exhibits relate to the compensation plans and arrangements of the
company.
(b) Reports on Form 8-K -
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1997.
<PAGE>
Report of Independent Public Accountant On Financial
Statement Schedule
To Kerr-McGee Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Kerr-McGee
Corporation's 1997 Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 20, 1998. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The Schedule of Valuation Accounts and Reserves is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 20, 1998
<PAGE>
SCHEDULE II
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
VALUATION ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Deductions Balance at
Beginning Profit and Other from End of
(Millions of dollars) of Year Loss Accounts Reserves Year
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
a. Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 13 $ 2 $ - $ 1 $ 14
Warehouse inventory obsolescence 3 1 - 1 3
---- ---- ---- --- ----
$ 16 $ 3 $ - $ 2 $ 17
==== ==== ==== === ====
b. Not deducted from asset accounts
Environmental $235 $ 30 $(11)(A)(B) $94 $160
Postretirement benefits 117 11 - 8 120
Oil and gas site dismantlement and coal
site reclamation and restoration 110 (3) (11)(B) 5 91
Surface mine stripping cost 15 38 - 34 19
Pension benefits 7 11 5 (A) 13 10
Other 7 1 - 1 7
---- ---- ---- --- ----
$491 $ 88 $(17) $155 $407
==== ==== ==== ==== ====
Year Ended December 31, 1996
a. Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 14 $ 1 $ - $ 2 $ 13
Warehouse inventory obsolescence 3 - - - 3
---- ---- ---- --- ----
$ 17 $ 1 $ - $ 2 $ 16
==== ==== ==== === ====
b. Not deducted from asset accounts
Environmental $230 $ 55 $ 4 (A) $54 $235
Postretirement benefits 112 11 - 6 117
Oil and gas site dismantlement and coal
site reclamation and restoration 103 14 - 7 110
Surface mine stripping cost 16 35 - 36 15
Pension benefits 11 - (4)(A) - 7
Other 6 2 - 1 7
---- ---- ---- --- ----
$478 $117 $ - $104 $491
==== ==== ==== ==== ====
Year Ended December 31, 1995
a. Deducted from asset accounts
Allowance for doubtful notes
and accounts receivable $ 11 $ 3 $ 1 $ 1 $ 14
Warehouse inventory obsolescence 2 1 - - 3
---- ---- ---- --- ----
$ 13 $ 4 $ 1 $ 1 $ 17
==== ==== ==== === ====
b. Not deducted from asset accounts
Environmental $166 $121 $ 4 (A) $61 $230
Postretirement benefits 108 12 (1)(A) 7 112
Oil and gas site dismantlement and coal
site reclamation and restoration 94 12 - 3 103
Surface mine stripping cost 12 37 - 33 16
Pension benefits 9 4 - 2 11
Other 8 1 (2)(A) 1 6
---- ---- ---- --- ----
$397 $187 $ 1 $107 $478
==== ==== ==== ==== ====
(A) Transfer (to) from current liabilities. (B) Transfer from reserve for
abandonment to environmental.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KERR-McGEE CORPORATION
By: Luke R. Corbett*
Luke R. Corbett,
Chairman of the Board and
Chief Executive Officer
March 26, 1998 By: (John C. Linehan)
Date John C. Linehan,
Executive Vice President and
Chief Financial Officer
By: (Deborah A. Kitchens)
Deborah A. Kitchens,
Vice President and Controller
and Chief Accounting Officer
* By his signature set forth below, John C. Linehan has signed this Annual
Report on Form 10-K as attorney-in-fact for the officer noted above,
pursuant to power of attorney filed with the Securities and Exchange
Commission.
By: (John C. Linehan)
John C. Linehan
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated.
By: Paul M. Anderson*
Paul M. Anderson, Director
By: Bennett E. Bidwell*
Bennett E. Bidwell, Director
By: Luke R. Corbett*
Luke R. Corbett, Director
By: Martin C. Jischke*
Martin C. Jischke, Director
By: Tom J. McDaniel*
Tom J. McDaniel, Director
By: William C. Morris*
William C. Morris, Director
March 26, 1998 By: John J. Murphy*
Date John J. Murphy, Director
By: Leroy C. Richie*
Leroy C. Richie, Director
By: Richard M. Rompala*
Richard M. Rompala, Director
By: Farah M. Walters*
Farah M. Walters, Director
*By his signature set forth below, John C. Linehan has signed this
Annual Report on Form 10-K as attorney-in-fact for the directors noted
above, pursuant to power of attorney filed with the Securities and
Exchange Commission.
By: (John C. Linehan)
John C. Linehan
KERR-McGEE CORPORATION
BYLAWS
ARTICLE I
OFFICES
Section 1. The principal place of business of Kerr-McGee Corporation
("Corporation") shall be in Oklahoma City, Oklahoma.
Section 2. The Corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II
SEAL
Section 1. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization, and the words "Corporate Seal,
Delaware". The Corporate Seal may be used by causing it or a facsimile thereof
to be impressed, affixed or reproduced.
Section 2. The corporate seal shall be retained under the custody and
control of the Secretary or Assistant Secretary except as and to the extent the
use of same by others may be expressly authorized by the Board of Directors.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 1. All meetings of the stockholders for any purpose may be held
at such place as shall be stated in the notice of the meeting.
Section 2. An annual meeting of the stockholders shall be held within
one hundred fifty (150) days after the end of each fiscal year as the Board of
Directors may set for a particular year's annual meeting, at which meeting they
shall elect by a plurality vote by ballot a board of directors and transact such
other business as may properly be brought before the meeting.
Section 3. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum at all meetings of the stockholders
for the transaction of business except as otherwise provided by law, by the
Certificate of Incorporation or by these Bylaws. If, however, such majority
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of voting stock shall be
present. At such adjourned meeting at which the requisite amount of voting stock
shall be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 4. At any meeting of the stockholders, every stockholder having
the right to vote shall be entitled to vote in person or by proxy appointed
either by an instrument in writing, subscribed by such stockholder or by other
means permitted by applicable law. Except as may otherwise be provided in the
Certificate of Incorporation of the Corporation, or any amendment thereto, each
stockholder shall have one vote for each share of the stock having voting power,
registered in his name on the books of the Corporation, and except where the
transfer books of the Corporation shall have been closed or a date shall have
been fixed as a record date for the determination of its stockholders entitled
to vote, no share of stock shall be voted on at any election for directors which
shall have been transferred on the books of the Corporation within twenty days
preceding such election of directors, or on any other matter respecting which
stockholders are entitled to vote if such stock has been so transferred within
twenty days prior to action on such matter.
Section 5. Except as otherwise provided by law, written notice of the
annual meeting of stockholders shall be given at least ten days prior to the
meeting, and in accordance with Article XX hereof, to each stockholder so
entitled to vote thereat.
Section 6. A complete list of the stockholders so entitled to vote at
the ensuing election of directors arranged in alphabetical order, with the
address of each, and the number of voting shares registered in the name of each,
shall be filed in the office where the election is to be held, at least ten days
before every election, and shall at all times during the ordinary business hours
and during the whole time of said election be open to the examination of any
stockholder.
Section 7. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the Chairman
of the Board, and shall be called by the Chairman of the Board or the Secretary
at the request in writing of a majority of the Board of Directors, or at the
request in writing of stockholders owning a majority of the number of shares of
the entire capital stock of the Corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting.
Section 8. Business transacted at all special meetings shall be confined
to the objects stated in the notice of the meeting.
Section 9. Written notice of a special meeting of stockholders, stating
the time and place and object thereof, shall be given at least ten days before
such meeting, and in accordance with Article XX hereof, to each stockholder
entitled to vote thereat.
Section 10.
(A) Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
corporation's notice of meeting delivered pursuant to Article III, Section 5 of
these ByLaws, (b) by or at the direction of the Chairman of the Board or (c) by
any stockholder of the corporation who is entitled to vote at the meeting, who
complied with the notice procedures set forth in subparagraphs (2) and (3) of
this paragraph (A) of this ByLaw and who was a stockholder of record at the time
such notice is delivered to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this ByLaw, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, and, in the case of business other than
nominations, such other business must be a proper matter for stockholder action.
To be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not less than seventy days nor
more than ninety days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this ByLaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least eighty
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this ByLaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the tenth day following the
day on which such public announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting pursuant to Article
III, Section 9 of these ByLaws. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this ByLaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the corporation. Nominations
of stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this ByLaw shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General.
(1) Only persons who are nominated in accordance with the procedures set
forth in this ByLaw shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
ByLaw. Except as otherwise provided by law, the Restated Certificate of
Incorporation or these ByLaws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this ByLaw and, if any proposed nomination or business is not in compliance
with this ByLaw, to declare that such defective nomination shall be disregarded
or that such proposed business shall not be transacted.
(2) For purposes of this ByLaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) For purposes of this ByLaw, no adjournment nor notice of adjournment
of any meeting shall be deemed to constitute a new notice of such meeting for
purposes of this Section 10, and in order for any notification required to be
delivered by a stockholder pursuant to this Section 10 to be timely, such
notification must be delivered within the periods set forth above with respect
to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this ByLaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this ByLaw. Nothing in this ByLaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE IV
DIRECTORS
Section 1. The property and business of the Corporation shall be managed
by its Board of Directors, the members of which need not be stockholders.
Section 2. The number of directors which shall constitute the whole
Board of Directors shall be such number, not contrary to law, as shall be
determined from time to time by resolution adopted by a vote of a majority of
the entire Board of Directors, but shall not be less than three nor more than
twenty.
Section 3. Directors shall be elected at the annual meeting of the
stockholders, and each Director shall be elected to serve until his successor
shall be elected and shall qualify by evidence of acceptance of such office and
such acceptance shall be presumed in the absence of express rejection thereof by
the person elected within ten days after his knowledge of election. In the event
of failure to hold the annual meeting, or to hold an election of directors at
such meeting, such election may be held at any special meeting of the
stockholders called for that purpose. A person who has passed his 64th birthday
and who has not theretofore served as a director of the Corporation shall not be
eligible to be elected a director, whether pursuant to this Section 3 or to
Section 5 of this Article. A person who has passed his 70th birthday, or who has
retired as an employee, shall not in any event be eligible for reelection to the
Board, irrespective of prior service as a director of the Corporation.
Section 4. The Directors may hold their meetings, have one or more
offices and keep the books of the Corporation in the City of Oklahoma City,
Oklahoma, or at such other places as they may from time to time determine and
designate.
Section 5. Vacancies in the Board of Directors, however occasioned, and
newly created directorships resulting from any increase in the authorized number
of directors, may be filled by a majority of the remaining Directors then in
office though less than a quorum and the accepting directors so chosen shall
hold office until the next annual election and until a successor or successors
have been duly elected and qualified unless sooner displaced.
Section 6. Subject to provisions of pertinent law and the Certificate of
Incorporation, dividends, if any, declared respecting any class of shares of the
Corporation's capital stock may be declared by the Board of Directors at any
regular meeting thereof and despite any provision of the Bylaws to the contrary
at any special meeting thereof, whether or not consideration or action
respecting dividends be stated in the notice thereof; and dividends may be paid
in cash or, if the declaration thereof so provides, in property, including
shares of the Corporation. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Directors from time
to time, in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repair or maintaining any
property of the Corporation, or for such other purpose as the Directors shall
think conducive to the interest of the Corporation, and the Directors may
abolish any reserve in the manner in which it was created.
Section 7. The Board of Directors shall have power to close the stock
transfer books of the Corporation for a period not exceeding sixty days
preceding the date of any meeting of stockholders or the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect or in connection
with obtaining consent of stockholders for any purpose; provided, however, that
in lieu of closing the stock transfer books, as aforesaid, the Board of
Directors may fix in advance a date not exceeding sixty days preceding the date
of any meeting of stockholders or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or conversion
or exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting or entitled
to receive payment of any such dividend, or to any such allotment of rights, or
to exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to give such consent, and in such case only such stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting and any adjournment, thereof, or to
receive such allotment of rights, or to exercise such rights or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
Section 8. In addition to the powers and authorities by these Bylaws
expressly conferred upon it, the Board of Directors may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these Bylaws directed or required
to be exercised or done by the stockholders.
Section 9. Any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting if prior to such action
a written consent thereto is signed by all members of the Board and such written
consent is filed with the minutes of proceedings of the Board.
ARTICLE V
COMMITTEES
Section 1. The Board of Directors may appoint an Executive Committee of
two or more Directors, which shall consist of the Chairman of the Board, Vice
Chairman of the Board or the President, and such other Director or Directors as
shall be designated by resolution adopted by the Board of Directors. Such
Committee shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
while the Board of Directors is not in session except that it shall not have
power or authority in reference to (1) amending the Certificate of
Incorporation, (2) adopting an agreement of merger or consolidation under
ss.ss.251 or 252 of the Delaware General Corporation Law, (3) recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (4) recommending to the stockholders
dissolution of the Corporation or revocation of a dissolution, or (5) amending
the Bylaws; nor shall it have any power or authority which the Board of
Directors has by resolution withheld from it. Vacancies in the membership of the
Committee shall be filled by the Board of Directors at a regular meeting or a
special meeting called for that purpose.
Section 2. The Committees of the Board shall be governed by Subsection
(2) of Section 141(c) of the Delaware General Corporation Law which provides for
the designation of committees of the Corporation's Board of Directors and the
permissible functions of such committees.
Section 3. The Board of Directors by resolution or resolutions adopted
by a majority of the Board of Directors may designate other committees, each
committee to consist of two or more Directors of the Corporation and to exercise
such powers and duties and to have such name as may be designated by resolution
adopted by the Board of Directors.
Section 4. Each committee of the Board of Directors may meet at such
stated times and/or upon call with such notice as said committee may by
resolution provide from time to time. At all meetings of each committee, a
majority of members thereof shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the members
present at any meeting at which there is a quorum shall be the act of the
committee.
Section 5. Committees of the Board of Directors shall keep regular
minutes of their proceedings. Any action required or permitted to be taken at
any meeting of the Committee may be taken without a meeting if prior to such
action a written consent thereto is signed by all members of the Committee and
such written consent is filed with the minutes of proceedings of the Committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
Section 1. Directors may, pursuant to resolution of the Board of
Directors, be paid a stated sum with respect to each regular and special meeting
of the Board of Directors and be allowed their expenses of attendance, if any,
for attending each meeting of the Board of Directors. Directors who are not
full-time employees of the Corporation may be paid such additional compensation
for their services as Directors as may from time to time be fixed by resolution
of the Board of Directors. Nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 2. Members of the Executive Committee and members of other
committees of the Board of Directors who are not full-time employees of the
Corporation may, pursuant to resolution of the Board of Directors, be paid a
stated sum for attending meetings of such committees. All members of committees
of the Board of Directors may, pursuant to resolution of the Board of Directors,
be allowed their expenses of attendance, if any, for attending meetings of such
committees.
ARTICLE VII
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Each newly elected Board may meet at such place and time,
either within or without the State of Delaware, provided a majority of the whole
Board of Directors is present at such place and time, no other notice of or any
consent to such meeting shall be necessary in order legally to constitute the
meetings; or, failing such, the newly elected board may meet at such place and
time as shall be consented to by all the members thereof.
Section 2. Regular meetings of the Board of Directors may be held at
such time and place, within or without the State of Delaware as shall from time
to time be determined by the Board of Directors. After there has been such
determination and notice thereof has been once given to each member of the Board
of Directors, regular meetings may be held without any further notice being
given.
Section 3. Special meetings of the Board of Directors may be called by
the Chairman of the Board on two days' notice to each Director, either
personally or by mail or by telegram; special meetings shall be called by the
Chairman of the Board or Secretary in like manner and on like notice on the
written request of two Directors.
Section 4. At all meetings of the Board, a majority of the Directors
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these Bylaws. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
ARTICLE VII-A
WAR AND NATIONAL EMERGENCY
Section 1. The emergency bylaws provided in this Article VII-A shall be
operative during any emergency resulting from an attack on the United States, or
during any nuclear or atomic disaster, or during the existence of any
catastrophe, or other similar emergency condition, as a result of which a quorum
of the Board of Directors cannot readily be convened for action. To the extent
not inconsistent with these emergency bylaws, the Bylaws of the Corporation
shall remain in effect during any emergency and upon its termination these
emergency bylaws shall cease to be operative.
Section 2. During any such emergency a meeting of the Board of Directors
may be called by any officer or director by giving two days' notice thereof to
such of the directors as it may be feasible to reach at the time and by such
means as may be feasible at the time. The notice shall specify the time and the
place of the meeting, which shall be the head office of the Corporation or any
other place specified in the notice. At any such meeting three members of the
then existing Board of Directors shall constitute a quorum, which may act by
majority vote.
Section 3. If the number of Directors who are available to act shall
drop below three, additional Directors, in whatever number is necessary to
constitute a Board of three Directors, shall be selected automatically from the
first available officers or employees in the order provided in the emergency
succession list established by the Board of Directors and in effect at the time
an emergency arises. Additional Directors, beyond the minimum number of three
Directors, but not more than three additional Directors, may be elected from any
officers or employees on the emergency succession list.
Section 4. The Board of Directors is empowered with the maximum
authority possible under the Delaware Corporation Law, and all other applicable
law, to conduct the interim management of the affairs of the Corporation in an
emergency in what it considers to be in the best interests of the Corporation
(including the right to amend this Article) irrespective of the provisions of
the Certificate of Incorporation or of the Bylaws.
ARTICLE VIII
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Directors, and may include a Chairman of the Board, one or more Vice Chairmen of
the Board, a President, one or more Executive Vice Presidents, Senior Vice
Presidents, and Vice Presidents, respectively, a Secretary, one or more
Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and a
Controller. The Chairman of the Board and the President may be the same person.
A Vice Chairman of the Board and the President or any Vice President may be the
same person. The Secretary and Treasurer may be the same person; an Assistant
Secretary and Assistant Treasurer may be the same person; and any Vice President
may hold at the same time the office of Secretary, Assistant Secretary,
Treasurer, or Assistant Treasurer.
Section 2. Without limiting the right of the Board of Directors to
choose officers of the Corporation at any time when vacancies occur or when the
number of officers is increased, the newly elected Board of Directors at the
first meeting after each annual meeting of stockholders shall choose a Chairman
of the Board, a President, one or more Vice Chairmen of the Board, Executive
Vice Presidents, Senior Vice Presidents and Vice Presidents, respectively, a
Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant
Treasurers, and a Controller. None of said officers, except the Chairman of the
Board, and Vice Chairmen of the Board need be members of the Board.
Section 3. The Board of Directors may choose such other officers and
agents as it shall deem necessary or advisable, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors, or, in the absence of
exact specification or limitation thereof by the Board of Directors, as the
Chairman of the Board may determine from time to time.
Section 4. The salaries of all officers of the Corporation and of its
wholly owned subsidiaries, other than his own salary, shall be determined by the
Chief Executive Officer but shall be reviewed from time to time by an Executive
Compensation Committee appointed by the Board of Directors from among its
members. The Executive Compensation Committee shall recommend to the Board of
Directors such changes in the officers' salaries as fixed by the Chief Executive
Officer as it may deem appropriate and the Board of Directors shall instruct the
Chief Executive Officer to implement those of the recommended changes which it
approves. The salary of the Chief Executive Officer shall be determined by the
Board of Directors.
Section 5. The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time with or without
cause by the affirmative vote of a majority of the whole Board of Directors.
ARTICLE IX
CHAIRMAN OF THE BOARD
Section 1. The Chairman of the Board shall be the Chief Executive
Officer of the Corporation. He shall preside at all meetings of stockholders or
directors. He shall be a member, ex officio, of all committees, except the
Audit, Finance, Stock Option and Executive Compensation committees, shall have
general and active management of the business of the Corporation, and shall see
that all orders and resolutions of the Board of Directors and of the committees
thereof are carried into effect.
Section 2. The Chairman of the Board shall have authority, which he may
delegate, to execute certificates of stock, bonds, deeds, powers of attorney,
mortgages and other contracts, under the seal of the Corporation, unless
required by law to be otherwise signed and executed and unless the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
ARTICLE X
VICE CHAIRMEN OF THE BOARD
Section 1. In the absence of the Chairman, a Vice Chairman of the Board
shall be the Chief Executive Officer of the Corporation and preside at meetings
of stockholders and of the Board of Directors. The Vice Chairmen of the Board
shall advise and counsel with the Chairman of the Board and with other officers
of the Corporation, and each shall do and perform such other duties as may from
time to time be assigned to him by the Board of Directors, and as he may
undertake at the request of the Chairman of the Board.
Section 2. Any Vice Chairman of the Board, to the extent delegated by
the Chairman of the Board, may execute certificates of stock, bonds, deeds,
powers of attorney, mortgages and other contracts under the seal of the
Corporation, unless required by law to be otherwise signed and executed and
unless the signing and execution thereof be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
ARTICLE XI
PRESIDENT
Section 1. The President, in the absence of the Chairman of the Board or
Vice Chairmen, shall be the Chief Executive Officer of the Corporation. In the
absence of the Chairman of the Board, and the Vice Chairmen of the Board, the
President shall preside at all meetings of the Board of Directors and of
stockholders and shall have general and active management of the business of the
Corporation.
Section 2. The President, to the extent delegated by the Chairman of the
Board, may execute certificates of stock, bonds, deeds, mortgages and other
contracts, unless otherwise required by law to be otherwise signed and executed
and unless the signing and execution thereof be expressly delegated by the Board
of Directors to some other officer or agent of the Corporation.
ARTICLE XII
VICE PRESIDENTS
Section 1. There may be one or more Executive Vice Presidents, one or
more Senior Vice Presidents, and such other Vice Presidents, with or without
other such special designations, as may be elected by the Board of Directors
from time to time.
Section 2. The Executive Vice Presidents and each of the Vice Presidents
shall have the power and authority to sign certificates of stock, bonds, deeds,
mortgages and other contracts, and perform such duties and exercise such powers
as the Chairman of the Board shall prescribe. Instruments executed in the name
of, or on behalf of, the Corporation by any Vice President in conformity with
his said duties and powers shall be as valid as if executed by the Chairman of
the Board.
ARTICLE XIII
SECRETARY
Section 1. The Secretary shall attend all sessions of the Board of
Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for all committees of the Board of Directors when required.
He shall give, or cause to be given, all required notices of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors and the Chairman of the Board,
under whose supervision he shall be. He shall be responsible for keeping in safe
custody the seal of the Corporation, and when such is proper, he shall affix the
same to any instrument requiring it, and when so affixed, it shall be attested
by his signature or by the signature of an Assistant Secretary.
Section 2. The Assistant Secretaries in the absence or disability of the
Secretary shall perform and exercise the powers of the Secretary and shall
perform such further duties as may be prescribed by the Secretary or the
Chairman of the Board.
ARTICLE XIV
TREASURER
Section 1. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation, in
such depositories as may be designated by the Board of Directors or by the
Chairman of the Board.
Section 2. The Treasurer shall: (a) endorse or cause to be endorsed in
the name of the Corporation for collection the bills, notes, checks or other
negotiable instruments received by the Corporation, (b) sign or cause to be
signed all bills, notes, checks or other negotiable instruments issued by the
Corporation and (c) pay out or cause to be paid out money, as the Corporation
may require, taking proper vouchers therefor; provided, however, that the Board
of Directors may by resolution delegate, with or without power to re-delegate,
any and all of the foregoing duties of the Treasurer to other officers,
employees or agents of the Corporation, and to provide that other officers,
employees and agents shall have power to sign bills, notes, checks, vouchers,
orders, or other instruments on behalf of the Corporation. The Treasurer shall
render to the Chairman of the Board and to the Board of Directors, whenever they
may require it, an account of his transactions as Treasurer.
Section 3. The Treasurer shall give the Corporation a bond if required
by the Board of Directors in a sum, and with one or more sureties satisfactory
to the Board, for the faithful performance of the duties of his office and for
the restoration of the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 4. The Assistant Treasurers in the absence or disability of the
Treasurer shall perform and exercise the powers of the Treasurer and shall
perform such further duties as may be prescribed by the Treasurer or by the
Chairman of the Board.
ARTICLE XV
CONTROLLER
Section 1. The Controller shall have charge of the Corporation's books
of account, records and auditing, and shall be subject in all matters to the
control of the Chairman of the Board and the Board of Directors.
ARTICLE XVI
VACANCIES AND DELEGATION OF DUTIES OF OFFICERS
Section 1. If the office of any officer or agent, one or more, becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office, or otherwise, the Board of Directors may choose a successor or
successors, who shall, unless the Board of Directors otherwise specifies, hold
office for the unexpired term in respect of which such vacancy occurred, or
until his successor shall be elected.
Section 2. In case of the absence of any officer of the Corporation, or
for any other reason that the Board of Directors may deem sufficient, the Board
of Directors may delegate, for the time being, the powers or duties, or any of
them, of such officer to any other officers and/or directors; provided a
majority of the entire Board of Directors concurs therein.
ARTICLE XVII
STOCK AND STOCKHOLDERS
Section 1. The shares of stock of the Corporation shall be represented
by certificates, provided that the Board of Directors may provide by resolution
or resolutions that some or all of any or all classes or series of the
corporation's stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate as provided in Article XVII, Section 2 of these
ByLaws, or as otherwise permitted by law, representing the number of shares
registered in certificate form.
Section 2. The certificates of stock of the Corporation shall be
numbered and shall be entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name and number of shares and shall be
signed by the Chairman of the Board, Vice Chairman of the Board, President or a
Vice President, and the Secretary or an Assistant Secretary. Any and all
signatures on a stock certificate may be a facsimile. The designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof, and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificates which the Corporation shall
issue to represent such class or series of stock.
Section 3. Upon surrender to the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation will issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Transfers of uncertificated shares will be made on the records
of the Corporation as may be provided by law.
Section 4. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person whether or not
it shall have express or other notice thereof, except as expressly provided by
the laws of Delaware.
Section 5. A new certificate of stock of the Corporation may be issued
in place of any certificate theretofore issued by the Corporation and alleged to
have been lost, stolen or destroyed.
The Board of Directors may from time to time prescribe the terms and
conditions under which such new certificates may be issued. Among other things,
the Directors may require that the owner of the allegedly lost, stolen or
destroyed certificate, or his legal representatives, submit proper evidence in
writing and under oath that the alleged loss, theft, or destruction actually
occurred, and may require that such owner or representatives give the
Corporation a bond, satisfactory to the Corporation as to form and security,
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate. A new certificate may
be issued without requiring any bond when, in the judgment of the Directors or
of any officer of the Corporation to whom the Directors may delegate appropriate
authority, it is proper to waive the bond requirement.
ARTICLE XVIII
INSPECTION OF BOOKS, CHECKS AND FISCAL YEAR
Section 1. The Directors shall determine from time to time whether, and,
if allowed, when and under what conditions and regulations the accounts and
books of the Corporation (except such as may by statute be specifically open to
inspection), or any of them, shall be open to the inspection of the
stockholders, and the stockholders' rights in this respect are and shall be
restricted and limited accordingly.
Section 2. Checks or demands for money and notes of the Corporation may
be signed by such officer or officers or such person or persons other than those
herein authorized and in such manner as the Board of Directors or the President
may from time to time provide.
Section 3. The fiscal year shall begin the first day in January of each
year and end the following December 31.
ARTICLE XIX
DIRECTORS' ANNUAL STATEMENT
Section 1. The Board of Directors shall present at each annual meeting a
full and clear statement of the business and condition of the Corporation.
ARTICLE XX
NOTICES
Section 1. Whenever under the provisions of the Certificate of
Incorporation or of these Bylaws notice (which as herein used shall include also
annual reports, proxy statements and solicitations and other communications to
holders of the Corporation's securities) is required to be, or may be, given to
any Director, officer, stockholder or other person, it may, unless legally
controlling provisions prohibit the same, be given in writing, by mail, by
depositing the same in any U. S. post office or letter-box, in a postpaid sealed
wrapper addressed to such person to whom the notice may be, or is required to be
given, at such address as appears on the books of the Corporation, and all
notices given in accordance with the provisions of this Article shall be deemed
to be given at the time when the same shall be thus mailed.
Section 2. Should a person who is a stockholder own shares evidenced by
more than one stock certificate, nevertheless only one notice (when any is
required to be, or may be, given to holders of shares of any or all classes)
shall be, in the sole discretion of the Corporation, required to be mailed and
if different addresses as to such person are recorded on the Corporation's stock
ledger the notice may be mailed to the address that appears to have been given
latest in time unless the stockholders shall have expressly directed otherwise
in writing to the Secretary of the Corporation, nor shall variations in the
designation of the name or identity of any one stockholder require the mailing
of more than one notice to any one stockholder, which may be mailed to any one
of the names or designations that may so appear in the Corporation's stock
ledger with respect to such stockholder; and, at the sole discretion of the
Corporation, the distribution of dividend payments may be, unless a stockholder
shall expressly request multiple distributions strictly in accordance with the
stock ledger record of his multiple ownerships, handled in accordance with or so
as not to be repugnant to the purpose of the above provisions, which is to avoid
the expenditure by the Corporation of effort, time and expense in such matters
that might have been avoided had the recording of a stockholder's name and/or
address incident to his multiple record ownership of shares been effected
accurately, uniformly and consistently.
Section 3. Any stockholder, director or officer may waive in writing or
otherwise any notice required to be given under the provisions of pertinent
statutes or of the Certificate of Incorporation or of these Bylaws. A waiver of
notice in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
such notice.
ARTICLE XXI
INDEMNIFICATION
Section 1. The Corporation shall, to the full extent permitted by the
Laws of the State of Delaware as then in effect or, if less stringent, in effect
on December 31, 1985 ("Delaware Law"), indemnify any person (the "Indemnitee")
made or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not by or in the right of the Corporation, by
reason of the fact that the Indemnitee is or was a director, officer or employee
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, trustee, partner, or other agent of any other
enterprise or legal person (any such action, suit or proceeding being herein
referred to as a "Legal Action") against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Indemnitee in connection with such Legal Action or its
investigation, defense or appeal (herein called "Indemnified Expenses"), if the
Indemnitee has met the standard of conduct necessary under Delaware Law to
permit such indemnification. Rights to indemnification shall extend to the
heirs, beneficiaries, administrators and executors of any deceased Indemnitee.
For purposes of this Section, reference to "any other enterprise or
legal person" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
The Indemnified Expenses shall be paid by the Corporation in advance as
shall be appropriate to permit Indemnitee to defray such expenses currently as
incurred, provided the Indemnitee agrees in writing that in the event it shall
ultimately be determined as provided hereunder that Indemnitee was not entitled
to be indemnified, then Indemnitee shall promptly repay to the Corporation such
amounts so paid. The prepayment of expenses as provided for in this Section 1
shall be authorized by the Board of Directors in the specific case unless the
Board of Directors receives within thirty (30) days of the Indemnitee's request
for indemnification an opinion of counsel selected in the manner provided for in
Section 2 of this Article XXII that there is no reasonable basis for a belief
that the Indemnitee's conduct met the requisite standard of conduct. The fees of
such counsel and all related expenses shall, in all cases, be paid by the
Corporation.
Section 2. The determination of whether Indemnitee has met the standard
of conduct required to permit indemnification under this Bylaw shall in the
first instance be submitted to the Board of Directors of the Corporation. If the
Board by a majority vote of a quorum consisting of directors who were not
parties to such Legal Action determines Indemnitee has met the required standard
of conduct such determination shall be conclusive; but if such affirmative
majority vote is not given, then the matter shall be referred to independent
legal counsel for determination. Such outside counsel shall be selected by
agreement of the Board of Directors and Indemnitee or, if they are unable to
agree, then by lot from among those New York City law firms which (i) have more
than 100 attorneys, (ii) have a substantial practice in the corporate and
securities areas of law, (iii) have not performed any services for the
Corporation or any of its subsidiaries or affiliates for at least five (5) years
and (iv) have a rating of "av" in the then current Martindale-Hubbell Law
Directory. The fees and expenses of counsel in connection with making this
determination shall be paid by the Corporation.
Notwithstanding the foregoing, if dissatisfied with the determination so
made by counsel, Indemnitee may within two (2) years thereafter, petition any
court of competent jurisdiction to determine whether Indemnitee is entitled to
indemnification under the provisions hereof and such court shall thereupon have
the exclusive authority to make such determination. The Corporation shall pay
all expenses (including attorneys' fees) actually incurred by Indemnitee in
connection with such judicial determination.
The termination of any Legal Action by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Indemnitee did not meet the requisite
standard of conduct; however, a successful defense of a Legal Action by
Indemnitee on the merits or otherwise shall conclusively establish Indemnitee
did meet such standard of conduct notwithstanding any previous determination to
the contrary under this Section 2.
Section 3. The indemnification and advance payment of expenses as
provided in this Article XXI shall not be deemed exclusive of any other rights
to which Indemnitee may be entitled under any provision of law, the Certificate
of Incorporation, any Bylaw or otherwise.
Section 4. If any provision of this Article XXI shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, the validity,
legality and enforceability of the remaining provisions of this Article XXI
shall not in any way be affected or impaired thereby.
Section 5. Any amendment, repeal or modification of these Bylaws, the
Corporation's Certificate of Incorporation or any applicable provision of
Delaware Law, or any other instrument, which eliminates or diminishes the
indemnification rights provided for in this Article XXI shall be ineffective as
against an Indemnitee with respect to any Legal Action based upon actions taken
or not taken by the Indemnitee prior to such repeal or the adoption of such
modification or amendment.
ARTICLE XXII
AMENDMENTS
Section 1. These Bylaws may be altered or amended or repealed, in whole
or in part: By the affirmative vote of the holders of a majority of the stock
issued and outstanding and entitled to a vote thereat, at any regular or special
meeting of the stockholders if description of the proposed alteration or
amendment or repeal be contained in the notice of such meeting, provided, if
such description is not therein contained, the required vote shall be
three-fourths; or by the affirmative vote of a majority of the Board of
Directors in attendance at any regular or special meeting of the Board of
Directors if description of the proposed alteration, amendment or repeal be
contained in the notice of such meeting provided, if such description is not
therein contained or is not given to all members of the Board of Directors at
least ten days prior to such meeting, the required vote shall be three-fourths
of the full membership of the Board of Directors.
ARTICLE XXIII
WRITTEN CONSENT RECORD DATE
Section 1. In all cases, the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
shall be fixed by the Board of Directors. In the event the Board of Directors
does not fix a record date, the record date shall be the first date on which a
signed, written consent setting forth the action to be taken or proposed to be
taken is delivered to the Corporation. If the record date falls on a Saturday,
Sunday or legal holiday, the record date shall be the next following date which
is not a Saturday, Sunday or legal holiday. The solicitation of written consents
by the Corporation from its stockholders shall be at the discretion of either
the Board of Directors or the Chairman of the Board.
Section 2. Upon delivery to the Corporation of a written consent or
consents purporting to authorize or take corporate action and/or related
revocations (each such written consent and related revocation is referred to in
this Section 3 as a "Consent"), the Secretary of the Corporation shall provide
for the safe-keeping of such Consent and shall conduct such reasonable
investigation as he deems necessary or appropriate for the purpose of
ascertaining the validity of such Consent and all matters incident thereto,
including, without limitation, whether as of the Consent Date the holders of
shares having the requisite voting power to authorize or take the action
specified in the Consent have given consent. If the corporate action to which
the Consent relates is the removal or replacement of one or more members of the
Board, the Secretary of the Corporation shall designate two persons, who shall
not be members of the Board, to serve as Inspectors with respect to such
Consent, and such Inspectors shall discharge the functions of the Secretary of
the Corporation under this Section 3. If after such investigation the Secretary
or the Inspectors (as the case may be) shall determine that the Consent is
valid, that fact shall be certified on the records of the Corporation kept for
the purposes of recording the proceedings of meetings of the stockholders (the
"Corporate Records"), and the Consent shall be filed with such Corporate
Records. If Consents executed by the holder or holders of shares of the
outstanding stock of the Corporation having the requisite voting power to
authorize or take the action specified by the Consents have been received by the
Corporation and filed with the Corporate Records, the Consents shall become
effective as of (1) the Consent Date, (2) the date the requisite Consents have
been filed with the Corporate Records or (3) the date specified in the Consents,
whichever of such dates is latest. In no event, however, shall such effective
date be more than 60 days after the record date. The foregoing notwithstanding,
neither the Secretary nor the Inspectors (as the case may be) shall make such
certification or filing, and the Consent shall not become effective as
stockholder action, until the final termination of any proceedings which may
have been commenced in the Court of Chancery of the state of Delaware or any
other court of competent jurisdiction for an adjudication of any legal issues
incident to determining the validity of the Consent, unless and until such Court
shall have determined that such proceedings are not being pursued expeditiously
and in good faith. In conducting the investigation required by this Section 3,
the Secretary or the Inspectors (as the case may be) may, at the expense of the
Corporation, retain special legal counsel and any other necessary or appropriate
professional advisors, and such other personnel as they may deem necessary or
appropriate, to assist them.
CERTIFICATE
I, the undersigned, _________________________________, (Assistant) Secretary of
KERR-McGEE CORPORATION, a Delaware corporation, do hereby certify that the
foregoing is a full, true, and correct copy of the Bylaws of said corporation in
effect on the date of this certificate.
Given under my hand and seal of the Corporation this ______ day of
_________________, 19___.
-------------------------------
(Assistant) Secretary
(SEAL)
CONFORMED COPY
$325,000,000
CREDIT AGREEMENT
dated as of
August 25, 1994
among
Kerr-McGee Corporation
Kerr-McGee Credit Corporation
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
TABLE OF CONTENTS*
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions................................. 1
SECTION 1.02. Accounting Terms and Determinations......... 14
SECTION 1.03. Types of Borrowings......................... 14
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend......................... 15
SECTION 2.02. Notice of Committed Borrowings.............. 15
SECTION 2.03. Money Market Borrowings..................... 16
SECTION 2.04. Notice to Banks; Funding of Loans........... 20
SECTION 2.05. Notes....................................... 21
SECTION 2.06. Maturity of Loans........................... 22
SECTION 2.07. Interest Rates.............................. 22
SECTION 2.08. Facility Fees............................... 25
SECTION 2.09. Optional Termination or Reduction
of Commitments............................ 26
SECTION 2.10. Scheduled Termination of Commitments........ 26
SECTION 2.11. Optional Prepayments........................ 26
SECTION 2.12. Change of Control........................... 27
SECTION 2.13. General Provisions as to Payments........... 27
SECTION 2.14. Funding Losses.............................. 28
SECTION 2.15. Computation of Interest and Fees............ 28
SECTION 2.16. Regulation D Compensation................... 29
SECTION 2.17. Maximum Interest Rate....................... 30
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness............................... 30
SECTION 3.02. Borrowings.................................. 31
- --------
*The Table of Contents is not a part of this Agreement.
