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, 1996
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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
8.24% Trust Originated Preferred
SecuritiesSM (and the guarantees
with respect thereto) 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 263,118,381 shares
of Common Stock $1.25 Par Value, outstanding at January 31, 1997. The
aggregate market value of voting stock held by non-affiliates of the
registrant was $11,610,098,562 as of January 31, 1997. 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 362,684 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 12, 1997 (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). 10
Refining, Marketing and Transportation (RM&T). 12
Chemicals..................................... 15
Other......................................... 19
Competition..................................... 20
General......................................... 21
3. Legal Proceedings................................. 23
4. Submission of Matters to a Vote of
Security Holders................................ 23
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Executive Officers of the Registrant.............. 24
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters..................... 26
6. Selected Financial Data........................... 27
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... 28
8. Financial Statements and Supplementary Data....... 63
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 121
PART III
10. Directors and Executive Officers of the
Registrant...................................... 122
11. Executive Compensation............................ 122
12. Security Ownership of Certain Beneficial
Owners and Management........................... 122
13. Certain Relationships and Related Transactions.... 122
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................... 123
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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, contain forward-looking statements
including, without limitation, statements relating to the
company's plans, strategies, objectives, expectations,
intentions, and adequate resources, and are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The words "forecasts," "intends,"
"possible," "potential," "targeted," "believe," "expect," "plan,"
or "plans," "scheduled," "perceives," "anticipate," "estimate,"
"begin," and similar expressions identify forward-looking
statements. The company does not undertake to update, revise or
correct any of the forward-looking information. Readers are
cautioned that such forward-looking statements should be read in
conjunction with the company's disclosures under the heading:
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995" beginning on page 61.
Items 1 and 2. BUSINESS AND PROPERTIES
CORPORATE STRUCTURE AND CURRENT DEVELOPMENTS
Phillips Petroleum Company was incorporated in Delaware on
June 13, 1917. The company is headquartered where it was
founded, in Bartlesville, Oklahoma. The company 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, 1996, Phillips employed 17,200 people,
slightly less than the previous year.
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Phillips continued to focus on growth opportunities and operating
excellence in 1996. Current developments include the following:
o Platform construction and installation were completed in
1996 at the Mahogany field, the first commercial subsalt oil
development in the Gulf of Mexico. Initial production
commenced in late December.
o Phillips and Mobil Corporation established an alliance in
1996, combining 107 prospects for deep-water exploration in
the Gulf of Mexico. Phillips will hold a one-third
ownership interest in the prospects. Drilling could begin
as early as late 1997.
o Work continued on the Ekofisk II redevelopment in 1996. The
new wellhead platform was installed in October 1996 and
production from the first well began in early 1997.
Construction continued on the new processing/transportation
platform, which is scheduled for start-up in 1998.
o Phillips continued a successful appraisal drilling program
at the Bayu-Undan field in the Timor Sea. Phillips
increased its interest in one of the field's two blocks to
60 percent in 1996. Possible development options are being
evaluated.
o GPM continued to grow its business through acquisitions,
acquiring assets in northwest Oklahoma in late 1996 and in
the Permian Basin of West Texas in January 1997.
Implementation of technology has contributed towards an
improved cost structure for GPM.
o A new program began in 1996 to increase the number of
company-operated retail service stations. The company plans
to add about 30 new outlets annually over the next five
years. The new outlets will feature larger convenience
stores with improved designs. By year-end 1996, 24 new
outlets were under construction or had been completed.
o Expansion or debottlenecking projects are under development
for most of the Chemicals segment's product lines, including
ethylene, paraxylene, polyethylene, polypropylene, K-Resin,
specialty chemicals and polyethylene pipe.
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 17--Segment and
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Geographic Information in the Notes to Financial Statements on
pages 98 through 100 is incorporated herein by reference.
Products which contributed more than 10 percent of consolidated
sales and other operating revenues follow:
1996 1995 1994
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Crude Oil 26% 26 23
Petroleum Products 42 41 43
Natural Gas 14 12 14
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 are 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 101 through 118 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 1996, Phillips' worldwide crude oil production averaged
219,000 barrels per day, compared with 222,000 barrels per day in
1995. In 1996, 69,000 barrels per day of worldwide crude oil
production was from the United States, down from 79,000 barrels
per day in 1995. 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 5 percent in 1996, due primarily to higher
production offshore China and in the U.K. sector of the North
Sea.
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Net E&P production satisfied 59 percent of Phillips' 1996 crude
oil requirements, which consisted of U.S. refinery crude oil runs
(329,000 barrels per day) and crude oil supplied to a 50 percent
joint-venture refinery in Teesside, England (41,000 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 and West Africa. The ratio of net
crude oil production to requirements for 1997 is estimated at
61 percent, based on production forecasts of 228,000 barrels per
day and estimated crude oil requirements of 374,000 barrels per
day. As in 1996, purchases in the United States, from Saudi
Arabia, Venezuela, and, to a lesser degree, from the North Sea
and West Africa 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 1996, the same as 1995. U.S.
production accounted for 4,000 barrels per day in 1996, down from
5,000 barrels per day in 1995.
The company's worldwide production of natural gas averaged
1,527 million cubic feet per day in 1996, up 3 percent from 1995.
U.S. natural gas production increased 2 percent in 1996, to
1,102 million cubic feet per day. New production from the Garden
Banks (Seastar) field, Gulf of Mexico, along with property
acquisitions in south Louisiana, contributed to the increased
production. Higher production from the U.K. sector of the North
Sea contributed to a 5 percent increase in foreign natural gas
production in 1996.
Phillips' worldwide annual average crude oil sales price
increased 23 percent in 1996, to $20.28 per barrel. Both U.S.
and foreign average prices were higher. E&P's annual average
worldwide natural gas sales price increased 27 percent, primarily
as a result of higher sales prices in the United States.
The company's finding and development costs in 1996 were
$7.52 per BOE, compared with $3.52 in 1995. Over the last five
years, however, Phillips' finding and development costs averaged
$3.79 per BOE.
At December 31, 1996, Phillips held a combined 26.8 million net
developed and undeveloped acres, an 8 percent increase from
24.8 million net acres at year-end 1995. The increase in net
acreage is primarily attributable to new acreage in Oman,
partially offset by release of acreage in Paraguay and Papua New
Guinea. At year-end, the company held acreage in 18 nations, and
produced hydrocarbons in six.
