FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-720
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PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0400345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PHILLIPS BUILDING, BARTLESVILLE, OKLAHOMA 74004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918-661-6600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $1.25 Par Value New York, Pacific and
Toronto Stock Exchanges
Preferred Share Purchase Rights
Expiring July 31, 1999 New York Stock Exchange
6.65% Notes Due March 1, 2003 New York Stock Exchange
7.20% Notes Due November 1, 2023 New York Stock Exchange
7.92% Notes Due April 15, 2023 New York Stock Exchange
8.49% Notes Due January 1, 2023 New York Stock Exchange
8.86% Notes Due May 15, 2022 New York Stock Exchange
9% Notes Due 2001 New York Stock Exchange
9.18% Notes Due September 15, 2021 New York Stock Exchange
9 3/8% Notes Due 2011 New York Stock Exchange
9 1/2% Notes Due 1997 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
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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 the 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. [x]
Excluding shares held by affiliates, the registrant had 261,415,352 shares of
Common Stock, $1.25 Par Value, outstanding at January 31, 1996. The aggregate
market value of voting stock held by non-affiliates of the registrant was
$8,561,352,778 as of January 31, 1996. The registrant, solely for the purpose
of this required presentation, has deemed its Board of Directors and the
Compensation and Benefits Trust to be affiliates, and deducted their
stockholdings of 690,471 and 29,200,000 shares, respectively, in determining
the aggregate market value.
Documents incorporated by reference:
Proxy Statement for the Annual Meeting of Stockholders May 13, 1996 (Part III)
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TABLE OF CONTENTS
PART I
Item Page
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1. and 2. Business and Properties........................... 1
Corporate Structure and Current Developments.... 1
Segment and Geographic Information.............. 2
Exploration and Production (E&P).............. 3
Gas Gathering, Processing and Marketing (GPM). 9
Refining, Marketing and Transportation (RM&T). 11
Chemicals..................................... 14
Other......................................... 17
Competition..................................... 18
General......................................... 19
3. Legal Proceedings................................. 20
4. Submission of Matters to a Vote of
Security Holders................................ 20
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Executive Officers of the Registrant.............. 21
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters..................... 23
6. Selected Financial Data........................... 24
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... 25
8. Financial Statements and Supplementary Data....... 57
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 112
PART III
10. Directors and Executive Officers of the
Registrant...................................... 113
11. Executive Compensation............................ 113
12. Security Ownership of Certain Beneficial
Owners and Management........................... 113
13. Certain Relationships and Related Transactions.... 113
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................... 114
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PART I
(Unless otherwise indicated, "the company" and "Phillips" are
used in this report to refer to the business of Phillips
Petroleum Company and its consolidated subsidiaries.)
Items 1 and 2. BUSINESS AND PROPERTIES
CORPORATE STRUCTURE AND CURRENT DEVELOPMENTS
Phillips Petroleum Company was incorporated in the state of
Delaware on June 13, 1917. The company is headquartered where it
was founded, in Bartlesville, Oklahoma. The company primarily
operates in four business segments: 1) Exploration and Production
(E&P)--explores for and produces crude oil, natural gas and
natural gas liquids on a worldwide basis; 2) Gas Gathering,
Processing and Marketing (GPM)--gathers and processes both
natural gas produced by others and natural gas produced from the
company's own reserves, primarily in Oklahoma, Texas and New
Mexico; 3) Refining, Marketing and Transportation (RM&T)--
refines, markets and transports crude oil and petroleum products,
primarily in the United States; 4) Chemicals--fractionates
natural gas liquids and manufactures and markets a broad range of
petroleum-based chemical products on a worldwide basis. Support
staffs provide technical, professional and other services to the
business segments. At December 31, 1995, Phillips employed
17,400 people, 5 percent less than the previous year.
Phillips continued to focus on growth opportunities, operating
excellence and the lowering of its cost structure in 1995.
Current developments include the following:
o Construction began on a new wellhead platform and a new
processing/transportation platform as part of the Ekofisk
redevelopment plan, named Ekofisk II. The Ekofisk II
facilities in the Norwegian sector of the North Sea will
extend the life of the Ekofisk field to the year 2028.
o Start-up of crude oil production from the second platform in
the Xijiang project, offshore China, commenced in the fourth
quarter of 1995. Combined with the first field, which began
production in 1994, the Xijiang project added 15,000 net
barrels of crude oil per day in the fourth quarter to
Phillips' worldwide crude oil production.
o The J-Block production platform was completed and installed
during 1995 in the U.K. North Sea. However, initial
production has been delayed as a result of the company being
notified by the purchaser of the contracted gas volumes that
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they have elected not to take gas during the early period of
the gas sales contract. Alternative methods of producing
the associated liquids are being pursued.
o The company and its co-venturers declared the Mahogany
subsalt prospect in the Gulf of Mexico commercial, and
commenced construction of a production platform in 1995.
Delineation drilling continues at Mahogany, and exploratory
drilling is under way at other subsalt prospects.
o Late in 1995, GPM completed its largest acquisition to date,
acquiring 3,200 miles of gathering pipeline and
21 compressor units used to gather approximately 260 million
cubic feet of natural gas per day.
o As a result of incremental debottleneckings and sustained
operating consistency, the refining capacity of the
company's domestic crude oil refineries was revised upward
from 320,000 to 345,000 barrels of oil per day. Phillips
also began a plan to expand the number of company-operated
retail service stations to more than 500 outlets over the
next three to five years.
o Demand was strong through mid-year and then moderated in the
second half for the company's Chemicals operations.
Expansion and debottlenecking projects are under development
for most product lines, including ethylene, paraxylene,
polyethylene, polypropylene, K-Resin, Ryton and specialty
chemicals.
SEGMENT AND GEOGRAPHIC INFORMATION
Segment information concerning sales and other operating
revenues, earnings, total assets and additional information for
certain operations of the company in Note 16--Segment and
Geographic Information in the Notes to Financial Statements on
pages 89 through 91 is incorporated herein by reference.
Products which contributed more than 10 percent of consolidated
sales and other operating revenues follow:
1995 1994 1993
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Crude Oil 26% 23 24
Petroleum Products 41 43 43
Natural Gas 12 14 14
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E&P
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The company's E&P segment explores for and produces crude oil,
natural gas and natural gas liquids on a worldwide basis and
produces coal in the United States. Producing areas include the
United States (including the Gulf of Mexico), the Norwegian and
U.K. sectors of the North Sea, Canada, Nigeria and offshore
China.
The information listed below appears in the oil and gas
operations disclosures on pages 92 through 109 and is
incorporated herein by reference.
o Proved worldwide crude oil, natural gas, and natural gas
liquids reserves.
o Net production of crude oil, natural gas and natural gas
liquids.
o Average sales prices of crude oil, natural gas and natural
gas liquids.
o Average production costs per barrel-of-oil-equivalent (BOE).
o Developed and undeveloped acreage.
o Net wells completed, wells in progress and productive wells.
In 1995, Phillips' worldwide crude oil production averaged
222,000 barrels per day, compared with 206,000 barrels per day in
1994. In 1995, 79,000 barrels per day of worldwide crude oil
production was from the United States, down from 90,000 barrels
per day in 1994. Lower U.S. production was due to property
dispositions and general production declines, primarily from the
Prudhoe Bay and Point Arguello fields. Foreign crude oil
production was up 23 percent in 1995, due primarily to increased
production from Norway, as a result of the water injection
program and horizontal drilling, and the first full year's
production from offshore China.
Net E&P production satisfied 58 percent of Phillips' 1995 crude
oil requirements, which consisted primarily of refinery crude oil
runs (333,000 barrels per day) and contractual supply obligations
(52,000 barrels per day). The difference between the company's
requirements and production was covered mainly by crude oil
purchases in the United States, from Saudi Arabia, Venezuela,
and, to a lesser extent, from the North Sea, Nigeria and Kuwait.
The ratio of net crude oil production to requirements for 1996 is
estimated at 56 percent, based on production forecasts of
218,000 barrels per day and crude oil requirements of
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388,000 barrels per day. As in 1995, purchases in the United
States, from Saudi Arabia, Venezuela, and, to a lesser degree,
from the North Sea, Nigeria and Kuwait are expected to be the
major sources for covering the difference.
E&P's worldwide production of natural gas liquids averaged
15,000 barrels per day in 1995, up slightly from 1994. U.S.
production accounted for 5,000 barrels per day.
The company's worldwide production of natural gas averaged
1,481 million cubic feet per day in 1995, up 5 percent from 1994.
U.S. natural gas production increased 4 percent in 1995, to
1,078 million cubic feet per day. Higher production from the San
Juan Basin, New Mexico, and new production from the Garden Banks
(Seastar) field, Gulf of Mexico, contributed to the increased
production. Higher production from Norway and Canada led to
6 percent higher foreign natural gas production in 1995.
Phillips' worldwide annual average crude oil sales price increased
11 percent in 1995, to $16.43 per barrel. Both U.S. and foreign
average prices were higher. E&P's annual average worldwide
natural gas sales price was down 8 percent as a result of lower
prices in the United States.
The company's finding and development costs in 1995 were
$3.52 per BOE, with a five-year average of $3.46 per BOE.
At December 31, 1995, Phillips held a combined 24.8 million net
developed and undeveloped acres, a 9 percent increase from
year-end 1994's 22.8 million acres. The increase in net acres is
primarily attributable to new acreage in Gabon and the assumption
of additional interests in Tunisia. The company holds acreage in
18 nations, and produces hydrocarbons in six.
E&P - U.S. OPERATIONS
In the second quarter of 1995, the company and its co-venturers
announced that the Mahogany field in the Gulf of Mexico was
commercial and began development operations. Mahogany is the
first commercial subsalt oil development in the Gulf. The field
is located 80 miles offshore Louisiana on Ship Shoal Blocks
349/359. Phillips has drilled three wells which will be brought
onstream upon completion of the production platform. Platform
construction began in 1995, with installation planned for 1996.
Initial production is expected in late 1996. Further delineation
drilling continues. Phillips holds a 37.5 percent interest in
the Mahogany field.
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Drilling began late in the year on three other subsalt prospects:
the Alexandrite and Agate prospects, located near the Mahogany
prospect, and the Monazite prospect, in the Vermillion area.
Phillips holds a 37.5 percent, 50 percent and a 33 percent
interest in these three prospects, respectively.
Production began in mid-year 1995 from the Seastar natural gas
field, in the Garden Banks area of the Gulf of Mexico, also
offshore Louisiana. A development plan utilizing subsea well
completions is being used in this 100 percent-owned field.
Production averaged 60 million cubic feet of natural gas per day
in December 1995.
Phillips continues to assess the reserves potential, development
costs and commercial potential of the Sunfish prospect, located
in the Cook Inlet of Alaska. Discussions are ongoing with the
co-venturer concerning its future intentions with respect to
Sunfish. The next appraisal well is included in the 1996
exploration capital budget.
Liquefied natural gas (LNG) sales volumes from the company's
Kenai, Alaska, plant were up 4 percent in 1995, compared with
1994. Through refrigeration and pressure techniques, and
utilization of the company's proprietary Cascade technology, the
company liquefies natural gas produced from its North Cook Inlet
field, and transports the LNG to Japan.
To improve production from existing fields, Phillips is making
greater use of enhanced oil recovery methods, such as carbon
dioxide/water injection and horizontal drilling. At the 30-year-
old South Cowden field in West Texas, Phillips plans to use
horizontal carbon dioxide injection wells which are expected to
triple oil production to a peak of 1,300 net barrels of oil per
day.
Net production from the company's three jointly owned coal mines
was 3.2 million tons in 1995, compared with 3.3 million tons in
1994. The mines are located in Louisiana, Texas and Wyoming.
Phillips has a 50 percent interest in each, and is pursuing the
development of a fourth mine.
E&P - NORWEGIAN OPERATIONS
Crude oil production from the company's Norwegian operations has
increased each year since 1987, primarily as a result of water
injection. The water injection program began in 1987 at the
Ekofisk field in the North Sea, and the company currently injects
up to 875,000 barrels of water per day into the field. The water
displaces oil in the reservoir, increasing production.
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Construction is under way on a new wellhead platform and a new
processing/transportation platform as part of Ekofisk II. The
Ekofisk II plan projects significantly reduced operating costs
while allowing for the long-term recovery of Ekofisk field
reserves, through the extension of the production license from
2011 to the year 2028.
The oil and gas pipeline transportation assets and the onshore
processing assets which serve the Ekofisk area fields are held by
various Norwegian and U.K. companies. These companies in turn
are owned by Phillips and the other co-venturers in the Ekofisk
field. Phillips and its co-venturers have agreed to exchange
ownership interests, effective January 1, 1996, in order to
increase the alignment of ownership and usage of the facilities.
As a result, Phillips' ownership in the companies which own the
oil transportation and processing assets will increase, and its
ownership in the companies which own the gas transportation and
processing facilities will decrease. No gain or loss will be
realized from these ownership exchanges.
Under Ekofisk II, the Ekofisk, Eldfisk, Embla and Tor fields will
be connected to the Ekofisk II facilities. Some third-party
fields will also be connected. It is anticipated that the
remaining fields in the Ekofisk area will be shut in.
In early 1996, the company was awarded an operatorship and a
30 percent interest in four blocks in the Norwegian sector of the
North Sea east of the Troll field, and a 20 percent non-operating
interest in a block near the Norne field, currently under
development.
As part of its Norwegian operations in the North Sea, Phillips
acquired interests in two licenses offshore Denmark, where the
company participated in a discovery well. The well, about
60 miles east of Ekofisk, was tested in December and flowed
5,800 gross barrels of oil per day. Phillips has acquired a
12.5 percent interest in the license, pending approval.
Appraisal drilling is scheduled to begin in 1996. Phillips was
also named operator and awarded a 35 percent interest in another
license in the Danish sector of the North Sea. Work began late
in 1995 with the acquisition of a 3-D seismic survey, which will
form the basis for future exploratory drilling.
E&P - U.K. OPERATIONS
In the U.K. sector of the North Sea, the company installed a
production platform at the Judy field and subsea production
facilities at the Joanne field, an adjacent development tied to
the Judy platform. Phillips' interest in Judy and Joanne,
referred to as J-Block, is 36.5 percent.
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Phillips announced in September 1995 that initial production from
J-Block, originally scheduled for early 1996, would be delayed as
a result of the sole purchaser of natural gas from J-Block making
a non-binding election not to take any natural gas volumes under
its take-or-pay contract through September 1997. Since natural
gas and liquids are produced in association with each other,
liquids production is dependent on the amount of natural gas
produced. The company intends, subject to governmental approval,
to install gas injection facilities, which would allow for the
production of liquids while the natural gas produced is
reinjected for later delivery.
In order to maximize the value of its J-Block infrastructure, the
company has also initiated an active drilling program to explore
and appraise several satellite fields.
In 1995, the company developed two smaller fields located near
existing facilities in the U.K. North Sea. The Alison and Dawn
fields have a total net productive capacity of 28 million cubic
feet of natural gas per day. Phillips holds a 42 percent
interest in Alison, which is controlled from the nearby Audrey
field platform. The company holds an 18.9 percent interest in
the Dawn field. Natural gas from this field is produced through
the Hewett platform.
Phillips has an interest in two fields being developed in the
U.K. North Sea--Armada and Britannia. Armada is scheduled to
begin production in late 1997 at a net rate of 2,800 barrels of
liquids per day and 40 million cubic feet of natural gas per day.
Britannia is scheduled to begin production in late 1998, with net
production of 2,700 barrels of liquids per day and 37 million
cubic feet of natural gas per day anticipated. The company has
an 11.5 percent interest in Armada and a 6.78 percent interest in
Britannia.
The Republic of Ireland awarded Phillips a 33.3 percent interest
in seven deep water blocks located in a frontier area west of
Ireland. Drilling is expected to begin in 1997. In addition, a
40 percent interest was awarded in one block east of the Isle of
Man, with a well planned for 1996.
E&P - OTHER OPERATIONS
In the South China Sea approximately 80 miles southeast of Hong
Kong, start-up of crude oil production from the second platform
in the Xijiang project commenced in the fourth quarter of 1995.
The initial Xijiang field began producing in 1994. The crude oil
produced from both Xijiang fields flows through subsea pipelines
to a floating storage and offloading vessel, and is then
transported to market by tankers. Phillips' combined net
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production of crude oil from both fields averaged 15,000 barrels
per day in the fourth quarter of 1995. In the Gulf of Bohai,
along China's northern coast, several exploratory wells are
planned over the next four years.
In Nigeria, the company's non-operating interest in 23 fields
yielded net average crude oil production of 24,000 barrels per
day, about the same as 1994. In Canada, natural gas production
was up 18 percent, to 58 million cubic feet per day, compared
with 1994.
Exploratory drilling in the Timor Sea, located offshore northwest
Australia in the Zone of Cooperation A, led to a major gas
discovery in early 1995. The initial well tested at 90 million
cubic feet of gas per day and 5,250 barrels per day of
condensate. A second successful well, completed in early 1996,
tested at 35 million cubic feet of gas per day and 2,100 barrels
per day of condensate. Phillips is the operator of the license
and holds a 37.5 percent interest. Phillips plans to start
another appraisal well in the second quarter of 1996. Three
successful appraisal wells have also been drilled by the owners
of an adjacent block, with results indicating that this is an
extension of the discovery on the company's block. Phillips is
working closely with the owners of the adjacent block to evaluate
the development potential, including the possible use of an
onshore LNG facility using the company's proprietary technology.
Late in 1995, Phillips began work on its first exploratory well
on a block in the Borj Messouda area of eastern Algeria. This
followed an extensive seismic survey of the region. Phillips
holds a 100 percent interest in the block.
The 1996 exploratory budget includes planned expenditures
totaling $104 million for exploratory drilling in the United
States, Norway, the United Kingdom, Denmark, Algeria, and the
Timor Sea Zone of Cooperation.
E&P - RESERVES
In 1995, on a BOE basis, Phillips replaced 139 percent of the
reserves it produced during the year. The total includes
replacement of 170 percent of foreign production and 114 percent
of U.S. production. U.S. reserves increased slightly, while
foreign reserves increased 6 percent. Total worldwide proved
reserves on a BOE basis were 2.2 billion barrels at year-end.
Crude oil reserves increased 2 percent, natural gas liquids
reserves remained the same, and natural gas reserves increased
5 percent. Natural gas comprises 51 percent of proved worldwide
hydrocarbon reserves and 64 percent of U.S. reserves.
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Ninety-two percent of Phillips' proved reserves base is located
in North America and the North Sea. From 1991 through 1995,
Phillips' five-year-average BOE production replacement equaled
117 percent.
Estimates of proved reserves are based upon reservoir
information, technology and economics available at the time the
estimates are made. Adjustments are made to reflect changes in
economic conditions, results of drilling and production and the
technical reevaluation of reservoirs.
The company has not filed any figures with any other federal
authority or agency with respect to its estimated total proved
reserves at December 31, 1995. No difference exists between the
company's estimated total proved reserves for year-end 1994 and
year-end 1993, which are shown in this filing, and estimates of
these reserves shown in a filing with another federal agency in
1995.
DELIVERY COMMITMENTS
Phillips has a commitment to deliver a fixed and determinable
quantity of liquefied natural gas in the future to two utility
customers in Japan. The company is obligated over the next three
years to supply a total of 140.7 billion cubic feet of liquefied
natural gas. Production from one field in Alaska, with estimated
proved reserves greater than the company's obligation and with an
estimated production level sufficient to meet the required
delivery amount, will be used to fulfill the obligation.
The company sells natural gas in the United States from its
producing operations under a variety of contractual arrangements.
Certain contracts generally commit the company to sell quantities
based on production from specified properties. Other gas sales
contracts specify delivery of fixed and determinable quantities.
The quantities of natural gas the company is obligated to deliver
in the United States in the future, under existing contracts, are
not significant in relation to the quantities available from
production of the company's proved developed U.S. natural gas
reserves.
GPM
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GPM gathers and processes both natural gas purchased from others
and natural gas produced from the company's E&P reserves. The
natural gas liquids--ethane, propane, butanes and pentanes--are
extracted and sold primarily to the company's Chemicals
operations, where they are used as feedstock or sold to outside
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customers. The residue gas is sold to others or used as fuel in
company operations. GPM wholly owns 15 natural gas liquids
extraction plants, and controls or has an interest in 3 more.
The plants are located in Texas (10), Oklahoma (4), and New
Mexico (4). In addition, GPM operates gas gathering systems with
approximately 25,000 miles of gathering pipelines, with some
17,600 active meter connections to producing wells.
GPM completed its largest acquisition to date through the
purchase of the stock of two Enron Corp. subsidiaries in late 1995.
As a result, GPM's raw gas throughput volumes will increase by
approximately 15 percent. The new assets include approximately
3,200 miles of natural gas gathering pipeline and 21 compressor
units used to gather approximately 260 million cubic feet of
natural gas per day through 1,900 meter stations. Other growth
activity included:
o The purchase of gas gathering, treating and processing
facilities in southeastern New Mexico. The purchase
included more than 375 miles of high-pressure pipeline and
added 25 million cubic feet per day of raw gas throughput.
o An early 1996 agreement with ANR Pipeline Company to
purchase gas gathering assets in northwestern Oklahoma. The
purchase would include systems that gather 200 million cubic
feet of gas per day through about 1,000 meter stations,
1,570 miles of gathering lines and 14 compressor stations.
GPM completed three modernization projects in 1995. Older,
piston-engine compression equipment was replaced with
turbine-powered compressors at the Goldsmith plant in Ector
County, Texas, and at the Eunice plant in Lea County, New Mexico.
At the Linam Ranch plant in New Mexico, the modernization effort
included cryogenic technology, a new control system, modern
compression units and equipment that remotely monitors compressor
sites. In addition to the modernization projects, GPM completed
projects to route existing gas to plants with idle capacity and
to convert three plants to booster sites, which will result in
greater plant efficiency and lower operating costs.
GPM contracted with South-Tex Treaters of Odessa, Texas, to treat
up to 200 million cubic feet per day of natural gas production.
This will accommodate increased horizontal drilling by producers
in South Central Texas.
GPM's raw gas throughput averaged 1.6 billion cubic feet per day
in 1995, compared with 1.5 billion cubic feet per day in 1994,
reflecting the acquisitions and expansions discussed above. Raw
gas purchased from Phillips E&P represented approximately
12 percent of GPM's total 1995 throughput.
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GPM continued to be a significant U.S. producer of natural gas
liquids. GPM's natural gas liquids production was as follows:
Thousands of Barrels Daily
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1995 1994 1993
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From Phillips E&P leasehold gas 19 21 22
From gas purchased outside Phillips 125 130 124
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144 151 146
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Residue gas sales were 1,017 million cubic feet per day in 1995,
compared with 949 million cubic feet per day in 1994. Residue
gas sales made directly to end-users, such as utilities or local
gas distribution companies, were approximately 62 percent of
total sales during 1995, compared with 69 percent in 1994.
The company's average sales price for unfractionated natural gas
liquids increased to $10.07 per barrel, up 3 percent from 1994.
During 1995, average residue gas prices decreased to $1.49 per
thousand cubic feet, from $1.79 in 1994.
At year-end 1995, gross raw natural gas supplies available for
processing through GPM-operated plants were estimated at
6.7 trillion cubic feet, versus 5.8 trillion cubic feet at
year-end 1994. At year-end 1995 and 1994, respectively, these
supplies included about 644 million and 655 million barrels of
natural gas liquids, assuming full ethane extraction.
RM&T
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REFINING
The company owns and operates three refineries in the United
States having an aggregate rated crude oil capacity of
345,000 barrels per day and has part-ownership of a refinery in
Teesside, England. The U.S. refineries are located at Borger and
Sweeny, Texas, and Woods Cross, Utah. Incremental
debottlenecking changes and improved reliability resulted in the
revision of the company's total U.S. refining capacity from
320,000 barrels of oil per day to 345,000 barrels of oil per day,
effective January 1, 1995. Even with the higher rated capacity,
the company's refineries ran at 97 percent of capacity in 1995.
The purchase cost of a barrel of crude oil delivered to the U.S.
refineries was 11 percent higher in 1995 than in 1994.
High-sulfur crude accounted for 61 percent of the crude processed
during 1995, down from 67 percent in 1994. Approximately
40 percent of the crude oil processed by Phillips' refineries in
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1995 came from the United States, with the remainder provided
primarily by purchases from the Middle East, Venezuela, the North
Sea and Nigeria.
Output from refining operations--automotive gasoline,
distillates, aviation fuels, chemical feedstocks and other
products--averaged 392,000 barrels per day, up from
365,000 barrels per day in 1994.
Phillips' U.S. refineries continued to implement two major safety
programs in 1995. One is Process Safety Management, a program
aimed at improving safety at major manufacturing facilities. The
other is an employee-driven safety process that is based on peer
review and positive reinforcement.
Phillips continued a modernization plan at the Borger refinery in
1995. The company completed a centralized control room that
features advanced process controls to improve safety, operating
efficiency and product yields. Eventually, the facility will
control all major manufacturing processes at the Borger Complex.
A similar modernization project is under way at the Sweeny
Complex. At the Woods Cross refinery, installation of a fluid
catalytic cracker is under way, with start-up expected in the
first half of 1996. The new unit will provide both economic and
environmental advantages.
Phillips and a subsidiary of Dallas-based Central and South West
Corporation (CSW) are developing and installing a co-generation
plant at the Sweeny Complex that will produce electricity from
natural gas-powered turbines. The waste heat exhausted from the
turbines will produce steam, supplying the Sweeny Complex's needs
and offering cost benefits for both CSW and Phillips. Plant
construction is scheduled to begin in 1996, with completion
expected in 1997. Regulatory approvals for a similar project at
the Borger Complex are being sought.
The company's U.S. refineries continued to focus on cost control
during 1995. As a result, controllable costs were down in 1995,
compared with a year ago, even with higher crude throughput
volumes. The company will continue to focus on the operating
cost structure of its refining operations, with lower
controllable costs and higher profitability set as clear targets
for 1996.
MARKETING
In the United States, the company's wholesale and retail
operations market refined products in 26 states under the
Phillips 66 trademark, with concentration highest in the Midwest.
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Gasoline and other products are distributed in the United States
through approximately 8,000 service stations, bulk distributing
plants, airport dealers and marinas. Of these, Phillips operates
295 retail outlets, 39 of which are on leased property.
Excluding spot sales, RM&T gasoline sales volumes in the United
States were up 3 percent during the year. Total distillates
sales volumes in RM&T increased 5 percent in 1995. In total,
RM&T petroleum product sales in the United States during 1995,
from both Phillips' refinery output and purchased products,
averaged 526,000 barrels per day, compared with 493,000 barrels
per day in 1994.
Phillips plans to add over 200 company-operated retail service
stations over the next three to five years. The new outlets will
feature larger convenience stores with an improved design,
fast-food offerings and a new brand name--"Kicks," which will be
displayed along with the Phillips shield. In early 1996,
Phillips will open the first new retail outlet with a Kicks store
in Albuquerque, New Mexico.
Most of the additional retail units will be built in markets
where Phillips perceives it has a business or supply advantage.
The Borger refinery and a network of pipelines and terminals
provides Phillips with a cost advantage in supplying the
Southwest and Rocky Mountain regions. In addition, the Woods
Cross refinery is positioned to supply the Salt Lake City area.
TRANSPORTATION
Phillips' RM&T and Chemicals segments own or have an interest in
6,800 miles of common carrier crude oil and products pipeline
systems, of which 5,900 miles are company-operated. The largest
segment of the total system consists of 2,000 miles of products
line extending from the Texas Panhandle to East Chicago, Indiana.
The pipeline mileage above excludes the company's 1.36 percent
interest in the 800-mile Trans-Alaska Pipeline System, which is a
part of E&P operations, and other equity interests.
In addition to two leased LNG tankers, the company has a U.S.-
flag tanker of 37,000 tons under charter. Phillips also owns or
leases barges, tank cars, hopper cars, corporate aircraft and
trucks.
During the third quarter of 1995, Phillips received approval from
the Federal Energy Regulatory Commission to abandon gas service
in its Seagas Pipeline. Phillips signed an agreement in 1995 to
form a new partnership, Seaway Pipeline Company, to transport
crude oil through pipelines from the Houston Gulf Coast area to
13
<PAGE>
refineries and other markets in the mid-continent area. Phillips
contributed its Seagas Pipeline to the partnership during fourth
quarter 1995, in exchange for cash and an interest in the
partnership.
Chemicals
- ---------
The Chemicals segment is divided into three vertically integrated
operations:
1) Natural gas liquids (NGL). Processed (fractionated) natural
gas liquids are sold to third parties or used as feedstocks
by the company at its refineries or for producing chemicals.
The company owns and operates processing facilities at the
Sweeny and Borger Complexes and has an equity interest in a
plant in Conway, Kansas.
2) Intermediate petrochemical products. Primary products in
this operation include olefins (ethylene and propylene) and
aromatics (paraxylene and cyclohexane). Major production
facilities are located at the Sweeny Complex and in Puerto
Rico.
3) Plastics products. Products in this operation include
polyethylene, polypropylene, K-Resin, plastic pipe and
Ryton. The major production facility is the Houston
Chemical Complex (HCC), near Houston, Texas. The company
owns an equity interest in a polyethylene plant in Singapore
and a polypropylene plant at HCC. Ryton is produced at the
Borger Complex and plastic pipe is manufactured at five
regionally located U.S. plants.
NGL
The NGL business operated at 88 percent of rated fresh-feed
capacity for the year, compared with 91 percent in 1994 and
87 percent in 1993. Total NGL fresh-feed processing capacity
will increase to approximately 250,000 barrels per day from
227,000 barrels per day, effective January 1, 1996. The increase
in capacity is attributable to the Sweeny Complex, due in part to
debottlenecking during a turnaround late in 1995.
INTERMEDIATE PETROCHEMICALS
Phillips' ethylene and propylene are produced at its Sweeny,
Texas, Complex. In addition to 100 percent-owned ethylene and
propylene facilities, the 50 percent-owned Sweeny Olefins Limited
14
<PAGE>
Partnership (SOLP) is also located there. A significant volume
of ethylene is used within Phillips as a feedstock for
polyethylene. Propylene is used as a feedstock for
polypropylene, a plastic used to manufacture a variety of
products. The Sweeny Complex's total current annual ethylene and
propylene capacities are 3.6 billion and 1.1 billion pounds,
respectively. Phillips' share is 2.9 billion pounds per year and
900 million pounds per year, respectively.
Construction began on two projects to increase ethylene capacity
by 25 percent at the Sweeny Complex. At SOLP, incremental
debottlenecking will increase total capacity to 2 billion pounds
per year. Completion of this project is scheduled for the second
half of 1996. In addition, the company is restarting a
100 percent-owned ethylene unit that has been idle since 1992.
This project, scheduled to be completed in late 1996, will add an
additional 400 million pounds per year of ethylene capacity.
Together, these two projects will increase the total Sweeny
Complex's ethylene capacity to 4.5 billion pounds per year, with
Phillips' share at 3.5 billion pounds.
Paraxylene and cyclohexane are produced at the company's Puerto
Rico Core facility in Guayama, Puerto Rico, and cyclohexane is
also produced at the Sweeny Complex. Paraxylene is a feedstock
for polyester fibers and plastic soft drink bottles, while
cyclohexane is a feedstock for nylon.
The company completed its installation of the Aromax catalytic
reforming technology at Puerto Rico Core in mid-1995. This
technology enables the facility to use a lower volume of a
broader range of lower-cost naphtha feedstocks and achieve higher
yields of higher-value cyclohexane and paraxylene than with
previous technology. Earlier in 1995, the company completed the
first phase of a paraxylene expansion, increasing design capacity
from 525 million pounds per year to 675 million pounds per year.
The company intends to increase capacity further, reaching
880 million pounds per year by the second quarter of 1997.
As part of the company's growth strategy for its specialty
chemicals business, Phillips plans to construct a 100 million-
pound-per-year methyl mercaptan plant at its Borger Complex. If
approved, construction could begin in 1996, with first production
in late 1998. Methyl mercaptan is a sulfur-based chemical used
in the production of methionine, a feed supplement for poultry.
Methyl mercaptan is also a raw ingredient for agricultural
chemicals. The new facility will use hydrogen sulfide produced
at the Borger Complex as feedstock.
15
<PAGE>
PLASTICS
At HCC, capacity to produce an additional 400 million pounds of
polyethylene annually is being added through debottlenecking.
This will increase annual production capacity by 22 percent, from
the current level of 1.8 billion pounds to 2.2 billion pounds by
project completion in late 1997. Production of polyethylene will
not be affected during debottlenecking, as work will occur during
normally scheduled maintenance procedures. Polyethylene is used
as a feedstock to manufacture a wide variety of plastic products,
such as trash bags and plastic milk jugs.
Phillips is increasing its participation in the plastics markets
of Asia through the expansion of its 50 percent-owned Singapore
polyethylene facility. The expansion will more than double the
facility's total annual linear polyethylene capacity to
870 million pounds. Completion of the project is expected in
second quarter 1997.
In late 1995, Phillips and Shanghai Petrochemical Company Limited
formed a joint venture to build and operate a linear polyethylene
plant near Shanghai, China, with an annual capacity of
220 million pounds. Construction will begin in 1996 and take two
years to complete. Phillips will own a 40 percent-equity
interest in the plant. This project marks Phillips' first
downstream investment in China, and will strengthen the company's
position in the polyethylene market in Asia.
In August 1994, Phillips contributed its polypropylene assets to
Phillips Sumika Polypropylene Company (PSPC), a partnership
formed in 1992 between Phillips and Sumika Polymers America
Corporation (Sumika). Sumika is funding the construction of a
new PSPC polypropylene facility at HCC. Construction began
during the fourth quarter of 1994, and is scheduled to be
completed in 1996. The new facility's annual polypropylene
capacity will be approximately 270 million pounds, bringing
PSPC's total annual production capacity to 750 million pounds.
Phillips will ultimately hold a 50 percent interest in PSPC.
K-Resin, a clear plastic used in food and medical packaging, is
produced at HCC. A new copolymer reactor began operation in the
fall of 1995, enhancing performance and increasing annual
capacity to 270 million pounds. Phillips is planning
modifications to further enhance performance and increase
production capacity to 300 million pounds per year by 1998.
16
<PAGE>
Other
- -----
The Corporate Technology organization provides a flexible,
cost-effective support team for the operating segments. Examples
of Corporate Technology support in 1995 included:
o Upstream (E&P and GPM)
- Development of 3-D seismic technology, called 3-D pre-stack
depth migration, to provide better images of rock
formations below the earth's surface. This reduces the
amount of time required to process seismic data, which in
turn accelerates exploratory drilling programs. The
technology is being used extensively in the subsalt
exploration program in the Gulf of Mexico, along with other
selected sites worldwide.
- Use of new computer software that provides high resolution
models of the earth. The models are created by combining
data on rock type, porosity, fluid content and other
information, leading to increased production at several
projects around the world.
- Continued research into enhanced oil recovery techniques.
o Downstream (RM&T and Chemicals)
- Development of an advanced computer modeling program that
assists refinery operators in making timely and precise
process adjustments.
- Assisted with the installation of fluid catalytic cracking
technology at the Woods Cross refinery.
- Advanced to the pilot-plant stage for utilizing an
extremely efficient process to produce 1-hexene, a chemical
used to modify polyethylene plastics for high-value uses.
- Development of a catalyst system that removes impurities
and improves ethylene production. The system improved
operating consistency and increased production of
polymer-grade ethylene at the Sweeny Complex in 1995.
Corporate Technology is also involved in a company-wide, long-
range effort to replace various computer systems, including plant
maintenance, materials management and financial systems. In
addition to supporting the software selection and implementation
processes, Corporate Technology will also evaluate and select the
hardware needed to implement this new client-server technology.
The goal is improved access to business information by
implementing common, integrated computing systems across the
company.
17
<PAGE>
At the end of 1995, Phillips held a total of 4,523 active patents
in 52 countries worldwide, including 2,199 active U.S. patents.
During 1995, the company received 102 patents in the United
States, and 332 foreign patents. The profitability of any
business segment is not dependent upon any single patent,
trademark, license, franchise or concession.
The company's products and processes were licensed in
33 countries at year-end 1995, resulting in licensing revenues of
$85 million. Polypropylene-related licenses contributed about
two-thirds of the total, with polyethylene-related licenses
contributing 18 percent.
COMPETITION
All phases of the businesses in which Phillips is engaged are
highly competitive. Phillips competes at various levels with
both petroleum and non-petroleum companies in providing energy,
chemicals and other products to the consumer. Several of the
company's competitors are larger and have substantially greater
resources.
While Phillips is one of approximately 20 large integrated oil
companies, and generally ranks in the middle of the group, each
of the segments in which Phillips operates is highly competitive
and characterized by a great number of competitors. No single
competitor, or small group of competitors, dominates any of
Phillips' operating segments.
Upstream, the company competes with numerous other companies in
the industry to locate and obtain new sources of supply and to
produce oil and gas in a cost-effective and efficient manner.
The principal methods of competition include geological,
geophysical and engineering research and technology, experience
and expertise, and economic analysis in connection with property
acquisitions.
Downstream, competitive methods consist of product improvement
and new product development through research and technology, and
efficient manufacturing and distribution systems. In the
marketing phase of the business, competitive factors include
product quality and reliability, price, advertising and sales
promotion, and development of customer loyalty to Phillips'
branded products.
Because Phillips is a significant U.S. producer of natural gas
liquids, the company has wide access to relatively low-cost
feedstocks, which are upgraded into chemicals and plastics. The
company's structure is well-integrated vertically--with
18
<PAGE>
businesses ranging from feedstocks to plastic pipe--which helps
ensure markets for certain products. A substantial percentage of
Phillips' olefins, for example, are typically used as a raw
material in plastic resins manufactured by the company.
Phillips' Corporate Technology organization is focused on
providing technical support to the company's operating segments.
Corporate Technology identifies technologies that drive Phillips'
core businesses, enhancing the company's competitive position in
areas ranging from reservoir characterization to improved
plastics manufacturing processes.
GENERAL
Phillips continued to set new marks in safety, having its safest
year ever in 1995. The company's injury rate fell 15 percent to
1.53 injuries per 100 employees. Chargeable vehicle accidents
were the lowest recorded in the company's history as well.
Company-sponsored research and development activities charged
against earnings were $66 million, $71 million and $80 million in
1995, 1994 and 1993, respectively.
The environmental information contained in Management's
Discussion and Analysis on pages 50 and 51 under the caption,
"Environmental" is incorporated herein by reference. It includes
information on expensed environmental costs and capitalized
environmental costs for 1995 and those expected for 1996 and
1997.
International and domestic political developments and government
regulation are prime factors that may materially affect the
company's operations. Such political developments and regulation
may impact price, production, allocation and distribution of raw
materials and products, including their import, export and
ownership; the amount of tax and timing of payment; and
environmental protection. The occurrences and effect of such
events are unpredictable.
19
<PAGE>
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Position Held Age* Since
---- ------------- --- -------
W. W. Allen Chairman of the Board of 59 1988
Directors and Chief
Executive Officer
Knut Am Senior Vice President 52 1996
Worldwide Exploration
and Production
C. L. Bowerman Executive Vice President 56 1984
Director
R. G. Ceconi Vice President Corporate 53 1991
Engineering
K. L. Hedrick Senior Vice President 43 1994
Refining, Marketing
and Transportation
J. L. Howe Senior Vice President 51 1992
NGL, Chemicals and
Plastics
J. C. Mihm Senior Vice President 53 1988
Corporate Technology
T. C. Morris Senior Vice President and 55 1993
Chief Financial Officer
J. J. Mulva President and Chief Operating 49 1985
Officer
Director
M. J. Panatier President and Chief Executive 47 1994
Officer of Phillips Gas
Company
Barbara J. Price Vice President Health, 51 1992
Environment and Safety
J. Bryan Whitworth Senior Vice President 57 1981
and General Counsel
- ------------------------
*On February 1, 1996
21
<PAGE>
There is no family relationship among the officers named above.
Each officer is elected by the Board of Directors at its first
meeting after the Annual Meeting of Stockholders and thereafter
as appropriate. Each officer holds office from date of election
until the first meeting of the directors held after the next
Annual Meeting of Stockholders or until a successor is elected.
The date of the next annual meeting is May 13, 1996. All of the
executive officers named above have been employed by the company
for more than five years.
22
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Quarterly Common Stock Prices and Cash Dividends Per Share
Stock Price
-------------------
High Low Dividends
------------------- ---------
1995
First $36 5/8 29 7/8 .28
Second 37 1/8 32 1/4 .305
Third 35 1/2 31 7/8 .305
Fourth 34 7/8 30 1/2 .305
- -----------------------------------------------------------------
1994
First 31 1/8 25 1/2 .28
Second 34 1/4 26 .28
Third 35 1/8 30 1/4 .28
Fourth 37 1/4 31 1/2 .28
- -----------------------------------------------------------------
Closing Stock Price at December 31, 1995 $34 1/8
Number of Stockholders of Record at January 31, 1996 65,700
- -----------------------------------------------------------------
Phillips' common stock is traded primarily on the New York,
Pacific and Toronto stock exchanges.
23
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Millions of Dollars Except Per Share Amounts
--------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------
Sales and other
operating revenues $13,368 12,211 12,309 11,933 12,604
Income before
extraordinary items
and cumulative
effect of changes
in accounting
principles 469 484 245 270 98
Net income 469 484 243 180 258
Net operating income 580 407 217 242 257
Per common share
Income before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles 1.79 1.85 .94 1.04 .38
Net income 1.79 1.85 .93 .69 .99
Total assets 11,978 11,453 11,035 11,468 11,473
Long-term debt 3,097 3,106 3,208 3,718 3,876
Cash dividends declared
per common share 1.195 1.12 1.12 1.12 1.12
- ------------------------------------------------------------------
See Management's Discussion and Analysis for a discussion of
factors that will enhance an understanding of this data.
24
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
February 21, 1996
Management's Discussion and Analysis is the company's analysis of
its financial performance and of significant trends that may
affect future performance. It should be read in conjunction with
the financial statements and notes, accounting policies, and
supplemental oil and gas disclosures.
RESULTS OF OPERATIONS
Consolidated Results
A summary of the company's net income, by business segment and
consolidated, follows:
Millions of Dollars
-----------------------
Years Ended December 31 1995 1994 1993
-----------------------
Exploration and Production (E&P) $ 390 342 389
Gas Gathering, Processing and
Marketing (GPM) (22) (1) 42
Refining, Marketing and
Transportation (RM&T) 40 136 65
Chemicals 386 259 91
Corporate and Other (325) (252) (342)
- -----------------------------------------------------------------
Income before extraordinary item 469 484 245
Extraordinary item - - (2)
- -----------------------------------------------------------------
Net income $ 469 484 243
=================================================================
Earnings for the three years included the following special items
and extraordinary item on an after-tax basis:
25
<PAGE>
Millions of Dollars
-----------------------
1995 1994 1993
-----------------------
Property impairments $ (51) - -
Net gains on asset sales - 13 61
Gain on subsidiary stock transaction - 20 -
Capital-loss carryforwards - 50 27
Work force reduction charges (31) (36) (26)
Foreign currency gains (losses) (3) 3 (2)
Pending claims and settlements (12) 17 (32)
Incinerator project writedown (2) - (20)
Other items (12) 10 20
- -----------------------------------------------------------------
Total special items (111) 77 28
- -----------------------------------------------------------------
Extraordinary item--early retirement
of debt - - (2)
- -----------------------------------------------------------------
Total $(111) 77 26
=================================================================
Net operating income, which excludes the above items, was
$580 million in 1995, $407 million in 1994 and $217 million in
1993.
1995 vs. 1994
The company's E&P and Chemicals operations were the primary
drivers behind significantly improved net operating income for
Phillips in 1995. Higher worldwide crude oil and natural gas
production, along with higher worldwide crude oil sales prices,
contributed to a 41 percent improvement in E&P net operating
income. Chemicals' earnings were up sharply because of higher
ethylene, polyethylene and paraxylene margins in a solid year for
the commodity chemicals industry.
GPM's results were lower than a year ago, as low U.S. residue gas
prices continued to negatively impact this business line. In
RM&T, the refined products marketplace did not allow the recovery
of higher crude oil feedstock costs, resulting in lower gasoline
and distillates margins and a 64 percent decrease in net
operating income.
1994 vs. 1993
Comparing 1994 with 1993, the company's net operating income
benefited from improved operations, lower costs and higher
margins and volumes in the commodity chemicals business.
26
<PAGE>
Phillips at a Glance
1995 1994 1993
-----------------------
U.S. crude oil production (MBD) 79 90 93
Worldwide crude oil production (MBD) 222 206 203
U.S. natural gas production (MMCFD) 1,078 1,035 973
Worldwide natural gas production (MMCFD) 1,481 1,414 1,355
Worldwide natural gas liquids
production (MBD) 159 165 159
Liquefied natural gas sales (MMCFD) 125 120 107
Refinery utilization rate (%) 97 99 91
U.S. automotive gasoline sales (MBD) 331 308 305
U.S. distillates sales (MBD) 135 128 105
Worldwide petroleum products sales (MBD) 696 689 659
Natural gas liquids processed (MBD) 199 207 198
Ethylene production (MMlbs)* 2,465 2,590 2,381
Polyethylene production (MMlbs)* 1,797 1,885 1,786
Polypropylene production (MMlbs)* 418 433 251
- -----------------------------------------------------------------
*Includes equity in affiliates.
Consolidated Income Statement Analysis
1995 vs. 1994
Sales and other operating revenues were $13.4 billion in 1995, an
increase from $12.2 billion in 1994. Revenues increased from
1994 levels as a result of higher prices for crude oil, chemicals
and petroleum products, partially offset by lower U.S. natural
gas sales prices. These factors also accounted for the
corresponding increase in purchase costs.
Equity in earnings of affiliated companies increased 51 percent
in 1995, compared with 1994. Higher earnings from the company's
Chemicals equity ventures were primarily responsible for the
increase. Other revenues declined in 1995, compared with 1994,
primarily due to higher gains on assets sales in 1994.
Controllable costs, composed primarily of production and
operating and selling, general and administrative expenses, were
slightly lower in 1995 than in 1994. After adjusting for special
items and asset dispositions, controllable costs were
approximately $400 million lower in 1995 than in 1991, the year
before the company embarked on its restructuring and cost
reduction program.
Exploration costs were 12 percent lower in 1995, compared with
1994, because the company incurred higher dry hole charges in
1994, primarily in the Gulf of Mexico and Norway.
27
<PAGE>
After adjusting for the 1995 adoption of Financial Accounting
Standards Board (FASB) Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," depreciation, depletion and amortization (DD&A)
costs were 2 percent lower in 1995, compared with 1994, due
primarily to lower DD&A costs in the company's U.S. E&P
operations. See "New Accounting Standards" and Note 1 to the
financial statements for more information on the adoption of FASB
Statement No. 121.
Taxes other than income taxes and interest expense, adjusted for
special items, were both slightly lower in 1995, compared with
1994.
1994 vs. 1993
Total revenues for 1994 were 1 percent lower, compared with 1993,
as a result of lower crude oil revenues being largely offset by
higher revenues from petroleum products, olefins and plastics
products. Total costs and expenses were 4 percent lower in 1994,
compared with 1993, as a result of the company's cost control
efforts.
28
<PAGE>
Segment Results
E&P
Millions of Dollars
----------------------------
1995 1994 1993
----------------------------
Net income $390 342 389
Less special items (61) 23 48
- -----------------------------------------------------------------
Net operating income $451 319 341
=================================================================
Sales prices, exploration expenses and other statistics were:
1995 1994 1993
----------------------------
Average Sales Prices
Crude oil (per barrel)
United States $14.98 13.37 14.20
Foreign 17.16 15.75 17.30
Worldwide 16.43 14.74 15.92
Natural gas--lease
(per thousand cubic feet)
United States 1.37 1.69 1.93
Foreign 2.50 2.31 2.37
Worldwide 1.77 1.92 2.10
- -----------------------------------------------------------------
Average Production Costs per
Barrel-of-Oil-Equivalent
United States 4.17 4.58 4.86
Foreign 4.28 5.36 5.57
Worldwide 4.22 4.90 5.15
- -----------------------------------------------------------------
Finding and Development Costs per
Barrel-of-Oil-Equivalent
United States 2.77 5.75 2.54
Foreign 4.21 2.10 9.45
Worldwide 3.52 2.88 3.94
- -----------------------------------------------------------------
Millions of Dollars
----------------------------
Worldwide Exploration Expenses
Geological and geophysical $126 124 127
Leasehold impairment 30 27 24
Dry holes 36 68 98
Lease rentals 6 7 7
- -----------------------------------------------------------------
$198 226 256
=================================================================
29
<PAGE>
1995 1994 1993
----------------------------
Thousands of Barrels Daily
Operating Statistics ----------------------------
Crude oil produced
United States 79 90 93
Norway 100 82 72
United Kingdom 3 5 6
Africa 24 23 24
China 11 1 -
Canada 5 5 8
- -----------------------------------------------------------------
222 206 203
=================================================================
Natural gas liquids produced
United States 5 5 5
Norway 8 8 8
Other areas 2 1 -
- -----------------------------------------------------------------
15 14 13
=================================================================
Millions of Cubic Feet Daily
----------------------------
Natural gas produced
United States (less gas equivalent
of liquids shown above) 1,078 1,035 973
Norway* 299 272 272
United Kingdom* 46 58 54
Canada 58 49 56
- -----------------------------------------------------------------
1,481 1,414 1,355
=================================================================
*Dry basis.
Liquefied natural gas sales 125 120 107
- -----------------------------------------------------------------
1995 vs. 1994
Phillips' average worldwide crude oil price was $16.43 per barrel
in 1995, an 11 percent increase over 1994. Worldwide crude oil
production averaged 222,000 barrels per day in 1995, an
8 percent increase over 1994. It was also the highest annual
average since 1988, reflecting the company's growth strategy for
its E&P operations. Taken together, these two factors resulted
in higher crude oil revenues and were primarily responsible for
the E&P segment's 41 percent improvement in net operating income
in 1995, compared with 1994. Also positively affecting 1995
results were higher liquefied natural gas (LNG) revenues, lower
U.S. lifting costs and lower worldwide exploration costs. These
items were partially offset by lower U.S. natural gas revenues
compared with 1994, due to a 19 percent lower average sales
price.
Phillips' worldwide monthly average crude oil sales prices rose
through the first five months of the year, before declining in
the summer and fall. Prices moved higher in November and
30
<PAGE>
December, as the industry reacted to lean global inventories,
colder than normal weather and commodity fund buying.
1994 vs. 1993
Comparing E&P's 1994 net operating income with 1993, low average
crude oil and natural gas sales prices primarily contributed to
6 percent lower net operating income. Partially offsetting the
low sales prices were higher natural gas production in the United
States, lower worldwide exploration expenses and lower worldwide
lifting costs.
U.S. E&P
- --------
Millions of Dollars
----------------------------
1995 1994 1993
----------------------------
Net income $249 257 253
Less special items (44) 18 9
- -----------------------------------------------------------------
Net operating income $293 239 244
=================================================================
1995 vs. 1994
Net operating income increased 23 percent in 1995, compared with
1994, due primarily to lower costs. Production and operating
costs, exploration expenses and depreciation, depletion and
amortization (DD&A) costs were all lower in 1995, compared with
1994. Cost cutting programs, the sale of non-core properties and
lower dry hole costs all contributed to lower costs in 1995.
Also benefiting 1995 results were favorable natural gas imbalance
settlements during the year.