-i-
<PAGE>
Page
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Existence and Power............... 32
SECTION 4.02. Corporate and Governmental
Authorization; No Contravention........... 33
SECTION 4.03. Binding Effect.............................. 33
SECTION 4.04. Financial Information....................... 33
SECTION 4.05. Litigation.................................. 33
SECTION 4.06. Compliance with ERISA....................... 34
SECTION 4.07. Environmental Matters....................... 35
SECTION 4.08. Taxes....................................... 35
SECTION 4.09. Subsidiaries................................ 35
ARTICLE V
COVENANTS
SECTION 5.01. Information................................. 35
SECTION 5.02. Payment of Taxes............................ 38
SECTION 5.03. Insurance................................... 38
SECTION 5.04. Conduct of Business and Maintenance
of Existence.............................. 39
SECTION 5.05. Compliance with Laws........................ 39
SECTION 5.06. Compliance with ERISA....................... 39
SECTION 5.07. Negative Pledge............................. 40
SECTION 5.08. Consolidations, Mergers and Sales
of Assets................................. 42
SECTION 5.09. Use of Proceeds............................. 42
SECTION 5.10. Transactions with Affiliates................ 42
SECTION 5.11. Ownership of Credit Corporation............. 42
SECTION 5.12. Change in Rating............................ 43
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default........................... 43
SECTION 6.02. Notice of Default........................... 46
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization............... 46
-ii-
<PAGE>
Page
SECTION 7.02. Agent and Affiliates........................ 46
SECTION 7.03. Action by Agent............................. 46
SECTION 7.04. Consultation with Experts................... 46
SECTION 7.05. Liability of Agent.......................... 46
SECTION 7.06. Indemnification............................. 47
SECTION 7.07. Credit Decision............................. 47
SECTION 7.08. Successor Agent............................. 47
SECTION 7.09. Agent's Fee................................. 48
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair...................... 48
SECTION 8.02. Illegality.................................. 49
SECTION 8.03. Increased Cost and Reduced Return........... 50
SECTION 8.04. Substitute Loans............................ 52
SECTION 8.05. Substitution of Bank........................ 52
ARTICLE IX
GUARANTY
SECTION 9.01. The Guaranty................................ 53
SECTION 9.02. Guaranty Unconditional...................... 53
SECTION 9.03. Discharge Only Upon Payment In
Full; Reinstatement In Certain
Circumstances............................. 54
SECTION 9.04. Waiver by the Company....................... 54
SECTION 9.05. Subrogation................................. 54
SECTION 9.06. Stay of Acceleration........................ 55
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices..................................... 55
SECTION 10.02. No Waivers.................................. 55
SECTION 10.03. Expenses; Documentary Taxes;
Indemnification........................... 56
SECTION 10.04. Sharing of Set-Offs......................... 57
SECTION 10.05. Amendments and Waivers...................... 57
SECTION 10.06. Successors and Assigns...................... 58
SECTION 10.07. Collateral.................................. 60
SECTION 10.08. Governing Law............................... 60
SECTION 10.09. Counterparts; Integration................... 60
-iii-
<PAGE>
Page
PRICING SCHEDULE
Exhibit A -- Note
Exhibit B -- Form of Money Market Quote Request
Exhibit C -- Form of Invitation for Money Market
Quotes
Exhibit D -- Form of Money Market Quote
Exhibit E -- Opinion of General Counsel of the
Company
Exhibit F -- Opinion of Davis Polk & Wardwell,
Special Counsel for the Agent
Exhibit G -- Form of Auditor's Certificate
Exhibit H -- Assignment and Assumption Agreement
-iv-
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of August 25, 1994 among KERR-McGEE
CORPORATION, a Delaware corporation, KERR-McGEE CREDIT CORPORATION, a Delaware
corporation, the BANKS listed on the signature pages hereof and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes setting
forth Money Market Absolute Rates pursuant to Section 2.03.
"Acquiring Person" means any Person (other than the Company or any
Subsidiary or any employee benefit plan of the Company or any Subsidiary so long
as all such plans in the aggregate hold less than 40% of the Voting Stock of the
Company) who or which is the beneficial owner, directly or indirectly, of more
than ten percent of the combined voting power of the outstanding shares of
Voting Stock of the Company.
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Adjusted Consolidated Tangible Net Worth" means, at any date, an amount
equal to the sum of (i) Consolidated Tangible Net Worth at such date plus (ii)
the excess (if any) of (A) an amount equal to the excess (if any) of (x)
Consolidated Tangible Net Worth as at December 31, 1993 over (y) Consolidated
Tangible Net Worth as at such date over (B) the aggregate amount of Restricted
Payments declared or made (without duplication) by the Company and its
Subsidiaries during the period from and including January 1, 1994 to and
including such date.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Company) duly completed by such Bank.
<PAGE>
"Affiliate" means a Person (other than the Company or a Subsidiary) which
directly or indirectly controls or is controlled by, or is under common control
with the Company or any Subsidiary. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of Voting
Stock or by contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New York in its capacity as
agent for the Banks hereunder, and its successors in such capacity.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
"Assignee" has the meaning set forth in Section 10.06(c).
"Bank" means each bank listed on the signature pages hereof, each
substitute bank which becomes a Bank pursuant to Section 8.05, each Assignee
which becomes a Bank pursuant to Section 10.06(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate
Loan in accordance with the applicable Notice of Committed Borrowing or pursuant
to Article VIII.
"Benefit Liabilities" has the meaning as defined in Section 4001(a)(16) of
ERISA.
"Borrower" means either of the Company or Credit Corporation, and
"Borrowers" means the Company and Credit Corporation.
"Borrowing" has the meaning set forth in Section 1.03.
2
<PAGE>
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in
accordance with the applicable Notice of Committed Borrowing or Article VIII.
"CD Margin" has the meaning set forth in Section 2.07(b).
"CD Reference Banks" means Citibank, N.A., The First National Bank of
Chicago, Morgan Guaranty Trust Company of New York and each such other bank as
may be appointed pursuant to Section 10.06(f).
"Change of Control" means (i) the acquisition by any Person or two or more
Persons acting as a group (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of greater than 40% of the outstanding Voting Stock of the
Company or (ii) any merger or consolidation to which the Company is a party, or
the transfer, conveyance or lease of all or substantially all of the assets of
the Company to another Person, if immediately following such merger,
consolidation, transfer, conveyance or lease a majority of the directors of the
surviving corporation (or the corporation which is the beneficial owner of the
assets transferred or conveyed or the lessee of the assets leased) are other
than Continuing Directors.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Section 2.09, or, as the context may
require, the obligation of such Bank to make Committed Loans hereunder.
"Committed Loan" means a loan to be made by a Bank pursuant to Section
2.01.
"Company" means Kerr-McGee Corporation, a Delaware corporation, and its
successors.
"Company's 1993 Annual Report" means the Company's annual report on Form
10-K for 1993, as filed with the Securities and Exchange Commission.
"Consolidated Subsidiary" means, at any date, any Subsidiary or other
entity the accounts of which would be consolidated with those of the Company in
its consolidated financial statements if such statements were prepared as of
such date.
3
<PAGE>
"Consolidated Tangible Net Worth" means at any date the consolidated
Stockholders' Equity of the Company and its Consolidated Subsidiaries less their
consolidated Intangible Assets, all determined as of such date. For purposes of
this definition "Intangible Assets" means the amount of (i) all write-ups (other
than write-ups resulting from foreign currency translations and write-ups of
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to December 31, 1993 in the book value
of any asset owned by the Company or a Subsidiary, and (ii) all unamortized debt
discount and expense (to the extent, if any, recorded as an unamortized deferred
charge), unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, anticipated future benefit of tax loss carry-forwards,
copyrights, organization or developmental expenses.
"Continuing Director" means any member of the Board of Directors of the
Company who is unaffiliated with, and not a nominee of, an Acquiring Person and
was a member of the Board of Directors of the Company immediately prior to any
transaction described in clause (ii) of the definition of Change of Control set
forth in this Section 1.01 and also prior to the time that the Acquiring Person
became an Acquiring Person, and any successor of a Continuing Director who is
unaffiliated with, and not a nominee of, the Acquiring Person and who is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board of Directors.
"Credit Corporation" means Kerr-McGee Credit Corporation, a Delaware
corporation, and its successors.
"Debt" of any Person means, without duplication, (i) all obligations of
such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property, except trade
accounts payable arising in the ordinary course of business, (iv) all Debt
secured by a Lien on any asset of such Person which is not otherwise an
obligation of such Person, to the extent of the lesser of such Debt or the book
value of such asset, (v) all Debt of others Guaranteed by such Person to the
extent of the amount of such Guarantee, and (vi) all production payment,
proceeds production payment or similar obligations of such Person; provided that
(a) Debt shall not include any Debt described above with respect to which there
shall have been irrevocably deposited in trust, cash, or direct obligations of
the United States, or any agency thereof that are backed by the full faith and
credit of the United States, as necessary for the timely redemption, payment or
satisfaction
4
<PAGE>
of such Debt and (b) the Debt of any Subsidiary arising as a result of being a
general partner or joint venturer shall not constitute Debt to the extent such
obligations exceed the Company's direct or indirect net book investment in such
Subsidiary.
"Debt Acceleration Threshold" means (i) $5,000,000 in the case of any Debt
other than LDC Debt and (ii) $40,000,000 in the case of LDC Debt.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office located at its
address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Company and the Agent; provided that any Bank may so designate
separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and
its CD Loans, on the other hand, in which case all references herein to the
Domestic Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
5
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Company
and the Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing
or Article VIII.
"Euro-Dollar Margin" has the meaning set forth in Section 2.07(c).
"Euro-Dollar Reference Banks" means the principal London offices of
Citibank, N.A., The First National Bank of Chicago, Morgan Guaranty Trust
Company of New York and each such other bank as may be appointed pursuant to
Section 10.06(f).
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.16(b).
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Credit Agreement" means the Credit Agreement dated as of August
15, 1990 among the Borrower, the banks parties thereto and Morgan Guaranty Trust
Company of New York, as agent, as amended to the Effective Date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next
6
<PAGE>
succeeding Domestic Business Day, the Federal Funds Rate for such day shall be
the average rate quoted to Morgan Guaranty Trust Company of New York on such day
on such transactions as determined by the Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person entered into for the purpose of directly or indirectly guaranteeing
any Debt of any other Person including, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or (ii) entered into for the purpose of assuring in any
other manner the holder of such Debt of the payment thereof or to protect such
holder against loss in respect thereof (in whole or in part), provided that (x)
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business, and (y) in no event shall a Guarantee by the
Company or a Subsidiary of the Debt of the Company or a Subsidiary be duplicated
for purposes of determining an amount of Debt for purposes hereof. The term
"Guarantee" used as a verb has a corresponding meaning.
"Interest Period" means: (1) with respect to each Euro-Dollar Borrowing,
the period commencing on the date of such Borrowing and ending one, two, three
or six months thereafter, as the Borrower may elect in the applicable Notice of
Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
7
<PAGE>
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) With respect to each CD Borrowing, the period commencing on the date of such
Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may
elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(3) With respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(4) With respect to each Money Market LIBOR Borrowing, the period commencing on
the date of such Borrowing and ending such whole number of months thereafter as
the Borrower may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
8
<PAGE>
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(5) With respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 7 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"LDC Country" means any country which is not a member of the Organization
for Economic Co-operation and Development.
"LDC Debt" means any Debt of a Subsidiary of the Company (whether or not
Guaranteed by the Company) incurred to finance the conduct of business in an LDC
Country.
"LIBOR Auction" means a solicitation of Money Market Quotes setting forth
Money Market Margins based on the London Interbank Offered Rate pursuant to
Section 2.03.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any production payment, proceeds production payment or similar
financing arrangement with respect to such asset). Without limiting the
generality of the foregoing, for the purposes of this Agreement, (i) the Company
or any Subsidiary shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement or other title retention agreement relating to such
asset and (ii) the sale or assignment by Credit Corporation or any of its
Subsidiaries ("seller") of Receivables shall be deemed to create Debt of the
seller (in an amount equal to the proceeds of the sale) secured by a Lien on
Receivables of the seller unless either (A) such transaction is a sale without
recourse for cash payable on the date of sale in an amount not less than the
fair market value of the
9
<PAGE>
Receivables sold or (B) such transaction is (or would be, if the Receivables
were accounts) excluded from the scope of article 9 of the Uniform Commercial
Code (as in effect in the State of New York) by Section 9-104(f) thereof.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan
and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or
any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.07(c).
"Material Financial Obligations" means a principal or face amount of Debt
and/or payment obligations in respect of Derivatives Obligations of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, exceeding in the aggregate $10,000,000.
"Material Subsidiary" means, at any time, Credit Corporation and any other
Subsidiary which as of such time meets the definition of a "significant
subsidiary" with respect to the Company contained as of the date hereof in
Regulation S-X of the Securities and Exchange Commission.
"Money Market Absolute Rate" has the meaning set forth in Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Company
and the Agent; provided that any Bank may from time to time by notice to the
Company and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, in which case all references herein to the Money
Market Lending Office of such Bank shall be deemed to refer to either or both of
such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a
LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant
to Section 8.01(a)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
10
<PAGE>
"Money Market Margin" has the meaning set forth in Section 2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money Market Loan
in accordance with Section 2.03.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means any employee pension benefit plan within the
meaning of Section 4001(a)(3) of ERISA or an employee pension benefit plan as to
which the Company or any of its Related Persons would be treated as a
contributing employer under Section 4212(c) of ERISA if it were to be
terminated.
"Notes" means promissory notes of a Borrower, substantially in the form of
Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans
made to it, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined in
Section 2.02) or a Notice of Money Market Borrowing (as defined in Section
2.03(f)).
"Parent" means, with respect to any Bank, any Person, other than an
individual, controlling such Bank.
"Participant" has the meaning set forth in Section 10.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Plan" means an "employee pension benefit plan" (as defined in Section 3 of
ERISA) (other than a Multiemployer Plan) which is or has been established and
maintained, or to which contributions are or have been made, by the Company, or
an employee pension benefit plan as to which the Company or any of its Related
Persons would be treated as a contributory sponsor under Section 4069 of ERISA
if it were to be terminated.
"Pricing Schedule" means the Schedule attached hereto identified as such.
11
<PAGE>
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Receivable" means any right to payment of money, whether for goods sold or
leased or to be sold or leased, services rendered or to be rendered, money lent
or other credit extended, or otherwise, whether or not evidenced by an
instrument.
"Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference
Banks, as the context may require, and "Reference Bank" means any one of such
Reference Banks.
"Refunding Borrowing" means a Committed Borrowing or that portion thereof
which, after application of the proceeds thereof, results in no net increase in
the outstanding principal amount of Committed Loans made by any Bank to either
Borrower.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Related Person" means any trade or business (whether or not incorporated)
which, together with the Company (and other Related Persons), is treated as a
single employer under Section 414 of the Internal Revenue Code.
"Required Banks" means at any time Banks having more than 50% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing more than 50% of the aggregate unpaid
principal amount of the Loans.
"Restricted Payment" means (i) any dividend or other distribution on any
shares of the Company's capital stock (except dividends or other distributions
payable solely in shares of its capital stock) or (ii) any payment on account of
the purchase, redemption, retirement or acquisition of (a) any shares of the
Company's capital stock or (b) any option, warrant or other right to acquire
shares of the Company's capital stock; provided that payments in respect of
employee stock options, stock appreciation rights and other stock based employee
compensation arrangements in the ordinary course of business shall not
constitute Restricted Payments.
12
<PAGE>
"Restricted Property", to the extent of the Company's direct or indirect
interest therein, means:
(a) any property interest owned by the Company or any
Consolidated Subsidiary in reserves of oil, gas, coal lignite, uranium,
copper or other minerals which are "proved reserves", as defined in the
regulations promulgated by the Securities and Exchange Commission or,
in the absence of an applicable definition, reserves which geological,
geophysical and engineering data demonstrate with reasonable certainty
to be recoverable in future years from known reservoirs or deposits
under existing economic and operating conditions; and
(b) any refining or manufacturing property or any drilling
rigs and related equipment of the Company or any Consolidated
Subsidiary.
"Revolving Credit Period" means the period from and including the Effective
Date to but not including the Termination Date.
"S&P" means Standard & Poor's Corporation.
"Stockholders' Equity" means, at any date, the consolidated stockholders'
equity of the Company and its Consolidated Subsidiaries as would be shown on a
balance sheet prepared in accordance with generally accepted accounting
principles as of such date.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
"Substitute Loan" means a Loan made by a Bank pursuant to Section 8.02,
8.03 or 8.04(a).
"Termination Date" means August 25, 1999, or, if such day is not a
Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in which case the
Termination Date shall be the next preceding Euro-Dollar Business Day.
"Unfunded Benefit Liabilities" means the "amount of unfunded benefit
liabilities" as defined in Section 4001(a) (18) of ERISA.
13
<PAGE>
"Voting Stock" means capital stock of any class or classes (however
designated) having ordinary voting power for the election of directors of the
Company, other than stock having such power only by reason of the happening of a
contingency.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Company's
independent public accountants) with the most recent audited consolidated
financial statements of the Company and its Consolidated Subsidiaries delivered
to the Banks.
SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to a single Borrower
pursuant to Article II (and not, in any event, pursuant to Article VIII) on a
single date and for a single Interest Period. Borrowings are classified for
purposes of this Agreement either by reference to the pricing of Loans
comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing
comprised of Euro-Dollar Loans) or by reference to the provisions of Article II
under which participation therein is determined (i.e., a "Committed Borrowing"
is a Borrowing under Section 2.01 in which all Banks participate in proportion
to their Commitments, while a "Money Market Borrowing" is a Borrowing under
Section 2.03 in which the Bank participants are determined on the basis of their
bids in accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. During the Revolving Credit Period each
Bank severally agrees, on the terms and conditions set forth in this Agreement,
to make loans to either Borrower pursuant to this Section from time to time in
amounts such that the aggregate principal amount of Committed Loans by such Bank
at any one time outstanding to both Borrowers shall not exceed the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate principal
amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such
Borrowing may be in the aggregate amount available in accordance with
14
<PAGE>
Section 3.02(b)) and shall be made from the several Banks ratably in proportion
to their respective Commitments. Within the foregoing limits, a Borrower may
borrow under this Section, repay, or to the extent permitted by Section 2.11,
prepay Loans and reborrow at any time during the Revolving Credit Period under
this Section.
SECTION 2.02. Notice of Committed Borrowings.
(a) The Borrower shall give the Agent notice (a "Notice of Committed
Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of
each Base Rate Borrowing, (y) the second Domestic Business Day before each CD
Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar
Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are to be CD
Loans, Base Rate Loans or Euro-Dollar Loans, and
(iv) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
(b) The provisions of subsection (a) above notwithstanding, if the Borrower
shall not have given a Notice of Borrowing not later than 10:30 A.M. (New York
City time) on the last day of the Interest Period applicable to an outstanding
Committed Borrowing, then, unless the Borrower notifies the Agent before such
time that it elects not to borrow on such date, the Agent shall be deemed to
have received a Notice of Committed Borrowing specifying (i) that the date of
the proposed Borrowing shall be the last day of the Interest Period applicable
to such outstanding Borrowing, (ii) that the aggregate amount of the proposed
Borrowing shall be the amount of such outstanding Borrowing, and (iii) that the
Loans comprising the proposed Borrowing are to be Base Rate Loans.
SECTION 2.03. Money Market Borrowings.
(a) The Money Market Option. In addition to Committed Borrowings pursuant
to Section 2.01, either Borrower may, as set forth in this Section, request the
27008/958/CA/ca.conf
15
<PAGE>
Banks during the Revolving Credit Period to make offers to make Money Market
Loans to such Borrower. The Banks may, but shall have no obligation to, make
such offers and the Borrower may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section.
(b) Money Market Quote Request. When a Borrower wishes to request offers to
make Money Market Loans under this Section, it shall transmit to the Agent by
telex or facsimile transmission a Money Market Quote request substantially in
the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New
York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of
Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic
Business Day next preceding the date of Borrowing proposed therein, in the case
of an Absolute Rate Auction (or, in either case, such other time or date as the
Company and the Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Money Market Quote request for the first
LIBOR Auction or Absolute Rate Auction for which such change is to be effective)
specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote request. No Money Market Quote
request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Company and the Agent may agree) of any other Money Market
Quote request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a Money
Market Quote request, the Agent shall send to the Banks by telex or facsimile
transmission an invitation for Money Market Quotes substantially in the form of
Exhibit C hereto, which shall constitute an
16
<PAGE>
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this subsection (d) and must be
submitted to the Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 10.01 not later than (x) 2:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Company and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); provided that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of
a Bank may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) 1:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of
a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the proposed date of
Borrowing, in the case of an Absolute Rate Auction. Subject to Articles III and
VI, any Money Market Quote so made shall be irrevocable except with the written
consent of the Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of Exhibit
D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which
each such offer is being made, which principal amount (w) may be
greater than, equal to or less than the Commitment of the quoting Bank,
(x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not
exceed the principal amount of Money Market Loans for which offers were
requested, and (z) may be subject to an aggregate limitation as to the
principal amount of Money Market Loans for which offers being made by
such quoting Bank may be accepted,
17
<PAGE>
(C) in the case of a LIBOR Auction, the margin above or below
the applicable London Interbank Offered Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed as a
percentage (specified to the nearest 1/10,000th of 1%) to be added to
or subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%) (the
"Money Market Absolute Rate") offered for each such Money Market Loan,
and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto
or does not specify all of the information required by subsection
(d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the Borrower of the
terms (x) of any Money Market Quote submitted by a Bank that is in accordance
with subsection (d) and (y) of any Money Market Quote that amends, modifies or
is otherwise inconsistent with a previous Money Market Quote submitted by such
Bank with respect to the same Money Market Quote request. Any such subsequent
Money Market Quote shall be disregarded by the Agent unless such subsequent
Money Market Quote is submitted solely to correct a manifest error in such
former Money Market Quote. The Agent's notice to the Borrower shall specify (A)
the aggregate principal amount of Money Market Loans for which offers have been
received for each Interest Period specified in the related Money Market Quote
request, (B) the respective principal amounts and Money Market Margins or Money
Market Absolute Rates, as the case may be,
18
<PAGE>
so offered and (C) if applicable, limitations on the aggregate principal amount
of Money Market Loans for which offers in any single Money Market Quote may be
accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York
City time) on (x) the third Euro-Dollar Business Day prior to the proposed date
of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Company and the Agent shall have mutually agreed and
shall have notified to the Banks not later than the date of the Money Market
Quote request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money Market
Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote request,
(ii) the principal amount of each Money Market Borrowing must be
$5,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be, and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks with the
same Money Market Margins or Money Market Absolute Rates, as the case may be,
for a greater aggregate principal amount than the amount in respect of which
such offers are accepted for the related Interest Period, the principal amount
of Money Market Loans in respect of which such offers are accepted shall be
allocated by the Agent among such Banks as nearly as possible (in multiples of
$1,000,000, as the Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Agent of the
19
<PAGE>
amounts of Money Market Loans shall be conclusive in the absence of manifest
error.
SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt (or
deemed receipt) of a Notice of Borrowing, the Agent shall promptly notify each
Bank of the contents thereof and of such Bank's share (if any) of such Borrowing
and such Notice of Borrowing shall not thereafter be revocable by the Borrower
giving (or deemed to have given) such Notice of Borrowing.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the Agent at
its address specified in or pursuant to Section 10.01. Unless the Agent
determines that any applicable condition specified in Article III has not been
satisfied, the Agent will make the funds so received from the Banks available to
the Borrower at the Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder to a Borrower on a day on which
such Borrower is to repay all or any part of an outstanding Loan from such Bank,
such Bank shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed by such Borrower and the amount being repaid shall be made available by
such Bank to the Agent as provided in subsection (b) of this Section, or
remitted by such Borrower to the Agent as provided in Section 2.13, as the case
may be.
(d) Unless the Agent shall have received notice from a Bank prior to the
date of any Borrowing that such Bank will not make available to the Agent such
Bank's share of such Borrowing, the Agent may assume that such Bank has made
such share available to the Agent on the date of such Borrowing in accordance
with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Agent, such Bank and the Borrower severally agree to
repay to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Agent, at a rate per
annum equal to the Federal Funds Rate. If such Bank shall repay to the Agent
such corresponding amount, such amount so repaid shall
20
<PAGE>
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank to each Borrower shall be
evidenced by a single Note of such Borrower payable to the order of such Bank
for the account of its Applicable Lending Office in an amount equal to the
aggregate unpaid principal amount of such Bank's Loans to such Borrower.
(b) Each Bank may, upon at least two Domestic Business Days' notice to a
Borrower and the Agent, request that its Loans of a particular type to such
Borrower be evidenced by a separate Note of such Borrower in an amount equal to
the aggregate unpaid principal amount of such Loans. Each such Note shall be in
substantially the form of Exhibit A hereto with appropriate modifications to
reflect the fact that it evidences solely Loans of the relevant type. Each
reference in this Agreement to a "Note" or the "Notes" of such Bank shall be
deemed to refer to and include any or all of such Notes, as the context may
require.
(c) Upon receipt of each Bank's Notes pursuant to Section 3.01(b), the
Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount, type and maturity of each Loan made by it to each Borrower and the date
and amount of each payment of principal made with respect thereto, and may, if
such Bank so elects in connection with any transfer or enforcement of its Note
of either Borrower, endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
to such Borrower then outstanding; provided that the failure of any Bank to make
any such recordation or endorsement shall not affect the obligations of either
Borrower hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by each Borrower so to endorse its Notes and to attach to and make a
part of any Note a continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. Each Loan included in any Borrowing shall
mature, and the principal amount thereof shall be due and payable, on the last
day of the Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable for each Interest Period on the
last day thereof. Any overdue principal of or interest on any Base Rate Loan
shall bear
21
<PAGE>
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 1% plus the rate otherwise applicable to Base Rate Loans for such
day.
(b) Each CD Loan shall bear interest on the outstanding principal amount
thereof, for each day during the Interest Period applicable thereto, at a rate
per annum equal to the sum of the CD Margin for such day plus the Adjusted CD
Rate applicable to such Interest Period; provided that if any CD Loan or any
portion thereof shall, as a result of clause (2)(b) of the definition of
Interest Period, have an Interest Period of less than 30 days, such portion
shall bear interest during such Interest Period at the rate applicable to Base
Rate Loans during such period. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than 90
days, at intervals of 90 days after the first day thereof. Any overdue principal
of or interest on any CD Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 1% plus the higher of (i)
the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to
the Interest Period for such Loan and (ii) the rate applicable to Base Rate
Loans for such day.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
The "Adjusted CD Rate" applicable to any Interest Period means a rate per
annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
----------
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of
22
<PAGE>
recognized standing for the purchase at face value from each CD Reference Bank
of its certificates of deposit in an amount comparable to the principal amount
of the CD Loan of such CD Reference Bank to which such Interest Period applies
and having a maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System in New York City with deposits exceeding five billion dollars in respect
of new non-personal time deposits in dollars in New York City having a maturity
comparable to the related Interest Period and in an amount of $100,000 or more.
The Adjusted CD Rate shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
adequately capitalized and within supervisory subgroup "A" (or a comparable
successor assessment risk classification) within the meaning of 12 C.F.R. ss.
327.3(e) (or any successor provision) to the Federal Deposit Insurance
Corporation (or any successor) for such Corporation's (or such successor's)
insuring time deposits at offices of such institution in the United States. The
Adjusted CD Rate shall be adjusted automatically on and as of the effective date
of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at a
rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the
applicable London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest Period means
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to each of
the Euro-Dollar Reference Banks in the London
23
<PAGE>
interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar
Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Euro-Dollar Loan of such
Euro-Dollar Reference Bank to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear
interest, payable on demand, for each day at a rate per annum equal to the
higher of (i) the sum of 1% plus the Euro-Dollar Margin for such day plus the
London Interbank Offered Rate applicable to the Interest Period for such Loan
and (ii) the sum of 1% plus the Euro- Dollar Margin for such day plus the
quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%)
by dividing (x) the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective rates per annum at which one day (or, if such
amount due remains unpaid more than three Euro-Dollar Business Days, then for
such other period of time not longer than three months as the Agent may select)
deposits in dollars in an amount approximately equal to such overdue payment due
to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar
Reference Bank in the London interbank market for the applicable period
determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve
Percentage (or, if the circumstances described in clause (a) or (b) of Section
8.01 shall exist, at a rate per annum equal to the sum of 1% plus the rate
applicable to Base Rate Loans for such day).
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.07(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 1%
plus the Base Rate for such day.
24
<PAGE>
(f) The Agent shall determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated hereby. If any Reference Bank does not
furnish a timely quotation, the Agent shall determine the relevant interest rate
on the basis of the quotation or quotations furnished by the remaining Reference
Bank or Banks or, if none of such quotations is available on a timely basis, the
provisions of Section 8.01 shall apply.
SECTION 2.08. Facility Fees. The Company shall pay to the Agent for the
account of the Banks ratably a facility fee at the Facility Fee Rate (determined
daily in accordance with the Pricing Schedule). Such facility fee shall accrue
(i) from and including the Effective Date to but excluding the Termination Date
(or earlier date of termination of the Commitments in their entirety), on the
daily aggregate amount of the Commitments (whether used or unused) and (ii) from
and including the Termination Date or such earlier date of termination to but
excluding the date the Loans shall be repaid in their entirety, on the daily
aggregate outstanding principal amount of the Loans. Accrued fees under this
Section shall be payable quarterly on each March 31, June 30, September 30 and
December 31 and upon the date of termination of the Commitments in their
entirety (and, if later, the date the Loans shall be repaid in their entirety).
SECTION 2.09. Optional Termination or Reduction of Commitments. The Company
may, upon at least three Domestic Business Days' notice to the Agent, (i)
terminate the Commitments at any time, if no Loans are outstanding at such time
or (ii) ratably reduce from time to time by an aggregate amount of $1,000,000 or
any larger multiple thereof, the aggregate amount of the Commitments in excess
of the aggregate outstanding principal amount of the Loans.
SECTION 2.10. Scheduled Termination of Commitments. The Commitments shall
terminate on the Termination Date, and any Loans then outstanding (together with
accrued interest thereon) shall be due and payable on such date.
SECTION 2.11. Optional Prepayments. (a) Either Borrower may, upon at least
one Domestic Business Day's notice to the Agent, prepay any Base Rate Borrowing
(or any
25
<PAGE>
Money Market Borrowing bearing interest at the Base Rate pursuant to Section
8.01(a)) in whole at any time, or from time to time in part in amounts which,
when added to the principal amounts of other Loans to it maturing and being paid
at the time of such prepayment, equals in the aggregate $1,000,000 or any larger
multiple thereof, by paying the principal amount to be prepaid together with
accrued interest thereon to the date of prepayment. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Borrowing.
(b) Either Borrower may, upon at least three Domestic Business Days' notice
to the Agent, in the case of a CD Borrowing, or upon at least three Euro-Dollar
Business Days' notice to the Agent, in the case of a Euro-Dollar Borrowing,
subject to Section 2.14, prepay any such Borrowing by it in whole or in part in
amounts aggregating $1,000,000 or any larger multiple thereof, on any Domestic
Business Day, in the case of a CD Borrowing, or any Euro-Dollar Business Day, in
the case of a Euro-Dollar Borrowing, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of prepayment. Each
such optional prepayment shall be applied to prepay ratably the outstanding CD
Loans or Euro-Dollar Loans of the several Banks included in such Borrowing,
subject to Article VIII.
(c) Except as provided in Section 2.11(a), neither Borrower may prepay all
or any portion of the principal amount of any Money Market Loan prior to the
maturity thereof.
(d) Upon receipt of a notice of prepayment pursuant to this Section, the
Agent shall promptly notify each Bank of the contents thereof and of such Bank's
ratable share (if any) of such prepayment and such notice shall not thereafter
be revocable by the Borrower.
SECTION 2.12. Change of Control. If a Change of Control shall occur (i) the
Company will, within ten days after the occurrence thereof, give each Bank
notice thereof and shall describe in reasonable detail the facts and
circumstances giving rise thereto and (ii) each Bank may, at any time at its
option by notice to the Borrowers and the Agent given not later than 60 days
after such Change of Control, (x) terminate its Commitment, which shall
thereupon be terminated, and (y) by three Domestic Business Days' notice to the
Borrowers and the Agent declare the Notes held by it (together with accrued
interest thereon) and any other amounts payable hereunder for its account to be,
and such Notes and such other amounts shall thereupon become, immediately due
and payable without presentment, demand,
26
<PAGE>
protest or othe notice of any kind, all of which are hereby waived by the
Borrowers.
SECTION 2.13. General Provisions as to Payments. (a) The Borrowers shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 10.01. The Agent will promptly distribute
to each Bank its ratable share of each such payment received by the Agent for
the account of the Banks. Whenever any payment of principal of, or interest on,
the Domestic Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. In any case where, and
for so long as, the date for any payment of principal by either Borrower
hereunder is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time and the affected payment shall not be deemed
past due if the payment date is not extended as a result of any action or
failure to act by such Borrower.
(b) Unless the Agent shall have received notice from a Borrower prior to
the date on which any payment is due from such Borrower to the Banks hereunder
that such Borrower will not make such payment in full, the Agent may assume that
such Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that such Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.14. Funding Losses. If a Borrower makes any payment of principal
with respect to any Fixed
27
<PAGE>
Rate Loan (pursuant to Section 2.11(b), Article VI or VIII) on any day other
than the last day of the Interest Period applicable thereto, or the end of an
applicable period fixed pursuant to Section 2.07(d), or if a Borrower fails to
borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in
accordance with Section 2.04(a) or 2.11(d), the Company shall reimburse each
Bank within 15 days after demand for any resulting loss or expense incurred by
it (or by an existing or contractually committed prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to borrow or prepay,
provided that such Bank shall have delivered to the Company a certificate as to
the amount of such loss or expense, setting forth in reasonable detail the
calculation thereof, which certificate shall be presumed correct unless and
until it is shown to be in error.
SECTION 2.15. Computation of Interest and Fees. Interest based on the Prime
Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days
in a leap year) and paid for the actual number of days elapsed (including the
first day but excluding the last day). All other interest and facility fees
shall be computed on the basis of a year of 360 days and paid for the actual
number of days elapsed (including the first day but excluding the last day).
SECTION 2.16. Regulation D Compensation. (a) Each Bank may require either
Borrower to pay, contemporaneously with each payment of interest thereon,
additional interest on each Euro-Dollar Loan of such Bank to such Borrower at a
rate per annum equal to the excess of (i)(A) the applicable London Interbank
Offered Rate (or other base rate determined pursuant to Section 2.07(d)) divided
by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the rate specified
in clause (i)(A). Any Bank wishing to require payment of such additional
interest (x) shall so notify such Borrower and the Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank to such Borrower shall
be payable to such Bank at the place indicated in such notice with respect to
each Interest Period commencing at least four Euro-Dollar Business Days after
the giving of such notice and (y) shall notify such Borrower at least three
Euro-Dollar Business Days prior to each date on which interest is payable
thereon of the amount then due it under this Section. Any Bank which has given
notice under clause (x) above that such additional interest is payable shall
notify such Borrower and the Agent, for so long as such additional interest is
28
<PAGE>
payable, annually, not later than each January 15th that such additional
interest is payable, and, as soon as practicable after such additional interest
has ceased to be payable, that it is no longer payable. In the event a Bank
shall fail to notify the Borrowers and the Agent annually of the continuing
requirements for such additional interest by the applicable January 15th, such
Bank shall not be entitled to additional interest until such Bank has provided
the notice required by (x) above.
(b) "Euro-Dollar Reserve Percentage" means for any day for any Bank that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the effective reserve requirement for such Bank as
determined in good faith by such Bank in respect of "Eurocurrency liabilities"
(or in respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of any Bank to United States residents).
SECTION 2.17. Maximum Interest Rate. (a) Nothing contained in this
Agreement or the Notes shall require either Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law.
(b) If the amount of interest payable by either Borrower for the account of
any Bank on any interest payment date in respect of the immediately preceding
interest computation period, computed pursuant to Section 2.07, would exceed the
maximum amount permitted by applicable law to be charged by such Bank, the
amount of interest payable by such Borrower for its account on such interest
payment date shall be automatically reduced to such maximum permissible amount.
(c) If the amount of interest payable by either Borrower for the account of
any Bank in respect of any interest computation period is reduced pursuant to
clause (b) of this Section and the amount of interest payable by either Borrower
for the account of such Bank in respect of any subsequent interest computation
period, computed pursuant to Section 2.07, would be less than the maximum amount
permitted by applicable law to be charged by such Bank, then the amount of
interest payable for its account in respect of such subsequent interest
computation period shall be automatically increased to such maximum permissible
amount; provided that at no time shall the aggregate amount by which interest
paid by both Borrowers for the account of any Bank has been increased pursuant
to this clause (c) exceed the aggregate amount by which interest paid by both
29
<PAGE>
Borrowers for its account has theretofore been reduced pursuant to clause (b) of
this Section.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective on the
date that each of the following conditions shall have been satisfied (or waived
in accordance with Section 10.05):
(a) receipt by the Agent of counterparts hereof signed by each
of the Company, Credit Corporation, the Banks and the Agent (or, in the
case of any party as to which an executed counterpart shall not have
been received, receipt by the Agent in form satisfactory to it of
telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party);
(b) receipt by the Agent for the account of each Bank of duly
executed Notes of the Company and Credit Corporation dated on or before
the Effective Date complying with the provisions of Section 2.05;
(c) receipt by the Agent of an opinion of the General Counsel
of the Company, substantially in the form of Exhibit E hereto and
covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;
(d) receipt by the Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Agent, substantially in the form of
Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably
request;
(e) receipt by the Agent of evidence satisfactory to it of the
payment of all amounts payable under the Existing Credit Agreement; and
(f) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Company and Credit
Corporation, the corporate authority for and the validity of this
Agreement and the Notes, and any other matters relevant hereto, all in
form and substance satisfactory to the Agent;
30
<PAGE>
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
August 31, 1994. The Agent shall promptly notify the Company and the Banks of
the Effective Date, and such notice shall be conclusive and binding on all
parties hereto. The Banks that are parties to the Existing Credit Agreement and
each of the Borrowers agree that the commitments under the Existing Credit
Agreement shall terminate in their entirety simultaneously with and subject to
the effectiveness of this Agreement and that the Borrowers shall be obligated to
pay the accrued commitment and facility fees thereunder to but excluding the
date of such effectiveness.
SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Agent of a Notice of Borrowing as required
by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitments;
(c) the fact that, immediately after such Borrowing, (i) in
the case of a Refunding Borrowing, no Event of Default and (ii) in the
case of any other Borrowing, no Default shall have occurred and be
continuing;
(d) the fact that the representations and warranties of the
Company contained in this Agreement (except, in the case of a Refunding
Borrowing, the representations and warranties set forth in Section 4.05
as to any matter which has theretofore been disclosed in writing by the
Company to the Banks) shall be true on and as of the date of such
Borrowing; and
(e) the fact that, immediately after such Borrowing, (i) in
the case of a Refunding Borrowing, Adjusted Consolidated Tangible Net
Worth and (ii) in the case of any other Borrowing, Consolidated
Tangible Net Worth shall be greater
than $800,000,000.
Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of
31
<PAGE>
such Borrowing as to the facts specified in clauses (b), (c), (d) and (e) of
this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants that:
SECTION 4.01. Corporate Existence and Power. Each of the Company and Credit
Corporation is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware, and has all corporate power and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted which, if not obtained, could
reasonably be expected to have a material adverse effect on the business or
operations of the Company and its Subsidiaries considered as a whole.
SECTION 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Company and Credit Corporation of
this Agreement and the Notes are within such Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no approval of
or filing with any governmental body, agency or official and do not contravene
or constitute a default under any provision of applicable law or regulation or
of the certificate of incorporation or by-laws of such Borrower or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
such Borrower or result in the creation or imposition of any mortgage, security
interest or other lien or encumbrance on any asset of such Borrower or any of
its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of each of the Company and Credit Corporation, and each Note
of each Borrower, when executed and delivered in accordance with this Agreement,
will constitute a valid and binding obligation of such Borrower, in each case
enforceable in accordance with its terms.
SECTION 4.04. Financial Information. The consolidated balance sheet of the
Company and its Consolidated Subsidiaries as of December 31, 1993 and the
related consolidated statements of income, retained earnings and cash flows for
the year then ended, reported on by Arthur Andersen & Co. and set forth in the
Company's 1993 Annual Report, a copy of which has been delivered to each of the
Banks, fairly present, in conformity with generally
32
<PAGE>
accepted accounting principles, the consolidated financial position of the
Company and its Consolidated Subsidiaries as of such date and their consolidated
results of operations and cash flows for such year.
SECTION 4.05. Litigation. Except as set forth in the Company's 1993 Annual
Report, there is no action, suit or proceeding pending, or to the knowledge of
the Company threatened, against or affecting the Company or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official, which involves any substantial risk of an adverse decision which would
result in any material adverse effect on the business, consolidated financial
position or consolidated results of operations of the Company and its
Consolidated Subsidiaries considered as a whole, or which involves any material
risk of an adverse decision which would draw into question the validity of the
obligations of either Borrower under this Agreement or the Notes of such
Borrower.
SECTION 4.06. Compliance with ERISA.