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E&P - U.S. OPERATIONS
Platform construction and installation were completed in 1996 at
the Mahogany field in the Gulf of Mexico, with initial production
commencing in late December. Mahogany is the first commercial
subsalt oil development in the Gulf, and is located 80 miles
offshore Louisiana, on Ship Shoal Blocks 349/359. Further
appraisal and development drilling continues. Phillips holds a
37.5 percent interest in the Mahogany field.
Evaluation of drilling results continue at the Agate and Monazite
subsalt prospects. An exploratory well on the Alexandrite
prospect was unsuccessful, plugged and abandoned.
The Sunfish prospect, located in the Cook Inlet of Alaska, has
been renamed the Tyonek Deep prospect. The company's co-venturer
in Tyonek Deep converted its 60 percent working interest into a
sliding-scale, overriding royalty interest on any future
production, giving Phillips a 100 percent working interest.
Phillips plans to drill a well from its existing Tyonek platform
in the summer of 1997.
Liquefied natural gas (LNG) sales volumes from the company's
Kenai, Alaska, plant were up 4 percent in 1996, compared with
1995. Through refrigeration and compression techniques, and
utilization of the company's proprietary Optimized Cascade LNG
technology, the company liquefies natural gas produced from its
North Cook Inlet field, and transports the LNG to Japan, where it
is reconverted into dry gas at the receiving terminal.
Phillips and Mobil Corporation established an alliance in 1996
for deep-water exploration in the Gulf of Mexico. The alliance
covers 61 blocks previously owned 100 percent by Mobil, and
46 blocks acquired jointly in two separate lease sales during
1996. Ownership interests in the prospects are two-thirds Mobil
and one-third Phillips. Drilling could begin as early as late
1997.
Net production from the company's three jointly owned coal mines
was 2.9 million tons in 1996, compared with 3.2 million tons in
1995. The mines are located in Louisiana, Texas and Wyoming.
Phillips has a 50 percent equity interest in each. The company
plans to develop a 3.2 million-tons-per-year lignite mine to
provide fuel for a 440-megawatt power plant to be constructed in
northeast Mississippi. Phillips will own 75 percent of the mine,
and CRSS, Inc. will own the power plant.
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E&P - NORWEGIAN OPERATIONS
Work continued on the Ekofisk II redevelopment in 1996. The new
wellhead platform was completed during the year. Construction
continued on the new processing/transportation platform, which is
scheduled for start-up in 1998. The new wellhead platform will
utilize computerized drilling equipment with remote control
systems, thus improving safety and operating consistency, while
also reducing operating costs. The Ekofisk II project led to the
extension of the production license to the year 2028.
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 by the end
of 1998.
The company was awarded a 30 percent operating interest in four
new blocks in the Norwegian sector of the North Sea, near the
Troll gas field, where an exploration well was drilled in late
1996. Although this well was a dry hole, Phillips is evaluating
the remaining potential of the blocks. Phillips was also awarded
a 20 percent interest in a block near the Norne field, where an
exploratory well is planned for 1997.
As part of its Norwegian operations in the North Sea, Phillips
acquired interests in two licenses offshore Denmark. On one
license, the company participated in the discovery of a field
named Siri in December 1995. A 1996 appraisal well was also
successful. The operator is preparing for development, with
first production expected in 1998. Phillips holds a 12.5 percent
interest in the Siri license. A successful exploratory well was
drilled late in 1996 on the Siri East, a separate prospect on the
same license. Phillips also holds and is the operator in a
35 percent interest in a license located in the westernmost part
of the Danish shelf immediately south of the Ekofisk area.
Offshore western Greenland, Phillips was awarded 38 percent
interest in a license covering 2.3 million acres, effective
January 1, 1997. The first exploration well is planned for 1998.
E&P - U.K. OPERATIONS
Initial production from J-Block, originally scheduled for early
1996, has been 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 1999. 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 is
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installing gas injection facilities, which allows for the
production of liquids while the natural gas produced is
reinjected for later delivery. The facilities are expected to
begin operation in the spring of 1997.
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, where the company drilled
a number of exploratory or appraisal wells during 1996. Phillips
is also planning to use its J-Block infrastructure to provide
services to other producers.
In early 1997, the company announced a discovery at the Jade
field in Block 30/2c, located about 12 miles north of the J-Block
area. The Jade accumulation is situated in a different license
block from those in which the J-Block fields are located, thus it
is not directly connected with the disputes and litigation
involving the J-Block gas sales contracts. Phillips is operator
of the block and holds a 32.5 percent interest.
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, averaging a net rate of
2,800 barrels of liquids per day and 39 million cubic feet of
natural gas per day over the first 12 months of production.
Britannia is scheduled to begin production in late 1998,
averaging net production of 2,750 barrels of liquids per day and
37 million cubic feet of natural gas per day over the first
12 months of production. The company has an 11.5 percent
interest in Armada and a 6.8 percent interest in Britannia.
Phillips holds a 33.3 percent interest in seven deep-water
blocks, and has entered into an agreement to obtain a 25 percent
interest in four additional blocks, located in a frontier area
west of Ireland. Drilling is expected to begin in 1997. In
addition, Phillips holds a 40 percent interest in two blocks east
of the Isle of Man, where an exploratory well was plugged and
abandoned as a dry hole in 1996.
E&P - OTHER OPERATIONS
In the South China Sea, 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 production of crude oil from both fields averaged
15,000 barrels per day in 1996, compared with 11,000 barrels per
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day in 1995. The company plans to drill a five-mile extended-
reach well from the Xijiang facilities to an adjacent field.
Phillips tested its first exploratory well on the Bozhong Block,
Bohai Bay, along China's northern coast. Although the well did
not find commercial quantities of oil and gas, Phillips increased
its knowledge of the geology of the area, and plans to drill two
additional exploratory wells in 1997.
Marking Phillips' first opportunity to explore onshore for
hydrocarbons in China, the company signed an agreement giving
Phillips the majority interest, and operatorship, of a joint
venture coalbed methane concession in Shanxi Province, located
approximately 260 miles southwest of Beijing. The Hedong
concession covers 781,000 acres, and Phillips has acquired a
65 percent interest. Seismic and drilling operations are
scheduled to commence in 1997. The company plans to utilize its
technology and experience in coal-seam gas production gained from
its operations in the San Juan Basin of New Mexico.