Crude oil lease revenues were down slightly from a year ago, as
higher average sales prices were more than offset by lower
production. Lease gas revenues were significantly lower than
1994, as average lease gas sales prices decreased 19 percent
compared with the prior year. LNG revenues were higher in 1995,
due in part to 4 percent more volume being sold to the company's
utility customers in Japan.
U.S. crude oil production continued to decline in 1995, due to
general production declines, primarily from Point Arguello and
Prudhoe Bay, and the effect of property dispositions. U.S.
natural gas production was 4 percent higher in 1995 than 1994,
primarily as a result of higher production from the San Juan
Basin and new production from the Garden Banks (Seastar) field in
the Gulf of Mexico, which came online in mid-year 1995.
31
<PAGE>
Special items in 1995 included property impairments on an
after-tax basis of $35 million associated with the adoption of
FASB Statement No. 121, along with work force reduction charges,
a net loss on asset dispositions and a contingency accrual.
Special items in 1994 included net after-tax gains of $15 million
from asset sales along with favorable settlements related to the
company's Alaska operations and a net profits interest. These
positive special items were partially offset by contingency
accruals.
1994 vs. 1993
Net operating income decreased slightly in 1994, compared with
1993, as lower exploration expenses, lower DD&A, and higher LNG
revenues were more than offset by lower crude oil and natural gas
revenues. The average U.S. annual crude oil sales price in 1994
was at its lowest since 1979. Natural gas prices trended
downward during 1994, as supplies outpaced demand.
U.S. crude oil production was lower in 1994, compared with 1993,
due to asset sales and normal declines in production, partially
offset by increased production in the Gulf of Mexico. U.S.
natural gas production was up 6 percent from 1993, due to higher
production from the San Juan Basin and the South Marsh Island
field.
Special items in 1993 included a $5 million after-tax refund of
windfall profit taxes.
Foreign E&P
- -----------
Millions of Dollars
----------------------------
1995 1994 1993
----------------------------
Net income $141 85 136
Less special items (17) 5 39
- -----------------------------------------------------------------
Net operating income $158 80 97
=================================================================
1995 vs. 1994
Net operating income from the company's foreign E&P operations
almost doubled in 1995, compared with 1994, to $158 million. The
increase is primarily attributable to higher crude oil revenues,
due to higher crude oil production and a 9 percent increase in
the average crude oil sales price. The positive effect of higher
crude oil revenues was partially offset by higher DD&A, as a
result of higher production rates and new production from
offshore China.
32
<PAGE>
Foreign crude oil production was 23 percent higher in 1995,
compared with 1994. The increase is attributable to continued
higher production in Norway, as a result of the water injection
program and horizontal drilling, and the first full year's
production from offshore China. Higher production in Norway and
Canada led to higher foreign natural gas production.
Special items in 1995 included after-tax work force reduction
charges of $8 million, after-tax property impairments of
$6 million, a contract settlement and foreign currency losses.
Special items in 1994 consisted primarily of income tax items
related to the company's China and Norway operations.
1994 vs. 1993
Net operating income fell 18 percent in 1994, compared with 1993,
because of lower crude oil revenues, partially offset by lower
lifting costs. Average annual foreign crude oil sales prices
realized by Phillips in 1994 were 9 percent lower than 1993.
Also negatively affecting foreign crude oil revenues were lower
crude oil sales volumes in the United Kingdom, Africa and other
areas, due in part to asset sales. The effect of higher crude
oil sales volumes in Norway partially offset the negative impact
of lower volumes in other foreign areas.
Foreign crude oil production was up 5 percent in 1994, compared
with 1993, due primarily to increased production from Norway.
Approximately half of Norway's crude oil production increase in
1994 was from the Embla field, which started production in mid-
year 1993. Foreign natural gas production was marginally lower
in 1994, compared with 1993.
Special items in 1993 included after-tax asset-sale gains of
$26 million.
33
<PAGE>
GPM Millions of Dollars
----------------------------
1995 1994 1993
----------------------------
Net income (loss) $(22) (1) 42
Less special items (11) (6) -
Less minority interest--preferred
dividend requirements of Phillips
Gas Company (32) (32) (32)
- -----------------------------------------------------------------
Net operating income $ 21 37 74
=================================================================
The company's GPM operations are conducted primarily through GPM
Gas Corporation, a wholly owned subsidiary of Phillips Gas
Company. The effect of Phillips Gas Company's preferred dividend
requirements has been excluded in determining net operating
income.
Sales prices and operating statistics for GPM were:
1995 1994 1993
----------------------------
Average Sales Prices
U.S. residue gas
(per thousand cubic feet) $ 1.49 1.79 2.03
U.S. natural gas liquids
(per barrel--unfractionated) 10.07 9.77 10.79
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
----------------------------
Operating Statistics
Natural gas purchases
Outside Phillips 1,247 1,164 1,063
Phillips 194 206 205
- -----------------------------------------------------------------
1,441 1,370 1,268
=================================================================
Raw gas throughput 1,620 1,505 1,428
- -----------------------------------------------------------------
Residue gas sales
Outside Phillips 833 853 780
Phillips 184 96 87
- -----------------------------------------------------------------
1,017 949 867
=================================================================
Thousands of Barrels Daily
----------------------------
Natural gas liquids net production
From Phillips E&P leasehold gas 19 21 22
From gas purchased outside
Phillips 125 130 124
- -----------------------------------------------------------------
144 151 146
=================================================================
34
<PAGE>
1995 vs. 1994
GPM's average annual raw gas throughput volumes continued to grow
in 1995, ending the year 8 percent higher than 1994 and
13 percent higher than 1993. Acquisitions and expansions in 1995
and late 1994 contributed to the increase in raw gas throughput
volumes. Higher raw gas throughput volumes led to increased
residue gas sales volumes in 1995, compared with 1994. However,
17 percent lower residue gas sales prices contributed to a sharp
decline in GPM's net operating income in 1995. Abundant gas
supplies kept residue gas prices lower than 1994 levels for most
of the year. In December 1995, residue gas prices turned higher
because of rising seasonal demand.
Natural gas liquids (NGL) average sales prices were slightly
higher in 1995 than 1994, but the higher sales prices were more
than offset by lower sales volumes, primarily as a result of
lower retention rates at GPM's Linam Ranch plant, a lean oil
absorption plant acquired in 1994. Conversion of the Linam Ranch
plant to a cryogenic plant was completed in late 1995, which
should increase NGL sales volumes up to 6,000 barrels per day.
Operating costs were lower in 1995, compared with 1994, as GPM
continued to aggressively lower its overall cost structure.
Completion of modernization projects at three major plants,
completion of reengineering studies and continuing implementation
of technology should further reduce costs in 1996.
GPM completed an acquisition in late 1995 that should increase
raw gas throughput volumes by approximately 260 million cubic
feet per day in 1996. Another acquisition announced in early
1996 is awaiting regulatory approval. Upon completion, this
acquisition should add another 200 million cubic feet of raw gas
per day to throughput volumes.
Special items in 1995 and 1994 consisted of work force reduction
charges.
1994 vs. 1993
Comparing 1994 with 1993, 9 percent lower NGL sales prices and
12 percent lower residue gas sales prices led to a 50 percent
decrease in net operating income. GPM's operating costs were
higher in 1994, compared with 1993, due to gathering fees the
company paid GPM Gas Gathering L.L.C., a limited liability
company in which GPM Gas Corporation owns a 50 percent interest.
35
<PAGE>
RM&T
Millions of Dollars
----------------------------
1995 1994 1993
----------------------------
Net income $ 40 136 65
Less special items (11) (7) (15)
- -----------------------------------------------------------------
Net operating income $ 51 143 80
=================================================================
Sales prices and operating statistics for RM&T were:
1995 1994 1993
----------------------------
Average Sales Prices (per gallon)
Automotive gasoline-wholesale $.58 .56 .58
Automotive gasoline-retail .74 .72 .73
Distillates .52 .51 .56
Propane .38 .35 .38
- -----------------------------------------------------------------
Thousands of Barrels Daily
----------------------------
Operating Statistics
U.S. refinery crude oil
Capacity 345 320 305
Refined 333 317 278
Capacity utilization (percent) 97% 99 91
- -----------------------------------------------------------------
Petroleum products outside sales
United States
Automotive gasoline-wholesale 286 252 237
Automotive gasoline-retail 35 38 41
Aviation fuels 29 32 31
Distillates 135 128 105
Propane 23 25 26
Other products 18 18 16
- -----------------------------------------------------------------
526 493 456
Foreign 45 54 50
- -----------------------------------------------------------------
571 547 506
=================================================================
1995 vs. 1994
Net operating income decreased 64 percent in 1995, compared with
1994. Higher crude oil feedstock costs, particularly during the
first six months of the year, could not be fully recovered in the
motor fuel and distillates markets. Ample supplies caused these
markets to remain highly competitive in 1995, resulting in lower
motor fuel and distillate margins. In addition to general
increases in crude oil feedstock costs, pricing differentials on
various slates of crude oil negatively impacted the company's
RM&T operations. The company's Sweeny and Borger, Texas,
refineries are designed to run a slate of heavy crudes.
36
<PAGE>
Typically, these crudes are less expensive than other grades.
But in 1995, the cost differential between heavy crudes and other
grades narrowed, reducing the company's advantage of running
heavy crude and tightening its petroleum products margins.
Continued operating efficiencies and incremental debottlenecking
led the company to revise its U.S. crude oil refining capacity
again in 1995, from 320,000 barrels per day to 345,000 barrels
per day, effective January 1, 1995. Even at the higher capacity,
Phillips' U.S. refineries ran at 97 percent of capacity, while at
the same time lowering controllable costs.
The company launched a retail marketing growth strategy in 1995
designed to increase the number of company-operated retail
marketing outlets by approximately 66 percent over the next
several years. This growth effort is focused on increasing the
company's total motor fuel sales volumes, as well as increasing
retail sales as a percentage of that total.
Special items in 1995 included an inventory writedown and work
force reduction charges. Special items in 1994 included work
force reduction charges.
1994 vs. 1993
Improved refinery operations and higher gasoline margins
contributed to a significant increase in RM&T net operating
income in 1994, compared with 1993. The company's refineries
showed sustained operating consistency in 1994, running at a
crude oil capacity utilization rate of 99 percent in 1994, up
from 1993's 91 percent. The higher utilization rate led to
higher gasoline and distillates sales volumes for the year.
Earnings also benefited from higher gasoline margins in the
company's marketing operations, compared with 1993. Lower
operating expenses at the company's refineries also contributed
to RM&T's improved earnings in 1994.
Special items in 1993 included an after-tax charge of $20 million
for the writedown of an incinerator project.
37
<PAGE>
Chemicals
Millions of Dollars
----------------------------
1995 1994 1993
----------------------------
Net income $386 259 91
Less special items (4) 34 13
- -----------------------------------------------------------------
Net operating income $390 225 78
=================================================================
Operating statistics for Chemicals were:
1995 1994 1993
----------------------------
Millions of Pounds
Except as Indicated
----------------------------
Operating Statistics
Production*
Ethylene 2,465 2,590 2,381
Polyethylene 1,797 1,885 1,786
Propylene 434 372 361
Polypropylene 418 433 251
Paraxylene 578 393 521
Cyclohexane (millions of gallons) 133 174 196
- -----------------------------------------------------------------
*Includes equity in affiliates.
Thousands of Barrels Daily
----------------------------
U.S. petroleum products
outside sales
Automotive gasoline 10 18 27
Liquefied petroleum gas 75 84 79
Other products 40 40 47
- -----------------------------------------------------------------
125 142 153
=================================================================
Natural gas liquids
Processing capacity 227 227 227
Liquids processed 199 207 198
- -----------------------------------------------------------------
1995 vs. 1994
The company's chemicals segment reported substantial earnings
growth in 1995, with net operating income of $390 million,
compared with $225 million in 1994. The 73 percent improvement
reflects improved product margins in the commodity chemicals
industry that began during 1994.
Demand for olefins, which includes ethylene and propylene, was
strong in the first half of 1995, before softening during the
second half. The slowdown occurred mainly because buyers had
increased inventories of resins made from ethylene in 1994, when
prices were increasing rapidly. These higher inventory levels
38
<PAGE>
were drawn down in 1995, reducing demand for new production.
Also tempering demand in 1995 was a softening export market.
Growing demand led to higher paraxylene margins in 1995. The
demand for paraxylene, a feedstock for polyester, increased
rapidly due to growing polyester fiber demand in Asia. In
addition, the demand for clear plastics in packaging applications
is increasing, as plastic soft drink bottles are replacing glass
and aluminum ones. Paraxylene is produced at the company's
Puerto Rico Core facilities.
In the company's plastics operations, higher polyethylene and
polypropylene margins in 1995 contributed to the higher Chemicals
earnings. Polyethylene margins, although higher than a year ago,
slowed somewhat in 1995, due to high customer product inventories
and a soft export market, particularly to Asia. Higher
polypropylene margins led to higher equity earnings from the
company's interest in the Phillips Sumika Polypropylene Company
partnership.
Special items for 1995 included property impairments on an
after-tax basis of $3 million. Favorable special items in 1994
included an after-tax gain of $20 million from a subsidiary stock
transaction, along with an income tax item related to the
company's Puerto Rico Core operations and an adjustment to a 1993
pipeline abandonment accrual. These favorable items were partly
offset by work force reduction charges.
1994 vs. 1993
Results for 1994, compared with 1993, reflected the rise in
demand and improved product margins in the commodity chemicals
industry during 1994. Net operating income increased to
$225 million, almost triple 1993's $78 million. The
strengthening economy in 1994 resulted in higher demand for the
company's olefins, particularly ethylene. In the company's
plastics operations, higher demand in 1994 resulted in higher
sales volumes, especially in total U.S. polyethylene sales
volumes, which increased 19 percent, compared with 1993. Net
operating income benefited $18 million from the sale of a
polypropylene license in 1994. The company's natural gas liquids
fractionation business benefited from higher sales volumes in
1994.
Special items in 1993 included net after-tax asset-sale gains of
$33 million from the sale of the assets of Aztec Catalyst Company
and the sale of Phillips Fibers Corporation. These gains were
partly offset by a $12 million after-tax writedown of assets held
for sale, resulting from the company's decision to exit the
39
<PAGE>
catalyst business, and a $10 million after-tax charge for the
abandonment of a pipeline.
Corporate and Other
Millions of Dollars
-----------------------
1995 1994 1993
-----------------------
Corporate and Other $(325) (252) (342)
Less special items (24) 33 (18)
- -----------------------------------------------------------------
Adjusted Corporate and Other $(301) (285) (324)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $(131) (125) (153)
Net interest (173) (179) (181)
Other 3 19 10
- -----------------------------------------------------------------
Adjusted Corporate and Other $(301) (285) (324)
=================================================================
1995 vs. 1994
Salaries, a significant component of Corporate general and
administrative expenses, were lower in 1995 than in 1994. In
addition, the company's cost control efforts led to lower costs
in such areas as travel, utilities and insurance. However,
overall Corporate general and administrative expenses were
5 percent higher in 1995, compared with 1994, as a result of
comparatively higher benefit costs, due in part to favorable
accrual reversals in 1994, and lower allocations to the operating
segments.
Net interest represents interest income and expense, net of
capitalized interest. Net interest declined 3 percent in 1995,
compared with 1994, as a result of higher capitalized interest
associated with the J-Block development in the U.K. sector of the
North Sea.
Other consists primarily of the company's insurance operations,
along with income tax and other items that are not directly
associated with the operating segments on a stand-alone basis.
Other was adversely impacted in 1995 by higher tax accruals not
directly associated with a specific operating segment.
Special items in 1995 included property impairments on an after-
tax basis of $7 million, contingency accruals and work force
reduction charges. Favorable special items in 1994 included an
after-tax benefit of $50 million from a capital-loss carryforward
40
<PAGE>
applied against gains from asset sales, along with interest
applicable to various favorable settlements of claims. Partially
offsetting these favorable special items were after-tax work
force reduction charges of $16 million, along with losses from
asset sales.
1994 vs. 1993
The company's focus on cost control benefited Corporate general
and administrative expenses in 1994, which declined 18 percent
compared with 1993. Compared with 1993, net interest declined
slightly in 1994 to $179 million. Other in 1994, relative to
1993, benefited from higher earnings from the company's insurance
operations.
Special items in 1993 included an after-tax benefit of
$27 million from capital-loss carryforwards applied against
capital gains from asset sales, and after-tax interest income of
$9 million from windfall profit tax refunds, partially offset by
after-tax work force reduction charges of $26 million.
41
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
Except as Indicated
-----------------------
1995 1994 1993
-----------------------
Current ratio .9 1.0 1.0
Long-term debt $3,097 3,106 3,208
Preferred stock of subsidiary $ 345 345 345
Stockholders' equity $3,188 2,953 2,688
Percent of long-term debt to capital* 47% 49 51
Percent of floating-rate debt to
total debt 22% 23 25
- -----------------------------------------------------------------
*Capital includes long-term debt, preferred stock of subsidiary
and stockholders' equity.
Although net income was down slightly, cash from operations for
1995 increased 33 percent, compared with 1994. The increase in
cash from operations can be primarily attributed to a decrease in
net non-cash working capital, mainly due to the sale of
$200 million of receivables. An increase in taxes and other
accruals of $170 million, combined with a decrease in cash of
$126 million and an increase in payables of $123 million resulted
in a decreased current ratio of .9 for 1995, compared with 1.0 in
1994 and 1993; however, in 1995, stockholders' equity was greater
than total debt for the first time since 1984.
The company's short-term liquidity position at December 31, 1995,
was stronger than indicated because the current cost of the
company's inventories was approximately $443 million greater than
their last-in, first-out (LIFO) carrying value.
During the third quarter of 1995, Moody's Investors Service
upgraded the rating of Phillips' senior, unsecured debt from Baa2
to Baa1, which lowered the company's cost of debt.
During the year, the company replaced its commercial paper
program, which had been supported by a direct-pay irrevocable
bank letter of credit, with a $250 million commercial paper
program supported by a portion of the company's unused revolving
lines of credit equal to 100 percent of the commercial paper
outstanding. To facilitate the change in programs and to
maintain liquidity for other uses, the company increased its
revolving bank credit facility from $800 million to
$1,100 million in August 1995. At December 31, 1995,
$77 million of this facility was outstanding, and $123 million of
the facility supported the commercial paper program. Also
outstanding at December 31, 1995, was $20 million of Phillips
42
<PAGE>
Petroleum Company Norway's $500 million revolving bank credit
facility from a group of international banks.
At December 31, 1995, no portion of the company's $500 million
shelf registration of debt securities, which became effective in
1994, had been issued. In the first quarter of 1996, the company
intends to file with the Securities and Exchange Commission a
shelf registration for $750 million of trust preferred securities
and subordinated debt securities.
During 1995, the company and a bank-sponsored entity entered into
two one-year agreements, with options to renew, which provide for
the revolving sale of credit card and trade receivables. The
maximum aggregate amount of receivables which can be sold and
outstanding under both agreements is limited to $200 million, all
of which was outstanding at December 31, 1995.
The Compensation and Benefits Trust (CBT) was established in
December 1995 to purchase, hold and distribute shares of the
company's common stock, which will be used to fund future
compensation and benefit obligations of the company. The trust,
an irrevocable grantor trust that is consolidated by Phillips, is
administered by an independent trustee. The CBT does not
increase or alter the amount of benefits or compensation which
will be paid under existing plans, but offers the company
enhanced financial flexibility in funding those plans. In
December 1995, the company sold 29,200,000 shares of previously
unissued Phillips common stock, $1.25 par value, to the CBT.
Shares held by the CBT do not affect earnings per share or total
stockholders' equity until after they are transferred out of the
CBT.
In 1995, Phillips' improved safety performance record and a
favorable insurance market allowed the company to negotiate a
number of multi-year insurance programs for the first time.
These programs will provide greater coverage stability to
Phillips in future years than would be possible under traditional
twelve-month insurance arrangements.
In December 1995, the company contributed a 30-inch natural gas
pipeline and related assets, as well as a crude oil tanker dock
and related tankage, to Seaway Pipeline Company (Seaway), a
partnership formed in 1995 between, and jointly controlled by,
Phillips and ARCO Pipe Line Company. No gain or loss was
realized on the contribution. In addition, ARCO contributed
assets to Seaway and paid some cash to Phillips. Using cash from
operations and possible partner capital contributions, Seaway
will convert the 30-inch pipeline to crude oil service in 1996
and use it to transport, for a fee, customer crude oil from the
Houston area to markets in Oklahoma and Texas. Phillips' share
43
<PAGE>
of net cash flows, including any future capital contributions, as
well as gains and losses, is 20 percent and will increase to
40 percent and 60 percent in the years 2002 and 2006,
respectively.
Phillips owns a 50 percent-interest in Sweeny Olefins Limited
Partnership (SOLP), which owns and operates a 1.5 billion-pound-
per-year ethylene plant located adjacent to the company's Sweeny,
Texas, refinery. During third quarter 1995, SOLP entered into a
second subordinated loan agreement with American Olefins, Inc.,
a wholly owned subsidiary of Phillips, for $120 million
to fund three new furnaces for the ethylene plant. This
debottlenecking project will increase SOLP's annual capacity
to approximately 2 billion pounds upon completion, scheduled for
the third quarter of 1996. During 1995, SOLP borrowed
$19 million under the second subordinated loan agreement and in
January 1996 another $11 million. The loan agreement has
essentially the same terms as the company's first subordinated
loan to SOLP.
The company and its subsidiary, American Olefins, Inc., the
managing general partner of SOLP, are currently being sued for
injunctive and declaratory relief by First Olefins Limited
Partnership, the other general partner of SOLP. The suit is
pending in the Delaware Chancery Court. The plaintiff alleges
that it is entitled to a veto right over the debottlenecking
project and that construction activities and the capacity
expansion will expose it to a variety of risks that it claims it
did not agree to assume when it became a general partner of SOLP.
The company and its subsidiary believe the partnership agreement
allows the debottlenecking project and, thus, believe the claims
to be wholly without merit.
Most of the company's foreign operations use the local currency
as the functional currency. The local currency reflects the
expected economic effect of exchange rate fluctuations on cash
flows and equity, since cash flows of the company's foreign
operations are largely denominated in the local currency.
Phillips Petroleum Company and certain of its subsidiaries use
financial and commodity-based derivative contracts to limit the
risks inherent in foreign currency fluctuations and crude oil,
natural gas and related product price changes. In the past the
company has, on occasion, hedged interest rates, and may do so in
the future should certain circumstances or transactions warrant.
In 1995 and 1994, the net realized and unrealized gains and
losses from derivative contracts used by Phillips were not
material.
44
<PAGE>
In 1995, Phillips' Board of Directors issued a policy governing
the use of derivative instruments, which requires every
derivative used by the company to relate to an underlying,
offsetting position, anticipated transaction or firm commitment
and prohibits the use of speculative, highly complex or leveraged
derivatives. The policy also requires review and approval by the
Chief Executive Officer and Chief Operating Officer of all risk
management programs using derivatives. These programs are also
periodically reviewed by the Audit Committee of the company's
Board of Directors.
To meet its liquidity requirements, including funding its capital
program, the company will look primarily to cash generated from
operations and financing. Over the next few years, the company
plans to maintain its long-term debt level in the range of
$3.0 billion to $3.5 billion.
Capital Spending
Capital Expenditures and Investments
Millions of Dollars
---------------------------------
Estimated
1996 1995 1994 1993
---------------------------------
E&P $ 855 856 707 821
GPM 80 274 172 120
RM&T 175 150 100 82
Chemicals 240 148 144 174
Corporate and Other 50 28 31 29
- -----------------------------------------------------------------
$1,400 1,456 1,154 1,226
=================================================================
United States $ 734 923 733 901
Foreign 666 533 421 325
- -----------------------------------------------------------------
$1,400 1,456 1,154 1,226
=================================================================
Phillips' 1996 capital budget promotes the company's growth
strategy by supporting an aggressive worldwide exploration
program, an extensive retail marketing expansion program, and
volume expansion and cost control programs throughout the
company.
More of the company's capital spending is being directed toward
payout projects--projects to generate income and increase
shareholder value, as opposed to maintenance or
environmental-compliance projects, which often provide limited
returns. While 43 percent of the company's capital spending went
for payout projects in 1993, the percentage increased to about
65 percent in both 1994 and 1995, and is expected to reach
74 percent in 1996.
45
<PAGE>
In addition to the $1.4 billion of planned spending shown above,
the company is helping to fund the debottlenecking at SOLP by
advancing a loan to the 50-percent-owned partnership (See
page 44), and the company intends to utilize an operating lease
program to partially support its planned retail marketing
expansion.
E&P
Capital spending for E&P during the three-year period ended
December 31, 1995, supported several major development projects
including J-Block, Armada and Britannia in the U.K. North Sea;
the Ekofisk water injection program and redevelopment in Norway;
the Seastar and Mahogany developments in the Gulf of Mexico; and
the Xijiang fields, offshore China. Additional expenditures of
$127 million were incurred in 1993 for construction of two
liquefied natural gas tankers. Acquisition of an additional
interest in the Britannia development in the U.K. North Sea was
also a portion of capital spending in 1994 and 1995.
The 1996 E&P capital budget is approximately the same as 1995,
with increased emphasis on projects that will contribute to
Phillips' growth strategies. Exploratory drilling is focused on
prospects with large reserve potential, including several subsalt
prospects in the Gulf of Mexico; a 100 percent-interest block in
the Borj Messouda area of eastern Algeria; and a multiwell
exploratory program in the Norwegian and U.K. sectors of the
North Sea. Appraisal of Phillips' 1995 Bayu discovery in the
Timor Sea between Australia and Indonesia will also continue in
1996. Additional funding is allocated to new growth
opportunities that capitalize on Phillips' existing technological
expertise. These include international opportunities in
reservoir management, improved oil recovery and LNG projects.
The balance of 1996 capital spending is allocated to ongoing
development projects in the North Sea (Ekofisk II, Armada,
Britannia) and the United States (Mahogany).
About $300 million, nearly 35 percent of the 1996 funds, are to
be spent on the Ekofisk redevelopment project in Norway. The
project includes construction of a new wellhead platform and a
new processing and transportation platform projected to be
operational in 1996 and 1998, respectively. It is anticipated
that the Ekofisk, Eldfisk, Embla and Tor fields will be connected
to the new facilities. Several third-party fields will also be
connected to the new Ekofisk facilities.
46
<PAGE>
Capital funding is also earmarked for the Armada and Britannia
gas condensate fields, in the U.K. sector of the North Sea,
scheduled for first production in 1997 and 1998, respectively.
In late 1995, Phillips increased its interest in Britannia by
1.76 percent, bringing its total interest to 6.78 percent.
GPM
As a result of an acquisition program aimed at increasing
throughput volumes and maintaining the company's leadership in
domestic NGL production, capital spending for GPM increased
significantly in 1995, up 59 percent over 1994 and more than
double that of 1993.
Late in 1995, GPM Gas Corporation acquired the stock of two Enron
Corp. subsidiaries that owned gathering facilities predominately
located in the Texas and Oklahoma Panhandles. The assets
acquired included 3,200 miles of gathering pipeline and
21 compressor units, providing GPM with additional opportunities
in current operating areas, as well as new opportunities in
adjacent areas.
In addition to the acquisition program, projects to streamline
operations, reduce operating costs, and increase profitability
were funded in 1995. These projects included major technological
upgrades to the Eunice and Goldsmith plants, and conversion of
the Linam Ranch facility to a cryogenic process. In addition, at
each of these facilities, old inefficient compression was
replaced with modern turbines.
The 1996 budget returns to a more traditional level as a result
of GPM's completing the aggressive acquisition program and plant
improvements previously mentioned. The 1996 spending program
provides for cost containment programs utilizing technological
upgrades, and streamlining of operations through consolidation of
assets and increased capacity utilization. The budget also
provides funds to increase throughput volumes with new well
connections and acquisition opportunities.
In January 1996, GPM Gas Corporation signed a definitive
agreement to acquire gathering systems located in Oklahoma, which
will increase GPM's assets by 1,570 miles of gathering pipeline
and 14 compression stations. The acquisition is contingent upon
governmental approval, which is anticipated to occur in late
1996.
47
<PAGE>
RM&T
Capital expenditures for RM&T during the three-year period ended
December 31, 1995, included safety projects; upgrades at the
Sweeny and Borger, Texas, refineries to meet new environmental
standards; and renovation of the refineries' feedstock pipelines
and product terminals.
As part of a continuing effort to increase profitability, RM&T's
1996 capital budget provides for a 140 percent increase in
expenditures for marketing over 1995. RM&T's enhanced marketing
strategy for 1996 focuses on expanding its retail marketing
business. Construction is planned for more than 200 outlets over
the next three to five years, increasing the number of company-
operated outlets to more than 500. The company will build most
of the new outlets, primarily in the Southwest and Rocky Mountain
regions of the United States. The new outlets will feature
larger convenience stores, with the name "Kicks," which will be
displayed along with the Phillips shield.
As part of RM&T's continuing efforts to reduce costs and increase
profits, significant expenditures are also planned during 1996 to
continue upgrading to advanced process control technology at the
Sweeny and Borger Complexes.
Chemicals
For the three-year period ended December 31, 1995, capital
spending for Chemicals focused on production expansion projects
utilizing improved technology and debottlenecking techniques.
In June 1995, the company began using the Aromax catalytic
reforming technology at its Puerto Rico Core facility. The new
aromatic technology broadens the range of hydrocarbon feedstocks
that can be used, and produces higher value end-products,
resulting in lower feedstock costs and increased profitability.
Capital spending for 1996 targets growth through domestic and
foreign production expansion projects. A joint venture, called
Shanghai Golden Phillips Petrochemical Company Limited, was
formed with Shanghai Petrochemical Company Limited (SPC) to build
and operate a 220 million-pound-per-year linear polyethylene
plant near Shanghai, China. Phillips' proprietary technology
will be used at the new facility to produce polyethylene, which
will be marketed worldwide. Construction is expected to begin in
1996, with completion during 1998. Phillips will have a
40 percent equity interest in the facility.
48
<PAGE>
Domestically, previously idled assets are being upgraded at the
company's Sweeny facility to increase ethylene production by
400 million pounds per year. The assets are expected to be
restarted and producing in the fourth quarter 1996.
Also, 400 million pounds of high-density polyethylene capacity
will be added through debottlenecking projects at Phillips'
Houston Chemical Complex polyethylene manufacturing facility,
increasing the production capacity there from 1.8 billion pounds
to 2.2 billion pounds a year. This project is expected to be
completed in late 1997.
Contingencies
Legal and Tax Matters
In November 1995, the U.S. Court of Appeals for the Tenth Circuit
affirmed the U.S. Tax Court's previous decisions related to the
company's sales of liquefied natural gas in Japan. The Tax
Court's decisions supported the company's position that more than
50 percent of the income at issue was from a foreign source. The
U.S. Government's last court of appeal on the issue is the U.S.
Supreme Court and a writ of certiorari, if made, must be
requested by February 26, 1996. A favorable resolution of the
issue would have a positive effect on Phillips' net income of
approximately $565 million, and would improve the company's cash
position over time by approximately $300 million after-tax, the
majority of which would be received in 1996.
In addition, the company has a number of issues outstanding with
the Internal Revenue Service that can proceed toward final
settlement as a result of resolving the Kenai issue. Although a
favorable resolution of these issues would have a positive effect
on net income and cash flow, it is too early to determine the
outcome, when the issues will be resolved, or the final financial
effects. An unfavorable outcome of these issues would not impact
the company's net income or cash position.
Phillips accrues for contingencies when a loss is probable and
the amounts can be reasonably estimated. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
49
<PAGE>
Environmental
Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations. Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.
Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold. Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
At year-end 1994, Phillips reported 56 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, 15 of these
sites have been resolved through consent decrees, deposits into
trust funds or otherwise. Seven sites were also added during the
year. Of the 48 sites remaining at December 31, 1995, the
company believes it has a legal defense or its records indicate
no involvement for 16 sites. At eight other sites, present
information indicates that it is probable that the company's
exposure is less than $100,000 per site. At 11 sites, Phillips
has had no communication or activity with government agencies or
other PRPs in more than two years. Of the 13 remaining sites,
the company has provided for any probable costs that can be
reasonably estimated.
Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability. Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites. Although liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site. It
has, to date, been successful in sharing cleanup costs with other
financially sound companies. Many of the sites at which the
company is potentially responsible are still under investigation
by the Environmental Protection Agency (EPA) or the state
agencies concerned. Prior to actual cleanup, those potentially
responsible normally assess site conditions, apportion
responsibility and determine the appropriate remediation. In
50
<PAGE>
some instances, Phillips may have no liability or attain a
settlement of liability. Actual cleanup costs generally occur
after the parties obtain EPA or equivalent state agency approval.
At December 31, 1995, accruals of $7 million had been made for
the company's unresolved PRP sites. In addition, the company has
accrued $92 million for other planned remediation activities,
including resolved state, PRP, and other federal sites, as well
as sites where no claims have been asserted, and $10 million for
other environmental contingent liabilities, for total
environmental accruals of $109 million. No one site represents
more than 10 percent of the total.
Expensed environmental costs were $198 million in 1995 and are
expected to be approximately $175 million in 1996 and 1997. The
estimates for 1996 and 1997 do not include any amounts related to
the federal Superfund tax. The Superfund tax expired
December 31, 1995, and Congress has currently not extended the
law providing for its collection. Capitalized environmental
costs were $75 million in 1995, and are expected to be
approximately $70 million per year in both 1996 and 1997.
After an assessment of environmental exposures for cleanup and
other costs, the company makes accruals on an undiscounted basis
for planned investigation and remediation activities for sites
where it is probable that future costs will be incurred and these
costs can be reasonably estimated. These accruals have not been
reduced for possible insurance recoveries. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
Other
Phillips has deferred tax assets for the alternative minimum tax,
certain accrued liabilities, and loss carryforwards. Valuation
allowances have been established for certain foreign and state
net operating loss carryforwards that reduce deferred tax assets
to an amount that will more likely than not be realized.
Uncertainties that may affect the realization of these assets
include tax law changes and the future level of product prices,
costs and tax rates. Based on the company's historical taxable
income, management expects that the net deferred tax assets will
be realized as offsets to reversing deferred tax liabilities and
as reductions in future taxable operating income. The
alternative minimum tax credit can be carried forward
indefinitely to reduce the company's regular tax liability. The
changes in other loss carryforwards resulted in a net increase in
the valuation allowance of $13 million during 1995.
51
<PAGE>
New Accounting Standards
Effective April 1, 1995, the company adopted FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which resulted in a
before-tax addition of $95 million to depreciation, depletion and
amortization expense in second quarter 1995. After-tax, the
additional charge was $49 million, $.19 per share.
In October 1995 the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock-based employee
compensation plans. Effective for fiscal years beginning after
December 15, 1995, the Statement provides the option to continue
under the accounting provisions of APB Opinion 25, while
requiring pro forma footnote disclosures of the effects on net
income and earnings per share, calculated as if the new method
had been implemented. Phillips expects to elect to continue
under APB Opinion 25, but the company is studying the various
option pricing models available and the assumptions required to
calculate the fair value amounts that would be disclosed, but it
is too early to determine the pro forma effect.
OUTLOOK
During the second quarter of 1995, Phillips and its co-venturers
declared that the Mahogany field in the Gulf of Mexico is
commercial and will be developed. Initial production is expected
in late 1996. Phillips holds a 37.5 percent working interest in
the Mahogany field.
In addition to the Mahogany field subsalt operations, the company
continues to evaluate its subsalt acreage position in the Gulf of
Mexico. Exploratory drilling is currently under way on the
Alexandrite, Agate and Monazite prospects. Phillips holds an
interest in these prospects of 37.5 percent, 50 percent, and
33 percent, respectively.
In 1996, the company plans to concentrate its resources on
projects that will expand its current business lines. The
company is pursuing new opportunities including discoveries in
the Danish North Sea and the Timor Sea between Australia and
Indonesia, as well as expanding the licensing of Phillips'
proprietary liquefied natural gas technology and continuing
efforts to increase reserves through exploration and
acquisitions.
52
<PAGE>
Late in 1995, in the Danish sector of the North Sea, Phillips and
its co-venturers, drilled an exploratory well that tested at
5,800 gross barrels of oil per day. Appraisal wells are planned
to evaluate the significance of the find. Phillips has a
12.5 percent interest in the field through a farm-in. The Danish
government has approved the farm-in but, because Norwegian
acreage is involved, approval of the Norwegian Government is also
required. It is expected in the first quarter of 1996.
Exploratory drilling in the Timor Sea, located offshore northwest
Australia in the Zone of Cooperation A, led to a major gas
discovery in early 1995. The initial well tested at 90 million
cubic feet of gas per day and 5,250 barrels of condensate
per day. A second successful well, completed in early 1996,
tested at 35 million cubic feet of gas per day and 2,100 barrels
of condensate per day. Phillips is the operator of the license
and holds a 37.5 percent interest. Phillips plans to start
another appraisal well in the second quarter of 1996. Three
successful appraisal wells have also been drilled by the owners
of an adjacent block, with results indicating that this is an
extension of the discovery on the company's block. Phillips is
working closely with the owners of the adjacent block to evaluate
the development potential, including the possible use of an
onshore LNG facility using the company's proprietary technology.
Currently, Phillips' liquefied natural gas plant in Kenai,
Alaska, is the only facility in the world that uses the company's
proprietary Cascade technology to liquefy natural gas; however,
it was recently selected for use by a third party. There is
interest in the process because it is designed for smaller-scale
facilities, unlike competing technology that is geared for larger
plants. As a result, Phillips' process allows economic
development of smaller gas discoveries--a key advantage for many
producers. Phillips has enjoyed over 25 years of safe, reliable
operating experience using the technology, and is actively
pursuing the licensing of this technology to others.
Phillips plans to enter the methyl mercaptan market by
constructing a facility at its Borger Complex. The facility will
be capable of producing up to 100 million pounds of the sulphur-
based chemical annually. Construction could begin in 1996, with
a target start-up date late in 1998.
At the company's Puerto Rico Core facility, a paraxylene capacity
increase from 675 million to 880 million pounds per year is now
scheduled to be completed during 1997.
53
<PAGE>
Discussions continue with Phillips' co-venturer in the Sunfish
prospect regarding the transfer of the co-venturer's lease
interests in the South Cook Inlet to the company. The next
appraisal well is included in the 1996 exploration capital
budget. At December 31, 1995, Phillips had approximately
$48 million invested in three exploratory wells on this prospect.
Average oil production volumes from the Point Arguello field
increased to approximately 10,350 net barrels per day in the
fourth quarter, up from approximately 9,600 net barrels per day
in the third quarter of 1995. However, production volumes remain
below the same period one year ago, which was approximately
13,700 net barrels per day. The recent increases are the result
of well redrills and workover activity which continue pursuant to
initiatives to further improve production.
In September 1995, the company announced that, for commercial
reasons, start-up volumes from the J-Block, operated by its
Phillips Petroleum Company United Kingdom Limited subsidiary,
would be delayed or lower than had been estimated.
The long-term economics of the project remain favorable, but
delays in production are expected to reduce Phillips' net
earnings and cash flows in the near-term.
The gas reserves in blocks 30/7a and 30/12a (J-Block) are
dedicated to a single gas purchaser, Enron Europe Limited (EEL),
under long-term take-or-pay gas sales agreements guaranteed by
its parent, Enron Corp. Under the agreements, EEL is required to
pay for gas at a predetermined rate even if it elects not to take
actual deliveries. EEL has advised that its present non-binding,
bona fide estimate of future total daily nominations for delivery
of J-Block gas is zero through September 1997. The commissioning
date of the facilities and commencement of the periods during
which EEL's obligations to take or pay are yet to be finally
determined.
In view of EEL's present estimate of takes under the gas sales
agreements, the J-Block owners are actively pursuing alternative
arrangements to commence production. Since liquids production is
dependent on the amount of natural gas that can be produced, the
company intends, subject to governmental approval, to install gas
injection facilities, which would allow for the production of
liquids while the natural gas production is reinjected for later
delivery.
The J-Block owners also own the rights to the reserves in a block
(block 30/6b) immediately adjacent to J-Block, which are in
communication with J-Block reserves but not dedicated under the
above contract. The J-Block owners are actively pursuing
transportation, processing and sales of natural gas from this
54
<PAGE>
block to enable start-up of liquids production prior to
completion of gas injection facilities. In order to maximize the
value of its J-Block infrastructure, the company has initiated an
active drilling program to explore and appraise the reserves in
blocks 30/2c and 30/13.
The J-Block production, processing and transportation facilities,
located in block 30/7a of the U.K. North Sea, were completed in
mid-February and are available for production and delivery of
gas. The J-Block and block 30/13 are operated by Phillips
Petroleum Company United Kingdom Limited, which has a
36.5 percent interest. The company owns 32.5 percent and
35 percent interest in blocks 30/2c and 30/13, respectively.
The company has non-operating interests in production licenses in
Nigeria, which accounted for 11 percent of the company's daily
crude oil production in 1995. Nigerian crude oil also is part of
the feedstock for the company's Sweeny refinery. As a result of
recent alleged actions by the Nigerian government, several
countries, including the United States, have discussed whether or
not to impose economic and other sanctions against that country.
The Nigerian government has stated it may take retaliatory
actions if any sanctions are imposed. Because the situation is
unsettled and is constantly changing, it is not possible at this
time to determine whether or not any sanctions will be imposed,
and if imposed, if they would have any effect on the company's
operations.
The company recently completed a review of the estimated useful
lives of its major domestic RM&T and Chemicals facilities and
made certain changes to those estimates, effective January 1,
1996. This change in estimate will reduce depreciation expense
in 1996 by approximately $40 million.
Chemicals' earnings improved substantially in 1995 and a stable
economy should continue to support the economic fundamentals in
this business. Although Chemicals' profits weakened late in the
year, the company continues to be optimistic about this business,
since sales volumes remain strong and the company anticipates a
full year's production at its Puerto Rico Core facility,
following the recently completed expansion and technology
improvements.
Throughout the company, Phillips intends to work to improve its
financial performance by expanding volumes and constraining
costs. For 1996, aggressive goals have been established to lower
controllable costs and increase profitability within GPM and the
refining operations of RM&T.
55
<PAGE>
Should the Kenai tax litigation be resolved favorably (See
page 49), the increase in net income, stockholders' equity and
cash would substantially improve the company's financial position
and provide the company with greater financial flexibility to
fund its strategic growth plans. Operating earnings for 1996
would also benefit from the lower effective tax rate on Kenai LNG
income and lower net interest expense.
56
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS PETROLEUM COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Management............................... 58
Report of Independent Auditors..................... 59
Consolidated Statement of Income for the years
ended December 31, 1995, 1994 and 1993........... 60
Consolidated Balance Sheet at December 31, 1995
and 1994......................................... 61
Consolidated Statement of Cash Flows for the years
ended December 31, 1995, 1994 and 1993........... 62
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1995,
1994 and 1993.................................... 63
Accounting Policies................................ 64
Notes to Financial Statements...................... 67
Supplementary Information
Oil and Gas Operations........................ 92
Selected Quarterly Financial Data............. 110
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation Accounts and Reserves....... 115
All other schedules are omitted because they are either not
required, not significant, not applicable or the information is
shown in another schedule, the financial statements or in the
notes to financial statements.
57
<PAGE>
- ----------------------------------------------------------------
Report of Management
Management prepared, and is responsible for, the consolidated
financial statements and the other information appearing in this
annual report. The consolidated financial statements present
fairly the company's financial position, results of operations
and cash flows in conformity with generally accepted accounting
principles. In preparing its consolidated financial statements,
the company includes amounts that are based on estimates and
judgments that Management believes are reasonable under the
circumstances.
The company maintains an internal control structure designed to
provide reasonable assurance that the company's assets are
protected from unauthorized use and that all transactions are
executed in accordance with established authorizations and
recorded properly. The internal control structure is supported
by written policies and guidelines and is complemented by a staff
of internal auditors. Management believes that the system of
internal controls in place at December 31, 1995, provides
reasonable assurance that the books and records reflect the
transactions of the company and there has been compliance with
its policies and procedures.
The company's financial statements have been audited by Ernst &
Young LLP, independent auditors selected by the Audit Committee
of the Board of Directors and approved by the stockholders.
Management has made available to Ernst & Young LLP all the
company's financial records and related data, as well as the
minutes of stockholders' and directors' meetings.
The Audit Committee, composed solely of non-employee directors,
meets periodically with the independent auditors, financial and
accounting management, and the internal auditors to review and
discuss the company's internal control structure, results of
internal audits, the independent auditors' findings and opinion,
financial information, and related matters. Both the independent
auditors and the company's General Auditor have unrestricted
access to the Audit Committee, without Management present, to
discuss any matter that they wish to call to the Committee's
attention.
/s/ W. W. Allen /s/ T. C. Morris
W. W. Allen T. C. Morris
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
February 21, 1996
58
<PAGE>
- -----------------------------------------------------------------
Report of Independent Auditors
The Board of Directors and Stockholders
Phillips Petroleum Company
We have audited the accompanying consolidated balance sheets of
Phillips Petroleum Company as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1995. Our audits also included
the financial statement schedule listed in the Index in Item 8.
These financial statements and schedule are the responsibility of
the company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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 consolidated
financial position of Phillips Petroleum Company at December 31,
1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 1 to the financial statements, effective
April 1, 1995 the company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 21, 1996
59
<PAGE>
- ------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
---------------------------
1995 1994 1993
---------------------------
Revenues
Sales and other operating revenues $13,368 12,211 12,309
Equity in earnings of
affiliated companies 127 84 66
Other revenues 26 72 170
- ------------------------------------------------------------------
Total Revenues 13,521 12,367 12,545
- ------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 8,182 7,292 7,391
Production and operating expenses 2,143 2,192 2,329
Exploration expenses 198 226 256
Selling, general and
administrative expenses 500 478 597
Depreciation, depletion and
amortization 871 794 841
Taxes other than income taxes 266 271 283
Interest and expense on indebtedness 265 250 278
Preferred dividend requirements of
subsidiary 32 32 32
- ------------------------------------------------------------------
Total Costs and Expenses 12,457 11,535 12,007
- ------------------------------------------------------------------
Income before income taxes, subsidiary
stock transaction and extraordinary
item 1,064 832 538
Gain on subsidiary stock transaction - 20 -
- ------------------------------------------------------------------
Income before income taxes and
extraordinary item 1,064 852 538
Provision for income taxes 595 368 293
- ------------------------------------------------------------------
Income before Extraordinary Item 469 484 245
Extraordinary item - - (2)
- ------------------------------------------------------------------
Net Income $ 469 484 243
==================================================================
Per Share of Common Stock
Income before extraordinary item $ 1.79 1.85 .94
Extraordinary item - - (.01)
- ------------------------------------------------------------------
Net Income $ 1.79 1.85 .93
==================================================================
Average Common Shares Outstanding
(in thousands) 261,989 261,529 261,015
- ------------------------------------------------------------------
See Accounting Policies and Notes to Financial Statements.
60
<PAGE>
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
At December 31 Millions of Dollars
-------------------
1995 1994
-------------------
Assets
Cash and cash equivalents $ 67 193
Accounts and notes receivable
(less allowances: 1995--$15; 1994--$20) 1,522 1,462
Inventories 505 527
Deferred income taxes 229 203
Prepaid expenses and other current assets 86 97
- -----------------------------------------------------------------
Total Current Assets 2,409 2,482
Investments and long-term receivables 841 708
Properties, plants and equipment (net) 8,493 8,042
Deferred income taxes 121 122
Deferred charges 114 99
- -----------------------------------------------------------------
Total $11,978 11,453
=================================================================
Liabilities
Accounts payable $ 1,494 1,371
Long-term debt due within one year 19 18
Accrued income and other taxes 922 847
Other accruals 380 285
- -----------------------------------------------------------------
Total Current Liabilities 2,815 2,521
Long-term debt 3,097 3,106
Accrued dismantlement, removal and
environmental costs 657 564
Deferred income taxes 948 961
Employee benefit obligations 400 341
Other liabilities and deferred credits 522 656
- -----------------------------------------------------------------
Total Liabilities 8,439 8,149
- -----------------------------------------------------------------
Preferred Stock of Subsidiary and Other
Minority Interests 351 351
- -----------------------------------------------------------------
Stockholders' Equity
Common stock--500,000,000 shares authorized
at $1.25 par value
Issued (306,380,511 shares)
Par value 383 346
Capital in excess of par 1,966 996
Treasury stock (at cost: 1995--15,047,246
shares; 1994--15,542,074 shares) (827) (859)
Compensation and Benefits Trust (CBT)
(at cost: 1995--29,200,000 shares;
1994--0 shares) (989) -
Foreign currency translation adjustments 39 16
Unearned employee compensation--Long-Term
Stock Savings Plan (LTSSP) (414) (451)
Retained earnings 3,030 2,905
- -----------------------------------------------------------------
Total Stockholders' Equity 3,188 2,953
- -----------------------------------------------------------------
Total $11,978 11,453
=================================================================
See Accounting Policies and Notes to Financial Statements.
61
<PAGE>
- -----------------------------------------------------------------
Consolidated Statement of Cash Flows Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
-------------------------
1995 1994 1993
-------------------------
Cash Flows from Operating Activities
Net income $ 469 484 243
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 871 794 841
Dry hole costs and leasehold
impairment 66 95 122
Deferred taxes 9 (51) (48)
Extraordinary item - - 2
Sale of accounts receivable 200 - -
Other changes in accounts and
notes receivable (245) (82) (20)
Decrease (increase) in inventories 25 (10) 80
Decrease (increase) in prepaid
expenses and other current assets 12 22 (11)
Increase in accounts payable 130 15 28
Increase (decrease) in taxes and
other accruals 136 (26) (34)
Other (77) (38) 105
- -----------------------------------------------------------------
Net Cash Provided by Operating
Activities 1,596 1,203 1,308
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (1,456) (1,154) (1,226)
Proceeds from asset dispositions 142 266 821
Long-term advances to affiliates and
other investments (39) (20) -
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (1,353) (908) (405)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 610 1,335 2,613
Repayment of debt (619) (1,447) (3,209)
Issuance of company stock 9 12 19
Purchase of company stock - (1) (4)
Dividends paid (313) (293) (292)
Other (56) 173 (42)
- -----------------------------------------------------------------
Net Cash Used for Financing Activities (369) (221) (915)
- -----------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents (126) 74 (12)
Cash and cash equivalents at
beginning of year 193 119 131
- -----------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 67 193 119
=================================================================
See Accounting Policies and Notes to Financial Statements.