(a) Neither the Company nor any Related Person has failed to comply in any
material respect with the applicable provisions of ERISA and the Internal
Revenue Code and the regulations promulgated thereunder (including, without
limitation, sections 4068, 4069 and 4212 of ERISA), where such failure could
reasonably be expected to be materially adverse to the Company and its
Subsidiaries taken as a whole.
(b) Other than premiums to the PBGC due in the normal course, no liability
to the PBGC (with respect to which the Company or any Related Person is
delinquent) has been incurred and remains unsatisfied or is expected by the
Company to be incurred with respect to any Plan by the Company or any Related
Person which is or would be materially adverse to the Company and its
Subsidiaries taken as a whole.
(c) Neither the Company nor any Related Person is obligated to contribute
to, or has incurred a withdrawal liability with respect to, any Multiemployer
Plan in an amount that would be materially adverse to the Company and its
Subsidiaries taken as a whole.
(d) Full payment has been made of all amounts that the Company or any
Related Person is required under the terms of each Plan to have paid as
contributions to such Plan as of the last day of the most recent fiscal year of
such Plan ended prior to the date hereof (or will be made within the period
described in Section 404 of the Internal
33
<PAGE>
Revenue Code) and no accumulated funding deficiency (as defined in Section 302
of ERISA and Section 412 of the Internal Revenue Code), whether or not waived
exists with respect to any Plan. Each Plan satisfies the minimum funding
standard of Section 412 of the Internal Revenue Code.
(e) The amount of Benefit Liabilities under each Plan, determined as of the
end of the Company's most recently ended fiscal year (on the basis of
assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA) did
not exceed the current value of the assets of such Plans determined as of such
date in an amount that, individually or in the aggregate with such amount for
all Plans, exceeds $25,000,000.
SECTION 4.07. Environmental Matters. The Company and each of its Material
Subsidiaries is in compliance with, or has obtained waivers or variances from,
all applicable requirements of all federal, state, local and foreign
governmental authorities with respect to environmental protection, including,
without limitation, regulations relating to pollution control or establishing
quality criteria and standards for air, water and land ("Environmental Laws"),
in all jurisdictions where such Persons are presently doing business and which,
if not obtained or complied with, could reasonably be expected to have a
material adverse effect on the business or operations of the Company and its
Subsidiaries considered as a whole.
SECTION 4.08. Taxes. United States Federal income tax returns of the
Company and its Subsidiaries have been examined through the year ended December
31, 1989. The Company and its Subsidiaries have filed all United States Federal
income tax returns and all other material tax returns which are required to be
filed by them and have paid all taxes due pursuant to such returns or pursuant
to any assessment received by the Company or any of its Subsidiaries, except
such taxes or assessments, if any, as are being contested in good faith by
appropriate proceedings. The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of taxes are, in the opinion of the
Company, adequate.
SECTION 4.09. Subsidiaries. Each of the Material Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers required
to carry on its business as now conducted. Each Material Subsidiary has all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and which, if not obtained,
34
<PAGE>
could reasonably be expected to have a material adverse effect on the business
or operations of the Company and its Subsidiaries considered as a whole.
ARTICLE V
COVENANTS
The Company covenants and agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Company will deliver to each of the Banks:
(a) to the extent not already delivered pursuant to another
clause of this Section 5.01, as soon as available and in any event
within 120 days after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated
Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, retained earnings and cash flows for
such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by Arthur
Andersen & Co. or other independent public accountants of nationally
recognized standing and an unaudited consolidated balance sheet of
Credit Corporation and its Consolidated Subsidiaries as of the end of
such fiscal year and the related consolidated statements of income,
retained earnings and cash flows for such fiscal year, setting forth in
the case of such statements of income and cash flows in comparative
form the figures for the previous fiscal year, accompanied by (x) the
report thereon of independent public accountants or (y) if such
financial statements are not otherwise reported on by independent
public accountants, a certificate of the chief accounting officer of
Credit Corporation as to fairness of presentation, generally accepted
accounting principles and consistency;
(b) to the extent not already delivered pursuant to another
clause of this Section 5.01, as soon as available and in any event
within 60 days after the end of each of the first three quarters of
each fiscal year of the Company, (x) a consolidated balance sheet of
the Company and its Consolidated Subsidiaries as of the end of such
35
<PAGE>
quarter, (y) the related consolidated statements of income for such
quarter and for the portion of the Company's fiscal year ended at the
end of such quarter and (z) the related consolidated statement of cash
flows for the portion of the Company's fiscal year ended at the end of
such quarter, setting forth in the case of such statements of income
and cash flows in comparative form the figures for the corresponding
quarter and the corresponding portion of the Company's previous fiscal
year, all certified (subject to normal year-end adjustments) as to
fairness of presentation, generally accepted accounting principles and
consistency by the chief accounting officer of the Company;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above or clause (g)
below, a certificate of the chief accounting officer of the Company
stating whether to the knowledge of such officer, there exists on the
date of such certificate any Default and, if any Default then exists,
setting forth the details thereof and the action which the Company is
taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of audited
year-end financial statements referred to in clauses (a) or (g), a
statement substantially in the form attached hereto as Exhibit G of the
firm of independent public accountants which reported on such
statements stating whether anything has come to their attention to
cause them to believe that there existed on the date of such statements
any Default;
(e) forthwith upon any executive officer (meaning any member
of the executive management committee, the treasurer, the chief
financial officer, the general counsel or the chief accounting officer)
of the Company obtaining knowledge of the occurrence of any Default, a
certificate of the chief accounting officer of the Company setting
forth the details thereof and the action which the Company is taking or
proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of
36
<PAGE>
all financial statements, reports and proxy statements so mailed;
(g) promptly upon the filing thereof, a copy of each
registration statement (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) which the
Company shall have filed with the Securities and Exchange Commission,
and, within 15 days after the filing thereof, a copy of each annual,
quarterly or other report (other than the exhibits thereto) which the
Company shall have filed with the Securities and Exchange Commission;
(h) if and when the Company or any Related Person (i) gives or
is required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such
notice; or (iii) receives notice from the PBGC under Title IV of ERISA
of an intent to terminate, impose liability (other than for premiums
under Section 4007 of ERISA) in respect of or appoint a trustee to
administer any Plan, a copy of such notice; and
(i) from time to time, upon receiving from the Banks such
assurances of confidential treatment as the Company may reasonably
request, such additional information regarding the financial position
or business of the Company as the Agent, at the request of any Bank,
may reasonably request.
SECTION 5.02. Payment of Taxes. The Company covenants that it will, and
will cause each of its Subsidiaries to, pay all material taxes, assessments and
other governmental charges imposed upon it or any of its Properties or assets or
in respect of any of its franchises, business, income or profits before any
penalty or interest accrues thereon, and all material claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and
37
<PAGE>
which by law have or might become a Lien upon any of its Properties or assets,
non-payment of which could have a material and adverse effect on the business,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole or on the ability of the Company to comply with
its obligations under this Agreement or the Notes, provided that no such tax,
assessment, charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted.
SECTION 5.03. Insurance. The Company will maintain or cause to be
maintained, with financially sound and reputable insurers, insurance with
respect to its Properties and business and the Properties and business of its
Subsidiaries against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar business
and similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations; provided,
however, that in lieu of any such insurance, the Company or any such Subsidiary
may maintain a system or systems of self-insurance which are in accord with
sound practices of similarly situated corporations of established reputation
maintaining such systems and with respect to which the Company or such
Subsidiary shall maintain adequate insurance reserves in accordance with
generally accepted accounting principles and in accordance with sound actuarial
and insurance principles.
SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as
permitted by Section 5.08, the Company will at all times preserve and keep in
full force and effect and will cause each Material Subsidiary to preserve and
keep in full force and effect its corporate existence, and rights and franchises
deemed material to the Properties, business, prospects, profits, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole, except that such rights and franchises and the corporate existence
of any Material Subsidiary (other than Credit Corporation) may be terminated if,
in the good-faith judgment of the Board of Directors of the Company, such
termination is in the best interest of the Company and is not disadvantageous to
the Banks.
SECTION 5.05. Compliance with Laws. The Company will, and will use its best
efforts to cause each Subsidiary to, comply with all applicable laws, rules and
regulations and orders of any governmental authority, non-compliance with which
could have a material and adverse effect on the business, condition (financial
or otherwise) or operations of the Company and its Subsidiaries taken as a whole
or on
38
<PAGE>
the ability of the Company to comply with its obligations under this Agreement
or the Notes.
SECTION 5.06. Compliance with ERISA. The Company will not, and will not
permit any Subsidiary to (i) engage in any transaction in connection with which
the Company or any Subsidiary could be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA, a tax imposed by Section 4975 of
the Internal Revenue Code, or a lien pursuant to Section 412(n) of the Internal
Revenue Code, (ii) terminate any Plan in a manner, or take any other action with
respect to any such Plan (including, without limitation, a substantial cessation
of operations within the meaning of Section 4068(f) of ERISA), which could
result in any liability of the Company or any Subsidiary to the PBGC or to a
trustee appointed pursuant to Section 4042(b) or (c) of ERISA, or incur any
liability to the PBGC on account of a termination of a Plan under Section 4064
of ERISA, (iii) fail to make full payment when due of all amounts which, under
the provisions of any Plan or Section 412(m) of the Internal Revenue Code, the
Company or any Subsidiary is required to pay as contributions thereto, (iv)
incur any complete or partial withdrawal liability under Title IV of ERISA with
respect to any Multiemployer Plan, or (v) permit to exist any accumulated
funding deficiency, whether or not waived, with respect to any Plan, if, in the
aggregate, such penalty or tax or such liability, or the failure to make such
payment, or the existence of such deficiency, as the case may be, exceeds
$25,000,000.
SECTION 5.07. Negative Pledge. Neither the Company nor any Consolidated
Subsidiary will create, assume or suffer to exist any Lien securing Debt on any
Restricted Property now owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement;
(b) any Lien existing on any asset of any corporation at the
time such corporation becomes a Consolidated Subsidiary and not created
in contemplation of such event and which does not extend to any other
assets of the Company or its Consolidated Subsidiary;
(c) any Lien on any asset securing Debt incurred or assumed
for the purpose of financing all or any part of the cost of acquiring,
constructing or improving such asset, provided that such Lien attaches
to such asset concurrently with or within 24 months after the
acquisition or completion of construction or improvement thereof, and
provided further that the Debt
39
<PAGE>
secured by such Lien shall not exceed the cost of acquiring,
constructing or improving such asset;
(d) any Lien on any asset of any corporation existing at the
time such corporation is merged or consolidated with or into the
Company or a Consolidated Subsidiary and not created in contemplation
of such event and which does not extend to any other assets of the
Company or its Consolidated Subsidiaries;
(e) any Lien existing on any asset prior to the acquisition
thereof by the Company or a Consolidated Subsidiary and not created in
contemplation of such acquisition;
(f) any Lien arising pursuant to any order of attachment,
distraint or similar legal process arising in connection with court
proceedings so long as the execution or other enforcement thereof is
effectively stayed and the claims secured thereby are being contested
in good faith by appropriate proceedings;
(g) Liens to secure indebtedness of the pollution control or
industrial revenue bond type and Liens in favor of the United States or
any state thereof, or any department, agency, instrumentality, or
political subdivision of any such jurisdiction, to secure any
indebtedness incurred for the purpose of financing all or any part of
the purchase price or cost of constructing or improving the property
subject thereto;
(h) any Lien (including Liens in respect of production
payments) to secure the payment of all or any part of the cost of
exploration, drilling, mining, or development of property which had
prior to December 31, 1993, produced no material volumes of
hydrocarbons, coal, minerals, timber or other products or by-products
produced or extracted from such property, provided that the Debt
secured by such Lien shall not exceed the cost of exploring, drilling,
mining or development of such property; and provided further that such
Lien shall not extend to any property other than the property being
explored, drilled, mined or developed;
(i) Lien securing Debt incurred by Kerr-McGee Oil (U.K.)
Limited to pay all or any part of the cost of exploration, drilling or
development of any North Sea properties within the territorial waters
of the United Kingdom, provided that the Debt secured by such liens
shall not exceed the cost of such exploration, drilling, or
development; and provided further that
40
<PAGE>
such Lien shall not extend to any property other than the property
being explored, drilled or developed;
(j) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses of this section, provided that the amount of
such Debt is not increased and is not secured by any additional assets;
and
(k) Liens not otherwise permitted by the foregoing clauses of
this Section securing Debt in an aggregate principal amount at any time
outstanding not exceeding 5% of Stockholders' Equity of the Company.
SECTION 5.08. Consolidations, Mergers and Sales of Assets. The Company will
not be a party to any merger or consolidation or sell, lease or otherwise
transfer all or substantially all of its Property, provided that the Company may
merge or consolidate with another corporation and may sell, lease or otherwise
transfer all or substantially all of its Property as an entirety to another
corporation if (i) the surviving or acquiring corporation (if other than the
Company) (A) is organized under the laws of the United States or a jurisdiction
thereof and (B) expressly assumes the covenants and obligations in this
Agreement and (ii) immediately after giving effect to such transaction, no
condition or event shall exist which constitutes an Event of Default and
Consolidated Tangible Net Worth is not less than $800,000,000.
SECTION 5.09. Use of Proceeds. The proceeds of the Loans made under this
Agreement will be used by the Borrowers for general corporate purposes, which
includes the use by the Borrowers of such proceeds to support the issuance by it
of domestic commercial paper notes, and will not, in any event, be used for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
margin stock, within the meaning of Regulation U.
SECTION 5.10. Transactions with Affiliates. The Company will not directly
or indirectly engage in any transaction (including, without limitation, the
purchase, sale or exchange of assets or the rendering of any service) with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such Affiliate's business and upon fair and
reasonable terms that are substantially the same as those which might be
obtained in an arm's length transaction at the time from Persons which are not
such an Affiliate or upon terms which would not materially and adversely affect
the ability of the Company to comply with its obligations under this Agreement;
41
<PAGE>
provided, however, that taxes may be allocated among the Company and its
Affiliates in any manner consistent with Section 1552 (or any successor
provision) of the Internal Revenue Code and the regulations thereunder, general
and administrative expenses may be allocated among the Company and its
Affiliates in any manner consistent with Section 482 (or any successor
provision) of the Internal Revenue Code and the regulations thereunder, and
interest may be charged or credited to Affiliates in any reasonable manner not
inconsistent with the Internal Revenue Code and the regulations thereunder.
SECTION 5.11. Ownership of Credit Corporation. The Company will at all
times own, directly or indirectly, all outstanding capital stock of Credit
Corporation, free and clear of any Lien.
SECTION 5.12. Change in Rating. Promptly upon becoming aware of any actual
or proposed change in the rating by S&P or Moody's of the Company's outstanding
senior unsecured long-term debt securities, the Company shall give notice to the
Agent of such actual or proposed change.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) a Borrower shall fail to pay when due any principal of any
Loan or, within five days of the due date thereof, any interest on any
Loan, any fees or any other amount payable hereunder;
(b) the Company shall fail to observe or perform any covenant
contained in Sections 5.07 through 5.11 inclusive;
(c) the Company shall fail to observe or perform any covenant
or agreement contained in this Agreement (other than those covered by
clauses (a) or (b) above) for 30 days after notice thereof has been
given in accordance with Section 10.01 to the Company by the Agent at
the request of any Bank;
(d) any representation, warranty, certification or statement
made or deemed, pursuant to the terms hereof, to have been made by the
Company in this Agreement or in any certificate, financial statement or
42
<PAGE>
other notice delivered pursuant to this Agreement shall prove to have
been incorrect in any material respect when made or deemed to have been
made;
(e) the Company or any Subsidiary shall fail to make any
payment in respect of any Material Financial Obligations when due or
within any applicable grace period;
(f) any event or condition (other than an event or condition
which renders it unlawful for any Person to make, maintain or fund
extensions of credit comprising any Debt described in this subsection
(f)) shall occur which results in the acceleration of the maturity of
any Debt (which term shall, for purposes of this subsection (f),
exclude (1) clause (vi) of the definition of Debt set forth in Section
1.01 and (2) Debt of any Person that is not a Subsidiary of the Company
and which is Guaranteed by the Company or a Subsidiary, so long as
neither the Company nor such Subsidiary is in default with respect
thereto) of the Company or any Subsidiary greater than the Debt
Acceleration Threshold in aggregate principal amount;
(g) the Company or any Material Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its Property, or shall consent to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to
authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Company or any Material Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered
43
<PAGE>
against the Company or any Material Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(i) the Company or any Related Person shall fail to pay when
due (and not being contested in good faith) an amount or amounts
aggregating in excess of $5,000,000 which it shall have become liable
to pay to the PBGC, the Internal Revenue Service or the Department of
Labor or to a Multiemployer Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans having aggregate Unfunded Benefit
Liabilities in excess of $50,000,000 (collectively, a "Material Plan")
shall be filed under Title IV of ERISA by the Company or any Related
Person, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of or to cause a trustee to be appointed to
administer any Material Plan; or there shall occur a complete or
partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which would cause the Company or any Related Person to incur a current
payment obligation in excess of $50,000,000; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or
(j) a final judgment or order for the payment of money in
excess of $10,000,000 not covered by insurance (as to which insurance
coverage there is delivered to the Agent an opinion of counsel
reasonably satisfactory to the Agent that such coverage applies to such
judgment or order and that the applicable insurance carrier has not
contested the payment thereof) shall be rendered against the Company or
any Material Subsidiary and such judgment or order shall continue
unsatisfied and not stayed, bonded, vacated or suspended by agreement
with the beneficiary thereof for a period of 60 days;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Company
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate principal
amount of the Loans, by notice to the Company declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand,
44
<PAGE>
protest or other notice of any kind, all of which are hereby waived by each
Borrower; provided that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to either Borrower, without any notice to
either Borrower or any other act by the Agent or the Banks, the Commitments
shall thereupon terminate and the Notes (together with accrued interest thereon)
shall become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice to the Company
under Section 6.01(c) promptly upon being requested to do so by any Bank and
shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the Notes as are delegated to the
Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New
York shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with either Borrower or any Subsidiary or Affiliate of either Borrower
as if it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Agent shall not be required to take any action with respect to
any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may consult with legal
counsel (who may be counsel for either Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
45
<PAGE>
SECTION 7.05. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it or them in connection
herewith (i) with the consent or at the request of the Required Banks or (ii) in
the absence of its or their own gross negligence or willful misconduct. Neither
the Agent nor any of its affiliates nor any of their respective directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any statement, warranty or representation
made in connection with this Agreement or any borrowing hereunder; (ii) the
performance or observance of any of the covenants or agreements of either
Borrower; (iii) the satisfaction of any condition specified in Article III,
except receipt of items required to be delivered to the Agent; or (iv) the
validity, effectiveness or genuineness of this Agreement, the Notes or any other
instrument or writing furnished in connection herewith. The Agent shall not
incur any liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex, facsimile
transmission or similar writing) believed by it to be genuine or to be signed by
the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with
its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrowers) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or omitted
by such indemnitees hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any time by giving
notice thereof in accordance with Section 10.01 to the Banks and the Company.
Upon any
46
<PAGE>
such resignation, the Borrowers, with the written consent of the Required Banks,
which consent shall not be unreasonably withheld, shall have the right to
appoint a successor Agent, which shall be one of the Banks. If no successor
Agent shall have been so appointed by the Borrowers, and shall have accepted
such appointment, within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own
account fees in the amounts and at the times previously agreed upon between the
Borrower and the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If
on or prior to the first day of any Interest Period for any Fixed Rate Borrowing
(except a Money Market Absolute Rate Borrowing):
(a) the Agent is advised by the Reference Banks that deposits
in dollars (in the applicable amounts) are not being offered to the
Reference Banks in the relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, Banks having 50% or
more of the aggregate amount of the Commitments advise the Agent that
the Adjusted CD Rate or the London Interbank Offered Rate, as the case
may be, as determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding their CD Loans or Euro-Dollar
Loans, as the case may be, for such Interest Period,
47
<PAGE>
the Agent shall forthwith give notice thereof to the Company and the Banks,
whereupon until the Agent notifies the Company that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make CD
Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the
Borrower notifies the Agent at least two Domestic Business Days before the date
of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing pursuant to Article II and (ii) if such Fixed Rate Borrowing
is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such
Borrowing shall bear interest for each day from and including the first day to
but excluding the last day of the Interest Period applicable thereto at the Base
Rate for such day.
SECTION 8.02. Illegality. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans to
either Borrower and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the Company, whereupon
until such Bank notifies the Company and the Agent that the circumstances giving
rise to such suspension no longer exist, the obligation of such Bank to make
Euro-Dollar Loans to such Borrower shall be suspended. Before giving any notice
to the Agent pursuant to this Section, such Bank shall designate a different
Euro-Dollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the reasonable judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to such Borrower to maturity and shall so specify in such notice, such Borrower
shall immediately prepay in full the then outstanding principal amount of each
such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with
prepaying each such Euro-Dollar Loan, such Borrower shall borrow a Base Rate
Loan (or, if such Borrower so elects by at least one Domestic Business Day's
notice to the Agent and such Bank, such Borrower shall borrow a CD Loan) in an
equal
48
<PAGE>
principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan or CD Loan, as the case
may be.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the
date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject any Bank (or its Applicable Lending Office)
to any tax, duty or other charge with respect to its Fixed Rate Loans,
its Notes or its obligation to make Fixed Rate Loans, or shall change
the basis of taxation of payments to any Bank (or its Applicable
Lending Office) of the principal of or interest on its Fixed Rate Loans
or any other amounts due under this Agreement in respect of its Fixed
Rate Loans or its obligation to make Fixed Rate Loans (except for
changes in the rate of tax on the overall net income of such Bank or
its Applicable Lending Office imposed by the jurisdiction in which such
Bank's principal executive office or Applicable Lending Office is
located); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit, insurance assessment or similar requirement
(including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but excluding (A)
with respect to any CD Loan any such requirement included in an
applicable Domestic Reserve Percentage or Assessment Rate and (B) with
respect to any Euro-Dollar Loan any such requirement with respect to
which such Bank is entitled to compensation during the relevant
Interest Period under Section 2.16) against assets of, deposits with or
for the account of, or credit extended by, any Bank (or its Applicable
Lending Office) or shall impose on any Bank (or its Applicable Lending
Office) or on the United States
49
<PAGE>
market for certificates of deposit or the London interbank market any
other condition affecting its Fixed Rate Loans, its Notes or its
obligation to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or
to reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Agent), the Company shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If any Bank shall have determined that, on or after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Agent), the Company shall pay to such
Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction.
(c) Each Bank will promptly notify the Company and the Agent of any event
of which it has knowledge, occurring after the date hereof, which will entitle
such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the reasonable
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth in
reasonable detail the calculation of the additional amount or amounts to be paid
to it hereunder shall be presumed correct unless and until it is shown to be in
error. In determining such amount, such Bank may use any reasonable averaging
and attribution
50
<PAGE>
methods. If any Bank demands compensation under Section 8.03(a), the affected
Borrower may at any time, upon at least five Euro-Dollar Business Days' prior
notice to such Bank through the Agent, prepay in full each then outstanding CD
Loan or Euro-Dollar Loan, as the case may be, of such Bank, together with
accrued interest thereon to the date of prepayment. Concurrently with prepaying
each such CD Loan or Euro-Dollar Loan, as the case may be, of such Bank, such
Borrower shall borrow a Base Rate Loan (or, if such Borrower shall so elect in
its notice of prepayment, such Borrower shall borrow (i) if the Loan being
prepaid is a CD Loan, a Euro-Dollar Loan and (ii) if the Loan being prepaid is a
Euro-Dollar Loan, a CD Loan) in an equal principal amount from such Bank for an
Interest Period coinciding with the remaining term of the Interest Period
applicable to such CD Loan or Euro-Dollar Loan being prepaid, and such Bank
shall make such a Base Rate Loan, CD Loan or Euro-Dollar Loan, as the case may
be.
SECTION 8.04. Substitute Loans. If (i) the obligation of any Bank to make
Euro-Dollar Loans to either Borrower has been suspended pursuant to Section 8.02
or (ii) any Bank has demanded compensation under Section 8.03(a) and the
Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such
Bank through the Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Company that
the circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans to such Borrower which would otherwise be made
by such Bank as CD Loans or Euro-Dollar Loans, as the case may be,
shall be made instead as Base Rate Loans, or if such Borrower shall so
elect in the Notice of Borrowing, CD Loans or Euro-Dollar Loans
(whichever type is not affected by such circumstances) for an Interest
Period coincident with the related Fixed Rate Borrowing, and
(b) after each of its CD Loans or Euro-Dollar Loans, as the
case may be, to such Borrower has been repaid, all payments of
principal which would otherwise be applied to repay such Fixed Rate
Loans shall be applied to repay its Substitute Loans instead.
SECTION 8.05. Substitution of Bank. If (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03, the Company shall have the
right, with the assistance of the Agent, to seek a
51
<PAGE>
mutually satisfactory substitute bank or banks (which may be one or more of the
Banks) to purchase the Notes and assume the Commitment of such Bank. The
purchase price for such Notes shall be an amount equal to the principal amount
thereof together with accrued interest thereon, accrued amounts (if any) for the
account of such Bank pursuant to Sections 2.16 and 8.03 and such amount (if any)
as such Bank would be entitled to pursuant to Section 2.14 in respect of the
prepayment of its Notes on such date.
ARTICLE IX
GUARANTY
SECTION 9.01. The Guaranty. The Company hereby unconditionally guarantees
the full and punctual payment (whether at stated maturity, upon acceleration or
otherwise) of the principal of and interest on each Note issued by Credit
Corporation pursuant to this Agreement, and the full and punctual payment of all
other amounts payable by Credit Corporation under this Agreement. Upon failure
by Credit Corporation to pay punctually any such amount, the Company shall
forthwith on demand pay the amount not so paid at the place and in the manner
specified in this Agreement.
SECTION 9.02. Guaranty Unconditional. The obligations of the Company
hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of Credit Corporation under this
Agreement or any Note, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to this
Agreement or any Note;
(iii) any release, non-perfection or invalidity of any direct or
indirect security for any obligation of Credit Corporation under this
Agreement or any Note;
(iv) any change in the corporate existence, structure or ownership
of Credit Corporation, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting Credit Corporation or its assets or
any resulting release or discharge of any obligation of Credit
52
<PAGE>
Corporation contained in this Agreement or any Note;
(v) the existence of any claim, set-off or other rights which
the Company may have at any time against Credit Corporation, the Agent,
any Bank or any other Person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory
counterclaim;
(vi) any invalidity or unenforceability relating to or against
Credit Corporation for any reason of this Agreement or any Note, or any
provision of applicable law or regulation purporting to prohibit the
payment by Credit Corporation of the principal of or interest on any
Note or any other amount payable by it under this Agreement; or
(vii) any other act or omission to act or delay of any kind by
Credit Corporation, the Agent, any Bank or any other Person or any
other circumstance whatsoever which might, but for the provisions of
this paragraph, constitute a legal or equitable discharge of or defense
to the Company's obligations hereunder.
SECTION 9.03. Discharge Only Upon Payment In Full; Reinstatement In Certain
Circumstances. The Company's obligations hereunder shall remain in full force
and effect until the Commitments shall have terminated and the principal of and
interest on the Notes and all other amounts payable by the Company and Credit
Corporation under this Agreement shall have been paid in full. If at any time
any payment of the principal of or interest on any Note or any other amount
payable by Credit Corporation under this Agreement is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of Credit Corporation or otherwise, the Company's obligations hereunder with
respect to such payment shall be reinstated at such time as though such payment
had been due but not made at such time.
SECTION 9.04. Waiver by the Company. The Company irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action be taken by any
Person against Credit Corporation or any other Person.
53
<PAGE>
SECTION 9.05. Subrogation. The Company irrevocably waives any and all
rights to which it may be entitled, by operation of law or otherwise, upon
making any payment hereunder to be subrogated to the rights of the payee against
Credit Corporation with respect to such payment or otherwise to be reimbursed,
indemnified or exonerated by Credit Corporation in respect thereof, in any
bankruptcy, insolvency or similar proceeding involving Credit Corporation as
debtor commencing within one year after the making of any payment by Credit
Corporation under this Agreement or its Notes.
SECTION 9.06. Stay of Acceleration. In the event that acceleration of the
time for payment of any amount payable by Credit Corporation, under this
Agreement or its Notes is stayed upon insolvency, bankruptcy or reorganization
of Credit Corporation, all such amounts otherwise subject to acceleration under
the terms of this Agreement shall nonetheless be payable by the Company
hereunder forthwith on demand by the Agent made at the request of the Required
Banks.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of either Borrower or the Agent, at its address, facsimile number or telex
number set forth on the signature pages hereof, (y) in the case of any Bank, at
its address, facsimile number or telex number set forth in its Administrative
Questionnaire or (z) in the case of any party, such other address, facsimile
number or telex number as such party may hereafter specify for the purpose by
notice to the Agent and the Company. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (iii) if given by mail, upon receipt or (iv) if given by
any other means, when delivered at the address specified in this Section;
provided that notices to the Agent under Article II or Article VIII shall not be
effective until received.
54
<PAGE>
SECTION 10.02. No Waivers. No failure or delay by the Agent or any Bank in
exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 10.03. Expenses; Documentary Taxes; Indemnification. (a) The
Company shall pay (i) all reasonable out-of-pocket expenses of the Agent,
including fees and disbursements of special counsel for the Agent, in connection
with the preparation of this Agreement, any waiver or consent hereunder or any
amendment hereof or any Default or alleged Default hereunder and (ii) if an
Event of Default occurs, all reasonable out-of-pocket expenses incurred by the
Agent and each Bank, including (without duplication) the fees and disbursements
of outside counsel and the reasonably allocated cost of inside counsel, in
connection with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom. The Company shall indemnify
each Bank against any transfer taxes, documentary taxes, assessments or charges
made by any governmental authority by reason of the execution and delivery of
this Agreement, or any Note.
(b) The Company agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be reasonably incurred by any Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) relating to
or arising out of this Agreement; provided that no Indemnitee shall have the
right to be indemnified hereunder for its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction. It is understood
(except as provided below) that the Company shall not, in connection with any
such claim, or separate but substantially similar or related claims in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys for
all such Indemnitees which firm shall be designated by the Agent. Any
Indemnitees shall have the right to retain its own counsel, but the fees and
expenses of such counsel (other than the firm designated by the Agent as
aforesaid) shall be at the expense of such Indemnitee unless (i) the
55
<PAGE>
Company on the one hand, and such Indemnitee on the other shall have mutually
agreed to the retention of such counsel or (ii) the representation of such
Indemnitee by the same counsel representing the Agent, the Banks or any other
party would in the reasonable view of such Indemnitee be inconsistent with or
adverse to the interests of such Indemnitee. The Company shall not be liable for
any settlement of any such claim effected without its written consent, which
shall not be unreasonably withheld.
SECTION 10.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest due with respect
to any Note held by it which is greater than the proportion received by any
other Bank in respect of the aggregate amount of principal and interest due with
respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of a Borrower other than its
indebtedness hereunder. Each Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of such Borrower in the amount of such participation.
SECTION 10.05. Amendments and Waivers. Any provision of this Agreement or
the Notes may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrowers and the Required Banks (and, if the
rights or duties of the Agent are affected thereby, by the Agent); provided that
no such amendment or waiver shall, unless signed by all the Banks, (i) increase
or decrease the Commitment of any Bank (except for a ratable decrease in the
Commitments of all Banks) or subject any Bank to any additional obligation, (ii)
reduce the principal of or rate of interest on any Loan or any fees hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on any
Loan or any fees hereunder, (iv) postpone the date fixed for termination of any
Commitment, or (v) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or
56
<PAGE>
the number of Banks, which shall be required for the Banks or any of them to
take any action under this Section or any other provision of this Agreement.
Neither an assignment pursuant to Section 10.06 nor a substitution pursuant to
Section 8.05 constitutes an amendment subject to the provisions of this Section
10.05.
SECTION 10.06. Successors and Assigns. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that neither Borrower may assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Money Market
Loans or, upon notice to the Company, in its Committed Loans. In the event of
any such grant by a Bank of a participating interest to a Participant, whether
or not upon notice to the Borrowers and the Agent, such Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrowers
and the Agent shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrowers hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 10.05
without the consent of the Participant. The Borrowers agree that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Section 2.16 with respect to its participating
interest to the same extent as a Bank. An assignment or other transfer which is
not permitted by subsection (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this subsection (b).
(c) With the prior written consent of the Company and the Agent, any Bank
may at any time assign to one or more banks or other institutions (each an
"Assignee") all, or a proportionate part (equivalent to an initial Commitment of
not less than $10,000,000 and not exceeding, together with all other assignments
by such transferor Bank and its affiliate transferees to non-affiliates, 50% of
its initial Commitment, except in any case as the Company and the Agent
57
<PAGE>
may otherwise agree) of all, of its rights and obligations under this Agreement
and the Notes, and such Assignee shall assume such rights and obligations,
pursuant to an Assignment and Assumption Agreement in substantially the form of
Exhibit H hereto executed by such Assignee and such transferor Bank; provided
that if an Assignee is an affiliate of such transferor Bank, no such consent
shall be required; and provided further that such assignment may, but need not,
include rights of the transferor Bank in respect of outstanding Money Market
Loans. Upon execution and delivery of such instrument and payment by such
Assignee to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Assignee, such Assignee shall be a Bank
party to this Agreement and shall have all the rights and obligations of a Bank
with a Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Agent and the Borrowers shall make appropriate
arrangements so that, if required, new Notes are issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the Agent
an administrative fee for processing such assignment in the amount of $2,500.
(d) Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
(e) (i) No Assignee or other transferee of any Bank's rights shall be
entitled to receive any greater payment under Section 8.03 than such Bank would
have been entitled to receive with respect to the rights transferred, unless
such transfer is made with the Company's prior written consent or by reason of
the provisions of Section 8.02 or 8.03 requiring such Bank to designate a
different Applicable Lending Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
(ii) No Bank shall be entitled to additional interest under Section 2.16 on
any portion of any Euro-Dollar Loan with respect to which it has granted a
participation pursuant to subsection (b) above.
(f) If any Reference Bank assigns its Note to an unaffiliated institution,
or if the Commitment of any Reference Bank is terminated pursuant to Section
2.12 or 8.05, the Agent shall, with the consent of the Company and
58
<PAGE>
the Required Banks, appoint another Bank to act as a Reference Bank hereunder.
SECTION 10.07. Collateral. Each of the Banks represents to the Agent and
each of the other Banks that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 10.08. Governing Law. This Agreement and each Note shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 10.09. Counterparts; Integration. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
KERR-McGEE CORPORATION
By /s/ John C. Linehan
Title: Senior Vice President and
Chief Financial Officer
By /s/ Thomas B. Stephens
Title: Vice President and Treasurer
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
Attn: Treasurer
Telex No.: 747128
Telecopy No.: 405-270-3029 (automatic)
405-270-3129 (manual)
KERR-McGEE CREDIT CORPORATION
By /s/ Thomas B. Stephens
Title: Vice President and Treasurer
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
Attn: Treasurer
Telex No.: 747128
Telecopy No.: 405-270-3029 (automatic)
405-270-3129 (manual)
Commitments
$50,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Vernon M. Ford, Jr.
Title: Vice President
60
<PAGE>
$35,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ J. Stephen Mernick
Title: Senior Vice President
$35,000,000 CITIBANK, N.A.
By /s/ Barbara A. Cohen
Title: Vice President
$35,000,000 TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By /s/ Dale S. Hurd
Title: Senior Vice President
$35,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Helen A. Carr
Title: Vice President
$25,000,000 MELLON BANK, N.A.
By /s/ A. Gary Chace
Title: Senior Vice President
$25,000,000 NATIONSBANK OF TEXAS, N.A.
By /s/ William D. Clift
Title: Senior Vice President
61
<PAGE>
$25,000,000 ROYAL BANK OF CANADA
By /s/ Everett M. Harner
Title: Manager
$20,000,000 THE BANK OF NEW YORK
By /s/ Raymond J. Palmer
Title: Vice President
$20,000,000 THE FIRST NATIONAL BANK OF BOSTON
By /s/ Frank T. Smith, Jr.
Title: Director
$20,000,000 WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Terry L. Akins
Title: Senior Vice President
Total Commitments
$325,000,000
=================
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Vernon M. Ford, Jr.
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attn: Loan Department
Telex number: 177615 MGT UT
Telecopy No.: 212-648-5014
62
<PAGE>
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day
are the respective percentages set forth below in the applicable row under the
column corresponding to the Status that exists on such day:
====================================================================
Level Level Level Level
Status I II III IV
====================================================================
Euro-Dollar
Margin
If Utiliza-
tion is less
than 50% 0.200% 0.235% 0.275% 0.500%
If Utiliza-
tion equals
or exceeds
50% 0.250% 0.285% 0.325% 0.500%
- --------------------------------------------------------------------
CD Margin
If Utiliza-
tion is
less than
50% 0.325% 0.360% 0.400% 0.625%
If Utiliza-
tion equals
or exceeds
50% 0.375% 0.410% 0.450% 0.625%
- --------------------------------------------------------------------
Facility Fee
Rate 0.100% 0.115% 0.175% 0.375%
====================================================================
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Company's
long-term debt is rated A+ or higher by S&P and A1 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the Company's
long-term debt is rated A- or higher
<PAGE>
by S&P and A3 or higher by Moody's and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the Company's
long-term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's and
(ii) neither Level I Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such date, no other Status
exists.
"Status" refers to the determination of which of Level I Status, Level II
Status, Level III Status or Level IV Status exists at any date.
"Utilization" means at any date the percentage equivalent of a fraction (i)
the numerator of which is the aggregate outstanding principal amount of the
Loans at such date, after giving effect to any borrowing or payment on such
date, and (ii) the denominator of which is the aggregate amount of the
Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of this Schedule, if for any reason any
Loans remain outstanding after termination of the Commitments, the Utilization
for each date on or after the date of such termination shall be deemed to be
greater than 50%.
The credit ratings to be utilized for purposes of this Schedule are those
assigned to the senior unsecured long-term debt securities of the Company
without third-party credit enhancement, and any rating assigned to any other
debt security of the Company shall be disregarded. The rating in effect at any
date is that in effect at the close of business on such date.
If the Company's debt securities are rated by only one of Moody's and S&P,
Status shall be determined based on the rating assigned by that rating agency.
2
<PAGE>
EXHIBIT A
NOTE
New York, New York
August 25, 1994
For value received, [KERR-McGEE CORPORATION] [KERR-McGEE CREDIT
CORPORATION], a Delaware corporation (the "Borrower"), promises to pay to the
order of (the "Bank"), for the account of its Applicable Lending Office, the
unpaid principal amount of each Loan made by the Bank to the Borrower pursuant
to the Credit Agreement referred to below on the last day of the Interest Period
relating to such Loan. The Borrower promises to pay interest on the unpaid
principal amount of each such Loan on the dates and at the rate or rates
provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Morgan Guaranty Trust Company of
New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof and
all repayments of the principal thereof shall be recorded by the Bank and, if
the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the Credit Agreement dated as
of August 25, 1994 among Kerr-
<PAGE>
McGee Corporation, Kerr-McGee Credit Corporation, the banks listed on the
signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent
(as the same may be amended from time to time, the "Credit Agreement"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
[Kerr-McGee Corporation has, pursuant to the provisions of the Credit
Agreement, unconditionally guaranteed the payment in full of the principal of
and interest on this note.]**
[KERR-McGEE CORPORATION]
[KERR-McGEE CREDIT
CORPORATION]
By________________________
Title:
- --------
**To be deleted in the case of Notes executed and
delivered by Kerr-McGee Corporation.
2
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- ------------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
3
<PAGE>
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Agent")
From: [Kerr-McGee Corporation]
[Kerr-McGee Credit Corporation]
Re: Credit Agreement (the "Credit Agreement")
dated as of August 25, 1994 among Kerr-McGee
Corporation, Kerr-McGee Credit Corporation,
the Banks listed on the signature pages
thereof and the Agent
We hereby give notice pursuant to Section 2.03 of the Credit
Agreement that we request Money Market Quotes for the following proposed Money
Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount*** Interest Period****
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
- --------
***Amount must be $10,000,000 or a larger multiple of $1,000,000. ****Not
less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate
Auction), subject to the provisions of the definition of Interest Period.