In Nigeria, the company's non-operating interests in 23 fields
yielded net average crude oil production of 25,000 barrels per
day, 4 percent higher than 1995.
Phillips continued a successful appraisal drilling program at the
Bayu-Undan field in the Timor Sea, located northwest of Australia
in the Zone of Cooperation. By acquiring another company's
interest in 1996, Phillips increased its interest in one of the
field's two blocks to 60 percent. During 1996 and into early
1997, the company completed its fourth and fifth successful
appraisal wells. Phillips is working with the owners of the
adjacent block to evaluate development options, including the
possible use of an onshore LNG facility using the company's
proprietary technology. A decision on the field's commerciality
is expected by late 1997 or early 1998.
In 1997, an exploration well is planned for offshore western
Australia at the Athena prospect, in which Phillips holds a
50 percent interest. The Athena well will test an extension of a
field recently discovered by an adjacent operator. In the same
area, an exploratory well is planned on the Andromeda prospect,
where the company also holds a 50 percent interest.
Phillips will continue its exploration program on a 100 percent-
owned block in the Borj Messouda area of eastern Algeria. The
first exploratory well, drilled in late 1995 and early 1996, was
unsuccessful. A second well is planned for 1997.
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In other exploration activity:
o Phillips signed an exploration and production-sharing
contract with the Sultanate of Oman, which will allow
Phillips to explore 4.5 million acres in southern Oman. The
company has committed to drill five wells over the nine-year
exploratory phase of the agreement.
o In early 1997, Phillips signed a seven-year license
agreement with Peru's state-owned oil company, which will
enable Phillips to explore 3 million acres in southeastern
Peru.
o In South Africa, a technical cooperation agreement with the
state-owned oil company gives Phillips exclusive rights to
evaluate two blocks along the eastern coast of Africa, an
area covering 15 million acres in the Indian Ocean. During
the eight-month agreement, Phillips will re-process and
re-evaluate all existing geophysical and geochemical
borehole data, with the possibility of applying for
exploration rights in these two blocks.
Phillips entered into an agreement with a subsidiary of
Venezuela's state oil company, along with two other co-venturers,
to study the development of extra-heavy oil reserves from the
Hamaca region of the Orinoco Oil Belt in eastern Venezuela, and
to consider the establishment of an association to undertake the
project. Subject to satisfactory resolution of contract and
fiscal issues, Phillips' interest in the joint venture would be
20 percent. Engineering studies are scheduled to begin in 1997.
With the goal of expanding its role in the worldwide LNG markets,
Phillips agreed to establish an alliance with Bechtel Corp. in
1996. The alliance seeks to position Phillips as an owner and
participant in worldwide LNG projects, and Bechtel as an equity
participant in these projects, as well as the builder of the LNG
facilities.
E&P - RESERVES
In 1996, on a BOE basis, Phillips replaced 71 percent of the
reserves it produced during the year, compared with 139 percent
in 1995. The 1996 total includes replacement of 106 percent of
foreign production and 41 percent of U.S. production. U.S.
reserves decreased 6 percent, while foreign reserves increased
slightly. Total worldwide proved reserves on a BOE basis were
2.15 billion barrels at year-end. Crude oil reserves and natural
gas liquids reserves remained about the same, and natural gas
reserves decreased 5 percent. Natural gas comprises 49 percent
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of proved worldwide hydrocarbon reserves and 63 percent of U.S.
reserves. Ninety-two percent of Phillips' proved reserves base
is located in North America and the North Sea. From 1992 through
1996, Phillips' five-year-average BOE production replacement
equaled 118 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, 1996. No difference exists between the
company's estimated total proved reserves for year-end 1995 and
year-end 1994, which are shown in this filing, and estimates of
these reserves shown in a filing with another federal agency in
1996.
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 142 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 future in the United States, 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
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operations, where they are used as feedstock or sold to outside
customers. The residue gas is sold to outside customers or used
as fuel in company operations. GPM owns 13 natural gas liquids
extraction plants, and operates or has an interest in three more.
The plants are located in Texas (10), Oklahoma (3), and New
Mexico (3). In addition, GPM operates gas gathering systems with
approximately 27,000 miles of gathering pipelines, with some
19,400 active meter connections to producing wells.
GPM completed its largest acquisition to date in late 1995,
acquiring gathering assets located in the Anadarko Basin of Texas
and Oklahoma. As a result, GPM's raw gas throughput volumes
increased 18 percent in 1996, compared with 1995.
In late 1996, GPM obtained regulatory approval to acquire gas
gathering assets primarily located in northwest Oklahoma from
ANR Pipeline Company. These systems gather approximately
165 million cubic feet of natural gas per day, through
1,570 miles of pipeline and 12 compressor stations.
In January 1997, GPM also purchased gathering assets in the
Permian Basin of West Texas from Amoco Production Company. These
systems gather approximately 40 million cubic feet of natural gas
per day, and are anticipated to increase GPM's natural gas
liquids production by approximately 8,500 barrels per day.
Technology has played a significant role in improving GPM's cost
structure and operating efficiency:
o Electronic flow measurement and radio telemetry equipment
allow wellhead data, which was once collected manually, to
be transmitted electronically--saving both time and money.
o Remote monitoring and control equipment is being installed
at each compression site, with completion scheduled for
1997.
o Operating systems are being installed at GPM's processing
plants that allow the operation of an entire facility to be
managed from one central control room, improving plant
operations and efficiency.
GPM's raw gas throughput averaged 1.9 billion cubic feet per day
in 1996, compared with 1.6 billion cubic feet per day in 1995,
reflecting the acquisitions and expansions discussed above. Raw
gas purchased from Phillips E&P represented approximately
9 percent of GPM's total 1996 throughput, compared with
12 percent in 1995.
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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
--------------------------
1996 1995 1994
--------------------------
From Phillips E&P leasehold gas 17 19 21
From gas purchased outside Phillips 131 125 130
- -----------------------------------------------------------------
148 144 151
=================================================================
Residue gas sales were 1,076 million cubic feet per day in 1996,
compared with 1,017 million cubic feet per day in 1995. GPM
sells residue gas under index-based contracts. Approximately
64 percent of the residue gas sales volumes were sold under
contracts with a term of one year or longer in 1996, compared
with 61 percent in 1995. The remaining residue gas sales volumes
were either sold on a daily or monthly basis.