62
<PAGE>
- -------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Stockholders' Equity
Shares of Common Stock
-------------------------------------
Held in Held in
Issued Treasury CBT
-------------------------------------
December 31, 1992 277,180,511 16,949,496 -
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans (1,249,217)
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Other
- -------------------------------------------------------------------
December 31, 1993 277,180,511 15,700,279 -
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans (158,205)
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Other
- -------------------------------------------------------------------
December 31, 1994 277,180,511 15,542,074 -
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans (494,828)
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Establishment of CBT 29,200,000 29,200,000
Other
- -------------------------------------------------------------------
December 31, 1995 306,380,511 15,047,246 29,200,000
===================================================================
- -------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Stockholders' Equity
Millions of Dollars
--------------------------------------
Common Stock
--------------------------------------
Par Capital in Treasury
Value Excess of Par Stock CBT
--------------------------------------
December 31, 1992 $346 950 (960) -
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans 22 75
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Other 5
- -------------------------------------------------------------------
December 31, 1993 346 977 (885) -
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans 15 26
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Other 4
- -------------------------------------------------------------------
December 31, 1994 346 996 (859) -
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans 16 32
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Establishment of CBT 37 952 (989)
Other 2
- -------------------------------------------------------------------
December 31, 1995 $383 1,966 (827) (989)
===================================================================
- -------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Stockholders' Equity
Millions of Dollars
-------------------------------------
Foreign Unearned
Currency Employee
Translation Compensation Retained
Adjustments --LTSSP Earnings
-------------------------------------
December 31, 1992 19 (523) 2,866
Net income 243
Cash dividends paid on
common stock (292)
Distributed under incentive
compensation plans (74)
Recognition of LTSSP
unearned compensation 36
Tax benefit of dividends on
unallocated LTSSP shares 8
Current period translation
adjustment (33)
Other
- -------------------------------------------------------------------
December 31, 1993 (14) (487) 2,751
Net income 484
Cash dividends paid on
common stock (293)
Distributed under incentive
compensation plans (45)
Recognition of LTSSP
unearned compensation 36
Tax benefit of dividends on
unallocated LTSSP shares 8
Current period translation
adjustment 30
Other
- -------------------------------------------------------------------
December 31, 1994 16 (451) 2,905
Net income 469
Cash dividends paid on
common stock (313)
Distributed under incentive
compensation plans (38)
Recognition of LTSSP
unearned compensation 37
Tax benefit of dividends on
unallocated LTSSP shares 7
Current period translation
adjustment 23
Establishment of CBT
Other
- -------------------------------------------------------------------
December 31, 1995 39 (414) 3,030
===================================================================
See Accounting Policies and Notes to Financial Statements.
63
<PAGE>
- -----------------------------------------------------------------
Accounting Policies Phillips Petroleum Company
o Consolidation Principles and Investments--Majority-owned,
controlled subsidiaries are consolidated. Investments in
affiliates in which the company owns 20 percent to 50 percent
of voting control are generally accounted for under the
equity method. Undivided interests in oil and gas joint
ventures are consolidated on a pro rata basis. Other
securities and investments are generally carried at cost.
o Reclassification--Certain amounts in the 1994 and 1993
financial statements have been reclassified to conform with
the 1995 presentation.
o Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosures of contingent assets and
liabilities. Actual results could differ from the estimates
and assumptions used.
o Cash Equivalents--Cash equivalents are highly liquid
short-term investments that are readily convertible to known
amounts of cash and generally have original maturities within
three months from their date of purchase.
o Inventories--Crude oil and petroleum and chemical products
are valued at cost, which is lower than market in the
aggregate, primarily on the last-in, first-out (LIFO) basis.
Materials and supplies are valued at, or below, average cost.
o Derivative Contracts--Forward foreign currency contracts,
commodity option contracts, and futures contracts are
recorded at market value, either through monthly adjustments
for unrealized gains and losses (forwards and options) or
through daily settlements in cash (futures); however, swaps
and forward commodity contracts are not marked to market.
Gains and losses are recognized during the same period in
which the gains and losses from the underlying exposures
being hedged are recognized.
Occasionally, the company will use derivative contracts to
hedge foreign currency exposures on firm commitments to
purchase or build long-lived assets, in which case the gain
or loss on the forward is deferred and reported as an
adjustment to the carrying value of the long-lived asset when
the firm commitment is paid. Deferred gains and losses,
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<PAGE>
along with deferred premiums paid for commodity option
contracts, are reported on the balance sheet with other
current assets or other current liabilities.
o Oil and Gas Exploration and Development--Oil and gas
exploration and development costs are accounted for using the
successful efforts method of accounting.
Property Acquisition Costs--Oil and gas leasehold acquisition
costs are capitalized. Leasehold impairment is recognized
based on exploratory experience and management judgment.
Upon discovery of commercial reserves, leasehold costs are
transferred to proved properties.
Exploratory Costs--Geological and geophysical costs and the
costs of carrying and retaining undeveloped properties are
expensed as incurred. Exploratory drilling costs are
capitalized when incurred. If, based on management judgment,
exploratory wells are determined to be commercially
unsuccessful or dry holes, applicable costs are expensed.
Development Costs--Costs incurred to drill and equip
development wells, including unsuccessful development wells,
are capitalized.
Depletion and Amortization--Leasehold costs of producing
properties are depleted using the unit-of-production method
based on estimated proved oil and gas reserves. Amortization
of intangible development costs is based on the
unit-of-production method using the estimated proved
developed oil and gas reserves.
o Depreciation and Amortization--Depreciation and amortization
of properties, plants and equipment are determined by the
group straight-line method, the individual unit straight-line
method or the unit-of-production method, applying the method
considered most appropriate for each type of property.
o Property Dispositions--When complete units of depreciable
property are retired or sold, the asset cost and related
accumulated depreciation are eliminated with any gain or loss
reflected in income. When less than complete units of
depreciable property are disposed of or retired, the
difference between asset cost and salvage value is charged or
credited to accumulated depreciation.
o Dismantlement, Removal and Environmental Costs--The estimated
undiscounted costs, net of salvage values, of dismantling and
removing major facilities, including necessary site
restoration, are accrued using either the unit-of-production
or the straight-line method.
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Environmental expenditures are expensed or capitalized as
appropriate, depending upon their future economic benefit.
Expenditures that relate to an existing condition caused by
past operations, and that do not have future economic
benefit, are expensed. Liabilities for these expenditures
are recorded on an undiscounted basis when environmental
assessments or cleanups are probable and the costs can be
reasonably estimated. These liabilities have not been
reduced for probable recoveries from third parties.
o Foreign Currency Translation--Adjustments resulting from the
process of translating foreign functional currency financial
statements into U.S. dollars are accumulated as a separate
component of stockholders' equity. Foreign currency
transaction gains and losses are included in current
earnings. Most of the company's foreign operations use the
local currency as the functional currency.
o Income Taxes--Deferred income taxes are computed using the
liability method and are provided on all temporary
differences between the financial reporting basis and the tax
basis of the company's assets and liabilities, except for
temporary differences related to investments in certain
foreign subsidiaries and corporate joint ventures that are
essentially permanent in duration. Allowable tax credits are
applied currently as reductions of the provision for income
taxes.
o Income Per Share of Common Stock--Income per share of common
stock is calculated based upon the daily weighted-average
number of common shares outstanding during the year,
including shares held by the company's Long-Term Stock
Savings Plan (LTSSP). Treasury stock and shares held by the
Compensation and Benefits Trust are excluded from the daily
weighted-average number of common shares outstanding.
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<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Accounting Change and Extraordinary Item
Effective April 1, 1995, the company adopted Financial Accounting
Standards Board (FASB) Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which resulted in a before-tax addition of
$95 million to depreciation, depletion and amortization expense
in 1995. Under the new Statement, the company now evaluates
impairment of exploration and production assets on a field-by-
field basis rather than using one worldwide cost center for its
proved properties. After-tax, the additional charge was
$49 million, $.19 per share.
The before-tax charges for the above items by segment were
Exploration and Production (E&P), $78 million; Corporate,
$13 million; and Chemicals, $4 million. The after-tax charges
were $39 million, $7 million, and $3 million, respectively. The
fair values of the impaired E&P assets were determined by using
the present value of expected future cash flows. The fair values
of idle Corporate and Chemicals assets considered to be impaired
were determined based on information about sales and purchases of
similar assets.
During 1993, the company incurred a before-tax extraordinary loss
of $3 million, attributed to call premiums paid on the early
retirement of debt. The after-tax loss was $2 million, $.01 per
share.
Note 2--Inventories
Inventories at December 31 were:
Millions of Dollars
-------------------
1995 1994
-------------------
Crude oil and petroleum products $173 228
Chemical products 245 204
Materials, supplies and other 87 95
- -----------------------------------------------------------------
$505 527
=================================================================
Inventories valued on a LIFO basis totaled $336 million and
$366 million at December 31, 1995 and 1994, respectively, and
would have been approximately $443 million and $427 million
higher, respectively, had they been valued using the first-in,
first-out (FIFO) method.
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Note 3--Investments and Long-Term Receivables
Components of investments and long-term receivables at
December 31 were:
Millions of Dollars
-------------------
1995 1994
-------------------
Investments in and advances to affiliated
companies $661 573
Long-term receivables 104 90
Other investments 76 45
- -----------------------------------------------------------------
$841 708
=================================================================
Equity Investments
The company owns investments in chemicals, oil and gas
transportation, coal mining, and other industries. In the
ordinary course of business, Phillips has related party
transactions with most of these equity companies including sales
and purchases of feedstocks and finished products, as well as,
operating and marketing services. Summarized financial
information for all entities accounted for using the equity
method, follows:
Millions of Dollars
--------------------------
1995 1994 1993
--------------------------
Revenues $2,776 2,603 2,280
Income before income taxes 680 579 586
Net income 470 360 353
Current assets 758 689 534
Other assets 3,236 2,994 2,639
Current liabilities 889 622 461
Other liabilities 1,031 1,439 1,480
- -----------------------------------------------------------------
At December 31, 1995, retained earnings included $92 million
related to the undistributed earnings of these affiliated
companies, and distributions received from them were
$122 million, $103 million and $88 million in 1995, 1994 and
1993, respectively.
At December 31, 1995, the company's 50 percent interest in Sweeny
Olefins Limited Partnership (SOLP), which owns and operates a
1.5 billion-pound-per-year ethylene plant located adjacent to the
company's Sweeny, Texas, refinery, was carried at a net
investment of $110 million. During construction of this
facility, the company made advances to the partnership under a
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<PAGE>
subordinated loan agreement (SLA) to fund certain costs related
to completing the project.
In 1992, the company sold participating interests in the SLA to a
syndicate of banks for $211 million under a participation
agreement. The sale of this receivable is subject to recourse,
in that the company has a contingent obligation to pay the
amounts due the participating banks if SOLP fails to pay. It is
not economically practicable to estimate the fair value of the
company's obligations to SOLP or to the participating banks. The
balance of the subordinated loan at December 31, 1995, was
$164 million.
During third quarter 1995, SOLP entered into a second
subordinated loan agreement with the company, with essentially
the same terms as the SLA, for $120 million to fund three new
furnaces for the ethylene plant. During 1995, SOLP borrowed
$19 million under this agreement, all of which was outstanding at
December 31, 1995.
Note 4--Properties, Plants and Equipment
The company's investment in properties, plants and equipment
(PP&E), with accumulated depreciation, depletion and amortization
(DD&A), at December 31 was:
Millions of Dollars
---------------------------------------------
1995 1994
---------------------- ---------------------
Gross Net Gross Net
PP&E DD&A PP&E PP&E DD&A PP&E
---------------------- ---------------------
E&P $10,516 6,556 3,960 10,203 6,472 3,731
GPM 1,890 1,015 875 1,614 942 672
RM&T 3,463 1,573 1,890 3,368 1,461 1,907
Chemicals 2,646 1,140 1,506 2,570 1,104 1,466
Corporate and Other 573 311 262 538 272 266
- ------------------------------------------------------------------
$19,088 10,595 8,493 18,293 10,251 8,042
==================================================================
Note 5--Accrued Dismantlement, Removal and Environmental Costs
At December 31, 1995 and 1994, the company had accrued
$548 million and $449 million, respectively, of dismantlement and
removal costs, primarily related to worldwide offshore production
facilities and to production facilities at Prudhoe Bay. Total
probable dismantlement and removal costs estimated at
December 31, 1995, were $948 million. These costs are accrued
primarily on the unit-of-production method.
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<PAGE>
Phillips had accrued environmental costs, primarily related to
cleanup of ponds and pits at domestic refineries and underground
storage tanks at U.S. service stations, and other various costs,
of $58 million and $62 million at December 31, 1995 and 1994,
respectively. Phillips had also accrued $34 million and
$31 million of environmental costs associated with discontinued
or sold operations at December 31, 1995 and 1994, respectively.
Also, $7 million and $13 million were included at December 31,
1995 and 1994, respectively, for sites where the company has been
named a Potentially Responsible Party. At the same dates,
$10 million and $9 million, respectively, had been accrued for
other environmental litigation. At December 31, 1995 and 1994,
total environmental accruals were $109 million and $115 million,
respectively.
Note 6--Debt
Long-term debt due after one year at December 31 was:
Millions of Dollars
---------------------
1995 1994
---------------------
9 1/2% Notes Due 1997 $ 300 299
9 3/8% Notes Due 20ll 349 349
9.18% Notes Due September 15, 2021 300 300
9% Notes Due 2001 250 250
8.86% Notes Due May 15, 2022 250 250
8.49% Notes Due January 1, 2023 250 250
7.92% Notes Due April 15, 2023 250 250
7.20% Notes Due November 1, 2023 250 250
6.65% Notes Due March 1, 2003 100 100
5 5/8% Marine Terminal Revenue Bonds,
Series 1977 Due 2007 20 20
Revolving debt due to banks and others
through 2001 at 6 1/8% - 6 31/32% 220 202
Guarantees of LTSSP bank loans payable
at 4 7/8% - 6 3/8% 457 485
Medium-term notes due various years
at 7 1/2% - 8% 100 100
Other obligations 1 1
- -----------------------------------------------------------------
$3,097 3,106
=================================================================
Maturities of long-term debt in 1996 through 2000 are:
$19 million (included in current liabilities), $346 million,
$32 million, $84 million and $201 million, respectively.
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<PAGE>
The company's LTSSP has two term loan agreements: one requiring
repayment in annual installments through the year 1998, and a
second that was amended late in 1995 to extend its term from
15 years to 25 years with repayment required in annual
installments beginning in 2005. The outstanding balance of the
loans at December 31, 1995, were $79 million and $397 million,
respectively.
Under the LTSSP $397 million 25-year term bank loan, any
participating bank in the syndicate of lenders may cease to
participate on November 30, 2001, by giving not less than
180 days' prior notice to the LTSSP and the company. The company
does not anticipate a cessation of participation by the lenders,
and plans to commence scheduled repayments beginning in 2005.
Each bank participating in the LTSSP loan has the optional right,
if the current directors or their approved successors cease to be
a majority of the Board, and upon not less than 90 days' notice,
to cease to participate in the loan. Under the above conditions,
such banks' rights and obligations under the loan agreement must
be purchased by the company if not transferred to a bank of the
company's choice. (See Note 12 for additional discussion of the
LTSSP.)
During 1995, the company replaced its commercial paper program,
which had been supported by a direct-pay irrevocable bank letter
of credit, with a $250 million commercial paper program supported
by a portion of the company's unused revolving lines of credit
equal to 100 percent of the commercial paper outstanding. To
facilitate the change in programs and to maintain liquidity for
other uses, the company increased its revolving bank credit
facility from $800 million to $1,100 million during 1995. At
December 31, 1995, $77 million of this facility was outstanding,
and $123 million of this facility supported the commercial paper
program.
Also outstanding at December 31, 1995, was $20 million of
Phillips Petroleum Company Norway's $500 million revolving bank
credit facility from a group of international banks. The
revolving debt, including the commercial paper, has been
classified as non-current based on the company's ability and
intent to refinance it on a long-term basis.
Depending on the credit facility, borrowings may bear interest at
a margin above rates offered by certain designated banks in the
London interbank market or at margins above certificate of
deposit or prime rates offered by certain designated banks in the
United States. The agreements call for commitment fees on
available, but unused, amounts. The agreements also contain
early termination rights if the company's current directors or
their approved successors cease to be a majority of the Board.
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<PAGE>
Note 7--Contingencies
In the case of all known contingencies, the company accrues a
charge for a loss when it is probable and the amount is
reasonably estimable. These accruals are not discounted for
delays in future payment and are not reduced for potential
insurance recoveries. Based on currently available information,
the company believes that it is remote that future costs related
to known contingent liability exposures will exceed current
accruals by an amount that would have a material adverse impact
on the company's financial statements.
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to gain
contingencies and accrued liabilities and other potential
exposures. Estimates that are particularly sensitive to future
change include environmental remediation, tax and legal matters.
Estimated future environmental remediation costs are subject to
change due to such factors as the unknown magnitude of cleanup
costs, the unknown time and extent of such remedial actions that
may be required, and the determination of the company's liability
in proportion to other responsible parties. Estimated future tax
and legal matters are subject to change as events evolve and as
additional information becomes available during the
administrative and litigation process.
Environmental--The company is subject to federal, state and local
environmental laws and regulations. These may result in
obligations to remove or mitigate the effects on the environment
of the placement, storage, disposal or release of certain
chemical, mineral and petroleum substances at various sites. The
company is currently participating in environmental assessments
and cleanup under these laws at federal Superfund and comparable
state sites. In the future, the company may be involved in
additional environmental assessments, cleanups and proceedings.
Kenai LNG Tax Proceeding--In November 1995, the U.S. Court of
Appeals for the Tenth Circuit affirmed the U.S. Tax Court's
previous decisions related to the company's sales of liquefied
natural gas in Japan. The Tax Court's decisions supported the
company's position that more than 50 percent of the income at
issue was from a foreign source. The U.S. Government's last
court of appeal on the issue is the U.S. Supreme Court and a writ
of certiorari, if made, must be requested by February 26, 1996.
A favorable resolution of the issue would have a positive effect
on Phillips' net income of approximately $565 million, and would
improve the company's cash position over time by approximately
$300 million after-tax, the majority of which would be received
in 1996.
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<PAGE>
In addition, the company has a number of issues outstanding with
the Internal Revenue Service that can proceed toward final
settlement as a result of resolving the Kenai issue. Although a
favorable resolution of these issues would have a positive effect
on net income and cash flow, it is too early to determine the
outcome, when the issues will be resolved, or the final financial
effects. An unfavorable outcome of these issues would not impact
the company's net income or cash position.
Other Legal Proceedings--The company is a party to a number of
other legal proceedings pending in various courts or agencies for
which, in some instances, no provision has been made.
Other Contingencies--The company has contingent liabilities
resulting from throughput agreements with pipeline and processing
companies in which it holds stock interests. Under these
agreements, Phillips may be required to provide any such company
with additional funds through advances against future charges for
the shipping or processing of petroleum liquids, natural gas and
refined products.
Note 8--Financial Instruments and Derivative Contracts
Derivative Instruments and Other Contracts Held for Purposes
Other Than Trading
The company and certain of its subsidiaries use financial and
commodity-based derivative contracts to manage exposures to
currency and commodity price fluctuations. For every derivative
contract used, there is an offsetting physical or financial
position, firm commitment or anticipated transaction. Neither
Phillips nor its subsidiaries hold or issue derivative financial
instruments with leveraged features. In 1995 and 1994, the net
realized and unrealized gains and losses from derivative
contracts were not material to the company's financial
statements.
Financial Derivative Contracts--The company uses forward exchange
contracts to manage exposures to currency exchange rate
fluctuations associated with certain assets, liabilities and firm
commitments. The following table summarizes the company's major
currency hedging activities. The notional amounts represent only
the amounts hedged, not the net market exposure, which is
significantly less. Any gains and losses from these positions
will offset gains or losses on the underlying exposures.
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Notional U.S. Dollar Positions
------------------------------
Millions of Dollars
------------------------------
1995
------------------------------
Year-End Average Month-End
----------- -----------------
Source of Foreign Currency Risk
Sales of pounds sterling forward
to hedge sterling-denominated
receivables from a U.K.
subsidiary $523 416
Purchases of U.S. dollars forward
by a U.K. subsidiary to hedge
purchases of crude oil in U.S.
dollars 27 24
Purchases of U.S. dollars forward
by a Norwegian subsidiary to
hedge dollar-denominated debt - 60
Sales of Belgian francs forward
to hedge foreign-currency-
denominated sales of chemical
products 1 5
- -----------------------------------------------------------------
Commodity Derivative Contracts--Phillips uses commodity-based
swaps, options and futures to manage exposures to commodity price
fluctuations. The following table summarizes the company's major
commodity hedging activities. Again, the notional volumes
represent only the amounts hedged, not the net market exposure,
which is significantly less.
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Notional
Volume Positions
--------------------
1995
--------------------
Class of Average
Derivative Year-End Month-End
---------- -------- ---------
Source of Commodity Price Risk
Natural gas (billions of
British thermal units)
Sales of domestic natural
gas production Swaps 36,162 4,057
Futures 350 86
Pricing difference between
purchases and sales Swaps 610 451
- -------------------------------------------------------------------
Crude oil (thousands of barrels)
Timing differences between
purchases and sales Swaps - 37
Futures 244 255
- -------------------------------------------------------------------
Refined products (thousands of
barrels)
Feedstock-to-product margins
on gasoline and distillates Swaps 2,859 575
Futures 638 228
- -------------------------------------------------------------------
In the case of anticipated transactions, expected product sales
or margins are hedged up to twelve months into the future.
Except for an immaterial amount which will close in January 1997,
all of the company's derivative contracts will close in 1996.
At December 31, 1994, the aggregate notional value of the
company's forward exchange contracts and the aggregate notional
amount of all of the company's commodity-based derivative
contracts were $347 million and 1,626,000 barrels-of-oil
equivalent, respectively.
Credit Risk
The company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash
equivalents, trade receivables and over-the-counter derivative
contracts. Phillips' cash equivalents are placed in high-quality
time deposits with major international banks and financial
institutions, limiting its exposure to concentrations of credit
risk. The company's trade receivables result primarily from its
petroleum and chemicals operations and reflect a broad customer
base, both nationally and internationally. The company also
routinely assesses the financial strength of its customers.
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<PAGE>
The credit risk from the company's over-the-counter derivative
contracts, such as forwards and swaps, derives from the
counterparty to the transaction, typically a major bank or
financial institution. Phillips does not anticipate non-
performance by any of these counterparties, none of whom does
sufficient volume with the company to create a significant
concentration of credit risk. Futures contracts have a
negligible credit risk because they are traded on the New York
Mercantile Exchange (NYMEX) or International Petroleum Exchange
of London Limited (IPE).
Fair Values of Financial Instruments
The following methods and assumptions were used by the company in
estimating the fair value of its financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet approximates fair value.
Long-term debt: The carrying amount of the company's floating-
rate debt approximates fair value. The fair value of the fixed-
rate debt is estimated based on quoted market prices.
Forward exchange contracts and swaps: Fair value is estimated
based on quoted market prices of comparable contracts, and
approximates the net gains and losses which would have been
realized if the contracts had been closed out at year-end.
Commodity futures: Fair value is based on quoted market prices
obtained from NYMEX and IPE.
Options: Fair value is based on quoted market prices.
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Certain company financial instruments at December 31 were:
Millions of Dollars
------------------------------
Carrying Amount Fair Value
--------------- -------------
1995 1994 1995 1994
--------------- -------------
Financial assets
Forward exchange contracts $ 5 1 5 1
Futures * * * *
Swaps - * * *
Financial liabilities
Long-term debt, including
current maturities 3,116 3,124 3,397 3,050
Forward exchange contracts 2 * 2 *
Futures 1 * 1 *
Swaps - - 13 *
Options - * - *
- -----------------------------------------------------------------
*Indicates amounts were less than $1 million.
Note 9--Preferred Stock of Subsidiary
The company's subsidiary, Phillips Gas Company (PGC), has
outstanding 13,800,000 shares of Series A 9.32% Cumulative
Preferred Stock, carried at redemption value. The shares are
redeemable in whole, or in part, at the option of PGC, on or
after December 14, 1997, at a redemption price of $25 per share,
plus accrued and unpaid dividends.
The company has a commitment to make equity infusions to keep the
consolidated tangible net worth of PGC at or above specified
levels. Phillips is also committed to make a liquidity facility
available in an amount sufficient to enable PGC to meet its
payment obligations, including those with respect to dividends on
the Series A Preferred Stock. It has not been necessary for
Phillips to make equity infusions, nor has PGC utilized the
liquidity facility.
Note 10--Preferred Share Purchase Rights
The company has outstanding one Preferred Share Purchase Right
(Right) for each outstanding share of the company's common stock.
The Rights enable holders to either acquire additional shares of
Phillips common stock or purchase the stock of an acquiring
company at a discount, depending on specific circumstances. The
Rights, which expire July 31, 1999, will be exercisable only if a
person or group acquires 20 percent or more of the company's
common stock or announces a tender offer that would result in
ownership of 20 percent or more of the common stock. The Rights
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<PAGE>
may be redeemed by the company in whole, but not in part, for one
cent per Right.
Note 11--Non-Mineral Operating Leases
The company leases ocean transport vessels, tank and hopper
railcars, corporate aircraft, service stations, computers, office
buildings and other facilities and equipment. At December 31,
1995, future minimum payments due under non-cancelable operating
leases were:
Millions
of Dollars
----------
1996 $ 93
1997 75
1998 60
1999 46
2000 32
Remaining years 209
- -----------------------------------------------------------------
$515
=================================================================
During 1995, the company and a co-venturer extended the lease
terms on two liquefied natural gas tankers through 2000. The
company's 70 percent share of the guaranteed residual value of
the tankers is $196 million.
Operating lease rental expense for years ended December 31
was:
Millions of Dollars
------------------------
1995 1994 1993
------------------------
Total rentals $112 102 97
Less sublease rentals 3 6 6
- -----------------------------------------------------------------
$109 96 91
=================================================================
Note 12--Employee Benefit Plans
Defined Benefit Plans
The company has defined benefit retirement plans covering
substantially all employees. The plans are generally non-
contributory, with benefit formulas based on employee earnings
and credited service.
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Net pension cost was:
Millions of Dollars
---------------------------------------
U.S. Plans Foreign Plans
------------------ ------------------
1995 1994 1993 1995 1994 1993
------------------ ------------------
Service cost $ 26 30 32 14 14 12
Interest cost 48 43 42 18 15 16
Return on assets
Actual (86) 2 4 (36) (2) (41)
Deferred gains (losses) 57 (30) (36) 14 (14) 24
Amortization of
Net asset (7) (7) (7) - - -
Net losses (gains) 8 12 8 (1) 1 -
Prior service cost 3 2 2 1 - 1
- -----------------------------------------------------------------
Net pension cost $ 49 52 45 10 14 12
=================================================================
In determining net pension cost, Phillips has elected to amortize
net gains and losses on a straight-line basis over 10 years. A
table showing the funded status of the plans and a reconciliation
with accrued pension cost and deferred gain on reversion at
December 31 follows:
Millions of Dollars
------------------------------
U.S. Plans Foreign Plans
-------------- -------------
1995 1994 1995 1994
-------------- -------------
Plan assets at fair value $ 380 261 300 246
- -----------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested benefits 439 306 193 161
Non-vested benefits 31 18 - -
- -----------------------------------------------------------------
Accumulated benefit obligation 470 324 193 161
Effect of projected future
salary increases 290 179 77 69
- -----------------------------------------------------------------
Projected benefit obligation 760 503 270 230
- -----------------------------------------------------------------
Excess asset (obligation) (380) (242) 30 16
Unrecognized net asset (34) (41) (1) (1)
Unrecognized net (gains) losses 191 51 (16) (9)
Unrecognized prior service cost 35 38 9 9
- -----------------------------------------------------------------
Prepaid (accrued) pension cost
and deferred gain on reversion $(188) (194) 22 15
=================================================================
Assumptions--Weighted Average
at December 31
Rate of compensation increase 4.25% 4.25 4.00 4.20
Discount rate 7.25 8.75 7.50 7.70
Long-term rate of return on
assets 10.75 11.25 8.20 8.50
- -----------------------------------------------------------------
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The plan assets reflected in the above table include a
participating annuity contract, commingled funds, real estate,
stocks, bonds and insurance contracts. A foreign plan also holds
employee home mortgage loans.
The accumulated benefit obligation reflected above includes
$50 million and $36 million at December 31, 1995 and 1994,
respectively, for supplemental retirement plans that are not
qualified under the Employee Retirement Income Security Act of
1974 (ERISA). These non-qualified plans are funded by an
irrevocable grantor trust, not out of the plan assets reflected
in the above schedule. The plan assets shown above do not
reflect contributions in 1996 and 1995 for plan years 1995 and
1994, respectively. After adding plan asset contributions of
$42 million for the 1995 plan year and $30 million for the 1994
plan year, which are paid in the following year, and eliminating
the non-qualified plan obligations that are not payable from plan
assets, the plan assets exceed accumulated plan liabilities for
both years.
For U.S. plans that are qualified under ERISA, which includes the
company's primary retirement plan for employees, the company's
funding policy is to contribute at least the minimum required by
ERISA. The contribution requirements are determined by an
independent actuary using actuarial assumptions and asset
valuation techniques allowed by ERISA and generally accepted in
the actuarial profession as appropriate for funding purposes.
These ERISA funding calculations differ in some important
respects from the assumptions and techniques required by
financial accounting rules used to prepare the information in the
above table. However, the company's qualified U.S. retirement
plans have assets that exceed the value of the liabilities
accumulated to date when valued under either set of requirements.
For the foreign plans, the value of plan assets is also generally
larger than the accumulated benefit obligation. Contributions to
foreign plans are dependent upon local laws and tax regulations
and, in most cases, are shared by co-venturers.
Other Postretirement Plans
Company plans provide certain health care and life insurance
benefits for substantially all retired U.S. employees. The
health care plan is contributory, while the life insurance plan
is non-contributory. Retirees covered by the health care plan
essentially pay their own way, except those persons who retired
prior to March 1986 and early retirees not yet eligible for
Medicare. The company's policy is to fund the health care plan
in amounts sufficient to cover current claims. The life
insurance plan is funded based on actuarial determinations.
80
<PAGE>
Net postretirement benefit cost was:
Millions of Dollars
----------------------------------
Health Life
---------------- ----------------
1995 1994 1993 1995 1994 1993
---------------- ----------------
Service cost $ 2 2 2 1 1 1
Interest cost 6 8 9 4 4 4
Return on assets
Actual - - - (2) (2) (2)
Deferred losses - - - - (1) (1)
Amortization of
Net losses 1 - 2 1 - 1
Prior service cost (4) - - (1) - -
- -----------------------------------------------------------------
Net postretirement benefit cost $ 5 10 13 3 2 3
=================================================================
In determining net postretirement benefit cost, the company has
elected to amortize net gains and losses on a straight-line basis
over 10 years.
The following table shows the funded status of the plans and a
reconciliation with accrued postretirement benefit cost at
December 31.
Millions of Dollars
-----------------------------
Health Life
------------- -------------
1995 1994 1995 1994
------------- -------------
Accumulated postretirement
benefit obligation (APBO)
Retirees $ 68 53 52 35
Fully eligible active
participants 9 11 4 3
Other active participants 11 10 4 2
- -----------------------------------------------------------------
88 74 60 40
Plan assets at fair value, held
under a reserve deposit contract - - 34 35
- -----------------------------------------------------------------
APBO in excess of plan assets (88) (74) (26) (5)
Unrecognized net (gains) losses 9 (2) 15 (2)
Unrecognized prior service cost (17) (21) (4) (4)
- -----------------------------------------------------------------
Accrued postretirement benefit
cost $(96) (97) (15) (11)
=================================================================
Financial Assumptions
Discount rate 7.00% 8.75 7.00 8.75
Long-term rate of return on assets
(non-taxable) - - 7.00 7.00
Rate of compensation increase - - 4.25 4.25
- -----------------------------------------------------------------
81
<PAGE>
At December 31, 1995, the health care cost trend rate is assumed
to decrease gradually from 8 percent in 1996 to 5 percent in 2003
and 2004. No increases in medical costs are assumed for years
beginning in 2005 because of a provision in the health plan which
freezes the company's contribution at 2004 levels. The same
health care cost trend rate was used at December 31, 1994.
Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the APBO by
$4 million at both December 31, 1995 and 1994, and the aggregate
of the service and interest cost components by $1 million for both
1995 and 1994.
For both defined benefit plans and other postretirement plans,
certain financial assumptions are utilized in determining the
company's projected benefit obligation. These assumptions are
examined periodically by the company, and any required changes are
incorporated in the subsequent determination of projected benefit
obligations.
Termination Benefits
The company recorded charges of $69 million, $59 million and
$40 million for severance benefits in connection with work force
reductions in 1995, 1994 and 1993, respectively.
Defined Contribution Plans
Most employees may elect to participate in the company-sponsored
Thrift Plan by contributing a portion of their earnings to any of
several investment funds. A percentage of the employee
contribution is matched by the company. Company contributions
charged to expense were $6 million each in 1995, 1994 and 1993.
The company LTSSP is a leveraged employee stock ownership plan.
Most employees may elect to participate in the LTSSP by
contributing 1 percent of their earnings and receiving an
allocation of shares of common stock proportionate to their
contributions. In 1990 and 1988, the LTSSP borrowed funds that
were used to purchase previously unissued shares of company common
stock. Since the company guarantees the LTSSP's borrowings, the
unpaid balance is reported as a liability of the company and
unearned compensation is shown as a reduction of stockholders'
equity. Dividends on all shares are charged against retained
earnings. The debt is serviced by the LTSSP from company
contributions and dividends received on certain shares of common
stock held by the plan. The shares held by the LTSSP are released
for allocation to participant accounts based on debt service
payments on LTSSP borrowings. In addition, during the period from
82
<PAGE>
1998 through 2005, when no debt principal payments are scheduled
to occur, the company has committed to make direct contributions
to the LTSSP to ensure a certain minimum level of stock allocation
to participant accounts.
The company recognizes interest expense as incurred and
compensation expense based on the cost of shares released, using
the shares-allocated method. The company recognized total LTSSP
expense of $33 million, $23 million and $18 million in 1995, 1994
and 1993, respectively. This included compensation expense of
$29 million, $22 million and $17 million in 1995, 1994 and 1993,
respectively. Company contributions to the LTSSP in 1995, 1994
and 1993 were $21 million, $12 million and $7 million,
respectively. Dividends used to service debt were $36 million,
$37 million and $39 million in 1995, 1994 and 1993, respectively.
These dividends reduce the amount of expense recognized each
period. Interest incurred on the LTSSP debt in 1995, 1994 and
1993 was $31 million, $24 million and $20 million, respectively.
The total LTSSP shares as of December 31, 1995, were:
Unallocated shares 16,405,787
Allocated shares 15,684,621
- -----------------------------------------------------------------
Total LTSSP shares 32,090,408
=================================================================
Incentive Compensation Plans
The company has an Annual Incentive Compensation Plan to provide
awards to certain employees, and a Performance Incentive Program,
which began in 1993, that provides most non-executive employees
with additional compensation if key safety, operating and
financial objectives are met. In anticipation of awards under
both of these plans and the Omnibus Securities Plan, provisions of
$52 million, $45 million and $36 million were charged against
earnings in 1995, 1994 and 1993, respectively.
Under the Omnibus Securities Plan (the Plan) approved by
shareholders, stock options and stock awards for certain employees
are authorized for up to eight-tenths of 1 percent (.8 percent) of
the total issued and outstanding shares as of December 31 of the
year preceding the awards. Any shares not issued in the current
year are available for future grant. The Plan could result in an
8 percent dilution of stockholders' interest if all available
shares are awarded over the 10-year life of the Plan. The Plan
also provides for non-stock-based awards.
Stock options granted under provisions of the Plan and earlier
plans permit purchase of the company's common stock at exercise
prices equivalent to the average market price of the stock on the
83
<PAGE>
date the options were granted. The options have terms of 10 years
and normally become exercisable in increments up to 25 percent on
each anniversary date following the date of grant. Stock
Appreciation Rights (SARs) may from time to time be affixed to the
options. Options exercised in the form of SARs permit the holder
to receive stock, or a combination of cash and stock, subject to a
declining cap on the exercise price.
A comparative summary of stock options and SARs granted under the
Plan and previous plans follows:
1995 1994 1993
--------------------------------
Shares under option at
January 1 6,325,036 5,614,501 5,170,280
Options granted at
$25.07 to $35.00 per share 1,331,972 1,528,200 1,671,502
Options exercised at
$12.63 to $30.32 per share (529,094) (672,509)(1,192,015)
Options forfeited (45,193) (145,156) (35,266)
- -----------------------------------------------------------------
Shares under option at
December 31 (at exercise
prices from $12.63 to
$35.00 per share) 7,082,721 6,325,036 5,614,501
=================================================================
Options exercisable at
December 31 (at exercise
prices from $12.63 to
$35.00 per share) 3,915,145 3,330,508 2,939,548
- -----------------------------------------------------------------
Shares available for grant
at January 1 2,719,317 2,311,292 2,081,851
- -----------------------------------------------------------------
Shares available for grant
at December 31 1,169,719 626,210 219,451
- -----------------------------------------------------------------
SARs under option at January 1 96,550 196,616 332,588
SARs forfeited (25,588) (100,066) (135,972)
- -----------------------------------------------------------------
SARs under option at
December 31 (at exercise
prices from $12.63 to
$16.25 per share) 70,962 96,550 196,616
=================================================================
SARs exercisable at
December 31 (at exercise
prices from $12.63 to
$16.25 per share) 70,962 96,550 196,616
- -----------------------------------------------------------------
In October 1995 the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation," which establishes financial
accounting and reporting standards for stock-based employee
compensation plans. Effective for fiscal years beginning after
December 15, 1995, the Statement provides the option to continue
under the accounting provisions of APB Opinion 25, while
84
<PAGE>
requiring pro forma footnote disclosures of the effects on net
income and earnings per share, calculated as if the new method
had been implemented. Phillips expects to elect to continue
under APB Opinion 25, but the company is studying the various
option pricing models available and the assumptions required to
calculate the fair value amounts that would be disclosed. It is
too early to determine the pro forma effect.
Compensation and Benefits Trust
In December 1995, the company established the Compensation and
Benefits Trust (CBT). The CBT, an irrevocable grantor trust, is
administered by an independent trustee and is designed to
acquire, hold and distribute shares of the company's common stock
to fund certain future compensation and benefit obligations of
the company. The CBT does not increase or alter the amount of
benefits or compensation which will be paid under existing plans,
but offers the company enhanced financial flexibility in
providing the funding requirements of those plans. Phillips also
has flexibility in determining the timing of distributions of
shares from the CBT to fund compensation and benefits, subject to
a minimum distribution schedule. The trustee will vote shares
held by the CBT in accordance with voting directions from
eligible employees, as specified in a trust agreement with the
trustee.
The company sold 29.2 million shares of previously unissued
Phillips common stock, $1.25 par value, to the CBT in exchange
for cash previously contributed to the CBT by Phillips in the
amount of $37 million and a promissory note from the CBT to
Phillips of $952 million. The CBT is consolidated by Phillips,
therefore the cash contribution and promissory note are
eliminated in consolidation. Shares held by the CBT are valued
at cost and do not affect earnings per share or total
stockholders' equity until after they are transferred out of the
CBT. All shares are required to be transferred out of the CBT by
January 1, 2021.
85
<PAGE>
Note 13--Taxes
Taxes charged to income before extraordinary item were:
Millions of Dollars
-----------------------
1995 1994 1993
-----------------------
Taxes Other Than Income Taxes
Property $ 83 91 89
Production 54 56 65
Payroll 59 56 58
Environmental 58 57 56
Other 12 11 15
- -----------------------------------------------------------------
266 271 283
- -----------------------------------------------------------------
Income Taxes
Federal
Current 95 74 60
Deferred 18 (41) (105)
Foreign
Current 520 340 312
Deferred (43) (14) 26
State and local
Current 7 6 1
Deferred (2) 3 (1)
- -----------------------------------------------------------------
595 368 293
- -----------------------------------------------------------------
Total taxes charged to income before
extraordinary item $861 639 576
=================================================================
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for tax purposes. Major components of deferred tax liabilities
and assets at December 31 were:
86
<PAGE>
Millions of Dollars
-------------------
1995 1994
-------------------
Deferred Tax Liabilities
Depreciation, depletion and amortization $1,786 1,685
Other 36 39
- -----------------------------------------------------------------
Total deferred tax liabilities 1,822 1,724
- -----------------------------------------------------------------
Deferred Tax Assets
Contingency accruals 154 144
Benefit plan accruals 200 208
Accrued dismantlement, removal and
environmental costs 238 180
Other financial accruals and deferrals 116 108
Alternative minimum tax and other
credit carryforwards 316 288
Loss carryforwards 327 247
Depreciation, depletion and amortization 6 16
Other 22 29
- -----------------------------------------------------------------
Total deferred tax assets 1,379 1,220
Less valuation allowance 155 142
- -----------------------------------------------------------------
Net deferred tax assets 1,224 1,078
- -----------------------------------------------------------------
Net deferred tax liabilities $ 598 646
=================================================================
Valuation allowances have been established for certain foreign
and state net operating loss carryforwards that reduce deferred
tax assets to an amount that will more likely than not be
realized. Uncertainties that may affect the realization of these
assets include tax law changes and the future level of product
prices, costs and tax rates. Based on the company's historical
taxable income, management expects that the net deferred tax
assets will be realized as offsets to reversing deferred tax
liabilities and as reductions in future taxable operating income.
The alternative minimum tax credit can be carried forward
indefinitely to reduce the company's regular tax liability. The
changes in other loss carryforwards resulted in a net increase in
the valuation allowance of $13 million during 1995.
Deferred taxes have not been provided on temporary differences
related to investments in certain foreign subsidiaries and
corporate joint ventures that are essentially permanent in
duration. At December 31, 1995 and 1994, these temporary
differences were $349 million and $275 million, respectively.
Determination of the amount of unrecognized deferred taxes on
these temporary differences is not practicable due to foreign tax
credits and exclusions.
The amounts of U.S. and foreign income before income taxes and
extraordinary item, with a reconciliation of tax at the federal
statutory rate with the provision for income taxes, were:
87
<PAGE>
Percent of
Millions of Dollars Pretax Income
------------------- --------------------
1995 1994 1993 1995 1994 1993
------------------- --------------------
Income (loss) before
income taxes and
extraordinary item
United States $ 332 346 (4) 31.2% 40.6 (.7)
Foreign 732 506 542 68.8 59.4 100.7
- ---------------------------------------------------------------------
$1,064 852 538 100.0% 100.0 100.0
=====================================================================
Federal statutory
income tax $ 372 298 188 35.0% 35.0 35.0
Foreign taxes in excess of
federal statutory rate 267 169 171 25.0 19.8 31.8
Credit for producing fuel
from a non-conventional
source (31) (44) (37) (2.9) (5.2) (6.9)
Capital-loss carryforward - (50) (27) - (5.8) (5.0)
Other (13) (5) (2) (1.2) (.6) (.4)
- ---------------------------------------------------------------------
$ 595 368 293 55.9% 43.2 54.5
=====================================================================
Excise taxes accrued on the sale of petroleum products were
$1,150 million, $1,121 million and $844 million for the years
ended December 31, 1995, 1994 and 1993, respectively. These
taxes are excluded from reported revenues and expenses.
Note 14--Cash Flow Information
Millions of Dollars
------------------------
1995 1994 1993
------------------------
Non-Cash Investing and Financing
Activities
Treasury stock awards issued (canceled)
under incentive compensation plans $ 2 (15) 7
Capitalized process license fee payable
in installments from 1993 to 1999 - - 16
Contribution of non-cash net assets to
equity-method affiliates 55 109 27
Common stock issued to establish CBT 989 - -
- -----------------------------------------------------------------
Cash Payments
Interest
Debt $224 235 224
Taxes and other 19 48 45
- -----------------------------------------------------------------
$243 283 269
=================================================================
Income taxes $576 451 487
- -----------------------------------------------------------------
88
<PAGE>
Note 15--Other Financial Information
Millions of Dollars
Except Per Share Amounts
------------------------
1995 1994 1993
------------------------
Interest
Incurred
Debt $ 228 237 234
Other 67 28 55
- -----------------------------------------------------------------
295 265 289
Capitalized (30) (15) (11)
- -----------------------------------------------------------------
Expensed $ 265 250 278
=================================================================
Maintenance and Repairs--expensed $ 413 441 481
- -----------------------------------------------------------------
Research and Development
Expenditures--expensed $ 66 71* 80*
- -----------------------------------------------------------------
Foreign Currency Transaction
Gains (Losses)--after-tax $ (3) 3 (2)
- -----------------------------------------------------------------
Cash Dividends paid per
common share $1.195 1.12 1.12
- -----------------------------------------------------------------
*Restated to exclude technical service expenses.
Note 16--Segment and Geographic Information
The company is primarily involved in four business segments:
1) Exploration and Production (E&P)--explores for and produces
crude oil, natural gas and natural gas liquids on a worldwide
basis; 2) Gas Gathering, Processing and Marketing (GPM)--gathers
and processes both natural gas produced by others and natural gas
produced from the company's own reserves, primarily in Oklahoma,
Texas and New Mexico; 3) Refining, Marketing and Transportation
(RM&T)--refines, markets and transports crude oil and petroleum
products, primarily in the United States; 4) Chemicals--
fractionates natural gas liquids and manufactures and markets a
broad range of petroleum-based chemical products on a worldwide
basis. Corporate and Other includes general corporate overhead,
net interest expense and various other operations.
Sales and other operating revenues to outside customers and sales
within Phillips by business segment and by geographic area are at
market value. Operating profit excludes general corporate
revenue and expense, interest, minority interest, equity in
earnings of affiliates, and income taxes. Income taxes are
allocated based upon each segment's taxable income reduced by
applicable tax credits. Corporate assets include all cash and
cash equivalents.
89
<PAGE>
Analysis of Results by Business Segment
Millions of Dollars
-----------------------------------
E&P GPM RM&T
-----------------------------------
1995
Sales and Other Operating Revenues
Outside customers $2,224 481 7,674
Sales within Phillips 1,096 641 366
- -----------------------------------------------------------------------
Segment sales $3,320** 1,122 8,040
=======================================================================
Operating Profit $ 901 13 38
Equity in earnings of affiliates 39 - 17
Minority interest (1) (32) -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (549) (3) (15)
- -----------------------------------------------------------------------
Net income (loss) $ 390 (22) 40
=======================================================================
Assets
Identifiable assets $4,828 1,048 2,543
Investments in and advances
to affiliated companies 225 5 87
- -----------------------------------------------------------------------
Total assets $5,053 1,053 2,630
=======================================================================
Depreciation, Depletion, and
Amortization $ 520 73 133
- -----------------------------------------------------------------------
Capital Expenditures and Investments $ 856 274 150
- -----------------------------------------------------------------------
1994
Sales and Other Operating Revenues
Outside customers $1,787 595 7,029
Sales within Phillips 948 596 366
- -----------------------------------------------------------------------
Segment sales $2,735 1,191 7,395
=======================================================================
Operating Profit $ 708 45 187
Equity in earnings of affiliates 36 3 15
Minority interest (2) (32) -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (400) (17) (66)
- -----------------------------------------------------------------------
Net income (loss) $ 342 (1) 136
=======================================================================
Assets
Identifiable assets $4,445 829 2,726
Investments in and advances
to affiliated companies 252 6 24
- -----------------------------------------------------------------------
Total assets $4,697 835 2,750
=======================================================================
Depreciation, Depletion and
Amortization $ 446 70 128
- -----------------------------------------------------------------------
Capital Expenditures and Investments $ 707 172 100
- -----------------------------------------------------------------------
1993
Sales and Other Operating Revenues
Outside customers $1,741 607 7,032
Sales within Phillips 1,104 639 392
- -----------------------------------------------------------------------
Segment sales $2,845 1,246 7,424
=======================================================================
Operating Profit $ 785 114 77
Equity in earnings of affiliates 38 - 15
Minority interest (5) (32) -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (429) (40) (27)
Extraordinary item - - -
- -----------------------------------------------------------------------
Net income (loss) $ 389 42 65
=======================================================================
Assets
Identifiable assets $4,181 750 2,627
Investments in and advances
to affiliated companies 277 5 26
- -----------------------------------------------------------------------
Total assets $4,458 755 2,653
=======================================================================
Depreciation, Depletion and
Amortization $ 450 73 121
- -----------------------------------------------------------------------
Capital Expenditures and Investments $ 821 120 82
- -----------------------------------------------------------------------
Analysis of Results by Business Segment
Millions of Dollars
-----------------------------------
Corporate
Chemicals and Other* Consolidated
-----------------------------------
1995
Sales and Other Operating Revenues
Outside customers $2,984 5 13,368
Sales within Phillips 541 48 -
- -----------------------------------------------------------------------
Segment sales $3,525 53 13,368
=======================================================================
Operating Profit $ 482 16 1,450
Equity in earnings of affiliates 71 - 127
Minority interest - - (33)
Corporate/non-operating items
Interest expense - (265) (265)
Other - (215) (215)
Income taxes (167) 139 (595)
- -----------------------------------------------------------------------
Net income (loss) $ 386 (325) 469
=======================================================================
Assets
Identifiable assets $2,222 676 11,317
Investments in and advances
to affiliated companies 344 - 661
- -----------------------------------------------------------------------
Total assets $2,566 676 11,978
=======================================================================
Depreciation, Depletion, and
Amortization $ 108 37 871
- -----------------------------------------------------------------------
Capital Expenditures and Investments $ 148 28 1,456
- -----------------------------------------------------------------------
1994
Sales and Other Operating Revenues
Outside customers $2,793 7 12,211
Sales within Phillips 507 45 -
- -----------------------------------------------------------------------
Segment sales $3,300 52 12,211
=======================================================================
Operating Profit $ 323 (7) 1,256
Equity in earnings of affiliates 30 - 84
Minority interest - - (34)
Corporate/non-operating items
Interest expense - (250) (250)
Other - (204) (204)
Income taxes (94) 209 (368)
- -----------------------------------------------------------------------
Net income (loss) $ 259 (252) 484
=======================================================================
Assets
Identifiable assets $2,102 778 10,880
Investments in and advances
to affiliated companies 291 - 573
- -----------------------------------------------------------------------
Total assets $2,393 778 11,453
=======================================================================
Depreciation, Depletion and
Amortization $ 106 44 794
- -----------------------------------------------------------------------
Capital Expenditures and Investments $ 144 31 1,154
- -----------------------------------------------------------------------
1993
Sales and Other Operating Revenues
Outside customers $2,920 9 12,309
Sales within Phillips 421 39 -
- -----------------------------------------------------------------------
Segment sales $3,341 48 12,309
=======================================================================
Operating Profit $ 113 (18) 1,071
Equity in earnings of affiliates 13 - 66
Minority interest 2 - (35)
Corporate/non-operating items
Interest expense - (278) (278)
Other - (286) (286)
Income taxes (37) 240 (293)
Extraordinary item - (2) (2)
- -----------------------------------------------------------------------
Net income (loss) $ 91 (344) 243
=======================================================================
Assets
Identifiable assets $2,345 729 10,632
Investments in and advances
to affiliated companies 94 1 403
- -----------------------------------------------------------------------
Total assets $2,439 730 11,035
=======================================================================
Depreciation, Depletion and
Amortization $ 156 41 841
- -----------------------------------------------------------------------
Capital Expenditures and Investments $ 174 29 1,226
- -----------------------------------------------------------------------
*Includes certain intersegment eliminations.
**Certain crude oil marketing activities were transferred from RM&T to
E&P in 1995. This had the effect of increasing E&P segment sales by
$319 million in 1995. The effect on E&P's net income was not
material.