<PAGE>
Terms used herein have the meanings assigned to them in the Credit
Agreement.
[KERR-McGEE CORPORATION]
[KERR-McGEE CREDIT
CORPORATION]
By________________________
Title:
2
<PAGE>
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to [Kerr-
McGee Corporation] [Kerr-McGee Credit
Corporation] (the "Borrower")
Pursuant to Section 2.03 of the Credit Agreement dated as of
August 25, 1994 among Kerr-McGee Corporation, Kerr-McGee Credit Corporation, the
Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of
the Borrower to invite you to submit Money Market Quotes to the Borrower for the
following proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.]
(New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By______________________
Authorized Officer
<PAGE>
EXHIBIT D
Form of Money Market Quote
To: Morgan Guaranty Trust Company of New York,
as Agent
Re: Money Market Quote to [Kerr-McGee
Corporation] [Kerr-McGee Credit
Corporation] (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
-----------------------------
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
$
$
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$____________.]**
- ----------
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not
exceed principal amount requested. Specify aggregate
limitation if the sum of the individual offers exceeds the
<PAGE>
amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger
multiple of $1,000,000.
(notes continued on following page)
We understand and agree that the offer(s) set forth above, subject to the
satisfaction of the applicable conditions set forth in the Credit Agreement
dated as of August 25, 1994 among Kerr-McGee Corporation, Kerr-McGee Credit
Corporation, the Banks listed on the signature pages thereof and yourselves, as
Agent, irrevocably obligates us to make the Money Market Loan(s) for which any
offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated:_______________ By:__________________________
Authorized Officer
- ----------
*** Not less than one month or not less than 7 days, as specified in the related
Invitation. No more than five bids are permitted for each Interest Period. ****
Margin over or under the London Interbank Offered Rate determined for the
applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%)
and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum
(to the nearest 1/10,000th of 1%).
2
<PAGE>
EXHIBIT E
OPINION OF GENERAL
COUNSEL OF THE COMPANY
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am General Counsel of Kerr-McGee Corporation (the "Company") and am
familiar with the Credit Agreement (the "Credit Agreement") dated as of August
25, 1994 among the Company, Kerr-McGee Credit Corporation ("Credit Corporation")
(each of the Company and Credit Corporation singly, a "Borrower" and,
collectively, "Borrowers"), the banks listed on the signature pages thereof and
Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit
Agreement are used herein as therein defined. This opinion is being rendered to
you at the request of the Borrowers pursuant to Section 3.01(c) of the Credit
Agreement.
I have examined originals or copies, certified or otherwise identified to
my satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as I have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. Each of the Borrowers is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, and has all corporate
powers required to carry on its business as now conducted.
2. Each of the Borrowers has all material governmental licenses,
authorizations, consents and
<PAGE>
approvals required to carry on its business as now conducted and which, if not
obtained, could reasonably be expected to have a material adverse effect on the
business or operations of the Company and its Subsidiaries, considered as a
whole.
3. The execution, delivery and performance by each Borrower of the Credit
Agreement and its Notes are within the corporate powers of such Borrower, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of either
Borrower or, to the best of my knowledge, of any agreement, judgment,
injunction, order, decree or other instrument binding upon either Borrower or
result in the creation or imposition of any Lien on any asset of either Borrower
or any of its Subsidiaries.
4. The Credit Agreement constitutes a valid and binding agreement of each
of the Company and Credit Corporation, and the Notes of each Borrower constitute
its valid and binding obligations in each case enforceable in accordance with
their respective terms, except as the same may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and by general
principles of equity.
5. Except as may have been disclosed in writing to the Banks prior to the
signing of the Credit Agreement, there is no action, suit or proceeding pending
against, or to the best of my knowledge threatened against or affecting, the
Company or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official, which involves any substantial risk of an
adverse decision which would result in any material adverse effect on the
business, consolidated financial position or consolidated results of operations
of the Company and its Consolidated Subsidiaries, considered as a whole, or
which involves any material risk of an adverse decision which would draw into
question the validity of the obligations of either Borrower under the Credit
Agreement or the Notes of such Borrower.
6. Each of the Material Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers required to carry on its business as
now conducted. Each Material Subsidiary has all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and which, if not obtained, could reasonably be expected to have a
material adverse
2
<PAGE>
effect on the business or operations of the Company and its Subsidiaries
considered as a whole.
I am a member of the Bar of the State of Oklahoma, and the foregoing
opinion is limited to the laws of the State of Oklahoma, the General Corporation
Law of the State of Delaware and the Federal laws of the United States of
America. Inasmuch as the Credit Agreement and the Notes are governed by the law
of the State of New York, I have assumed for purposes of the foregoing opinion
that such law is the same as the law of the State of Oklahoma. I have not been
called upon to, and accordingly do not, express any opinion on the effect (if
any) of any law of any jurisdiction (except the State of Oklahoma) in which any
Bank is located which limits the rate of interest that such Bank may charge or
collect.
Very truly yours,
3
<PAGE>
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Credit Agreement (the
"Credit Agreement") dated as of August 25, 1994 among Kerr-McGee Corporation, a
Delaware corporation, Kerr-McGee Credit Corporation, a Delaware corporation, the
banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty
Trust Company of New York, as Agent (the "Agent"), and have acted as special
counsel for the Agent for the purpose of rendering this opinion pursuant to
Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement
are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by each Borrower of the Credit
Agreement and its Notes are within such Borrower's corporate powers and have
been duly authorized by all necessary corporate action.
<PAGE>
2. The Credit Agreement constitutes a valid and binding agreement of each
of the Company and Credit Corporation, and each Note of each Borrower
constitutes a valid and binding obligation of such Borrower, in each case
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York) in
which any Bank is located which limits the rate of interest that such Bank may
charge or collect.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by any other person without our prior written consent.
Very truly yours,
2
<PAGE>
EXHIBIT G
FORM OF AUDITOR'S CERTIFICATE
To Kerr-McGee Corporation:
We have examined the consolidated balance sheet of Kerr-McGee Corporation
(a Delaware corporation), and subsidiary companies as of December 31, 19__ and
19__, and the related consolidated statements of income, retained earnings and
cash flows for each of the three years in the period ended December 31, 19__,
and have issued our report thereon dated February __, 19__. Our examination was
made in accordance with generally accepted auditing standards and, accordingly,
included such tests of the accounting records and such other auditing procedures
as we considered necessary in the circumstances.
We have read the credit agreement (the "Credit Agreement") dated as of
August 25, 1994 among Kerr-McGee Corporation (the "Company"), Kerr-McGee Credit
Corporation, the banks listed on the signature pages thereof and Morgan Guaranty
Trust Company of New York, as Agent, particularly Articles V and VI. These
articles contain certain covenants of the Company relative to certain financial
conditions and describe events of default relative to such covenants. We have
also read the accompanying officer's certificate prepared by your chief
accounting officer described in Section 5.01(c) of the Credit Agreement.
In connection with our examination, nothing came to our attention that
caused us to believe that you were in default with any of the provisions of
Article VI of the Credit Agreement insofar as they pertain to accounting
matters. It should be noted that our examination was not directed primarily
toward obtaining knowledge of noncompliance.
Very truly yours,
<PAGE>
EXHIBIT H
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"),
[ASSIGNEE] (the "Assignee"), [KERR-McGEE CORPORATION (the "Company") and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent")].
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates
to the Credit Agreement dated as of August 25, 1994 among the Company,
Kerr-McGee Credit Corporation, the Assignor and the other Banks party thereto,
as Banks, and the Agent (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans in an aggregate principal amount at any time
outstanding not to exceed $______________;
WHEREAS, Committed Loans made by the Assignor under the Credit Agreement in
the aggregate principal amount of $__________ are outstanding at the date
hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights
of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the
<PAGE>
Assignor under the Credit Agreement to the extent of the Assigned Amount, and
the Assignee hereby accepts such assignment from the Assignor and assumes all of
the obligations of the Assignor under the Credit Agreement to the extent of the
Assigned Amount, including the purchase from the Assignor of the corresponding
portion of the principal amount of the Committed Loans made by the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee[, the Company and the Agent] and the payment of the
amounts specified in Section 3 required to be paid on the date hereof (i) the
Assignee shall, as of the date hereof, succeed to the rights and be obligated to
perform the obligations of a Bank under the Credit Agreement with a Commitment
in an amount equal to the Assigned Amount, and (ii) the Commitment of the
Assignor shall, as of the date hereof, be reduced by a like amount and the
Assignor released from its obligations under the Credit Agreement to the extent
such obligations have been assumed by the Assignee. The assignment provided for
herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.***** It
is understood that commitment and/or facility fees in respect of the Assigned
Amount accrued to the date hereof are for the account of the Assignor and such
fees accruing from and including the date hereof are for the account of the
Assignee. Each of the Assignor and the Assignee hereby agrees that if it
receives any amount under the Credit Agreement which is for the account of the
other party hereto, it shall receive the same for the account of such other
party to the extent of such other party's interest therein and shall promptly
pay the same to such other party.
[SECTION 4. Consent of the Company and the Agent. This Agreement is
conditioned upon the consent of the Company and the Agent pursuant to Section
10.06(c) of the Credit Agreement. The execution of this Agreement by the Company
and the Agent is evidence of this consent. Pursuant to Section 10.06(c) the
Company agrees to execute and deliver a Note and to cause Credit Corporation to
execute
- --------
***** Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.]
SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition, or statements of any Borrower, or the
validity and enforceability of the obligations of any Borrower in respect of the
Credit Agreement or any Note. The Assignee acknowledges that it has,
independently and without reliance on the Assignor, and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal of the business, affairs and financial
condition of the Borrowers.
SECTION 6. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
[ASSIGNOR]
By_________________________
Title:
[ASSIGNEE]
By_________________________
Title:
3
<PAGE>
KERR-McGEE CORPORATION
By__________________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By__________________________
Title:
4
CONFORMED COPY
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 4,
1996 among KERR-McGEE CORPORATION, KERR-McGEE CREDIT CORPORATION, the BANKS
listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, certain of the parties hereto have heretofore entered
into a Credit Agreement dated as of August 25, 1994 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as set
forth herein and to restate the Agreement in its entirety to read as set forth
in the Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each capitalized term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Agreement as amended and restated hereby. The term "Notes" defined in the
Agreement shall include from and after the date hereof the New Note (as defined
below).
SECTION 2. Amendment of Termination Date. The definition of
"Termination Date" in Section 1.01 of the Agreement is amended to read in its
entirety as follows:
"Termination Date" means December 4, 2001, or, if such day is not
a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day, unless
such Euro-Dollar Business Day falls in another calendar month, in which case the
Termination Date shall be the next preceding Euro-Dollar Business Day.
SECTION 3. Amendment of Sections 4.04 and 4.05. Each reference
to "1993" in Sections 4.04 and 4.05 of the Agreement is amended to read "1995."
SECTION 4. Changes in Commitments. With effect from and including
the date this Amendment and Restatement becomes effective in accordance with
Section 8 hereof, (i) each Person listed on the signature pages hereof which is
not a party to the Agreement (a "New Bank") shall become a Bank party to the
Agreement and (ii) the Commitment of each Bank shall be the amount set forth
opposite the name of such Bank on the signature pages hereof. Any Bank whose
Commitment is changed to zero shall upon such effectiveness cease to be a Bank
party to the Agreement, and all accrued fees and other amounts payable under the
Agreement for the account of such Bank shall be due and payable on such date;
provided that the provisions of Sections 8.03 and 9.03 of the Agreement shall
continue to inure to the benefit of each such Bank.
SECTION 5. Amendment of Pricing Schedule. The Pricing Schedule
is amended to read in its entirety as set forth in Exhibit I to this Amendment
and Restatement.
SECTION 6. Representations and Warranties. The Borrower hereby
represents and warrants that as of the date hereof and after giving effect
hereto:
(a) no Default has occurred and is continuing; and
(b) each representation and warranty of the Borrower set forth in
the Agreement is true and correct as though made on and as of this date.
SECTION 7. Governing Law. This Amendment and Restatement shall
be governed by and construed in accordance with the laws of the State of New
York.
SECTION 8. Counterparts; Effectiveness. This Amendment and
Restatement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Amendment and Restatement shall become effective
as of the date hereof when (i) the Agent shall have received duly executed
counterparts hereof signed by each of the parties hereto (or, in the case of any
party as to which an executed counterpart shall not have been received, the
Agent shall have received telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party); (ii) the Agent
shall have received a duly executed Note for each of the New Banks (a "New
Note"), dated on or before the date of effectiveness hereof and otherwise in
compliance with Section 2.05 of the Agreement; (iii) the Agent shall have
received an opinion of the General Counsel of the Borrower (or such other
counsel for the Borrower as may be acceptable to the Agent), substantially in
the form of Exhibit E to the Agreement with reference to the New Notes, this
Amendment and Restatement and the Agreement as amended and restated hereby; and
(iv) the Agent shall have received all documents it may reasonably request
relating to the existence of the Borrower, the corporate authority for and the
validity of the Agreement as amended and restated hereby the New Notes and any
other matters relevant hereto, all in form and substance satisfactory to the
Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
KERR-McGEE CORPORATION
By /s/ John C. Linehan
Title: Senior Vice President
and Chief Financial Officer
By /s/ John M. Rauh
Title: Vice President and Treasurer
KERR-McGEE CREDIT CORPORATION
By /s/ John C. Linehan
Title: Senior Vice President
and Chief Financial Officer
<PAGE>
Commitments
$55,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
Title: Vice President
$40,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Leo Loughead
Title: Corporate Banking Officer
$35,000,000 CITIBANK, N.A.
By /s/ Arezod Jafari
Title: Assistant Vice President
$35,000,000 NATIONSBANK OF TEXAS, N.A.
By /s/ Dale T. Wilson
Title: Vice President
$35,000,000 ROYAL BANK OF CANADA
By /s/ Linda M. Stephens
Title: Manager
<PAGE>
$35,000,000 TEXAS COMMERCE BANK NATIONAL
By /s/ Donna J. Berman
Title: Senior Vice President
$25,000,000 THE BANK OF NEW YORK
By /s/ Raymond J. Palmer
Title: Vice President
$25,000,000 MELLON BANK, N.A.
By /s/ E. Marc Culnod Jr.
Title: First Vice President
$20,000,000 UMB, OKLAHOMA BANK
By /s/ David Schaefer
Title: Senior Vice President
$20,000,000 WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Joel K. Wood
Title: Vice President
$0 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ Richard D. Bluth
Title: Vice President
$0 THE FIRST NATIONAL BANK OF BOSTON
By /s/ Frank T. Smith
Title: Director
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ John Kowalczuk
Title: Vice President
<PAGE>
EXHIBIT I
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any
day are the respective percentages set forth below in the applicable row under
the column corresponding to the Status that exists on such day:
Level Level Level Level Level Level Level
Status I II III IV V VI VII
- ----------- -------- --------- -------- --------- --------- -------- -------
Euro-Dollar 0.13% 0.15% 0.17% 0.20% 0.225% 0.30% 0.50%
Margin
- ----------- -------- --------- -------- --------- --------- -------- -------
CD Margin 0.255% 0.275% 0.295% 0.325% 0.35% 0.425% 0.625%
- ----------- -------- --------- -------- --------- --------- -------- -------
Facility 0.07% 0.075% 0.08% 0.10% 0.125% 0.15% 0.25%
Fee Rate
- ----------- -------- --------- -------- --------- --------- -------- -------
For purposes of this Schedule, the following terms have the
following meanings, subject to the concluding paragraph of this schedule:
"Level I Status" exists at any date if, at such date, the
Company's long-term debt is rated A+ or higher by S&P or A1 or higher by
Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated A or higher by S&P or A2 or higher by Moody's
and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated A- or higher by S&P or A3 or higher by Moody's
and (ii) neither Level I Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated BBB+ or higher by S&P and Baa1 or higher by
Moody's and (ii) none of Level I Status, Level II Status or Level III Status
exists.
"Level V Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated BBB or higher by S&P and Baa2 or higher by
Moody's and (ii) none of Level I Status, Level II Status, Level III Status or
Level IV Status exists.
"Level VI Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated BBB- by S&P and Baa3 by Moody's and (ii) none
of Level I Status, Level II Status, Level III Status, Level IV Status or Level V
Status exists.
"Level VII Status" exists at any date if, at such date, no other
Status exists.
"Status" refers to the determination of which of Level I Status,
Level II Status, Level III Status, Level IV Status, Level V Status, Level VI
Status or Level VII Status exists at any date.
The credit ratings to be utilized for purposes of this Schedule
are those assigned to the senior unsecured long-term debt securities of the
Company without third-party credit enhancement, and any rating assigned to any
other debt security of the Company shall be disregarded. The rating in effect at
any date is that in effect at the close of business on such date.
If the Company's debt securities are rated by only one of Moody=s
and S&P, Status shall be determined based on the rating assigned by that rating
agency. For purposes of determining if Level I Status, Level II Status or Level
III Status exists, if the Company is split-rated and the ratings differential is
one level, the higher of the two ratings will apply (e.g., A-/Baa1 results in
Level III Status, but A-/Baa2 results in Level V Status). If the Company is
split-rated and the ratings differential is more than one level, the rating at
the midpoint (or the higher of the two intermediate ratings if there is no
midpoint) will apply (e.g., A+/A3 results in Level II Status).
CONFORMED COPY
WAIVER AND AMENDMENT NO. 1 TO
AMENDED AND RESTATED CREDIT AGREEMENT
WAIVER AND AMENDMENT NO. 1 dated as of January 1, 1998 to the Amended
and Restated Credit Agreement (the "Restated Agreement") dated as of December 4,
1996 among Kerr-McGee Corporation (the "Company"), Kerr-McGee Credit Corporation
("Credit Corporation"), the Banks listed on the signature pages thereof (the
"Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, Credit Corporation desires to consummate a merger, effective as
of the date hereof, with Kerr-McGee Credit LLC, a Delaware limited liability
company ("Credit LLC"), in which Credit LLC will be the surviving company and
will assume all of Credit Corporation=s obligations, including, without
limitation, all obligations under the Restated Agreement (the "Merger");
WHEREAS, in connection with such Merger, the parties hereto desire to
waive and amend certain provisions of the Restated Agreement as set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each capitalized term used herein which is defined in the
Restated Agreement shall have the meaning assigned to such term in the Restated
Agreement. Each reference to Ahereof", Ahereunder", Aherein" and Ahereby" and
each other similar reference and each reference to Athis Agreement" and each
other similar reference contained in the Restated Agreement shall from and after
the date hereof refer to the Restated Agreement as amended hereby. The term
ANotes@ defined in the Restated Agreement shall include from and after the date
hereof the LLC Notes (as defined below).
SECTION 2. Waiver. Notwithstanding that Section 5.04 of the Restated
Agreement requires each Material Subsidiary to preserve and keep in full force
and effect its corporate existence, each of the Banks hereby agrees to waive
such requirement insofar as, and only to the extent that, such requirement
applies to Credit Corporation. The parties hereto agree that the occurrence of
the Merger shall not result in a Default under the Restated Agreement.
SECTION 3. Amendment of Section 1.01. (a) The following new definitions
are added in alphabetical order to Section 1.01 of the Restated Agreement:
"Credit LLC" means Credit Corporation, together with its successors
(including Kerr-McGee Credit LLC, a Delaware limited liability company, upon
consummation of the Merger).
"Merger" means the merger of Credit Corporation with and into Kerr-McGee
Credit LLC (with Kerr-McGee Credit LLC as the surviving Person) pursuant to the
Merger Agreement, effective as of January 1, 1998.
"Merger Agreement" means the Agreement of Merger dated as of December
29, 1997 between Credit Corporation and Kerr-McGee Credit LLC.
(b) The definition of "Credit Corporation" set forth in Section 1.01 of
the Restated Agreement is amended by deleting the phrase ", and its successors."
(c) Each reference to "Credit Corporation" in the definitions of
"Borrower", "Lien" and "Material Subsidiary" set forth in Section 1.01 of the
Restated Agreement is amended to read "Credit LLC."
SECTION 4. Amendment of Section 4.01. Section 4.01 of the Restated
Agreement is amended to read in its entirety as follows:
SECTION 4.01. Corporate and Limited Liability Company Existence
and Power. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware,
and Credit LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of Delaware.
Each of the Company and Credit LLC has all corporate or limited
liability company power, as the case may be, and all material
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted which, if not
obtained, could reasonably be expected to have a material adverse
effect of the business or operations of the Company and its
Subsidiaries considered as a whole.
SECTION 5. Amendment of Section 4.02. Section 4.02 of the Restated
Agreement is amended to read in its entirety as follows:
SECTION 4.02. Corporate, Limited Liability Company and
Governmental Authorization; No Contravention. The execution,
delivery and performance by the Company and Credit LLC of this
Agreement and the Notes are within such Borrower=s corporate or
limited liability company powers, as the case may be, have been
duly authorized by all necessary corporate or limited liability
company action, as the case may be, require no approval of or
filing with any governmental body, agency or official and do not
contravene or constitute a default under any provision of
applicable law or regulation or of the certificate of
incorporation or by-laws or certificate of formation or limited
liability company agreement of such Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding
upon such Borrower or result in the creation or imposition of any
mortgage, security interest or other lien or encumbrance on any
asset of such Borrower or any of its Subsidiaries.
SECTION 6. Amendment of Section 4.03. The reference to "Credit
Corporation" in Section 4.03 of the Restated Agreement is amended to read
"Credit LLC."
SECTION 7. Amendment of Section 4.09. Section 4.09 of the Restated
Agreement is amended to read in its entirety as follows:
SECTION 4.09. Subsidiaries. Each of the Material Subsidiaries is
a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization, and has all corporate or limited
liability company powers, as the case may be, required to carry
on its business as now conducted. Each Material Subsidiary has
all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted and which, if
not obtained, could reasonably be expected to have a material
adverse effect on the business or operations of the Company and
its Subsidiaries considered as a whole.
SECTION 8. Amendment of Section 5.01 (a). Each reference to "Credit
Corporation" in Section 5.01(a) of the Restated Agreement is amended to read
"Credit LLC."
SECTION 9. Amendment of Section 5.03. Each reference to "corporations"
in Section 5.03 of the Restated Agreement is amended to read "companies."
SECTION 10. Amendment of Section 5.04. Section 5.04 of the Restated
Agreement is amended by (i) deleting the parenthetical "(other than Credit
Corporation)" and substituting therefor "(other than Credit LLC)"; and (ii)
amending each reference to "corporate existence" to read "corporate or limited
liability company existence, as the case may be."
SECTION 11. Amendment of Section 5.11. Section 5.11 of the Restated
Agreement is amended to read in its entirety as follows:
SECTION 5.11. Ownership of Credit LLC. The Company will at all
times (i) be the sole member of Credit LLC and (ii) own, directly
or indirectly, all outstanding limited liability company
interests and other equity securities of Credit LLC, free and
clear of any Lien.
SECTION 12. Amendment of Sections 9.01, 9.02, 9.03, 9.04, 9.05 and 9.06.
Each reference to "Credit Corporation" in Sections 9.01, 9.02, 9.03, 9.04, 9.05
and 9.06 of the Restated Agreement is amended to read "Credit LLC."
SECTION 13. Assumption of Obligations by Credit LLC. With effect from
and including the date this Waiver and Amendment No. 1 becomes effective in
accordance with Section 17 hereof, (i) Credit LLC shall be a party to the
Restated Agreement and (ii) Credit LLC expressly assumes, and agrees to perform
and discharge, all of the obligations and liabilities of Credit Corporation
under the Restated Agreement.
SECTION 14. Representations and Warranties. Each Borrower hereby
represents and warrants that as of the date hereof and after giving effect
hereto:
(a) no Default has occurred and is continuing; and
(b) each representation and warranty of such Borrower set forth in the
Restated Agreement is true and correct as though made on and as of this date.
SECTION 15. Governing Law. This Waiver and Amendment No. 1 shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 16. Effect of Waiver and Amendment. Except as expressly set
forth herein, this Waiver and Amendment No. 1 shall not constitute a waiver or
amendment of any term or condition of the Restated Agreement, and all such terms
and conditions shall remain in full force and effect and are hereby ratified and
confirmed in all respects.
SECTION 17. Counterparts; Effectiveness. This Waiver and Amendment No. 1
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Waiver and Amendment No. 1 shall become effective as of the
date hereof when (i) the Agent shall have received duly executed counterparts
hereof signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party); (ii) the Agent shall have
received a Note duly executed by Credit LLC for each of the Banks (collectively,
the "LLC Notes"), dated on or before the date of effectiveness hereof and
otherwise in compliance with Section 2.05 of the Restated Agreement; (iii) the
Agent shall have received an opinion of the General Counsel of the Company (or
such other counsel for the Borrower as may be acceptable to the Agent),
substantially in the form of Exhibit E to the Restated Agreement (and expressly
including an opinion under the Delaware Limited Liability Company Act) with
reference to Credit LLC, the LLC Notes, this Waiver and Amendment No. 1 and the
Restated Agreement as amended hereby; and (iv) the Agent shall have received all
documents it may reasonably request relating to the existence of Credit LLC, the
corporate and limited liability company authority for and the validity of the
Restated Agreement as amended hereby, the LLC Notes and any other matters
relevant hereto, all in form and substance satisfactory to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment No. 1 to be duly executed by their respective authorized officers as
of the day and year first above written.
KERR-McGEE CORPORATION
By /s/ John C. Linehan
Title: Executive Vice President
By /s/ John M. Rauh
Title: Vice President
KERR-McGEE CREDIT LLC, as successor
in interest to Kerr-McGee Credit Corporation
By /s/ John C. Linehan
Title: Executive Vice President
123 Robert S. Kerr Avenue
Oklahoma City, Oklahoma 73102
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ James S. Finch
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Ronald L. Dierker
Title: Authorized Agent
CITIBANK, N.A.
By /s/ Mark Stanfield Packard
Title: Assistant Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Dale T. Wilson
Title: Vice President
ROYAL BANK OF CANADA
By /s/ Linda M. Stephens
Title: Manager
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By /s/ Donna J. German
Title: Senior Vice President
THE BANK OF NEW YORK
By /s/ Raymond J. Palmer
Title: Vice President
MELLON BANK, N.A.
By /s/ Richard A. Matthews
Title: Vice President
UMB OKLAHOMA BANK
By /s/ David Schaefer
Title: Executive Vice President
WACHOVIA BANK, N.A.
By /s/ Mariel C. Albrecht
Title: Assistant Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ James S. Finch
Title: Vice President
AGREEMENT
AMENDED AND RESTATED AGREEMENT, restated as of December 31, 1992 (the
"Agreement") between KERR-McGEE CORPORATION, a Delaware corporation having its
executive offices at Oklahoma City, Oklahoma (the "Company"), and Russell G.
Homer, Jr., residing in Oklahoma City, Oklahoma (the "Executive"). Unless
otherwise indicated, terms used herein and defined in Schedule A and Schedule
I-A to Annexure 1 shall have the meanings assigned to them in said Schedules, as
applicable.
WHEREAS, the Executive is currently employed by the Company and/or its
Subsidiaries pursuant to an amended and restated agreement, restated as of
February 1, 1988 (the "Existing Agreement"); and
WHEREAS, the Executive and the Company's Board of Directors believe that such
Existing Agreement, which is a three-year self-renewing employment agreement,
should be amended and restated as of December 31, 1992; and
WHEREAS, the Company's Board of Directors has determined that it wishes to
continue the employment of the Executive and that it is appropriate to reinforce
the continued attention and dedication of the Executive to his assigned duties
without distraction in potentially disturbing circumstances arising from the
possibility of a Change of Control of the Company; and
WHEREAS, the Company and the Executive now wish to amend and restate the
Existing Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set
forth, the Company and the Executive agree as follows:
1. Operation of Agreement: From the effective date of this Agreement through and
including January 31, 1996, or the occurrence of a Change of Control as defined
in Schedule A, whichever occurs earlier (the earlier of such dates being
referred to as the "Annexure 1 Effective Date"), the operative provisions of
this Agreement shall be as set forth in Sections 2 through 19 below and Schedule
A hereto. Beginning the Annexure 1 Effective Date, the operative provisions of
this Agreement shall be as set forth in Annexure 1 hereto, including Schedule
I-A thereto (the "Annexure 1 Provisions"). When used in Annexure 1, the term
"Agreement" shall refer to and mean Annexure 1. Beginning the Annexure 1
Effective Date, the operative provisions of this Agreement as set forth in
Sections 2 through 19 and Schedule A shall be superseded and replaced by the
Annexure 1 Provisions.
2. Employment: The Company agrees to continue to employ the Executive and he
agrees to continue to serve the Company and its Subsidiaries, upon the terms and
conditions stated herein, for the term of employment commencing on the date
hereof and ending on January 31, 1996, unless such employment is (i) prior to a
Change of Control, involuntarily terminated hereunder for Reason or as a result
of the Executive's death or disability or (ii) subsequent to a Change of
Control, involuntarily terminated hereunder for Cause or as a result of the
Executive's death or Disability or terminated hereunder by the Executive for
Good Reason. Following a Change of Control any involuntary termination of the
Executive's employment hereunder for any reason other than death shall be
communicated by a Notice of Termination. The Executive will be employed in an
executive capacity and will perform the duties of Vice President and General
Counsel or such other duties as may be assigned to him from time to time by the
Company.
The Executive shall devote substantially all of his business time, attention,
skill and efforts to the business of the Company and its Subsidiaries while
employed hereunder and shall perform the duties of his position and any other
duties assigned to him by the Company to the best of his ability.
3. Compensation: As compensation for his services, the Company agrees to pay the
Executive, so long as he shall be employed hereunder, a salary determined from
time to time by the Company, but at a rate not less than $175,000. per annum,
payable either biweekly or in equal semimonthly installments on the fifteenth
and last day of the month, provided that if at any time while the Executive is
employed hereunder he should receive an increase in the annual base salary being
paid him by the Company, the above specified minimum salary rate shall thereupon
increase by a corresponding amount. The Executive shall also be eligible for
participation in any employee benefit plans and compensation programs available
to salaried employees or employees generally of the Company or any Subsidiary
that employs the Executive.
4. Noncompetition: The Executive agrees that at any time while employed
hereunder he will not engage in any activity competitive with any business
carried on by the Company or its Subsidiaries and Affiliates, without obtaining
the specific prior written consent of the Company. He, however, shall be free
without the consent of the Company to purchase stocks or other securities of any
corporation listed on a national securities exchange or included in a published
"over the counters" list.
5. Compensation During Illness: If while employed hereunder the Executive shall
become unable to perform his duties hereunder due to illness or other
incapacity, compensation during such period shall be provided in accordance with
the sick leave policy for salaried employees or employees generally of the
Company or any Subsidiary that employs the Executive, or if applicable, under an
income protection insurance plan for salaried employees and employees generally
of the Company or any Subsidiary that employs the Executive. Subject to the
other terms of this Agreement, no other compensation shall be provided during
the period of such illness or incapacity.
6. Death: In the event of the Executive's death while employed hereunder, his
spouse, or personal representative if such spouse shall have died, shall be
entitled to receive his salary at the rate then in effect through the date of
his death plus one additional pay period as provided under the Company's pay
policy, as well as any amounts previously earned and not paid for the periods of
service prior to his date of death.
7. Successors: Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation or the sale by the
Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement in connection with any of the above
mentioned actions; provided that the Company will require any successor (whether
direct or indirect, by merger, consolidation or otherwise) to all or
substantially all of the properties or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession has taken place.
This Agreement shall not be assignable by the Executive or by the Company or its
successors except as provided herein.
8. Retirement: Notwithstanding the Executive's agreement herein to serve for the
term of his employment under this Agreement, the Executive may retire under a
retirement plan available to salaried employees or employees generally of the
Company or any Subsidiary that employs the Executive when entitled to do so,
except that he may elect early retirement under any such plan only upon giving
the Company (or a Subsidiary employing the Executive) six months' written
notice; and upon his retirement his term of employment hereunder shall
terminate. Notwithstanding the foregoing, following a Change of Control, (i) the
Executive may elect early retirement under a retirement plan available to
salaried employees or employees generally of the Company or any Subsidiary that
employs the Executive upon giving the Company (or a Subsidiary employing the
Executive) two days' written notice and (ii) any retirement under such plan that
is coincident with or subsequent to an involuntary termination of the
Executive's employment for any reason other than Cause, death or Disability or
the Executive's termination of his employment hereunder for Good Reason, will
not preclude payments under this Agreement to which the Executive is entitled in
respect of such termination.
9. Compensation Upon Termination Following a Change of Control: In addition to
the rights and benefits accruing to the Executive as otherwise described in this
Agreement, in the event that (a) a Change of Control shall have occurred while
the Executive is employed hereunder and (b) the Executive's employment hereunder
shall be involuntarily terminated for any reason other than Cause, death or
Disability or the Executive shall terminate his employment hereunder for Good
Reason, then the Company shall make a lump sum payment in cash to the Executive
as severance pay on the fifth day following the Date of Termination equal to
three times the Executive's annual base salary (including for these purposes any
amounts previously deferred under any qualified or nonqualified deferred
compensation plan, program or arrangement) in effect immediately prior to the
date that either a Change of Control shall occur or such termination, whichever
salary is higher; provided, however, that if all or any portion of the payments
or benefits provided under this Section 9, either alone or together with other
payments and benefits which the Executive receives or is then entitled to
receive from the Company or any Subsidiary, would constitute a "parachute
payment" within the meaning of Section 280G of the Code, then the payments and
benefits provided to the Executive under this Section 9 shall be reduced but
only to the extent necessary that no portion thereof shall be subject to the
excise tax imposed by Section 4999 of the Code; but only if, by reason of such
reduction, the Executive's Net After Tax Benefit shall exceed the Net After Tax
Benefit if such reduction were not made. The foregoing calculations (and any
calculations required under the definition of Net After Tax Benefit) shal1 be
made, at the Company's expense, by the Company and the Executive. If no
agreement on the calculations is reached within five days of the Date of
Termination then the Executive and the Company will agree to the selection of an
accounting firm to make the calculations. If no agreement can be reached
regarding the selection of an accounting firm, the Company shall select a "big
six" accounting firm which has no current or recent business relationship with
the Company or with the Executive. The determination of any such firm selected
will be conclusive and binding on all parties.
10. Acceleration and Vesting of Stock Plans. Stock Options and SAR'S Following a
Change of Control: In the event a Change of Control of the Company shall have
occurred while the Executive is employed hereunder, then, notwithstanding the
terms and conditions of any benefit plan or compensation program of the Company
or any Subsidiary that employs the Executive including but not limited to any
purchase plan, stock grant plan, stock option plan, employee stock ownership
plan or similar plan or program (excluding any plan qualified under Section
401(a) of the Code), the Company agrees (i) to accelerate, vest, and make
immediately exercisable in full (to the extent not already provided for under
the terms of such applicable plans or programs) all unexercisable installments
of all options to acquire securities of the Company and any accompanying stock
appreciation rights, which are Beneficially Owned by the Executive on the date
of such Change of Control, and (ii) to waive any applicable restrictions,
including resale restrictions or rights of repurchase, relating to or imposed on
securities granted by the Company to the Executive pursuant to such plans or
programs which securities are Beneficially Owned by the Executive on such date.
11. Benefits Restoration Plan Following Change of Control: To the extent that
the Executive is or becomes a participant in the Benefits Restoration Plan, the
Company shall amend or have amended the Benefits Restoration Plan, which
amendment shall thereafter remain in effect, to provide that in the event a
Change of Control shall have occurred while the Executive is employed hereunder
and the Executive's employment hereunder shall be involuntarily terminated for
any reason other than Cause, death or Disability or the Executive shall
terminate his employment hereunder for Good Reason, then the Executive shall be
entitled to a nonforfeitable right to all benefits credited to such Executive to
such additional years of credit for purposes of calculating the years of service
and age of such Executive under the terms of the Benefits Restoration Plan equal
to the lesser of (i) five years or (ii) the number of years necessary to bring
the Executive to age 65 under the terms of the Benefits Restoration Plan.
12. Mitigation: If at any time the Executive's employment hereunder shall be
terminated for any reason, then all payments and benefit to which the Executive
is entitled under this Agreement shall be made and provided without offset,
deduction or mitigation on account of income the Executive could or may receive
from other employment or otherwise; provided, however, that if the Executive is
involuntarily terminated for any reason other than Reason, prior to the Change
of Control, then, until the term of this Agreement ends, the amount payable
under this Agreement shall be reduced by any compensation actually received by
the Executive from comparable employment (as to position, compensation and
responsibility) with any person or entity that is engaged in a business that is
competitive with the Company or its Subsidiaries and Affiliates.
13. Legal Expenses: The Company shall pay (at least monthly) all costs and
expenses, including reasonable attorneys' fees and disbursements, which the
Executive may incur in connection with any litigation, arbitration or similar
proceeding, whether instituted by the Company or the Executive, with respect to
the interpretation or enforcement of any provision under this Agreement.
14. Accommodations and Travel Expenses: The Company agrees that while the
Executive is employed hereunder he shall be furnished office space and
accommodations suitable to the character of his position and adequate for the
performance of his duties. Reasonable traveling expenses incurred by him in
traveling on business of the Company and its Subsidiaries will be reimbursed in
accordance with the established traveling expense policy of the Company or any
Subsidiary that employs the Executive.
15. Notices: Any notices required under the terms of this Agreement shall be
effective when mailed, postage prepaid, by certified mail, addressed:
If to Kerr-McGee: Frank A. McPherson
Chairman of the Board and
Chief Executive Officer
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
If to the Executive: Russell G. Homer, Jr.
3224 Rock Hollow Road
Oklahoma City, Oklahoma 73120
16. Entire Agreement: This Agreement comprises the entire agreement between the
Company and its Subsidiaries and the Executive and shall supersede any and all
previous contracts, agreements or understandings between the Company and its
Subsidiaries and the Executive with respect to the subject matter hereof. This
Agreement may not be modified except by written agreement between the parties.
Subject to Section 1 hereof, any inconsistency between Sections 9, 10, 11, 12,
13, 16, 17, 18 and 19 of this Agreement and any other provisions of this
Agreement shall be resolved in favor of such Sections.
17. Arbitration: Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Oklahoma City,
Oklahoma, or, at the option of the Executive, in the county where the Executive
resides, in accordance with the Rules of the American Arbitration Association
then in effect; provided, however, that if the Executive institutes an action
relating to this Agreement the Executive may, at his option, bring such action
in an Oklahoma court of competent jurisdiction. Judgment may be entered on the
arbitrator's award in any such court having jurisdiction.
18. Separability: Any provision of this Agreement which is held to be
unenforceable or invalid in any respect in any jurisdiction shall be ineffective
in such jurisdiction to the extent that it is unenforceable or invalid without
affecting the remaining provisions hereof, which shall continue in full force
and effect. The enforceability or invalidity of a provision of this Agreement in
one jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
19. Section and Other Headings: The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
on the 31st day of March, 1993.
KERR-McGEE CORPORATION
By (F. A. McPherson)
F. A. McPherson
(Russell G. Horner, Jr.) Chairman of the Board and
Russell G. Horner, Jr. Chief Executive Officer
Schedule A
Certain Definitions
As used in this Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of the
General Rules and Regulations promulgated under the Securities Exchange Act of
1934, as amended.
"Benefits Restoration Plan" means the Company's Benefits Restoration Plan,
effective September 12, 1989, as amended.
"Cause" means willful and gross misconduct on the part of the Executive that has
a materially adverse effect on the Company and its Subsidiaries, taken as a
whole, or the conviction of the Executive of a felony under United States
federal, state or local criminal law, as determined in good faith by a written
resolution duly adopted by the affirmative vote of not less than 2/3 of all of
the directors who are not employees, officers, or otherwise Affiliates of the
Company.