The company's average sales price for unfractionated natural gas
liquids increased to $14.49 per barrel, up 44 percent from 1995.
During 1996, the average residue gas price increased to $2.20 per
thousand cubic feet, from $1.49 in 1995.
At year-end 1996, gross raw natural gas supplies available for
processing through GPM-operated plants were estimated at
7.1 trillion cubic feet, versus 6.7 trillion cubic feet at
year-end 1995. At year-end 1996 and 1995, respectively, these
supplies included about 651 million and 644 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 50 percent ownership of a
refinery in Teesside, England. The U.S. refineries are located
at Borger and Sweeny, Texas, and Woods Cross, Utah. The
company's U.S. refineries ran at 95 percent of capacity in 1996,
compared with 97 percent in 1995. The lower utilization rate was
the result of maintenance turnarounds in the first half of 1996.
The average purchase cost of a barrel of crude oil delivered to
the U.S. refineries in 1996 was $21.95 per barrel, 21 percent
higher than in 1995.
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High-sulfur crude accounted for 64 percent of the crude processed
during 1996, compared with 61 percent in 1995. Forty-two percent
of the crude oil processed by Phillips' U.S. refineries in 1996
came from the United States, with the remainder provided
primarily by purchases from Saudi Arabia, Venezuela, the North
Sea and West Africa. In 1995, 40 percent of the crude oil
processed came from the United States.
Output from refining operations--automotive gasoline,
distillates, aviation fuels, chemical feedstocks and other
products--averaged 384,000 barrels per day, compared with
392,000 barrels per day in 1995. The decrease is attributable to
the lower capacity utilization rate.
Phillips continued an extensive process control modernization of
the Borger and Sweeny facilities in 1996. The modernization
project is intended to improve safety and product yields, while
reducing operating costs. Process units were connected to
advanced controls at Borger's new central control center in 1996,
while construction of a central control center at Sweeny
continued. When the project is completed, all manufacturing
processes at the Borger and Sweeny facilities will be managed
from these control centers.
At the Woods Cross refinery, installation of a fluid catalytic
cracker was completed in 1996. The unit provides both economic
and environmental advantages. Also at Woods Cross, the company
is installing a new proprietary technology, called Reduced
Volatility Alkylation Process (ReVAP). The technology, used in
the production of unleaded gasoline, lessens the chance that
airborne hydrogen fluoride emissions will escape a refinery in
the event of an accidental release.
Phillips and a subsidiary of Central and South West Corporation
(CSW) are developing and installing a cogeneration plant at the
Sweeny Complex that will produce electricity from natural gas-
powered turbines. The 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
began in 1996, with completion expected in the first quarter of
1998. Regulatory approvals for a similar project at the Borger
Complex are being sought.
In 1995, the company introduced the Process for Safety
Excellence. The process integrates well-defined safety
procedures into every aspect of day-to-day operations. In 1996,
the first full year of implementation, the process helped
Phillips' three U.S. refineries reduce recordable
injuries/illnesses by 17 percent, compared with 1995.
13
<PAGE>
Phillips is evaluating a possible joint venture with Corpoven, a
subsidiary of the state oil company of Venezuela, to install a
coker at the Sweeny refinery. The coker would allow the facility
to process less-expensive heavy crude oil. In addition, the
company plans to install a continuous catalytic reformer to
convert a higher percentage of plant yield to higher-valued
petrochemical feedstock products.
MARKETING
In the United States, the company's wholesale and retail
operations sell refined products in 26 states under the
Phillips 66 trademark. Gasoline and other products are
distributed in the United States through approximately 7,900
retail outlets, bulk distributing plants, airport dealers and
marinas. Of these, Phillips operates 317 retail outlets, 47 of
which are on leased property.
Excluding spot sales, RM&T gasoline sales volumes in the United
States were up 5 percent during the year. Total distillates
sales volumes in RM&T increased 2 percent in 1996. In total,
RM&T petroleum products sales in the United States during 1996,
from both Phillips' refinery output and purchased products,
averaged 532,000 barrels per day, compared with 526,000 barrels
per day in 1995.
Phillips announced plans in 1996 to increase the number
of company-operated retail service stations. The company plans
to add about 30 new outlets annually over the next five years.
The new outlets will feature larger convenience stores with
improved designs, fast-food offerings and a new brand name--
Kicks 66, which will be displayed along with the Phillips shield.
In early 1996, Phillips opened the first new retail outlet with a
Kicks 66 store in Albuquerque, New Mexico. By year-end, 24 new
outlets were under construction or had been completed. In
addition, some existing outlets are being razed and rebuilt,
Phillips is acquiring some stations from independent marketers,
and approximately 40 stations are being offered for sale.
The majority of the additional retail units will be in markets
where Phillips perceives it has a business or supply advantage.
The Borger refinery and a network of pipelines and terminals aids
Phillips in supplying the Southwest and Rocky Mountain regions.
In addition, the Woods Cross refinery is positioned to supply the
Salt Lake City area.
14
<PAGE>
In August 1996, the company sold its retail propane marketing
subsidiary, Phillips 66 Propane Company. This business supplied
propane to retail customers and as an alternative fuel for fleet
vehicles. Retail propane sales accounted for approximately
3 percent of Phillips' total annual propane sales.
TRANSPORTATION
Phillips' RM&T and Chemicals segments own or have an interest in
6,900 miles of common-carrier crude oil and products pipeline
systems, of which 6,000 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 does not include the company's
1.36 percent interest in the 800-mile Trans-Alaska Pipeline
System, which is a part of E&P operations.
In addition to two leased LNG tankers utilized in the company's
E&P operations, 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.
In 1996, Phillips and a co-venturer converted the Seaway pipeline
from natural gas service to crude oil transportation. In
addition, the co-venturer contributed a major crude oil pipeline
to the partnership. Crude oil shipments began in the spring of
1996 from the Houston Gulf Coast area to refineries and other
markets in the mid-continent area. Phillips and its co-venturer
plan to convert a portion of Seaway's capacity to refined
products service. The converted portion, which currently ends in
Oklahoma, would be extended to Kansas, where it would be
connected with Phillips' products pipeline that runs to Chicago.
The project is scheduled to be completed in early 1998.
Work has commenced to expand the capacity of a major refined
products pipeline that runs from West Texas to New Mexico. This
expansion will help Phillips supply its new retail service
stations in the Southwest, including 12 outlets acquired in New
Mexico during the year.