90
<PAGE>
Analysis of Results by Geographic Area
Millions of Dollars
-----------------------------------
United United
States Norway Kingdom Africa
-----------------------------------
1995
Sales and Other Operating Revenues
Outside customers $11,107 470 1,037 168
Sales within Phillips 203 651 3 28
- -----------------------------------------------------------------------
Segment sales $11,310 1,121 1,040 196
=======================================================================
Operating Profit $ 784 500 (8) 102
- -----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 104 15 4 -
- -----------------------------------------------------------------------
Assets
Identifiable assets $ 7,604 1,552 950 227
Investments in and advances to
affiliated companies 454 92 24 -
- -----------------------------------------------------------------------
Total assets $ 8,058 1,644 974 227
=======================================================================
1994
Sales and Other Operating Revenues
Outside customers $10,233 426 979 165
Sales within Phillips 141 483 2 47
- -----------------------------------------------------------------------
Segment sales $10,374 909 981 212
=======================================================================
Operating Profit $ 784 352 16 64
- -----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 64 14 3 -
- -----------------------------------------------------------------------
Assets
Identifiable assets $ 7,602 1,292 734 206
Investments in and advances to
affiliated companies 362 102 24 -
- -----------------------------------------------------------------------
Total assets $ 7,964 1,394 758 206
=======================================================================
1993
Sales and Other Operating Revenues
Outside customers $10,334 466 923 117
Sales within Phillips 120 456 2 143
- -----------------------------------------------------------------------
Segment sales $10,454 922 925 260
=======================================================================
Operating Profit $ 549 380 19 70
- -----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 48 15 3 -
- -----------------------------------------------------------------------
Assets
Identifiable assets $ 7,807 1,216 526 201
Investments in and advances to
affiliated companies 269 105 24 -
- -----------------------------------------------------------------------
Total assets $ 8,076 1,321 550 201
=======================================================================
Analysis of Results by Geographic Area
Millions of Dollars
-----------------------------------
Other Worldwide
Areas Corporate Consolidated*
-----------------------------------
1995
Sales and Other Operating Revenues
Outside customers $ 586 - 13,368
Sales within Phillips 64 - -
- -----------------------------------------------------------------------
Segment sales $ 650 - 13,368
=======================================================================
Operating Profit $ 72 - 1,450
- -----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 4 - 127
- -----------------------------------------------------------------------
Assets
Identifiable assets $ 460 524 11,317
Investments in and advances to
affiliated companies 91 - 661
- -----------------------------------------------------------------------
Total assets $ 551 524 11,978
=======================================================================
1994
Sales and Other Operating Revenues
Outside customers $ 408 - 12,211
Sales within Phillips 35 - -
- -----------------------------------------------------------------------
Segment sales $ 443 - 12,211
=======================================================================
Operating Profit $ 40 - 1,256
- -----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 3 - 84
- -----------------------------------------------------------------------
Assets
Identifiable assets $ 451 595 10,880
Investments in and advances to
affiliated companies 85 - 573
- -----------------------------------------------------------------------
Total assets $ 536 595 11,453
=======================================================================
1993
Sales and Other Operating Revenues
Outside customers $ 469 - 12,309
Sales within Phillips 35 - -
- -----------------------------------------------------------------------
Segment sales $ 504 - 12,309
=======================================================================
Operating Profit $ 53 - 1,071
- -----------------------------------------------------------------------
Equity in Earnings of Affiliates $ - - 66
- -----------------------------------------------------------------------
Assets
Identifiable assets $ 455 427 10,632
Investments in and advances to
affiliated companies 5 - 403
- -----------------------------------------------------------------------
Total assets $ 460 427 11,035
=======================================================================
*After elimination of intergeographic transactions.
Export sales totaled $507 million, $382 million and $346 million for
1995, 1994 and 1993, respectively.
91
<PAGE>
- -----------------------------------------------------------------
Oil and Gas Operations
In accordance with Financial Accounting Standards Board (FASB)
Statement No. 69, "Disclosures about Oil and Gas Producing
Activities," and regulations of the Securities and Exchange
Commission (SEC), the company is making certain disclosures about
its oil and gas exploration and production operations. While
this information was developed with reasonable care and disclosed
in good faith, it is emphasized that some of the data are
necessarily imprecise and represent only approximate amounts
because of the subjective judgments involved in developing such
information. Accordingly, this information may not necessarily
represent the present financial condition of the company or its
expected future results.
Contents--Oil and Gas Operations
- -----------------------------------------------------------------
Proved Reserves Worldwide 93
Results of Operations 99
Statistics 101
Costs Incurred 105
Capitalized Costs 106
Standardized Measure of Discounted Future Net
Cash Flows Relating to Proved Oil and Gas
Reserve Quantities 107
92
<PAGE>
o Proved Reserves Worldwide
Crude Oil
Years Ended ---------------------------------------------
December 31 Millions of Barrels
---------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------
Developed and
Undeveloped
End of 1992 856 315 350 39 100 52
Revisions of
previous estimates (19) (16) (7) (1) (1) 6
Improved recovery 58 7 44 - 5 2
Purchases of reserves
in place 7 6 - 1 - -
Extensions and
discoveries 25 19 - - 4 2
Production (73) (34) (26) (2) (9) (2)
Sales of reserves
in place (12) (4) - - (2) (6)
- ------------------------------------------------------------------
End of 1993 842 293 361 37 97 54
Revisions of
previous estimates 68 (1) 74 (5) - -
Improved recovery 17 5 12 - - -
Purchases of reserves
in place 6 2 - 4 - -
Extensions and
discoveries 23 11 - 8 3 1
Production (76) (33) (31) (2) (8) (2)
Sales of reserves
in place (3) (3) - - - -
- ------------------------------------------------------------------
End of 1994 877 274 416 42 92 53
Revisions of
previous estimates - (7) (1) 1 8 (1)
Improved recovery 77 11 64 - - 2
Purchases of reserves
in place 3 1 - 2 - -
Extensions and
discoveries 29 20 - 6 3 -
Production (82) (29) (37) (1) (9) (6)
Sales of reserves
in place (9) (9) - - - -
- ------------------------------------------------------------------
End of 1995 895 261 442 50 94 48
==================================================================
Developed
End of 1992 714 259 326 7 90 32
End of 1993 680 245 314 4 83 34
End of 1994 703 226 350 4 89 34
End of 1995 699 200 333 33 91 42
- ------------------------------------------------------------------
93
<PAGE>
o Proved reserves are those quantities of crude oil, natural
gas and natural gas liquids (NGL) that, upon analysis of
geological and engineering data, appear with reasonable
certainty to be recoverable in the future from known oil and
gas reservoirs under existing economic and operating
conditions. As additional information becomes available or
conditions change, estimates must be revised.
o Developed reserves are those portions of proved reserves that
are recoverable through existing well bores, and production
equipment and facilities.
o Amounts for improved recovery in Norway in 1995 are due to
optimizing well locations related to the Ekofisk II
redevelopment, horizontal drilling and increased water
injection.
94
<PAGE>
Proved Reserves Worldwide
Natural Gas
Years Ended ----------------------------------------------
December 31 Billions of Cubic Feet
----------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
----------------------------------------------
Developed and
Undeveloped
End of 1992 5,816 3,769 1,305 467 32 243
Revisions of
previous estimates 452 579 (122) 2 - (7)
Improved recovery 12 8 4 - - -
Purchases of
reserves in place 27 19 - 7 - 1
Extensions and
discoveries 339 281 - - - 58
Production (493) (345) (107) (20) - (21)
Sales of reserves
in place (84) (35) - - - (49)
- ------------------------------------------------------------------
End of 1993 6,069 4,276 1,080 456 32 225
Revisions of
previous estimates 262 92 172 (8) - 6
Improved recovery 95 5 83 5 - 2
Purchases of
reserves in place 84 5 - 79 - -
Extensions and
discoveries 473 132 - 233 - 108
Production (519) (370) (106) (23) - (20)
Sales of reserves
in place (88) (88) - - - -
- ------------------------------------------------------------------
End of 1994 6,376 4,052 1,229 742 32 321
Revisions of
previous estimates 420 254 (32) 19 213 (34)
Improved recovery 62 4 58 - - -
Purchases of
reserves in place 92 34 - 48 - 10
Extensions and
discoveries 317 271 - 45 - 1
Production (543) (381) (121) (18) (1) (22)
Sales of reserves
in place (16) (16) - - - -
- ------------------------------------------------------------------
End of 1995 6,708 4,218 1,134 836 244 276
==================================================================
Developed
End of 1992 4,839 3,279 1,246 108 - 206
End of 1993 5,194 3,827 1,068 148 - 151
End of 1994 5,030 3,694 989 129 32 186
End of 1995 5,362 3,875 806 465 30 186
- ------------------------------------------------------------------
95
<PAGE>
o Natural gas production may differ from gas production
(delivered for sale) on page 101, primarily because the
quantities above omit the gas equivalent of the liquids,
where applicable, but include gas consumed at the lease.
o Revisions of previous estimates in the United States in 1995
are mainly for the San Juan Basin in New Mexico. Amounts in
Africa are related to contracted gas to supply a liquefied
natural gas plant to be built by a third party in Nigeria.
o Amounts for improved recovery in Norway in 1995 are due to
optimizing well locations related to the Ekofisk II
redevelopment, horizontal drilling and increased water
injection.
o Purchases of reserves in place in the United Kingdom in 1995
are for an additional interest in the Britannia field.
o Natural gas reserves are computed at 14.65 pounds per square
inch absolute and 60 degrees Fahrenheit.
96
<PAGE>
Proved Reserves Worldwide
Natural Gas Liquids
Years Ended ---------------------------------------------
December 31 Millions of Barrels
---------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------
Developed and
Undeveloped
End of 1992 216 153 37 3 21 2
Revisions of
previous estimates (10) (6) (3) - - (1)
Improved recovery 1 1 - - - -
Purchases of reserves
in place 1 1 - - - -
Extensions and
discoveries 4 4 - - - -
Production (16) (13) (3) - - -
Sales of reserves in
place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1993 195 139 31 3 21 1
Revisions of
previous estimates 8 1 7 - - -
Improved recovery 2 - 2 - - -
Extensions and
discoveries 7 4 - 3 - -
Production (15) (12) (3) - - -
Sales of reserves in
place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1994 196 131 37 6 21 1
Revisions of
previous estimates 8 8 1 - (1) -
Improved recovery 4 1 3 - - -
Extensions and
discoveries 4 3 - 1 - -
Production (15) (12) (3) - - -
Sales of reserves in
place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1995 196 130 38 7 20 1
==================================================================
Developed
End of 1992 181 146 33 - - 2
End of 1993 162 132 29 - - 1
End of 1994 178 125 31 - 21 1
End of 1995 178 125 29 3 20 1
- ------------------------------------------------------------------
97
<PAGE>
o NGL reserves include estimates of NGL to be extracted from
Phillips leasehold gas at gas processing plants and
facilities. Estimates are based at the wellhead and assume
full extraction. NGL extraction is attributable to Phillips'
E&P operations and GPM operations. NGL production above
differs from NGL production per day delivered for sale by E&P
and GPM due to gas consumed at the lease and the difference
between assumed full extraction and the actual amount of
liquids extracted and sold.
98
<PAGE>
o Results of Operations
Millions of Dollars
----------------------------
United
Total States Norway
----------------------------
1995
Sales $1,190 547 306
Transfers 1,125 447 650
Other revenues 128 99 22
- -----------------------------------------------------------------
Total revenues 2,443 1,093 978
Production costs 746 402 244
Exploration expenses 200 92 26
Depreciation, depletion
and amortization* 488 258 147
Other related expenses 127 65 46
- -----------------------------------------------------------------
882 276 515
Provision for income taxes 530 66 376
- -----------------------------------------------------------------
Results of operations for
producing activities 352 210 139
Other earnings 38 39 -
- -----------------------------------------------------------------
E&P net income $ 390 249 139
=================================================================
1994
Sales $1,166 640 261
Transfers 944 450 478
Other revenues 111 72 29
- -----------------------------------------------------------------
Total revenues 2,221 1,162 768
Production costs 815 449 269
Exploration expenses 228 106 32
Depreciation, depletion
and amortization 423 258 103
Other related expenses 61 59 (1)
- -----------------------------------------------------------------
694 290 365
Provision for income taxes 366 47 280
- -----------------------------------------------------------------
Results of operations for
producing activities 328 243 85
Other earnings 14 14 -
- -----------------------------------------------------------------
E&P net income $ 342 257 85
=================================================================
1993
Sales $1,148 703 261
Transfers 1,065 476 455
Other revenues 139 35 61
- -----------------------------------------------------------------
Total revenues 2,352 1,214 777
Production costs 831 463 266
Exploration expenses 256 140 16
Depreciation, depletion
and amortization 424 267 95
Other related expenses 60 47 5
- -----------------------------------------------------------------
781 297 395
Provision for income taxes 414 66 288
- -----------------------------------------------------------------
Results of operations for
producing activities 367 231 107
Other earnings 22 22 -
- -----------------------------------------------------------------
E&P net income $ 389 253 107
=================================================================
o Results of Operations
Millions of Dollars
-----------------------------
United Other
Kingdom Africa Areas
-----------------------------
1995
Sales $ 70 120 147
Transfers - 28 -
Other revenues 1 2 4
- -----------------------------------------------------------------
Total revenues 71 150 151
Production costs 31 29 40
Exploration expenses 22 17 43
Depreciation, depletion
and amortization* 24 12 47
Other related expenses 7 (11) 20
- -----------------------------------------------------------------
(13) 103 1
Provision for income taxes (3) 87 4
- -----------------------------------------------------------------
Results of operations for
producing activities (10) 16 (3)
Other earnings - - (1)
- -----------------------------------------------------------------
E&P net income $ (10) 16 (4)
=================================================================
1994
Sales $ 89 124 52
Transfers - 16 -
Other revenues 1 1 8
- -----------------------------------------------------------------
Total revenues 90 141 60
Production costs 33 38 26
Exploration expenses 25 28 37
Depreciation, depletion
and amortization 35 10 17
Other related expenses (1) 3 1
- -----------------------------------------------------------------
(2) 62 (21)
Provision for income taxes (2) 56 (15)
- -----------------------------------------------------------------
Results of operations for
producing activities - 6 (6)
Other earnings - - -
- -----------------------------------------------------------------
E&P net income $ - 6 (6)
=================================================================
1993
Sales $ 88 23 73
Transfers - 134 -
Other revenues 2 (8) 49
- -----------------------------------------------------------------
Total revenues 90 149 122
Production costs 31 41 30
Exploration expenses 32 21 47
Depreciation, depletion
and amortization 26 13 23
Other related expenses 1 3 4
- -----------------------------------------------------------------
- 71 18
Provision for income taxes (19) 68 11
- -----------------------------------------------------------------
Results of operations for producing
activities 19 3 7
Other earnings - - -
- -----------------------------------------------------------------
E&P net income $ 19 3 7
=================================================================
*Includes before-tax property impairments in the United States
and Norway of $51 million and $27 million, respectively, due to
the adoption of Financial Accounting Standards Board Statement
No. 121.
99
<PAGE>
o Results of operations for producing activities consist of all
the activities within the E&P organization except for a
liquefied natural gas (LNG) operation, minerals operations, a
gas marketing company, crude oil marketing operations and a
U.S. natural gas pipeline operation, which are included in
other earnings. Also excluded are non-E&P activities,
including NGL extraction facilities in Phillips' GPM
organization, as well as downstream petroleum and chemical
activities. In addition, there is no deduction for general
corporate administrative expenses or interest.
o Transfers are valued at prices that approximate market.
o Other revenues include gains and losses from asset sales,
equity in earnings from certain transportation and processing
operations that directly support the company's producing
operations, some revenue resulting from the purchase and sale
of hydrocarbons and other miscellaneous income.
o Production costs consist of costs incurred to operate and
maintain wells and related equipment and facilities used in
the production of petroleum liquids and natural gas. These
costs also include taxes other than income taxes,
depreciation of support equipment, cost of retirements, and
administrative expenses related to the production activity.
Excluded are depreciation, depletion and amortization of
capitalized acquisition, exploration and development costs.
o Exploration expenses include dry hole, leasehold impairment,
geological and geophysical expenses and the cost of retaining
undeveloped leaseholds. Also included are taxes other than
income taxes, depreciation of support equipment and
administrative expenses related to the exploration activity.
o Depreciation, depletion and amortization differs from that
shown in Analysis of Results by Business Segment on page 90,
as cost of retirements and depreciation of support equipment
are included with production or exploration expenses, as
applicable, in Results of Operations.
o Other related expenses are primarily third party
transportation expense, foreign currency gains and losses and
other miscellaneous expenses.
o The provision for income taxes is computed by adjusting each
country's income before income taxes for permanent
differences related to the oil and gas producing activities
that are reflected in the company's consolidated income tax
expense for the period, multiplying the result by the
country's statutory tax rate and adjusting for applicable tax
credits.
100
<PAGE>
o Statistics
Net Production 1995 1994 1993
---------------------------
Thousands of Barrels Daily
---------------------------
Crude Oil
United States 79 90 93
Norway 100 82 72
United Kingdom 3 5 6
Africa 24 23 24
Other areas 16 6 8
- -----------------------------------------------------------------
222 206 203
=================================================================
Natural Gas Liquids
United States* 5 5 5
Norway 8 8 8
Other areas 2 1 -
- -----------------------------------------------------------------
15 14 13
=================================================================
*Represents amounts extracted attributable to E&P operations.
Additional quantities of NGL are extracted at GPM gas processing
plants (see NGL reserves page 98 for further discussion).
Millions of Cubic Feet Daily
Natural Gas ----------------------------
United States (less gas equivalent
of liquids shown above)* 1,078 1,035 973
Norway (dry basis) 299 272 272
United Kingdom (dry basis) 46 58 54
Other areas 58 49 56
- -----------------------------------------------------------------
1,481 1,414 1,355
=================================================================
*Represents quantities available for sale. Natural gas sold from
the lease to third parties and to the company's GPM organization
is on a wet basis. Quantities of gas from which NGL have been
extracted, attributable to E&P operations, are included on a dry
basis.
Average Sales Prices 1995 1994 1993
----------------------------
Crude Oil--Per Barrel
United States $14.98 13.37 14.20
Norway 17.08 15.77 17.33
United Kingdom 17.17 16.06 17.53
Africa 17.60 16.10 17.75
Other areas 16.92 12.92 15.16
Total foreign 17.16 15.75 17.30
Worldwide 16.43 14.74 15.92
- -----------------------------------------------------------------
Natural Gas Liquids--Per Barrel
United States 11.01 11.60 12.18
Norway 9.73 8.59 8.55
- -----------------------------------------------------------------
Natural Gas (Lease)--Per Thousand
Cubic Feet
United States 1.37 1.69 1.93
Norway 2.66 2.34 2.49
United Kingdom 2.78 2.75 2.44
Other areas 1.12 1.53 1.37
Total foreign 2.50 2.31 2.37
Worldwide 1.77 1.92 2.10
- -----------------------------------------------------------------
101
<PAGE>
Statistics
1995 1994 1993
-------------------------
Average Production Costs*--
Per Barrel-of-Oil-Equivalent
United States $4.17 4.58 4.86
Norway 4.24 5.46 5.86
United Kingdom 7.39 5.98 5.64
Africa 3.19 4.55 4.62
Other areas 4.16 5.00 4.74
Worldwide 4.22 4.90 5.15
- -----------------------------------------------------------------
*Production costs consist of costs incurred to operate and
maintain wells and related equipment and facilities used in the
production of petroleum liquids and natural gas. These costs
also include taxes other than income taxes, depreciation of
support equipment, cost of retirements, and administrative
expenses associated with the production activity. Excluded are
depreciation, depletion and amortization of capitalized
acquisition, exploration and development costs.
o Per unit costs in 1995, compared with 1994, were lower in the
United States, Norway, Africa and Other areas. Lower per
unit costs in the United States and Africa were caused
primarily by lower costs. The reduction in Norway resulted
from higher production and lower costs, while the decline in
per unit costs in Other areas was caused by higher
production. The increase in per unit costs in the United
Kingdom was due to lower production.
102
<PAGE>
Acreage at December 31, 1995 Thousands of Acres
------------------
Gross Net
------------------
Developed
United States 1,652 1,202
Norway 45 17
United Kingdom 199 70
Africa 81 16
Other areas 288 99
- -----------------------------------------------------------------
2,265 1,404
=================================================================
Undeveloped
United States 2,706 1,823
Norway 1,208 257
United Kingdom 1,141 435
Africa* 29,495 13,057
Canada 1,481 299
Other areas 12,229 7,555
- -----------------------------------------------------------------
48,260 23,426
=================================================================
*Includes two Somalia concessions where operations have been
suspended by declarations of force majeure totaling 21,865 gross
and 8,135 net acres.
103
<PAGE>
Statistics
Net Wells Completed* Productive Dry
---------------- ----------------
1995 1994 1993 1995 1994 1993
---------------- ----------------
Exploratory
United States 4 6 8 8 11 10
Norway - - ** 1 ** **
United Kingdom - 2 - ** 1 1
Africa ** - - 1 ** 1
Other areas 4 1 3 3 2 3
- ------------------------------------------------------------------
8 9 11 13 14 15
==================================================================
Development
United States 87 88 115 6 7 10
Norway 2 - 1 - - -
United Kingdom 3 ** 2 - - **
Africa ** 1 1 - - **
Other areas 14 3 23 1 1 1
- ------------------------------------------------------------------
106 92 142 7 8 11
==================================================================
*Excludes farmout arrangements.
**Phillips' total proportionate interest was less than one.
Wells at Year-End 1995
Productive**
----------------------------
In Progress* Oil Gas
------------ ------------- ------------
Gross Net Gross Net Gross Net
------------ ------------- ------------
United States 46 25 13,492 3,033 5,387 2,907
Norway - - 142 51 34 9
United Kingdom 32 7 19 6 73 15
Africa - - 183 37 11 2
Other areas 15 8 871 371 239 83
- ------------------------------------------------------------------
93 40 14,707 3,498 5,744 3,016
==================================================================
*Includes wells that have been temporarily suspended.
**Includes 1,198 gross and 458 net multiple completion wells.
104
<PAGE>
o Costs Incurred
Millions of Dollars
--------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
--------------------------------------------------
1995
Acquisition $ 78 45 - 28 1 4
Exploration 218 85 33 27 21 52
Development 668 233 192 204 6 33
- ------------------------------------------------------------------
$964 363 225 259 28 89
==================================================================
1994
Acquisition $ 99 48 - 48 - 3
Exploration 202 95 18 25 31 33
Development 515 207 67 166 17 58
- ------------------------------------------------------------------
$816 350 85 239 48 94
==================================================================
1993
Acquisition $ 51 45 - 4 - 2
Exploration 275 158 16 34 22 45
Development 482 213 58 123 38 50
- ------------------------------------------------------------------
$808 416 74 161 60 97
==================================================================
o Costs incurred include capitalized and expensed items.
o Acquisition costs include the costs of acquiring undeveloped
oil and gas leaseholds. It includes proved properties of
$27 million, $2 million and $8 million in the United States
for 1995, 1994 and 1993, respectively, and $28 million,
$48 million and $4 million in the United Kingdom for 1995,
1994 and 1993, respectively.
o Exploration costs include geological and geophysical
expenses, the cost of retaining undeveloped leaseholds, and
exploratory drilling costs.
o Development costs include the cost of drilling and equipping
development wells and building related production facilities
for extracting, treating, gathering and storing petroleum
liquids and natural gas.
105
<PAGE>
o Capitalized Costs
At December 31 Millions of Dollars
-----------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
-----------------------------------------------
1995
Proved properties $10,164 5,403 2,717 1,283 387 374
Unproved properties 357 271 8 38 8 32
- ------------------------------------------------------------------
10,521 5,674 2,725 1,321 395 406
Accumulated
depreciation,
depletion and
amortization 6,468 4,036 1,482 577 211 162
- ------------------------------------------------------------------
$ 4,053 1,638 1,243 744 184 244
==================================================================
1994
Proved properties $ 9,699 5,546 2,381 1,056 384 332
Unproved properties 369 297 - 39 9 24
- ------------------------------------------------------------------
$10,068 5,843 2,381 1,095 393 356
Accumulated
depreciation,
depletion and
amortization 6,334 4,197 1,263 556 199 119
- ------------------------------------------------------------------
$ 3,734 1,646 1,118 539 194 237
==================================================================
o Capitalized costs include the cost of equipment and
facilities for oil and gas producing activities. These costs
include the activities of Phillips' E&P organization,
excluding the Kenai LNG operation, minerals operations, a gas
marketing company, crude oil marketing operations and a U.S.
natural gas pipeline operation.
o Proved properties include capitalized costs for oil and gas
leaseholds holding proved reserves, development wells and
related equipment and facilities (including uncompleted
development well costs) and support equipment.
o Unproved properties include capitalized costs for oil and gas
leaseholds under exploration (even where petroleum liquids
and natural gas were found but not in sufficient quantities
to be considered proved reserves) and uncompleted exploratory
well costs, including exploratory wells under evaluation.
106
<PAGE>
o Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserve Quantities
Amounts are computed using year-end prices and costs (adjusted
only for existing contractual changes), appropriate statutory tax
rates and a prescribed 10 percent discount factor. Continuation
of year-end economic conditions also is assumed. The calculation
is based on estimates of proved reserves, which are revised over
time as new data becomes available. Probable or possible
reserves, which may become proved in the future, are not
considered. The calculation also requires assumptions as to the
timing of future production of proved reserves, and the timing
and amount of future development and production costs.
While due care was taken in its preparation, the company does not
represent that this data is the fair value of the company's oil
and gas properties, or a fair estimate of the present value of
cash flows to be obtained from their development and production.
107
<PAGE>
Discounted Future Net Cash Flows
Millions of Dollars
---------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------------
1995
Future cash inflows $31,155 13,368 11,269 3,376 2,049 1,093
Less:
Future production costs 8,508 3,988 3,061 689 355 415
Future development costs 2,437 811 1,133 349 78 66
Future income tax
provisions 9,631 2,400 5,284 607 1,272 68
- ------------------------------------------------------------------------------
Future net cash flows 10,579 6,169 1,791 1,731 344 544
10% annual discount 4,912 2,792 843 858 166 253
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 5,667 3,377 948 873 178 291
==============================================================================
1994
Future cash inflows $25,219 10,532 9,594 2,282 1,634 1,177
Less:
Future production costs 9,079 4,290 3,229 620 436 504
Future development costs 2,694 839 1,126 559 42 128
Future income tax
provisions 6,429 1,319 3,951 233 897 29
- ------------------------------------------------------------------------------
Future net cash flows 7,017 4,084 1,288 870 259 516
10% annual discount 3,204 1,811 628 427 121 217
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 3,813 2,273 660 443 138 299
==============================================================================
1993
Future cash inflows $23,693 11,661 7,940 1,485 1,513 1,094
Less:
Future production costs 9,048 4,713 3,096 345 468 426
Future development costs 2,818 1,008 1,175 457 50 128
Future income tax
provisions 5,025 1,375 2,668 159 763 60
- ------------------------------------------------------------------------------
Future net cash flows 6,802 4,565 1,001 524 232 480
10% annual discount 3,227 2,198 437 257 107 228
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 3,575 2,367 564 267 125 252
==============================================================================
108
<PAGE>
Sources of Change in Discounted Future Net Cash Flows
Millions of Dollars
---------------------------
1995 1994 1993
---------------------------
Discounted future net cash flows
at the beginning of the year $ 3,813 3,575 4,021
- ------------------------------------------------------------------
Changes during the year
Revenues less production costs
for the year (1,569) (1,295) (1,382)
Net change in prices and
production costs 2,917 786 (1,183)
Extensions, discoveries and
improved recovery, less
estimated future costs 1,215 345 537
Development costs for the year 668 515 482
Changes in estimated future
development costs (214) (49) (574)
Purchases of reserves in place,
less estimated future costs 108 19 44
Sales of reserves in place,
less estimated future costs (77) (55) (98)
Revisions of previous quantity
estimates (113) 10 13
Accretion of discount 668 592 722
Net change in income taxes (1,747) (630) 996
Other (2) - (3)
- ------------------------------------------------------------------
Total changes 1,854 238 (446)
- ------------------------------------------------------------------
Discounted future net cash flows
at year-end $ 5,667 3,813 3,575
==================================================================
o The net change in prices and production costs is the
beginning of the year reserve production forecast multiplied
by the net annual change in the per unit sales price and
production cost, discounted at 10 percent.
o Purchases and sales of reserves in place, and extensions,
discoveries and improved recovery are production forecasts of
the applicable reserve quantities for the year multiplied by
the end of the year sales price, less future estimated costs,
discounted at 10 percent.
o The accretion of discount is 10 percent of the prior year's
discounted future cash inflows, less future production and
development costs.
o The net change in income taxes is the annual change in the
discounted future income tax provisions.
109
<PAGE>
- ------------------------------------------------------------------
Selected Quarterly Financial Data
Millions of Dollars
---------------------------------------------
Income Before
Income Taxes
Sales and
and Other Subsidiary Net Net Income
Operating Stock Net Operating Per Share of
Revenues Transaction Income Income Common Stock
--------------------------------------------- ------------
1995
First $3,087 283 111 121 .43
Second 3,591 256 113 178 .42
Third 3,369 291 136 151 .52
Fourth 3,321 234 109 130 .42
- -------------------------------------------------------------------
1994
First $2,884 208 127 109 .49
Second 2,995 161 76 60 .29
Third 3,315 234 119 141 .45
Fourth 3,017 229 162 97 .62
- -------------------------------------------------------------------
In the above table, amounts for net income include certain special
items. The impact of such items have been excluded in arriving at
net operating income. These special items are shown in the
following table.
110
<PAGE>
Special Items by Quarter
----------------------------------------------
Millions of Dollars
----------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
Property impairments* $ - - (49) - - - (2) -
Net gains (losses)
on asset sales - - - - - (2) - 15
Gain on subsidiary
stock transaction - 20 - - - - - -
Capital-loss
carryforwards - - - - - - - 50
Work force reduction
charges (5) (5) (8) - (5) (22) (13) (9)
Foreign currency
gains (losses) 1 - - 1 (2) - (2) 2
Pending claims and
settlements - - - 14 (11) 7 (1) (4)
Incinerator project
writedown - - - - (1) - (1) -
Other items (6) 3 (8) 1 4 (5) (2) 11
- --------------------------------------------------------------------
Total special items $(10) 18 (65) 16 (15) (22) (21) 65
===================================================================
*Effective April 1, 1995, the company adopted FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." See Note 1 to the
financial statements for additional discussion.
111
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
112
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information presented under the heading "Nominees for Election as
Directors" in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 13, 1996, is incorporated
herein by reference.* Information regarding the executive
officers appears in Part I of this report on pages 21 and 22.
Item 11. EXECUTIVE COMPENSATION
Information presented under the following headings in the
company's definitive proxy statement for the Annual Meeting of
Stockholders on May 13, 1996, is incorporated herein by
reference:
Compensation Committee Interlocks and Insider Participation
Executive Compensation
Options/SAR Grants in Last Fiscal Year
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Value
Long-Term Incentive Plan Awards in Last Fiscal Year
Termination of Employment and Change-in-Control Arrangements
Pension Plan Table
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information presented under the headings "Voting Securities and
Principal Holders," "Nominees for Election as Directors,"
"Security Ownership of Certain Beneficial Owners," and "Security
Ownership of Management" in the company's definitive proxy
statement for the Annual Meeting of Stockholders on May 13, 1996,
is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- ---------------------
*Except for information or data specifically incorporated herein
by reference under Items 10 through 13, other information and
data appearing in the company's definitive proxy statement for
the Annual Meeting of Stockholders on May 13, 1996, are not
deemed to be a part of this Annual Report on Form 10-K or deemed
to be filed with the Commission as a part of this report.
113
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements and Financial Statement Schedules
------------------------------------------------------
The financial statements and schedules listed in the
Index to Financial Statements and Financial Statement
Schedules, which appears on page 57, are filed as part
of this annual report.
2. Exhibits
--------
The exhibits listed in the Index to Exhibits, which
appears on pages 116 through 119, are filed as a part of
this annual report.
(b) Reports on Form 8-K
-------------------
During the three months ended December 31, 1995, the
registrant filed one report on Form 8-K. The Form 8-K
was filed December 20, 1995. An Item 5 was reported,
disclosing the company's establishment of a Compensation
and Benefits Trust.
114
<PAGE>
PHILLIPS PETROLEUM COMPANY
(Consolidated)
SCHEDULE II--VALUATION ACCOUNTS AND RESERVES
Millions of Dollars
-----------------------------------------------------
Additions
Balance ----------------- Balance
at Charged to at
Description January 1 Expense Other Deductions December 31
- ------------------------------------------------------------------------------
(a) (b)
1995
Deducted from asset
accounts:
Allowance for doubtful
accounts and notes
receivable $ 20 2 - 7 15
Deferred tax asset
valuation allowance 142 10 3 - 155
- ------------------------------------------------------------------------------
1994
Deducted from asset
accounts:
Allowance for doubtful
accounts and notes
receivable $ 14 11 - 5 (c) 20
Deferred tax asset
valuation allowance 181 (39) (4) (4)(d) 142
- ------------------------------------------------------------------------------
l993
Deducted from asset
accounts:
Allowance for doubtful
accounts and notes
receivable $ 16 4 - 6 (c) 14
Deferred tax asset
valuation allowance 219 18 (3) 53 (d) 181
- ------------------------------------------------------------------------------
(a) Accounts charged to income less reversal of amounts previously charged to
income.
(b) Represents effect of translating foreign financial statements.
(c) Accounts charged off less recoveries of accounts previously charged off.
(d) Adjustment in valuation allowance for net operating losses.
115
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3(i) Restated Certificate of Incorporation, as filed with
the State of Delaware July 17, 1989.
(ii) Bylaws of Phillips Petroleum Company, as amended
effective February 13, 1995 (incorporated by
reference to Exhibit 3(ii) to Quarterly Report on
Form 10-Q for the three months ended September 30,
1995).
4(a) Indenture dated as of September 15, 1990, between
Phillips Petroleum Company and First Trust National
Association (formerly Bank of America Illinois),
relating to the 9 1/2% Notes due 1997 and the 9 3/8%
Notes due 2011 (incorporated by reference to Exhibit
4(c) to Annual Report on Form 10-K for the year ended
December 31, 1990).
(b) Indenture dated as of September 15, 1990, as
supplemented by Supplemental Indenture No. 1 dated
May 23, 1991, between Phillips Petroleum Company and
First Trust National Association (formerly Bank of
America Illinois), relating to the 9.18% Notes due
September 15, 2021, the 9% Notes due 2001, the 8.86%
Notes due May 15, 2022, the 8.49% Notes due
January 1, 2023, the 7.92% Notes due April 15, 2023,
the 7.20% Notes due November 1, 2023 and the 6.65%
Notes due March 1, 2003 (incorporated by reference to
Exhibit 4(d) to Annual Report on Form 10-K for the
year ended December 31, 1991).
(c) Preferred Share Purchase Rights as described in the
Rights Agreement dated as of July 10, 1989, between
Phillips Petroleum Company and Chemical Bank
(formerly Manufacturers Hanover Trust Company).
(d) Amendment dated May 16, 1990, to the Rights Agreement
dated July 10, 1989, between Phillips Petroleum
Company and Chemical Bank (formerly Manufacturers
Hanover Trust Company) (incorporated by reference to
Exhibit 1 to Current Report on Form 8-K dated May 16,
1990).
116
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
The company incurred during 1995 certain long-term
debt not registered pursuant to the Securities
Exchange Act of 1934. No instrument with respect to
such debt is being filed since the total amount of
the securities authorized under any such instrument
did not exceed 10 percent of the total assets of the
company on a consolidated basis. The company hereby
agrees to furnish to the Securities and Exchange
Commission upon its request a copy of such instrument
defining the rights of the holders of such debt.
Material Contracts
10(a) Agreement dated December 23, 1984, among Mesa Partners
and related entities and Phillips Petroleum Company
and the schedules, annexes and exhibit thereto.
(b) Letter Agreement dated December 23, 1984, among Mesa
Partners and related entities and Phillips Petroleum
Company.
(c) Trust Agreement dated December 12, 1995, between
Phillips Petroleum Company and Vanguard Fiduciary
Trust Company, as Trustee of the Phillips Petroleum
Company Compensation and Benefits Arrangements Stock
Trust.
Management Contracts and Compensatory Plans or Arrangements
(d) 1986 Stock Plan of Phillips Petroleum Company
(Incorporated by reference to Exhibit 10(d) to Annual
Report on Form 10-K for the year ended December 31,
1992).
(e) 1990 Stock Plan of Phillips Petroleum Company.
(f) Annual Incentive Compensation Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(f) to Annual Report on Form 10-K for the
year ended December 31, 1992).
(g) Incentive Compensation Plan of Phillips Petroleum
Company (incorporated by reference to Exhibit 10(g)
to Annual Report on Form 10-K for the year ended
December 31, 1994).
117
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
10(h) Principal Corporate Officers Supplemental Retirement
Plan of Phillips Petroleum Company.
(i) Phillips Petroleum Company Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit
10(i) to Annual Report on Form 10-K for the year
ended December 31, 1993).
(j) Key Employee Deferred Compensation Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(j) to Annual Report on Form 10-K for the
year ended December 31, 1994).
(k) Non-Employee Director Retirement Plan of Phillips
Petroleum Company.
(l) Omnibus Securities Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10 to Quarterly
Report on Form 10-Q for the quarter ended June 30,
1993).
(m) Deferred Compensation Plan for Non-Employee Directors
of Phillips Petroleum Company.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of Phillips Petroleum Company.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
99(a) Form 11-K, Annual Report, of the Thrift Plan of
Phillips Petroleum Company for the fiscal year ended
December 31, 1995 (to be filed by amendment pursuant
to Rule 15d-21).
(b) Form 11-K, Annual Report, of the Long-Term Stock
Savings Plan of Phillips Petroleum Company for the
fiscal year ended December 31, 1995 (to be filed by
amendment pursuant to Rule 15d-21).
118
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
99(c) Form 11-K, Annual Report, of the Retirement Savings
Plan of Phillips Petroleum Company Subsidiaries for
the fiscal year ended December 31, 1995 (to be filed
by amendment pursuant to Rule 15d-21).
Copies of the exhibits listed in this Index to Exhibits are
available upon request for a fee of $3.00 per document. Such
request should be addressed to:
Secretary
Phillips Petroleum Company
1234 Adams Building
Bartlesville, OK 74004
119
<PAGE>
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.
PHILLIPS PETROLEUM COMPANY
February 21, 1996 /s/ W. W. Allen
----------------------------------
W. W. Allen
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on behalf of the registrant by
the following officers in the capacity indicated and by a
majority of directors in response to Instruction D to Form 10-K
on February 21, 1996.
Signature Title
--------- -----
/s/ W. W. Allen
- --------------------------- Chairman of the Board of Directors
W. W. Allen and Chief Executive Officer
(Principal executive officer)
/s/ T. C. Morris
- --------------------------- Senior Vice President
T. C. Morris and Chief Financial Officer
(Principal financial officer)
/s/ L. F. Francis
- --------------------------- Controller
L. F. Francis (Principal accounting officer)
/s/ J. J.Mulva
- --------------------------- President and Chief Operating
J. J. Mulva Officer and Director
/s/ C. L. Bowerman
- --------------------------- Executive Vice President
C. L. Bowerman and Director
120
<PAGE>
Signature Title
--------- -----
/s/ David L. Boren
- --------------------------- Director
David L. Boren
/s/ Robert E. Chappell, Jr.
- --------------------------- Director
Robert E. Chappell, Jr.
/s/ Larry D. Horner
- --------------------------- Director
Larry D. Horner
/s/ Randall L. Tobias
- --------------------------- Director
Randall L. Tobias
/s/ Kathryn C. Turner
- --------------------------- Director
Kathryn C. Turner
121
<PAGE>
Exhibit 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
PHILLIPS PETROLEUM COMPANY
Adopted in accordance with the provisions
of Section 245 of the General Corporation
Law of the State of Delaware
-----------------------------------------
Phillips Petroleum Company, a corporation existing under the laws of the
State of Delaware, does hereby certify:
FIRST: That the name of the corporation is Phillips Petroleum Company.
SECOND: That the Certificate of Incorporation of the corporation was
filed by the Secretary of State, Dover, Delaware, on the 13th day of June
1917.
THIRD: That the text of the Certificate of Incorporation of said
Phillips Petroleum Company, as amended, is hereby restated, without further
amendment or change, to read as follows:
RESTATED
CERTIFICATE OF INCORPORATION
OF
PHILLIPS PETROLEUM COMPANY
***
WE, THE UNDERSIGNED, being associated to establish a corporation for the
purposes hereinafter set forth, under the General Corporation Laws of the
State of Delaware, do hereby make and file a certificate of incorporation
in writing certifying:
FIRST: The name of the corporation is PHILLIPS PETROLEUM COMPANY.
SECOND: The registered office of the corporation is to be located at
229 South State Street, City of Dover, in the County of Kent, in the State
of Delaware; and the name of its registered agent is UNITED STATES
CORPORATION COMPANY.
<PAGE>
THIRD: The nature of the business of the corporation and the objects or
purposes proposed to be transacted, promoted or carried on, are:
(a) To carry on the business of buying, selling, or otherwise acquir-
ing, taking, owning, holding, developing, leasing, managing, manufactur-
ing, importing and exporting, utilizing, marketing, trading, dealing in,
and otherwise turning to account, any and all kinds and grades of oil
and gas, petroleum, asphalt, bitumen and bituminous substances of all
kinds, carbon and hydrocarbon products, and any and all elements,
constituents, products, by-products, compounds, blends and combinations
thereof;
(b) To purchase, take, hold, own, lease, exchange, or otherwise
acquire, and to develop, sell, mortgage, let and deal in gas-bearing,
oil-bearing and other mineral-bearing properties, leases, mines, wells
and rights, and any and all interest whatsoever therein or thereto, and
to engage in the business of producing, mining and selling gas, oil and
other minerals;
(c) To purchase, obtain by contract or concession, or otherwise
acquire, take, hold, own, develop, explore, exploit, improve, operate,
lease, enjoy, control, manage, or otherwise turn to account, mortgage,
grant, sell, exchange, deal in, convey, or otherwise dispose of, any and
all lands, real estate, leases, concessions, licenses, immunities,
powers, privileges, grants, rights, land patents, franchises, deposits,
wells, mines, quarries, locations, claims, easements, tenements,
hereditaments and interests, of every description and nature whatsoever;
(d) In connection with and incidental to any of the foregoing, to
purchase, or otherwise acquire, take, own, hold, mortgage, pledge,
create liens upon, convey, sell, lease, enjoy, or otherwise turn to
account, assign and transfer, and to invest, trade and deal in goods,
wares and merchandise and real and personal property, and to exercise
any and all powers connected with or relating to each and every of the
foregoing businesses;
(e) To construct, build, purchase, lease, or otherwise acquire, take,
own, hold, equip, improve, develop, maintain, manage, control, operate,
mortgage, create liens upon, deal in, and otherwise dispose of and turn
to account, any and all kinds of plants, works, factories, buildings,
structures, stores, storehouses, warehouses, houses, extracting plants,
waterworks and plants, tanks, reservoirs, containers, pumps, stills,
condensers, absorbers, tubes, engines, boilers, turbines, generators,
converters, machines and machinery of all kinds, electrical and other-
wise, switchboards, meters and all kind of measuring devices, tools,
implements, equipment, apparatus and things or property, real or
personal, of every kind and description, cars, tank cars, tanks, pipe
lines, transmission lines, distribution lines and plants, mains, pipes,
conduits, ducts, services, pumping and compressing stations, terminals,
storage plants and equipment, systems, vehicles, however propelled,
-2-
<PAGE>
ships, docks, boats, barges, floats, vessels and craft of any and all
kinds, however operated or propelled, docks, wharves, drydocks, repair
shops, elevators, piers and any and all facilities, connections,
installations, appliances, apparatus, appurtenances, things or property,
real and personal, of every kind and description connected with,
incidental to, necessary, suitable, useful, convenient or appertaining
to the producing, drilling for, mining, manufacturing, buying, acquir-
ing, securing, transporting, refining, reducing, condensing,
evaporating, vaporizing, blending, analyzing, compressing, liquefying,
absorbing, cracking, extracting, separating, purifying, combining,
mixing, marketing, utilizing, dealing in, storing, or otherwise
disposing of and turning to account, oil of any and all kinds and
grades, gas, either natural or artificial, gasoline, naptha, alcohol,
benzine, kerosene, carbon and hydrocarbon products, nitrates, petroleum,
asphalt, bitumen and bituminous substances of all kinds, and the
elements, constituents, products and by-products, mixtures, combinations
and blends thereof, and for any of the purposes enumerated in this
certificate;
(f) To apply for, obtain, register, purchase, lease, acquire, secure,
own, hold, use, operate, contract or negotiate for, take licenses or
other rights in respect of, sell, transfer, grant licenses and rights in
respect of, manufacture under, introduce, sell, assign, collect the
royalties on, mortgage, pledge, create liens upon, or otherwise dispose
of, deal in and turn to account letters patent, patents, patent rights,
patents applied for or to be applied for, trade marks, trade names and
symbols, distinction marks and indications of origin or ownership,
copyrights, syndicate rights, inventions, discoveries, devices,
machines, improvements, processes, data, formulae of any and all kinds
granted by or recognized under or pursuant to the laws of the United
States of America, or of any other country or countries whatsoever;
(g) To acquire all or any part of the good will, rights, property and
business of any person, firm, association, heretofore or hereafter
engaged in any business similar to the business of this corporation, and
to pay for the same in cash or in stock or bonds of this corporation or
otherwise, and to hold, utilize, enjoy and in any manner dispose of the
whole, or any part of the rights and property so acquired, and to assume
in connection therewith, any liabilities of any such person, firm,
association or corporation, and to conduct in any lawful manner and in
any country, state or locality herein enumerated, the whole or any part
of the business thus acquired, provided such business is within the
authorization of the General Corporation Laws of the State of Delaware;
(h) To purchase, own, hold, sell, assign, transfer, mortgage, pledge,
create liens upon, or otherwise dispose of, so far as may be done under
the laws of the State of Delaware, any of the shares of the capital
stock of, or any bonds, debentures, notes, securities or other evidences
of indebtedness, created, issue or incurred by any public, municipal,
quasi public or private corporations or associations, wherever organized
-3-
<PAGE>
or created, and as owner thereof to exercise all rights, powers and
privileges of ownership, including the right to vote upon any stock thus
owned; and to aid in any manner which shall be lawful any corporation or
association of which any bonds, stocks or other securities or evidences
of indebtedness shall be held by this corporation, and to do any acts
and things permitted by law and designed to protect, preserve, improve
or enhance the value of any such bonds, stocks or other securities or
evidences of indebtedness;
(i) To have one or more offices and to carry on any and all of its
businesses and operations without restriction or limit as to amount,
either within or without the State of Delaware, in the other states, the
District of Columbia, the territories, colonies and dependencies of the
United States of America, and in all or any foreign countries or in any
part of the world;
(j) To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or attainment of any of the
objects or exercise of any of the powers herein set forth, whether
herein specified or not, either alone or in connection with other
firms, individuals or corporations, both in this State and throughout
the United States and elsewhere, and to do any other act or
acts, thing or things, incidental or appurtenant to or growing out of or
connected with said businesses or powers, or any part thereof, if not
inconsistent with the laws under which this corporation is organized;
(k) It is declared that the objects and powers specified in the various
paragraphs contained in this clause shall be in no wise limited or
restricted by reference to or inference from the term of any other of
the paragraphs of this or any other clause of this certificate of
incorporation.
FOURTH: (a) Capital Stock. The corporation shall have the authority
to issue 500 million shares of common stock, $1.25 par value, and 300
million shares of preferred stock, $1.00 par value.
(b) Common Stock. The shares of authorized common stock of the
corporation shall be identical in all respects and shall have equal rights
and privileges.
(c) Preferred Stock. The board of directors shall have authority to
issue the shares of preferred stock from time to time on such terms as it
may determine, and to divide the preferred stock into one or more classes
or series and in connection with the creation of any such class or series
to fix by the resolution or resolutions providing for the issue of shares
thereof the designations, voting powers, preferences and relative,
participating, optional, or other special rights of such class or series,
and the qualification, limitations, or restrictions thereof, to the full
extent now or hereafter permitted by law.
-4-
<PAGE>
FIFTH: The corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatsoever.
SEVENTH: The provisions which the incorporators hereby insert in the
certificate of incorporation of the corporation for the regulation of the
business and for the conduct of the affairs of the corporation and
creating, defining, limiting and regulating the powers thereof and of the
directors, and stockholders, the same being in furtherance of and in
addition to, and not in limitation of the powers now or hereafter conferred
by the present or any future law or laws of the State of Delaware are as
follows:
1. The number of directors of the corporation, none of whom need be a
stockholder, shall be fixed and may be altered from time to time as may
be provided by the By-laws; and in case of any increase in the number of
directors, the additional directors shall be elected as provided by the
By-Laws;
2. The board of directors shall have power to fix the amount of the
accumulated profits of this corporation to be reserved as working
capital, or for any other lawful purpose, prior to the declaration of
any dividend upon the corporation's stock;
3. Subject to the provisions of Article NINTH hereof, the corporation
shall have power, acting through its board of directors, except that in
cases where the action of the stockholders shall be required by statute
or this certificate of incorporation, such action shall also be
obtained,
(a) The board of directors shall have power to issue its stocks, bonds,
or other obligations, from time to time, for such consideration as
may be fixed, from time to time, by the board of directors;
(b) To borrow money and to make and issue notes, bonds, debentures,
obligations and evidences of indebtedness, whether secured by
mortgage, pledge or otherwise, and to secure the same by mortgage,
pledge or otherwise of all or any part of its property or assets;
and generally to make and perform agreements and contracts of every
kind and description;
(c) The stockholders of this corporation shall have power to make,
alter, amend and repeal the By-Laws of this corporation in whole
or in part by majority vote of the stockholders at any annual
meeting or special meeting called for that purpose, and the board of
directors shall have power to make, alter, amend and repeal in whole
or in part the By-laws of this corporation at any regular or special
meeting of the board of directors, except those By-Laws adopted by
the stockholders of this corporation;
-5-
<PAGE>
(d) To guarantee the payment of dividends or the principal and interest
on the property, stocks, bonds, debentures, or other securities
issued by or the performance of any other contract or obligation of
any other person, corporation, association or partnership whatso-
ever, so far as the same is not contrary to law, whenever, in the
judgment of the board of directors or executive committee, it shall
be necessary or proper for the business of the corporation or in the
furtherance of its interest so to do;
(e) The board of directors shall have power, from time to time, to
appoint an executive committee consisting of two or more of their
number, which committee shall for the time being, as may be provided
in a resolution of the board of directors, or in the By-Laws of this
corporation, have or exercise any and all of the powers of the board
of directors in the management of the business and affairs of this
corporation;
(f) Both the stockholders and directors shall have power to hold their
meetings either within or without the State of Delaware; and to
keep the books, documents and records of this corporation, except as
may be otherwise required by the laws of this State, outside of the
State of Delaware;
(g) The board of directors shall have power to determine, from time to
time, whether and to what extent and under what conditions and
regulations the accounts, books and records of this corporation,
other than as may be provided by the laws of Delaware, or any of
them, shall be open to the inspection of the stockholders; and no
stockholder shall have any right to inspect any account or book or
document of this corporation, except as conferred by the Statutes of
the State of Delaware, unless and until authorized to do so by a
resolution of the directors or stockholders of this corporation;
(h) The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred
on stockholders herein are subject to this reserved power;
(i) The directors and officers of this corporation may be directors and
officers in other corporations, and transactions and contracts of
this corporation with said other corporations shall not be affected
by the fact that the officers hereof are interested in or are
directors or officers of such other corporation or corporations;
(j) This corporation shall have the power to procure itself to be
licensed or organized in any state or subdivision thereof of the
United States, the District of Columbia, the territories, colonies
or possessions of the United States, and in any foreign country.