"Change of Control" means any one of the following: (a) a change in any two year
period in a majority of the members of the Board of Directors of the Company
resulting from the election of directors who were not directors at the beginning
of such period (other than the election of directors to fill vacancies created
by death or Disability, or the election of a director to replace a director who
by virtue of his age is not eligible for election under the By-laws of the
Company as in effect on the date of this Agreement); (b) any Person or Group,
together with its Affiliates, becomes the Beneficial Owner, directly or
indirectly, of 25% or more of the Company's then outstanding Common Stock or 25%
or more of the voting power of the Company's then outstanding securities
entitled to vote generally for the election of the Company's directors; (c) the
approval by the Company's stockholders of (i) the merger or consolidation of the
Company with any other corporation (other than a merger or consolidation of the
Company and a wholly-owned subsidiary in which the holders of the Company's
Common Stock immediately prior to such merger or consolidation have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger or consolidation), (ii) the sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all, of the assets of the Company or (iii) the liquidation or
dissolution of the Company; or (d) a majority of the members of the Board of
Directors in office immediately prior to a proposed transaction, if determined
by written resolution that such proposed transaction, if taken, will be deemed a
Change of Control and such proposed transaction is effected.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" means (i) if the Executive's employment is terminated
under this Agreement due to Disability, thirty days after Notice of Termination
is given to the Executive (provided the Executive shall not have returned to the
performance of the Executive's duties on a full-time basis during such
thirty-day period) or (ii) if the Executive's employment is involuntarily
terminated under this Agreement for any other reason, the date on which a Notice
of Termination is given; provided, however, that if within thirty days after any
Notice of Termination is given to the Executive, the Executive notifies the
Company or the Subsidiary that employs the Executive that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual agreement by the parties or
upon final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
"Disability" means that (i) a person has been totally incapacitated by bodily
injury or physical or mental disease so as to be prevented thereby from engaging
in a comparable occupation or employment for remuneration or profit, (ii) such
person will be subject to such total incapacity for a period of at least
eighteen consecutive months and (iii) such person is disabled for purposes of
any and all of the plans or programs of the Company or any Subsidiary that
employs the Executive under which benefits, compensation or awards are
contingent upon a finding of disability. The determination with respect to
whether the Executive is suffering from a Disability will be determined by a
mutually acceptable physician or, if there is no physician mutually acceptable
to the Company and the Executive, by a physician selected by the Dean of the
University of Oklahoma Medical School.
"Good Reason" means (a) without the Executive's express written consent, (i) (A)
the assignment to the Executive of any duties, or any limitation of the
Executive's responsibilities, inconsistent with the Executive's positions,
duties, responsibilities and status with the Company or any Subsidiary that
employs the Executive immediately prior to the date of the Change of Control, or
(B) any removal of the Executive from, or any failure to re-elect the Executive
to, any of the Executive's positions with the Company or any Subsidiary that
employs the Executive immediately prior to the Change of Control, except in
connection with the involuntary termination of the Executive's employment
hereunder for Cause or as a result of the Executive's death or Disability or the
termination of the Executive's employment on the Executive's normal retirement
date; (b) any failure by the Company to pay, or any reduction by the Company of,
the Executive's base annual salary or bonus compensation in effect immediately
prior to the Change of Control; (c) any failure by the Company or any Subsidiary
that employs the Executive to (i) continue to provide the Executive with the
opportunity to participate, on terms no less favorable than those in effect
immediately prior to the Change of Control, in any benefit plans and
compensation programs in which the Executive was participating immediately prior
to the Change of Control, or their equivalent, including but not limited to
participation in pension, profit sharing, stock grants, stock option, savings,
employee stock ownership, incentive compensation, group insurance plans or
similar plans or programs or (ii) provide the Executive with all other fringe
benefits (or their equivalent), including paid vacation, from time to time in
effect for the benefit of any executive, management or administrative group
which customarily includes a person holding the employment position with the
Company or its Subsidiaries then held by the Executive; (d) without the
Executive's express written consent, the relocation of the Company's
headquarters or of the principal place of the Executive's employment to a
location that is more than 35 miles further from the Executive's principal
residence than such principal place of employment immediately prior to the
Change of Control; (e) any change in the sick leave policy for salaried
employees or employees generally of the Company or any Subsidiary that employs
the Executive which has an adverse effect on the Executive's rights and benefits
pursuant to such policy; (f) any reduction in the benefits provided to the
Executive pursuant to Section 14 of this Agreement; (g) any reduction to the
extent applicable in benefits offered under an income protection insurance plan
for salaried employees or employees generally of the Company or any Subsidiary
that employs the Executive; (h) any change in the pay policy for salaried
employees or employees generally of the Company or any Subsidiary that employs
the Executive which has an adverse effect on the Executive's rights and benefits
pursuant to such policy; (i) with respect to a Subsidiary that employs the
Executive, the sale by the Company of 25% or more of such Subsidiary's common
stock or 25% or more of the Subsidiary's then outstanding securities entitled to
vote generally for the election of the Subsidiary's directors, or the sale by
the Company of all or substantially all of the assets of such Subsidiary; (j)
the breach of any provision of this Agreement by the Company or (k) the failure
of any successor company to the Company to expressly assume this Agreement.
"Group" has the meaning set forth in Rule 13d-5 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Net After Tax Benefit" means the sum of (i) the total amounts payable to the
Executive under Section 9 of this Agreement, plus (ii) all other payments and
benefits which the Executive receives or is then entitled to receive from the
Company or any Subsidiary that would constitute a "parachute payment" within the
meaning of Section 280G of the Code, less (iii) the amount of federal income
taxes payable with respect to the foregoing calculated at the maximum marginal
income tax rate for each year in which the foregoing shall be paid to the
Executive (based upon the rate in effect for such year as set forth in the Code
at the time of termination of his employment), less (iv) the amount of excise
taxes imposed with respect to the payments and benefits described in (i) and
(ii) above by Section 4999 of the Code.
"Notice of Termination" means a written notice which shall indicate those
specific provisions in this Agreement relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
"Person" means any individual, firm, corporation, group (as such term is used in
Rule 13d of the General Rules and Regulations promulgated under the Securities
Exchange Act of 1934, as amended) or other entity.
"Reason" means (a) action by the Executive involving willful malfeasance, (b)
failure to act by the Executive involving material nonfeasance having a material
adverse effect on the Company or the Subsidiary that employs the Executive, (c)
the Executive being convicted of a felony under United States federal, state, or
local criminal law, or (d) the material breach of any provision of this
Agreement by the Executive.
"Subsidiary" with respect to the Company has the meaning set forth in Rule 12b-2
of the General Rules and Regulations promulgated under the Securities Exchange
Act of 1934, as amended.
Annexure 1
Operative Provisions beginning
the Annexure 1 Effective Date
1. OPERATION OF AGREEMENT
The operative provisions of this Agreement shall become effective February 1,
1996, or immediately upon a Change of Control occurring after December 31, 1992,
whichever occurs earlier, provided that the Executive is employed by the Company
immediately prior to such Change of Control. Once the provisions become
effective, this Agreement shall not terminate until the third anniversary of the
Change of Control. Notwithstanding the termination of this Agreement, the
Company shall remain liable for any rights or payments arising prior to such
termination to which the Executive is entitled under this Agreement.
2. SERVICE AFTER CHANGE OF CONTROL
Following a Change of Control, the Company will not terminate the Executive's
employment with the Company except on account of Cause prior to the third
anniversary of the Change of Control. Upon any termination of employment of the
Executive, other than for Cause or upon death, a Notice of Termination shall be
provided by the party causing such termination of employment.
3. BENEFITS UPON CHANGE OF CONTROL
(a) Stock Plans. Notwithstanding the terms and conditions of any benefit plan or
compensation program of the Company or any Subsidiary that employs the Executive
including but not limited to any purchase plan, stock grant plan, stock option
plan, employee stock ownership plan or similar plan or program (excluding any
plan qualified under Section 401(a) of the Code), the Company shall, upon the
occurrence of the Change of Control which causes this Agreement to become
effective (i) accelerate, vest and make immediately exercisable in full (to the
extent not already provided for under the terms of such applicable plans or
programs) all unexercisable installments of all options to acquire securities of
the Company and any accompanying stock appreciation rights, of which the
Executive is the Beneficial Owner on the date of such Change of Control and (ii)
waive any applicable restrictions including resale restrictions or rights of
repurchase, relating to or imposed on securities granted by the Company to the
Executive pursuant to such plans or programs which securities the Executive is
the Beneficial Owner of on the date of such Change of Control.
(b) Pension Plan. Following a Change of Control, the Executive may elect early
retirement under a retirement plan available to salaried employees or employees
generally of the Company or any Subsidiary that employs the Executive upon
giving the Company (or a Subsidiary employing the Executive) two days' written
notice.
(c) Benefits Restoration Plan. To the extent that the Executive is or becomes a
participant in the Benefits Restoration Plan, the Company shall amend or have
amended the Benefits Restoration Plan, which amendment shall thereafter remain
in effect, to provide in the event of an Executive's Termination for the
benefits specified in Section 4(b) hereof.
(d) Death of an Executive. In the event of the Executive's death prior to
Termination, but while employed by the Company or any Subsidiary, as the case
may be, his spouse or personal representative, if such spouse shall have died,
shall be entitled to receive his salary at the rate then in effect through the
date of his death, plus one additional pay period, as provided under the
Company's pay policy, as well as any amounts previously earned and not paid for
the periods of service prior to his date of death.
4. PAYMENTS AND BENEFITS UPON TERMINATION
The Executive shall be entitled to the following payments and benefits following
Termination:
(a) Termination Payment. In recognition of past services to the Company by the
Executive and in consideration for the undertaking by the Executive to provide
services to the Company, pursuant to Section 2 hereof, the Company shall make a
lump sum payment in cash to the Executive as severance pay on the fifth day
following the Date of Termination equal to three times the Executive's annual
base salary (including for these purposes any amounts previously deferred under
any qualified or nonqualified deferred compensation plan, program or
arrangement) in effect immediately prior to the date that either a Change of
Control shall occur or such Date of Termination, whichever salary is higher.
Notwithstanding the foregoing, if all or any portion of the payments or benefits
provided under this Section 4(a), either alone or together with other payments
and benefits which the Executive receives or is then entitled to receive from
the Company or any Subsidiary, would constitute a Parachute Payment, then the
payments and benefits provided to the Executive under this Section 4(a) shall be
reduced but only to the extent necessary to ensure that no portion thereof shall
be subject to the excise tax imposed by Section 4999 of the Code; but only if,
by reason of such reduction, the Executive's Net After Tax Benefit shall exceed
the Net After Tax Benefit if such reduction were not made. The foregoing
calculations (and any calculations required under the definition of Net After
Tax Benefit) shall be made, at the Company's expense, by the Company and the
Executive. If no agreement on the calculations is reached within five days of
the Date of Termination, then the Executive and the Company will agree to the
selection of an accounting firm to make the calculations. If no agreement can be
reached regarding the selection of an accounting firm, the Company shall select
a "big six" accounting firm which has no current or recent business relationship
with the Company or with the Person or Group responsible for the Change of
Control. The determination of any such firm selected will be conclusive and
binding on all parties.
(b) Benefits Restoration Plan. The Executive shall be entitled to additional
years of credit for purposes of calculating the years of service and age of such
Executive under the terms of the Benefits Restoration Plan equal to the lesser
of (i) five years or (ii) the number of years necessary to bring the Executive
to age 65 under the terms of the Benefits Restoration Plan, and the Executive
shall have a nonforfeitable right to any and all benefits credited to such
Executive under the Benefits Restoration Plan.
(c) Death of the Executive. In the event of the Executive's death subsequent to
Termination, all payments and benefits required by this Agreement shall be paid
to the Executive's designated beneficiary or beneficiaries or, if he has not
designated a beneficiary or beneficiaries, to his estate.
5. CONFIDENTIALITY
The Executive agrees to hold in confidence any and all confidential information
known to him concerning the Company and its Subsidiaries and their respective
businesses so long as such information is not otherwise publicly disclosed.
6. ARBITRATION
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in Oklahoma City, Oklahoma, or, at
the option of the Executive, in the county where the Executive resides, in
accordance with the Rules of the American Arbitration Association then in
effect; provided, however, that if the Executive institutes an action relating
to this Agreement the Executive may, at his option, bring such action in an
Oklahoma court of competent jurisdiction. Judgment may be entered on the
arbitrator's award in any such court having jurisdiction.
7. CONFLICT IN BENEFITS
This Agreement is not intended to and shall not adversely affect, limit or
terminate any other agreement or arrangement between the Executive and the
Company presently in effect or hereafter entered into' including any employee
benefit plan under which the Executive is entitled to benefits.
8. MISCELLANEOUS
(a) No Mitigation. All payments and benefits to which the Executive is entitled
under this Agreement shall be made and provided without offset, deduction or
mitigation on account of income the Executive could or may receive from other
employment or otherwise.
(b) Legal Expenses. The Company shall pay all costs and expenses, including
reasonable attorneys' fees and disbursements, of the Executive, at least
monthly, in connection with any litigation, arbitration or similar proceeding,
whether or not instituted by the Company or the Executive, with respect to the
interpretation or enforcement of any provision of this Agreement.
(c) Notices. Any notices required under the terms of this Agreement shall be
effective when mailed, postage prepaid, by certified mail and addressed to, in
the case of the Company:
Frank A. McPherson
Chairman of the Board and
Chief Executive Officer
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
and to, in the case of the Executive:
Russell G. Homer, Jr.
3224 Rock Hollow Road
Oklahoma City, Oklahoma 73120
Either party may designate a different address by giving written notice of
change of address in the manner provided above.
(d) Waiver. No waiver or modification in whole or in part of this Agreement, or
any term or condition hereof, shall be effective against any party unless in
writing and duly signed by the party sought to be bound. Any waiver of any
breach of any provision hereof or any right or power by any party on one
occasion shall not be construed as a waiver of, or a bar to, the exercise of
such right or power on any other occasion or as a waiver of any subsequent
breach.
(e) Binding Effect; Successors. Subject to the provisions hereof, nothing in the
Agreement shall prevent the consolidation of the Company with, or its merger
into, any other corporation or the sale by the Company of all or substantially
all of its properties and assets, or the assignment of this Agreement by the
Company in connection with any of the foregoing actions. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by the Company and the
Executive and their respective heirs, legal representatives, successors and
assigns. If the Company shall be merged into or consolidated with another
entity, the provisions of this Agreement shall be binding upon and inure to the
benefit of the entity surviving such merger or resulting from such
consolidation. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
The provisions of this Section 8(e) shall continue to apply to each subsequent
employer of the Executive hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such subsequent employer.
(f) Separability. Any provision of this Agreement which is held to be
unenforceable or invalid in any respect in any jurisdiction shall be ineffective
in such jurisdiction to the extent that it is unenforceable or invalid without
affecting the remaining provisions hereof, which shall continue in full force
and effect. The enforceability or invalidity of a provision of this Agreement in
one jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(g) Controlling Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma applicable to contracts made
and to be performed therein.
(h) Section and Other Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
(i) Entire Agreement. This Agreement comprise the entire agreement between the
Company and its Subsidiaries and the Executive and shall supersede any and all
previous contracts, agreements or understandings between the Company and its
Subsidiaries and the Executive with respect to the subject matter hereof.
Schedule I-A
to Annexure 1
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of the
General Rules and Regulations promulgated under the Securities Exchange Act of
1934, as amended.
"Benefits Restoration Plan" means the Company's Benefits Restoration Plan, As
Amended and Restated Effective September 12, 1989, as amended.
"Cause" means willful and gross misconduct on the part of the Executive that has
a materially adverse effect on the Company and its Subsidiaries, taken as a
whole, or the conviction of the Executive of a felony under United States
federal, state or local criminal law, as determined in good faith by a written
resolution duly adopted by the affirmative vote of not less than two-thirds of
all of the directors who are not employees, officers, or otherwise Affiliates of
the Company.
"Change of Control" means any one of the following: (a) a change in any two year
period in a majority of the members of the Board of Directors of the Company
resulting from the election of directors who were not directors at the beginning
of such period (other than the election of directors to fill vacancies created
by death or Disability, or the election of a director to replace a director who
by virtue of his age is not eligible for election under the by-laws of the
Company as in effect on the date of this Agreement); (b) any Person or Group,
together with its Affiliates, become the Beneficial Owner, directly or
indirectly, of 25% or more of the Company's then outstanding Common Stock or 25%
or more of the voting power of the Company's then outstanding securities
entitled to vote generally for the election of the Company's directors; (c) the
approval by the Company's stockholders of (i) the merger or consolidation of the
Company with any other corporation (other than a merger or consolidation of the
Company and a wholly-owned Subsidiary in which the holders of the Company's
Common Stock immediately prior to such merger or consolidation have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger or consolidation), (ii) the sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all, of the assets of the Company; or (d) a majority of the
members of the Board of Directors in office immediately prior to a proposed
transaction determined by written resolution that such proposed transaction, if
taken, will be deemed a Change of Control and such proposed transaction is
affected.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" means if the Executive's employment is terminated during
the term of this Agreement, the date on which a Notice of Termination is given;
provided, however, that if within thirty days after any Notice of Termination is
given to the Executive, the Executive notifies the Company or the Subsidiary
that employs the Executive that a dispute exists concerning the termination, the
Date of Termination shall be the date the dispute is finally determined, whether
by mutual agreement by the parties or upon final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected).
"Disability" means that (i) a person has been totally incapacitated by bodily
injury or physical or mental disease so as to be prevented thereby from engaging
in a comparable occupation or employment for remuneration or profit, (ii) such
person will be subject to such total incapacity for a period of at least
eighteen consecutive months and (iii) such person is disabled for purposes of
any and all of the plans or programs of the Company or any Subsidiary that
employs the Executive under which benefits, compensation or awards are
contingent upon a finding of disability. The determination with respect to
whether the Executive is suffering from a Disability will be determined by a
mutually acceptable physician or, if there is no physician mutually acceptable
to the Company and the Executive, by a physician selected by the Dean of the
University of Oklahoma Medical School.
"Good Reason" means (a) without the Executive's express written consent, (i) the
assignment to the Executive of any duties, or any limitation of the Executive's
responsibilities, inconsistent with the Executive's positions, duties,
responsibilities and status with the Company or any Subsidiary that employs the
Executive immediately prior to the date of the Change of Control, or (ii) any
removal of the Executive from, or any failure to re-elect the Executive to, any
of the Executive's positions with the Company or any Subsidiary that employs the
Executive immediately prior to the Change of Control, except in connection with
the involuntary termination of the Executive's employment by the Company for
Cause or as a result of the Executive's death or Disability; (b) any failure by
the Company to pay, or any reduction by the Company of, the Executive's base
annual salary or bonus compensation in effect immediately prior to the Change of
Control; (c) any failure by the Company or any Subsidiary that employs the
Executive to (i) continue to provide the Executive with the opportunity to
participate, on terms no less favorable than those in effect immediately prior
to the Change of Control, in any benefit plans and compensation programs in
which the Executive was participating immediately prior to the Change of Control
or their equivalent, including, but not limited to, participation in pension,
profit-sharing, stock grants, stock option, savings, employee stock ownership,
incentive compensation, group insurance plans or similar plans or programs, or
(ii) provide the Executive with all other fringes benefits (or their equivalent)
including paid vacation, from time to time in effect for the benefit of any
executive, management or administrative group which customarily includes a
person holding the employment position with the Company or its Subsidiaries then
held by the Executive; (d) without the Executive's express written consent, the
relocation of the Company's headquarters or of the principal place of the
Executive's employment to a location that is more than 35 miles further from the
Executive's principal residence than such principal place of employment
immediately prior to the Change of Control; (e) any change in the sick leave
policy for salaried employees or employees generally of the Company or any
Subsidiary that employs the Executive which has an adverse effect on the
Executive's rights and benefits pursuant to such policy; (f) any reduction to
the extent applicable in benefits offered under an income protection insurance
plan for salaried employees or employees generally of the Company or any
Subsidiary that employs the Executive; (g) any change in the pay policy for
salaried employees or employees generally of the Company or any Subsidiary that
employs the Executive which has an adverse effect on the Executive's rights and
benefits pursuant to such policy; (h) with respect to a Subsidiary that employs
the Executive, the sale by the Company of 25% or more of such Subsidiary's
common stock or 25% or more of the Subsidiary's then outstanding securities
entitled to vote generally for the election of the Subsidiary's directors, or
the sale by the Company of all or substantially all of the assets of such
Subsidiary; (i) the breach of any provision of this Agreement by the Company or
(j) the failure of any successor company to the Company to expressly assume this
Agreement.
"Group" has the meaning set forth in Rule 13d-5 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Net After Tax Benefit" means the sum of (i) the total amounts payable to the
Executive under Section 4(a) of this Agreement, plus (ii) all other payments and
benefits which the Executive receives or is then entitled to receive from the
Company or any Subsidiary that would constitute a Parachute Payment, less (iii)
the amount of federal income taxes payable with respect to the foregoing
calculated at the maximum marginal income tax rate for each year in which the
foregoing shall be paid to the Executive (based upon the rate in effect for such
year as set forth in the Code at the time of termination of his employment),
less (iv) the amount of excise taxes imposed with respect to the payments and
benefits described in (i) and (ii) above by Section 4999 of the Code.
"Notice of Termination" means a written notice to the Executive or to the
Company, as the case may be, which shall indicate those specific provisions in
this Agreement relied upon and which sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for the termination of the
Executive's employment constituting a Termination under the provision so
indicated.
"Parachute Payment" means any payment deemed to constitute a "parachute payment"
as defined in Section 280G of the Internal Revenue Code of 1986, as amended.
"Person" means any individual, firm, corporation, group (as such term is used in
Rule 13d of the General Rules and Regulations promulgated under the Securities
Exchange Act of 1934, as amended) or other entity.
"Subsidiary" with respect to the Company has the meaning set forth in Rule 12b-2
of the General Rules and Regulations promulgated under the Securities Exchange
Act of 1934, as amended.
"Termination" means following the occurrence of any Change of Control by the
Company (i) the involuntary termination of the employment of the Executive for
any reason other than for Cause, death or Disability, or (ii) the termination of
employment by the Executive for Good Reason; provided, however, that any
retirement under a retirement plan available to salaried employees or employees
generally of the Company or any Subsidiary that employs the Executive that is
coincident with or subsequent to a Termination, will not preclude payments under
this Agreement to which the Executive is entitled in respect of such
Termination.
AGREEMENT
AMENDED AND RESTATED AGREEMENT, restated as of December 31, 1992 (the
"Agreement") between KERR-McGEE CORPORATION, a Delaware corporation having its
executive offices at Oklahoma City, Oklahoma (the "Company"), and K. W. Crouch
residing in Oklahoma City, Oklahoma (the "Executive"). Unless otherwise
indicated, terms used herein are defined in Schedule A.
WHEREAS, the Executive is currently employed by the Company and/or its
Subsidiaries pursuant to an amended and restated agreement, restated as of
February 1, 1988 (the "Existing Agreement"); and
WHEREAS, the Executive and the Company's Board of Directors believe that
such Existing Agreement, which is a three-year self-renewing employment
agreement, should be amended and restated as of December 31, 1992; and
WHEREAS, the Company's Board of Directors has determined that it wishes
to continue the employment of the Executive and that it is appropriate to
reinforce the continued attention and dedication of the Executive to his
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a Change of Control of the Company; and
WHEREAS, the Company and the Executive now wish to amend and restate the
Existing Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the Company and the Executive agree as follows:
1. Employment: The Company agrees to continue to employ the Executive
and he agrees to continue to serve the Company and its Subsidiaries, upon the
terms and conditions stated herein, for the term of employment commencing on the
date hereof and ending on January 31, 1996, unless prior to a Change of Control
such employment is involuntarily terminated hereunder for Reason or as a result
of the Executive's death or disability. The Company further agrees that if a
Change of Control occurs either before, on or after January 31, 1996, and the
Executive is employed by the Company immediately prior to such Change of
Control, the Company will not, prior to the third anniversary of the Change of
Control, terminate the Executive's employment with the Company except for Cause
or as a result of the Executive's death or Disability. Following a Change of
Control any involuntary termination of the Executive's employment hereunder for
any reason other than death shall be communicated by a Notice of Termination.
The Executive will be employed in an executive capacity and will perform the
duties of Vice President and Managing Director, Exploration, United Kingdom
Exploration Division or such other duties as may be assigned to him from time to
time by the Company.
The Executive shall devote substantially all of his business
time, attention, skill and efforts to the business of the Company and its
Subsidiaries while employed hereunder and shall perform the duties of his
position and any other duties assigned to him by the Company to the best of his
ability.
2. Compensation: As compensation for his services, the Company agrees to
pay the Executive, so long as he shall be employed hereunder, a salary
determined from time to time by the Company, but at a rate not less than
$158,760 per annum, payable either biweekly or in equal semimonthly installments
on the fifteenth and last day of the month, provided that if at any time while
the Executive is employed hereunder he should receive an increase in the annual
base salary being paid him by the Company, the above specified minimum salary
rate shall thereupon increase by a corresponding amount. The Executive shall
also be eligible for participation in any employee benefit plans and
compensation programs available to salaried employees or employees generally of
the Company or any Subsidiary that employs the Executive.
3. Noncompetition: The Executive agrees that at any time while employed
hereunder he will not engage in any activity competitive with any business
carried on by the Company or its Subsidiaries and Affiliates, without obtaining
the specific prior written consent of the Company. He, however, shall be free
without the consent of the Company to purchase stocks or other securities of any
corporation listed on a national securities exchange or included in a published
"over the counter" list.
4. Compensation During Illness: If while employed hereunder the
Executive shall become unable to perform his duties hereunder due to illness or
other incapacity, compensation during such period shall be provided in
accordance with the sick leave policy for salaried employees or employees
generally of the Company or any Subsidiary that employs the Executive, or if
applicable, under an income protection insurance plan for salaried employees and
employees generally of the Company or any Subsidiary that employs the Executive.
Subject to the other terms of this Agreement, no other compensation shall be
provided during the period of such illness or incapacity.
5. Death: In the event of the Executive's death while employed
hereunder, his spouse, or personal representative if such spouse shall have
died, shall be entitled to receive his salary at the rate then in effect through
the date of his death plus one additional pay period as provided under the
Company's pay policy, as well as any amounts previously earned and not paid for
the periods of service prior to his date of death.
6. Successors: Nothing in this Agreement shall prevent the consolidation
of the Company with, or its merger into, any other corporation or the sale by
the Company of all or substantially all of its properties or assets, or the
assignment by the Company of this Agreement in connection with any of the above
mentioned actions; provided that the Company will require any successor (whether
direct or indirect, by merger, consolidation or otherwise) to all or
substantially all of the properties or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession has taken place.
This Agreement shall not be assignable by the Executive or by the Company or its
successors except as provided herein.
7. Retirement: Notwithstanding the Executive's agreement herein to serve
for the term of his employment under this Agreement, the Executive may retire
under a retirement plan available to salaried employees or employees generally
of the Company or any Subsidiary that employs the Executive when entitled to do
so, except that he may elect early retirement under any such plan only upon
giving the Company (or a Subsidiary employing the Executive) six months' written
notice; and upon his retirement his term of employment hereunder shall
terminate. Nothwithstanding the foregoing, following a Change of Control, (i)
the Executive may elect early retirement under a retirement plan available to
salaried employees or employees generally of the Company or any Subsidiary that
employs the Executive upon giving the Company (or a Subsidiary employing the
Executive) two days' written notice; and (ii) any retirement under such plan
that is coincident with or subsequent to an involuntary termination of the
Executive's employment for any reason other than Cause, death or Disability will
not preclude payments under this Agreement to which the Executive is entitled in
respect of such termination.
8. Acceleration and Vesting of Stock Plans, Stock Options and SAR's
Following a Change of Control: In the event a Change of Control of the Company
shall have occurred while the Executive is employed hereunder, then,
notwithstanding the terms and conditions of any benefit plan or compensation
program of the Company or any Subsidiary that employs the Executive including
but not limited to any purchase plan, stock bonus plan, stock incentive plan,
stock option plan, employee stock ownership plan or similar plan or program
(excluding any plan qualified under Section 401(a) of the Code), the Company
agrees (i) to accelerate, vest, and make immediately exercisable in full (to the
extent not already provided for under the terms of such applicable plans or
programs) all unexercisable installments of all options to acquire securities of
the Company and any accompanying stock appreciation rights, which are
Beneficially Owned by the Executive on the date of such Change of Control, and
(ii) to waive any applicable restrictions, including resale restrictions or
rights of repurchase, relating to or imposed on securities granted by the
Company to the Executive pursuant to such plans or programs which securities are
Beneficially Owned by the Executive on such date.
9. Mitigation: If at any time the Executive's employment hereunder shall
be terminated for any reason, then all payments and benefits to which the
Executive is entitled under this Agreement shall be made and provided without
offset, deduction or mitigation on account of income the Executive could or may
receive from other employment or otherwise; provided, however, that if the
Executive is involuntarily terminated for any reason other than Reason prior to
a Change of Control, then, until the term of this Agreement ends, the amount
payable under this Agreement shall be reduced by any compensation actually
received by the Executive from comparable employment (as to position,
compensation and responsibility) with any person or entity that is engaged in a
business that is competitive with the Company or its Subsidiaries and
Affiliates.
10. Legal Expenses: The Company shall pay (at least monthly) all costs
and expenses, including reasonable attorneys' fees and disbursements, which the
Executive may incur in connection with any litigation, arbitration or similar
proceeding, whether instituted by the Company or the Executive, with respect to
the interpretation or enforcement of any provision under this Agreement.
11. Accommodations and Travel Expenses: The Company agrees that while
the Executive is employed hereunder, he shall be furnished office space and
accommodations suitable to the character of his position and adequate for the
performance of his duties. Reasonable traveling expenses incurred by him in
traveling on business of the Company and its Subsidiaries will be reimbursed in
accordance with the established traveling expense policy of the Company or any
Subsidiary that employs the Executive.
12. Notices: Any notices required under the terms of this Agreement
shall be effective when mailed, postage prepaid, by certified mail, address:
If to Kerr-McGee: R. G. Horner, Jr.
Vice President and General Counsel
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
If to the Executive: K. W. Crouch
Kerr-McGee Corporation
Kerr-McGee Center
Oklahoma City, Oklahoma 73102
13. Entire Agreement: This Agreement comprises the entire agreement
between the Company and its Subsidiaries and the Executive and shall supersede
any and all previous contracts, agreements or understandings between the Company
and its Subsidiaries and the Executive with respect to the subject matter
hereof. This Agreement may not be modified except by written agreement between
the parties. Any inconsistency between Sections 8, 9, 10, 13, 14, 15 and 16 of
this Agreement and any other provisions of this Agreement shall be resolved in
favor of such Sections.
14. Arbitration: Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Oklahoma City, Oklahoma, or, at the option of the Executive, in the county where
the Executive resides, in accordance with the Rules of the American Arbitration
Association then in effect; provided, however, that if the Executive institutes
an action relating to this Agreement the Executive may, at his option, bring
such action in an Oklahoma court of competent jurisdiction. Judgment may be
entered on the arbitrator's award in any such court having jurisdiction.
15. Separability: Any provision of this Agreement which is held to be
unenforceable or invalid in any respect in any jurisdiction shall be ineffective
in such jurisdiction to the extent that it is unenforceable or invalid without
affecting the remaining provisions hereof, which shall continue in full force
and effect. The enforceability or invalidity of a provision of this Agreement in
one jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
16. Section and Other Headings: The section and other headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement on the 31st day of March, 1993.
KERR-McGEE CORPORATION
By______________________________
F. A. McPherson
Chairman of the Board and
Chief Executive Officer
_____________________
K. W. Crouch
<PAGE>
Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules
and Regulations promulgated under the Securities Exchange Act of 1934, as
amended.
"Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of
the General Rules and Regulations promulgated under the Securities Exchange Act
of 1934, as amended.
"Cause" means willful and gross misconduct on the part of the Executive
that has a materially adverse effect on the Company and its Subsidiaries, taken
as a whole, or the conviction of the Executive of a felony under United States
federal, state or local criminal law, as determined in good faith by a written
resolution duly adopted by the affirmative vote of not less than 2/3 of all of
the directors who are not employees, officers, or otherwise Affiliates of the
Company.
"Change of Control" means any one of the following: (a) a change in any
two year period in a majority of the members of the Board of Directors of the
Company resulting from the election of directors who were not directors at the
beginning of such period (other than the election of directors to fill vacancies
created by death or Disability, or the election of a director to replace a
director who by virtue of his age is not eligible for election under the By-laws
of the Company as in effect on the date of this Agreement); (b) any Person or
Group, together with its Affiliates, becomes the Beneficial Owner, directly or
indirectly, of 25% or more of the Company's then outstanding Common Stock or 25%
or more of the voting power of the Company's then outstanding securities
entitled to vote generally for the election of the Company's directors; (c) the
approval by the Company's stockholders of (i) the merger or consolidation of the
Company with any other corporation (other than a merger or consolidation of the
Company and a wholly-owned subsidiary in which the holders of the Company's
Common Stock immediately prior to such merger or consolidation have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger or consolidation), (ii) the sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all, of the assets of the Company or (iii) the liquidation or
dissolution of the Company; or (d) a majority of the members of the Board of
Directors in office immediately prior to a proposed transaction determined by
written resolution that such proposed transaction, if taken, will be deemed a
Change of Control and such proposed transaction is effected.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" means (i) if the Executive's employment is
terminated under this Agreement due to Disability, thirty days after Notice of
Termination is given to the Executive (provided the Executive shall not have
returned to the performance of the Executive's duties on a full-time basis
during such thirty-day period) or (ii) if the Executive's employment is
involuntarily terminated under this Agreement for any other reason, the date on
which a Notice of Termination is given; provided, however, that if within thirty
days after any Notice of Termination is given to the Executive, the Executive
notifies the Company or the Subsidiary that employs the Executive that a dispute
exists concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual agreement by the parties or
upon final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
"Disability" means that (i) a person has been totally incapacitated by
bodily injury or physical or mental disease so as to be prevented thereby from
engaging in a comparable occupation or employment for remuneration or profit,
(ii) such person will be subject to such total incapacity for a period of at
least eighteen consecutive months and (iii) such person is disabled for purposes
of any and all of the plans or programs of the Company or any Subsidiary that
employs the Executive under which benefits, compensation or awards are
contingent upon a finding of disability. The determination with respect to
whether the Executive is suffering from a Disability will be determined by a
mutually acceptable physician or, if there is no physician mutually acceptable
to the Company and the Executive, by a physician selected by the Dean of the
University of Oklahoma Medical School.
"Group" has the meaning set forth in Rule 13d-5 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Notice of Termination" means a written notice which shall indicate
those specific provisions in this Agreement relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
"Person" means any individual, firm, corporation, group (as such term is
used in Rule 13d of the General Rules and Regulations promulgated under the
Securities Exchange Act of 1934, as amended) or other entity.
"Reason" means (a) action by the Executive involving willful
malfeasance, (b) failure to act by the Executive involving material nonfeasance
having a material adverse effect on the Company or the Subsidiary that employs
the Executive, (c) the Executive being convicted of a felony under United States
federal, state, or local criminal law, or (d) the material breach of any
provision of this Agreement by the Executive.
"Subsidiary" with respect to the Company has the meaning set forth in
Rule 12b-2 of the General Rules and Regulations promulgated under the Securities
Exchange Act of 1934, as amended.
EXHIBIT 12
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
(Millions of dollars) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income (loss) from
continuing operations $194 $220 $(24) $69 $95
Add -
Provision (benefit) for
income taxes 83 103 (45) 30 54
Interest expense 46 52 61 58 45
Rental expense representa-
tive of interest factor 5 5 4 4 4
------ ------ ----- ----- -----
Earnings $328 $380 $ (4) $161 $198
==== ==== ==== ==== ====
Fixed Charges -
Interest expense $ 46 $ 52 $ 61 $ 58 $ 45
Rental expense representa-
tive of interest factor 5 5 4 4 4
Interest capitalized 8 9 11 10 20
------ ------ ----- ----- -----
Total fixed charges $ 59 $ 66 $ 76 $ 72 $ 69
==== ==== ==== ==== ====
Ratio of earnings to fixed
charges 5.6 5.8 -(2) 2.2 2.9
==== ==== ===== ==== ====
(1)The computation of the ratio of earnings to fixed charges has been restated
to conform with the current year's presentation.
(2)Earnings were inadequate to cover fixed charges by $80 million in 1995.
Management's Discussion and Analysis
Results of Consolidated Operations
Net income (loss) and per-share amounts for each of the three years in the
period ended December 31, 1997, were as follows:
(Millions of dollars, except per-share amounts) 1997 1996 1995
Net income (loss) $194 $220 $(31)
Income from continuing operations
excluding special items 184 230 137
Earnings (loss) per share -
Net income (loss) -
Basic 4.06 4.45 (.60)
Diluted 4.04 4.43 (.60)
Income from continuing operations
excluding special items -
Basic 3.85 4.65 2.65
Diluted 3.83 4.63 2.63
Net income (loss) was affected by a number of special items in each of the
years. In 1997, special items were principally nonoperating that increased net
income by $10 million. The 1996 special items resulted in a charge to net income
of $10 million and were both operating and nonoperating. In 1995, special items
related primarily to the company's adoption of Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." The following table reconciles income
from continuing operations excluding special items to net income:
(Millions of dollars) 1997 1996 1995
Net income from continuing operations
excluding special items $184 $230 $137
---- ---- ----
Special items, net of income taxes -
Gains on the sale of equity securities 12 15 --
Settlements with insurance carriers 8 44 --
Gains on the sale of nonstrategic oil
and gas properties 4 8 --
Net provision for environmental
reclamation and remediation of
inactive sites (13) (28) (16)
Pending/settled litigation (1) (21) --
Asset impairment -- (16) (140)
Restructuring (1) (7) (4)
Other, net 1 (5) (1)
---- ---- ----
Total 10 (10) (161)
---- ---- ----
Loss from discontinued operations,
net of income taxes -- -- (7)
---- ---- ----
Net income (loss) $194 $220 $(31)
==== ==== ====
The merger of the company's North American onshore properties into Devon
Energy Corporation (Devon) was effective December 31, 1996. This merger affects
the comparability of the periods presented since the company's approximate 31%
investment in Devon is accounted for by the equity method (see Note 4). In 1995,
the company completed the sale of substantially all of its refining and
marketing operations and completed the sale of the remaining assets in 1996.
Therefore, all 1995 amounts related to refining and marketing are shown in the
Consolidated Statement of Income as discontinued operations.
Income from continuing operations excluding special items for 1997 declined
$46 million from the prior year, due to declines in operating profit for each of
the business units. Excluding special items, exploration and production
operating profit for 1997 was 25% lower than the prior year, while chemical and
coal results were lower by 7% and 41%, respectively. The $93 million increase in
1996 income from continuing operations excluding special items, compared with
1995, was primarily due to oil and gas exploration and production results that
more than doubled the prior year's results and a 14% increase from coal
operations, partially offset by a 26% decline in earnings from the chemical
unit. Operating profit excluding special items was $309 million, $408 million
and $298 million for 1997, 1996 and 1995, respectively.
Following is a discussion of the major changes in various items shown in the
Consolidated Statement of Income. Certain amounts for 1996 and 1995 have been
reclassified to conform with the 1997 presentation (see Note 1).
Consolidated sales from continuing operations were $1.7 billion, compared
with $1.9 billion for 1996 and $1.8 billion for 1995. Sales for 1997 were less
than the prior year due to lower crude oil prices and volumes, lower natural gas
volumes and lower average prices for titanium dioxide pigment and coal. Primary
contributors to the decline in oil and gas volumes were the merger of the North
American onshore properties into Devon, divestitures of nonstrategic properties
and significantly lower sales of natural gas purchased from third parties. Lower
average sales prices for coal were due primarily to lower sales from the
Galatia, Illinois, mine, which produces a higher-priced, higher-Btu coal than
the Jacobs Ranch Mine in Wyoming. Partially offsetting these declines were
higher prices for natural gas and increased pigment volumes. The increase in
1996 sales over 1995 resulted primarily from higher crude oil and natural gas
prices and higher sales of purchased third-party natural gas, partially offset
by declines in titanium dioxide pigment sales prices and lower crude oil
volumes.