Chemicals
- ---------
The Chemicals segment is composed of 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.
15
<PAGE>
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
manufactured in this operation include ethylene, propylene,
paraxylene and cyclohexane. Major production facilities are
located at the Sweeny Complex in Texas and in Puerto Rico.
3) Plastics products. Products manufactured 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, as well as at a plant in
Argentina.
NGL
The NGL business operated at 82 percent of rated fresh-feed
capacity for the year, compared with 88 percent in 1995. Total
NGL fresh-feed processing capacity increased to 250,000 barrels
per day from 227,000 barrels per day, effective January 1, 1996.
Capacity increased at the Sweeny Complex, due in part to
debottlenecking during a turnaround late in 1995. NGL is used as
a feedstock to manufacture higher-value chemicals, such as
ethylene.
INTERMEDIATE PETROCHEMICALS
Phillips' ethylene and propylene are produced at the Sweeny
Complex. In addition to 100 percent-owned ethylene and propylene
facilities, the 50 percent-owned Sweeny Olefins Limited
Partnership (SOLP) is also located there. A significant volume
of ethylene is used within Phillips as a feedstock for
manufacturing polyethylene. Propylene is used as a feedstock for
manufacturing polypropylene. The Sweeny Complex's total current
annual ethylene and propylene capacities are 4.1 billion and
1.3 billion pounds, respectively. Phillips' share is 3.1 billion
pounds per year and 950 million pounds per year, respectively.
At SOLP, an incremental debottlenecking project was completed in
1996, increasing the partnership's total ethylene capacity to
2 billion pounds per year. 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 the
16
<PAGE>
spring of 1997, will add an additional 400 million pounds per
year of ethylene capacity. Once completed, this project 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 resin, used to produce fibers and plastic soft
drink bottles, while cyclohexane is a feedstock for nylon. In
1995, the company completed the first phase of a paraxylene
expansion at Puerto Rico Core, 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-
pounds-per-year methyl mercaptan plant at its Borger Complex.
Construction should begin in mid-1997, with first production
expected 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.
PLASTICS
At HCC, capacity to produce an additional 100 million pounds of
polyethylene annually was added through debottlenecking in 1996.
Additional debottlenecking work will increase capacity to
2.2 billion pounds by project completion in 1998. In 1996, HCC
produced 1,836 million pounds of polyethylene, its highest annual
output of polyethylene ever. Polyethylene is used to manufacture
a wide variety of plastic products.
The expansion of Phillips' 50 percent-owned Singapore
polyethylene facility continued in 1996. 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 1997. The plant will supply polyethylene to markets
in Asia and the Pacific Rim.
In late 1995, Phillips and Shanghai Petrochemical Company Limited
(SPC) formed a joint venture to build and operate a linear
polyethylene plant near Shanghai, China, with an annual capacity
of 220 million pounds. Construction began in 1996 and is
scheduled for completion in 1998. Phillips will own a
17
<PAGE>
40 percent equity interest in the plant, which will use Phillips'
proprietary polyethylene technology. The plant will be located
near a petrochemical complex owned by SPC, which will provide
ethylene feedstock to the new plant. This project marks
Phillips' first downstream investment in China, and will
strengthen the company's position in the polyethylene market in
Asia.
Phillips also signed a letter of intent with China Petrochemical
Corporation, the state-owned petrochemical company, to cooperate
in developing new chemicals and plastics projects in China.
Under the letter of intent, the two parties agreed to share their
expertise, technology and financial resources to pursue projects
of mutual benefit and strategic value. Also in the letter of
intent, Phillips and SPC agreed to study the feasibility of
expanding the polyethylene plant currently under construction by
an additional 440 million to 550 million pounds a year, with
Phillips holding a 40 to 50 percent interest in the additional
capacity.
In late 1996, Phillips and the Egyptian General Petroleum
Corporation (EGPC) signed a letter of intent regarding the
construction and operation of a 330 million-pounds-per-year
high-density polyethylene facility near Alexandria, Egypt. If
the project goes forward, Phillips would be the majority owner of
the facility and construction would begin in 1998, with first
production in 2000. Ethylene feedstock will be provided by an
ethylene unit to be built by an EGPC subsidiary at the same site.
In 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 funded the construction of a new
PSPC polypropylene facility at HCC. Construction began during
the fourth quarter of 1994, and was completed in late 1996. The
new gas-phase polypropylene facility's annual capacity is
270 million pounds, bringing PSPC's total annual production
capacity to 750 million pounds. Phillips will eventually 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 to
construct a new plant next to existing facilities that will
increase capacity to 370 million pounds per year. If approved by
the company's Board of Directors, construction could begin in
late 1997, with initial production in 1999.
18
<PAGE>
Phillips' Driscopipe division manufactures polyethylene pipe,
utilizing five U.S. manufacturing facilities. Polyethylene pipe
is used in a variety of ways, including municipal water and
telecommunications applications. Construction began in 1996 on a
new manufacturing facility to be leased in Hagerstown, Maryland,
with first production scheduled for the summer of 1997. In its
first foreign venture, the Driscopipe division began
manufacturing polyethylene pipe in Argentina in 1996, for use in
South American markets. Also, the Driscopipe division plans to
form a joint venture to manufacture polyethylene pipe in Mexico,
which will also serve as its principal market.
Other
- -----
The Corporate Technology organization provides a flexible,
cost-effective support team for the operating segments. Examples
of Corporate Technology support in 1996 included:
o Upstream (E&P and GPM)
- Geophysical and computer specialists created a new
computer program system that extends the capabilities of
commercial software used by geoscientists. With the new
technology, seismic images can be converted into
three-dimensional pictures of hydrocarbon reservoirs, thus
assisting in determining the best locations to drill for
and exploit oil and natural gas.
- Continued development of three-dimensional pre-stack depth
migration seismic technology, utilized to provide better
imaging of rock formations below the earth's surface.
Because of this technology, which provides clearer seismic
images of subsalt oil and gas reservoirs, Phillips is now
producing oil from a reservoir beneath the salt.
o Downstream (RM&T and Chemicals)
- Phillips is installing new proprietary technology called
Reduced Volatility Alkylation Process (ReVAP) at its Woods
Cross, Utah, refinery. This technology was commended by
the Environmental Protection Agency.
- Researchers assisted the refineries in achieving savings
in their crude oil and catalyst purchases by developing
improved computer models of refining processes. These
models are used to select the best crude oil and catalyst
combinations.