-6-
<PAGE>
EIGHTH: No holder of any security of the corporation now or hereafter
authorized shall have any right as such holder to subscribe for, purchase
or otherwise acquire any other or additional security of the corporation
whether now or hereafter authorized, unissued or issued and thereafter
acquired by the corporation; provided, any such right as is outstanding
on April 28, 1970, and was created or granted pursuant to an express
authorization of the Board of Directors and/or the stockholder of the
corporation shall be unaffected by the provisions of this Article; and,
provided further, the Board of Directors may, in its sole and absolute
discretion, at any time and from time to time, by expressly so doing,
create any such right upon such terms and conditions and with such
limitations and restrictions as it considers appropriate, in which event
the holders of securities of the corporation shall have such rights, but
only such rights, as have been expressly so created. As used above, the
word "security' includes any and all rights or interests in or arising cut
of any type, class or series of any shares of capital stock in the
corporation or any warrant, option, conversion privilege, or other right
to subscribe to, purchase, convert into, exchange for or otherwise acquire
any such rights or interests in or arising out of such shares.
NINTH: The affirmative vote of the holders of not less than 75 percent
of the Voting Stock shall be required for the approval or authorization of
any Business Transaction with a Related Person, or any Business Transaction
in which a Related Person has an interest (except proportionately as a
stockholder of the corporation); provided, however, that the 75 percent
voting requirement shall not be applicable if (i) Continuing Directors at
the time constitute at least a majority of the entire Board of Directors of
the corporation and have expressly approved the Business Transaction by at
least a majority vote of such Continuing Directors, or (ii) all of the
following conditions are satisfied:
1. the Business Transaction is a merger or consolidation or sale,
lease, exchange, transfer or other disposition of substantially all of
the assets of the corporation, and the cash or fair market value of the
property, securities or other consideration to be received per share by
holders of common stock of the corporation (other than such Related
Person) in connection with such Business Transaction is at least equal
in value to such Related Person's Highest Purchase Price and such per
share consideration is in cash or the same form as such Related Person
has previously paid to acquire the largest number of shares of common
stock of the corporation acquired by such Related Person prior to such
Business Transaction; and
2. after such Related Person has become the Beneficial Owner of not
less than 15 percent of the Voting Stock and prior to the consummation
of such Business Transaction, such Related Person shall not have become
the Beneficial Owner of any additional shares of Voting Stock, except
(i) as a part of the transaction which resulted in such Related Person
becoming the Beneficial Owner of not less than 10 percent of the Voting
-7-
<PAGE>
Stock or (ii) as a result of a pro rata stock dividend or stock split;
and
3. prior to the consummation of such Business Transaction, such Related
Person shall not have, directly or indirectly, (i) received the benefit
(except proportionately as a stockholder of the corporation) of any
loans, advances, guarantees, pledges or other financial assistance or
tax credits or other tax advantages provided by the corporation or any
of its subsidiaries, or (ii) caused any material change in the
corporation's business, capital structure, including, without
limitation, the issuance of shares of capital stock of the corporation
to any third party, or common stock dividend rate or policy (except as
approved by a majority of the Continuing Directors).
For the purpose of this Article NINTH:
1. The term "Business Transaction" shall mean (a) any merger or
consolidation involving the corporation or a subsidiary of the
corporation, (b) any sale, lease, exchange, transfer or other
disposition (in one transaction or a series of transactions), including,
without limitation, a mortgage or any other security device, of all or
any Substantial Part of the assets either of the corporation or of a
subsidiary of the corporation, (c) any sale, lease, exchange, transfer
or other disposition of all or any Substantial Part of the assets of an
entity to the corporation or a subsidiary of the corporation, (d) the
issuance, sale exchange, transfer or other disposition by the
corporation or a subsidiary of the corporation of any securities of the
corporation or any subsidiary of the corporation, except proportionately
to the stockholders of the corporation or of such subsidiary, (e) any
recapitalization or reclassification of the securities of the
corporation (including, without limitation, any reverse stock split) or
other transaction that would have the effect of increasing the
proportionate voting power of a Related Person, (f) any liquidation,
spinoff, splitoff, splitup or dissolution of the corporation, and (g)
any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Transaction.
2. The term "Related Person" shall mean and include (a) any individual,
corporation, partnership, group, association or other person or entity
which, together with its Affiliates and Associates, is the Beneficial
owner of not less than 10 percent of the Voting Stock or was the
Beneficial Owner of not less than 10 percent of the Voting Stock (i) at
the time the definitive agreement providing for the Business Transaction
(including any amendment thereof) was entered into, (ii) at the time a
resolution approving the Business Transaction was adopted by the Board
of Directors of this corporation or (iii) as of the record date of this
corporation for the determination of stockholders entitled to notice of
and to vote on, or consent to, the Business Transaction, and (b) any
Affiliate or Associate of any such individual, corporation, partnership,
group, association or other person or entity; provided, however, and
-8-
<PAGE>
notwithstanding anything in the foregoing to the contrary, the term
"Related Person" shall not include this corporation, a wholly owned
subsidiary of this corporation, any employee stock ownership or other
employee benefit plan of this corporation or of any wholly owned
subsidiary of this corporation, or any trustee of, or fiduciary with
respect to, any such plan when acting in such capacity.
3. The term "Beneficial Owner" shall be defined by reference to Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on
March 1, 1984; provided, however, that any individual, corporation,
partnership, group, association or other person or entity which has the
right to acquire any voting stock at any time in the future is
contingent or absolute, pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, warrants or option,
or otherwise, shall be deemed the Beneficial Owner of such Voting Stock.
4. The term "Highest Purchase Price" shall mean the highest amount of
consideration paid by such Related Person for a share of common stock of
the corporation (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) at any time within two years prior to the date
such Related Person became a Related Person and during any time while
such Related Person was a Related Person; provided, however, that the
Highest Purchase Price shall be appropriately adjusted to reflect the
occurrence of any reclassification, recapitalization, stock split,
reverse stock split or other readjustment in the number of outstanding
shares of common stock of the corporation, or the payment of a stock
dividend thereon, between the last date upon which such Related Person
paid the Highest Purchase Price and the effective date of the merger or
consolidation or the date of the distribution to stockholders of the
corporation of the proceeds from the saler lease, exchange, transfer or
other disposition of substantially all of the assets of the corporation
referred to in the first subparagraph 1 of this Article NINTH.
5. The term Substantial Part" shall mean more than 5 percent of the
book value of the total assets of the entity in question, as reflected
on the most recent fiscal year-end consolidated balance sheet of such
entity existing at the time the stockholders of the corporation would be
required to approve or authorize the Business Transaction involving the
assets constituting any such Substantial Part.
6. In the event of a merger in which the corporation is the surviving
corporation, for the purpose of the first subparagraph 1 of this Article
NINTH, the phrase "property, securities or other consideration to be
received' shall include, without limitation, common stock of the
corporation retained by its stockholders (other than such Related
Person).
7. The term "Voting Stock" shall mean all outstanding shares of capital
stock of the corporation entitled to vote generally in the election of
directors, considered for the purpose of this Article NINTH as one
-9-
<PAGE>
class; provided, however, that if the corporation has shares of Voting
Stock entitled to more or less than one vote for any such share, each
reference in this Article NINTH to a proportion of shares of Voting
Stock shall be deemed to refer to such proportion of the votes entitled
to be cast by such shares.
8. The term 'Continuing Director" shall mean a director who either was
a member of the Board of Directors of the corporation prior to the time
such Related Person became a Related Person or who subsequently became a
director of the corporation and whose election, or nomination for
election by the corporation's stockholders, was approved by a vote of at
least three-quarters of the Continuing Directors then on the Board;
provided, however, that in no event shall a director be considered a
"Continuing Director' if such director is a Related Person and the
Business Transaction to be voted upon is with such Related Person or is
one in which such Related Person otherwise has an interest (except
proportionately as a stockholder of the corporation).
9. The term "Affiliate', used to indicate a relationship to a specified
person, shall mean a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, such specified person.
10. The term "Associate", used to indicate a relationship with a
specified person, shall mean (a) any corporation, partnership or other
organization of which such specified person is an officer or partner or
is, directly or indirectly the Beneficial Owner of 10 percent or more of
any class of equity securities, (b) any trust or other estate in which
such specified person has a substantial beneficial interest or as to
which such specified person serves as a trustee or in a similar
fiduciary capacity, (c) any relative or spouse of such specified person,
or any relative of such spouse, who has the same home as such specified
person or who is a director or officer of the corporation or any of its
parents or subsidiaries and (d) any person who is a director or officer
of such specified person or any of its parents or subsidiaries (other
than the corporation or any wholly owned subsidiary of the corporation).
For the purpose of this Article NINTH, if the Continuing Directors
constitute at least a majority of the entire Board of Directors of the
corporation, then a majority of such Continuing Directors shall have the
power to make a good faith determination, on the basis of information known
to them, of: (a) the number of shares of Voting Stock of which any person
is the Beneficial Owner, (b) whether a person is an Affiliate or Associate
of another, (c) whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in the definition
of Beneficial Owner herein, (d) whether the assets subject to any Business
Transaction constitute a Substantial Part, (e) whether any Business
Transaction is one in which a Related Person has an interest (except
proportionately as a stockholder of the corporation), (f) whether a Related
Person has, directly or indirectly, received the benefits or caused any of
the changes referred to
-10-
<PAGE>
in to the first subparagraph 3 of this Article NINTH, (g) whether the cash
and/or the fair market value of the consideration other than cash to be
received per share by holders of common stock of the corporation in
connection with a Business Transaction described in the first subparagraph
1 of this Article NINTH is at least equal in value to the Related Person's
Highest Purchase Price, and (h) such other matters with respect to which a
determination is required under this Article NINTH.
Nothing contained in this Article NINTH shall be construed to relieve
any Related Person of any fiduciary obligation imposed by law.
Notwithstanding any other provisions of this certificate of
incorporation or the bylaws of the corporation (and notwithstanding that a
lesser percentage may be specified by law, this certificate of
incorporation or the bylaws of the corporation), the provisions of this
Article NINTH may not be repealed or amended in any respect, nor may any
provision of the certificate of incorporation or bylaws be adopted
inconsistent with this Article NINTH, unless such action is approved by the
affirmative vote of the holders of not less than 75 percent of the Voting
Stock.
TENTH: A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article TENTH shall be prospective only, and shall not
adversely affect any elimination or limitation of the personal liability of
a director of the corporation existing at the time of such repeal or
modification.
ELEVENTH: Subject to the rights of the holders of any class or series
of preferred stock, any action required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject
to the rights of the holders of any class or series of preferred stock,
special meetings of stockholders of the corporation may be called only by
the Chairman of the Board, or the President, or by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors. Notwithstanding anything contained in this Restated Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least 80% of the voting power of all outstanding shares of the corporation
entitled to vote generally in the election of directors shall be required
to alter, amend or adopt any provision inconsistent with, modify or repeal
this Article ELEVENTH or Section 9 of Article II of the Bylaws.
-11-
<PAGE>
*****
FOURTH: That the restatement of the Certificate of Incorporation has
been duly adopted in accordance with the provisions of Section 245 of the
General Corporation Law of the State of Delaware and that the Restated
Certificate only restates and integrates and does not further amend the
provisions of the corporation's Certificate of Incorporation as theretofore
amended or supplemented, and that there is no discrepancy between those
provisions and the provisions of this Restated Certificate of
Incorporation.
IN WITNESS WHEREOF, PHILLIPS PETROLEUM COMPANY has caused this
Certificate to be signed and attested by its duly authorized officers this
12th day of July, 1989.
PHILLIPS PETROLEUM COMPANY
By: /s/ William G. Paul
--------------------------
Senior Vice President
and General Counsel
ATTEST:
/s/ D.L. Cone
----------------------
Assistant Secretary
[SEAL]
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<PAGE>
Exhibit 4(c)
- -----------------------------------------------------------------
PHILLIPS PETROLEUM COMPANY
and
MANUFACTURERS HANOVER TRUST COMPANY
Rights Agent
Rights Agreement
Dated as of July 10, 1989
- -----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions ............................. 2
Section 2. Appointment of Rights Agent ..................... 10
Section 3. Issue of Right Certificates ..................... 10
Section 4. Form of Right Certificates ...................... 14
Section 5. Countersignature and Registration ............... 14
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates ..................... 16
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights ..................... 17
Section 8. Cancellation and Destruction of
Right Certificates ............................ 20
Section 9. Availability of Preferred Shares ................ 21
Section 10. Preferred Shares Record Date .................... 22
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights .................... 23
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares ........................... 38
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power .................... 39
Section 14. Fractional Rights and Fractional Shares ......... 41
Section 15. Rights of Action ................................ 44
Section 16. Agreement of Right Holders ...................... 45
Section 17. Right Certificate Holder Not Deemed a
Stockholder ................................... 46
-i-
<PAGE>
Page
----
Section 18. Concerning the Rights Agent ..................... 47
Section 19. Merger or Consolidation or Change of
Name of Rights Agent .......................... 48
Section 20. Duties of Rights Agent .......................... 49
Section 21. Change of Rights Agent .......................... 53
Section 22. Issuance of New Right Certificates .............. 55
Section 23. Redemption ...................................... 55
Section 24. Exchange ........................................ 61
Section 25. Notice of Certain Events ........................ 64
Section 26. Notices ......................................... 66
Section 27. Supplements and Amendments ...................... 67
Section 28. Successors ...................................... 68
Section 29. Benefits of this Agreement ...................... 68
Section 30. Severability .................................... 68
Section 31. Governing Law ................................... 69
Section 32. Counterparts .................................... 69
Section 33. Descriptive Headings ............................ 69
Signatures .................................................. 70
Exhibit A - Form of Certificate of Designations of
PHILLIPS PETROLEUM COMPANY
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred
Shares
-ii-
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of July 10, 1989, between PHILLIPS
PETROLEUM COMPANY, a Delaware corporation (the "Company"), and
MANUFACTURERS HANOVER TRUST COMPANY (the "Rights Agent").
The Board of Directors of the Company has authorized
and declared a dividend of one preferred share purchase right
(a "Right") for each Common Share (as hereinafter defined) of the
Company outstanding on July 31, 1989 (the "Record Date"), each
Right representing the right to purchase one one-hundredth of a
Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to
each Common Share that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the
Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as
follows:
<PAGE>
Section 1. Certain Definitions. For purposes of this
-------------------
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all
Affiliates and Associates (as such terms are hereinafter
defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 20% or more of the
Common Shares of the Company then outstanding, but shall not
include the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of
any such plan. Notwithstanding the foregoing, no Person
shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by
reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such
Person to 20% or more of the Common Shares of the Company
then outstanding; provided, however, that if a Person shall
-------- -------
become the Beneficial Owner of 20% or more of the Common
Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share
purchases by the Company, become the Beneficial
-2-
<PAGE>
Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person".
(b) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary
agreements with and between underwriters and selling
group members with respect to a bona fide public
offering of securities), or upon the exercise of
conversion rights, exchange
-3-
<PAGE>
rights, rights (other than these Rights), warrants or
options, or otherwise; provided, however, that a Person
-------- -------
shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a
tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant
to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed
the Beneficial owner of, or to beneficially own, any
security if the agreement, arrangement or understanding
to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange
Act and (2) is not also then reportable on Schedule 13D
under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person
or any of such Person's Affiliates or Associates has
any agreement, arrangement or under-
-4-
<PAGE>
standing (other than customary agreements with and
between underwriters and selling group members with
respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except
to the extent contemplated by the proviso to Section
l(c)(ii)(B)) or disposing of any securities of the
Company.
Notwithstanding anything in this
definition of Beneficial Ownership to the contrary, the
phrase "then outstanding," when used with reference to
a Person's Beneficial Ownership of securities of the
Company, shall mean the number of such securities then
issued and outstanding together with the number of such
securities not then actually issued and outstanding
which such Person would be deemed to own beneficially
hereunder.
(d) "Business Day" shall mean any day other than a
Saturday, a Sunday, or a day on which banking institutions
in New York are authorized or obligated by law or executive
order to close.
(e) "Close of business" on any given date shall mean
5:00 P.M., New York time, on such date; provided, however,
-------- -------
that if such date is not a Business Day it shall mean 5:00
P.M., New York City time, on the next succeeding Business
Day.
-5-
<PAGE>
(f) "Common Shares" when used with reference to the
Company shall mean the shares of common stock, par value $1.25
per share, of the Company. "Common Shares" when used with
reference to any Person other than the Company shall mean the
capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control
such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning
set forth in Section 7 hereof.
(i) An "Offer" shall mean a written proposal delivered
to the Company by any Person who both beneficially owns 1%
or less of the outstanding Common Shares as of the date such
proposal is delivered and who has not within one year prior
to the delivery of such written proposal beneficially owned
in excess of 1% of the then outstanding Common Shares of the
Company and (at a time when such Person beneficially owned
such greater than 1% stake) disclosed, or caused the
disclosure of, any intention which relates to or would
result in the acquisition, or influence of control, of the
Company (an "Offeror"), and which proposal:
-6-
<PAGE>
(i) provides for the acquisition of all of the
outstanding shares of each class or series of Voting
Stock (as hereinafter defined) held by any Person other
than the Offeror and its Affiliates for cash, with all
shares of any particular class or series of Voting
Stock to be acquired at the same price;
(ii) is accompanied by a written opinion of a
nationally recognized investment banking firm, which
opinion is addressed to the holders of shares of Voting
Stock other than the Offeror and its Affiliates and
states that the price to be paid to the holders (other
than the Offeror and its affiliates) of each individual
class or series of Voting Stock pursuant to the offer
is fair to such holders;
(iii) states that the Offeror has obtained
written financing commitments from recognized financing
sources, and/or has on hand cash or cash equivalents,
for the full amount of all financing necessary to
consummate the Offer; and
(iv) requests the Company to call a special
meeting of the holders of Voting Stock for the purpose
of voting on a resolution requesting the Board of
Directors to accept such Offer and contains a
-7-
<PAGE>
written agreement of the Offeror to pay (or share with
any other Offeror) at least one-half of the Company's
costs of such special meeting (exclusive of the
Company's costs of preparing and mailing proxy material
for its own solicitation).
(j) "Person" shall mean any individual, firm,
corporation or other entity, and shall include any successor
(by merger or otherwise) of such entity.
(k) "Preferred Shares" shall mean shares of Series B
Junior Participating Preferred Stock, par value $1.00 per
share, of the Company having the rights and preferences set
forth in the Form of Certificate of Designations attached to
this Agreement as Exhibit A.
(l) "Redemption Date" shall have the meaning set
forth in Section 7 hereof.
(m) "Shares Acquisition Date" shall mean the first
date of public announcement by the Company or an Acquiring
Person that an Acquiring Person has become such.
(n) "Subsidiary" of any Person shall mean any
corporation or other entity of which a majority of the
voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
-8-
<PAGE>
(o) "Voting Stock" shall mean (i) the Common Shares of
the Company and (ii) any other shares of capital stock of
the Company entitled to vote generally in the election of
directors or entitled to vote together with the Common
Shares in respect of any merger, consolidation, sale of all
or substantially all of the Company's assets, liquidation,
dissolution or winding up. Whenever any provision of this
Agreement requires a determination of whether a number of
shares of Voting Stock comprising a specified percentage of
such Voting Stock has been voted, tendered, acquired, sold
or otherwise disposed of, or a determination of whether a
Person has offered or proposed to acquire a number of shares
of Voting Stock comprising such specified percentage, the
number of shares of Voting Stock comprising such specified
percentage of Voting Stock shall in every such case be
deemed to be the number of shares of Voting Stock comprising
the specified percentage of the Company's entire voting
power then entitled to vote generally in the election of
directors or then entitled to vote together with the Common
Shares in respect of any merger, consolidation, sale of all
or substantially all of the Company's assets, liquidation,
dissolution or winding up.
-9-
<PAGE>
Section 2. Appointment of Rights Agent. The Company
---------------------------
hereby appoints the Rights Agent to act as agent hereunder in
accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time
to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the
---------------------------
earlier of (i) the tenth day after the Shares Acquisition Date or
(ii) the tenth business day (or such later date as may be
determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding
Common Shares for or pursuant to the terms of any such plan) of,
or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of
the Company or any entity holding Common Shares for or pursuant
to the terms of any such plan) to commence, a tender or exchange
offer the consummation of
-10-
<PAGE>
which would result in any Person becoming the Beneficial Owner of
Common Shares aggregating 20% or more of the then outstanding
Common Shares (including any such date which is after the date of
this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject
to the provisions of Section 3(b) hereof) by the certificates for
Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the
right to receive Right Certificates will be transferable only in
connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare
and execute, the Rights Agent will countersign, and the Company
will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, insured, postage-prepaid mail,
to each record holder of Common Shares as of the close of
business on the Distribution Date, at the address of such holder
shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share so
held. As of the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.
-11-
<PAGE>
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights
to Purchase Preferred Shares, in substantially the form of
Exhibit C hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of
such holder shown on the records of the Company. With respect to
certificates for Common Shares outstanding as of the Record Date,
until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto.
Until the Distribution Date (or the earlier of the Redemption
Date or the Final Expiration Date), the surrender for transfer of
any certificate for Common Shares outstanding on the Record Date,
with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with
the Common Shares represented thereby.
(c) Certificates for Common Shares which become
outstanding (including, without limitation, reacquired Common
Shares referred to in the last sentence of this paragraph (c))
after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration
Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
-12-
<PAGE>
This certificate also evidences and entitles the holder
hereof to certain rights as set forth in a Rights
Agreement between PHILLIPS PETROLEUM COMPANY and
MANUFACTURERS HANOVER TRUST COMPANY, dated as of
July 10, 1989 (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a
copy of which is on file at the principal executive
offices of PHILLIPS PETROLEUM COMPANY. Under certain
circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate.
PHILLIPS PETROLEUM COMPANY will mail to the holder of
this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. As
described in the Rights Agreement, Rights issued to any
Person who becomes an Acquiring Person (as defined in
the Rights Agreement) shall become null and void.
With respect to such certificates containing the foregoing
legend, until the Distribution Date, the Rights associated with
the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for
transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or
acquires any Common Shares after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares
shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common
Shares which are no longer outstanding.
-13-
<PAGE>
Section 4. Form of Right Certificates. The Right
--------------------------
Certificates (and the forms of election to purchase Preferred
Shares and of assignment to be printed on the reverse thereof)
shall be substantially the same as Exhibit B hereto and may have
such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on
which the Rights may from time to time be listed, or to conform
to usage. Subject to the provisions of Section 22 hereof, the
Right Certificates shall entitle the holders thereof to purchase
such number of one one-hundredths of a Preferred Share as shall
be set forth therein at the price per one one-hundredth of a
Preferred Share set forth therein (the "Purchase Price"), but the
number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The
---------------------------------
Right Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its Chief Executive Officer, its
President, any of its Vice Presidents, or its Treasurer either
manually or by facsimile signature, shall
-14-
<PAGE>
have affixed thereto the Company's seal or a facsimile thereof,
and shall be attested by the Secretary or an Assistant Secretary
of the Company, either manually or by facsimile signature. The
Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such
officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right
Certificates, nevertheless, may be countersigned by the Rights
Agent and issued and delivered by the Company with the same force
and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company;
and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such
Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the
execution of this Rights Agreement any such person was not such
an officer.
Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office, books for
registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of the
respective holders of the Right Certifi-
-15-
<PAGE>
cates, the number of Rights evidenced on its face by each of the
Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and
------------------------------------
Exchange of Right Certificates; Mutilated, Destroyed, Lost or
- -------------------------------------------------------------
Stolen Right Certificates. Subject to the provisions of Section
- -------------------------
14 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date,
any Right Certificate or Right Certificates (other than Right
Certificates representing Rights that have become void pursuant
to Section 11(a)(ii) hereof or that have been exchanged pursuant
to Section 24 hereof) may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one
one-hundredths of a Preferred Share as the Right Certificate or
Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates
shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates
to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Thereupon the Rights Agent
shall countersign and deliver to
-16-
<PAGE>
the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company
may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right
Certificates.
Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price;
-----------------------------------
Expiration Date of Rights. (a) The registered holder of any
- -------------------------
Right Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any
time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to pur-
-17-
<PAGE>
chase on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior
to the earliest of (i) the close of business on July 31, 1999
(the "Final Expiration Date"), (ii) the time at which the Rights
are redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share pursuant to the exercise of a Right shall
initially be $75.00, shall be subject to adjustment from time to
time as provided in Sections 11 and 13 hereof and shall be
payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly
executed, accompanied by payment of the Purchase Price for the
shares to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified
check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall
-18-
<PAGE>
thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares certificates for the number of Preferred
Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests,
or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred
Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited
by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered
holder of such Right Certificate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent to
the Rights remaining unexercised shall be issued by the Rights
Agent to the registered holder of such
-19-
<PAGE>
Right Certificate or to his duly authorized assigns, subject to
the provisions of Section 14 hereof.
(e) The Company covenants and agrees that it will
cause to be reserved and kept available out of its authorized and
unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient
to permit the exercise in full of all outstanding Rights in
accordance with this Section 7.
Section 8. Cancellation and Destruction of Right
-------------------------------------
Certificates. All Right Certificates surrendered for the purpose
- ------------
of exercise, transfer, split up, combination or exchange shall,
if surrendered to the Company or to any of its agents, be
delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled
by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this
Rights Agreement. The Company shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Right Certificates
to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates and in such
-20-
<PAGE>
case shall deliver a certificate of destruction thereof to
the Company.
Section 9. Availability of Preferred Shares. The
--------------------------------
Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares delivered
upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares.
The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer
taxes and charges which may be payable in respect of the issuance
or delivery of the Right Certificates or of any Preferred Shares
upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect
of any transfer or delivery of Right Certificates to a person
other than, or the issuance or delivery of certificates or
depositary receipts for the Preferred Shares in a name other than
that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Preferred
Shares upon the exercise of any Rights until any such tax shall
have
-21-
<PAGE>
been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such
tax is due.
Section 10. Preferred Shares Record Date. Each person
----------------------------
in whose name any certificate for Preferred Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the Preferred Shares represented
thereby on, and such certificate shall be dated, the date upon
which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made; provided, however, that if the date of
-------- -------
such surrender and payment is a date upon which the Preferred
Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares
on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled
to any rights of a holder of Preferred Shares for which the
Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as
provided herein.
-22-
<PAGE>
Section 11. Adjustment of Purchase Price, Number of
----------------------------------------
Shares or Number of Rights. The Purchase Price, the number of
- --------------------------
Preferred Shares covered by each Right and the number of Rights
outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time
after the date of this Agreement (A) declare a dividend on the
Preferred Shares payable in Preferred Shares, (B) subdivide the
outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D)
issue any shares of its capital stock in a reclassification of
the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is
the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the Purchase Price in effect at
the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such
date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date and
at a time when the Preferred Shares transfer books of the Company
were open, he would have owned
-23-
<PAGE>
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided,
--------
however, that in no event shall the consideration to be paid upon
- -------
the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise
of one Right.
(ii) Subject to Section 24 of this Agreement, in the
event (A) any Person shall become an Acquiring Person (other than
through an acquisition described in subparagraph (iii) of this
paragraph (a)) or (B) during such time as there is an Acquiring
Person, there shall be any reclassification of securities
(including any reverse stock split), or recapitalization or
reorganization of the Company or other transaction or series of
transactions involving the Company which has the effect, directly
or indirectly, of increasing by more than 1% the proportionate
share of the outstanding shares of any class of equity securities
of the Company or any of its Subsidiaries beneficially owned by
any Acquiring Person or any Affiliate or Associate thereof, each
holder of a Right shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Com-
-24-
<PAGE>
pany as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then current per share
market price of the Company's Common Shares (determined pursuant
to Section 11(d) hereof) on the date of the occurrence of the
earlier of the events described in clauses (A) and (B) above. In
the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take
any action which would eliminate or diminish the benefits
intended to be afforded by the Rights.
From and after the occurrence of the earlier of the
events described in clauses (A) and (B) above, any Rights that
are or were acquired or beneficially owned by any Acquiring
Person (or any Associate or Affiliate of such Acquiring Person)
shall be void and any holder of such Rights shall thereafter have
no right to exercise such Rights under any provision of this
Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an
Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof; no
Right Certificate shall be issued at any time upon the transfer
of any Rights to an Acquiring Person whose Rights would be void
pursuant
-25-
<PAGE>
to the preceding sentence or any Associate or Affiliate thereof
or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights
Agent for transfer to an Acquiring Person whose Rights would be
void pursuant to the preceding sentence shall be cancelled.
(iii) The right to buy Common Shares of the Company
pursuant to Clause (A) of subparagraph (ii) of this paragraph (a)
shall not arise as a result of any Person becoming an Acquiring
Person through a purchase of Common Shares pursuant to a tender
offer made in the manner prescribed by Section 14(d) of the
Exchange Act and the rules and regulations promulgated
thereunder; provided, however, that (A) such tender offer shall
-------- --------
provide for the acquisition of all of the outstanding Common
Shares held by any Person other than such Person and its
Affiliates for cash and (B) such purchase shall cause such
Person, together with all Affiliates and Associates of such
Person, to be the Beneficial Owner of 85% or more of the Common
Shares then outstanding.
(iv) In the event that there shall not be sufficient
Common Shares issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph
-26-
<PAGE>
(ii), the Company shall take all such action as may be necessary
to authorize additional Common Shares for issuance upon exercise
of the Rights.
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of
Preferred Shares entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or
purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred
Shares or equivalent preferred shares at a price per Preferred
Share or equivalent preferred share (or having a conversion price
per share, if a security convertible into Preferred Shares or
equivalent preferred shares) less than the then current per share
market price of the Preferred Shares (as defined in Section
11(d)) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by
a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number
of Preferred Shares which the aggregate offering price of the
total number of Preferred Shares and/or equivalent preferred
shares so to be offered (and/or the aggregate initial conversion
price of the convertible
-27-
<PAGE>
securities so to be offered) would purchase at such current
market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number
of additional Preferred Shares and/or equivalent preferred shares
to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially
convertible); provided, however, that in no event shall the
-------- -------
consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board
of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent. Preferred
Shares owned by or held for the account of the Company shall not
be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted
to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of the Pre-
-28-
<PAGE>
ferred Shares (including any such distribution made in connection
with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof),
the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market
price of the Preferred Shares on such record date, less the fair
market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to one Preferred
Share and the denominator of which shall be such current per
share market price of the Preferred Shares; provided, however,
-------- -------
that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise
of one Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such
distribu-
-29-
<PAGE>
tion is not so made, the Purchase Price shall again be adjusted
to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder,
the "current per share market price" of any security (a
"Security" for the purpose of this Section 11(d)(i)) on any date
shall be deemed to be the average of the daily closing prices per
share of such Security for the 30 consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share
- -------- -------
market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A)
a dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B)
any subdivision, combination or reclassification of such Security
and prior to the expiration of 30 Trading Days after the
ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then,
and in each such case, the current per share market price shall
be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each
day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid
and asked
-30-
<PAGE>
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the
Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System ("NASDAQ")
or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the
Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on
which the Security is listed or admitted to trading is open for
the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a
Business Day.
-31-
<PAGE>
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares
shall be determined in accordance with the method set forth in
Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "current per share market price" of the Preferred
Shares shall be conclusively deemed to be the current per share
market price of the Common Shares as determined pursuant to
Section 11(d)(i) (appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the
date hereof), multiplied by one hundred. If neither the Common
Shares nor the Preferred Shares are publicly held or so listed or
traded, "current per share market price" shall mean the fair
value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in the Purchase Price; provided, however,
-------- -------
that any adjustments which by reason of this Section 11(e) are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the
nearest one one-millionth of a Preferred Share or one ten-thousandth of
any other share or
-32-
<PAGE>
security as the case may be. Notwithstanding the first sentence
of this Section 11(e), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three years from
the date of the transaction which requires such adjustment or
(ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to
Section 11(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital
stock of the Company other than Preferred Shares, thereafter the
number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in
Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder
shall evidence the right to purchase, at the adjusted Purchase
Price, the number of one one-hundredths of a Preferred Share
purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
-33-
<PAGE>
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of
the Purchase Price as a result of the calculations made in
Sections 11(b) and (c), each Right outstanding immediately prior
to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the
nearest one one-millionth of a Preferred Share) obtained by (i)
multiplying (x) the number of one one-hundredths of a share
covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment
of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights,
in substitution for any adjustment in the number of one one-hundredths of
a Preferred Share purchasable upon the exercise of
a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right
held of record prior to such adjustment of the number of Rights
shall become that number of
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<PAGE>
Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company
shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be
made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later
than the date of the public announcement. If Right Certificates
have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of
Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights
to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior
to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates evidencing all
the Rights to which such holders shall be entitled after such
adjustment. Right Certificates
-35-
<PAGE>
so to be distributed shall be issued, executed and countersigned
in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a Preferred
Share issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of
the then par value, if any, of the Preferred Shares issuable upon
exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid
and nonassessable Preferred Shares at such adjusted Purchase
Price.
(1) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of
a record date for a specified event, the Company may elect to
defer until the occurrence of such
-36-
<PAGE>
event the issuing to the holder of any Right exercised after such
record date of the Preferred Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise
over and above the Preferred Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise on
the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to
-------- -------
such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to the
extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any Preferred
Shares at less than the current market price, issuance wholly for
cash of Preferred Shares or securities which by their terms are
convertible into or exchangeable for Preferred Shares, dividends
on Preferred Shares payable in Preferred Shares or issuance of
rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred
Shares shall not be taxable to such stockholders.
-37-
<PAGE>
(n) In the event that at any time after the date of
this Agreement and prior to the Distribution Date, the Company
shall (i) declare or pay any dividend on the Common Shares
payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in
Common Shares) into a greater or lesser number of Common Shares,
then in any such case (i) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise
of each Right shall be determined by multiplying the number of
one one-hundredths of a Preferred Share so purchasable
immediately prior to such event by a fraction, the numerator of
which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of
Common Shares outstanding immediately after such event, and (ii)
each Common Share outstanding immediately after such event shall
have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this
Section 11(n) shall be made successively whenever such a dividend
is declared or paid or such a subdivision, combination or
consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price
--------------------------------------
or Number of Shares. Whenever an adjustment is made as pro-
- -------------------
-38-
<PAGE>
vided in Section 11 or 13 hereof, the Company shall promptly
(a) prepare a certificate setting forth such adjustment, and a
brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for
the Common Shares or the Preferred Shares a copy of such
certificate and (c) mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, merger or Sale or Transfer
-----------------------------------------
of Assets or Earning Power. In the event, directly or
- --------------------------
indirectly, (a) the Company shall consolidate with, or merge with
and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger
and, in connection with such merger, all or part of the Common
Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to
any other Person other than the Company or one or more of its
wholly-owned Subsidiaries, then, and in each such case, proper
pro-
-39-
<PAGE>
vision shall be made so that (i) each holder of a Right (except
as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then
current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and
in lieu of Preferred Shares, such number of Common Shares of such
other Person (including the Company as successor thereto or as
the surviving corporation) as shall equal the result obtained by
(A) multiplying the then current Purchase Price by the number of
one one-hundredths of a Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then
current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date
of consummation of such consolidation, merger, sale or transfer;
(ii) the issuer of such Common Shares shall thereafter be liable
for, and shall assume, by virtue of such consolidation, merger,
sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares in
accordance with Section 9 hereof) in connection with such
consummation as may be nec-
-40-
<PAGE>
essary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the
Rights. The Company shall not consummate any such consolidation,
merger, sale or transfer unless prior thereto the Company and
such issuer shall have executed and delivered to the Rights Agent
a supplemental agreement so providing. The Company shall not
enter into any transaction of the kind referred to in this
Section 13 if at the time of such transaction there are any
rights, warrants, instruments or securities outstanding or any
agreements or arrangements which, as a result of the consummation
of such transaction, would eliminate or substantially diminish
the benefits intended to be afforded by the Rights. The
provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
--------------------------------------
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there
shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this
Section 14(a), the
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<PAGE>
current market value of a whole Right shall be the closing price
of the Rights for the Trading Day immediately prior to the date
on which such fractional Rights would have been otherwise
issuable. The closing price for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the
Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights
are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the
Rights, the fair value of the Rights
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<PAGE>
on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue
fractions of Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share)
upon exercise of the Rights or to distribute certificates which
evidence fractional Preferred Shares (other than fractions which
are integral multiples of one one-hundredth of a Preferred
Share). Fractions of Preferred Shares in integral multiples of
one one-hundredth of a Preferred Share may, at the election of
the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that
--------
the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that
are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred
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<PAGE>
Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the
date of such exercise.
(c) The holder of a Right by the acceptance of the
Right expressly waives his right to receive any fractional Rights
or any fractional shares upon exercise of a Right (except as
provided above).
Section 15. Rights of Action. All rights of action in
----------------
respect of this Agreement, excepting the rights of action given
to the Rights Agent under Section 18 hereof, are vested in the
respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common
Shares), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution
Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise
act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it
is spe-
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<PAGE>
cifically acknowledged that the holders of Rights would not have
an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this
Agreement.
Section 16. Agreement of Right Holders. Every holder
--------------------------
of a Right, by accepting the same, consents and agrees with the
Company and the Rights Agent and with every other holder of a
Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common
Shares;
(b) after the Distribution Date, the Right
Certificates are transferable only on the registry books of the
Rights Agent if surrendered at the principal office of the Rights
Agent, duly endorsed or accompanied by a proper instrument of
transfer; and
(c) the Company and the Rights Agent may deem and
treat the person in whose name the Right Certificate (or, prior
to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any
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<PAGE>
notations of ownership or writing on the Right Certificates or
the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a
-------------------------------------
Stockholder. No holder, as such, of any Right Certificate shall
- -----------
be entitled to vote, receive dividends or be deemed for any
purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on
the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
-46-
<PAGE>
Section 18. Concerning the Rights Agent. The Company
----------------------------
agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel
fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of
its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the
costs and expenses of defending against any claim of liability in
the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or
omitted by it in connection with, its administration of this
Agreement in reliance upon any Right Certificate or certificate
for the Preferred Shares or Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed, executed and,
where necessary,
-47-
<PAGE>
verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20
hereof.
Section 19. Merger of Consolidation or Change of Name
-----------------------------------------
of Rights Agent. Any corporation into which the Rights Agent or
- ---------------
any successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust business of the Rights Agent or
any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties
hereto; provided, that such corporation would be eligible for
--------
appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any
of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates
either
-48-
<PAGE>
in the name of the predecessor Rights Agent or in the name of the
successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall
be changed and at such time any of the Right Certificates shall
have been countersigned but not delivered, the Rights Agent may
adopt the countersignature under its prior name and deliver Right
Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the
Rights Agent may countersign such Right Certificates either in
its prior name or in its changed name; and in all such cases such
Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
----------------------
undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the
Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
(who may be legal counsel for the Company), and the opinion of
such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action
-49-
<PAGE>
taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under
this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the
Company prior to taking or suffering any action hereunder, such
fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of
the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad
faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in
this Agreement or in the Right Certificates (except its
countersignature thereof) or be required to verify the same, but
all such statements and recitals are and shall be deemed to have
been made by the Company only.
-50-
<PAGE>
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or
the execution and delivery hereof (except the due execution
hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement
or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights
becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Section 3, 11, 13, 23
or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it
by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred
Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when
issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, exe-
-51-
<PAGE>
cuted, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required by
the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its
duties hereunder from any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such
officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for
those instructions.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in
any of the Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to the Company
or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or
for any other legal entity.
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<PAGE>
(i) The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents,
and the Rights Agent shall not be answerable or accountable for
any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent
----------------------
or any successor Rights Agent may resign and be discharged from
its duties under this Agreement upon 30 days' notice in writing
mailed to the Company and to each transfer agent of the Common
Shares or Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail.
The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days' notice in writing, mailed to the Rights Agent
or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights
Agent. If the company shall fail to make such appointment
within a
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<PAGE>
period of 30 days after giving notice of such removal or after it
has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing
business under the laws of the United States or of the State of
New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking
institution in the State of New York), in good standing, having
an office in the State of New York, which is authorized under
such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights
Agent a combined capital and surplus of at least $50 million.
After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act
or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time
held by it
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<PAGE>
hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall
file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares,
and mail a notice thereof in writing to the registered holders of
the Right Certificates. Failure to give any notice provided for
in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of
the Rights Agent or the appointment of the successor Rights
Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
----------------------------------
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new
Right Certificates evidencing Rights in such form as may be
approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the
Right Certificates made in accordance with the provisions of this
Agreement.
Section 23. Redemption. (a) The Rights may be
----------
redeemed by action of the Board of Directors pursuant to
paragraph (b) of this Section 23 or by stockholder action
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<PAGE>
pursuant to paragraph (c) of this Section 23 and shall not be
redeemed in any other manner.
(b) The Board of Directors of the Company may, at its
option, at any time prior to such time as any Person becomes an
Acquiring Person, redeem all but not less than all the then
outstanding Rights at a redemption price of $.0l per Right,
appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights by the Board of Directors
may be made effective at such time on such basis and with such
conditions as the Board of Directors in its sole discretion may
establish.
(c) (i) In the event the Company receives an Offer
from any Offeror, the Board of Directors of the Company shall
call a special meeting of stockholders (the "Special Meeting")
for the purpose of voting on a precatory resolution requesting
the Board of Directors to accept such Offer, as such Offer may be
amended or revised by the Offeror from time to time to increase
the price per share in cash to be paid to holders of shares of
Voting Stock (the "Resolution"). The Special Meeting shall be
held on a date selected by the Board of Directors, which date
shall be not less than 90 and not more than 120 days after the
later of
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<PAGE>
(A) the date such Offer is received by the Company (the "Offer
Date") and (B) the date of any meeting of stockholders already
scheduled as of the Offer Date; provided, however, that if (x)
-------- -------
such other meeting shall have been called for the purpose of
voting on a precatory resolution with respect to another Offer
and (y) the Offer Date shall be not later than fifteen days after
the date such other Offer was received by the Company, then both
the Resolution and such other resolution shall be voted on at
such meeting and such meeting shall be deemed to be the Special
Meeting. The Board of Directors shall set a date for determining
the stockholders of record entitled to notice of and to vote at
the Special Meeting in accordance with the Company's Certificate
of Incorporation and Bylaws and with applicable law. At the
Offeror's request, the Company shall include in any proxy
soliciting material prepared by it in connection with the Special
Meeting proxy soliciting material submitted by the Offeror;
provided, however, that the Offeror shall by written agreement
- -------- -------
with the Company contained in or delivered with such request have
indemnified the Company against any and all liabilities resulting
from any misstatements, misleading statements and omissions
contained in the Offeror's proxy soliciting material and have
agreed to pay the Company's incremental costs incurred as a
result of including such material in the Company's proxy
soliciting material.
-57-
<PAGE>
Notwithstanding the foregoing, no Special Meeting shall be held
from and after such time as any Person becomes an Acquiring
Person, and any Special Meeting scheduled prior to such time and
not theretofore held shall be cancelled.
(ii) If at the Special Meeting the Resolution receives
the affirmative vote of a majority of the shares of Voting Stock
outstanding as of the record date of the Special Meeting, then
all of the Rights shall be redeemed by such stockholder action at
the Redemption Price, effective immediately prior to the
consummation of any tender offer (provided that such tender offer
is consummated prior to 60 days after the date of the Special
Meeting) pursuant to which any Person offers to purchase all of
the shares of Voting Stock held by Persons other than such Person
and its Affiliates at a price per share in cash equal to or
greater than the price contained in the Resolution approved at
the Special Meeting; provided, however, that the Rights shall not
-------- -------
be redeemed at any time from and after such time as any Person
becomes an Acquiring Person.
(iii) Nothing contained in this paragraph (c) shall be
deemed to be in derogation of the obligation of the Board of
Directors of the Company to exercise its fiduciary duty. Without
limiting the foregoing, nothing contained herein shall be
construed to suggest or imply that the Board
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<PAGE>
of Directors shall not be entitled to reject any Offer, or to
recommend that holders of shares of Voting Stock reject any
tender offer, or to take any other action (including, without
limitation, the commencement, prosecution, defense or settlement
of any litigation and the submission of additional or alternative
Offers or other proposals to the Special Meeting) with respect to
any Offer or any tender offer that the Board of Directors
believes is necessary or appropriate in the exercise of such
fiduciary duty.
(iv) Nothing in this paragraph (c) shall be construed
as limiting or prohibiting the Company or any Offeror from
proposing or engaging, at any time, in any acquisition,
disposition or other transfer of any securities of the Company,
any merger or consolidation involving the Company, any sale or
other transfer of assets of the Company, any liquidation,
dissolution or winding-up of the Company, or any other business
combination or other transaction, or any other action by the
Company or such Offeror; provided, however, that the holders of
-------- -------
Rights shall have the rights set forth in this Agreement with
respect to any such acquisition, disposition, transfer, merger,
consolidation, sale, liquidation, dissolution, winding-up,
business combination, transaction or action.
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<PAGE>
(d) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights
pursuant to paragraph (b) of this Section 23, or upon the
effectiveness of the redemption of the Rights pursuant to
paragraph (c) of this Section 23, and without any further action
and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided,
--------
however, that the failure to give, or any defect in, any such
- -------
notice shall not affect the validity of such redemption. Within
10 days after such action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (b) or the
effectiveness of the redemption of the Rights pursuant to
paragraph (c), as the case may be, the Company shall mail a
notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Shares.
Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or
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<PAGE>
Associates may redeem, acquire or purchase for value any Rights
at any time in any manner other than that specifically set forth
in this Section 23 or in Section 24 hereof, and other than in
connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange. (a) The Board of Directors of
--------
the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of
Section 11(a)(ii) hereof) for Common Shares at an exchange ratio
of one Common Share per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring
after the date hereof (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan
of the Company or any such Subsidiary, or any entity holding
Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares
then outstanding.
-61-
<PAGE>
(b) Immediately upon the action of the Board of
Directors of the Company ordering the exchange of any Rights
pursuant to paragraph (a) of this Section 24 and without any
further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares
equal to the number of such Rights held by such holder multiplied
by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure
-------- -------
to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights
at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of
Section 11(a)(ii) hereof) held by each holder of Rights.
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<PAGE>
(c) In any exchange pursuant to this Section 24, the
Company, at its option, may substitute Preferred Shares (or
equivalent preferred shares, as such term is defined in Section
11(b) hereof) for Common Shares exchangeable for Rights, at the
initial rate of one one-hundredth of a Preferred Share (or
equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting
rights of the Preferred Shares pursuant to the terms thereof, so
that the fraction of a Preferred Share delivered in lieu of each
Common Share shall have the same voting rights as one Common
Share.
(d) In the event that there shall not be sufficient
Common Shares or Preferred Shares issued but not outstanding or
authorized but unissued to permit any exchange of Rights as
contemplated in accordance with this Section 24, the Company
shall take all such action as may be necessary to authorize
additional Common Shares or Preferred Shares for issuance upon
exchange of the Rights.
(e) The Company shall not be required to issue
fractions of Common Shares or to distribute certificates which
evidence fractional Common Shares. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of
the Right Certificates with regard to which such fractional
Common Shares would otherwise be issu-
-63-
<PAGE>
able an amount in cash equal to the same fraction of the current
market value of a whole Common Share. For the purposes of this
paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the
------------------------
Company shall propose (i) to pay any dividend payable in stock of
any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other
than a regular quarterly cash dividend), (ii) to offer to the
holders of its Preferred Shares rights or warrants to subscribe
for or to purchase any additional Preferred Shares or shares of
stock of any class or any other securities, rights or options,
(iii) to effect any reclassification of its Preferred Shares
(other than a reclassification involving only the subdivision of
outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person, (v) to
effect the liquidation, dissolution or
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<PAGE>
winding up of the Company, or (vi) to declare or pay any dividend
on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares
(by reclassification or otherwise than by payment of dividends in
Common Shares), then, in each such case, the Company shall give
to each holder of a Right Certificate, in accordance with Section
26 hereof, a notice of such proposed action, which shall specify
the record date for the purposes of such stock dividend, or
distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Common Shares
and/or Preferred Shares, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered
by clause (i) or (ii) above at least 10 days prior to the record
date for determining holders of the Preferred Shares for purposes
of such action, and in the case of any such other action, at
least 10 days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then the Company shall as soon as
practicable thereafter give to each holder of a Right
-65-
<PAGE>
Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such
event and the consequences of such event to holders of Rights
under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by
-------
this Agreement to be given or made by the Rights Agent or by the
holder of any Right Certificate to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
PHILLIPS PETROLEUM COMPANY
Phillips Building
Bartlesville, OK 74004
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or
demand authorized by this Agreement to be given or made by the
Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
MANUFACTURERS HANOVER TRUST COMPANY
450 West 33rd Street
New York, New York 10001
Attention: Vice President - Administration
-66-
<PAGE>
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any
Right Certificate shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the
Company.
Section 27. Supplements and Amendments. The Company
--------------------------
may from time to time supplement or amend this Agreement without
the approval of any holders of Right Certificates in order to
cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with
respect to the Rights which the Company may deem necessary or
desirable, any such supplement or amendment to be evidenced by a
writing signed by the Company and the Rights Agent; provided,
--------
however, that from and after such time as any Person becomes an
- -------
Acquiring Person, this Agreement shall not be amended in any
manner which would adversely affect the interests of the holders
of Rights. Without limiting the foregoing, the Company may at
any time prior to such time as any Person becomes an Acquiring
Person amend this Agreement to lower the thresholds set forth in
Sections l(a) and 3(a) hereof from 20% to not less than the
greater of (i) the least percentage greater than the largest
percentage of the outstanding Common Shares then
-67-
<PAGE>
known by the Company to be beneficially owned by any Person
(other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to
the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and
----------
provisions of this Agreement by or for the benefit of the Company
or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in
--------------------------
this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holder of the Right Certificates
(and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision,
------------
covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall
-68-
<PAGE>
remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 31. Governing Law. This Agreement and each
-------------
Right Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with
the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be
------------
executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive
--------------------
headings of the several Sections of this Agreement are inserted
for convenience only and shall not control or affect the meaning
or construction of any of the provisions hereof.
-69-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and
year first above written.
PHILLIPS PETROLEUM COMPANY
Attest:
By /s/ G.C. Meese By /s/ William G. Paul
-------------------------- -------------------------------
Name: G.C. Meese Name: William G. Paul
Title: Secretary Title: Senior Vice President
and General Counsel
MANUFACTURERS HANOVER TRUST COMPANY
Attest:
By /s/ Patricia A. Hoffman By /s/ Lawrence E. Dennedy
-------------------------- -------------------------------
Name: Patricia A. Hoffman Name: Lawrence E. Dennedy
Title: Asst. Vice President Title: Vice President
-70-
<PAGE>
Exhibit A
---------
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
PHILLIPS PETROLEUM COMPANY
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-----------------------------
PHILLIPS PETROLEUM COMPANY, a corporation organized
and existing under the General Corporation Law of the State of
Delaware (hereinafter called the "Corporation"), hereby certifies
that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on
July 10, 1989:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation (hereinafter
called the "Board of Directors" or the "Board") in accordance
with the provisions of the Certificate of Incorporation, the
Board of Directors hereby creates a series of Preferred Stock,
par value $1.00 per share (the "Preferred Stock"), of the
Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Series B Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of
----------------------
such series shall be designated as "Series B Junior Participating
Preferred Stock" (the "Series B Preferred Stock") and the number
of shares constituting the Series B Preferred Stock shall be
5,000,000. Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no
--------
decrease shall reduce the number of shares of series B Preferred
Stock to a number less than the
A-1
<PAGE>
number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series B
Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any
shares of any series of Preferred Stock (or any similar
stock) ranking prior and superior to the Series B Preferred
Stock with respect to dividends, the holders of shares of
Series B Preferred Stock, in preference to the holders of
Common Stock, par value $1.25 per share (the "Common
Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the
first day of March, June, September and December in each
year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series B Preferred Stock,
in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share
of Series B Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of
shares of Series B Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately
A-2
<PAGE>
after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series B Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares
a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series B Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series B Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of
issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the
determination of holders of shares of Series B Preferred
Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series B Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of shares
of Series B Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date
shall be not more than 60 days prior to the date fixed for
the payment thereof.