Costs and operating expenses were $949 million, $1 billion and $960 million
for 1997, 1996 and 1995, respectively. The 1997 amount was lower than the prior
year, primarily due to the absence of North American onshore and divested oil
and gas properties and significantly lower volumes of natural gas purchased for
resale, partially offset by higher production costs for pigment. Costs and
operating expenses for 1996 were higher than 1995, primarily due to increased
purchases of natural gas for resale and higher feedstock and utility costs for
titanium dioxide pigment.
Following are general and administrative expenses for 1997, 1996 and 1995:
(Millions of dollars) 1997 1996 1995
General and administrative expenses
excluding special items $121 $118 $123
---- ---- ----
Special items -
Net provision for environmental reclamation
and remediation of inactive sites 20 43 27
Pending/settled litigation 2 29 --
Restructuring 2 10 7
Other, net 3 9 --
Total 27 91 34
---- ---- ----
General and administrative expenses $148 $209 $157
==== ==== ====
Net provisions for environmental reclamation and remediation of inactive
sites primarily represent additional provisions established for the removal of
low-level radioactive materials from the company's inactive facility and offsite
areas in West Chicago, Illinois. Restructuring represents charges for the
relocation of the exploration and production unit to Houston, Texas, and
severance associated with the divestiture program and the Devon merger.
Asset impairments totaled $25 million in 1996 and related principally to
certain exploration and production properties in the Gulf of Mexico. This
compares with $227 million in 1995, which resulted from the company's adoption
of FAS 121 and the writedowns associated with the oil and gas divestiture
program (see Note 11).
Exploration costs for 1997, 1996 and 1995 were $65 million, $75 million and
$82 million, respectively. Lower dry hole costs in the North Sea, offset in part
by higher costs in China, were the primary reason for the reduced 1997 costs.
Also contributing to the reduction was lower undeveloped lease amortization,
partially offset by higher geophysical cost. In 1996, the company had lower Gulf
of Mexico undeveloped lease amortization and lower geological and geophysical
costs, partially offset by higher dry hole expense, compared with 1995.
Interest and debt expense totaled $46 million in 1997, $52 million in 1996
and $61 million in 1995. Decreased debt was the principal reason for the lower
1997 expense, compared with the prior year. The decrease in 1996 expense was due
to both lower debt and lower average borrowing costs.
Other income was as follows for each of the years in the three-year period
ended December 31, 1997:
(Millions of dollars) 1997 1996 1995
Other income excluding special items $47 $29 $27
--- --- ---
Special items -
Gains on sales of equity securities 18 23 --
Settlements with insurance carriers 12 67 --
Gains on the sale of nonstrategic
oil and gas properties 6 13 --
Other, net 7 -- 2
--- --- ---
Total 43 103 2
--- --- ---
Other income $90 $132 $29
=== ==== ===
Equity income from Devon was the primary reason for the increase in other
income excluding special items for 1997 compared with the prior year. Also
contributing were lower foreign currency transaction losses and higher interest
income.
Pending Transactions
The company continuously reviews each business unit in an effort to find
innovative ways to maximize shareholder value through existing operations and/or
new opportunities worldwide. In a strategy approved by the Board of Directors,
the company's future efforts will be concentrated on oil and gas exploration and
production and titanium dioxide pigments, the principal chemical business.
The company intends to exit the coal business as announced in January 1998.
The manner and timing in which the operations will be discontinued has not yet
been determined. Proceeds and the gain on disposal will vary depending on the
manner selected. Therefore, coal operations are not presented as discontinued
operations. Presentation in future reports will depend on the ultimate method
and timing of the disposal.
Since the company has not yet determined the manner and timing of the exit
from the coal business, the effect on consolidated operating profit, cash flow
and liquidity is not yet determinable. Over the three-year period ended December
31, 1997, coal contributed operating profit excluding special items and net cash
flow (after-tax cash flow less cash capital expenditures) of $185 million and
$150 million, respectively.
In order to focus on the pigments business, the company will dispose of its
electrolytic operations. The sale of the ammonium perchlorate operation is
pending and expected to close in the first half of 1998. The gain on the sale
will be immaterial. In January 1998, the company signed a letter of intent to
negotiate the sale of substantially all of the remaining electrolytic and
specialty-chemical businesses.
Pigment production capacity will be significantly expanded with the
acquisition of an initial 80% interest in Bayer AG's European pigment
operations. The company will have the option to acquire the remaining 20%
interest over a two-year period beginning in 2001. This transaction is also
expected to close before June 30, 1998.
The effect of these chemical transactions on the consolidated financial
statements is expected to be initially neutral, as the near-term operating
profit and cash flow from electrolytics will essentially be replaced by the
European pigment operations.
Each of these transactions are independent steps in an ongoing strategic
plan. Management anticipates that these transactions will have positive
long-term impacts on operating profit, cash flow and liquidity that will enhance
shareholder value.
Segment Operations
Operating profit (loss) from each of the company's segments is summarized in
the following table:
(Millions of dollars) 1997 1996 1995
Operating profit (loss) excluding
special items -
Exploration and production $178 $236 $113
Chemicals 84 90 122
Coal 44 75 66
Other 3 7 (3)
---- ---- ----
Total 309 408 298
Special items (5) (37) (234)
---- ---- ----
Operating profit $304 $371 $ 64
==== ==== ====
Exploration and Production
The company merged its North American onshore exploration and production
assets into Devon effective December 31, 1996, and accounts for the investment
on the equity basis. Therefore, income from Devon is not included in 1997
operating profit, and the company's proportionate interest in Devon's volumes is
not included in the 1997 production and sales shown in the following table.
(Millions of dollars, except per-unit amounts) 1997 1996 1995
Sales $628 $874 $690
==== ==== ====
Operating profit excluding special items $178 $236 $113
Special items (3) (32) (210)
---- ---- ----
Operating profit (loss) $175 $204 $(97)
==== ==== ====
Proprietary crude oil and condensate
produced (thousands of barrels per day) 57 69 70
Average price of crude oil sold
(per barrel) $18.51 $19.16 $15.99
Proprietary natural gas sold
(MMCF per day) 184 281 291
Average price of natural gas sold
(per MCF) $ 2.56 $2.12 $1.52
Special items in 1997 consisted primarily of additional costs for the unit's
restructuring and relocation to Houston. The 1996 special items were $22 million
for asset impairments and $10 million for restructuring, due to the December
1996 merger of the North American onshore properties into Devon and the
announcement of the relocation to Houston. The 1995 special items related to FAS
121 asset impairments and writedowns associated with the program to divest
nonstrategic and marginal properties and restructuring charges.
Equity accounting for the merged properties and lower average sales prices
for crude oil, partially offset by increased sales prices for natural gas and
lower exploration expenses, were the primary reasons for lower 1997 operating
profit excluding special items. Improvement in 1996 operating profit excluding
special items, compared with 1995, resulted primarily from increases of 20% and
39% in the company's average sales prices for crude oil and natural gas,
respectively, and a decrease in exploration expenses. Chemicals
Chemical operating profit and sales were as follows. Special items in 1997
were primarily for the writeoff of obsolete equipment and in 1996 for
impairments and shutdown costs for a crosstie-treating facility and the
elimination of a product line at a specialty plant.
(Millions of dollars) 1997 1996 1995
Sales $760 $692 $707
==== ==== ====
Operating profit excluding special items $ 84 $ 90 $122
Special items (3) (5) --
---- ---- ----
Operating profit $81 $85 $122
==== ==== ====
The increase in 1997 sales, compared with 1996, was due to increased
titanium dioxide pigment and ammonium perchlorate sales volumes. Partially
offsetting these increases were lower average pigment prices. Although prices
strengthened considerably in the last half of the year, average prices received
in 1997 were less than those received in the prior year. The higher 1997 pigment
volumes resulted from the completion of the expansion at the Hamilton,
Mississippi, plant and a full year's production from the 1996 expansion in
Western Australia. The decrease in 1996 sales from 1995 resulted from lower
pigment sales prices. Operating profit in both 1997 and 1996 was also adversely
affected by higher per-unit production costs for pigment than in the respective
prior years.
The company has announced plans to exit the electrolytic business and
concentrate on its pigment operations. See "Pending Transactions" on page 21.
Coal
Operating profit and sales for coal are shown in the following table.
Operating profit in 1995 included a special item for FAS 121 impairments.
(Millions of dollars) 1997 1996 1995
Sales $323 $365 $353
==== ==== ====
Operating profit excluding special items $ 44 $ 75 $ 66
Special items -- -- (23)
---- ---- ----
Operating profit $ 44 $ 75 $ 43
==== ==== ====
Both operating profit and sales for the year were negatively impacted by an
April 1997 underground ignition and adverse operating conditions at the Galatia,
Illinois, mine. These conditions continued until the fourth quarter, resulting
in fewer tons produced at Galatia and higher per-ton costs. However, operating
profit benefited from lower per-ton costs and higher volumes at the Jacobs Ranch
mine. Sales prices were $1.43 per ton lower on average for 1997, compared with
1996, since a higher portion of tonnage sold was the lower-priced Powder River
Basin coal. Higher operating profit and sales in 1996, compared with 1995, were
the result of $.12 per-ton higher average sales prices on slightly higher
volumes.
The company has announced its intention to exit the coal business. See
"Pending Transactions" on page 21.
Financial Condition
(Millions of dollars) 1997 1996 1995
Current ratio 1.3 1.7 1.3
Working capital $ 166 $ 320 $ 189
Total debt 579 663 735
Total debt less cash 396 542 648
Stockholders' equity $1,440 $1,367 $1,416
Total debt to total capitalization 29% 33% 34%
Floating-rate debt to total debt 11 66 64
Cash Flow
Net cash provided by operating activities was $569 million in 1997, compared
with $645 million in 1996 and $369 million in 1995.
The decrease in 1997 resulted primarily from lower net income, lower noncash
charges, higher cash environmental expenditures and lower deferred income taxes,
partially offset by working capital and other changes that increased net cash
provided by operating activities. Cash flow provided by operating activities in
1997 was also adversely affected by the company's merger of its North American
onshore oil and gas properties into Devon, as undistributed earnings from equity
affiliates represent a noncash item.
The increase in 1996 net cash provided by operating activities, compared
with 1995, was primarily attributable to the company's record net income and
temporary changes in working capital and other, which decreased 1995 net cash
provided by operating activities by $211 million. Although a net loss of $31
million was incurred in 1995, the special charges, totaling $260 million before
income taxes, were all noncash and did not adversely affect net cash provided by
operations.
In each of the years 1997, 1996 and 1995, cash provided by operating
activities was supplemented by other sources of cash that were used primarily to
reduce debt and purchase the company's common stock (see Note 14). In 1997, cash
available increased $21 million from the sale of equity securities, $18 million
from the sale of nonstrategic and marginal exploration and production
properties, $17 million from the sale of other assets and $21 million related to
insurance settlements. During 1996, the company received cash proceeds of $48
million from the divestiture of nonstrategic, marginal and other exploration and
production properties; $43 million related to insurance settlements; $29 million
from the sale of equity securities; $13 million from the sale of the remaining
refining and marketing assets; and $11 million from the sale of other assets,
including the company's West Virginia coal mining operation. Proceeds from the
sale of substantially all of the company's refining and marketing operations
increased cash available by $419 million in 1995.
Total debt declined to $579 million at year-end 1997 from $735 million at
year-end 1995. In 1995, the company's Board of Directors authorized a stock
purchase program of up to $300 million. The program was completed in August
1997. Expenditures were $60 million in 1997, $195 million in 1996 and $45
million in 1995, with a total of 4.8 million shares purchased through the
program.
On January 14, 1997, the company's Board of Directors approved an increase
in the quarterly dividend payable April 1, 1997, to $.45 per share from $.41 per
share. In 1995, the Board increased the quarterly dividend payable January 2,
1996, to $.41 per share from $.38 per share.
Liquidity
The company's strong balance sheet reflects a solid working capital position
and low debt to capitalization. The company's debt has been rated "A" or "A-" by
various rating agencies, resulting in low debt costs. At December 31, 1997, the
company's net working capital position was $166 million, a decline from the 1996
year-end position. The merger of the company's North American onshore
exploration and production properties contributed to the lower working capital
position since certain components of working capital were converted into the
Devon equity investment. The 1996 net working capital position of $320 million
was an increase of $131 million from the prior year. This increase was the
result of the other cash inflows discussed previously, which were used primarily
to repay short-term borrowings and fund the company's stock purchase program.
The percentage of total debt to total capitalization was 29% at December 31,
1997, 33% at December 31, 1996, and 34% at year- end 1995. This improvement is
the direct result of the company's repayment of debt, which more than offset the
effect of the stock purchase program on total capitalization.
In October 1997, the company replaced the majority of its then outstanding
floating-rate debt with $300 million of fixed-rate securities. The company
issued $150 million of 7.125% (effective rate 7.01%) debentures due October 15,
2027, and $150 million of 6.625% (effective rate 6.54%) notes due October 15,
2007.
Additionally, the company and/or its subsidiaries have several revolving
credit agreements. At year-end 1997, $37 million was outstanding under one of
the agreements with interest payable at varying rates. At December 31, 1997, the
company had unused lines of credit and revolving credit facilities of $714
million. Of this amount, $340 million and $265 million can be used to support
the commercial paper borrowings of Kerr-McGee Credit Corporation and Kerr-McGee
Oil (U.K.) PLC, respectively, both wholly owned subsidiaries.
Two revolving credit agreements were amended in 1997. The $105 million
revolving credit agreement between the company's wholly owned subsidiary
Kerr-McGee China Petroleum Ltd. and several banks was extended to March 6, 2000.
The $37 million outstanding at year-end 1997 was under this agreement. The
revolving credit agreement among the company, its wholly owned subsidiary
Kerr-McGee Oil (U.K.) PLC and several banks was amended from $230 million to
$225 million and separated into two loan facilities. Under one arrangement, $150
million may be borrowed through April 28, 2000. Under the other, $75 million is
available through April 28, 1998, with the provision that one-year extensions
may be requested. Interest is payable at varying rates for all of the revolving
credit agreements.
The company finances capital expenditures through internally generated funds
and various borrowings. Cash capital expenditures were $341 million in 1997,
$392 million in 1996 and $484 million in 1995, a total of $1.2 billion. During
this same period, $1.7 billion of net cash was provided by operating activities
(exclusive of working capital and other changes), which was approximately $200
million in excess of cash capital expenditures and dividends paid during the
period.
Management anticipates that 1998 cash capital requirements, currently
estimated at $520 million (including $60 million for the coal business), and the
capital expenditures programs for the next several years can continue to be
provided through internally generated funds and selective short-term and/or
long-term borrowings.
Market Risks
The company is exposed to a variety of market risks, including the effects
of movements in foreign currency exchange rates, interest rates and certain
commodity prices. The company addresses its risks through a controlled program
of risk management that includes the use of derivative financial instruments.
The company does not hold or issue derivative financial instruments for trading
purposes. See Notes 1 and 16 to the Consolidated Financial Statements for
additional discussion of the company's financial instruments and hedging
activities. Foreign Currency Exchange
The U.S. dollar is the functional currency for all of the company's
operations. It is the company's intent to hedge a portion of its monetary
assets, liabilities and commitments denominated in foreign currencies.
Periodically, the company purchases foreign currency forward contracts to
provide funds for operating and capital expenditure requirements that will be
denominated in foreign currencies, primarily Australian dollars and British
pounds sterling. These contracts generally have durations of less than three
years. The company also enters into forward contracts to sell various foreign
currencies as hedges, principally for accounts receivable generated from
titanium dioxide pigment sales denominated in foreign currencies. These
contracts are principally for European currencies and generally have durations
of less than a year. Since these contracts qualify as hedges and correlate to
currency movements, any gains or losses resulting from exchange rate changes are
deferred and recognized as adjustments of the transaction when the hedged item
occurs.
At year-end 1997, the company's derivative financial instruments were
comprised only of foreign currency forward contracts. Following are the notional
amounts at the contract exchange rates, weighted-average contractual exchange
rates and estimated fair value by contract maturity for open foreign currency
contracts at year-end 1997. All amounts are U.S. dollar equivalents.
<TABLE>
<CAPTION>
Dec. 31, 1997
Notional Weighted-Average Estimated Fair
(Millions of dollars, except average contract rate) Amount Contract Rate Value
<S> <C> <C> <C>
Forward contracts to purchase (sell) currencies -
Maturing in 1998 -
Australian dollar $63 .7507 $55
British pound sterling 12 1.5897 12
German mark (3) 1.7721 (3)
British pound sterling (1) .6137 (1)
Belgian franc (1) 36.0382 (1)
Maturing in 1999 -
Australian dollar 39 .7377 35
</TABLE>
Interest Rates
The company's exposure to changes in interest rates relates primarily to
long-term debt obligations. At year-end 1997, the company's long-term debt was
comprised of 93% fixed-rate instruments, which minimize earnings volatility
related to interest expense. The company does not currently participate in
interest rate-related derivative financial instruments.
The table below presents principal amounts and related weighted-average
interest rates by maturity date for the company's long-term debt obligations.
All borrowings are in U.S. dollars.
<TABLE>
<CAPTION>
There- Fair Value
(Millions of dollars) 1998 1999 2000 2001 2002 after Total 12/31/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-rate debt -
Principal amount $2 $8 $10 $12 $10 $475 $517 $632
Weighted-average
interest rate 9.49% 9.00% 9.61% 9.61% 9.61% 7.05% 7.25%
Variable-rate debt -
Principal amount -- -- $37 -- -- -- $37 $37
Weighted-average
interest rate -- -- 6.04% -- -- -- 6.04%
</TABLE>
Commodity Prices
Although no such contracts were entered into during 1997, the company has
periodically used commodity futures and option contracts to hedge a portion of
its crude oil and natural gas sales and natural gas purchased for operations in
order to minimize the price risks associated with the production and marketing
of crude oil and natural gas. These contracts generally had maturities of one
year or less. Since the contracts qualified as hedges and correlated to price
movements of crude oil and natural gas, any gain or loss from these contracts
was explicitly deferred and recognized as part of the hedged transaction.
In 1997, approximately 70% of the company's coal sales resulted from
contracts with durations of at least three years. At year-end 1997, the average
contract price was in excess of spot prices.
Other
As a global energy and inorganic chemical company, Kerr-McGee is subject to
the volatility of crude oil, natural gas and titanium dioxide pigment prices and
risks associated with operations outside the United States. The company has
announced its intention to concentrate on two primary businesses - oil and
natural gas exploration and production and the production and marketing of
titanium dioxide pigments.
Early 1998 oil and gas prices are below those received in 1997. Company
management continuously monitors the underlying global pricing fundamentals of
these commodities and factors those conditions into its projections and economic
forecasts. In addition, more than 15% of the company's year-end 1997 proprietary
oil production was from Southeast Asia, which is in the midst of a currency
crisis. The company is taking steps to provide reasonable assurance that its
level of risk remains manageable, such as requiring letters of credit from
buyers when management deems appropriate.
Pigment prices have increased from 1997 levels, and the industry continues
to consolidate. Management anticipates that the consolidation trends will
continue in the near future and that the company's status as one of only four
companies that own the preferred chloride technology, along with its low cost
position, will benefit operating profit, cash flow and liquidity.
Environmental Matters
The company's operations are subject to various environmental laws and
regulations. Under these laws, the company is subject to possible obligations to
remove or mitigate the effects on the environment of the disposal or release of
certain chemical, petroleum or low-level radioactive substances at various
sites, including sites that have been designated Superfund sites by the U.S.
Environmental Protection Agency (EPA) pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended. At December 31, 1997, the company had received notices that it has been
named a potentially responsible party (PRP) with respect to the remediation of
16 existing EPA Superfund sites and may share liability at certain of these
sites. In 1996, the company signed a Consent Decree with respect to a site at
Slidell, Louisiana. In addition, the company and/or its subsidiaries have
executed consent orders, operate under a license or have reached agreements to
perform or have performed remediation or remedial investigations and feasibility
studies on sites not included as EPA Superfund sites.
The company does not consider the number of sites for which it has been
named a PRP to be a relevant measure of liability. Because of continually
changing environmental laws and regulations, the nature of the company's
businesses, the large number of other PRPs, the present state of the law, which
imposes joint and several liability on all PRPs under CERCLA, and pending legal
proceedings, the company is uncertain as to its involvement in many of the
sites. Therefore, the company is unable to reliably estimate the potential
liability and the timing of future expenditures that may arise from many of
these environmental sites. Reserves have been established for the remediation
and reclamation of active and inactive sites where it is probable that future
costs will be incurred and the liability is estimable. In 1997, $41 million was
added to the reserve for active and inactive sites. At December 31, 1997, the
company's reserve for these sites totaled $243 million. In addition, at year-end
1997, the company had reserves of $68 million for the future costs for the
abandonment and removal of offshore well and production facilities at the end of
their productive lives and $23 million for the decommissioning and reclamation
of coal mining locations. In the Consolidated Balance Sheet, $251 million of the
total reserve is classified as a deferred credit, and the remaining $83 million
is included in current liabilities.
Expenditures for the environmental protection and cleanup of existing sites
for each of the last three years and for the three-year period ended December
31, 1997, are as follows:
(Millions of dollars) 1997 1996 1995 Total
Charges to environmental reserves $ 94 $ 56 $ 61 $ 211
Recurring expenses 20 19 23 62
Capital expenditures 17 15 20 52
---- --- ---- ----
Total $131 $90 $104 $325
==== === ==== ====
The company has not recorded in the financial statements potential
reimbursements from governmental agencies or other third parties (see Notes 10
and 13). The following table reflects the company's portion of the known
estimated cost of investigation and/or remediation that is probable and
estimable. The table includes all EPA Superfund sites where the company has been
notified it is a PRP under CERCLA and other sites for which the company believes
it had some ongoing financial involvement in investigation and/or remediation at
year-end 1997.
<TABLE>
<CAPTION>
Total Known Total
Estimated Expenditures Total Number
Cost Through 1997 of Identifiable
Location of Site Stage of Investigation/Remediation (Millions of dollars) PRPs
<S> <C> <C> <C> <C>
EPA Superfund sites
Milwaukee, Wis. Executed consent decree to remediate the site of
a former wood-treating facility. Awaiting approval
of proposed remedy; installed and operating a free-
product recovery system. $ 19 $ 7 3
West Chicago, Ill., two sites Began cleanup of a portion of one site in 1995, and
outside the facility cleanup of the second site began in 1997 (see Note 10). 43 29 1
Slidell, La., Chicago, Ill.,
and 11 sites individually not
material Various stages of investigation/remediation. 30 26 492
-- -- ---
92 62 496
===
Non-EPA Superfund sites under
consent order, license or
agreement
West Chicago, Ill., facility Reached agreement with the City of West Chicago.
Decommissioning is in progress under State of Illinois
supervision while awaiting state license amendment
(see Note 10). Began shipments to a permanent
disposal facility in 1994. 348 185
Cleveland/Cushing, Okla. Began cleanup in 1996. 48 36
Cimarron, Okla. Remediation is complete, and monitoring continues. 36 34
--- ---
432 255
--- ---
Non-EPA Superfund sites
individually not material 154 118
--- ---
Total for all sites $678 $435
==== ====
</TABLE>
Although management believes adequate reserves have been provided for
environmental and all other known contingencies, it is possible, due to the
previously noted uncertainties, that additional reserves could be required in
the future.
Other
The use by many existing computer systems of a two-digit year date format
rather than four digits - the Year 2000 issue - impacts the company's business
systems and facilities. In 1996, a formal program was initiated and a number of
project teams were formed and charged with the responsibility of identifying
areas of potential concern and ensuring that timely corrective actions are
taken. At year-end 1997, the implementation of new or modification of existing
business systems was approximately two-thirds complete, and the review of plant
and facility process controls was under way. Management anticipates modification
or replacement of systems will be essentially complete by year-end 1998. The
company is also working with key suppliers, vendors and customers to ensure Year
2000 compliance. The ultimate outcome of the Year 2000 project cannot be
guaranteed; however, the company believes that the program under way will
provide a smooth transition into the year 2000 and reduces risk to a manageable
level. The cost of addressing the Year 2000 issue is not material to the
consolidated results of operations or financial condition of the company.
During 1997 and early 1998, the Financial Accounting Standards Board issued
several pronouncements related to financial statement disclosure that will
affect the company's 1998 financial statement presentation. There will be no
effect on net income as a result of these pronouncements. Following is a
discussion of the new standards.
FAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income and its components as a part of
the basic financial statements. At the beginning of 1998, the company had no
significant items to be reported as other comprehensive income. However, prior
years' information will be presented. The disclosures will be required for the
1998 year-end financial statements, and abbreviated information will be required
for the first quarter.
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for determining segments and reporting
information about a company's business segments in annual financial statements.
Also required is selected information about operating segments in interim
financial reports issued to shareholders. The company does not foresee any
material change to the operating segments currently reported in Note 24,
"Reporting by Business Segments." However, the financial information presented
will differ. Quarterly information will be presented in the first 1998 quarter,
and prior periods will be restated.
FAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," was issued in February 1998. This statement, effective for year-end
1998 financial statements, revises disclosures about pensions and other
postretirement benefit plans. It does not change the measurement or recognition
of costs associated with those plans.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Amounts capitalized or
expensed by the company for internal-use software projects are not expected to
differ materially as a result of the SOP, since the prescribed accounting
treatment is fairly consistent with the company's current accounting policy. The
SOP, the effect of which is to be recognized prospectively, is effective for
1999 financial statements.
Responsibility for Financial Reporting
The company's management is responsible for the integrity and objectivity of
the financial data contained in the financial statements. These financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances and, where necessary, reflect
informed judgments and estimates of the effects of certain events and
transactions based on currently available information at the date the financial
statements were prepared.
The company's management depends on the company's system of internal
accounting controls to assure itself of the reliability of the financial
statements. The internal control system is designed to provide reasonable
assurance, at appropriate cost, that assets are safeguarded and transactions are
executed in accordance with management's authorizations and are recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles. Periodic reviews are made of internal
controls by the company's staff of internal auditors, and corrective action is
taken if needed.
The Board of Directors reviews and monitors financial statements through its
audit committee, which is composed solely of directors who are not officers or
employees of the company. The audit committee meets with the independent public
accountants, internal auditors and management to review internal accounting
controls, auditing and financial reporting matters.
The independent public accountants are engaged to provide an objective and
independent review of the company's financial statements and to express an
opinion thereon. Their audits are conducted in accordance with generally
accepted auditing standards, and their report is included below.
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Kerr-McGee Corporation:
We have audited the accompanying consolidated balance sheet of Kerr-McGee
Corporation (a Delaware corporation) and subsidiary companies as of December 31,
1997 and 1996, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kerr-McGee Corporation and
subsidiary companies as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Oklahoma City, Oklahoma,
February 20, 1998
ARTHUR ANDERSEN LLP
<TABLE>
Consolidated Statement of Income
<CAPTION>
(Millions of dollars, except per-share amounts) 1997 1996 1995
<S> <C> <C> <C>
Sales $1,711 $1,931 $1,754
------ ------ ------
Costs and Expenses
Costs and operating expenses 949 1,016 960
General and administrative expenses 148 209 157
Depreciation and depletion 263 297 304
Asset impairment -- 25 227
Exploration, including dry holes and amortization of undeveloped leases 65 75 82
Taxes, other than income taxes 53 66 61
Interest and debt expense 46 52 61
------ ------ ------
Total Costs and Expenses 1,524 1,740 1,852
------ ------ ------
187 191 (98)
Other Income 90 132 29
------ ------ ------
Income (Loss) from Continuing Operations before Income Taxes 277 323 (69)
Provision (Benefit) for Income Taxes 83 103 (45)
------ ------ ------
Income (Loss) from Continuing Operations 194 220 (24)
Loss from Discontinued Operations, net of income tax benefit of $4 -- -- (7)
------ ------ ------
Net Income (Loss) $ 194 $ 220 $ (31)
====== ====== ======
Earnings (Loss) per Common Share
Basic -
Continuing operations $ 4.06 $ 4.45 $ (.47)
Discontinued operations -- -- (.13)
------ ------ ------
Total $ 4.06 $ 4.45 $ (.60)
====== ====== ======
Diluted -
Continuing operations $ 4.04 $ 4.43 $ (.47)
Discontinued operations -- -- (.13)
------ ------ ------
Total $ 4.04 $ 4.43 $ (.60)
====== ====== ======
</TABLE>
<TABLE>
Consolidated Statement of Retained Earnings
<CAPTION>
(Millions of dollars, except per-share amounts) 1997 1996 1995
<S> <C> <C> <C>
Balance at Beginning of Year $1,348 $1,209 $1,320
Net income (loss) 194 220 (31)
Dividends declared (per common share - $1.80 in 1997,
$1.64 in 1996 and $1.55 in 1995) (86) (81) (80)
------ ------ ------
Balance at End of Year $1,456 $1,348 $1,209
====== ====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
Consolidated Balance Sheet
<CAPTION>
(Millions of dollars) 1997 1996
<S> <C> <C>
ASSETS
Current Assets
Cash $ 183 $ 121
Accounts receivable, net of allowance for doubtful
accounts of $5 in both 1997 and 1996 274 375
Inventories 172 218
Deposits and prepaid expenses 60 91
------ ------
Total Current Assets 689 805
Investments
Equity affiliates 273 244
Other assets 60 74
Property, Plant and Equipment - Net 1,998 1,948
Deferred Charges 76 53
------ ------
Total Assets $3,096 $3,124
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 247 $ 262
Short-term borrowings 25 37
Long-term debt due within one year 2 --
Taxes on income 36 5
Taxes, other than income taxes 17 26
Accrued liabilities 196 155
------ ------
Total Current Liabilities 523 485
------ ------
Long-Term Debt 552 626
------ ------
Deferred Credits and Reserves
Income taxes 159 131
Other
422 515
------ ------
Total Deferred Credits and Reserves 581 646
------ ------
Stockholders' Equity
Common stock, par value $1.00 - 150,000,000 shares
authorized, 54,120,747 shares issued in 1997 and
53,862,347 shares issued in 1996 54 54
Capital in excess of par value 346 334
Preferred stock purchase rights 1 1
Retained earnings 1,456 1,348
Unrealized gain on available-for-sale securities -- 12
Common stock in treasury, at cost - 6,434,465 shares in 1997 and
5,568,815 shares in 1996 (363) (306)
Deferred compensation (54) (76)
------ ------
Total Stockholders' Equity 1,440 1,367
------ ------
Total Liabilities and Stockholders' Equity $3,096 $3,124
====== ======
The "successful efforts" method of accounting for oil and gas exploration and production
activities has been followed in preparing this balance sheet.
The accompanying notes are an integral part of this balance sheet.
</TABLE>
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
(Millions of dollars) 1997 1996 1995
<S> <C> <C> <C>
Cash Flow from Operating Activities
Net income (loss) $ 194 $ 220 $ (31)
Adjustments to reconcile to net cash provided by operating activities -
Deferred income taxes 36 68 (51)
Depreciation, depletion and amortization 271 307 334
Asset impairment -- 25 227
Provision for environmental reclamation and remediation of inactive sites 20 43 54
Realized gain on available-for-sale securities (18) (23) --
Gain on sale of refining and marketing operations, net of income taxes -- -- (2)
Gain on sale of exploration and production properties (6) (21) --
Retirements and gain on sale of other assets (4) (3) (1)
Noncash items affecting net income 1 18 50
Changes in current assets and liabilities and other, net of effects
of discontinued operations sold -
Decrease in accounts receivable 132 48 75
(Increase) decrease in inventories 40 1 (1)
(Increase) decrease in deposits and prepaids 13 59 (50)
Decrease in accounts payable and accrued liabilities (16) (37) (121)
Increase (decrease) in taxes payable 31 (22) (56)
Other (125) (38) (58)
----- ----- -----
Net cash provided by operating activities 569 645 369
----- ----- -----
Cash Flow from Investing Activities
Capital expenditures (341) (392) (484)
Proceeds from sale of available-for-sale securities 21 29 --
Proceeds from sale of refining and marketing operations -- 13 419
Proceeds from sale of exploration and production properties 18 48 --
Proceeds from sale of other assets 17 11 17
Proceeds from sale of long-term investments 13 17 61
Purchase of long-term investments (14) (6) (8)
----- ----- -----
Net cash provided by (used in) investing activities (286) (280) 5
----- ----- -----
Cash Flow from Financing Activities
Decrease in short-term borrowings (12) (57) (218)
Repayment of long-term debt (375) (36) (35)
Issuance of long-term debt 299 24 --
Issuance of common stock 12 16 9
Dividends paid (85) (83) (79)
Purchase of treasury stock (60) (195) (45)
----- ----- -----
Net cash used in financing activities (221) (331) (368)
----- ----- -----
Net Increase in Cash and Cash Equivalents 62 34 6
Cash and Cash Equivalents at Beginning of Year 121 87 81
----- ----- -----
Cash and Cash Equivalents at End of Year $ 183 $ 121 $ 87
===== ===== =====
The accompanying notes are an integral part of this statement.
</TABLE>
Notes to Financial Statements
1 Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of all subsidiary
companies that are more than 50% owned and the proportionate share of joint
ventures in which the company has an undivided interest. Investments in
affiliated companies that are 20% to 50% owned are carried as Investments -
Equity affiliates in the Consolidated Balance Sheet at cost adjusted for equity
in undistributed earnings. Except for dividends, changes in equity in
undistributed earnings are included in the Consolidated Statement of Income. All
material intercompany transactions have been eliminated.
In connection with the restructuring of the exploration and production
operations, certain operating and exploration expenses for 1996 and 1995 have
been reclassified to general and administrative expense in order to conform with
the current year's presentation. This reclassification had no effect on
exploration and production operating profit or consolidated net income (loss)
for either period. Certain information in Note 24, "Reporting by Business
Segments," and in the supplemental oil and gas information shown in Notes 25
through 29 has also been adjusted to reflect this reclassification.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates as additional
information becomes known.
Foreign Currencies
As the U.S. dollar has been adopted as the functional currency for each of
the company's international operations, foreign currency transaction gains or
losses are recognized in the period incurred. The company recorded net foreign
currency transaction losses of $9 million in 1996. The net foreign currency
transaction losses in 1997 and 1995 were immaterial.
Earnings (Loss) per Common Share
Basic earnings per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share is computed by
dividing net income by the weighted-average number of common shares outstanding
for the period and common stock equivalents.
The weighted-average number of shares used to compute basic earnings per
share was 47,807,916 in 1997, 49,419,993 in 1996 and 51,669,285 in 1995. After
adding the dilutive effect of the conversion of options to the weighted-average
number of shares outstanding, the shares used to compute diluted earnings per
share were 48,000,082 in 1997 and 49,657,890 in 1996. For 1995, there was no
dilution since the company incurred a loss from continuing operations.
Not included in the calculation of the denominator for diluted earnings per
share were 157,000 and 153,000 employee stock options outstanding at year-end
1997 and 1996, respectively. The inclusion of these options would have been
anti-dilutive since they were not "in the money" at the end of the respective
years. See Note 18, "Employee Stock Option Plans," for a discussion of
transactions that occurred after year-end 1997.
Cash Equivalents
The company considers all investments purchased with a maturity of three
months or less to be cash equivalents. Cash includes time deposits, certificates
of deposit and U.S. government securities, all of which totaled $132 million in
1997 and $89 million in 1996.
Inventories
The costs of the company's product inventories are determined by the
first-in, first-out (FIFO) method. Inventory carrying values include material
costs, labor and indirect manufacturing expenses associated therewith. Materials
and supplies are valued at average cost.
Property, Plant and Equipment
Oil and Gas - Exploration expenses, including geological and geophysical
costs, rentals and exploratory dry holes, are charged against income as
incurred. Costs of successful wells and related production equipment and
developmental dry holes are capitalized and amortized by field using the
unit-of-production method as the oil and gas are produced.
Undeveloped acreage costs are capitalized and amortized at rates that
provide full amortization on abandonment of unproductive leases. Costs of
abandoned leases are charged to the accumulated amortization accounts, and costs
of productive leases are transferred to the developed property accounts.
Other - Property, plant and equipment is stated at cost less reserves for
depreciation, depletion and amortization. Maintenance and repairs are expensed
as incurred, except that costs of replacements or renewals that improve or
extend the lives of existing properties are capitalized. Costs of nonproducing
mineral acreage surrendered or otherwise disposed of are charged to expense at
the time of disposition.
Depreciation and Depletion - Property, plant and equipment is depreciated or
depleted over its estimated life by application of the unit-of-production or the
straight-line method. In arriving at rates under the unit-of-production method,
the quantities of recoverable oil, gas and other minerals are established based
on estimates made by the company's geologists and engineers.
Retirements and Sales - The costs and related depreciation, depletion and
amortization reserves are removed from the respective accounts upon retirement
or sale of property, plant and equipment. The resulting gain or loss is included
in other income.
Interest Capitalized - The company capitalizes interest costs on major
projects that require a considerable length of time to complete. Interest
capitalized in 1997, 1996 and 1995 was $8 million, $9 million and $11 million,
respectively.
Impairment of Long-Lived Assets
The company adopted the provisions of Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," during the 1995 third quarter.
Proved oil and gas properties are reviewed for impairment on a
field-by-field basis when facts and circumstances indicate that their carrying
amount may not be recoverable. In performing this review, future cash flows are
estimated by applying estimated future oil and gas prices to estimated future
production, less estimated future expenditures to develop and produce the
reserves. If the sum of these estimated future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the property, an
impairment loss is recognized for the excess of the carrying amount over the
estimated fair value of the property. Prior to the third quarter of 1995, proved
properties were evaluated on an area-of-interest basis and impaired when
capitalized costs exceeded estimated future revenues, computed by applying
current oil and gas prices to estimated future production, less estimated future
expenditures to develop and produce the reserves.
Chemical, coal and other assets are reviewed for impairment by asset group
for which the lowest level of independent cash flows can be identified and
impaired in the same manner as proved oil and gas properties. Prior to the third
quarter of 1995, individual properties were written down when impairments were
deemed to have occurred.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences
of differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
Site Dismantlement, Reclamation and Remediation Costs
The company provides for the estimated cost at current prices of final
reclamation and land restoration at coal mining locations and the dismantlement
and removal of oil and gas production and related facilities. Such costs are
accumulated over the estimated lives of the facilities by the use of the
unit-of-production method. As sites of environmental concern are identified, the
company assesses the existing conditions, claims and assertions, generally
related to former operations, and records an estimated undiscounted liability
when environmental assessments and/or remedial efforts are probable and the
associated costs can be reasonably estimated.
Gas-Balancing Arrangements
Gas-balancing arrangements with partners in natural gas wells are accounted
for by the entitlements method. At December 31, 1997 and 1996, both the quantity
and dollar amount of such arrangements recorded in the Consolidated Balance
Sheet were immaterial.
Lease Commitments
The company utilizes various leased properties in its operations,
principally for office space. Net lease rental expense was $15 million in 1997,
$14 million in 1996 and $12 million in 1995.
The aggregate minimum annual rentals under noncancelable leases in effect
on December 31, 1997, totaled $59 million, of which $11 million is due in 1998,
$9 million in 1999, $17 million in the period 2000 through 2002 and $22 million
thereafter.
Employee Stock Option Plans
The company accounts for its employee stock option plans using the intrinsic
value method in accordance with Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees."
Futures, Forward and Option Contracts
The company hedges a portion of its monetary assets, liabilities and
commitments denominated in foreign currencies. Periodically, the company
purchases foreign currency forward contracts to provide funds for operating and
capital expenditure requirements that will be denominated in foreign currencies
and sells foreign currency forward contracts to convert receivables that will be
paid in foreign currencies to U.S. dollars. Since these contracts qualify as
hedges and correlate to currency movements, any gain or loss resulting from
market changes will be offset by gains or losses on the hedged receivable,
capital item or operating cost.
In 1996 and 1995, the company also entered into foreign currency forward
contracts to sell various foreign currencies in anticipation of titanium dioxide
pigment sales denominated in foreign currencies. These contracts were
marked-to-market with the resulting gain or loss reflected in income in the
period in which the change occurred. There were no open contracts at year-end
1997. Open contracts at year-end 1996 matured between January and December 1997.
Net gains and losses on these contracts in 1997, 1996 and 1995 were immaterial.