- A Phillips-developed antifoulant technology was tested at
the Sweeny Complex. The technology reduces the production
of contaminants, allowing furnaces used in ethylene
production to operate more consistently.
19
<PAGE>
- Researchers and operations employees successfully tested
metallocene catalysts in a commercial reactor at HCC.
Metallocenes are "precision" catalysts that provide more
control over the molecular structure and properties of
polyethylene. The ability to produce more versatile
polyethylene offers the company opportunities to expand
into higher-value markets. Success in the commercial
reactor means Phillips can produce the improved resins
with existing facilities.
Corporate Technology is also involved in a company-wide, long-
range effort to replace various legacy computer systems, such as
plant maintenance, materials management and financial systems,
based on software from SAP America, Inc. and, for E&P operations,
Oracle Corporation. The goal is improved access to business
information by implementing common, integrated computing systems
across the company. Phase-in of the new client-server technology
began January 1, 1997.
At the end of 1996, Phillips held a total of 4,266 active patents
in 52 countries worldwide, including 2,072 active U.S. patents.
During 1996, the company received 93 patents in the United
States, and 319 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
37 countries at year-end 1996, resulting in licensing revenues of
$93 million. Polypropylene-related licenses contributed about
two-thirds of the total, with polyethylene-related licenses
contributing 16 percent.
Phillips has recently agreed to license to other manufacturers
its proprietary loop reactor technology, used in the manufacture
of polyethylene, in North America. This is the first time in
more than 20 years that the company has agreed to license its
polyethylene technology in the United States, marking a major
shift in the company's U.S. licensing strategy.
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.
20
<PAGE>
While Phillips is one of approximately 20 large public 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
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
The company's injury rate decreased slightly to 1.52 injuries per
100 employees. Chargeable vehicle accidents were the lowest
recorded in the company's history.
Company-sponsored research and development activities charged
against earnings were $59 million, $51 million and $71 million in
1996, 1995 and 1994, respectively.
21
<PAGE>
The environmental information contained in Management's
Discussion and Analysis on pages 55 and 56 under the caption,
"Environmental" is incorporated herein by reference. It includes
information on expensed and capitalized environmental costs for
1996 and those expected for 1997 and 1998.
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 not always predictable.
22
<PAGE>
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Position Held Age* Since
---- ------------- --- -------
W. W. Allen Chairman of the Board of 60 1988
Directors and Chief
Executive Officer
Knut Am Senior Vice President 53 1996
Exploration and Production
C. L. Bowerman Executive Vice President 57 1984
Director
R. G. Ceconi Senior Vice President 54 1991
Corporate Engineering
K. L. Hedrick Senior Vice President 44 1994
Refining, Marketing
and Transportation
J. L. Howe Senior Vice President 52 1992
NGL, Chemicals and
Plastics
J. C. Mihm Senior Vice President 54 1988
Corporate Technology
T. C. Morris Senior Vice President and 56 1993
Chief Financial Officer
J. J. Mulva President and Chief Operating 50 1985
Officer
Director
M. J. Panatier** President and Chief Executive 48 1994
Officer of Phillips Gas
Company
Barbara J. Price Vice President Health, 52 1992
Environment and Safety
J. Bryan Whitworth Senior Vice President 58 1981
and General Counsel
- ------------------------
*On February 1, 1997.
**Executive Officers of the Registrant is defined under the rules
of the Securities and Exchange Commission so as to include in
certain cases persons who are not officers of the company.
Mr. Panatier, while an "Executive Officer" as so defined, is not
an officer of the company.
24
<PAGE>
There is no family relationship among the officers named above.
Each officer of the company is elected by the Board of Directors
at its first meeting after the Annual Meeting of Stockholders and
thereafter as appropriate. Each officer of the company 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 12, 1997. All of the executive officers named
above have been employed by the company for more than five years.
25
<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
------------------- ---------
1996
First $40 1/8 31 1/8 .305
Second 43 1/8 37 3/4 .305
Third 44 1/8 38 7/8 .32
Fourth 45 7/8 39 1/4 .32
- -----------------------------------------------------------------
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
- -----------------------------------------------------------------
Closing Stock Price at December 31, 1996 $44 1/4
Number of Stockholders of Record at January 31, 1997 61,700
- -----------------------------------------------------------------
Phillips' common stock is traded primarily on the New York,
Pacific and Toronto stock exchanges.
26
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Millions of Dollars Except Per Share Amounts
--------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------
Sales and other
operating revenues $15,731 13,368 12,211 12,309 11,933
Income before
extraordinary items
and cumulative
effect of changes
in accounting
principles 1,303 469 484 245 270
Net income 1,303 469 484 243 180
Per common share
Income before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles 4.96 1.79 1.85 .94 1.04
Net income 4.96 1.79 1.85 .93 .69
Total assets 13,548 11,978 11,453 11,035 11,468
Long-term debt 2,555 3,097 3,106 3,208 3,718
Cash dividends declared
per common share 1.25 1.195 1.12 1.12 1.12
- ------------------------------------------------------------------
See Management's Discussion and Analysis of Financial Condition and
Results of Operations for a discussion of factors that will enhance
an understanding of this data.
27
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
February 21, 1997
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. It contains forward-
looking statements including, without limitation, statements
relating to the company's plans, strategies, objectives,
expectations, intentions, and adequate resources, and are made
pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The words "forecasts,"
"intends," "possible," "potential," "targeted," "believe,"
"expect," "plan," or "plans," "scheduled," "perceives,"
"anticipate," "estimate," "begin," and similar expressions
identify forward-looking statements. The company does not
undertake to update, revise or correct any of the forward-looking
information. Readers are cautioned that such forward-looking
statements should be read in conjunction with the company's
disclosures under the heading: "CAUTIONARY STATEMENT FOR THE
PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995" beginning on page 61.
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 1996 1995 1994
-----------------------
Exploration and Production (E&P) $ 510 390 342
Gas Gathering, Processing and
Marketing (GPM) 144 10* 31*
Refining, Marketing and
Transportation (RM&T) 71 40 136
Chemicals 266 386 259
Corporate and Other 312 (357)* (284)*
- -----------------------------------------------------------------
Net income $1,303 469 484
=================================================================
*Preferred stock dividend requirements of subsidiary was
reclassified from GPM to Corporate and Other for segment
reporting.