Section 3. Voting Rights. The holders of shares of
-------------
Series B Preferred Stock shall have the following voting rights:
A-3
<PAGE>
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series B Preferred
Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in
each such case the number of votes per share to which
holders of shares of Series B Preferred Stock were entitled
immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred
Stock or any similar stock, or by law, the holders of shares
of Series B Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of
the Corporation.
(C) Except as set forth herein, or as otherwise
provided by law, holders of Series B Preferred Stock shall
have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as
provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series B Preferred Stock
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liqui-
A-4
<PAGE>
dation, dissolution or winding up) to the Series B
Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred
Stock, except dividends paid ratably on the Series B
Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred
Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding
up) to the Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock,
or any shares of stock ranking on a parity with the
Series B Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend
rates and other relative rights and preferences of the
respective series and classes, shall determine in good
faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. Reacquired Shares. Any shares of Series B
-----------------
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired
A-5
<PAGE>
and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred
Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series B Preferred Stock
shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount to be distributed per
share to holders of shares of Common Stock, or (2) to the holders
of shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except distributions made ratably on the Series
B Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the aggregate amount to which holders of
shares of Series B Preferred Stock were entitled immediately
prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
---------------------------
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Com-
A-6
<PAGE>
mon Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
each share of Series B Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject
to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into
which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of
shares of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series B
-------------
Preferred Stock shall not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall
----
rank, with respect to the payment of dividends and the
distribution of assets, junior to all series of any other class
of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of
---------
Incorporation of the Corporation shall not be amended in any
manner which would materially alter or change the powers,
preferences or special rights of the Series B Preferred Stock so
as to affect them adversely without the affirmative vote of the
holders of at least two-thirds of the outstanding shares of
Series B Preferred Stock, voting together as a single class.
A-7
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the
Board and attested by its Secretary this day of ,
---- -----------
1989.
-------------------------------
Chairman of the Board
Attest:
- --------------------
Secretary
A-8
<PAGE>
Exhibit B
---------
Form of Right Certificate
Certificate No. R- Rights
---
NOT EXERCISABLE AFTER JULY 31, 1999 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT
TO REDEMPTION AT $.Ol PER RIGHT AND TO EXCHANGE ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
PHILLIPS PETROLEUM COMPANY
This certifies that , or registered
------------------
assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to
the terms, provisions and conditions of the Rights Agreement,
dated as of July 10, 1989 (the "Rights Agreement"), between
PHILLIPS PETROLEUM COMPANY, a Delaware corporation (the
"Company"), and MANUFACTURERS HANOVER TRUST COMPANY (the "Rights
Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., New York City time, on
July 31, 1999 at the principal office of the Rights Agent, or at
the office of its successor as Rights Agent, one one-hundredth of
a fully paid non-assesable share of Series B Junior Participating
Preferred Stock, par value $1.00 per share (the "Preferred
Shares"), of the Company, at a purchase price of $75.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the
Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of July 31,
1989, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the
number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the
happening of certain events.
<PAGE>
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement
reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Rights Agreement are on file
at the principal executive offices of the Company and the above-mentioned
officer of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the
Rights Agent, may be exchanged for another Right Certificate or
Right Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate
or Right Certificates surrendered shall have entitled such holder
to purchase. If this Right Certificate shall be exercised in
part, the holder shall be entitled to receive upon surrender
hereof another Right Certificate or Right Certificates for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the
Rights evidenced by this Certificate (i) may be redeemed by the
Company at a redemption price of $.0l per Right or (ii) may be
exchanged in whole or in part for Preferred Shares or shares of
the Company's Common Stock, par value $1.25 per share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than
fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled
to vote or receive dividends or be deemed for any purpose the
holder of the Preferred Shares or of any other securities of the
Company which may at any time be issuable on the exercise hereof,
nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold
consent to any
B-2
<PAGE>
corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights
Agreement.
This Right Certificate shall not be valid or obligatory
for any purpose until it shall have been countersigned by the
Rights Agent.
WITNESS the facsimile signature of the proper officers
of the Company and its corporate seal. Dated as of
, 19 .
- --------------- --
ATTEST: PHILLIPS PETROLEUM COMPANY
By
- ----------------------- ----------------------------
Countersigned:
MANUFACTURERS HANOVER TRUST COMPANY
By
---------------------------------
Authorized Signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
------------------------------------
hereby sells, assigns and transfers unto
------------------------
- -----------------------------------------------------------------
(Please print name and address of transferee)
- -----------------------------------------------------------------
this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and
appoint Attorney, to transfer the within
-----------------------
Right Certificate on the books of the within-named Company, with
full power of substitution.
Dated: , 19
---------------------- --
------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a
registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United
States.
- -----------------------------------------------------------------
The undersigned hereby certifies that the Rights
evidenced by this Right Certificate are not beneficially owned by
an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
------------------------------
Signature
- -----------------------------------------------------------------
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
-----------------------------
(To be executed if holder desires to
exercise the Right Certificate.)
To PHILLIPS PETROLEUM COMPANY
The undersigned hereby irrevocably elects to exercise
Rights represented by this
- -----------------------------
Right Certificate to purchase the Preferred Shares issuable upon
the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
- -----------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by
this Right Certificate, a new Right Certificate for the balance
remaining of such Rights shall be registered in the name of and
delivered to:
Please insert social security
or other identifying number
- -----------------------------------------------------------------
(Please print name and address)
- -----------------------------------------------------------------
Dated: , 19
----------------- --
------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a
registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United
States.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- -----------------------------------------------------------------
The undersigned hereby certifies that the Rights
evidenced by this Right Certificate are not beneficially owned by
an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
------------------------------
Signature
- -----------------------------------------------------------------
NOTICE
------
The signature in the foregoing Forms of Assignment and
Election must conform to the name as written upon the face of
this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.
In the event the certification set forth above in the
Form of Assignment or the Form of Election to Purchase, as the
case may be, is not completed, the Company and the Rights Agent
will deem the beneficial owner of the Rights evidenced by this
Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will be honored.
B-6
<PAGE>
Exhibit C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On July 10, 1989, the Board of Directors of PHILLIPS
PETROLEUM COMPANY (the "Company") declared a dividend of one
preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $1.25 per share (the "Common
Shares"), of the Company. The dividend is payable on July 31,
1989 (the "Record Date") to the stockholders of record on that
date. Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series B Junior
Participating Preferred Stock, par value $1.00 per share (the
"Preferred Shares"), of the Company at a price of $75.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and Manufacturers Hanover Trust Company, as
Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") have acquired
beneficial ownership of 20% or more of the outstanding Common
Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would
result in the beneficial ownership by a person or group of 20% or
more of such outstanding Common Shares (the earlier of such dates
being called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share
certificate with a copy of this Summary of Rights attached
thereto.
The Rights Agreement provides that, until the
Distribution Date, the Rights will be transferred with and only
with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date, upon transfer or new
issuance of Common Shares will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date
(or earlier redemption or expiration of
<PAGE>
the Rights), the surrender for transfer of any certificates for
Common Shares, outstanding as of the Record Date, even without
such notation or a copy of this Summary of Rights being attached
thereto, will also constitute the transfer o the Rights
associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution
Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common
Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution
Date. The Rights will expire on July 31, 1999 (the "Final
Expiration Date"), unless the Final Expiration Date is extended
or unless the Rights are earlier redeemed by the Company, in each
case, as described below.
The Purchase Price payable, and the number of Preferred
Shares or other securities or property issuable, upon exercise of
the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred
Shares at a price, or securities convertible into Preferred
Shares with a conversion price, less than the then current market
price of the Preferred Shares or (iii) upon the distribution to
holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than
referred to above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of
each Right are also subject to adjustment in the event of a stock
split of the Common Shares or a stock dividend on the Common
Shares payable in Common Shares or subdivisions, consolidations
or combinations of the Common Shares occurring, in an such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the
Rights will not be redeemable. Each Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of
$1 per share but will be entitled to an aggregate dividend of
100 times the dividend declared per Common Share. In the event
of liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential
C-2
<PAGE>
liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have 100 votes, voting together with
the Common Shares. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are
exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.
Because of the nature of the Preferred Shares'
dividend, liquidation and voting rights, the value of the one
one-hundredth interest in a Preferred Share purchasable upon
exercise of each Right should approximate the value of one Common
Share.
In the event that the Company is acquired in a merger
or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, proper provision
will be made so that each holder of a Right will thereafter have
the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of
common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise
price of the Right. In the event that (i) any person becomes an
Acquiring Person (unless such person first acquires 20% or more
of the outstanding Common Shares by a purchase pursuant to a
tender offer for all of the Common Shares for cash, which
purchase increases such person's beneficial ownership to 85% or
more of the outstanding Common Shares) or (ii) during such time
as there is an Acquiring Person, there shall be a
reclassification of securities or a recapitalization or
reorganization of the Company or other transaction or series of
transactions involving the Company which has the effect of
increasing by more than 1% the proportionate share of the
outstanding shares of any class of equity securities of the
Company or any of its subsidiaries beneficially owned by the
Acquiring Person, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common
Shares having a market value of two times the exercise price of
the Right.
At any time after the acquisition by a person or group
of affiliated or associated persons of beneficial ownership of
20% or more of the outstanding Common Shares and prior to the
acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of
C-3
<PAGE>
Directors of the Company may exchange the Rights (other than
Rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one Common Share, or
one one-hundredth of a Preferred Share (or of a share of a class
or series of the Company's preferred stock having equivalent
rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase
Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No fractional
Preferred Shares will be issued (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share,
which may, at the election of the Company, be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on
the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or
group of affiliated or associated persons of beneficial ownership
of 20% or more of the outstanding Common Shares, the Board of
Directors of the Company may redeem the Rights in whole, but not
in part, at a price of $.0l per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time
on such basis and with such conditions as the Board of Directors
in its sole discretion may establish. In addition, if a bidder
who does not beneficially own more than 1% of the Common Shares
(and who has not within the past year owned in excess of 1% of
the Common Shares and, at a time he held such greater than 1%
stake, disclosed, or caused the disclosure of, an intention which
relates to or would result in the acquisition or influence of
control of the Company) proposes to acquire all of the Common
Shares (and all other shares of capital stock of the Company
entitled to vote with the Common Shares in the election of
directors or on mergers, consolidations, sales of all or
substantially all of the Company's assets, liquidations,
dissolutions or windings up) for cash at a price which a
nationally recognized investment banker selected by such bidder
states in writing is fair, and such bidder has obtained written
financing commitments (or otherwise has financing) and complies
with certain procedural requirements, then the Company, upon the
request of the bidder, will hold a special stockholders meeting
to vote on a resolution requesting the Board of Directors to
accept the bidder's proposal. If a majority of the outstanding
shares entitled to vote on the proposal vote in favor of such
resolution, then for a period of 60 days after such meeting the
Rights will be automatically redeemed at the Redemption
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<PAGE>
Price immediately prior to the consummation of any tender offer
for all of such shares at a price per share in cash equal to or
greater than the price offered by such bidder; provided, however,
-------- -------
that no redemption will be permitted or required after the
acquisition by any person or group of affiliated or associated
persons of beneficial ownership of 20% or more of the outstanding
Common Shares. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of
the Rights, including an amendment to lower the threshold for
exercisability of the Rights from 20% to not less than the
greater of (i) the least percentage greater than the largest
percentage of the outstanding Common Shares then known to the
Company to be beneficially owned by any person or group of
affiliated or associated persons and (ii) 10%, except that from
and after such time as any person or group of affiliated or
associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive
dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a
Registration Statement on Form 8-A dated July , 1989. A copy
--
of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to
the Rights Agreement, which is hereby incorporated herein by
reference.
C-5
<PAGE>
EXHIBIT 2
<PAGE>
news release
- -----------------------------------------------------------------
PHILLIPS PETROLEUM COMPANY
BARTLESVILLE, OKLAHOMA 74004
CORPORATE AFFAIRS
Phillips Adopts New Rights Plan;
Redeems Existing Rights
July 10, 1989
FOR IMMEDIATE RELEASE:
- ---------------------
BARTLESVILLE, Okla. -- The board of directors of Phillips
Petroleum Company today authorized a new rights plan and declared
a distribution of one "preferred share purchase right" for each
outstanding share of the company's common stock. The new rights
will be distributed to stockholders of record at the close of
business on July 31, 1989. The rights provide additional
protection for shareholders against abusive takeover tactics.
The board also authorized the redemption of the company's
existing stock purchase rights which were established in July
1986. As a result, rights holders of record at the close of
business on July 31, 1989 will receive $.08 1/3 for each right
which is attached to each share of the company's common stock.
The rights will be exercisable only if a person or group
acquires 20 percent or more of the company's common stock or
announces a tender offer which would result in ownership by a
person or qroup of 20 percent or more of the common stock. The
rights enable holders to acquire additional shares of the
company's common stock or purchase the stock of the acquiring
company at a discount, depending on circumstances.
# # #
CONTACT: Dan Harrison
918/661-5204
661-1215
<PAGE>
Exhibit 10(a)
AGREEMENT
---------
Agreement dated December 23, 1984 among the, persons and entities
listed on Schedule A hereto (the "Mesa Entities") and Phillips Petroleum
Company (the "Company"),
1. The Company will propose a recapitalization (the
"Recapitalization") of its Common Stock, $1.25 par value (the "Shares"),
under which
(a) 38% of the presently outstanding Shares will be exchanged for
debt securities of the Company ("Debt Securities") on the basis of $60
aggregate principal amount of Debt Securities for each Share;
(b) the certificate of incorporation of the Company will be
amended to provide for a classified board of directors and such other
customary provisions as the Company may determine;
(c) the Company will create an Employee Stock Ownership Plan and
sell to such Plan not more than 32 million Shares at the market price
thereof; and
(d) within the twelve-month period following the exchange
referred to in paragraph l(a), the Company will spend not less than
$1 billion to purchase Shares in the open market, provided that no
such purchases need be made when the market price of the Shares is
more than $50 per Share; so long as the market price of the Shares
is less than $50 per Share, the Company will purchase Shares pursuant
to this paragraph l(d) as rapidly as practical under then market
conditions.
2. The Company will use its best efforts (i) to submit the
Recapitalization to its stockholders and obtain their approval an soon an
practical, (ii) to register under the Securities Act of 1933 the securities
to be issued in the Recapitalization, and (iii) to consummate the Recapi-
talization.
3. (a) The Company will fix the terms of the Debt Securities,
based on the advice of Morgan Stanley & Co. Incorporated and The First
Boston Corporation (the "Investment Bankers"), immediately prior to the
time the Proxy Statement relating to the meeting of the Company's
stockholders called to approve the Recapitalization (the "Proxy Statement")
is mailed so that the Debt Securities, in the opinion of the Investment
Bankers, would on such date have an aggregate market value equal to their
aggregate principal amount on the
<PAGE>
assumptions that the Recapitalization was completed and the Debt Securities
were fully and widely distributed among investors, were freely transferable
and were subject to only a normal trading market.
(b) While the actual trading prices of the Debt Securities and
Shares in the period immediately following the Recapitalization cannot be
predicted (because, among other factors, the prices at which Shares will be
purchased and the timing of such purchases pursuant to paragraph l(d)
cannot now be determined and future market conditions cannot now be known),
the Company believes, after consultation with the Investment Bankers, that,
assuming (i) the Recapitalization is effected as described in paragraph 1,
(ii) the Debt Securities have an aggregate market value equal to their
aggregate principal amount, and (iii) current market and business
conditions on the date of this Agreement, the Debt Securities and Shares
should be worth approximately $53 per presently outstanding Share.
4. In the event that (a) the Recapitalization is not approved by
the stockholders of the Company or (b) the Exchange Date (as defined in
paragraph 6) shall not have occurred on or before April 1, 1985, the Mesa
Entities will have the right, for a period of 30 days following (x) the
date of the Company's stockholder meeting with respect to the
Recapitalization, if clause (a) applies or (y) April 1, 1985, if clause (b)
applies, to sell all, but not less than all, of their Shares to the Company
for $53 per Share in cash.
5. The Mesa Entities may elect to exercise their right, pursuant
to paragraph 4 hereof, to sell their Shares to the Company upon five days
written notice to the Company. At the closing of such sale, the Mesa
Entities shall deliver to the Company certificates representing all of
their Shares, in proper form for transfer, duly endorsed in blank, and the
Company shall transfer to an account at a New York City bank specified by
the Mesa Entities immediately available funds in an amount equal to $53
times the number of Shares to be transferred.
6. On the date of the exchange of Shares for the Debt Securities
as provided in paragraph l(a) (the "Exchange Date"), the Mesa Entities
shall agree to sell to the Investment Bankers for public distribution or
private placement pursuant to an agreement in substantially the form
attached as Exhibit A hereto, and the Company shall cause the Investment
Bankers to agree to purchase for public distribution or private placement,
all of the Debt Securities and Voting Securities (as hereinafter defined)
then held by the Mesa
-2-
<PAGE>
Entities for an aggregate amount equal to the then market price thereof,
but not less than the product of $53 times the number of Shares held by the
Mesa Entities immediately prior to the Exchange Date; provided, however,
that, if in the opinion of the Investment Bankers, the public distribution
or private placement of any of such securities would result in the
disruption of the trading markets for any of such securities or otherwise
adversely affect the Company, then the Investment Bankers may request the
Company to purchase (or request the Company to cause another person or
persons to purchase) from them, and the Company shall purchase (or cause
such other person or persons to purchase) from the Investment Bankers such
securities. At the closing of such sale, the Mesa Entities shall deliver
to the Investment Bankers the certificates representing such securities, in
proper form for transfer, duly endorsed in blank, and the Investment
Bankers shall transfer to an account at a New York City bank specified
by the Mesa Entities immediately available funds in an amount equal to the
purchase price therefor. The Company agrees to issue and deliver to the
Mesa Entities certificates for all such Debt Securities prior to the
closing contemplated by the agreement referred to in the first sentence of
this paragraph 6.
7. Each of the Mesa Entities represents and warrants to the
Company that: such Mesa Entity is duly authorized to execute, deliver and
perform this Agreement; this Agreement has been duly executed by such Mesa
Entity, is a valid and binding agreement of such Mesa Entity and is en-
forceable against such Mesa Entity in accordance with its terms; at the
closing effected pursuant to paragraph 5 or 6, such Mesa Entity will convey
good title to the securities being sold, free and clear of all liens,
encumbrances, security interests and claims other than any created by the
Company; Annex I hereto accurately sets forth all the voting securities and
direct or indirect rights or options to acquire voting securities of the
Company (together, the "Voting Securities") owned "beneficially (as that
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, by such Mesa Entity or any of its "affiliates" or
"associates" (as those terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934) on the date hereof.
8. The Company represents and warrants that: it is duly
authorized to execute, deliver and perform this Agreement; and this
Agreement has been duly executed by the Company, is a valid and binding
agreement of the Company and is enforceable against the Company in
accordance with its terms. As of the date hereof approximately 154 million
Shares are issued and outstanding.
-3-
<PAGE>
9. Each of the Mesa Entities agrees that, for a period of fifteen
years after the data hereof, without the Company's prior written consent,
he or it will not and he or it will cause each of his or its affiliates,
associates and immediate family members to not, directly or indirectly,
alone or in concert with others, (a) acquire, offer to acquire, or agree to
acquire, by purchase, gift or otherwise, any Voting Securities of the
Company or make any proposal for or offer of any extraordinary transaction
involving the Company (other than as specifically contemplated by this
Agreement), (b) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Securities and
Exchange Commission), or seek to advise or influence any person or entity
with respect to the voting of, or giving of consents with respect to, any
Voting Securities of the Company, or (c) otherwise act to seek to control
or influence the management, board of directors, policies or affairs of the
Company. The Company agrees that, for a period of fifteen years after the
date hereof, without the prior written consent of Mesa Petroleum Co.
("MPC"), it will not and will cause each of its affiliates and associates
to not, directly or indirectly, alone or in concert with others, take any
of the actions specified in clause (a), (b) or (c) of the preceding
sentence with respect to MPC. The restrictions contained in this paragraph
9 shall not inure to the benefit of (i) any corporation or other entity
(other than the Company or the Mesa Entities) that beneficially owns any
Voting Securities of the Company or MPC, as the case may be, or (ii) the
surviving corporation or other entity following any merger, consolidation
or similar reorganization of the Company or MPC, as the case may be, except
that such restrictions shall inure to the benefit of any such surviving
corporation or other entity, if immediately following the consummation of
such merger, consolidation or similar reorganization, the persons who
immediately prior thereto were stockholders of the Company or MPC, an the
case may be, own securities representing at least 5O% of the aggregate
voting power and 50% of the common equity of such surviving corporation or
other entity.
10. Each party hereto will (to the extent he or it is a party
thereto) dismiss without prejudice the lawsuits listed in Annex II hereto.
Each Mesa Entity will (to the extent he or it is a party thereto) dismiss
without prejudice all lawsuits in which he or it is a party which relate to
state takeover statutes or similar matters. Each party hereto will use his
or its best efforts to seek to cause the dismissal without prejudice of the
lawsuits listed in Annex III hereto and to prevent the institution of any
lawsuit or proceeding by any other person or entity in which any party
here-
-4-
<PAGE>
to or any advisor thereof may be or become a party which relates to or
arises from (i) the acquisition or proposed acquisition of Voting
Securities of the Company by the Mesa Entities, (ii) the proposal of Mesa
Partners to make a tender offer for Shares (the Tender Offer") and to
solicit consents (the "Consent Solicitation") from the holders of Shares,
(iii) any proposal by the Mesa Entities to acquire control of the Company
(the matters referred to in clauses (i), (ii) and (iii) being hereinafter
referred to as the "Transaction") or any action taken by the Company in
response or otherwise relating thereto, and to cause the dismissal without
prejudice of any such lawsuit or proceeding which is instituted after
the date hereof. The Company, on the one hand, and each other party
hereto, on the other hand, hereby releases and discharges the other (and
such other's present and former directors, officers, employees, agents,
attorneys, parents, predecessors, successors, assigns, subsidiaries and
affiliates) from all manner of claims, actions, causes of action or suits,
at law or in equity, which each now has or hereafter can, shall, or may
have by reason of any matter, cause or thing whatsoever from the beginning
of the world to the date of this Agreement, arising out of, in connection
with, or in any way related to, the Transaction and any and all actions
taken by the Company in response or otherwise relating thereto, excepting
only any action, cause of action or suit arising by virtue of this
Agreement. The Mesa Entities, on the one hand, and the Company, on the
other hand, agree not to pursue with any federal or state governmental or
regulatory authority any claim or complaint against the other relating to
or arising out of the Transaction or any and all actions taken by the
Company in response or otherwise relating thereto.
11. The Company agrees to pay the actual expenses (certified as
provided below), including, without limitation, legal fees and expenses,
bank fees and expenses, printing expenses, advisory fees and expenses,
travel expenses and the net cost of carrying the Shares referred to in
Annex I, paid by the Mesa Entities to third parties in connection with the
Transaction, including any litigation relating thereto (the "Expenses"), up
until the earlier of the Exchange Date or the closing pursuant to paragraph
5; provided that the Company shall not be obligated by this paragraph to
pay more than $25 million. The Company shall pay $12.5 million of the
Expenses on January 4, 1985 promptly after receipt of a certificate of
the principal financial officer of MPC ("Certificate") certifying the
amount of the Expenses incurred to that date and the balance of the
Expenses on the earlier of the Exchange Date or the closing pursuant to
paragraph 5 promptly after receipt of a Certificate certifying the
remaining amount of the Expenses.
-5-
<PAGE>
12. Each Mesa Entity agrees to vote all the Shares which he or it
beneficially owns in favor of the Recapitalization. The parties shall
issue the press release annexed hereto and no party shall make any
statement that is not supportive of the Recapitalization.
13. Each of the Mesa Entities, on the one hand, and the Company,
on the other hand, acknowledges that the other would not have an adequate
remedy at law for money damages in the event that any or all of the
covenants of any or all of the Mesa Entities, on the one hand, or of the
Company, on the other hand, in this Agreement were not performed in
accordance with its terms and therefore agrees that such other party shall
be entitled to specific enforcement of such covenants in addition to any
other remedy to which it may be entitled, at law or in equity.
14. This Agreement shall be governed and construed in accordance
with the laws of the State of Delaware. Each party hereto hereby agrees
that any action, cause of action or suit which it may hereafter commence by
virtue of this Agreement may only be brought in a federal or state court
located in the State of Delaware, and each party hereto agrees to submit to
the jurisdiction of any such court in any such action, cause of action or
suit which may be commenced by any other party hereto.
15. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
PHILLIPS PETROLEUM COMPANY
By /s/ W.C. Douce
--------------------------
-6-
<PAGE>
MESA PARTNERS:
By: Mesa Asset Co., General Partner
By /s/ David H. Batchelder
-----------------------------
By: Cy-7, Inc., General Partner
By /s/ Joel L. Reed
-----------------------------
and
By: Jack-7, Inc., General Partner
By /s/ Joel L. Reed
-----------------------------
MESA PETROLEUM CO.
By /s/ David H. Batchelder
-----------------------------
MESA ASSET CO.
By /s/ David H. Batchelder
-----------------------------
WAGNER & BROWN
WAGNER & BROWN II
and
BROWN & WAGNER
By: Cyril Wagner, Jr.,
General Partner
By: Jack E. Brown, General Partner
By /s/ Joel L. Reed
-----------------------------
Joel L. Reed, Attorney-in fact
-7-
<PAGE>
JACK-7, INC.
By /s/ Joel L. Reed
-----------------------------
CY-7, INC.
By /s/ Joel L. Reed
-----------------------------
Jack E. Brown,
in his individual capacity
Cyril Wagner, Jr.,
in his individual capacity
By /s/ Joel L. Reed
-----------------------------
Joel L. Reed, Attorney-in-fact
/s/ T. Boone Pickens, Jr.
-------------------------------
T. Boone Pickens, Jr.,
in his individual capacity
-8-
<PAGE>
SCHEDULE A
MESA ENTITIES
Mesa Partners
Mesa Petroleum Co.
Mesa Asset Co.
Wagner & Brown
Wagner & Brown II
Brown & Wagner
Jack-7, Inc.
Cy-7, Inc.
Jack E. Brown
Cyril Wagner, Jr.
T. Boone Pickens, Jr.
<PAGE>
ANNEX I
-------
Mesa Partners owns 8,898,800 Shares. No other
Mesa Entity owns any Voting Securities of the Company.
<PAGE>
ANNEX II
--------
Mesa Partners v. Phillips Petroleum Company, Civil Action
No. 7872 (Del. Ch.)
Mesa Partners v. Phillips Petroleum Company and Charles M.
Oberly, III, Civil Action No. 84-718 (LON) (D. Del.)
Phillips Petroleum Company v. T. Boone Pickens, Jr., Mesa
Petroleum Co., Mesa Partners, Mesa Asset Co., CY-7, Inc.,
Jack-7, Inc., Wagner & Brown, Cyril Wagner, Jr., Jack E. Brown
and Harley N. Hotchkiss, Civil Action No. 84-724 (LON) (D.
Del.)
Mesa Partners v. Phillips Petroleum Company, C. Raymond Patton
Jr., Hamp Baker, Norma Eagleton, James Townsend and Michael C.
Turpen, No. CIV-84-3217-T (W.D. Okla)
T. Boone Pickens, Jr., and Mesa Petroleum Co. v. Phillips
Petroleum Company, William C. Douce and Bill Kish, No. 65,386-A
(47th Dist. Ct., Potter Co., Tex.)
Phillips Petroleum Company v. Mesa Petroleum Co., Mesa Partners,
Mesa Asset Co., Cy-7, Inc. and Jack-7, Inc., No. C84-775
(Dist. Ct., Washington Co., Okla.)
Mesa Partners v. Phillips Petroleum Company, Civil Action No.
7883 (Del.
<PAGE>
ANNEX III
---------
Mesa Partners v. State of Louisiana through Department of
Natural Resources by B. Jim Porter and The Honorable Doug
Moreau, District Judge, 19th Judicial District court, Civil
Action No. 84-1194 (M.D. La.)
State of Louisiana, through Department of Natural Resources
by B. Jim Porter v. Mesa Partners, through Mesa Petroleum
Company and Wagner and Brown, Docket No. 283825 (19th Jud.
Dist. Ct., E. Baton Rouge, La.)
Mesa Partners v. Downing Propane & Oil, Inc., Benton Oil Company
and Judge W.M. Thomas, Civil Action No. 84-C-1006E (N.D. Okla.)
Downing Propane & Oil, Inc. and Benton Oil Co., individually and
on behalf of a class of persons similarly situated v. Mesa
Petroleum Co., Mesa Partners, Mesa Asset Co., CY-7, Inc. and
Jack-7, Inc., No. C-84-584 (Dist. Ct., Mayes Co., Okla.)
<PAGE>
Exhibit A
---------
Form of Agreement with Investment Bankers
Agreement dated , 1985
among Mesa Partners, a Texas general
partnership (the "Partnership"),
Morgan Stanley & Co Incorporated,
a Delaware corporation ("Morgan
Stanley"), and The First Boston
Corporation, a Massachusetts corp-
oration ("First Boston" and together
with Morgan Stanley, the
"Purchasers").
WHEREAS, immediately prior to the Recapitalization
referred to below, the Partnership owned not more than
8,898,800 shares of Common Stock, $1.25 par value ("Shares"),
of Phillips Petroleum Corporation ("Phillips");
WHEREAS, Phillips has implemented a recapitali-
zation plan (the "Recapitalization") as contemplated by an
Agreement dated December 23, 1984, among the Company and
certain other parties including the Partnership (the "Recap-
italization Agreement") pursuant to which a portion of the
previously outstanding Shares were exchanged for debt
securities of Phillips ("Debt Securities");
NOW THEREFORE, in consideration of the promises
contained in this Agreement and other good and valuable
consideration receipt of which is acknowledged, the parties
to this Agreement agree as follows:
1. The Partnership agrees to sell to the Pur-
chasers, and each of the Purchasers severally agrees to
purchase from the Partnership, one-half of:(a) all Debt
Securities the Partnership received in exchange for Shares
pursuant to the Recapitalization and (b) all shares owned
by the Partnership which were not exchanged for Debt Securi-
ties in the Recapitalization, for an aggregate cash price
equal to the higher of (i) the aggregate market price of
such Debt Securities and Shares at the close of trading on the
New York Stock Exchange, Inc. on the day (the "Issue Date")
the Debt Securities were originally issued pursuant
to paragraph 1(a) of the Recapitalization Agreement and (ii)
the product of $53 times the number of Shares held by the
Partnership immediately prior to the effectiveness of the
Recapitalization.
2. The closing of the sale and purchase of Debt
Securities and Shares pursuant to Paragraph 1 (the "Resale
Closing") shall occur on the first business day after the
Issue Date. At the Resale Closing, the Partnership shall
<PAGE>
deliver (or cause to be delivered) to the Purchasers certifi-
cates representing the Debt Securities and Shares to be
purchased, in proper form for transfer, duly endorsed in
blank; and the Purchasers shall transfer, to an account at a
New York City bank specified by the Partnership, immediately
available funds in an amount equal to the full purchase
price for such Debt Securities and Shares pursuant to
Paragraph 1.
3. The Purchasers shall acquire the Debt Securi-
ties and Shares covered by this Agreement for public distri-
bution or private placement; provided however, that, if in
the opinion of the Purchasers, the public distribution or
private placement of any of such securities would result in
the disruption of the trading markets for any of such
securities or otherwise adversely affect Phillips, then the
Purchasers may request Phillips to purchase (or request
Phillips to cause another person or persons to purchase)
such securities from them.
4. The Partnership represents and warrants to the
Purchasers that it is duly authorized to execute, deliver
and perform this Agreement; this Agreement has been duly
executed by the Partnership, is a valid and binding agreement
of the Partnership and is enforceable against the Partnership
in accordance with its terms; at the Resale Closing the
Partnership will convey to the Purchasers good title to the
Debt Securities and Shares being sold, free and clear of all
liens, encumbrances, security interests and claims other
than any created by Phillips; and none of the other Mesa
Entities (as defined in the Recapitalization Agreement) owns
any Shares.
5. Each of the Purchasers severally represents and
warrants to the Partnership that it is duly authorized to
execute, deliver and perform this Agreement; and this Agree-
ment is a valid and binding agreement of it, enforceable
against it in accordance with its terms.
6. This Agreement shall be governed by and con-
strued in accordance with the internal laws of the State
of New York.
7. This Agreement nay be executed in two or
more counterparts which together shall constitute a single
agreement.
MESA PARTNERS
By: Mesa Asset Co.
General Partner
By:
--------------------------
<PAGE>
By: CY-7, Inc.
General Partner
By:
--------------------------
By: Jack-7, Inc.
General Partner
By:
--------------------------
MORGAN STANLEY & CO. INCORPORATED
By:
------------------------------
Managing Director
THE FIRST BOSTON CORPORATION
By:
------------------------------
Managing Director
<PAGE>
Exhibit 10(b)
December 23, 1984
Phillips Petroleum Company
Phillips Building
Bartlesville, OK 74004
Attn: William C. Douce,
Chairman of the Board
and Chief Executive Officer
Gentlemen:
Each of the undersigned (the "Mesa Entities")
hereby agrees, on the one hand, and by acceptance hereof
Phillips Petroleum Company (the "Company") hereby agrees, on
the other hand, that, subject to his or its own right to
pursue his or its own legitimate business objectives
independently and in good faith, (i) he or it and his or its
affiliates will continue to do business with the other and with
the other's directors, affiliates and associates and the
affiliates and associates of the other's directors (collectively,
"Related Parties") in the ordinary course and that the
events relating to the Mesa Entities' attempt to acquire
control of the Company and the Company's response thereto
that have preceded this letter agreement will not be taken
into account in making decisions with respect to business
relations between them and (ii) he or it will not, and will
not permit his or its affiliates to, directly or indirectly,
take any action to, or encourage any other person or entity
to, interfere with or adversely affect the business activities,
contractual relationships or business opportunities of the
other and the other's Related Parties.
This letter agreement shall be construed independ-
ently of, and any breach hereof shall not affect any obligation
of any party under, the separate agreement between us dated
the date hereof. Such obligations under said separate
agreement shall remain in full force and effect despite any
claimed breach of this letter agreement.
<PAGE>
This letter agreement shall be governed and construed
in accordance with the laws of the State of Delaware. Any
actions, causes of action or suits which may hereafter be
commenced by virtue of this letter agreement may only be
brought in a federal or state court located in the State of
Delaware and each party hereto agrees to submit to the
jurisdiction of any such court in any such action, cause of
action or suit which may be commenced by any other party
hereto.
This letter agreement may be executed in two or
more counterparts which together shall constitute a single
agreement.
Very truly yours,
MESA PARTNERS:
By: Mesa Asset Co., General Partner
By /s/ David H. Batchelder
--------------------------------
By: Cy-7. Inc., General Partner
By /s/ Joel L. Reed
--------------------------------
and
By: Jack-7, Inc., General Partner
By /s/ Joel L. Reed
--------------------------------
MESA PETROLEUM CO.
By /s/ David H. Batchelder
--------------------------------
MESA ASSET CO.
By /s/ David H. Batchelder
--------------------------------
-2-
<PAGE>
WAGNER & BROWN
WAGNER & BROWN II
and
BROWN & WAGNER
By: Cyril Wagner, Jr., General Partner
By: Jack E. Brown, General Partner
By /s/ Joel L. Reed
--------------------------------
Joel L. Reed, Attorney-in-Fact
JACK-7, INC.
By /s/ Joel L. Reed
--------------------------------
CY-7, INC.
By /s/ Joel L. Reed
--------------------------------
Jack E. Brown,
in his individual capacity
By /s/ Joel L. Reed
--------------------------------
Joel L. Reed, Attorney-in-Fact
Cyril Wagner, Jr.,
in his individual capacity
By /s/ Joel L. Reed
--------------------------------
Joel L. Reed, Attorney-in-Fact
-3-
<PAGE>
/s/ T. Boone Pickens Jr.
--------------------------------
T. Boone Pickens Jr.,
in his individual capacity
ACCEPTED AND AGREED AS OF THE
DATE WRITTEN ABOVE:
PHILLIPS PETROLEUM COMPANY
By
---------------------------------
-4-
<PAGE>
--------------------------------
T. Boone Pickens Jr.,
in his individual capacity
ACCEPTED AND AGREED AS OF THE
DATE WRITTEN ABOVE:
PHILLIPS PETROLEUM COMPANY
By /s/ W.C. Douce
---------------------------------
-4-
<PAGE>
Exhibit 10(c)
TRUST AGREEMENT
Dated as of December 12, 1995
between
PHILLIPS PETROLEUM COMPANY
and
VANGUARD FIDUCIARY TRUST COMPANY, as Trustee
<PAGE>
Table of Contents
-----------------
ARTICLE I
Establishment of Trust....................................... 3
1.1 Trust Fund.......................................... 3
1.2 Irrevocability...................................... 3
1.3 Claims of Creditors................................. 3
1.4 Acceptance by the Trustee........................... 3
1.5 Substitution of Assets.............................. 4
ARTICLE II
General Powers of Trustee.................................... 4
2.1 Investment of the Trust............................. 4
2.2 Additional Powers of Trustee........................ 6
2.3 Dealings with Trustee............................... 8
ARTICLE III
Information to be Furnished to Trustee....................... 8
3.1 About the Arrangements.............................. 8
3.2 About the Employees................................. 8
ARTICLE IV
Voting and Tender of Company Stock Held in Trust............. 8
4.1 Construction and Definitions........................ 8
4.2 Voting of Company Stock.............................10
4.3 Tender of Company Stock.............................13
4.4 Voting and Tender Responsibilities..................16
ARTICLE V
Distributions from Trust Fund................................17
5.1 Distributions from the Trust........................17
5.2 Determination of Taxability (or ERISA Application)..18
5.3 Withholding Tax.....................................19
5.4 Legal Action by Trustee.............................19
ARTICLE VI
Settlement of Accounts.......................................19
6.1 Trustee Records.....................................19
6.2 Valuation of Trust Fund.............................20
6.3 Trustee Statements..................................20
6.4 Audit...............................................21
6.5 Judicial Settlement.................................21
6.6 Delivery of Records to Successor....................21
ARTICLE VII
Taxes, Expenses and Compensation of Trustee..................22
7.1 Taxes...............................................22
7.2 Expenses and Compensation...........................22
<PAGE>
ARTICLE VIII
For Protection of Trustee....................................23
8.1 Evidence of Action by the Company...................23
8.2 Advice of Counsel...................................23
8.3 Fiduciary Responsibility............................23
ARTICLE IX
Indemnity of Trustee.........................................24
9.1 Indemnity of Trustee................................24
ARTICLE X
Resignation and Removal of Trustee...........................25
10.1 Resignation of Trustee..............................25
10.2 Removal of Trustee..................................26
10.3 Successor Trustee...................................26
10.4 Transfer of Trust Fund to Successor.................26
ARTICLE XI
Duration and Termination of Trust and Amendment..............26
11.1 Duration and Termination............................26
11.2 Distribution Upon Termination.......................26
11.3 Amendment...........................................27
ARTICLE XII
Claims of Creditors..........................................27
12.1 Insolvency..........................................27
12.2 Trustee's Responsibilities if Company May Be
Insolvent...........................................27
ARTICLE XIII
Miscellaneous................................................28
13.1 Governing Law.......................................28
13.2 Titles and Headings Not to Control..................28
13.3 Successors and Assigns..............................29
13.4 Notices.............................................29
13.5 Enforcement of Trust Agreement......................29
13.6 Limitation on Rights of Participants, Beneficiaries
and Other Affiliates................................30
SCHEDULE I
ARRANGEMENTS SCHEDULE........................................31
SCHEDULE II
COMPANY STOCK ARRANGEMENTS SCHEDULE..........................33
SCHEDULE III
MINIMUM DISTRIBUTION SCHEDULE................................34
SCHEDULE IV
TRUSTEE'S COMPENSATION SCHEDULE..............................35
SCHEDULE V
PERSONS AUTHORIZED TO ACT FOR THE COMPANY....................36
<PAGE>
TRUST AGREEMENT
---------------
THIS TRUST AGREEMENT made and entered into as of this 12th day of
December, 1995, by and between PHILLIPS PETROLEUM COMPANY, a Delaware
corporation with its executive offices at Phillips Building Bartlesville,
Oklahoma (the "Company"), and VANGUARD FIDUCIARY TRUST COMPANY, a trust
company incorporated under the Pennsylvania Banking Code and authorized to
conduct a trust business under the laws of the Commonwealth of
Pennsylvania, with its principal trust office at Valley Forge,
Pennsylvania, (the "Trustee").
WITNESSETH THAT:
WHEREAS, the Company and its subsidiaries have established various
compensation and benefit arrangements for the benefit of some or all of
the employees of the Company or certain of its subsidiaries (including
without limitation, the payment of employee salaries and wages)
(hereinafter referred to individually as an "Arrangement" and collectively
as the "Arrangements"); and
WHEREAS, the Company has and will have certain legal obligations (the
"Company Obligations") under these Arrangements (including without
limitation the contractual obligation to pay the legal obligations of
certain subsidiaries); and
WHEREAS, the Arrangements provide for the distribution of certain
payments and/or benefits to individuals who are employees of the Company
or subsidiaries of the Company and who are eligible to participate in one
or more of the Domestic Arrangements (identified in Schedule I) and
employees participating in any of the International Company Stock
Arrangements (identified in Part B of Schedule II) (collectively
"Employees"); and
WHEREAS, the Arrangements provide for the payment of certain payments
and/or benefits to, inter alia, individuals who are Employees of the
Company or subsidiaries of the Company and who participate in one or more
Arrangements that involve the acquisition or crediting to participant
accounts of common stock of the Company, $1.25 par value ("Company
Stock"); and
<PAGE>
WHEREAS, the Company wishes to establish a trust pursuant to this
Trust Agreement to assist it in meeting the Company Obligations (the
"Trust") and intends to make contributions and/or loans to such Trust at
such time or times and in such amount or amounts as it may determine; and
WHEREAS, the Company intends that such contributions shall be held by
the Trustee and used for the purpose of acquiring Company Stock and making
payments with respect to loans used to acquire Company Stock and
distributing such Company Stock or the proceeds thereof to satisfy Company
Obligations under the Arrangements, all in accordance with the provisions
of this Trust Agreement; and
WHEREAS, the Company intends that such loans made to the Trustee by
the Company shall be used for the exclusive purpose of acquiring Company
Stock in accordance with the provisions of this Trust Agreement; and
WHEREAS, the Trust is intended to be a grantor trust within the
meaning of Sections 671 through 679 of the Internal Revenue Code of 1986
(the "Code"), as amended, with the corpus and income of the Trust used for
the exclusive purpose of discharging Company Obligations and treated as
assets and income of the Company for federal income tax purposes pursuant
to such Code Sections; and
WHEREAS, the Company intends that the assets of the Trust will be
subject to the claims of creditors of the Company as provided in Article
XII; and
WHEREAS, the Company intends that the existence of the Trust shall
constitute an unfunded arrangement and shall not affect the status of any
Arrangement which is intended by the Company to be an unfunded plan
maintained for the purpose of providing deferred compensation for a select
group of management or highly compensated Employees for purposes of Title
I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and will not be construed to provide taxable income to any
person under an Arrangement prior to actual payment thereunder; and
-2-
<PAGE>
WHEREAS, the Company intends that the assets of the Trust shall not
be or become plan assets of any employee benefit plan within the meaning
of Title I of ERISA.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the Company and the Trustee declare and agree as follows:
ARTICLE I
Establishment of Trust
----------------------
1.1 Trust Fund. The Company hereby acknowledges that it has
established the Trust with the Trustee, consisting of such sums of money
and other property acceptable to the Trustee as from time to time shall be
paid or delivered to the Trustee in accordance with the terms of the
Trust. All such money and other property, all investments and
reinvestments made therewith or proceeds thereof and all earnings and
profits thereon, less all payments and charges as authorized herein, shall
constitute the "Trust Fund". The Trust Fund shall be held by the Trustee
in trust and shall be dealt with in accordance with the provisions of this
Trust Agreement. The Trust Fund shall at all times be subject to the
claims of general creditors of the Company as provided in Article XII.
1.2 Irrevocability. The Trust shall be irrevocable, and except as
provided in Section 5.2 and Articles XI and XII, the assets of the Trust
shall be held for the exclusive purpose of meeting Company Obligations and
defraying expenses of the Trust in accordance with the provisions of this
Trust Agreement.
1.3 Claims of Creditors. Notwithstanding anything in this Trust
Agreement to the contrary, the Trust Fund shall at all times be subject to
the claims in bankruptcy of general creditors of the Company as provided
in Article XII hereof. No person entitled to the benefit of any
Arrangement shall have any claim against the Trust Fund other than as a
general unsecured creditor of the Company.
1.4 Acceptance by the Trustee. The Trustee accepts the Trust
established under this Trust Agreement on the terms and subject to the
provisions set forth herein, and it
-3-
<PAGE>
agrees to discharge and to perform fully and faithfully all of the duties
and obligations imposed upon it under this Trust Agreement.
1.5 Substitution of Assets. Notwithstanding any other provision of
this Trust Agreement, when required to accomplish the purpose of any
Arrangement, the Company may, at any time, by notice to the Trustee,
substitute for part or all of the assets constituting the Trust Fund other
assets acceptable to the Trustee of equal fair market value at the time
of such substitution. The fair market value of any shares of Company
Stock being substituted shall be the mean between the high and low prices
of such Company Stock on the day as of which the distribution is to be
effected, as reported in the New York Stock Exchange Composite tape
published in the Wall Street Journal. The Trustee shall distribute to the
Company the assets to be substituted as soon as practicable after receipt
of a notice of substitution but in no case later than 7 days thereafter;
provided, however, that in the event the Company elects to substitute
Company Stock held in the Trust within 90 days prior to the record date of
a meeting of the shareholders of the Company or on or after the
commencement of a tender offer with respect to the Company Stock, the
Trustee shall continue to hold the Company Stock to be substituted and
shall make voting decisions at such meeting and shall make tender
decisions with respect to such Company Stock, both pursuant to Article IV
hereof. As soon as practicable after the conclusion of such meeting or
the expiration of such tender offer, as the case may be, the Trustee shall
distribute such shares of Company Stock from the Trust to the Company.
ARTICLE II
General Powers of Trustee
-------------------------
2.1 Investment of the Trust. Except as otherwise provided in this
Section 2.1 or except as otherwise expressly provided in this Trust
Agreement, all assets received by the Trustee shall be invested as soon as
practicable in, and remain invested in, Company
-4-
<PAGE>
Stock. Subject to the provisions of Section 2.2(j), all Company Stock
held in the Trust shall be registered in the name of the Trustee. All
shares of Company Stock purchased by the Trustee shall be purchased for
cash or for a combination of cash in an amount equal to or greater than
the par value of such shares and a note or notes for the balance of the
purchase price, and all Company Stock held by the Trustee shall be fully
paid and non-assessable.
(a) The Trust shall not invest any cash contributed to the
Trust (other than cash contributed to repay loans of the Trust) in any
investment other than Company Stock.
(b) From time to time, the Trustee shall have the ability to
borrow funds for the purpose of acquiring shares of Company Stock and/or
to issue one or more notes to the Company in exchange for newly issued
shares of Company Stock. The Trustee shall have the ability to pledge any
shares so acquired as collateral. The terms and conditions of any
borrowing shall be fair and reasonable. It is contemplated that any such
obligation shall be repaid using cash contributions and earnings
attributable to Company Stock held by the Trust Fund.
(c) The Company may contribute treasury shares of Company Stock
to the Trust Fund.
(d) Notwithstanding anything herein to the contrary, unless the
Company otherwise directs, cash (other than cash received as
contributions) or Other Assets received by the Trustee shall be retained
and invested in Other Assets; provided, however, that the Trust shall make
no new investment in an Other Asset other than debt securities of less
than twelve months duration or money market accounts; provided further
that, after payment of the costs of the Trust, including, without
limitation Trustee fees and expenses and, if applicable, debt repayment
described in Article V, through the end of the calendar year during which
such cash or Other Assets are received by the Trustee, any such cash
or Other Assets remaining shall be distributed by the Trustee to the
Administrators at the end of such calendar year to fund such Arrangements
as determined by the Financial
-5-
<PAGE>
Administrator taking into account the best interests of a broad cross-
section of employees. The term "Other Assets" refers to a non-cash asset
other than Company Stock.
2.2 Additional Powers of Trustee. Subject to the provisions of
Section 2.1, the Trustee shall have the following additional powers and
authority with respect to all property constituting a part of the Trust
Fund:
(a) To purchase securities or any other kind of property and to
retain such securities or other property, regardless of diversification
and without being limited to investments authorized by law for the
investment of trust funds.
(b) Subject to Article IV hereof, to sell, exchange or transfer
any such property at public or private sale for cash or on credit and
grant options for the purchase or exchange thereof, provided that, with
respect to any sale of shares of Company Stock (other than pursuant to
Article IV hereof, and excluding any distribution of Company Stock made
pursuant to this Trust Agreement), such shares shall first be offered for
sale to the Company before being sold to one or more third parties.
(c) Subject to Article IV hereof, to participate in any plan of
reorganization, consolidation, merger, combination, liquidation or other
similar plan relating to any such property, and to consent to or oppose
any such plan or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any corporation or other entity
any of the securities of which may at any time be held in the Trust Fund,
and to do any act with reference thereto.
(d) To deposit cash or any Trust assets other than Company
Stock with any protective, reorganization or similar committee; to
delegate discretionary power to any such committee; and to pay part of the
expenses and compensation of any such committee and any assessments levied
with respect to any property so deposited.
(e) To exercise any conversion privilege or subscription right
available in connection with any such property, and to do any act with
reference thereto, including the
-6-
<PAGE>
exercise of options, the making of agreements or subscriptions and the
payment of expenses, assessments or subscriptions, which may be deemed
necessary or advisable in connection therewith, and to hold and retain any
securities or other property which it may so acquire.
(f) Subject to Section 9.1 hereof, to commence or defend suits
or legal proceedings and to represent the Trust in all suits or legal
proceedings; to settle, compromise or submit to arbitration any claims,
debts or damages, due or owing to or from the Trust.
(g) Subject to Article IV hereof, to exercise, personally or by
general or limited power of attorney, any right, including the right to
vote, appurtenant to any securities or other such property.
(h) To hold cash awaiting investment uninvested, and to
maintain such additional cash balances as it shall deem reasonable or
necessary to meet anticipated cash distributions from or administrative
costs of the Trust.
(i) To invest cash or Trust assets other than Company Stock at
any such bank and trust company or national banking association as may be
approved from time to time by the Company in any type of interest-bearing
investment, including, without limitation, deposit accounts, certificates
of deposit and repurchase agreements.
(j) To register or hold any securities or other property held
by it in its own name or in the name of any custodian of such property or
of its nominee, including the nominee of any system for the central
handling of securities, with or without the addition of words indicating
that such securities are held in a fiduciary capacity, to deposit or
arrange for the deposit of any such securities with such a system and to
hold any securities in bearer form.
(k) To make, execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees, mortgages, conveyances,
contracts, waivers, releases or other instruments in writing that are
necessary or proper for the accomplishment of any of the
-7-
<PAGE>
foregoing powers.
(l) To undertake a borrowing or borrowings sufficient to enable
the Trust to acquire Company Stock from the Company.