Although no such contracts were entered into during 1997, the company has
periodically used commodities futures and option contracts to hedge a portion of
its crude oil and natural gas sales and natural gas purchased for operations in
order to minimize the price risks associated with the production and marketing
of crude oil and natural gas. These contracts generally have had maturities of
one year or less. Since the contracts qualified as hedges and correlated to
price movements of crude oil and natural gas, any gain or loss from these
contracts was explicitly deferred and recognized as part of the hedged
transaction. Prior to the sale of the refining and marketing operations, the
company also hedged a portion of its refined-product sales and crude oil
purchased for the refineries.
Management of price risks must consider market conditions and availability.
As these factors change, the company adjusts its hedging strategy and modifies
its futures, forward and option contract positions.
2 Cash Flow Information
Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows:
(Millions of dollars) 1997 1996 1995
Interest paid $47 $60 $68
Income taxes paid 15 17 75
Noncash transactions not reflected in the Consolidated Statement of Cash
Flows include capital expenditures for which payment will be made in the
subsequent year totaling $19 million, $4 million and $24 million at year-end
1997, 1996 and 1995, respectively; transactions during 1997 associated with the
assignments of interest of certain North Sea oil and gas properties; the
revaluation of certain investments to fair value and transactions affecting
deferred compensation associated with the Employee Stock Ownership Plan in each
of the three years. See Notes 16 and 20.
Effective December 31, 1996, the company merged its North American onshore
exploration and production operations into Devon Energy Corporation (Devon) in
exchange for 9,954,000 shares of Devon common stock (see Note 4). This
transaction was not reflected in the Consolidated Statement of Cash Flows due to
its noncash nature.
The effect of foreign currency exchange rate fluctuations on cash and cash
equivalents was immaterial.
3 Inventories
Major categories of inventories at year-end 1997 and 1996 are:
(Millions of dollars) 1997 1996
Chemicals and other products $119 $163
Materials and supplies 48 49
Crude oil 5 6
---- ----
Total $172 $218
==== ====
4 Investments - Equity Affiliates
At December 31, 1997 and 1996, investments in equity affiliates are as
follows:
(Millions of dollars) 1997 1996
Devon Energy Corporation $217 $193
Javelina Company 32 27
National Titanium Dioxide Company Limited 12 12
Other 12 12
---- ----
Total $273 $244
==== ====
Effective December 31, 1996, the company merged its North American onshore
exploration and production operations into Devon, a publicly traded oil and gas
exploration and production company. The company received 9,954,000 shares of
Devon common stock representing an ownership interest in Devon of approximately
31%. This initial investment in Devon was recorded at the value of the assets
given up in accordance with APB No. 29, "Accounting for Nonmonetary
Transactions." The market value of the company's investment in Devon was $383
million at December 31, 1997, based on the closing price of Devon's common stock
as reported in The Wall Street Journal.
Javelina Company and National Titanium Dioxide Company Limited represent the
company's investment of 40% and 25%, respectively, in non-exploration and
production joint ventures or partnerships.
Following are financial summaries of the company's equity affiliates.
Financial information related to investments that are shown as Other in the
preceding table has been excluded.
(Millions of dollars) 1997 1996 1995
Results of operations -
Net sales(1) $570 $207 $250
Total costs and expenses 413 183 171
Net income 105 22 66
Financial position -
Current assets 198 153
Property, plant and equipment - net 990 962
Total assets 1,215 1,135
Current liabilities 123 130
Total liabilities 470 484
Stockholders' equity 745 651
(1) Includes net sales to the company of $26 million, $44 million and $47
million for 1997, 1996 and 1995, respectively.
5 Investments - Other Assets
Investments in other assets consist of the following at December 31, 1997
and 1996:
(Millions of dollars) 1997 1996
Net deferred tax asset $22 $23
U.S. government obligations 19 --
Patents 6 5
Long-term notes receivable, net of $9 allowance
for doubtful notes in both 1997 and 1996 5 17
Equity securities 2 24
Other 6 5
--- ---
Total $60 $74
=== ===
6 Property, Plant and Equipment
<TABLE>
Fixed assets and related reserves by business segment at December 31, 1997
and 1996, are as follows:
<CAPTION>
Reserves for
Depreciation and
Gross Property Depletion Net Property(1)
(Millions of dollars) 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Exploration and production $2,888 $3,192 $1,677 $2,005 $1,211 $1,187
Chemicals 1,020 946 506 459 514 487
Coal 547 546 331 327 216 219
Other 147 153 90 98 57 55
------ ------ ------ ------ ------ ------
Total $4,602 $4,837 $2,604 $2,889 $1,998 $1,948
====== ====== ====== ====== ====== ======
(1) Includes net assets held for sale of $126 million for chemicals at December
31, 1997, and $9 million for exploration and production at December 31, 1996.
The company also intends to dispose of the coal segment. See Note 11.
</TABLE>
7 Deferred Charges
Deferred charges are as follows at year-end 1997 and 1996:
(Millions of dollars) 1997 1996
Pension plan prepayment $42 $33
Preoperating and startup costs 8 4
Intangible assets 6 3
Other 20 13
--- ---
Total $76 $53
=== ===
8 Debt
Lines of Credit and Short-Term Borrowings
At year-end 1997, the company had available unused bank lines of credit and
revolving credit facilities of $714 million. Of this amount, $340 million and
$265 million can be used to support commercial paper borrowing arrangements of
Kerr-McGee Credit Corporation and Kerr-McGee Oil (U.K.) PLC, respectively.
The company has arrangements to maintain compensating balances with certain
banks that provide credit. At year-end 1997, the aggregate amount of such
compensating balances was immaterial, and the company was not legally restricted
from withdrawing all or a portion of such balances at any time during the year.
Short-term borrowings at year-end 1997 consisted of a note payable of $25
million (5.98% interest rate). Outstanding at year-end 1996 were notes payable
totaling $15 million (5.97% average interest rate) and commercial paper totaling
$22 million (5.84% average interest rate).
Long-Term Debt
The company's policy is to classify certain borrowings under revolving
credit facilities and commercial paper as long-term debt since the company has
the ability under certain revolving credit agreements and the intent to maintain
these obligations for longer than one year. At year-end 1997 and 1996, debt
totaling $37 million and $400 million, respectively, was classified as long-term
consistent with this policy.
Long-term debt consisted of the following at year-end 1997 and 1996:
<TABLE>
<CAPTION>
(Millions of dollars) 1997 1996
<S> <C> <C>
Debentures -
7.125% Debentures due October 15, 2027 (7.01% effective rate) $150 $ --
7% Debentures due November 1, 2011, net of unamortized debt discount of
$108 million in 1997 and $111 million in 1996 (14.25% effective rate) 142 139
8-1/2% Sinking fund debentures due June 1, 2006 22 34
Commercial paper -- 266
Guaranteed Debt of Employee Stock Ownership Plan -
9.61% Series B notes due in installments through January 2, 2005 51 51
Notes payable -
6.625% Notes due October 15, 2007 (6.54% effective rate) 150 --
Variable interest rate revolving credit agreements with banks due
March 6, 2000 (6.04% average rate at December 31, 1997) 37 114
Other 2 22
---- ----
554 626
Long-term debt due within one year (2) --
---- ----
Total $552 $626
==== ====
</TABLE>
Maturities of long-term debt due after December 31, 1997, are $2 million in
1998, $8 million in 1999, $47 million in 2000, $12 million in 2001, $10 million
in 2002 and $475 million thereafter.
At year-end 1997, the company guaranteed no debt or other liabilities of its
unconsolidated equity affiliates. However, at year-end 1996, the company
guaranteed its ratable portion of the debt of unconsolidated equity affiliates
totaling $7 million. These borrowings, which are not included in the preceding
table, were paid in full by the unconsolidated equity affiliates during 1997,
and the company was released as the guarantor.
Additional information regarding the major changes in debt during the
periods and unused commitments for financing is included in the Financial
Condition discussion in Management's Discussion and Analysis.
9 Other Financial Information
Condensed financial information relating to the company's previously
unconsolidated, wholly owned finance subsidiary is summarized below:
(Millions of dollars) 1997 1996 1995
Results of operations -
Interest income $17 $25 $25
Net income 4 6 5
1997 1996
Financial position -
Assets $116 $367
Liabilities (3) (258)
---- ----
Stockholder's equity $113 $109
==== ====
10 Contingencies
West Chicago
In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation (KMCC),
closed the facility located in West Chicago, Illinois, that processed thorium
ores. Operations resulted in some low-level radioactive contamination at the
site, and in 1979, KMCC filed a plan with the Nuclear Regulatory Commission
(NRC) to decommission the facility. The NRC transferred jurisdiction of this
site to the State of Illinois (the State) in 1990. The following discusses the
current status of various matters associated with the West Chicago site.
Closed Facility - In 1994, KMCC, the City of West Chicago (the City) and the
State reached agreement on Phase I of the decommissioning plan for the closed
West Chicago facility, and KMCC began shipping material from the site to a
licensed permanent disposal facility.
In February 1997, KMCC executed an agreement with the City as to the terms
and conditions for completing the final phase of decommissioning work, the bulk
of which is expected to be completed about four to six years after receiving the
necessary license amendment. The State has indicated approval of this agreement,
and KMCC expects the State to issue a license amendment that will enable KMCC to
complete the final phase of decommissioning work.
In 1992, the State enacted legislation imposing an annual storage fee equal
to $2 per cubic foot of byproduct material located at the closed facility. The
storage fee cannot exceed $26 million per year, and any storage fee payments
must be reimbursed to KMCC as decommissioning costs are incurred. KMCC has been
fully reimbursed for all storage fees paid pursuant to this legislation. In June
1997, the legislation was amended to provide that future storage fee obligations
are to be offset against decommissioning costs incurred but not yet reimbursed.
Offsite Areas - The U.S. Environmental Protection Agency (EPA) has listed
four areas in the vicinity of the West Chicago facility on the National Priority
List that the EPA promulgates under authority of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and has designated KMCC as a
potentially responsible party in these four areas. The EPA issued unilateral
administrative orders for two of these areas (referred to as the residential
area and Reed-Keppler Park), which require KMCC to conduct removal actions to
excavate contaminated soils and ship the soils elsewhere for disposal. Without
waiving any of its rights or defenses, KMCC has begun the cleanup of these two
sites.
Judicial Proceedings - In December 1996, a lawsuit was filed against the
company and its subsidiary, KMCC, in Illinois state court on behalf of a
purported class of present and former West Chicago residents. The lawsuit seeks
damages for alleged diminution in property values and the establishment of a
medical monitoring fund to benefit those allegedly exposed to thorium wastes
originating from the former facility. The case was removed to federal court and
is being vigorously defended.
Government Reimbursement - Pursuant to Title X of the Energy Policy Act of
1992 (Title X), the U.S. Department of Energy is obligated to reimburse KMCC for
certain decommissioning and cleanup costs in recognition of the fact that much
of the facility's production was dedicated to United States government
contracts. Title X was amended in 1996 to increase the amount authorized to $65
million plus inflation adjustments. As of December 31, 1997, KMCC has been
reimbursed approximately $40 million under Title X.
Other Matters
The plants and facilities of the company and its subsidiaries are subject to
various environmental laws and regulations. The company or its subsidiaries have
been notified that they may be responsible in varying degrees for a portion of
the costs to clean up certain waste disposal sites and former plant sites. As of
December 31, 1997, the company's estimate for the cost to investigate and/or
remediate all presently identified sites of former or current operations, based
on currently known facts and circumstances, totaled $243 million, which includes
$163 million for the former West Chicago facility and $14 million for the
residential area and Reed-Keppler Park. Reserves have been established based on
these estimates. Actual costs will be reduced by the amounts recoverable under
Title X and other government programs. Expenditures from inception through
December 31, 1997, totaled $435 million for currently known sites.
In addition to the environmental issues previously discussed, the company or
its subsidiaries are also a party to a number of other legal proceedings pending
in various courts or agencies in which the company or a subsidiary appears as
plaintiff or defendant. The ultimate costs to decommission presently known sites
are difficult to estimate because of the numerous contingencies, which include
continually changing laws and regulations, the nature of the company's
businesses and pending legal proceedings. Actual costs could differ from those
currently estimated as information becomes available for sites that are not now
included in the reserve, if contamination is not as expected, or field
conditions or other variables differ significantly from those that are now
assumed. Therefore, it is not possible to reliably estimate the amount or timing
of all future expenditures relating to environmental and other contingencies.
The company provides for costs related to contingencies when a loss is probable
and the amount or range of amounts is reasonably estimable. Management believes,
after consultation with general counsel, that adequate reserves have been
provided for all known contingencies. However, the ultimate cost will depend on
the outcomes of the previously-noted uncertainties. Therefore, it is possible
that additional reserves could be required in the future.
11 Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Assets to Be Held and Used
In 1996 and 1995, certain oil and gas fields in the United States and Canada
and certain coal and other assets were deemed to be impaired because the assets
were not expected to recover their entire carrying value through future cash
flows. The impairment loss is included in the Consolidated Statement of Income
as Asset impairment and was determined as the difference between the carrying
value and the estimated fair value. The fair value for these impaired assets was
generally determined based on the estimated present value of future cash flows.
No impairments were recognized during 1997. The impairment loss by segment for
1996 and 1995 was as follows.
(Millions of dollars) 1996 1995
Exploration and production $22 $99
Coal -- 23
Other -- 1
--- ----
Total $22 $123
=== ====
Assets to Be Disposed Of
The company intends to withdraw from the electrolytic chemical business by
mid-1998 (see Management's Discussion and Analysis). The sale of the ammonium
perchlorate operations is pending, and a letter of intent to negotiate the sale
of substantially all the remaining electrolytic operations has been signed. The
carrying value of these assets was approximately $126 million at year-end 1997,
which does not exceed fair value. The gain on the sale is expected to be
immaterial.
During 1997 the company's exploration and production operating unit
completed the program to divest a number of crude oil and natural gas producing
properties considered to be nonstrategic. The majority of these properties were
located onshore in the United States; however, certain of these properties were
located in the Gulf of Mexico, Canada and the North Sea. Net gains recognized on
the sales of properties included in the divestiture program totaled $6 million
in 1997 and $13 million in 1996. The divestiture program properties did not
constitute a material portion of the company's year-end 1996 oil and gas
reserves or oil and gas production or cash flows from operations for 1997 or
1996. At year-end 1995, these properties comprised approximately 10% of the
company's oil and gas reserves, 10% of oil and gas production volumes and 5% of
the company's 1995 cash flows from operations.
As a result of the divestiture program, these nonstrategic oil and gas
properties were reduced in 1995 to their estimated fair value less the cost to
sell if the carrying value of the property exceeded such fair value net of the
estimated cost of selling the property. The carrying value of the divestiture
program properties was $172 million prior to the recognition of the impairment
loss on the properties for which a loss was indicated. The impairment loss
totaled $104 million and has been included in the Consolidated Statement of
Income as Asset impairment. There were no subsequent revisions to the estimated
fair values of these properties.
Certain chemical facilities were closed during 1996. A $3 million
impairment loss was recognized in 1996, which reduced the carrying value of the
assets to nil.
Also held for sale at December 31, 1995, were the net long-term assets
totaling $5 million of a wholly owned coal mining operation in West Virginia.
This sale was completed in February 1996. The gain on the sale was immaterial.
Following are the sales and pretax income (loss) for assets to be disposed
of at December 31, 1997, 1996 and 1995, as included in the Consolidated
Statement of Income in each of the last three years. Any impairment loss is
included in the pretax amounts.
(Millions of dollars) 1997 1996 1995
Sales -
Exploration and production $ -- $42 $ 64
Chemicals 166 160 158
Coal -- -- 18
---- ---- -----
Total $166 $202 $ 240
==== ==== =====
Income (Loss) -
Exploration and production $ -- $ 9 $(108)
Chemicals 22 17 23
Coal -- -- (7)
---- ---- -----
Total $ 22 $ 26 $ (92)
==== ==== =====
In January 1998, the company announced that it would exit the coal business
(see Management's Discussion and Analysis). The timing and method of disposal
have not yet been determined; therefore, the coal segment has not been presented
as a discontinued operation nor are sales and pretax income included above. See
Note 24, "Reporting by Business Segments," for coal financial information.
12 Income Taxes
The taxation of a company that has operations in several countries involves
many complex variables, such as differing tax structures from country to country
and the effect on U.S. taxation of international earnings. These complexities do
not permit meaningful comparisons between the domestic and international
components of income before income taxes and the provision for income taxes, and
disclosures of these components do not provide reliable indicators of
relationships in future periods. Income (loss) from continuing operations before
income taxes is composed of the following:
(Millions of dollars) 1997 1996 1995
Domestic $177 $216 $(125)
International 100 107 56
---- ---- -----
Total $277 $323 $ (69)
==== ==== =====
Effective April 1, 1997, the corporate tax rate in the United Kingdom
decreased from 33% to 31%. Effective January 1, 1995, the income tax rate in
Australia increased from 33% to 36%. The deferred income tax liability and asset
balances were adjusted to reflect these revised rates, which decreased the 1997
and 1995 international deferred provision for income taxes by $8 and $2 million,
respectively. The 1997, 1996 and 1995 provision (benefit) for income taxes on
income from continuing operations is summarized below:
(Millions of dollars) 1997 1996 1995
U.S. Federal -
Current $15 $ 37 $ (4)
Deferred 35 25 (63)
--- ---- ----
50 62 (67)
--- ---- ----
International -
Current 32 5 9
Deferred (1) 32 9
--- ---- ----
31 37 18
--- ---- ----
State 2 4 4
--- ---- ----
Total $83 $103 $(45)
=== ==== ====
At December 31, 1997, the net deferred tax asset includes the benefit for
$80 million in net operating loss carryforwards that have no expiration dates.
At December 31, 1997, the company had additional foreign net operating loss
carryforwards totaling $12 million that expire in 2001. These loss carryforwards
offset a portion of the foreign net deferred tax liability. Realization of net
operating loss carryforwards is dependent on generating sufficient taxable
income. Although realization is not assured, the company believes it is more
likely than not that all of the net deferred tax asset will be realized.
The net deferred tax asset, which is classified as Investments - Other
assets in the Consolidated Balance Sheet, represents the net deferred taxes in
certain foreign jurisdictions. Deferred tax liabilities and assets at December
31, 1997 and 1996, are composed of the following:
(Millions of dollars) 1997 1996
Net deferred tax liability -
Accelerated depreciation $240 $259
Exploration and development 72 65
Undistributed earnings of foreign
subsidiaries 28 23
Postretirement benefits (47) (46)
Dismantlement, reclamation, remediation
and other reserves (69) (113)
Foreign operating loss carryforward (4) (10)
Other (61) (47)
---- ----
159 131
---- ----
Net deferred tax asset -
Accelerated depreciation 13 16
Foreign operating loss carryforward (29) (36)
Other (6) (3)
---- ----
(22) (23)
---- ----
Total $137 $108
==== ====
In the following table, the U.S. Federal income tax rate is reconciled to
the company's effective tax rates for income from continuing operations as
reflected in the Consolidated Statement of Income.
1997 1996 1995
U.S. statutory rate 35.0% 35.0% (35.0)%
Increases (decreases) resulting from -
Statutory depletion in excess
of cost depletion (1.5) (2.6) (10.4)
Taxation of foreign operations 2.1 .9 (2.0)
State income taxes 1.2 .9 (2.2)
Adjustment of prior years' accruals (1.6) .2 (2.0)
Federal income tax credits -- (.2) (4.1)
Dividends paid on Employee
Stock Ownership Plan (.6) (.5) (2.0)
Foreign equity income -- -- (2.6)
Contribution of appreciated
equity securities (.4) (1.4) --
Adjustment of deferred tax balances
due to tax rate changes (2.9) -- (3.1)
Other - net (1.3) (.4) (1.6)
---- ---- -----
Total 30.0% 31.9% (65.0)%
==== ==== =====
The Internal Revenue Service has examined the company's Federal income tax
returns for all years through 1994, and the years have been closed through 1992,
except for a refund claim pending for the years 1984-1992. The company believes
that it has made adequate provision for income taxes that may become payable
with respect to open tax years.
13 Other Deferred Credits and Reserves
Other deferred credits and reserves consist of the following at year-end
1997 and 1996:
(Millions of dollars) 1997 1996
Reserves for site dismantlement,
reclamation and remediation $251 $345
Postretirement benefit obligations 120 117
Other 51 53
---- ----
Total $422 $515
==== ====
The company provided for environmental reclamation and remediation of former
plant sites, net of reimbursements received, during each of the years 1997, 1996
and 1995 as follows:
(Millions of dollars) 1997 1996 1995
Provision, net of reimbursements $18 $43 $54
Reimbursements received 12 10 11
The reimbursements, which pertain to the former facility in West Chicago,
Illinois, were received pursuant to the Energy Policy Act of 1992 (see Note 10).
An additional $49 million was provided in 1995 for refining and
marketing-related sites and included in the discontinued operations (see Note
21).
14 Stockholders' Equity
Changes in common stock, capital in excess of par value and treasury stock
for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Common Stock Treasury Stock
Capital in
Shares Par Excess of
(Millions of dollars and thousands of shares) Issued Value Par Value Shares Cost
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 53,304 $53 $309 1,610 $ 63
Exercise of stock options and stock appreciation rights 210 1 9 -- --
Stock purchase program -- -- -- 835 48
------ --- ---- ----- ----
Balance December 31, 1995 53,514 54 318 2,445 111
Exercise of stock options and stock appreciation rights 348 -- 16 -- --
Issuance of shares for achievement awards -- -- -- (3) --
Stock purchase program -- -- -- 3,127 195
------ --- ---- ----- ----
Balance December 31, 1996 53,862 54 334 5,569 306
Exercise of stock options and stock appreciation rights 259 -- 12 -- --
Issuance of shares for achievement awards -- -- -- (2) --
Stock purchase program -- -- -- 867 57
------ --- ---- ----- ----
Balance December 31, 1997 54,121 $54 $346 6,434 $363
====== === ==== ===== ====
</TABLE>
The company has 40 million shares of preferred stock without par value
authorized, and none is issued.
During 1995, the Board of Directors authorized management to purchase up to
$300 million of the common stock of the company. The program was completed in
August 1997 with a total of 4,829,000 shares acquired at a cost of $300 million.
In 1996, the company's Board of Directors replaced the existing
stockholder-rights plan, which expired in July 1996, with a new rights plan
dated July 9, 1996. Such rights were distributed as a dividend at the rate of
one right for each share of the company's common stock. Generally, the rights
become exercisable the earlier of 10 days after a public announcement that a
person or group has acquired, or a tender offer has been made for, 15% or more
of the company's then-outstanding stock. If either of these events occur, each
right would entitle the holder (other than the 15% holder) to buy the number of
shares of the company's common stock having a market value two times the
exercise price. The exercise price is $215. Generally, the rights may be
redeemed at $.01 per right until a person or group has acquired 15% or more of
the company's stock. The rights expire in July 2006.
15 Other Income
Other income is as follows during each of the years in the three-year
period ended December 31, 1997:
(Millions of dollars) 1997 1996 1995
Income from unconsolidated affiliates $32 $ 14 $12
Gain on sale of available-for-sale securities 18 23 --
Settlements with insurance carriers 12 67 --
Interest 12 9 15
Gain on sale of assets 10 24 2
Other 6 (5) --
--- ---- ---
Total $90 $132 $29
=== ==== ===
16 Financial Instruments and Hedging Activities
Investments in Certain Debt and Equity Securities
The company has certain investments that are considered to be available for
sale. These financial instruments are carried in the Consolidated Balance Sheet
at fair value, which is based on quoted market prices. The company held no
securities classified as held to maturity or trading at December 31, 1997 and
1996. At December 31, 1997 and 1996, available-for-sale securities for which
fair value can be estimated were as follows:
<TABLE>
<CAPTION>
1997 1996
Fair Gross Unrealized Fair Gross Unrealized
(Millions of dollars) Value Cost Holding Gains Value Cost Holding Gains
<S> <C> <C> <C> <C> <C> <C>
U.S. government obligations -
Maturing within one year $ 8 $ 8 $-- $26 $26 $--
Maturing between one year and four years 19 19 -- -- -- --
Equity securities -- -- -- 22 3 19
--- --- --- --- --- ---
Total $27 $27 $-- $48 $29 $19
=== === === === === ===
</TABLE>
U.S. government obligations are carried in the Consolidated Balance Sheet
as Current Assets or as Investments - Other assets, depending upon their
maturity. Equity securities are carried as Investments - Other assets.
During 1997 and 1996, the company sold available-for-sale equity securities.
Proceeds from the sales totaled $21 million in 1997 and $29 million in 1996. The
average cost of the securities was used in the determination of the realized
gains, which totaled $18 million in 1997 and $23 million in 1996 before income
taxes. Also during 1997 and 1996, the company donated a portion of its
available-for-sale equity securities to Kerr-McGee Foundation Corporation, a
tax-exempt entity whose purpose is to contribute to not-for-profit
organizations. The fair value of these donated shares totaled $3 million in 1997
and $16 million in 1996, which included appreciation of $3 million and $13
million before income taxes, respectively.
The change in unrealized holding gains, net of income taxes, as shown in
the separate component of stockholders' equity during the three-year period
ended December 31, 1997, is as follows:
(Millions of dollars) 1997 1996 1995
Beginning balance $12 $26 $12
Net unrealized holding gains 2 9 14
Net realized gains (12) (15) --
Net appreciation of donated securities (2) (8) --
--- --- ---
Ending balance $-- $12 $26
=== === ===
Financial Instruments for Other than Trading Purposes
In addition to the investments previously discussed, the company holds or
issues financial instruments for other than trading purposes. At December 31,
1997 and 1996, the carrying amount and estimated fair value of such financial
instruments for which fair value can be determined are as follows:
1997 1996
Carrying Fair Carrying Fair
(Millions of dollars) Amount Value Amount Value
Cash and cash
equivalents $183 $183 $121 $121
Long-term notes
receivable 5 5 17 17
Contracts to sell
foreign currencies -- 8 13 33
Contracts to purchase
foreign currencies -- 102 -- 29
Short-term borrowings 25 25 37 37
Total long-term debt 554 669 626 737
The carrying amount of cash and cash equivalents approximates fair value of
those instruments due to their short maturity. The fair value of notes
receivable is based on discounted cash flows or the fair value of the note's
collateral. The fair value of the company's short-term and long-term debt is
based on the quoted market prices for the same or similar debt issues or on the
current rates offered to the company for debt with the same remaining maturity.
The fair value of foreign currency forward contracts represents the aggregate
replacement cost based on financial institutions' quotes. Hedging Activities
Most of the company's foreign currency contracts are hedges principally for
chemicals' accounts receivable generated from titanium dioxide pigment sales
denominated in foreign currencies ($65 million hedged in 1997 and $68 million in
1996) and the operating costs and capital expenditures of international chemical
operations ($50 million hedged in 1997 and $28 million in 1996). The purpose of
these foreign currency hedging activities is to protect the company from the
risk that the eventual U.S. dollar amounts from sales to foreign customers and
purchases from foreign suppliers could be adversely affected by changes in
foreign currency exchange rates. The company recognized net foreign currency
hedging gains of $4 million in 1997, $3 million in 1996 and $8 million in 1995.
At December 31, 1997, the company had foreign currency contracts maturing
between January 1998 and December 1999 to purchase $137 million Australian and 8
million British pounds sterling for $102 million and $12 million, respectively.
Additionally, at December 31, 1997, the company had contracts to sell for $8
million various foreign currencies, principally European, which mature between
January and April 1998. At December 31, 1996, the company had foreign currency
contracts that matured between January and December 1997 to purchase $36 million
Australian for $25 million. Additionally, at December 31, 1996, the company had
contracts to sell for $34 million various foreign currencies, principally
European, which matured between January and December 1997. This included
contracts totaling $14 million for anticipated pigment sales that were
marked-to-market. Net unrealized losses on foreign currency contracts totaled
$13 million at year-end 1997. Net unrealized gains on foreign currency contracts
totaled $4 million at year-end 1996 and $3 million at year-end 1995.
Although no oil or natural gas futures or option contracts were entered into
during 1997, the company has periodically used these types of contracts to
reduce the effect of the price volatility of crude oil, natural gas and, prior
to the sale of the refining and marketing operations, refined products. The
futures contracts permitted settlement by delivery of commodities.
During 1996, the company sold forward 10 million barrels of crude oil and 37
billion cubic feet of natural gas representing approximately 40% and 36% of its
worldwide crude oil and natural gas production, respectively. Net hedging losses
on crude oil and natural gas recognized in 1996 totaled $37 million. The effect
of the losses was to reduce the company's 1996 average gross margin for crude
oil and natural gas by $1.04 per barrel and $.11 per MCF, respectively. At
year-end 1996, there were no open crude oil or natural gas contracts.
During 1995, the company sold forward 13 million barrels of crude oil and 19
billion cubic feet of natural gas representing approximately 49% and 18% of its
worldwide crude oil and natural gas production, respectively, and 35% of the
refined-product sales of the discontinued refining and marketing operations.
Hedging gains and losses recognized for 1995 were immaterial. At year-end 1995,
open crude oil and natural gas contracts had an aggregate value of $151 million,
and the unrecognized loss on these contracts totaled $14 million.
Contract amounts do not quantify risk or represent assets or liabilities of
the company but are used in the calculation of cash settlements under the
contracts. These financial instruments limit the company's market risks, are
with major financial institutions, expose the company to credit risks and may at
times be concentrated with certain institutions or groups of institutions.
However, the credit worthiness of these institutions is subject to continuing
review, and full performance is anticipated. Additional information regarding
market risk is included in the quantitative and qualitative disclosure in
Management's Discussion and Analysis.
Year-end hedge positions and activities during a particular year are not
necessarily indicative of future activities and results.
17 Taxes, Other than Income Taxes
Taxes, other than income taxes, during the years ended December 31, 1997,
1996 and 1995, are composed of the following:
(Millions of dollars) 1997 1996 1995
Production/severance $19 $25 $22
Payroll 16 15 14
Property 5 10 10
Other 13 16 15
--- --- ---
Total $53 $66 $61
=== === ===
18 Employee Stock Option Plans
The 1987 Long Term Incentive Program (1987 Program) authorized the issuance
of shares of the company's common stock through December 31, 2002, in the form
of stock options, restricted stock or long-term performance awards. The options
may be accompanied by stock appreciation rights. The 1987 Program was amended in
May 1995 to restore the number of shares available to be granted to 1,000,000,
bringing the total number of shares authorized to be granted through the program
to 2,740,000.
The company's employee stock options are fixed-price options granted at the
fair market value of the underlying common stock on the date of the grant.
Generally, one-third of each grant vests and becomes exercisable over a
three-year period immediately following the grant date and expires 10 years
after the grant date.
The 1984 Employee Stock Option Plan authorized the granting of options over
a 10-year period for up to 1,000,000 shares of common stock and accompanying
stock appreciation rights. The 1984 plan was terminated on May 3, 1988. After
that date, no further options could be granted under this plan, although options
and any accompanying stock appreciation rights outstanding at that time could be
exercised prior to their respective expiration dates.
Transactions during the past three years under these plans are summarized
below:
<TABLE>
<CAPTION>
1987 Incentive Program 1984 Stock Option Plan
Weighted-Average Weighted-Average
Exercise Price Exercise Price
Options per Option Options per Option
<S> <C> <C> <C> <C>
Balance outstanding December 31, 1994 1,178,403 $45.11 33,000 $27.58
Options granted 409,000 49.31 -- --
Options exercised (206,821) 43.81 (3,000) 27.06
Options surrendered upon exercise
of stock appreciation rights (6,850) 39.80 (20,000) 27.91
Options forfeited (49,369) 45.87 -- --
--------- -------
Balance outstanding December 31, 1995 1,324,363 46.61 10,000 27.06
Options granted 310,800 63.56 -- --
Options exercised (333,594) 46.40 -- --
Options surrendered upon exercise
of stock appreciation rights (48,634) 43.63 (10,000) 27.06
Options forfeited (6,469) 53.00 -- --
--------- -------
Balance outstanding December 31, 1996 1,246,466 50.98 -- --
Options granted 325,200 68.90 -- --
Options exercised (256,986) 45.93 -- --
Options surrendered upon exercise
of stock appreciation rights (5,000) 32.38 -- --
Options forfeited (6,703) 57.46 -- --
Options expired (400) 54.06 -- --
--------- -------
Balance outstanding December 31, 1997 1,302,577 56.48 -- --
========= =======
Options exercisable -
December 31, 1995 626,759 44.87 10,000 27.06
December 31, 1996 623,461 46.44 -- --
December 31, 1997 750,894 50.87 -- --
</TABLE>
Following is the range of exercise prices and weighted-average remaining
life of all stock options outstanding at December 31, 1997, and the
weighted-average price within each price range of those options outstanding and
those options exercisable at year-end 1997.
<TABLE>
<CAPTION>
Options Outstanding at December 31, 1997 Options Exercisable at December 31, 1997
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Prices Remaining Exercise Price Exercise Price
Options per Option Contractual Life per Option Options per Option
<S> <C> <C> <C> <C> <C> <C>
38,900 $32.38-$39.57 2.7 $38.00 38,900 $38.00
418,518 40.81- 49.25 5.6 45.49 385,183 45.56
230,657 50.56- 54.50 6.9 53.14 170,169 52.77
457,502 61.00- 64.88 8.7 63.96 138,642 63.96
157,000 73.50- 73.50 9.0 73.50 18,000 73.50
------- ------
1,302,577 32.38- 73.50 7.2 56.48 750,894 50.87
========= =======
</TABLE>
FAS No. 123, "Accounting for Stock-Based Compensation," prescribes a
fair-value method of accounting for employee stock options under which
compensation expense is measured based on the estimated fair value of stock
options at the grant date and recognized over the period that the options vest.
The company, however, chooses to account for its stock option plan under the
optional intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees," whereby no compensation expense is recognized for fixed-price stock
options. Compensation cost for stock appreciation rights, which is recognized
under both accounting methods, was immaterial for 1997, 1996 and 1995.
Had compensation expense been determined in accordance with FAS No. 123, the
estimated weighted-average, grant-date fair value would have been $14.37, $13.17
and $14.54 per option for those options granted in 1997, 1996 and 1995,
respectively. Use of the fair-value method of accounting for employee stock
options would result in net income and earnings per share that are not
materially different from the amounts reported in the financial statements. This
may not be representative of compensation expense that might be expected to
result in future years using the fair-value method of accounting for employee
stock options, as the number of options granted in a particular year may not be
indicative of the number of options granted in future years, and the fair-value
method of accounting has not been applied to options granted prior to January 1,
1995.
The fair value of each option granted in 1997, 1996 and 1995 was estimated
as of the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions.
1997 1996 1995
Expected life (years) 5.8 5.8 10.0
Risk-free interest rate 6.3% 6.1% 7.1%
Expected dividend yield 3.1 3.1 3.1
Expected volatility 17.5 17.9 19.4
The number of the company's common shares issued upon exercise of options
after year-end 1997 was not material.
In January 1998, the Board of Directors approved a broad-based stock option
plan (BSOP) that provides for the granting of options to purchase the company's
common stock to all full-time employees, except officers. A total of 1,500,000
shares of common stock is authorized to be issued under the BSOP, and
approximately 465,000 options were granted in January 1998.
The Board of Directors, subject to stockholder ratification, also approved
the 1998 Long Term Incentive Plan (the 1998 Plan) to be effective January 1,
1998. This plan provides for the granting of options, restricted stock and other
awards to key employees. Stock appreciation rights may be associated with the
options. A total of 2,300,000 shares of the company's common stock is authorized
to be issued under the 1998 Plan, and in January 1998, 185,000 options were
granted. These options will be granted under the 1987 Program if the 1998 Plan
is not ratified by the stockholders.
The 1987 Program will terminate upon stockholder ratification of the 1998
Plan. No further options can be granted under the 1987 Program after its
termination, although options and any accompanying stock appreciation rights
outstanding at that time may be exercised prior to their respective expiration
dates.
Options under either the BSOP or the 1998 Plan are granted at prices equal
to the fair market value of the underlying common stock at the time of grant.
Also in January 1998, the Board of Directors approved provisions to amend
and restate the Executive Deferred Compensation Plan (EDCP). The amendment of
the EDCP adds the company's common stock as an investment alternative, allows
stock option gains to be deferred pretax and implements certain administrative
changes. A total of 500,000 shares of common stock is authorized to be issued
through the EDCP and periodically transferred from the company's treasury stock
or purchased in open-market transactions.
Earnings per share for 1997 would have been lower had these plans been in
existence and had shares been transferred to the EDCP prior to year-end 1997 or
if any options granted under the BSOP or the 1998 Plan had been "in the money"
at year-end. The impact on basic and diluted earnings per share would have been
dependent on the number of shares transferred to the EDCP, while diluted
earnings per share would have been further impacted by the number of incremental
shares included in the denominator of the diluted earnings-per-share
computation.
19 Restructuring Charges
Restructuring of the exploration and production operating unit continued
during 1997 with the relocation of the unit to Houston, Texas. This, in
conjunction with the unit's merger of its North American onshore properties into
Devon (see Note 4) and the 1995 reorganization, resulted in approximately 300
employees terminating their employment, most of whom were terminated by year-end
1997.
During the three-year period ended December 31, 1997, the company accrued a
total of $19 million for the cost of special termination benefits for retiring
employees to be paid from retirement plan assets, future compensation,
relocation, lease cancellation and outplacement. The $2 million reserve at
December 31, 1997, primarily represents remaining severance costs, which are
expected to be paid and charged to the reserve during 1998. The accruals,
expenditures and reserve balances are set forth below:
(Millions of dollars) 1997 1996
Beginning balance $10 $ 5
Accruals 2 10
Retirement benefits to be paid from plan assets -- (2)
Payments (10) (3)
--- ---
Ending balance $ 2 $10
=== ===
20 Employee Stock Ownership Plan
In 1989, the company's Board of Directors approved a leveraged Employee
Stock Ownership Plan (ESOP) into which is paid the company's matching
contribution for the employees' contributions to the Kerr-McGee Corporation
Savings Investment Plan (SIP). Most of the company's employees are eligible to
participate in both the ESOP and the SIP. Although the ESOP and the SIP are
separate plans, matching contributions to the ESOP are contingent upon
participants' contributions to the SIP.
In 1989, the ESOP trust borrowed $125 million from a group of lending
institutions and used the proceeds to purchase 2.7 million shares of the
company's treasury stock. The company used the $125 million in proceeds from the
sale of the stock to acquire shares of its common stock in open-market and
privately negotiated transactions. In 1996, a portion of the third-party
borrowings was replaced with a note payable to the company (sponsor financing).
The third-party borrowings are guaranteed by the company and are reflected in
the Consolidated Balance Sheet as Long-Term Debt, while the sponsor financing
does not appear in the company's balance sheet. Deferred compensation,
representing the unallocated ESOP shares discussed in the following paragraph,
is reflected as a reduction of stockholders' equity.
The company stock acquired by the ESOP trust is held in a loan suspense
account. The company's matching contribution and dividends on the shares held by
the ESOP trust are used to repay the loan, and stock is released from the loan
suspense account as the principal and interest are paid. The stock is then
allocated to participants' accounts at market value as the participants'
contributions are made to the SIP. Deferred compensation reflected in the
company's Consolidated Balance Sheet is reduced as shares are allocated to
participants' accounts. Long-term debt is reduced as payments are made on the
third-party financing. Dividends paid on the common stock held in participants'
accounts are also used to repay the loans, and stock with a market value equal
to the amount of dividends is allocated to participants' accounts.
At December 31, 1997 and 1996, the ESOP trust held shares of stock allocated
to participants' accounts and in the loan suspense account as follows:
(Thousands of shares) 1997 1996
Participants' accounts 1,343 1,251
Loan suspense account 1,110 1,290
The shares allocated to participants at December 31, 1997, included
approximately 15,000 shares released in January 1998. The shares allocated to
participants at December 31, 1996, included approximately 14,000 shares released
in January 1997.
All ESOP shares are considered outstanding for earnings-per-share
calculations. Dividends on ESOP shares are charged to retained earnings.