28
<PAGE>
Earnings for the three years included the following special items
on an after-tax basis:
Millions of Dollars
-----------------------
1996 1995 1994
-----------------------
Kenai liquefied natural gas (LNG)
tax settlement $ 565 - -
Property impairments (183) (51) -
Net gains on asset sales 14 - 13
Gain on subsidiary stock transaction - - 20
Capital-loss carryforwards - - 50
Work force reduction charges (2) (31) (36)
Foreign currency gains (losses) 41 (3) 3
Pending claims and settlements (18) (12) 17
Other items (5) (14) 10
- -----------------------------------------------------------------
Total special items $ 412 (111) 77
=================================================================
Net operating income, which excludes the above items, was
$891 million in 1996, $580 million in 1995 and $407 million in
1994.
1996 vs. 1995
The company's E&P, GPM and RM&T segments all contributed to
significantly higher net operating income in 1996. The
improvement in E&P's net operating income resulted from higher
worldwide crude oil and U.S. natural gas sales prices. GPM's net
operating income increased almost sevenfold, due to much improved
margins, lower operating expenses and higher raw gas throughput
volumes.
RM&T's operating earnings more than doubled those of a year ago,
reflecting higher distillates and gasoline margins, along with
lower operating expenses. In Chemicals, net operating income
declined as a result of lower margins for ethylene, polyethylene
and paraxylene. These items were partially offset by improved
results from K-Resin and higher ethylene and polyethylene sales
volumes.
1995 vs. 1994
The company's E&P and Chemicals operations were primarily
responsible for significantly improved net operating income in
1995, compared with 1994. 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
29
<PAGE>
higher ethylene, polyethylene and paraxylene margins in a robust
year for the commodity chemicals industry.
GPM's results were lower, as depressed U.S. residue gas prices in
1995 negatively impacted this business line. In RM&T, the
refined products marketplace did not allow for the recovery of
higher crude oil feedstock costs in 1995, resulting in lower
gasoline and distillates margins and a 64 percent decrease in net
operating income.
Phillips at a Glance
1996 1995 1994
-----------------------
U.S. crude oil production (MBD) 69 79 90
Worldwide crude oil production (MBD) 219 222 206
U.S. natural gas production (MMCFD) 1,102 1,078 1,035
Worldwide natural gas production (MMCFD) 1,527 1,481 1,414
Worldwide natural gas liquids
production (MBD) 163 159 165
Liquefied natural gas sales (MMCFD) 130 125 120
Refinery utilization rate (%) 95 97 99
U.S. automotive gasoline sales (MBD) 340 331 308
U.S. distillates sales (MBD) 138 135 128
Worldwide petroleum products sales (MBD) 702 696 689
Natural gas liquids processed (MBD) 205 199 207
Ethylene production (MMlbs)* 2,587 2,465 2,590
Polyethylene production (MMlbs)* 2,048 1,797 1,885
Polypropylene production (MMlbs)* 327 418 433
Paraxylene production (MMlbs) 622 578 393
- -----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.
Income Statement Analysis
1996 vs. 1995
Sales and other operating revenues increased 18 percent in 1996,
as a result of higher sales prices for crude oil, natural gas and
petroleum products. These same factors also contributed to a
21 percent increase in purchase costs. The company is a net
purchaser of crude oil for its refineries, and petroleum products
for its wholesale and retail marketing operations. In addition,
the GPM segment purchases raw natural gas.
Equity earnings of affiliated companies declined significantly in
1996. Over 60 percent of the decrease is a result of impairments
related to the Point Arguello field that were recorded on equity
companies. The remainder of the decrease is primarily
30
<PAGE>
attributable to lower earnings from the company's interest in
Sweeny Olefins Limited Partnership (SOLP), due to lower ethylene
margins. Other revenues increased $46 million in 1996, primarily
as a result of higher net gains on asset sales and higher
interest income.
Controllable costs, composed primarily of production and
operating expenses and selling, general and administrative
expenses, both adjusted for special items, were 1 percent higher
in 1996. Lower costs from the company's Norway, GPM and refinery
operations were more than offset by higher fuel costs at
manufacturing facilities and costs associated with company
growth-related projects.
Exploration expenses increased 28 percent in 1996 due to higher
dry hole charges, primarily located in the Gulf of Mexico,
Algeria, offshore China and the U.K. sector of the North Sea.
Depreciation, depletion and amortization (DD&A) was 3 percent
lower in 1996, compared with 1995, after adjusting both periods
for property impairments. DD&A expenses were lower in the RM&T
and Chemicals segments, due to new depreciation rates, and in the
GPM segment, due to an accounting method change, both of which
were effective January 1, 1996. In addition, Norway E&P DD&A
expenses were lower, mainly due to an upward revision to
recoverable reserves at year-end 1995. The effect of these
decreases was partially offset by asset acquisitions and capital
additions.
Taxes other than income taxes changed only slightly in 1996, as
the absence of Superfund tax accruals was offset by higher
foreign taxes and production taxes. The Superfund tax expired
December 31, 1995, and the law providing for its collection has
not been extended.
Interest expense was 18 percent lower in 1996, primarily due to
lower accrued interest on tax contingencies, mainly as a result
of the favorable resolution of the Kenai LNG tax case.
1995 vs. 1994
Sales and other operating revenues were $13.4 billion in 1995, a
10 percent 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.
Total costs and expenses were 8 percent higher in 1995, compared
with 1994, primarily as a result of higher purchase costs, due to
higher crude oil and petroleum products prices.