2.3 Dealings with Trustee. Persons dealing with the Trustee shall
be under no obligation to see to the proper application of any money paid
or property delivered to the Trustee or to inquire into the Trustee's
authority as to any transaction.
ARTICLE III
Information to be Furnished to Trustee
--------------------------------------
3.1 About the Arrangements. The Arrangements as of the effective
date of the Trust Agreement are set forth in Schedule I to this Trust
Agreement (the "Arrangements Schedule"). Schedule I may be amended by the
Company from time to time without the consent of the Trustee. Upon the
Trustee's request, the Company shall provide the Trustee with such
information about any Arrangement with respect to which the Company
gives any direction to make any distribution from the Trust Fund otherwise
than to the Company or to a person administering the Arrangement on the
Company's behalf as will enable the Trustee to carry out the direction.
3.2 About the Employees. The Company shall provide the Trustee with
all information about Employees necessary to enable the Trustee to
discharge its duties hereunder, including particularly the information
necessary to enable the Trustee to solicit voting and tender directions
pursuant to Article IV hereof.
ARTICLE IV
Voting and Tender of Company Stock Held in Trust
------------------------------------------------
4.1 Construction and Definitions. (a) Notwithstanding anything
contained in this Trust Agreement to the contrary, this Article IV shall
govern the procedures to be
-8-
<PAGE>
followed in connection with the Voting of Company Stock and the
disposition of Company Stock pursuant to any tender or exchange Offer
therefor. In the event of any conflict or inconsistency between the
provisions of this Article IV and any other provisions of this
Trust Agreement, the provisions of this Article IV shall control.
(b) Definitions. For purposes of this Article only:
(1) "Accept" shall mean a direction to the Trustee to take
whatever action (including, without limitation, the sale, exchange or
transfer of Company Stock) as may be necessary to accept an Offer pursuant
to its terms.
(2) "Appointed Person" shall mean for purposes of Voting (i)
each Employee who is listed on the Company's personnel and U.S. dollar
domestic payroll records as of a Record Date or Initial Date as a "regular
full-time" or "regular part-time employee", and (ii) each trustee of an
International Company Stock Arrangement, and for purposes of responding to
an Offer shall mean each Employee.
(3) "Company Stock Arrangements" shall mean the Arrangements
identified in Schedule II to this Trust Agreement (the "Company Stock
Arrangements Schedule"). Schedule II may be amended from time to time by
the Company without the consent of the Trustee; provided, however, that
such Schedule may not be amended during the period commencing on a Record
Date or Initial Date and ending on the date which is 30 days after
respectively, the stockholder meeting following the Record Date or the
last date for stockholders to Accept the Offer following the Initial Date.
(4) "Initial Date" shall mean the date of the commencement of
any Offer.
(5) "International Company Stock Arrangements" shall mean the
Arrangements identified in Part B of Schedule II to this Trust Agreement.
(6) "Offer" shall mean any offer for the tender or exchange of
Company Stock which is made to Company stockholders.
-9-
<PAGE>
(7) "Record Date" shall mean the record date for any annual or
special meeting of the stockholders of the Company.
(8) "Reject" shall mean a direction to the Trustee to take or
omit to take whatever action (including, without limitation, the retention
of Company Stock) as may be necessary to reject an Offer.
(9) "Vote" or "Voting" shall mean a direction to the Trustee to
vote in favor of, against or to abstain from voting on a particular issue.
(10) "Determination Date" shall mean the date and time nearest a
stockholder meeting date and time, and shall be established by the
Trustee, in its absolute and sole discretion, as the deadline for receipt
of such directions as to how to Vote, or whether to Accept or Reject an
Offer, taking into consideration an adequate period of time for the
tabulation of such directions; provided, however, that a Determination
Date shall not be established sooner than the Trustee's close of business
on the business day immediately preceding a stockholder meeting at which
stockholders may cast votes, or the last date by which stockholders must
accept an Offer.
(11) "Directing Fiduciary" shall mean (i) an Appointed Person
who is an Employee and, as of a Determination Date, elects to direct the
Trustee with regard to his or her pro rata portion of (x) all Company
Stock allocated to him hereunder for the purpose of giving the Trustee
directions as to how to Vote or whether to Accept or Reject an Offer, and
(y) all Company Stock so allocated to other Appointed Persons for which
the Trustee fails to receive written directions as to how to Vote, or
whether to Accept or Reject an Offer, by the Determination Date, and for
purposes of Voting, (ii) each trustee of an International Company Stock
Arrangement.
4.2 Voting of Company Stock. (a) The Trustee shall Vote the shares
of Company Stock held by the Trust at any annual or special meeting of the
stockholders of the Company in accordance with Voting directions from
employees as hereinafter set
-10-
<PAGE>
forth.
(b) After the determination of a Record Date and within a reasonable
time before the date scheduled for a Company stockholder meeting, the
Company shall provide to the Trustee a list of the names and addresses of
each person who is an Appointed Person and the Trustee shall determine,
pursuant to this Section, the number of shares of Company Stock to be
allocated to the account of each Appointed Person. In addition, the
Company shall deliver to the Trustee copies of any proxy or consent
solicitation materials the Company may have prepared. If proxies or
consents are solicited by any person other than the Company's board of
directors, the Trustee shall request copies of materials prepared by such
person regarding any contested matter under consideration.
(c) Upon receipt of the information and materials described in
paragraph (b), the Trustee shall distribute or make available copies
thereof to each Appointed Person (except to the extent the Company has
previously certified to the Trustee that copies of any such materials have
been made available to each Appointed Person), together with a form
prepared or approved by the Trustee by which the Appointed Person may give
Voting directions to the Trustee. The Voting direction form shall state
that if such person fails to return the prescribed direction form to the
Trustee by the indicated Determination Date, the Trustee will conclusively
presume that the person has rejected his or her appointment to become a
Directing Fiduciary and that such person will thereafter have no
responsibility or right to direct the Trustee as to how to Vote such
Company Stock. The Trustee shall communicate the permissible methods of
giving Voting directions and the Determination Date by which such
directions must be received by the Trustee to all Appointed Persons. The
Trustee shall Vote Company Stock held as of the applicable Record Date in
accordance with directions received from Directing Fiduciaries pursuant
to this Article IV.
-11-
<PAGE>
(d) Each Directing Fiduciary shall have the authority and shall be
afforded the opportunity to direct the Trustee as to how to Vote his pro
rata portion (as hereinafter determined) of all Company Stock held in this
Trust and allocated to him or her for the purposes described in this
Article IV. Each Directing Fiduciary who is a trustee of an International
Company Stock Arrangement shall be allocated a pro rata share of that
portion of Company Stock held in the Trust which is determined as the
respective percentage of Company Stock held in the Trust Fund that bears
an equal proportion to the ratio between the number of shares of Company
Stock held in trust for the International Company Stock Arrangement and
the aggregate number of shares of Company Stock held as of the Record Date
by all trustees of Company Stock Arrangements. If any such trustee shall
fail to become a Directing Fiduciary by failing to return Voting
directions in the timely manner permitted by the Trustee, shares of
Company Stock otherwise allocated to that particular trustee shall be
allocated proportionately among all other such International Company Stock
Arrangement trustees who become Directing Fiduciaries. The shares of
Company Stock allocated to Directing Fiduciaries who are Employees shall
be determined by subtracting the total number of shares of Company Stock
held in the Trust which is allocated to Directing Fiduciaries who are
trustees of International Company Stock Arrangements from the total number
of shares held in the Trust as of the Record Date. Each Directing
Fiduciary who is an Employee shall be allocated and shall direct the
Trustee to Vote with respect to that number of shares of Company Stock
held by the Trust as of the Record Date which is determined by dividing
the number of shares held in the Trust as of the Record Date which are
allocated to Directing Fiduciaries who are Employees, by the number of
Directing Fiduciaries who are Employees.
(e) The Trustee shall not reveal or release any individual
Employee's Voting directions given as a Directing Fiduciary to the
Company, its officers, directors,
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employees, or representatives. Notwithstanding the foregoing, the Trustee
may inform the Company or other party soliciting proxies or consents, at
the request of either of them, of the approximate number of shares of
Company Stock for which Voting directions have been received as of a given
point in time and the manner in which such shares are required to be Voted
in the aggregate, when the votes are cast by the Trustee.
4.3 Tender of Company Stock. (a) The Trustee shall Accept or
Reject any Offer for the shares of Company Stock held by the Trust in
accordance with directions from Employees as hereinafter set forth.
(b) After the determination of an Initial Date and within a
reasonable time before the final date scheduled for the expiration of the
Offer, the Company shall provide to the Trustee a list of the names and
addresses of each person who is an Appointed Person and the Trustee shall
determine, pursuant to this Section, the number of shares of Company Stock
to be allocated to the account of each such Appointed Person. The
Trustee shall distribute or make available to each Appointed Person, such
information and materials relating to the Offer as the Trustee receives
from the person making the Offer and such other materials as the Trustee
may deem relevant including, without limitation, a description of the
terms and conditions of the Offer filed with the Securities and Exchange
Commission or any similar materials if such filing is not required and, if
requested by the Company, a statement acceptable to the Trustee from
Company management setting forth its position with respect to the Offer.
(c) Upon receipt of the information and materials described in
paragraph (b), the Trustee shall distribute or make available copies
thereof to each Appointed Person (except to the extent the Company has
previously certified to the Trustee that copies of any such materials have
been made available to each Appointed Person), together with a form
prepared or approved by the Trustee by which the Appointed Person may give
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directions to the Trustee to Accept or Reject the Offer. The direction
form shall state that if such person fails to return the prescribed
direction form to the Trustee by the indicated Determination Date, the
Trustee will conclusively presume that the person has rejected his or her
appointment to become a Directing Fiduciary and that such person will
thereafter have no responsibility or right to direct the Trustee as to
whether to Accept or to Reject the Offer. The Trustee shall communicate
the permissible methods of giving directions and the Determination Date by
which such directions must be received by the Trustee to all Appointed
Persons. The Trustee shall Accept or Reject the Offer with regard to
Company Stock held as of the applicable Initial Date in accordance with
directions received from Directing Fiduciaries pursuant to this Article
IV.
(d) Each Directing Fiduciary shall have the authority and shall be
afforded the opportunity to direct the Trustee as to whether to Accept or
to Reject the Offer with regard to his pro rata portion (as hereinafter
determined) of all Company Stock held in this Trust and allocated to him
or her for the purposes described in this Article IV. Directing
Fiduciaries who are not on a U.S. dollar domestic payroll ("International
Directing Fiduciaries") shall be allocated in the aggregate a pro rata
share of that portion of Company Stock held in the Trust which is
determined as the respective percentage of Company Stock held in the Trust
Fund that bears an equal proportion to the ratio between the number of
shares of Company Stock held in trust for all International Company Stock
Arrangements and the aggregate number of shares of Company Stock
held as of the Initial Date in all Company Stock Arrangements. Each
International Directing Fiduciary shall be individually allocated a pro
rata share of that portion of Company Stock so allocated to all
International Directing Fiduciaries and shall direct the Trustee to Accept
or Reject the Offer with respect to that number of shares of Company
Stock held by the Trust as of the Initial Date which is determined by
dividing the number of shares held in the Trust as of the Initial Date
which are allocated to International
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Directing Fiduciaries by the number of International Directing
Fiduciaries. Each Directing Fiduciary who is an Employee on the Company's
U.S. dollar domestic payroll records as a "regular employee" shall be
allocated and shall direct the Trustee to Accept or Reject the Offer with
respect to that number of shares of Company Stock held by the Trust as of
the Initial Date which is determined by dividing the number of shares held
in the Trust as of the Initial Date which are allocated to Directing
Fiduciaries who are domestic regular Employees, by the number of Directing
Fiduciaries who are domestic regular Employees. The shares of Company
Stock allocated to Directing Fiduciaries who are domestic regular
Employees shall be determined by subtracting the total number of shares of
Company Stock held in the Trust which is allocated to International
Directing Fiduciaries from the total number of shares held in the Trust as
of the Initial Date.
(e) The Trustee shall not reveal or release any individual
Employee's Offer response directions given as a Directing Fiduciary to the
Company, its officers, directors, employees, or representatives.
Notwithstanding the foregoing, the Trustee may inform the Company or other
party making an Offer, at the request of either of them, of the
approximate number of shares of Company Stock for which directions have
been received as of a given point in time and whether such shares are
required to be Accepted or Rejected in the aggregate, when the directions
are carried out by the Trustee.
(f) Any securities received by the Trustee as a result of having
Accepted an Offer and tendered Company Stock, as hereinabove provided,
shall be held, and any cash so received shall be invested in cash or
short-term investments pending any further action which the Trustee may be
required to take by the Company pursuant to this Trust Agreement. Company
Stock which, following the Trustee's tender thereof in response to an
Offer, has not been accepted by the party making the Offer and is returned
to the Trustee, shall be returned to the Trust Fund.
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(g) In the event of an Offer for Company Stock, the Trustee is
authorized in accordance with this Article IV to dispose of Company Stock
which is pledged or otherwise encumbered to secure repayment of a loan
from a lender only to the extent such disposition is permitted by or
pursuant to the documents by which such shares of Company Stock are so
pledged or encumbered.
4.4 Voting and Tender Responsibilities. (a) It is intended that
the Trustee's functions and responsibilities as to Voting Company Stock or
Accepting or Rejecting an Offer shall be custodial and ministerial only.
The Trustee is directed to comply with the terms of this Article IV
conferring on Directing Fiduciaries the exclusive authority to direct
the Trustee as to how to Vote Company Stock or whether to Accept or Reject
an Offer.
(b) Each Employee Directing Fiduciary who exercises his authority
under this Article IV to direct the Trustee as to how to Vote or to Accept
or Reject an Offer with respect to Company Stock shall be a fiduciary of
the Trust with respect to the Voting or tendering of such Company Stock
for which he or she gives direction, but shall have no other fiduciary
authority or responsibility under this Trust. Each Appointed Person who
is an Employee and does not exercise his authority to so direct the
Trustee shall be conclusively presumed to have refused his appointment
hereunder, and no such Appointed Person shall be a fiduciary of the Trust
for any purpose, unless expressly designated as a fiduciary under
provisions of the Trust other than provisions of this Article IV.
(c) Company Stock allocated to a Directing Fiduciary for Voting or
Offer response purposes shall be determined by the Trustee in accordance
with this Article IV from (i) the stockholder records of the Company in
the case of the trustees of the International Company Stock Arrangements
and (ii) the listing of Employees appointed as Appointed Persons certified
and provided to the Trustee by the Company.
(d) The Trustee shall not express any opinion or give any advice or
recommendation to any Directing Fiduciary concerning matters subject to
Vote or
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consent or concerning an Offer and shall not have any authority or
responsibility to do so.
(e) The Company acknowledges and agrees to honor the confidentiality
of Voting and Offer response directions of individual Employees to the
Trustee. If the Company, by its own act or omission, breaches the
confidentiality of such directions, the Company agrees to indemnify and
hold harmless the Trustee against and from all liabilities, claims,
demands, damages, costs, and expenses, including reasonable attorneys'
fees the Trustee may incur as a result thereof.
(f) The Trustee shall have the right to require payment in advance
by the Company and any other party soliciting proxies or consents or
making an Offer of all reasonably anticipated expenses associated with the
distribution of information to and the processing of directions received
from Directing Fiduciaries pursuant to this Article IV.
(g) Notwithstanding the foregoing provisions of this Article IV,
allocations and dispositions pursuant to this Article shall be subject to
such reasonable requirements for rounding of fractional interests as may
be prescribed by the Trustee; provided such rounding shall be not less
than three decimal places. To the extent practicable, the Trustee shall
Vote or respond to an Offer by combining fractional shares of Company
Stock allocated to Directing Fiduciaries hereunder to reflect the
directions of the Directing Fiduciaries.
ARTICLE V
Distributions from Trust Fund
-----------------------------
5.1 Distributions from the Trust. (a) Except to the limited extent
provided in Article IV, in this Article V and in Section 7.2, all
distributions from the Trust shall be used to fund Company Obligations.
The Company shall from time to time direct the Trustee to
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(i) distribute shares of Company Stock from the Trust, (ii) to sell shares
of Company Stock and distribute the cash proceeds, or (iii) to distribute
earnings or profits on Company Stock and Other Assets held by the Trust to
such persons or entities as the Company shall identify in such directions.
Distributions of Company Stock (or the net proceeds of the sale of Such
Company Stock) from the Trust shall result in a repayment or deemed
forgiveness of a pro rata amount of principal of the loan used to acquire
such Company Stock in an amount determined under this Section 5.1. For
purposes of the foregoing, the pro rata portion of the principal payment
made or deemed forgiven with respect to any stock acquisition loan
provided by the Company shall be determined by multiplying the initial
principal balance of the loan by a fraction, the numerator of which is the
number of shares of Company Stock distributed or sold on that distribution
date, and the denominator of which is the total number of shares of
Company Stock acquired with the proceeds of such loan.
(b) Distributions of Company Stock from the Trust shall be made
in accordance with the schedule set forth in Schedule III to this Trust
Agreement (the "Minimum Distribution Schedule") applicable to such stock;
provided that, if the Company Stock distributed pursuant to such Schedule
has been acquired in exchange for outstanding debt, the principal amount
attributable to such shares so acquired shall be repaid or deemed forgiven
in accordance with the formula in paragraph (a) of this Section 5.1. The
Company's directions to the Trustee shall be in writing. The Trustee may
rely upon such written instructions and shall have no responsibility to
verify or monitor the determinations made by the Company.
5.2 Determination of Taxability (or ERISA Application). (a)
Notwithstanding anything contained in this Trust Agreement to the
contrary, if, at any time, any amounts held in the Trust Fund are found in
a determination (within the meaning of Section 1313(a) of the Code) to
have been includable in the gross income of any person participating in
any Arrangement prior to payment of such amounts from the Trust, the
Trustee shall take such appropriate action in response thereto as directed
by the Financial Administrator.
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(b) Notwithstanding anything contained in this Trust Agreement
to the contrary, if, at any time, the United States Department of Labor or
a court of competent jurisdiction has determined (or in the Company's sole
judgment, reflected in written notice to the Trustee, would be likely to
determine) that any assets of the Trust are subject to Part 4 of Subtitle
B of Title I of ERISA, the affected assets shall be distributed to the
person with responsibility to hold the affected assets under the terms of
the relevant Arrangement.
5.3 Withholding Tax. Any amounts required to be paid under this
Article V shall be reduced by the amount of any withholding of tax
required by law, and the Trustee shall inform the Company of all amounts
so withheld and shall pay such amounts to the appropriate governmental
authorities.
5.4 Legal Action by Trustee. Except in the event the Company is
Insolvent (as defined in Section 12.1), the Trustee shall not itself
commence any legal action, whether in the nature of an interpleader
action, request for declaratory judgment, or otherwise, requesting a
court (i) to determine the validity of this Trust Agreement, or (ii) to
make any determination in the Trustee's stead with respect to any Company
Obligation that this Trust Agreement requires to be made by the Trustee.
Notwithstanding the foregoing sentence, in defending any legal action
brought with respect to any Company Obligation, the Trustee shall be
entitled to ask the court to determine the nature and amount of such
Company Obligation.
ARTICLE VI
Settlement of Accounts
----------------------
6.1 Trustee Records. The Trustee shall keep full, accurate and
detailed accounts of all investments, receipts and disbursements and other
transactions hereunder. The Trustee's financial statements, books and
records with respect to the Trust Fund shall be open to inspection by the
Company upon reasonable notice at all reasonable times during business
hours of the Trustee.
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6.2 Valuation of Trust Fund. As of the last business day of each
month, the Trustee shall value the Trust Fund at current market values,
and shall report such valuation to the Company. The report of any such
valuation shall not constitute a representation by the Trustee that the
amounts reported as fair market values would actually be realized upon the
liquidation of the Trust Fund. Such valuation shall reflect cash
contributions, income of the Trust Fund, gains or losses (including gains
or losses not yet realized), distributions and expenses incurred during
the month.
6.3 Trustee Statements. (a) The Trustee shall render to the
Company quarterly statements of its receipts and disbursements as Trustee
hereunder. Within 90 days after the close of each calendar year or any
termination of the duties of the Trustee, the Trustee shall prepare, sign
and mail in duplicate to the Company an account of its acts and
transactions as Trustee hereunder. If the Trustee files an account while
the Company is Insolvent, the Company shall notify each of its creditors
to whom it owes $1,000,000.00 or more that the account has been filed.
In the event of Insolvency of the Company, the Company shall make a copy
of such account (or any adjustment thereof) available for inspection by
creditors of the Company, at its principal executive office during
ordinary business hours for a period of 60 days (30 days in the case of
an adjusted account). If within 90 days after receipt of the account
neither the Company nor, in the event of Insolvency, any creditor of the
insolvent entity has filed with the Trustee notice of any objection to any
act or transaction of the Trustee, the initial account shall become an
account stated as between the Trustee, the Company, and all persons having
or claiming to have an interest in the Trust Fund. If any objection has
been filed, and if the objecting party is satisfied that it should be
withdrawn, the objecting party shall in a writing filed with the Trustee
signify its approval of the accounts, and it shall become an account
stated as between the Trustee, the Company, and all persons having or
claiming to have an interest in the Trust Fund. If the account is
adjusted following an objection thereto, the Trustee
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shall mail to the Company the adjusted account, and if within 30 days
after receipt of the adjusted account neither the Company nor, in the
event of Insolvency, any creditor of the insolvent entity has filed with
the Trustee notice of any objection to the transactions as so adjusted,
the adjusted account shall become an account stated as between the
Trustee, the Company and all persons having or claiming to have an
interest in the Trust Fund.
(b) Unless an account is fraudulent, when it becomes an account
stated it shall be finally settled, and the Trustee shall be completely
discharged and released, as if such account had been settled and allowed
by a judgment or decree of a court of competent jurisdiction in an action
or proceeding in which the Trustee, the Company, and all persons having or
claiming to have an interest in the Trust were parties.
6.4 Audit. The Trustee shall maintain a true and correct set of all
records pertaining to the Trust, the Trust Fund and all transactions
hereunder. The Trustee further agrees to retain all such records during
the term of this Trust Agreement and for a period of not less than two (2)
years after termination of this Trust Agreement. Any representatives
authorized by Company may audit any and all such records at any time or
times during the term of this Trust Agreement, as well as during the two-
year period after termination of this Trust Agreement.
6.5 Judicial Settlement. Nothing contained in this Trust Agreement
shall be construed as depriving the Trustee or the Company of the right to
have a judicial settlement of the Trustee's accounts, and upon any
proceeding for a judicial settlement of the Trustee's accounts or for
instructions the only necessary party thereto in addition to the
Trustee shall be the Company.
6.6 Delivery of Records to Successor. In the event of the removal
or resignation of the Trustee, the Trustee shall deliver to the successor
Trustee all records that shall be required by the successor Trustee to
enable it to carry out the provisions of this Trust Agreement.
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ARTICLE VII
Taxes, Expenses and Compensation of Trustee
-------------------------------------------
7.1 Taxes. (a) The Company shall from time to time pay taxes of
any and all kinds whatsoever that at any time are lawfully levied or
assessed upon the Company or become payable by the Company in respect of
the Trust Fund, the income or any property forming a part thereof, or any
security transaction pertaining thereto. The Trustee shall notify the
Company promptly after it becomes aware of any tax liability assessed
against, or imposed upon, the Trust or the Trustee in its capacity as
Trustee of the Trust. The Company shall be responsible for all matters in
respect of such assessment or imposition, and shall have sole
responsibility for any defense in connection therewith. Payments in
respect of any tax liability of the Company arising in connection with
earnings, gains or activities relating to the Trust, including, without
limitation, interest and penalties, shall be made from the Trust Fund
after a final determination of such liability, unless the Company promptly
pays such liability. In the event the assets of the Trust are
insufficient to pay such liability, any deficit shall be paid promptly by
the Company. All references in this Trust Agreement to the payment of
taxes shall include interest and applicable penalties.
(b) To enable the Company to make monthly tax accrual and to compute
its estimated income tax obligations, the Trustee will furnish, on or
prior to the eighth business day of the succeeding month, a monthly report
identifying the type of income by source of investment (interest,
dividends, etc.,).
7.2 Expenses and Compensation. The Trustee shall be paid
compensation by the Company in accordance with the schedule of fees set
forth in Schedule IV hereto.
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ARTICLE VIII
For Protection of Trustee
-------------------------
8.1 Evidence of Action by the Company. (a) The Company has
certified to the Trustee the name or names of any person or persons
initially authorized to act for the Company on Schedule V hereto. Until
the Company notifies the Trustee, in a notice signed by the Secretary or
an Assistant Secretary of the Company, that any such person is no longer
authorized to act for the Company, the Trustee may continue to rely upon
the authority of such person. The Company may certify to the Trustee, in
a notice signed by the Secretary or an Assistant Secretary the names of
any additional persons authorized to act for the Company.
(b) The Trustee may rely upon any certificate, notice or direction
of the Company that the Trustee reasonably believes to have been signed by
a duly authorized officer or agent of the Company.
8.2 Advice of Counsel. The Trustee may consult with any legal
counsel, including counsel to the Trustee, and counsel to the Company,
with respect to the construction of this Trust Agreement and the
Arrangements, its duties under this Trust Agreement, or any act that it
proposes to take or omit, and shall not be liable for any action taken or
omitted in good faith pursuant to such advice. Expenses of such counsel
shall be deemed to be expenses of the management and administration of the
Trust within the meaning of Section 7.2 hereof.
8.3 Fiduciary Responsibility. (a) The Trustee shall discharge its
duties under this Trust Agreement in a manner consistent with the
objectives of this Trust Agreement. The Trustee shall not be liable for
any loss sustained by the Trust Fund by reason of the purchase, retention,
sale or exchange of any investment in good faith and in accordance
with the provisions of this Trust Agreement. The Trustee shall have no
responsibility or liability for any failure of the Company to make
contributions to the Trust Fund or for any
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insufficiency of assets in the Trust Fund to meet Company Obligations when
due. The Trustee shall not be liable hereunder for any act taken or
omitted to be taken in good faith, except for its own gross negligence or
willful misconduct.
(b) The Trustee's duties and obligations shall be limited to those
expressly imposed upon it by this Trust Agreement, notwithstanding any
reference to the Arrangements.
(c) The Company at any time may employ as agent (to perform any act,
keep any records or accounts, or make any computations required of the
Company by this Trust Agreement or the Arrangements) the corporation or
association serving as Trustee hereunder. Nothing done by said
corporation or association as such agent shall affect its responsibilities
or liability as Trustee hereunder.
ARTICLE IX
Indemnity of Trustee
--------------------
9.1 Indemnity of Trustee. The Company hereby indemnifies and holds
the Trustee harmless from and against any and all losses, damages, costs,
expenses or liabilities (herein, "Liabilities"), including reasonable
attorneys' fees and other costs of litigation, to which the Trustee may
become subject pursuant to, arising out of, occasioned by, incurred in
connection with or in any way associated with this Trust Agreement, except
for any act or omission constituting gross negligence or willful
misconduct of the Trustee. If one or more Liabilities shall arise, or if
the Company fails to indemnify the Trustee as provided herein, or both,
then the Trustee may engage counsel of the Trustee's choice, but at the
Company's expense, either to conduct the defense against such Liabilities
or to conduct such actions as may be necessary to obtain the indemnity
provided for herein, or to take both such actions. The Trustee shall
notify the Company within fifteen days after the Trustee has so engaged
counsel of the name and address of such counsel. If the Trustee shall be
entitled to indemnification by the Company pursuant to this Section 9.1
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and the Company shall not provide such indemnification upon demand, the
Trustee may apply assets of the Trust Fund in accordance with Section 7.2
in full satisfaction of the obligations for indemnity by the Company, and
any legal proceeding by the Trustee against the Company for such
indemnification shall be in behalf of the Trust.
ARTICLE X
Resignation and Removal of Trustee
----------------------------------
10.1 Resignation of Trustee. The Trustee may resign at any time
upon sixty days' prior written notice to the Company. The Company shall
make a good faith effort, following receipt of notice of resignation from
the Trustee, to find and to appoint a successor Trustee who will adhere to
the obligations imposed on such successor under the terms of this Trust
Agreement. The Company shall condition its acceptance of such successor
on its determination that the successor Trustee satisfies the criteria set
forth in the immediately preceding sentence and on the obtaining from such
successor of a written statement that the successor has read the Trust
Agreement and understands its obligations thereunder. In the event the
Company has failed to appoint a successor Trustee within sixty days of the
Trustee's notice of resignation, the Trustee shall be entitled to seek
judicial removal. In any event, the Trustee shall continue to be
custodian of the Trust assets until the new trustee is in place, and the
Trustee shall be entitled to expenses and fees through the later of the
effective date of its resignation as Trustee and the end of its
custodianship of the Trust assets.
Once either:
(i) all payments required by the Trust Agreement have been
made, or
(ii) the Trust fund contains no assets and retains no claims to
recover assets from the Company pursuant to any provision
hereof; the Trustee may resign on thirty days' prior
written notice without
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assigning a reason and without being obligated in any way
to seek out or assist in securing a successor.
10.2 Removal of Trustee. The Company may remove the Trustee with or
without cause upon at least 60 days' notice in writing to the Trustee.
10.3 Successor Trustee. All of the provisions set forth herein with
respect to the Trustee shall relate to each successor trustee with the
same force and effect as if such successor had been originally named as
the Trustee hereunder.
10.4 Transfer of Trust Fund to Successor. Upon the resignation or
removal of the Trustee and appointment of a successor, the Trustee shall
transfer and deliver the Trust Fund to such successor. Following the
effective date of the appointment of the successor, the Trustee's
responsibility hereunder shall be limited to managing the assets in its
possession and transferring such assets to the successor, and settling its
final account. Neither the Trustee nor the successor shall be liable for
the acts of the other.
ARTICLE XI
Duration and Termination of Trust and Amendment
-----------------------------------------------
11.1 Duration and Termination. The Trust shall be irrevocable. The
Trust shall remain in existence until whichever of the following shall
first occur:
(i) all payments and distributions directed or otherwise required
by the Trust Agreement have been made,
(ii) the Trust Fund contains no assets and retains no claims to
recover assets from the Company pursuant to any provision
hereof, or
(iii) twenty-one years after the death of the last survivor of the
persons who were Employees as of the effective date of this
Trust Agreement.
11.2 Distribution Upon Termination. If this Trust terminates under
the provisions of Section 11.1, the Trustee shall liquidate the Trust Fund
and, after its final account has
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been settled as provided in Article VI, shall distribute to the Company
the net balance of any assets of the Trust remaining after all Company
Obligations have been met and expenses have been paid. Upon making any
such distribution, the Trustee shall be relieved of all further
obligations hereunder. The powers of the Trustee hereunder shall
continue so long as any assets of the Trust Fund (including claims against
the Company) remain in its hands.
11.3 Amendment. This Trust Agreement (including Schedule I hereto)
may be amended by the Company.
No amendment of this Trust Agreement shall increase the duties or
responsibilities of the Trustee unless the Trustee consents thereto in
writing. Amendment of Schedule I to add additional Arrangements thereto
shall not, in and of itself, be deemed to increase the duties or
responsibilities of the Trustee.
ARTICLE XII
Claims of Creditors
-------------------
12.1 Insolvency. As used in this Article XII, the Company shall be
deemed to be "Insolvent" if (i) the Company is subject to a pending
proceeding as a debtor under the federal Bankruptcy Code (or any successor
statute) or any similar law of any state or (ii) the Company is unable to
pay its debts as they become due. The Chief Executive Officer of the
Company shall promptly notify the Trustee in the event that the Company
becomes Insolvent. In the event that the Company shall be Insolvent, the
assets of the Trust shall be held for the benefit of the general
creditors of the Company.
12.2 Trustee's Responsibilities If Company May Be Insolvent. (a)
If at any time the Company or a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall request the Company to advise it within 30
days whether the Company is Insolvent, and failing such advice, shall
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be entitled (but not required) to independently determine whether the
Company is Insolvent. The Company shall cooperate with and assist the
Trustee in making such determination. In making such a determination, the
Trustee may retain outside experts competent to advise the Trustee as to
whether the Company has, in fact, become Insolvent. The expense of
retaining such outside experts shall be deemed to be expenses of the
management and administration of the Trust within the meaning of Section
7.3 hereof.
(b) If the Company notifies the Trustee, or the Trustee determines,
that the Company is Insolvent, the Trustee shall hold the balance in the
Trust Fund for the benefit of the Company's creditors, and shall
disburse assets from the Trust Fund to creditors of the Company only
pursuant to an order of a court of competent jurisdiction.
(c) If the Trustee discontinues payments from the Trust Fund
pursuant to this Section 12.2, the Trustee shall resume payments under
this Trust Agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent, if the Trustee
initially determined the Company to be Insolvent). The first payment
following such discontinuance shall include an aggregate amount equal to
the difference between the payments that would have been made under this
Trust Agreement but for this Section 12.2 and the aggregate payments
actually made by the Company pursuant to an Arrangement during any such
period of discontinuance.
ARTICLE XIII
Miscellaneous
-------------
13.1 Governing Law. This Trust Agreement and the Trust hereby
created shall be construed and regulated by the laws of the State of
Delaware.
13.2 Titles and Headings Not to Control. The titles to Articles and
headings of Sections in this Trust Agreement are placed herein for
convenience of reference only and in case of any conflict, the text of
this Trust Agreement, rather than such titles or
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headings, shall control.
13.3 Successors and Assigns. This Trust Agreement may not be
assigned by any party without the prior written consent of the other party
hereto, and any purported assignment without such prior written consent
shall be null and void. This Trust Agreement shall be binding upon the
successors and permitted assigns of each party hereto. In the case of any
consolidation of the Company with, or merger of the Company with or into,
any corporation or corporations, or any sale or conveyance of all or
substantially all of the assets of the Company, the corporation formed by
such consolidation, or with or into which the Company merged, or the
person that acquires the assets of the Company, shall be deemed to succeed
as the Company hereunder, and shall expressly assume in writing, in form
satisfactory to the Trustee, the duties and obligations of the Company
under this Trust Agreement and the Agreements.
13.4 Notices. (a) Communications to the Trustee shall be sent in
writing to the Trustee's office at Valley Forge, Pennsylvania, Attention:
Marshall House, or to such other address as the Trustee may specify. No
communication shall be binding upon the Trust Fund or the Trustee until it
is received by the Trustee and unless it is in writing and signed by an
authorized person.
(b) Communications to the Company shall be sent in writing to the
Company at Phillips Building, Bartlesville, Oklahoma 74004, Attention:
Treasurer, or to such other address as the Company may specify. No
communication shall be binding upon the Company until it is received by
the Company and unless it is in writing and signed by an authorized
person.
13.5 Enforcement of Trust Agreement. The Company and the Trustee
shall have the right to enforce any provision of this Trust Agreement. In
any action or proceeding affecting the Trust, the only necessary parties
shall be the Company and the Trustee and, except as otherwise required by
applicable law, no other person shall be entitled to any
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<PAGE>
notice or service of process. Any judgment entered in such an action or
proceeding shall, to the maximum extent permitted by applicable law, be
binding and conclusive on all persons having or claiming to have any
interest in the Trust or any Plan.
13.6 Limitation on Rights of Participants, Beneficiaries and Other
Affiliates. Neither the Arrangements nor any participant or Beneficiary
therein shall have any rights with respect to the Trust Fund, no
Arrangement shall be deemed to have any beneficial interest in the Trust
Fund, no employee shall be deemed to have any beneficial interest in
the Trust Fund arising from his participation in any particular
Arrangement, and no Affiliate shall have or be deemed to have any interest
in the Trust.
IN WITNESS WHEREOF, PHILLIPS PETROLEUM COMPANY, and VANGUARD
FIDUCIARY TRUST COMPANY, as Trustee, have caused this Trust Agreement to
be executed by their duly authorized officers and their respective seals
to be hereunto affixed as of the day and year first above written.
[SEAL)
Attest:
PHILLIPS PETROLEUM COMPANY
/s/Dale J. Billam By: /s/ John A. Carrig
- ----------------------- ---------------------------
Secretary Title: Treasurer
[SEAL)
Attest:
VANGUARD FIDUCIARY TRUST COMPANY
/s/Raymond J. Klapinsky By: /s/ R. Gregory Barton
- ----------------------- ---------------------------
Secretary Title: Vice President
-30-
<PAGE>
SCHEDULE I
ARRANGEMENTS SCHEDULE
Domestic Plans
Educational Assistance Plan
Phillips Petroleum Company Employee Assistance Plan
The Phillips Petroleum Company Employee Death Gratuity Plan
Phillips Petroleum Company Flexible Spending Plan
The Phillips Petroleum Company Group Life Insurance Plan
Long-Term Disability Insurance Plan
Long-Term Stock Savings Plan of Phillips Petroleum Company
Phillips Petroleum Company Medical and Dental Assistance Plan
Pension Plan for Hourly Employees of Phillips Fibers Corporation
Phillips Layoff Plan
Retirement Income Plan of Phillips Petroleum Company
Retirement Savings Plan of Phillips Petroleum Company
Thrift Plan of Phillips Petroleum Company
Work Force Stabilization Plan of Phillips Petroleum Company
Phillips Petroleum Company Key Employee Death Protection Plan
Key Employee Deferred Compensation Plan
Supplemental Thrift
Supplemental Retirement
Key Employee Deferred Compensation Plan of Phillips Petroleum Company
Retirement Restoration Plan of Phillips Petroleum Company
Principal Corporate Officers Supplemental Retirement Plan of Phillips
Petroleum Company
Phillips Petroleum Company Supplemental Executive Retirement Plan
Phillips Oil Company Excess Benefit Plan
Aminoil Retirement Contracts
Retirement Makeup Plan of Phillips Petroleum Company
Key Employee Supplemental Retirement Plan of Phillips Petroleum Company
Defined Contribution Makeup Plan of Phillips Petroleum Company
Phillips Puerto Rico Core Inc. Group Medical and Dental Assistance Plan
Phillips Puerto Rico Core Inc. Long Term Disability Insurance Plan
Phillips Puerto Rico Core Inc. Pension Plan
Savings and Investment Plan for Employees of Phillips Puerto Rico
Core Inc.
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<PAGE>
SCHEDULE I (cont'd)
Major Foreign Plans
Phillips Petroleum Resources, Ltd. Canada Region Employee Savings Plan
Pension Plan for the Employees of Phillips Petroleum Resources, Ltd.
and/or Affiliated Companies, Phillips Petroleum Canada Ltd., Phillips
Petroleum Co. Western Hemisphere and GAO Canada Ltd.
Phillips Petroleum Company Norway Pension Plan
Phillips Petroleum Company Norway Stock Savings Plan
Phillips Petroleum Company Norway Top Hat Plan
Phillips Petroleum United Kingdom Retirement Plan
Employee Share Allocation Scheme of Phillips Petroleum Company Europe-
Africa
Phillips Petroleum Company Europe-Africa Employee Single Company Plan
Phillips Petroleum Chemicals (Belgian) Pension Plan
Pension Plan for International Expatriate Employees of International
Energy Limited
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<PAGE>
SCHEDULE II
COMPANY STOCK ARRANGEMENTS SCHEDULE
Part A - Domestic Company Stock Arrangements
Long-Term Stock Savings Plan of Phillips Petroleum Company
Retirement Savings Plan of Phillips Petroleum Company
Thrift Plan of Phillips Petroleum Company
Part B - International Company Stock Arrangements
Phillips Petroleum Resources Ltd. - Canada
Region Employees Savings Plan
Employee Share Allocation Scheme of Phillips Petroleum Company
Europe-Africa
Phillips Petroleum Overseas Stock Savings Plan
-33-
<PAGE>
SCHEDULE III
MINIMUM DISTRIBUTION SCHEDULE
PRIOR TO CUMULATIVE SHARES RELEASED
- -------- --------------------------
January 1, 2006 5,000,000 shares
January 1, 2011 10,000,000 shares
January 1, 2016 15,000,000 shares
January 1, 2021 29,200,000 shares
-34-
<PAGE>
SCHEDULE IV
TRUSTEE'S COMPENSATION SCHEDULE
The Trustee shall be paid as compensation an annual fee of five thousand
dollars ($5,000.00). It is intended that this fee will cover the
expenses associated with the management and administration of the Trust
fund, including custodial expenses.
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SCHEDULE V
PERSONS AUTHORIZED TO ACT FOR THE COMPANY
T. C. Morris
J. J. Mulva
J. A. Carrig
L. L. McCall
J. E. Lowe
R. S. Nickel
C. L. Bowerman
<PAGE>
Exhibit 10(e)
1990 STOCK PLAN
OF
PHILLIPS PETROLEUM COMPANY
(As Approved April 25, 1989)
1. PURPOSE
The purpose of the 1990 Stock Plan of Phillips Petroleum
company is to provide incentive earnings opportunities to
those key employees whose decisions and actions most directly
affect the profitability and growth of the Company and its
subsidiaries. Since the incentive earnings opportunities
under this Plan are based on the market value of the
Company's Common Stock, it will have the additional effect of
increasing these employees' identity of interest with that of
the Company's stockholders. There are two programs permitted
by this Plan; a Stock Option Plan and the Strategic Incentive
Plan.
2. DEFINITIONS
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(c) "Company" shall mean Phillips Petroleum Company.
(d) "Committee" shall mean the Compensation Committee of the
Board of Directors as appointed from time to time, and
consisting of not less than three Board members. Each
member of the Committee shall be a "disinterested
<PAGE>
person" as that term is now or hereafter defined in Rule
16(b)(3) of the Securities and Exchange Commission.
(e) "Earned Award" shall mean the award which an SIP
Participant is entitled to receive under the Strategic
Incentive Plan.
(f) "Employee" shall mean any person employed by the Company
or a Subsidiary on a full-time salaried basis, including
officers and employee directors thereof.
(g) "Fair Market Value" shall mean the average of the
highest price and the lowest price at which Stock shall
have been sold on the date of the grant of the Option as
reflected on the consolidated tape of New York Stock
Exchange issues. In the event that any Options shall be
granted on a date on which there were no such sales of
Stock, the fair market value of Stock on such date shall
be the average of the highest price and the lowest price
at which Stock shall have been sold on the last trading
day preceding the date of grant of such Option as
reflected on the consolidated tape of New York Stock
Exchange issues.
(h) "Incentive Stock Option" or "ISO" shall mean an Option
which meets or complies with the terms and conditions
set forth in Section 422A of the Code and Treasury
regulations promulgated thereunder.
(i) "Indicators of Performance" shall mean the criteria
which the Committee will use at the conclusion of the
Performance Period to evaluate the Company's overall
performance as described in Section 9(b) of this Plan.
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<PAGE>
"Strategic Incentive Plan Participant" or "SIP
Participant" shall mean any eligible Employee who has
been so designated by the Committee.
(k) "Option" or "Stock Option" shall mean a right granted
under the Plan to an Optionee to purchase a stated
number of shares of Stock at a stated exercise price.
(l) "Optionee" shall mean an employee who has received a
Stock Option granted under the Plan.
(m) "Performance Period" shall mean a period established by
the Committee beginning on the first day of a calendar
year, or not less than three consecutive calendar years,
at the conclusion of which settlement will be made with
a SIP Participant with respect to his Earned Award.
(n) "Plan" shall mean the 1990 Stock Plan of Phillips
Petroleum Company.
(o) "Restricted Stock" shall mean Stock which is not
transferable except in accordance with the terms
established for such transfer at the time of its issue
in accordance with the plan under which it was issued.
(p) "Stock" shall mean the common stock, including both
Restricted and unrestricted Stock, of the Company.
(q) "Stock Appreciation Right" or "ISAR" shall mean the right
of an Optionee to exercise an option granted in
accordance with Section 8 of this Plan.
(r) "Subsidiary" shall mean any corporation, a majority of
the voting stock of which is beneficially owned,
directly or indirectly, by the Company.
-3-
<PAGE>
(s) "Target Award" shall mean the award, expressed in shares
of Stock, which will be considered an Earned Award,
absent any adjustment thereto for individual
performance, if the Committee determines pursuant to
Section 9(b) of this Plan that the Company's overall
performance was "competitive".
(t) "Total Disability" and "Totally Disabled" shall mean the
condition in which, by reason of bodily injury or
disease, an employee is and will at all times thereafter
be wholly prevented from engaging in any occupation or
employment for compensation, profit or gain. All determinations
of Total Disability shall be made by the insurance company
carrying the group life insurance plan
of the Company on the date on which the employee,
whether or not eligible for benefits under such
insurance plan, becomes Totally Disabled.
3. ADMINISTRATION
The Committee is authorized, subject to the provisions of the
Plan, from time to time to establish such rules and
regulations and to appoint such agents as it deems
appropriate for the proper administration of the Plan, and to
make such determinations under, and such interpretations of,
and to take such steps in connection with the Plan or the
Options or Stock Appreciation Rights or the Strategic
Incentive Plan as it deems necessary or advisable. Each
determination, interpretation, or other action made or taken
pursuant to the provision of the Plan by the Committee shall
be final and shall be binding and conclusive for all purposes
-4-
<PAGE>
and upon all persons. Notwithstanding any provision of the
Plan or any Administrative Procedure adopted thereunder which
may be capable of being construed to the contrary, no
discretion concerning the administration of the Plan in so
far as it relates to persons subject to Section 16 of the
Securities Exchange Act of 1934 shall be afforded to a person
who is not a disinterested person in respect of the Plan.
4. ELIGIBILITY
Only those Employees who, in the sole judgment of the
Committee, may have a significant effect on the
profitability and growth of the Company, shall be eligible to
receive options and Stock Appreciation Rights under this
Plan. Of such Employees, those who are in positions
evaluated at grade 35 or higher under the company's salary
administration system are eligible for participation in the
Strategic Incentive Plan; provided, however, the Committee
may also permit Employees eligible for Participation in the
Plan evaluated at less than grade 35 to participate in the
Strategic Incentive Plan if in the opinion of the Committee
such Employees have a significant effect on the Company's
long term growth and profitability.
5. MAXIMUM-SHARES AVAILABLE
The Stock to be distributed under the Plan may be either
authorized and unissued shares or issued shares whether held
in the treasury of the Company or otherwise. The total
amount of Stock which, under the provisions of this Plan, may
be subject to delivery on the exercise of Options, issued in
satisfaction of exercised Options or SARS, or issued under
-5-
<PAGE>
the Strategic Incentive Plan shall not exceed 8.6 million
shares of the Company's stock, which represents approximately
3.5% of the number of issued and outstanding shares of Stock
as of December 31, 1988. The maximum number of shares is
subject to adjustment in accordance with the provisions of
Section 10 hereof. In determining the number of shares
subject to delivery under this Plan, those represented by
cancelled Options, forfeited Options, expired Options and
non-earned awards under the Strategic Incentive Plan shall be
returned upon the occurrence of such event to the pool of
shares available for distribution under the Plan and may be
the subject of further Options or SARS, or may be issued
under the Strategic Incentive Plan.
6. STOCK OPTIONS
(a) Award of Options. (i) The Committee, at any time and
from time to time prior to December 31, 1994, may grant
Options under the Plan to eligible Employees, for such
numbers of shares and having such terms as the Committee
shall designate, subject, however, to the provisions of
the Plan. The Committee will also determine the type of
Option granted (e.g., ISO, nonstatutory, other statutory Options
as from time to time may be permitted by the
Code) or a combination of various types of options.
Options designated as ISOs shall comply with all the
provisions of Section 422A(b) of the Code and applicable
Treasury Department regulations. The aggregate Fair
Market Value (determined at the time the option is
granted) of Stock with respect to which ISOs are
exercisable for the first time by any individual during
-6-
<PAGE>
a calendar year under all plans of the Company, and any
subsidiary shall not exceed $100,000. All shares over
the $100,000 first exercisable value shall be granted as
a non-qualified Option. The date on which an Option
shall be granted shall be the date of the Committee's
authorization of such grant. Any individual at any one
time and from time to time may hold more than one Option
granted under the Plan or under any other Stock plan of
the Company. (ii) Each Option shall be evidenced by a
Stock Option Agreement in such form and containing such
provisions not inconsistent with the provisions of the
Plan as the Committee from time to time shall approve.
(b) Exercise Price. The price at which shares of Stock may
be purchased under an Option shall not be less than 100
percent of the Fair Market Value of the Stock on the
date the Option is granted.
(c) Term of Options. The period during which an Option may
be exercised shall be determined by the Committee;
provided, that such period will not be longer than ten
years from the date on which the option is granted for
those Options designated as ISOs or 11 years for other
types of Options. The date or dates on which
installment portion(s) of an Option may be exercised
during the term of an option shall be determined by the
Committee and may vary from Option to Option. If the
Committee makes no such specific arrangement with
respect to an Option, each such Option granted pursuant
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<PAGE>
to the Plan shall become exercisable in four
installments. The first such installment shall become
exercisable on the first anniversary of the date of the
grant for 25 percent of the number of shares of Stock
subject to the Option. Thereafter, on each anniversary
of the date of the grant an installment shall become
exercisable for an additional 25 percent of the number
of shares of Stock subject to the Option until the
Option shall have become fully exercisable. To the
extent that an installment is not exercised when it
becomes exercisable, it shall not expire but shall
continue to be exercisable at any time thereafter until
the option shall be cancelled, expire or be surrendered.
The Committee may accelerate the exercise schedule on
outstanding Options, if in its sole judgment conditions
are such to warrant such acceleration.
(d) Termination of Employment. (i) If, prior to a date one
year from the date an option shall have been granted,
the Optionee's employment with the Company or Subsidiary
shall be terminated for any reason, such option shall be
cancelled and all rights thereunder shall cease;
provided that an Option granted in any year to an
Optionee who terminates employment on January 1 of the
following year due to retirement pursuant to the terms
of a retirement plan of the Company or a Subsidiary
-8-
<PAGE>
shall not be cancelled for that reason, and provided,
further, the Committee may, in its sole discretion
determine that all or any portion of any other Option
shall not be cancelled due to termination of employment
prior to a date one year from the date the Option shall
have been granted.
(ii) If, on or after one year from the date an Option
shall have been granted, an Optionee's employment with
the Company or Subsidiary is terminated for any reason
except retirement pursuant to the terms of a retirement
plan of the Company or a Subsidiary, Total Disability,
or death, any Option so granted under the Plan shall be
cancelled on such termination; provided, that the
Committee may, in its sole discretion, determine that
all or a portion of any such Option shall not be
cancelled.
(iii) If, on or after a date one year from the date the
Option is granted, an Optionee shall terminate
employment by reason of retirement pursuant to a
retirement plan of the Company or Subsidiary, or by
reason of Total Disability, the Optionee shall retain
all rights provided by the Option at the time of such
termination of employment. If on or after a date one
year from the date the Option is granted, or such
shorter period as may be permitted pursuant to (d)(ii)
above, an optionee shall die while in the employ of the
-9-
<PAGE>
Company or Subsidiary or after termination of employment
by reason of retirement pursuant to a retirement plan of
the Company or Subsidiary, the executor or administrator
of the estate of the Optionee or the person or persons
to whom the Option shall have been validly transferred
by the executor or the administrator pursuant to will or
the laws of descent and distribution shall have the
right to exercise the Option to the same extent the
Optionee could have, had the Optionee not died. No
transfer of an Option by the Optionee by will or by the
laws of descent and distribution shall be effective to
bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of the
will and such other evidence as the Company may deem
necessary to establish the validity of the transfer and
the acceptance by the transferee or transferees of the
terms and conditions of such Option.
(iv) Transfer of employment between the Company and a
Subsidiary or between Subsidiaries shall not constitute
termination of employment for the purpose of any Option
granted under the Plan. Whether any leave of absence
shall constitute termination of employment for the
purposes of any Option granted under the Plan shall be
determined in each case by the Committee in its sole
discretion.