Compensation expense is recognized using the cost method and is reduced for
dividends paid on the unallocated ESOP shares. The company recognized
ESOP-related expense of $10 million, $12 million and $14 million in 1997, 1996
and 1995, respectively. These amounts include interest expense incurred on the
third-party ESOP debt of $5 million, $6 million and $8 million in 1997, 1996 and
1995, respectively. The company contributed $1 million, $9 million and $15
million to the ESOP in 1997, 1996 and 1995, respectively. The cash contributions
are net of $4 million for the dividends paid on the company stock held by the
ESOP trust in each of the years 1997, 1996 and 1995.
21 Discontinued Operations
During 1995, the company disposed of substantially all of its refining and
marketing operations, which had been conducted by wholly owned subsidiaries,
Kerr-McGee Refining Corporation and Cato Oil and Grease Co. The 1995 gain on the
sale was $2 million, net of $1 million for income taxes. The operating results
of the discontinued refining and marketing operations are reported separately in
the Consolidated Statement of Income. Revenues applicable to the discontinued
operations totaled $1.1 billion in 1995. All of the crude oil and
refined-product inventories of the discontinued refining and marketing
operations were valued using the last-in, first-out (LIFO) method until sold
during 1995. LIFO reserves of $12 million were reversed at the time of the sale
of these inventories. The sales of the remaining assets were completed during
1996, and the resulting gains and losses were immaterial.
22 Postretirement Benefits
The company sponsors contributory plans to provide certain health care and
life insurance benefits for retired employees. Substantially all the company's
employees may become eligible for these benefits if they reach retirement age
while working for the company; however, benefits available and costs to
individual employees vary depending on the employee's date of retirement and
date of employment with the company.
At December 31, 1997 and 1996, the actuarial and recorded liabilities for
postretirement benefits, none of which has been funded, are as follows:
<TABLE>
<CAPTION>
1997 1996
(Millions of dollars) Health Life Health Life
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligations -
Retirees $ (77) $(19) $(69) $(18)
Fully eligible active participants (9) (2) (11) (1)
Other active participants (21) (3) (18) (4)
----- ---- ---- ----
Total (107) (24) (98) (23)
Unrecognized net (gain) loss 6 (3) -- (4)
----- ---- ---- ----
Accrued postretirement expense $(101) $(27) $(98) $(27)
===== ==== ==== ====
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the components of net
periodic expense for postretirement benefits were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(Millions of dollars) Health Life Health Life Health Life
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during the period $1 $1 $1 $1 $1 $1
Interest cost on accumulated postretirement benefit obligations 8 1 8 1 8 1
-- -- -- -- -- --
Net postretirement expense $9 $2 $9 $2 $9 $2
== == == == == ==
</TABLE>
The following assumptions were used in estimating the actuarial present
value of the accumulated postretirement benefit obligations and net periodic
postretirement benefit expense:
1997 1996 1995
Future compensation increases 5.0% 5.0% 5.00%
Discount rate 7.0 7.5 7.25
The health care cost trend rate used to determine the year-end 1997
accumulated postretirement benefit obligation was 8% in 1998, gradually
declining to 5% in the year 2009 and thereafter.
A 1% increase in the assumed health care cost trend rate for each future
year would increase the accumulated postretirement benefit obligation by $13
million at December 31, 1997. In addition, the aggregate of the service and
interest cost components of net periodic postretirement expense for 1997 would
increase by $1 million.
23 Retirement Plans
Most of the company's employees are covered under noncontributory retirement
plans of the company and certain of its subsidiaries. The benefits of these
plans are based primarily on years of service and employees' remuneration near
retirement. The company's policy is to fund the minimum amounts as permitted by
the Employee Retirement Income Security Act of 1974 (ERISA).
The funded status of plans with assets in excess of accumulated benefits at
December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1997 1996
<S> <C> <C>
Plan assets at fair value $639 $538
---- ----
Actuarial present value of accumulated benefit obligations -
Vested (354) (322)
Nonvested (16) (13)
---- ----
Total (370) (335)
---- ----
Plan assets in excess of accumulated benefit obligations $269 $203
==== ====
Plan assets at fair value $639 $538
---- ----
Projected benefit obligations -
Actuarial present value of accumulated benefit obligations (370) (335)
Projected salary increases (54) (46)
---- ----
Total (424) (381)
Plan assets in excess of projected benefit obligations 215 157
Unrecognized net asset at January 1, 1987 (13) (17)
Unrecognized prior service costs 11 12
Unrecognized net gain (171) (119)
---- ----
Pension prepayment at end of year $ 42 $ 33
==== ====
</TABLE>
The net periodic pension credit, excluding charges of $2 million in 1996
and $1 million in 1995 related to the restructuring program (see Note 19), for
each of the past three years is summarized as follows:
(Millions of dollars) 1997 1996 1995
Service cost - benefits earned
during the period $ 10 $ 9 $ 8
Interest cost on projected
benefit obligations 28 27 27
Return on plan assets (126) (70) (115)
Net amortization and deferral 79 27 71
---- --- ----
Net pension credit $ (9) $(7) $ (9)
==== === ====
The amount of benefits that can be covered by the funded plans is limited by
ERISA and the Internal Revenue Code. Therefore, the company has unfunded
supplemental plans designed to maintain benefits for all employees at the plan
formula level and to provide senior executives with benefits equal to a
specified percentage of their final average compensation. The projected benefit
obligation for these unfunded plans totaled $14 million and $19 million at
December 31, 1997 and 1996, respectively. To reflect the amount by which the
accumulated benefit obligation exceeded the accrued pension expense for these
plans, an additional liability is recorded in the Consolidated Balance Sheet at
both December 31, 1997 and 1996. Offsetting is an intangible asset (see Note 7).
Although not considered plan assets, a grantor trust was established from which
payments for certain of these supplemental plans are made. The trust had a
balance of $7 million and $12 million at December 31, 1997 and 1996,
respectively. Excluding $6 million in 1997 related to the settlement of a
significant portion of the liabilities of the unfunded supplemental plans, net
periodic pension expense for these plans was $3 million for 1997 and $4 million
for each of the years 1996 and 1995.
The following assumptions were used in estimating the actuarial present
value of the projected benefit obligation and net periodic pension costs:
1997 1996 1995
Future compensation increases 5.0% 5.0% 5.00%
Discount rate 7.0 7.5 7.25
Long-term rate of return on plan assets 9.0 9.0 9.00
24 Reporting by Business Segments
The company is an international energy and chemical company. The principal
areas of oil and gas exploration and production are the Gulf of Mexico, the
United Kingdom sector of the North Sea, China, Southeast Asia, Yemen and, prior
to December 31, 1996, onshore in North America. The company has domestic coal
and chemical operations and interests in chemical operations in Western
Australia and Saudi Arabia.
<TABLE>
<CAPTION>
(Millions of dollars) 1997 1996 1995
<S> <C> <C> <C>
Sales -
Exploration and production(1) $ 628 $ 874 $ 690
Chemicals 760 692 707
Coal 323 365 353
Other -- -- 4
------ ------ ------
Total $1,711 $1,931 $1,754
====== ====== ======
Operating profit (loss)(2) -
Exploration and production $ 175 $ 204 $ (97)
Chemicals 81 85 122
Coal 44 75 43
Other 4 7 (4)
------ ------ ------
Total $ 304 $ 371 $ 64
====== ====== ======
Net operating profit (loss)(2) -
Exploration and production $ 107 $ 136 $ (56)
Chemicals 52 53 81
Coal 33 57 35
Other 2 5 (2)
- - --
Total 194 251 58
Net interest expense (24) (30) (29)
Net nonoperating income (expense)(2) 24 (1) (53)
Loss from discontinued operations, net of income tax benefit -- -- (7)
------ ------ ------
Net income (loss) $ 194 $ 220 $ (31)
====== ====== ======
Sales -
U.S. operations(3) $1,212 $1,391 $1,237
------ ------ ------
International operations(4) -
North Sea - exploration and production 215 289 272
China - exploration and production 56 25 --
Australia - chemicals 185 151 158
Other 43 75 87
-- -- --
499 540 517
------ ------ ------
Total $1,711 $1,931 $1,754
====== ====== ======
Operating profit (loss)(2) -
U.S. operations $ 207 $ 256 $ (5)
------ ------ ------
International operations -
North Sea - exploration and production 80 93 108
China - exploration and production 4 2 (5)
Australia - chemicals 13 9 24
Other -- 11 (58)
------ ------ ------
97 115 69
------ ------ ------
Total $ 304 $ 371 $ 64
====== ====== ======
</TABLE>
(1) Includes primarily crude oil sales to the discontinued refining and
marketing operations of $112 million in 1995.
(2) Includes special items. Refer to Management's Discussion and Analysis.
(3) Includes U.S. crude oil sales to the discontinued refining and marketing
operations of $105 million in 1995.
(4) Includes international crude oil sales to the discontinued refining and
marketing operations of $7 million in 1995.
<TABLE>
<CAPTION>
(Millions of dollars) 1997 1996 1995
<S> <C> <C> <C>
Depreciation, depletion and amortization expense -
Exploration and production $ 186 $ 218 $ 231
Chemicals 55 55 52
Coal 25 30 29
Other 5 4 6
Discontinued operations -- -- 16
------ ------ ------
Total $ 271 $ 307 $ 334
====== ====== ======
Cash capital expenditures -
Exploration and production $ 213 $ 239 $ 371
Chemicals 91 118 69
Coal 27 29 36
Other 10 6 2
Discontinued operations -- -- 6
-
Total 341 392 484
====== ====== ======
Exploration expenses -
Petroleum exploration and production -
Dry hole costs 25 37 34
Amortization of undeveloped leases 8 10 14
Other 30 25 31
-- -- --
Total 63 72 79
Minerals and other 2 3 3
- - -
Total exploration expenses 65 75 82
Less - Amortization of oil and gas and minerals leases
and other noncash expenses (8) (14) (19)
------ ------ ------
57 61 63
------ ------ ------
Total cash capital expenditures and cash exploration expenses $ 398 $ 453 $ 547
====== ====== ======
Identifiable assets -
Exploration and production $1,681 $1,667 $1,748
Chemicals 875 886 802
Coal 270 276 327
Other 38 39 36
-- -- --
Total 2,864 2,868 2,913
Corporate assets 232 256 261
Discontinued operations -- -- 39
------ ------ ------
Total $3,096 $3,124 $3,213
====== ====== ======
Identifiable assets -
U.S. operations $1,654 $1,684 $1,663
------ ------ ------
International operations -
North Sea - exploration and production 699 651 669
China - exploration and production 183 180 149
Australia - chemicals 243 268 260
Other 85 85 172
-- -- ---
1,210 1,184 1,250
------ ------ ------
Total $2,864 $2,868 $2,913
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
(Millions of dollars) 1997 1996 1995
<S> <C> <C> <C>
Net assets -
U.S. operations $ 617 $ 582 $ 623
------ ------ ------
International operations -
North Sea - exploration and production 475 413 409
China - exploration and production 134 109 106
Australia - chemicals 152 211 199
Other 62 52 79
-- -- --
823 785 793
------ ------ ------
Total $1,440 $1,367 $1,416
====== ====== ======
</TABLE>
25 Results of Operations from Crude Oil and Natural Gas Activities
The results of operations from crude oil and natural gas activities for the
three years ended December 31, 1997, consist of the following:
<TABLE>
<CAPTION>
Proportional
Interest
Results of in Equity
Production Other Depreciation Income Tax Operations, Affiliate's
Gross (Lifting) Related Exploration and Depletion Asset Expenses Producing Results of
(Millions of dollars) Revenues(1) Costs Costs(2) Expenses(2) Expenses Impairment (Benefits) Activities Operations(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 -
Domestic $309 $ 50 $25 $25 $105 $ -- $ 39 $ 65 $25
North Sea 190 49 7 13 53 -- 27 41 --
China 56 11 6 16 19 -- -- 4 --
Other international 3 1 6 9 1 -- (4) (10) 3
---- ---- --- --- ---- ---- ---- ---- ---
Total crude oil and
natural gas activities 558 111 44 63 178 -- 62 100 28
Other(4) 70 55 2 -- -- -- 6 7 --
-- ---- ---- --- --- ---- ---- ---- ---- ---
Total $628 $166 $46 $63 $178 $ -- $ 68 $107 $28
==== ==== === === ==== ==== ==== ==== ===
1996 -
Domestic $397 $ 83 $31 $26 $127 $ 22 $ 35 $ 73 --
North Sea 240 57 8 36 57 -- 30 52 --
China 25 8 5 2 8 -- 1 1 --
Other international 32 10 6 8 15 -- (2) (5) --
---- ---- --- --- ---- ---- ---- ---- ---
Total crude oil and
natural gas activities 694 158 50 72 207 22 64 121 --
Other(4) 180 159 1 -- 1 -- 4 15 --
-- ---- ---- --- --- ---- ---- ---- ---- ---
Total $874 $317 $51 $72 $208 $ 22 $ 68 $136 --
==== ==== === === ==== ==== ==== ==== ===
1995 -
Domestic $294 $92 $17 $57 $128 $144 $(58) $(86) --
North Sea 242 57 8 15 66 -- 32 64 --
Other international 40 11 12 7 20 53 (20) (43) --
---- ---- --- --- ---- ---- ---- ---- ---
Total crude oil and
natural gas activities 576 160 37 79 214 197 (46) (65) --
Other(4) 114 88 3 -- 3 6 5 9 --
-- ---- ---- --- --- ---- ---- ---- ---- ---
Total $690 $248 $40 $79 $217 $203 $(41) $(56) --
==== ==== === === ==== ==== ==== ==== ===
</TABLE>
(1) Gross revenues for1995 include sales to affiliated entities totaling $112
million. Of this amount, $97 million and $7 million were applicable to
Domestic and North Sea gross revenues, respectively, and $8 million was from
other activities.
(2) Includes restructuring charges of $2 million, $10 million and $7 million in
1997, 1996 and 1995, respectively. These charges are classified as Other
Related Costs, with the exception of $1 million classified as Exploration
Expenses in 1995 (see Note 19).
(3) The equity affiliate follows the "full cost" method of accountingfor oil and
gas exploration and production activities.
(4) Includes gas marketing, gas processing plants, pipelines and other items
that do not fit the definition of crude oil and natural gas activities but
have been included above to reconcile to the segment presentations.
The table below presents the company's average per-unit sales price of
proprietary crude oil and natural gas and production costs per barrel of oil
equivalent for each of the past three years. Natural gas production has been
converted to a barrel of oil equivalent based on approximate relative heating
value (6 MCF equals 1 barrel).
1997 1996 1995
Average sales price -
Crude oil (per barrel)
Domestic $18.53 $19.36 $15.69
North Sea 18.77 19.08 16.31
China 17.71 19.53 --
Other international 18.59 17.69 15.21
Average 18.51 19.16 15.99
Natural gas (per MCF)
Domestic 2.57 2.16 1.56
North Sea 2.52 2.64 2.66
Other international -- 1.14 .85
Average 2.56 2.12 1.52
Production costs -
(Per barrel of oil equivalent)
Domestic 2.75 3.32 3.78
North Sea 4.70 4.33 3.91
China 3.50 5.92 --
Other international 4.55 3.41 2.39
Average 3.48 3.72 3.68
26 Capitalized Costs of Crude Oil and Natural Gas Activities
Capitalized costs of crude oil and natural gas activities and the related
reserves for depreciation, depletion and amortization at the end of 1997 and
1996 are set forth in the table below. Not included in the amounts shown are
$221 million and $209 million that represent the company's proportional interest
in an equity affiliate's net capitalized costs at December 31, 1997 and 1996,
respectively (see Note 4). The equity affiliate follows the "full cost" method
of accounting for oil and gas exploration and production activities.
(Millions of dollars) 1997 1996
Capitalized costs -
Proved properties $2,709 $3,054
Unproved properties 134 104
Other 45 34
------ -----
2,888 3,192
====== =====
Reserves for depreciation, depletion and amortization -
Proved properties 1,623 1,953
Unproved properties 30 29
Other 24 23
------ ------
1,677 2,005
------ ------
Net capitalized costs $1,211 $1,187
====== ======
27 Standardized Measure of and Reconciliation of Changes in Discounted Future
Net Cash Flows (Unaudited)
The standardized measure of future net cash flows presented in the following
table was computed using year-end prices and costs and a 10% discount factor.
The future income tax expense was computed by applying the appropriate year-end
statutory rates, with consideration of future tax rates already legislated, to
the future pretax net cash flows less the tax basis of the properties involved.
However, the company cautions that actual future net cash flows may vary
considerably from these estimates. Although the company's estimates of total
reserves, development costs and production rates were based upon the best
information available, the development and production of the oil and gas
reserves may not occur in the periods assumed. Actual prices realized and costs
incurred may vary significantly from those used. Therefore, such estimated
future net cash flow computations should not be considered to represent the
company's estimate of the expected revenues or the current value of existing
proved reserves.
<TABLE>
<CAPTION>
Standardized Proportional
Future Measure of Interest in Equity
Future Development Future 10% Discounted Affiliate's
Cash and Production Income Future Net Annual Future Net Standardized
(Millions of dollars) Inflows Costs Taxes Cash Flows Discount Cash Flows(1) Measure
<S> <C> <C> <C> <C> <C> <C> <C>
1997 -
Domestic $1,407 $ 403 $ 290 $ 714 $242 $ 472 $205
North Sea 1,807 813 266 728 266 462 --
China 401 171 42 188 45 143 --
Other international 304 153 55 96 42 54 19
------ ------ ------ ------ ---- ------ ----
Total $3,919 $1,540 $ 653 $1,726 $595 $1,131 $224
====== ====== ====== ====== ==== ====== ====
1996 -
Domestic $2,217 $435 $ 552 $1,230 $411 $819 $336
North Sea 2,610 841 638 1,131 382 749 --
China 658 248 95 315 91 224 --
Other international 246 147 38 61 26 35 28
------ ------ ------ ------ ---- ------ ----
Total $5,731 $1,671 $1,323 $2,737 $910 $1,827 $364
====== ====== ====== ====== ==== ====== ====
1995 -
Domestic $2,320 $910 $ 350 $1,060 $339 $721 $ --
North Sea 1,494 418 328 748 254 494 --
China 551 179 96 276 81 195 --
Other international 297 94 62 141 54 87 --
------ ------ ------ ------ ---- ------ ----
Total $4,662 $1,601 $ 836 $2,225 $728 $1,497 $ --
====== ====== ====== ====== ==== ====== ====
</TABLE>
(1) Includes $(8) million in 1996 and $51 million in 1995 from properties held
for sale (see Note 11).
The changes in the standardized measure of future net cash flows are
presented below for each of the past three years:
<TABLE>
<CAPTION>
(Millions of dollars) 1997 1996 1995
<S> <C> <C> <C>
Net change in sales, transfer prices and production costs $(1,121) $ 847 $ 451
Changes in estimated future development costs (64) 45 (165)
Sales and transfers less production costs (446) (516) (402)
Purchases of reserves in place -- 1 62
Changes due to extensions, discoveries, etc. 108 474 58
Changes due to revisions in quantity estimates 37 116 17
Changes due to sales of reserves in place (8) (139) (86)
Changes due to reserves merged into equity affiliate -- (511) --
Current period development costs 152 155 243
Accretion of discount 261 199 167
Changes in income taxes 384 (289) (124)
Timing and other 1 (52) (19)
------ ------ ------
Net change (696) 330 202
Total at beginning of year 1,827 1,497 1,295
------ ------ ------
Total at end of year $1,131 $1,827 $1,497
====== ====== ======
</TABLE>
28 Crude Oil, Condensate and Natural Gas Net Reserves (Unaudited)
The estimates of proved reserves have been prepared by the company's
geologists and engineers. Such estimates include reserves on certain properties
that are partially undeveloped and reserves that may be obtained in the future
by improved recovery operations now in operation or for which successful testing
has been demonstrated. The company has no proved reserves attributable to
long-term supply agreements with governments or consolidated subsidiaries in
which there are significant minority interests. At December 31, 1996, the
company merged its North American onshore properties into an equity affiliate
(see Note 4).
The following table summarizes the changes in the estimated quantities of
the company's crude oil and condensate and natural gas reserves for the three
years ended December 31, 1997.
<TABLE>
<CAPTION>
Crude Oil and Condensate Natural Gas
(Millions of barrels) (Billions of cubic feet)
Other Other
North Interna- North Interna-
Domestic Sea China tional Total Domestic Sea tional Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves -
Balance December 31, 1994 77 75 26 13 191 568 199 82 849
Revisions of previous estimates 2 1 4 1 8 (6) -- 3 (3)
Purchases of reserves in place 1 -- -- -- 1 45 -- -- 45
Sales of reserves in place (5) -- -- -- (5) (31) -- (1) (32)
Extensions, discoveries and
other additions 1 -- -- -- 1 25 -- 1 26
Production (10) (14) -- (2) (26) (82) (8) (16) (106)
--- --- -- -- --- --- -- --- ----
Balance December 31, 1995(1) 66 62 30 12 170 519 191 69 779
Revisions of previous estimates 12 (1) -- (1) 10 (1) (10) (1) (12)
Purchases of reserves in place -- -- -- -- -- 1 -- -- 1
Sales of reserves in place (10) -- -- (1) (11) (28) -- (18) (46)
Reserves merged into
equity affiliate (16) -- -- (9) (25) (122) -- (41) (163)
Extensions, discoveries and
other additions 3 39 -- 7 49 27 2 39 68
Production (11) (11) (2) (1) (25) (84) (11) (9) (104)
--- --- -- -- --- --- --- -- ----
Balance December 31, 1996(1) 44 89 28 7 168 312 172 39 523
Revisions of previous estimates 5 1 -- 1 7 (1) 29 3 31
Sales of reserves in place -- (1) -- -- (1) (27) -- -- (27)
Extensions, discoveries and
other additions 7 -- -- 4 11 37 -- 4 41
Production (9) (8) (3) (1) (21) (56) (12) -- (68)
-- -- -- -- --- --- --- -- ---
Balance December 31, 1997 47 81 25 11 164 265 189 46 500
== == == == === === === == ===
Proportional interest in
equity affiliate's reserves
December 31, 1996 22 -- -- 3 25 172 -- 13 185
December 31, 1997 22 -- -- 3 25 175 -- 15 190
== == == = == === == == ===
Proved developed reserves -
December 31, 1995(1) 45 50 -- 12 107 329 156 65 550
December 31, 1996(1) 26 45 20 -- 91 183 161 -- 344
December 31, 1997 28 33 25 11 97 166 147 -- 313
Proportional interest in
equity affiliate's reserves
December 31, 1996 20 -- -- 3 23 164 -- 13 177
December 31, 1997 20 -- -- 2 22 142 -- 14 156
</TABLE>
(1) Includes 1 million barrels of oil and 3 billion cubic feet of natural gas
held for sale at December 31, 1996, and 12 million barrels of oil and 57
billion cubic feet of natural gas held for sale at December 31, 1995
(see Note 11).
The following presents the company's barrel of oil equivalent proved
developed and undeveloped reserves based on approximate relative heating value
(6 MCF equals 1 barrel).
<TABLE>
<CAPTION>
North Other
(Millions of equivalent barrels) Domestic Sea China International Total
<S> <C> <C> <C> <C> <C>
December 31, 1995(1) 152 94 30 24 300
December 31, 1996(1) 96 118 28 14 256
December 31, 1997 91 112 25 19 247
Proportional interest in
equity affiliate's reserves
December 31, 1996 51 -- -- 5 56
December 31, 1997 52 -- -- 5 57
</TABLE>
(1) Includes 2 million barrels of oil equivalent and 21 million barrels of oil
equivalent held for sale at December 31, 1996 and 1995, respectively
(see Note 11).
29 Costs Incurred in Crude Oil and Natural Gas Activities
Total expenditures, both capitalized and expensed, for crude oil and natural
gas property acquisition, exploration and development activities for the three
years ended December 31, 1997, are reflected in the following table:
<TABLE>
<CAPTION>
Property
Acquisition Exploration Development
(Millions of dollars) Costs(1) Costs(2) Costs(3)
<S> <C> <C> <C>
1997 -
Proprietary costs -
Domestic $29 $ 31 $ 45
North Sea -- 15 86
China -- 26 8
Other international 2 13 13
--- ---- ----
Total $31 $ 85 $152
=== ==== ====
Proportional interest in equity affiliate's costs -
Domestic $ 6 $ 6 $ 25
Other international -- -- 2
--- ---- ----
Total $ 6 $ 6 $ 27
=== ==== ====
1996 -
Proprietary costs -
Domestic $ 6 $ 53 $ 99
North Sea -- 49 21
China 1 6 25
Other international -- 9 10
--- ---- ----
Total $ 7 $117 $155
=== ==== ====
1995 -
Proprietary costs -
Domestic $84 $ 58 $128
North Sea 7 28 23
China 1 2 82
Other international 1 11 10
--- ---- ----
Total $93 $ 99 $243
=== ==== ====
</TABLE>
(1) Includes $29 million applicable to purchases of reserves in place in 1995.
(2) Exploration costs include delay rentals, exploratory dry holes, dry hole and
bottom hole contributions, geological and geophysical costs, costs of
carrying and retaining properties, etc., and capital expenditures, such as
costs of drilling and equipping successful exploratory wells, etc.
(3) Development costs include costs incurred to obtain access to proved reserves
(surveying, clearing ground, building roads, etc.), to drill and equip
development wells and to acquire, construct and install production
facilities and improved recovery systems. Development costs also include
costs of developmental dry holes.
30 Supplementary Mineral Ore Reserve and Price Data (Unaudited)
The following table presents selected statistics related to the company's
mineral operations. Mineral reserves presented in the following table represent
those estimated quantities of proved and probable ore that, under presently
anticipated conditions, may be profitably recovered and processed for the
extraction of their mineral content. Future production of these resources is
dependent on many factors, including market conditions and governmental
regulations.
<TABLE>
<CAPTION>
(Thousands of tons) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Proved and probable (demonstrated) reserves, December 31 -
Coal(1) 506,000 810,400 833,700 864,200 887,900
Heavy minerals 6,500(2) 5,500 5,700 6,000 8,000
Production -
Coal 32,100 31,300 31,100 25,600 23,300
Heavy minerals 234 149 238 268 263
Average market price (per ton) -
Coal $ 8.93 $ 10.48 $ 10.12 $ 10.73 $ 13.78
Heavy minerals 127.20 142.60 104.40 85.43 69.47
</TABLE>
(1) See Management's Discussion and Analysis and Note 11.
(2) Represents 177 million tons of sand containing 3.7% heavy minerals in
Western Australia. The percentages of valuable heavy minerals within the
heavy-mineral concentrate are 4.5% rutile, 61.3% ilmenite, 3.3% leucoxene
and 11.1% zircon.
31 Quarterly Financial Information (Unaudited)
A summary of quarterly consolidated results for 1997 and 1996 is presented
below. Refer to Management's Discussion and Analysis for information about 1997
and 1996 special items.
<TABLE>
<CAPTION>
Diluted
Operating Net Earnings per
(Millions of dollars, except per-share amounts) Sales Profit Income Common Share
<S> <C> <C> <C> <C>
1997 Quarter Ended -
March 31 $ 468 $100 $ 70 $1.45
June 30 412 60 42 .87
September 30 402 65 37 .77
December 31 429 79 45 .95
------ ---- ---- -----
Total $1,711 $304 $194 $4.04
====== ==== ==== =====
1996 Quarter Ended -
March 31 $ 455 $85 $ 48 $ .94
June 30 470 83 51 1.01
September 30 488 89 62 1.27
December 31 518 114 59 1.21
------ ---- ---- -----
Total $1,931 $371 $220 $4.43
====== ==== ==== =====
</TABLE>
The company's common stock is listed for trading on the New York Stock
Exchange and was held by approximately 11,300 stockholders of record at year-end
1997. The ranges of sales prices and dividends declared during the last two
years are as follows:
Market Prices
Dividends
1997 1996 per Share
High Low High Low 1997 1996
Quarter Ended -
March 31 75 61 7/8 65 3/4 59 3/8 $.45 $.41
June 30 67 1/4 55 1/2 67 3/8 56 5/8 .45 .41
September 30 69 15/16 59 13/16 63 3/8 55 3/4 .45 .41
December 31 71 1/2 60 1/8 74 1/8 60 5/8 .45 .41
Six-Year Financial Summary
<TABLE>
<CAPTION>
(Millions of dollars, except per-share amounts) 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Summary of Net Income (Loss)
Sales $1,711 $1,931 $1,754 $1,566 $1,445 $1,379
------ ------ ------ ------ ------ ------
Operating costs and expenses 1,478 1,688 1,791 1,436 1,267 1,397
Interest and debt expense 46 52 61 58 45 64
------ ------ ------ ------ ------ ------
Total costs and expenses 1,524 1,740 1,852 1,494 1,312 1,461
------ ------ ------ ------ ------ ------
187 191 (98) 72 133 (82)
Other income 90 132 29 27 16 47
Provision (benefit) for income taxes 83 103 (45) 30 54 (23)
------ ------ ------ ------ ------ ------
Income (loss) from continuing operations before extraordinary
charge and cumulative effect of accounting changes 194 220 (24) 69 95 (12)
Income (loss) from discontinued operations -- -- (7) 21 (18) (14)
Extraordinary charge -- -- -- -- -- (5)
Cumulative effect of accounting changes -- -- -- -- -- (70)
------ ------ ------ ------ ------ ------
Net income (loss) $ 194 $ 220 $ (31) $ 90 $ 77 $ (101)
====== ====== ====== ====== ====== ======
Common Stock Information, per Share
Diluted earnings (loss) per common share -
Continuing operations $ 4.04 $ 4.43 $ (.47) $ 1.33 $ 1.93 $ (.25)
Discontinued operations -- -- (.13) .41 (.36) (.28)
Extraordinary charge -- -- -- -- -- (.10)
Cumulative effect of accounting changes -- -- -- -- -- (1.45)
------ ------ ------ ------ ------ ------
Total $ 4.04 $ 4.43 $ (.60) $ 1.74 $1.57 $(2.08)
Dividends declared 1.80 1.64 1.55 1.52 1.52 1.52
Stockholders' equity 30.09 28.10 27.52 29.82 29.24 27.93
Market high for the year 75.00 74.13 64.00 51.00 56.00 46.38
Market low for the year 55.50 55.75 44.00 40.00 41.75 35.63
Market price at year-end $63.31 $72.00 $63.50 $46.25 $45.25 $45.00
Shares outstanding at year-end (thousands) 47,686 48,294 51,069 51,694 51,655 48,284
Balance Sheet Information
Working capital $ 166 $ 320 $ 189 $ 52 $ 102 $ 204
Property, plant and equipment - net 1,998 1,948 2,210 2,489 2,446 2,351
Total assets 3,096 3,124 3,213 3,696 3,506 3,482
Long-term debt 552 626 632 673 590 756
Total debt 579 663 735 993 859 930
Stockholders' equity 1,440 1,367 1,416 1,543 1,512 1,350
Cash Flow Information
Net cash provided by operating activities 569 645 369 356 427 275
Cash capital expenditures 341 392 484 410 449 372
Dividends paid 85 83 79 78 73 73
Purchase of treasury stock $ 60 $ 195 $ 45 $ -- $ -- $ --
Ratios and Percentage
Current ratio 1.3 1.7 1.3 1.1 1.1 1.3
Average price/earnings ratio 16.2 14.7 NM 26.1 31.1 NM
Total debt to total capitalization 29% 33% 34% 39% 36% 41%
Employees
Total wages and benefits $ 285 $ 289 $ 314 $ 319 $ 319 $ 326
Number of employees at year-end 3,746 3,851 3,976 5,524 5,812 5,866
</TABLE>
Six-Year Operating Summary
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production
Net proprietary production of crude oil and condensate -
(thousands of barrels per day)
Domestic 24.2 30.6 28.9 25.5 27.8 25.5
North Sea 23.4 30.9 36.7 34.3 16.7 16.0
China 8.8 3.7 -- -- -- --
Other international .5 3.4 4.8 7.5 8.7 9.0
------ ------ ------ ------ ------ ---
Total 56.9 68.6 70.4 67.3 53.2 50.5
Average price of crude oil sold (per barrel) -
Domestic $18.53 $19.36 $15.69 $14.64 $15.76 $ 18.17
North Sea 18.77 19.08 16.31 15.15 15.90 18.71
China 17.71 19.53 -- -- -- --
Other international 18.59 17.69 15.21 13.79 14.80 16.83
Average $18.51 $19.16 $15.99 $14.81 $15.64 $ 18.11
Proprietary natural gas sales (MMCF per day) 184 281 291 271 286 296
Average price of natural gas sold (per MCF) $ 2.56 $ 2.12 $ 1.52 $ 1.76 $ 1.92 $ 1.56
Net exploratory wells drilled -
Productive 2.65 4.91 3.71 9.61 2.22 2.59
Dry 4.42 3.52 9.16 8.47 10.09 5.53
------ ------ ------ ------ ------ ----
Total 7.07 8.43 12.87 18.08 12.31 8.12
Net development wells drilled -
Productive 9.78 21.33 40.86 22.27 43.90 27.26
Dry -- 1.04 2.95 4.63 2.33 3.05
------ ------ ------ ------ ------ ----
Total 9.78 22.37 43.81 26.90 46.23 30.31
Undeveloped net acreage (thousands) -
Domestic 319 265 472 499 523 620
North Sea 391 428 358 363 243 184
China 2,184 925 341 282 -- --
Other international 10,124 927 1,424 1,463 2,087 401
------ ------ ------ ------ ------ ---
Total 13,018 2,545 2,595 2,607 2,853 1,205
Developed net acreage (thousands) -
Domestic 155 209 537 542 539 549
North Sea 24 33 22 21 21 18
China 19 19 19 19 19 --
Other international 104 104 159 165 180 187
------ ------ ------ ------ ------ ---
Total 302 365 737 747 759 754
Estimated proved reserves (millions of equivalent barrels) 247 256 300 332 317 302
Chemicals
Industrial and specialty chemical sales (thousands of tons) 488 446 445 381 331 314
Coal
Sales (millions of tons) 36.2 35.3 34.5 27.5 23.5 20.8
Recoverable reserves (millions of tons) 506 810 834 864 888 906
</TABLE>
EXHIBIT 21
KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
SUBSIDIARIES
State or Country Percent
Name of Subsidiary of Incorporation Owned
Kerr-McGee Chemical Corporation Delaware 100%
Kerr-McGee China Petroleum Ltd. Bahamas 100%
Kerr-McGee Coal Corporation Delaware 100%
Kerr-McGee Oil & Gas Corporation Delaware 100%
Kerr-McGee Oil (U.K.) PLC England 100%
A number of additional subsidiaries are omitted since, considered in the
aggregate as a single subsidiary, they would not constitute a significant
subsidiary as of December 31, 1997.
Effective January 1, 1998, Kerr-McGee Chemical Corporation was merged
into Kerr-McGee Chemical LLC, a wholly owned Delaware limited liability company.
EXHIBIT 23
Consent of Independent Public Accountant
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 20, 1998, included in the company's 1997 Annual Report to
Stockholders and incorporated by reference in this Form 10-K and on page 27 of
this Form 10-K, into the company's previously filed Registration Statements on
Form S-8 File Nos. 33-24274, 33-50949 and 333-28235, and the company's
previously filed Registration Statements on Form S-3 File Nos. 33-5473 and
33-66112.
(ARTHUR ANDERSEN LLP)
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
March 26, 1998
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Paul M. Anderson)
--------------------------------
Paul M. Anderson, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Bennett E. Bidwell)
--------------------------------
Bennett E. Bidwell, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or Officer
or both, as the case may be, of the Company, does hereby appoint Tom J. McDaniel
and John C. Linehan, and each of them severally, his true and lawful attorneys
or attorney-in-fact and agents or agent with power to act with or without the
other and with full power of substitution and resubstitution, to execute for him
and in his name, place and stead, in his capacity as a Director or Officer or
both, as the case may be, of the Company, the Form 10-K and any and all
amendments thereto, as said attorneys or each of them shall deem necessary or
appropriate, together with all instruments necessary or incidental in connection
therewith, and to file the same or cause the same to be filed with the
Commission. Each of said attorneys shall have full power and authority to do and
perform in the name and on behalf of the undersigned, in any and all capacities,
each act whatsoever necessary or desirable to be done in the premises, as fully
and to all intents and purposes as the undersigned might or could do in person,
the undersigned hereby ratifying and approving the acts of said attorney or
attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Luke R. Corbett)
--------------------------------------
Luke R. Corbett, Chairman of the Board,
Chief Executive Officer and Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Martin C. Jischke)
--------------------------------
Martin C. Jischke, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director or Officer
or both, as the case may be, of the Company, does hereby appoint Luke R. Corbett
and John C. Linehan his true and lawful attorney-in-fact and agent with power to
act and with full power of substitution and resubstitution, to execute for him
and in his name, place and stead, in his capacity as a Director or Officer or
both, as the case may be, of the Company, the Form 10-K and any and all
amendments thereto, as said attorneys or each of them shall deem necessary or
appropriate, together with all instruments necessary or incidental in connection
therewith, and to file the same or cause the same to be filed with the
Commission. Said attorneys shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all capacities, each
act whatsoever necessary or desirable to be done in the premises, as fully and
to all intents and purposes as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Tom J. McDaniel)
--------------------------------
Tom J. McDaniel
Vice Chairman of the Board and
Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(William C. Morris)
--------------------------------
William C. Morris, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(John J. Murphy)
--------------------------------
John J. Murphy, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Leroy C. Richie)
--------------------------------
Leroy C. Richie, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in his capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, his true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for him and
in his name, place and stead, in his capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Richard M. Rompala)
--------------------------------
Richard M. Rompala, Director
KERR-McGEE CORPORATION
POWER OF ATTORNEY
WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"),
intends to file with the Securities and Exchange Commission ("Commission") under
the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on
Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment
or amendments thereto as may be necessary or appropriate from time to time,
together with any and all exhibits and other relevant or associated documents.
NOW, THEREFORE, the undersigned in her capacity as a Director of the
Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C.
Linehan, and each of them severally, her true and lawful attorneys or
attorney-in-fact and agents or agent with power to act with or without the other
and with full power of substitution and resubstitution, to execute for her and
in her name, place and stead, in her capacity as a Director of the Company, the
Form 10-K and any and all amendments thereto, as said attorneys or each of them
shall deem necessary or appropriate, together with all instruments necessary or
incidental in connection therewith, and to file the same or cause the same to be
filed with the Commission. Each of said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all capacities, each act whatsoever necessary or desirable to be done in the
premises, as fully and to all intents and purposes as the undersigned might or
could do in person, the undersigned hereby ratifying and approving the acts of
said attorney or attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument
effective March 2, 1998.
(Farah M. Walters)
-------------------------------------
Farah M. Walters, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1997, 1996, and 1995, and the
Consolidated Statement of Income for the years then ended and is qualified in
its entirety by reference to such Form 10-K.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 183 121 87
<SECURITIES> 0 0 0
<RECEIVABLES> 279 380 339
<ALLOWANCES> 5 5 5
<INVENTORY> 172 218 221
<CURRENT-ASSETS> 689 805 764
<PP&E> 4602 4837 5767
<DEPRECIATION> 2604 2889 3557
<TOTAL-ASSETS> 3096 3124 3213
<CURRENT-LIABILITIES> 523 485 575
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 54 54 54
<OTHER-SE> 1386 1313 1362
<TOTAL-LIABILITY-AND-EQUITY> 3096 3124 3213
<SALES> 1711 1931 1754
<TOTAL-REVENUES> 1711 1931 1754
<CGS> 949 1016 960
<TOTAL-COSTS> 1524 1740 1852
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 46 52 61
<INCOME-PRETAX> 277 323 (69)
<INCOME-TAX> 83 103 (45)
<INCOME-CONTINUING> 194 220 (24)
<DISCONTINUED> 0 0 (7)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 194 220 (31)
<EPS-PRIMARY> 4.06 4.45 (.60)
<EPS-DILUTED> 4.04 4.43 (.60)
</TABLE>