-10-
<PAGE>
(e) Payment for Shares. (i) The exercise price for all
shares of Stock purchased upon the exercise of an
Option, or a portion thereof, shall be paid in full at
the time of such exercise. Such payment may be made in
cash, by tendering shares of Stock having a value on the
date of exercise equal to the exercise price, or
tendering shares of Restricted Stock having a value on
the date of exercise equal to the exercise price. Such
value shall be the Fair Market Value except that the
applicable date for determination of the highest and
lowest price on the New York Stock Exchange shall be the
date on which the Option is exercised, or if not a
trading date, than the last trading day on such Exchange
preceding the date on which the option is exercised. If
Restricted Stock is used in such exercise, the resulting
new shares shall have the same restrictions as the
tendered shares. The number of shares so restricted
shall not be less than the number of shares of
Restricted Stock tendered. The Committee may, in its
sole discretion and judgment, limit the extent to which
shares of Stock or shares of Restricted Stock may be
used in exercising options.
(ii) The Stock delivered to the Optionee upon exercise
of an Option, whether or not Restricted Stock is used
for payment of the purchase price of the Option may, at
the discretion of the Committee, have restrictions
placed on it, provided that the Stock Option agreement
with the Optionee covering the Option permits such use
of Restricted Stock.
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<PAGE>
(f) Should a withholding tax obligation arise upon the
exercise of an option, the withholding tax may be
satisfied by withholding shares of Stock or by payment
of cash.
7. DETRIMENTAL ACTIVITIES
If the Committee determines that, subsequent to the grant of
any Option, the Optionee has engaged or is engaging in any
activity which, in the sole judgment of the Committee, is or
may be detrimental to the Company or a Subsidiary, the
Committee may refuse to honor the exercise of such Optionee's
options already requested, and cancel the Option or Options
granted to that Optionee.
8. STOCK APPRECIATION RIGHTS
(a) Grant, The Committee may, at its discretion, affix
Stock Appreciation Rights to any Option, either at the
time of its initial granting to the Optionee or at a
later date. The addition of such SARs must be
accomplished prior to the completion of the period
during which the Option may be exercised and such
exercise period may not be extended beyond that which
was initially established. The Committee may establish
any SAR terms and conditions that it desires at the time
such SAR is established, provided that, to the extent
permitted by applicable law, notwithstanding any
provision of this Plan to the contrary, the terms and
conditions of a SAR related to an ISO shall be the same
as the terms applicable to the underlying ISO.
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<PAGE>
(b) Exercise of Stock Appreciation Right. (i) A Stock
Appreciation Right shall be exercisable at such time as
may be determined by the Committee, which shall be not
less than six months after its grant, and provided
further that a Stock Appreciation Right shall be
exercisable only to the extent that the related Option
could be exercised. Option shares with respect to which
the related Stock Appreciation Right shall have been
exercised may not again be subjected to Options under
this Plan. Upon the exercise of a Stock Appreciation
Right, that portion of the Option underlying the Stock
Appreciation Right will be considered as having been
exercised.
(ii) The Committee may impose any other conditions upon
the exercise of a Stock Appreciation Right, which
conditions may include a condition that the Stock
Appreciation Right may only be exercised in accordance
with rules and regulations adopted by the Committee from
time to time. Such rules and regulations may govern the
right to exercise Stock Appreciation Rights granted
prior to the adoption or amendment of such rules and
regulations as well as Stock Appreciation Rights granted
thereafter. The exercise of a Stock Appreciation Right
for cash shall be made only during the periods specified
in Rule 16b-3 of the Securities and Exchange Commission.
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<PAGE>
(iii) Upon the exercise of a Stock Appreciation Right,
the Company shall give to an Optionee an amount (less
any applicable withholding taxes, which at the Company's
discretion may be settled by withholding shares of Stock
or by payment of cash) equivalent to the excess of the
value of the shares of Stock for which the right is
exercised on the date of such exercise over the exercise
price of such shares under the related Option. The
value on the date of exercise shall be the Fair Market
Value as determined in Section 6(e) of this Plan. Such
amount shall be either in cash or in shares of Stock or
both as the Committee shall determine. Such
determination may be made at the time of the granting of
the Stock Appreciation Right and may be changed at any
time thereafter. The shares may consist either in whole
or in part of authorized and unissued shares of Stock or
issued shares of Stock whether held in the treasury of
the Company or otherwise. No fractional shares of Stock
shall be issued and the Committee shall determine
whether cash shall be given in lieu of such fractional
share or whether such fractional share shall be
eliminated.
(c) Expiration or Termination of Stock Appreciation Rights.
(i) Subject to (c) (ii), each Stock Appreciation Right
and all rights and obligations thereunder shall expire
on a date to be determined by the Committee.
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<PAGE>
(ii) A Stock Appreciation Right shall terminate and may
no longer be exercised upon the termination of the
related Option.
(d) Amendment, Suspension or Termination of Stock
Appreciation Rights. The Committee may, at any time,
amend, suspend, or terminate any Stock Appreciation
Right theretofore granted under the Plan.
9. STRATEGIC INCENTIVE PLAN
(a) Administrative Procedure. Normally, the Committee shall
adopt administrative procedures applicable to a
Performance Period prior to, or within 30 days after,
the date designated by the Committee for the
Commencement of such Performance Period. The Committee
may, however, adopt such administrative procedures more
than 30 days after such commencement if in its opinion
such delayed action is appropriate. Such procedures
shall establish Indicators of Performance and the
Target Awards applicable to the Performance Period.
Indicators of Performance may vary from Performance
Period to Performance Period.
(b) Indicators of Performance. Indicators of Performance
may include, but shall not be limited to, increased
shareholder value, earnings per share, return on
shareholder's equity, return on assets and/or other
similar criteria. Such indicators may be based on the
Company's performance compared to the performance of one
or more selected companies in the petroleum industry
-15-
<PAGE>
during the same Performance Period or may relate solely
to the Company's performance during the Performance
Period or a combination of such indicators. At the
completion of the Performance Period, the Committee will
review the Company's actual performance with respect to
the Indicators of Performance and, in its sole judgment,
rank the Company's overall performance. Such ranking
may range from "noncompetitive" through "competitive" to
"outstanding". In arriving at such ranking, the
Committee may take into consideration, and make
appropriate adjustments for, events occurring during the
Performance Period, which the Committee, in its sole
judgment, concludes have affected the performance of the
Company or any selected company with respect to any of
the Indicators of Performance. No Earned Awards will be
granted if the Company's overall performance is ranked
"non-competitive". Subject to individual performance
adjustments therein, if any, pursuant to paragraph 9(c)
of this Plan, if the Company's overall performance is
ranked "competitive", Target Awards will result; higher
or lower ranking will result in greater or lesser awards
provided that in no event, including individual
performance adjustments, shall the Earned Award of a SIP
Participant exceed 150% of the SIP Participant's Target Award.
-16-
<PAGE>
(c) Award Adjustments. The Committee in its sole discretion
may make adjustments in awards determined under
paragraph (b) of this Section based on the SIP
Participant's individual performance during the
Performance Period. The administrative procedures for
each Performance Period shall establish the method to be
used by the Committee in determining which, if any, SIP
Participants may receive such performance adjustments
and, subject to the maximum set out in paragraph (b) of
this Section, the size of such adjustments.
(d) Partial Performance Period Participation. The
administrative procedures adopted for each Performance
Period shall also include procedures to be used in
determining the extent to which an Employee shall
participate in a partial Performance Period due to
either assignment to a position which makes the Employee
eligible to be a SIP Participant after the beginning of
such Performance Period or termination of employment
prior to the completion of such a Performance Period in
which the Employee was a SIP Participant.
(e) Award Settlement. With respect to each Performance
Period, settlement of all Earned Awards shall be made in
Stock as soon as practicable following the date on which
the Committee determines the size of Earned Awards;
provided that the Committee may decide to settle such
awards over a period or periods of time as the Committee
shall deem appropriate.
-17-
<PAGE>
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
The number of shares of Stock which may be issued pursuant to
this Plan, the number of shares covered by each outstanding
Option, the option price per share, and the number of shares
representing a SIP Participant's Target Award under the
Strategic Incentive Plan, shall be adjusted proportionately
for any increase or decrease in the total number of issued
and outstanding shares of Stock resulting from a subdivision
or consolidation of shares or other capital adjustment or the
payment of a Stock dividend or other increase or decrease in
such shares effected without receipt of consideration by the
Company. In the event of any such adjustment, fractional
shares shall be eliminated. Appropriate adjustments shall be
made by the Committee in the terms of Stock Appreciation
Rights to reflect the foregoing changes.
11. MISCELLANEOUS
(a) Except as otherwise required by law, no action taken
under the Plan shall be taken into account in
determining any benefits under any pension, retirement,
thrift, profit sharing, group insurance, or other
benefit plan maintained by the Company or any
Subsidiary, unless such other plan specifically provides
for such inclusion.
(b) No Option or Stock Appreciation Right or right under the
Strategic Incentive Plan shall be transferable other
than by will or the laws of descent and distribution.
During the lifetime of an Optionee, any Option or Stock
Appreciation Right shall be exercisable only by the
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<PAGE>
Optionee or the Optionee's duly appointed guardian or
legal representative.
(c) The Company shall have the right to withhold from any
settlement hereunder any federal, state, or local taxes
required by law to be withheld. Such withholding may be
satisfied by the withholding of shares of Stock by the
Company if the Optionee so requests in a manner
prescribed by the Committee, if the Committee so
approves, and such withholding of shares does not
violate any applicable laws, rules or regulations of
federal, state or local authorities.
(d) All administrative expenses associated with the
administration of the Plan shall be borne by the
Company.
(e) Masculine pronouns and other words of masculine gender
used herein shall refer to both men and women.
(f) The titles and headings of the sections in this Plan are
for convenience of reference only and in the event of
any conflict, the text of the Plan, rather than such
titles or headings, shall control.
12. AMENDMENT AND TERMINATION
The Board may, at any time, terminate or amend this Plan in
such respect as it shall deem advisable, provided, the Board
may not, without further approval of the stockholders of the
Company if such approval is required in order that
transactions in Company securities under the Plan be exempt
-19-
<PAGE>
from the operation of Section 16(b) of the Securities
Exchange Act of 1934, amend the Plan so as to (i) increase
the number of shares of Stock which may be issued under the
Plan, except as provided for in Section 10; (ii) materially
modify the requirements as to eligibility for participation;
(iii) materially increase the benefits accruing to
Participants under the Plan; (iv) extend the duration of the
Plan beyond the date approved by the stockholders; or (v)
increase the maximum dollar amount of ISOs which an
individual Optionee may first exercise during any calendar
year beyond that permitted in the Code and applicable
regulations of the Treasury Department.
13. DURATION OF THE PLAN
The Plan shall become effective on January 1, 1990 provided
that it has been approved by the stockholders at the annual
meeting of the stockholders in April of 1989, and shall
terminate on December 31, 1994.
RPN:RKK:clp
1-30-89
PLANS\90STKPLN
-20-
<PAGE>
Exhibit 10(h)
Board of Directors Amended February 12, 1990
PRINCIPAL CORPORATE OFFICERS
SUPPLEMENTAL RETIREMENT PLAN
OF PHILLIPS PETROLEUM COMPANY
-----------------------------
I. DEFINITIONS
As used in this Plan:
(a) "CEO" shall mean the Chief Executive Officer of the Company.
(b) "Company" shall mean Phillips Petroleum Company.
(c) "Effective Date" shall mean May 13, 1985, the date on which this
Plan is effective.
(d) "ICP" shall mean the Incentive Compensation Plan of Phillips
Petroleum Company, as amended from time to time.
(e) "SIP" shall mean the Strategic Incentive Plan as permitted by the
1986 Stock Plan of Phillips Petroleum Company, and the 1990 Stock Plan of
Phillips Petroleum Company, as amended from time to time.
(f) "Mandatory Retirement Date" shall mean the applicable retirement
date determined under Article III, Section l(b) of the Retirement Income
Plan of Phillips Petroleum Company, as amended from time to time.
(g) "Performance Period" shall have the same meaning as defined in
Section 2(m) of the 1986 Stock Plan of Phillips Petroleum Company and of
the 1990 Stock Plan of Phillips Petroleum Company.
1
<PAGE>
(h) "Plan" shall mean the Principal Corporate Officers Supplemental
Retirement Plan of Phillips Petroleum Company, the terms of which are
stated in this document, as amended from time to time.
(i) "Principal Corporate officer" is a person holding one of the
positions with the Company set forth on the list entitled "Principal
Corporate Officers" attached to this Plan as Attachment A, as it may be
amended from time to time by the CEO.
(j) "Retirement Plan" shall mean the Retirement Income Plan of
Phillips Petroleum Company, as amended from time to time.
(k) "Special Retirement Date" shall mean the date which a Principal
Corporate Officer pursuant to Article III of this Plan, designates as
his/her retirement date.
(l) "Supplemental Retirement Benefits" shall mean those benefits
described in Article IV of this Plan.
(m) The following terms shall have the meaning as defined in the
Retirement Plan: Final Average Earnings, Credited Service, Annual Earnings,
and Regular Monthly Earnings.
II. PURPOSE
------------
The purpose of this Plan is to provide Supplemental Retirement
Benefits as an incentive for Principle Corporate Officers to elect to
retire prior to the date they would otherwise retire under the Retirement
Plan. This Plan is intended to be and shall be administered as an unfunded
excess benefit plan within the meaning of ERISA Sections 3(36) and 4(b)(5)
subject to Section VI.
2
<PAGE>
III. ELIGIBILITY - SPECIAL RETIREMENT DATE
-------------------------------------------
Each Principal Corporate officer will be entitled to elect in writing,
within the time specified by the Company, to receive Supplemental
Retirement Benefits pursuant to this Plan, subject, however, to the
condition that he/she designate a Special Retirement Date in accordance
with the provisions of this Article III. Principal Corporate Officers who
attain the age of 55 on or after the Effective Date of this Plan, or who,
on the Effective Date, are age 55 or older but will not attain the age of
60 prior to January 1, 1986, will be given the opportunity to make such
election and as a condition thereto shall designate a retirement date which
shall be the first day of the month coincident with or next following the
attainment of age 62. Principal Corporate officers who on the Effective
Date are age 62 or above, or who will attain age 62 prior to January 1,
1987, may also elect to receive Supplemental Retirement Benefits and as a
condition thereto shall designate a retirement date which may be the first
day of any month after May 1, 1985 but not later than January 1, 1987, and
unless waived by the CEO, not less than one year prior to his/her Mandatory
Retirement Date. In addition, each person who is a Principal Corporate
Officer on the Effective Date and who will attain the age of 60 prior to
January 1, 1986 will be given the opportunity to make such election on or
before July 1, 1985, subject to the condition that the Principal Corporate
Officer designate a retirement date which may be the first day of June,
July or August, 1985. At the request of the CEO, such Principal Corporate
Officer may be permitted to delay his/her retirement date to a date beyond
August 1, 1985 approved by the CEO, but in
3
<PAGE>
no event later than August 1, 1986. A Principal Corporate Officer who
elects not to receive the Supplemental Retirement Benefits will be entitled
to retire under the provisions of the Retirement Plan and to receive
retirement benefits in accordance with the Retirement Plan.
Notwithstanding the foregoing, (i) a Principal Corporate officer who
does not have at least ten years of Credited Service on attaining age 62
and who retires on or after attaining age 62 but before attaining age 65
will be entitled on retirement to receive in accordance with this Plan the
Supplemental Retirement Benefits, (ii) a Principal Corporate Officer who
has elected to receive the Supplemental Retirement Benefit may elect to
retire under the Retirement Plan before his/her Special Retirement Date
in which case he/she shall not receive the Supplemental Retirement
Benefits, and (iii) if for any reason a person is not a Principal Corporate
Officer on his/her Special Retirement Date, he/she will not be entitled to
receive the Supplemental Retirement Benefits nor will he/she be required to
retire on such date, and the date of his/her retirement and the retirement
benefits he/she will receive on such retirement shall be governed by the
Retirement Plan and other applicable plans, if any.
IV. SUPPLEMENTAL RETIREMENT BENEFITS
--------------------------------------
Supplemental Retirement Benefits shall consist of the sum of the
following:
(a) The amount by which retirement benefits calculated in accordance
with this paragraph (a) exceed the aggregate retirement
4
<PAGE>
benefits to which the Principal Corporate Officer is entitled to receive as
of his/her Special Retirement Date under the Retirement Plan, the
Retirement Restoration Plan of Phillips Petroleum Company, the Retirement
Makeup Plan of Phillips Petroleum Company and the Key Employee Deferred
Compensation Plan of Phillips Petroleum Company, and the supplemental
retirement benefits as provided in Article VI, Section l(A) of the Phillips
Petroleum Company Key Employee Death Protection Plan. Retirement benefits
under this paragraph (a) shall be calculated in the same way as the
Principal corporate officer's retirement benefits are calculated as of
his/her Special Retirement Date under the Retirement Plan except as if no
benefit limitations were imposed by the Internal Revenue Code and no
benefit reductions resulted from participation in any qualified or non-
qualified Company-sponsored benefit plan and except that (i) Credited
Service shall be deemed to be equivalent to the Credited Service that
he/she would have accrued if he/she had continued to be employed for 36
months beyond his/her Special Retirement Date, or the number of months
after his/her Special Retirement Date to his/her Mandatory Retirement Date,
whichever period is shorter; (ii) solely for the purpose of determining the
amount of early retirement discount, if any, three years shall be added to
the actual age of the Principal Corporate Officer; and (iii) Final Average
Earnings shall be computed as if the Principal Corporate Officer had
worked for a period of three years after his/her Special Retirement Date or
until his/her Mandatory Retirement Date, whichever is the shorter period,
with Annual Earnings (prior to reductions resulting from
5
<PAGE>
participation in company-sponsored benefit plans) for such period deemed to
be the greater of (1) his/her Annual Earnings for his/her last full year
worked, plus the amount of award approved, whether paid or deferred, for
the Principal Corporate Officer under the ICP during such year, or (2)
his/her Regular Monthly Earnings (prior to reductions resulting from
participation in Company-sponsored benefit plans) in effect on his/her
Special Retirement Date times 12 plus the amount of award approved, whether
paid or deferred, or to be paid to the Principal Corporate officer under
the ICP in the year of his/her Special Retirement Date; provided, however,
the Final Average Earnings used in calculating retirement benefits
hereunder shall in no event be less than the actual Final Average Earnings
calculated for the Principal Corporate Officer in accordance with the
Retirement Plan, nor less than the Final Average Earnings that would have
been used to calculate his/her retirement benefits under this paragraph (a)
had he/she retired under this Plan on December 1, 1985.
(b) A payment will be made to an eligible Principal Corporate officer
equal to the pro rata portion of the ICP award he/she would have been
entitled to receive under the ICP had he/she worked the entire calendar
year in which his/her Special Retirement Date occurs; for example, if the
Special Retirement Date is June 1, then the payment would be equal to
5/12ths of the entire award which would have been received. Such payment
will be made under this Plan at the time that the applicable awards
are paid to award recipients under the ICP.
6
<PAGE>
(c) A payment will be made to an eligible Principal Corporate Officer
equal to the pro rata portion of the SIP award(s) he/she would have been
entitled to receive under the SIP had he/she worked until the end of the
Performance Period(s) already commenced on his/her Special Retirement Date.
The pro rata payment will be based on the portion of such period(s) that
would have been completed on his/her Mandatory Retirement Date. The payment
will be made to the Principal Corporate Officer under this Plan after the
conclusion of the applicable Performance Period(s) and at the same time as
the SIP awards are settled under the SIP to participants in that plan.
(d) With approval of the Board of Directors of the Company, a
Principal Corporate Officer receiving Supplemental Retirement Benefits who
has more than twenty years' Credited Service, and during the year 1985
attained age 58 or above, may be given the option of agreeing to be
available to provide advice and consultation to the Company for up to 30
days per year for a period commencing on his/her Special Retirement Date,
and ending on the earlier of the expiration of three years or his/her
Mandatory Retirement Date. If such option is given and he/she agrees,
he/she will enter into a consulting agreement which will provide for an
annual fee equivalent to the difference between his/her annual salary at
his/her Special Retirement Date and the aggregate of the annual straight-
life annuity benefits he/she is entitled to receive under this Plan, the
Retirement Plan, the Retirement Restoration Plan of Phillips Petroleum
Company, the Retirement Makeup Plan of Phillips Petroleum Company, the Key
Employee
7
<PAGE>
Deferred Compensation Plan of Phillips Petroleum Company, the Phillips
Petroleum company Supplemental Executive Retirement Plan, and such benefits
as provided by Article VI, Section l(A) of the Phillips Petroleum Company
Key Employee Death Protection Plan.
V. PAYMENT OF RETIREMENT BENEFITS
-----------------------------------
Subject to the requirement that the manner of payment of retirement
benefits determined in accordance with paragraph (a) of Article IV of this
Plan which the Principal Corporate Officer is eligible to receive under
this Plan, the Retirement Restoration Plan of Phillips Petroleum Company,
the Retirement Makeup Plan of Phillips Petroleum Company, the Key Employee
Deferred Compensation Plan of Phillips Petroleum Company, the Phillips
Petroleum Company Supplemental Executive Retirement Plan and the Phillips
Petroleum Company Key Employee Death Protection Plan, shall be the same
and, subject further to the condition that a Principal Corporate officer
who receives supplemental retirement payments under this Plan shall agree
in writing and in the form directed by the Company not to compete with the
Company during the period commencing with his/her Special Retirement Date
and ending on his/her Mandatory Retirement Date:
(i) A Principal Corporate Officer may elect in the manner
prescribed by the Company to have such supplemental retirement
payments made on a straight-life annuity basis, or to have such
life annuity payments converted in the manner provided by the
Retirement Plan to any one of the other forms of payment which
the Principal Corporate Officer would be entitled to select
(except the lump-sum settlement option) if
8
<PAGE>
such payments were to be paid to the Principal Corporate officer
under the Retirement Plan.
(ii) Notwithstanding (i) above, a Principal Corporate Officer who
is age 60 or older may, not later than 30 days prior to such Principal
Corporate Officer's Special Retirement Date, express preferences as
to:
a) whether the payment amounts should be converted in the manner
provided by the Retirement Income Plan from a life annuity
basis to one lump-sum payment,
b) whether such lump-sum payment shall be paid to the employee
on or as soon as practicable after the Principal Corporate
Officer's Special Retirement date, or
C) whether such lump-sum payment shall be credited as an award
under the Company's Key Employee Deferred Compensation Plan.
The Chief Executive Officer, with respect to Principal Corporate
Officers who are not members of the Board of Directors and the
Compensation Committee of such Board of Directors, with respect
to Principal Corporate Officers who are members of such Board of
Directors, shall consider such indication of preference and shall
respectively decide in the Chief Executive Officer's or the
committee's sole discretion whether to accept or reject the
preference expressed. In the event the Chief Executive Officer
or the committee, as appropriate, accepts such Principal
Corporate Officer's preference, such supplemental retirement
benefit shall be
9
<PAGE>
paid in one lump sum as soon as practicable after the later
of such acceptance or the Principal Corporate Officer's
special Retirement Date; or if applicable, credited as of
the Principal corporate Officer's Special Retirement Date as
an award under the Key Employee Deferred Compensation Plan.
VI. METHOD OF PROVIDING BENEFITS
---------------------------------
All amounts payable under this Plan shall be paid solely from the
general assets of the Company and any rights accruing to a Principal
Corporate Officer shall be those of a general creditor; provided, however,
the Company may establish a grantor trust to satisfy part or all of its
Plan payment obligation so long as the Plan remains unfunded for purposes
of Title I of ERISA.
VII. MISCELLANEOUS PROVISIONS
-------------------------------
(a) No right or interest of a Principal Corporate Officer under this
Plan shall be assignable or transferable, in whole or in part, directly or
indirectly, by operation of law or otherwise (excluding devolution upon
death or mental incompetency).
(b) This Plan shall be administered by the CEO except to the extent
otherwise specifically stated herein, and the CEO's decisions in all
matters relating to the interpretation and application thereof shall be
final.
(c) The Board of Directors of the Company reserves the right to amend
or terminate this Plan at any time if, in the sole judg-
10
<PAGE>
ment of the Board, such amendment or termination is deemed desirable,
provided that no member of the Board shall participate in any action
resulting in his or her being named a Principal Corporate Officer, nor, if
already a Principal Corporate officer, in any action which has the actual
or potential effect of increasing his or her benefits hereunder.
(d) No amount accrued or payable hereunder shall be deemed to be a
portion of a Principal Corporate Officer's compensation or earnings for the
purpose of any other employee benefit plan adopted or maintained by the
Company, nor shall this Plan be deemed to amend or modify the provisions of
the Retirement Plan.
(e) The Plan shall be construed, regulated, and administered in
accordance with the laws of the State of Oklahoma except to the extent that
said laws have been preempted by the laws of the United States.
(f) Except as otherwise provided herein, the Plan shall be binding
upon the Company, its successors and assigns, including but not limited to
any corporation which may acquire all or substantially all of the Company's
assets and business or with or into which the Company may be consolidated
or merged.
2DP-S/009
02-12-90
11
<PAGE>
ATTACHMENT A
PRINCIPAL CORPORATE OFFICERS
President and Chief Operating Officer G. A. Cox
Senior Vice President Finance R. E. Bonnell
Senior Vice President and General Counsel W. G. Paul
Senior Vice President K. L. Smalley
Vice President Research & Development C. F. Cook
Vice President Quality, Environment & Safety J. N. Scott
042-S/310
<PAGE>
Exhibit 10(k)
BOARD OF DIRECTORS AMENDED
APRIL 10, 1995
NON-EMPLOYEE DIRECTOR RETIREMENT PLAN
OF PHILLIPS PETROLEUM COMPANY
ARTICLE I - PURPOSE
-------------------
The Non-Employee Director Retirement Plan is intended to provide
Non-Employee Directors with income commencing upon their retirement
from service on the Phillips Petroleum Company Board of Directors.
ARTICLE II - DEFINITIONS
------------------------
The following terms, when used in this Plan, have the following
meaning unless the context clearly indicates otherwise:
1. "Plan" shall mean the Non-Employee Director Retirement
Plan of Phillips Petroleum Company, the terms and provi-
sions of which are herein set forth, together with such
amendments thereto as may hereafter from time to time be
adopted.
2. "Company" shall mean Phillips Petroleum Company.
3. "Board" shall mean the Board of Directors of the Company.
-1-
<PAGE>
4. "Non-Employee Director" shall mean a member of the Board
of Directors who is not a present employee nor former
employee of the Company or any of its subsidiaries.
5. "Chief Executive Officer" shall mean the Chief Executive
Officer of the Company.
6. "Disability" shall mean that condition in which, by reason
of bodily injury or disease, a Non-Employee Director is
prevented from serving in such capacity. All determina-
tions of Disability shall be made by a physician selected
by the Company.
7. "Fair Market Value" shall be calculated as the average of
the high three monthly fair market values of the Company
common stock during the twelve calendar months in the
relevant calendar year preceding the month in which the
Non-Employee Director retires. The monthly fair market
value of the Company common stock is the average of the
daily fair market value of the stock for each trading day
of the month. The daily fair market value of the stock
shall be deemed equal to the average of the high and low
selling prices of the stock on the New York Stock Exchange, as
reported in the Wall Street Journal.
-2-
<PAGE>
8. "Retires" or "Retirement" shall mean the termination of
Board service due to a) the Non-Employee Director's not
being nominated for election to the Board; or b) the Non-Employee
Director's not being reelected to Board service after being so
nominated; or c) the Non-Employee Director's resignation from Board
service for any reason, including Disability.
9. "Years of Service" shall mean the number of full and
partial consecutive calendar years during which the Non-Employee
Director was a member of the Board.
10. "Annual Board Service Retainer" shall mean the sum of the
cash compensation paid for Board service exclusive of
compensation for committee membership and of fees for
attendance at Board or Committee meetings, if any, plus
the value of the Company common stock granted, if any, to
a Non-Employee Director during the twelve calendar months
immediately preceding the date on which the Non-Employee
Director retires, such value to be determined as the
product of the number of shares of such common stock
granted multipled by the higher of the Fair Market Value
for the last year or the average of the high three Fair
Market Values calculated in accordance with Article II,
-3-
<PAGE>
Section 7, for the last ten years preceding the Non-Employee
Director's retirement.
ARTICLE III - ELIGIBILITY
-------------------------
Only Non-Employee Directors are eligible to participate in the
Plan.
ARTICLE IV - PAYMENT OF RETIREMENT BENEFITS
-------------------------------------------
Upon Retirement from Board service each Non-Employee Director shall
receive payments under this Plan.
a) These payments shall be made on a monthly basis beginning
on or about the first of the month after Retirement. The
amount of these monthly payments shall be equal to the Annual
Board Service Retainer divided by 12; provided, however, that
the amount of payments to any retired Non-Employee Director who
has commenced receiving payments from this Plan prior to April 10,
1995, shall not be increased or paid in a different manner, but
shall be paid in the same amount and manner as in effect at the
time payments commenced. These payments shall continue for a
number of months equal to Years of Service times 12.
-4-
<PAGE>
b) Notwithstanding (a) above, a Retiring Non-Employee
Director may, not earlier than 365 days nor later than 30
days prior to the date retirement benefit payments would
begin, express a preference, in the manner prescribed by
the Chief Executive Officer, to have the monthly payment
provided hereunder converted to one lump sum payment which
is calculated as the present value of the monthly payment
amount using the December 1 of the year prior to Retirement
rate of the 30-year Treasury Bond as quoted in the Federal
Reserve Statistical Release Bulletin No. H.15, or
the comparable successor publication, and the number of
Years of Service.
All or part of such lump sum payment may be either paid to
the Non-Employee Director or considered for deferral under
the Deferred Compensation Plan for Non-Employee Directors
of Phillips Petroleum Company. The Chief Executive
Officer shall consider such indication of preference for
a lump sum and shall respectively decide in the Chief
Executive Officer's sole discretion whether to accept or
reject the preference expressed. In the event the Chief
Executive Officer accepts such Non-Employee Director's
preference for a lump sum, part or all of the retirement
benefit shall be paid in a lump sum as soon as practicable
-5-
<PAGE>
after the later of such acceptance or on or about the
first of the month after Retirement.
ARTICLE V - DEATH OF NON-EMPLOYEE DIRECTOR
------------------------------------------
In the event a Non-Employee Director dies prior to Retirement, no
benefits shall be payable from this Plan. After commencement of
Retirement payments, if paid as a monthly payment determined in
accordance with Article IV (a), such monthly payments will continue
until the total number of payments has been made, or the death of
the retired Non-Employee Director, whichever occurs first. If
death occurs first, then the remaining payments shall be made to
the surviving spouse, if any. If there is no surviving spouse, or
if the surviving spouse should die, then there will be no further
payment obligation under this Plan.
ARTICLE VI - ADMINISTRATION
---------------------------
The Chief Executive Officer is authorized, subject to the provi-
sions of the Plan, to establish rules and regulations, to make
determinations under and such interpretations of, and to take steps
in connection with the Plan as the Chief Executive Officer deems
necessary or advisable, and to appoint agents as the Chief
Executive Officer deems appropriate for the proper administration
-6-
<PAGE>
of the Plan. Each determination, interpretation, or other action
made or taken pursuant to the provisions of the Plan by the Chief
Executive Officer shall be reported to the Board of Directors and
once so reported shall be final and shall be binding and conclusive
for all purposes and upon all persons.
ARTICLE VII - TERMINATION OR AMENDMENT OF THE PLAN
--------------------------------------------------
The Board may at any time terminate the Plan and may from time to
time alter or amend the Plan, or any part thereof, (including any
amendment deemed necessary to ensure that the Company may comply
with any regulatory requirement); provided, however, that no
director may act to terminate or amend the Plan if such action
would either increase benefits payable under the Plan to that
director or remove or reduce the risk that such director's benefits
under the Plan might be forfeited. Such termination or amendment
will not negatively impact any rights or benefits accrued to date
of such termination or amendment under this Plan.
ARTICLE VIII - NON-ASSIGNABILITY
--------------------------------
Retirement payments may not be pledged, anticipated, assigned
(either at law or in equity), alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process.
-7-
<PAGE>
ARTICLE IX - MISCELLANEOUS
--------------------------
(a) All amounts payable under this Plan are unfunded and unsecured
benefits and shall be paid solely from the general assets of
the Company and any rights accruing to the Non-Employee
Director or the surviving spouse under the Plan shall be those
of a unsecured general creditor; provided, however, that the
Company may establish a grantor trust to pay part or all of
its Plan payment obligations so long as the Plan remains
unfunded for federal tax purposes.
(b) Except as otherwise provided herein, the Plan shall be binding
upon the Company, its successors and assigns, including but
not limited to any corporation which may acquire all or
substantially all of the Company's assets and business or with
or into which the Company may be consolidated or merged.
(c) This Plan shall be construed, regulated, and administered in
accordance with the laws of the State of Oklahoma except to
the extent that said laws have been preempted by the laws of
the United States.
ARTICLE X - EFFECTIVE DATE OF THE PLAN
--------------------------------------
-8-
<PAGE>
The Plan is amended and restated effective as of April 10, 1995.
-9-
<PAGE>
Exhibit 10(m)
Board of Directors Amended
April 10, 1995
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
PHILLIPS PETROLEUM COMPANY
Section 1. Purpose of the Plan
The purpose of the Deferred Compensation Plan for Non-Employee
Directors ("Plan") is to provide a program whereby a member of the
Board of Directors of Phillips Petroleum Company ("Company") who is
not an officer, present employee, nor former employee of the
Company or any of its subsidiaries ("Non-Employee Director") may
defer the payment of all or a specific amount of the cash compensa-
tion payable to the Non-Employee Director for all services rendered
as a Non-Employee Director ("Compensation") and may defer the
payment of all or a portion of the lump sum payment from the Non-Employee
Director Retirement Plan ("Retirement Payment").
Section 2. Election or Indication of Preference to Defer
-1-
<PAGE>
(a) Compensation. For each calendar year, a Non-Employee Director
may elect to have payment of part or all of the Non-Employee
Director's Compensation deferred. On or before December 1 of
each year, the election to defer Compensation to be earned in
the next calendar year may be made by giving written notice
thereof to the Corporate Secretary. Such election to defer
becomes irrevocable on the last day of the year in which the
election is made.
(b) Retirement Payment. If a Non-Employee Director prefers to
defer under this Plan all or part of the lump sum payment from
the Non-Employee Director Retirement Plan, the Non-Employee
Director must indicate such preference to the Chief Executive
Officer (CEO) of the Company. The Non-Employee Director's
preference must be received by the Corporate Secretary in the
period beginning 365 days prior to and ending no less than 30
days prior to the date the retirement payment is to be made.
Such indication must be in writing signed by the Non-Employee
Director and must state the portion of the lump sum payment the
Non-Employee Director desires to be deferred. The CEO shall
consider such indication of preference as submitted and shall
decide whether to accept or reject the preference expressed as
-2-
<PAGE>
soon as practicable. Such indication of preference, if
accepted, becomes irrevocable on the date of such acceptance.
Section 3. Deferred Compensation Accounts
(a) Credit for Deferral. The Company will establish and maintain
an account for each Non-Employee Director who elects to defer
Compensation and/or a Retirement Payment in which will be
credited the amounts deferred. Amounts deferred shall be
credited as soon as practicable after the date assigned to the
deferral by the Company.
(b) Designation of Investments. The amount in each Non-Employee
Director's Deferred Compensation Account shall be deemed to
have been invested and reinvested from time to time, in such
"eligible securities" as the Non-Employee Director shall
designate. Prior to or in the absence of a Non-Employee
Director's designation, the Company shall designate an
"eligible security" in which the Non-Employee Director's
Deferred Compensation Account shall be deemed to have been
invested until designation instructions are received from the
Non-Employee Director. Eligible securities are those securi-
-3-
<PAGE>
ties designated by the Treasurer of the Company. The Treasurer
of the Company may include as eligible securities, stocks
listed on a national securities exchange, and bonds, notes,
debentures, corporate or governmental, either listed on a
national securities exchange or for which price quotations are
published in The Wall Street Journal and shares issued by
investment companies commonly known as "mutual funds". The
Non-Employee Director's Deferred Compensation Account will be
adjusted to reflect the deemed gains, losses and earnings as
though the amount deferred was actually invested and reinvested
in the eligible securities for the Non-Employee Director's
Deferred Compensation Account.
Notwithstanding anything to the contrary in this section 3(b),
in the event the Company actually purchases or sells such
securities in the quantities and at the times the securities
are deemed to be purchased or sold for a Non-Employee
Director's Deferred Compensation Account, the Account shall be
adjusted accordingly to reflect the price actually paid or
received by the Company for such securities after adjustment
for all transaction expenses incurred (including without
limitation brokerage fees and stock transfer taxes).
-4-
<PAGE>
In the case of any deemed purchase not actually made by the
Company, the Deferred Compensation Account shall be charged
with a dollar amount equal to the quantity and kind of
securities deemed to have been purchased multiplied by the fair
market value of such security on the date of reference and
shall be credited with the quantity and kind of securities so
deemed to have been purchased. In the case of any deemed sale
not actually made by the Company, the account shall be charged
with the quantity and kind of securities deemed to have been
sold, and shall be credited with a dollar amount equal to the
quantity and kind of securities deemed to have been sold
multiplied by the fair market value of such security on the
date of reference. As used herein "fair market value" means
in the case of a listed security the closing price on the date
of reference, or if there were no sales on such date, then the
closing price on the nearest preceding day on which there were
such sales, and in the case of an unlisted security the mean
between the bid and asked prices on the date of reference, or
if no such prices are available for such date, then the mean
between the bid and asked prices to the nearest preceding day
for which such prices are available.
-5-
<PAGE>
The Treasurer may also designate a Fund Manager to provide
services which may include recordkeeping, Non-Employee Director
accounting, Non-Employee Director communication, payment of
installments to the Non-Employee Director, tax reporting and
any other services specified by the Company in agreement with
the Fund Manager.
(c) Payments. A Non-Employee Director's Deferred Compensation
Account shall be debited with respect to payments made from the
account pursuant to this Plan as of the date such payments are
made from the account. The payment shall be made as soon as
practicable, but no later than 30 days, after the installment
payment date.
If any person to whom a payment is due hereunder is under legal
disability as determined in the sole discretion of the Plan
Administrator, the Company shall have the power to cause the
payment due such person to be made to such person's guardian
or other legal representative for the person's benefit, and
such payment shall constitute a full release and discharge of
the Company and any fiduciary of the Plan.
-6-
<PAGE>
(d) Statements. At least one time per year the Company or the
Company's designee will furnish each Non-Employee Director a
written statement setting forth the current balance in the Non-
Employee Director's Deferred Compensation Account, the amounts
credited or debited to such account since the last statement
and the payment schedule of deferred amounts and deemed gains,
losses and earnings accrued thereon as provided by the deferred
payment option selected by the Non-Employee Director.
Section 4. Deferred Payment Options
(a) Payment Options for Compensation. A Non-Employee Director, at
the time notice of election to defer Compensation is given,
shall also specify in writing whether the Compensation deferred
by such election and any deemed gains, losses and earnings
accrued thereon is to be paid in one lump sum or in annual
installments of not less than 5 nor more than 10. If a lump
sum payment is selected, the Non-Employee Director will specify
the date the lump sum payment is to be made so long as the date
is the first day of a calendar quarter, and is at least one
year from the date of the election or is specified as the first
day of the calendar quarter following retirement under the
-7-
<PAGE>
terms of the Non-Employee Director Retirement Plan. If annual
installments of not less than 5 nor more than 10 are selected,
the first installment will begin as soon as practicable after
the first day of the calendar quarter which is on or after the
Non-Employee Director's retirement. After a payment option is
selected the first time a Non-Employee Director elects to defer
Compensation, all subsequent deferrals of Compensation will be
the same payment option.
-8-
<PAGE>
b) Payment Options for Retirement Payment.
(i) The payment option for a deferred Retirement Payment
for a Non-Employee Director who has previously deferred
Compensation will be the same as the payment
option for the deferred Compensation.
(ii) The payment option for a deferred Retirement Payment
for a Non-Employee Director who has not previously
deferred Compensation may be elected by the Non-Employee
Director at the time the Non-Employee Director submits a
preference to defer all or part of the lump sum Retirement
payment. The payment options in
this situation are: annual installments of not less
than 5 nor more than 10, in semi-annual installments
of not less than 10 nor more than 20, or in quarterly
installments of not less than 20 nor more than 40.
The first installment to commence as soon as practicable after
any date specified by the Non-Employee
Director, so long as such date is the first day of a
calendar quarter and is at least one year from the
date the payout option was elected. Subject to
Section 5, if the CEO, accepts the Non-Employee
-9-
<PAGE>
Director's indication of preference, the election of
the method of payment of the deferred Retirement
Payment shall become irrevocable.
(c) Payment Option Revision. If a Non-Employee Director specified
annual installments of not less than 5 nor more than 10
pursuant to Section 4(a) herein, the Non-Employee Director may
at any time during a period beginning 365 days prior to and
ending 90 days prior to the date the Non-Employee Director
retires under the terms of the Non-Employee Director Retirement
Plan, in the manner prescribed by the Company, revise such
payment option and elect one of the following payment options
in place of such payment option:
(i) annual installments of not less than 5 nor more than
10,
(ii) semi-annual installments of not less than 10 nor more
than 20, or
(iii) quarterly installments of not less than 20 nor more
than 40,
-10-
<PAGE>
with the first installment to commence, as soon as practicable
following any date specified by the Non-Employee Director so
long as such date is the first day of a calendar quarter, is
on or after the Non-Employee Director's first day of retirement
and is at least one year from the date the payment option was
revised.
(d) Installment Amount. The amount of each installment shall be
determined by dividing the balance in the Non-Employee
Director's Deferred Compensation Account as of the date the
installment is to be paid, by the number of installments
remaining to be paid (inclusive of the current installment).
Section 5. Death of Non-Employee Director
Upon the death of a Non-Employee Director, the Non-Employee
Director's beneficiary or beneficiaries designated in accordance
with Section 6 of this Plan, or, in the absence of an effective
beneficiary designation, the spouse, children (natural or adopted),
or the legal representative(s) of the deceased Non-Employee
Director, in that order of priority, shall receive the
beneficiary's or beneficiaries' portion of the payments in
-11-
<PAGE>
accordance with the deferred payment schedule selected by the
Non-Employee Director, whether the Non-Employee Director's death
occurred before or after such payments have commenced; provided,
however, such payments may be made in a different manner if the
beneficiary or beneficiaries entitled to receive such payments, due
to an unanticipated emergency caused by an event beyond the control
of the beneficiary or beneficiaries that results in financial
hardship to the beneficiary or beneficiaries, so requests and the
CEO gives written consent to the method of payment requested.
Section 6. Designation of Beneficiary
Each Non-Employee Director who defers under this Plan shall
designate a beneficiary or beneficiaries to receive the entire
balance of the Non-Employee Director's Deferred Compensation
Account by giving signed written notice of such designation to the
Corporate Secretary. The Non-Employee Director may from time to
time change or cancel any previous beneficiary designation in the
same manner. The last written beneficiary designation received by
the Corporate Secretary shall be controlling over any prior
designation and over any testamentary or other disposition. After
receipt by the Corporate Secretary of such written designation, it
-12-
<PAGE>
shall take effect as of the date on which it was signed by the
Non-Employee Director, whether the Non-Employee Director is living
at the time of such receipt, but without prejudice to the Company
on account of any payment made under this Plan before receipt of
such designation.
Section 7. Nonassignability
The right of a Non-Employee Director or beneficiary or other person
who becomes entitled to receive payments under this Plan shall not
be pledged, assigned or subject to garnishment, attachment or any
other legal process by the creditors of or other claimants against
the Non-Employee Director, beneficiary, or other such person.
Section 8. Administration, Interpretation and Amendment
The Plan shall be administered by the Chief Executive Officer of
the Company. The decision of the Chief Executive Officer with
respect to any questions arising as to the interpretation of this
Plan, including the severability of any and all of the provisions
thereof, shall be final, conclusive and binding. The Company
reserves the right to amend this Plan from time to time or to
-13-
<PAGE>
terminate the Plan entirely, provided, however, that no amendment
may affect the balance in a Non-Employee Director's account on the
effective date of the amendment. A Non-Employee Director shall not
participate in a decision to amend or terminate this Plan. In the
event of termination of the Plan, the Chief Executive Officer in
the Chief Executive Officer's sole discretion, may elect to pay in
one lump sum as soon as practicable after termination of the Plan,
the balance then in the Non-Employee Director's account.
Section 9. Nonsegregation
Amounts deferred pursuant to this Plan and the crediting of amounts
to a Non-Employee Director's Deferred Compensation Account shall
represent the Company's unfunded and unsecured promise to pay
compensation in the future. With respect to said amounts, the
relationship of the Company and a Non-Employee Director shall be
that of debtor and general unsecured creditor. While the Company
may make investments for the purpose of measuring and meeting its
obligations under this Plan such investments shall remain the sole
property of the Company subject to claims of its creditors
generally, and shall not be deemed to form or be included in any
part of the Deferred Compensation Account.
-14-
<PAGE>
Section 10. Funding
All amounts payable under the Plan are unfunded and unsecured
benefits and shall be paid solely from the general assets of the
Company and any rights accruing to the Non-Employee Director or the
beneficiary under this Plan shall be those of an unsecured general
creditor; provided, however, that the Company may establish a
grantor trust to pay part or all of its Plan payment obligations so
long as the Plan remains unfunded for federal tax purposes.
Section 11. Miscellaneous
(a) Except as otherwise provided herein, the Plan shall be binding
upon the Company, its successors and assigns, including but not
limited to any corporation which may acquire all or substan-
tially all of the Company's assets and business or with or into
which the Company may be consolidated or merged.
(b) This Plan shall be construed, regulated, and administered in
accordance with the laws of the State of Oklahoma except to the
extent that said laws have been preempted by the laws of the
United States.
-15-
<PAGE>
Section 12. Effective Date of the Plan
This Plan is amended and restated effective as of April 10, 1995.
-16-
<PAGE>
Exhibit 12
PHILLIPS PETROLEUM COMPANY AND CONSOLIDATED SUBSIDIARIES
TOTAL ENTERPRISE
Computation of Ratio of Earnings to Fixed Charges
Millions of Dollars
--------------------------------------
Years Ended December 31
--------------------------------------
1995 1994 1993 1992 1991
--------------------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles $1,064 852 538 511 451
Distributions in excess of (less than)
equity in earnings of less-than-
fifty-percent-owned companies (1) 2 9 (3) 1
Fixed charges, excluding
capitalized interest and the
portion of the preferred dividend
requirements of a subsidiary not
previously deducted from income* 364 340 363 442 631
- -----------------------------------------------------------------------------
$1,427 1,194 910 950 1,083
=============================================================================
Fixed Charges
Interest and expense on
indebtedness, excluding
capitalized interest $ 285 266 290 392 460
Capitalized interest 31 15 11 16 37
Preferred dividend requirements
of a subsidiary 73 56 71 3 -
One-third of rental expense,
net of subleasing income,
for operating leases 36 32 30 38 34
- -----------------------------------------------------------------------------
$ 425 369 402 449 531
=============================================================================
Ratio of Earnings to Fixed Charges 3.4 3.2 2.3 2.1 2.0
- -----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$10 million, $10 million, $11 million, $10 million and $137 million in 1995,
1994, 1993, 1992 and 1991, respectively. For 1991, the amount includes
approximately $120 million of capitalized interest associated with the
writedown of offshore California investments.
Earnings available for fixed charges include, if any, the company's equity in
losses of companies owned less than fifty percent and having debt for which
the company is contingently liable. Fixed charges include the company's
proportionate share, if any, of interest relating to the contingent debt.
In 1990 and 1988, respectively, the company guaranteed a $400 million bank
loan and $250 million of notes payable for the Long-Term Stock Savings Plan
(LTSSP), an employee benefit plan. In 1994, the notes payable were
refinanced with a $131 million term loan, and the $400 million loan was
amended in 1994, and again in 1995. Consolidated interest expense includes
interest attributable to the LTSSP borrowings of $3 million, $1 million,
$1 million, $1 million and $13 million in 1995, 1994, 1993, 1992 and 1991,
respectively.
Exhibit 21
LIST OF SUBSIDIARIES OF PHILLIPS PETROLEUM COMPANY
Listed below are subsidiaries of the registrant at December 31, 1995.
Certain subsidiaries are omitted since such companies considered in the
aggregate do not constitute a significant subsidiary.
State or Jurisdiction
in Which Subsidiary
was Incorporated
Name of Company or Organized
--------------- ---------------------
American Olefins, Inc. Delaware
GPM Gas Corporation Delaware
Phillips Alaska Natural Gas Corporation Delaware
Phillips Coal Company Nevada
Phillips Gas Company Delaware
Phillips Investment Company Nevada
Phillips Natural Gas Company Delaware
Phillips Oil Company (Nigeria) Limited Nigeria
Phillips Petroleum Canada Ltd. Canada
Phillips Petroleum Company Indonesia Delaware
Phillips Petroleum Company Norway Delaware
Phillips Petroleum Company United Kingdom Limited England
Phillips Petroleum Company Western Hemisphere Delaware
Phillips Petroleum International Corporation Panama
Phillips Petroleum International Corporation Asia Liberia
Phillips Petroleum International Corporation Denmark Cayman Islands
Phillips Petroleum International Investment Company Delaware
Phillips Petroleum Resources, Ltd. Delaware
Phillips Petroleum UK Investment Corporation Delaware
Phillips Pipe Line Company Delaware
Phillips Puerto Rico Core Inc. Delaware
Phillips-San Juan Partners, L.P. Delaware
Sooner Insurance Company Vermont
The Largo Company Delaware
WesTTex 66 Pipeline Company Delaware
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report
dated February 21, 1996, with respect to the consolidated
financial statements and schedule of Phillips Petroleum
Company included in the Annual Report (Form 10-K) for the
year ended December 31, 1995, in the following registration
statements and related prospectuses.
Phillips Petroleum
Company Form S-3 File No. 33-51559
Phillips Petroleum
Company Form S-3 File No. 33-54987
Thrift Plan of Phillips
Petroleum Company Form S-8 File No. 33-50134
Long-Term Stock Savings
Plan of Phillips
Petroleum Company Form S-8 File No. 33-50283
Retirement Savings Plan
of Phillips Petroleum
Company Subsidiaries Form S-8 File No. 33-28669
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Phillips Petroleum Company as of December 31,
1995, and the related consolidated statement of income for the year ended
December 31, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 1,537
<ALLOWANCES> 15
<INVENTORY> 505
<CURRENT-ASSETS> 2,409
<PP&E> 19,088
<DEPRECIATION> 10,595
<TOTAL-ASSETS> 11,978
<CURRENT-LIABILITIES> 2,815
<BONDS> 3,097
0
0
<COMMON> 533
<OTHER-SE> 2,655
<TOTAL-LIABILITY-AND-EQUITY> 11,978
<SALES> 13,368
<TOTAL-REVENUES> 13,521
<CGS> 11,394<F1>
<TOTAL-COSTS> 12,160<F2>
<OTHER-EXPENSES> 32<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> 1,064
<INCOME-TAX> 595
<INCOME-CONTINUING> 469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
<FN>
<F1>Purchased crude oil and products + Production and operating expenses +
Exploration expenses + Depreciation, depletion and amortization.
<F2>CGS + Selling, general and administrative expenses + Taxes other than income
taxes.
<F3>Preferred dividend requirements of subsidiary.
</FN>
</TABLE>