31
<PAGE>
Segment Results
E&P
1996 1995 1994
----------------------------
Millions of Dollars
----------------------------
Operating Income
Net income $ 510 390 342
Less special items (159) (61) 23
- -----------------------------------------------------------------
Net operating income $ 669 451 319
=================================================================
Dollars Per Unit
----------------------------
Average Sales Prices
Crude oil (per barrel)
United States $18.96 14.98 13.37
Foreign 20.89 17.16 15.75
Worldwide 20.28 16.43 14.74
Natural gas--lease
(per thousand cubic feet)
United States 2.10 1.37 1.69
Foreign 2.52 2.50 2.31
Worldwide 2.25 1.77 1.92
- -----------------------------------------------------------------
Average Production Costs per
Barrel-of-Oil-Equivalent
United States 4.17 4.06 4.50
Foreign 4.15 4.28 5.36
Worldwide 4.16 4.16 4.85
- -----------------------------------------------------------------
Finding and Development Costs per
Barrel-of-Oil-Equivalent
United States 6.20 2.77 5.75
Foreign 8.31 4.21 2.10
Worldwide 7.52 3.52 2.88
- -----------------------------------------------------------------
Millions of Dollars
----------------------------
Worldwide Exploration Expenses
Geological and geophysical $127 126 124
Leasehold impairment 28 30 27
Dry holes 89 36 68
Lease rentals 10 6 7
- -----------------------------------------------------------------
$254 198 226
=================================================================
32
<PAGE>
1996 1995 1994
----------------------------
Thousands of Barrels Daily
----------------------------
Operating Statistics
Crude oil produced
United States 69 79 90
Norway 99 100 82
United Kingdom 6 3 5
Africa 25 24 23
China 15 11 1
Canada 5 5 5
- -----------------------------------------------------------------
219 222 206
=================================================================
Natural gas liquids produced
United States 4 5 5
Norway 8 8 8
Other areas 3 2 1
- -----------------------------------------------------------------
15 15 14
=================================================================
Millions of Cubic Feet Daily
----------------------------
Natural gas produced
United States (less gas equivalent
of liquids shown above) 1,102 1,078 1,035
Norway* 291 299 272
United Kingdom* 81 46 58
Canada 53 58 49
- -----------------------------------------------------------------
1,527 1,481 1,414
=================================================================
*Dry basis.
Liquefied natural gas sales 130 125 120
- -----------------------------------------------------------------
1996 vs. 1995
E&P's net operating income in 1996 was 48 percent higher than in
1995. This strong performance was driven by higher worldwide
crude oil and U.S. natural gas sales prices.
Phillips' worldwide average crude oil sales prices generally rose
throughout 1996, as Iraqi crude oil exports remained off the
market until near year-end, and the supply/demand balance
tightened. Prices in the first quarter of 1996 were helped by a
colder than normal winter in the United States and Europe, which
left global inventories significantly lower than they have
historically been. Crude oil prices in the second quarter were
helped by improved gasoline margins and OPEC's decision to
maintain their production ceiling, while acknowledging Iraq's
eventual re-entry into the world export market. Over the second
half of the year, prices increased in reaction to the often-
delayed resumption of Iraqi exports, to low distillates
inventories and strong margins, to rising political tension in
33
<PAGE>
Arab-Israeli relations, and to a general containment in
incremental supply from OPEC. Late in the year, prices moved
higher in reaction to colder than normal temperatures. Prices
finished the year at their highest level since the Gulf War in
early 1991.
1995 vs. 1994
Phillips' average worldwide crude oil sales 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. These two factors resulted in
higher crude oil revenues and were primarily responsible for the
41 percent improvement in net operating income in 1995, compared
with 1994. Also positively affecting 1995 results were higher
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 natural gas sales price.
U.S. E&P
- --------
Millions of Dollars
----------------------------
1996 1995 1994
----------------------------
Operating Income
Net income $ 329 249 257
Less special items (136) (44) 18
- -----------------------------------------------------------------
Net operating income $ 465 293 239
=================================================================
1996 vs. 1995
Net operating income increased 59 percent in the company's U.S.
E&P operations in 1996, compared with 1995. The higher average
U.S. natural gas sales price--53 percent higher than 1995--was
the main factor accounting for the sharp increase in earnings.
Other positive influences on operating income included higher
natural gas production, higher crude oil sales prices and higher
LNG revenues. These factors were partially offset by lower crude
oil production and higher exploration expenses.
U.S. natural gas prices benefited in the first half of 1996 from
an increase in industry demand and a reduction in natural gas
storage levels caused by a cold winter in North America in
1995-1996. Higher summer cooling demand and the replenishing of
industry natural gas storage supplies sustained the improved
prices through the summer and into the fall. Toward year-end
1996, prices increased significantly due to the onset of winter
weather and increased demand.
34
<PAGE>
U.S. crude oil production continued to decline in 1996, as a
result of continuing production declines from the Point Arguello
field located offshore California, general field declines in the
Gulf of Mexico and Prudhoe Bay in Alaska, and the effect of
non-strategic property dispositions. U.S. natural gas production
increased slightly in 1996, compared with 1995. The increase was
attributable to new production from the Seastar (Garden Banks
Blocks 70/71) field in the Gulf of Mexico, which came online in
mid-year 1995; and property acquisitions in south Louisiana;
partially offset by lower production from the South Marsh Island
Blocks 146/147 field in the Gulf of Mexico.
Special items in 1996 included after-tax charges of $119 million
for the impairment of the Point Arguello field and associated
facilities, including adjustments to abandonment accruals. Also
included were various contingency accruals totaling $24 million
after-tax, the most significant of which related to an
unfavorable court judgment regarding producing properties in
Alabama. Special items in 1995 included property impairments of
$35 million after-tax associated with the 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," along with work force reduction charges, a
net loss on asset dispositions and a contingency accrual.
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 DD&A costs were all lower in
1995, compared with 1994. Cost reduction programs, the sale of
non-core properties and lower dry hole charges all contributed to
lower costs in 1995. Also benefiting 1995 results were favorable
natural gas imbalance settlements.
Lease gas revenues were significantly lower in 1995 than 1994, as
the average lease gas sales price 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 declined in 1995, compared with 1994,
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 in 1994,
primarily as a result of higher production from the San Juan
Basin in New Mexico and new production from the Seastar field in
the Gulf of Mexico.
35
<PAGE>
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.
Foreign E&P
- -----------
Millions of Dollars
----------------------------
1996 1995 1994
----------------------------
Operating Income
Net income $181 141 85
Less special items (23) (17) 5
- -----------------------------------------------------------------
Net operating income $204 158 80
=================================================================
1996 vs. 1995
Net operating income from the company's foreign E&P operations
increased 29 percent in 1996, compared with 1995. The
improvement in earnings was a result of higher crude oil sales
prices and, to a lesser degree, higher natural gas sales prices.
In addition, tax benefits resulting from capital investments in
Norway associated with the Ekofisk II redevelopment also
contributed to the improved results. These items were partially
offset by higher exploration expenses resulting from unsuccessful
exploratory wells in Algeria, offshore China and the U.K. sector
of the North Sea.
Foreign crude oil production increased 5 percent in 1996,
compared with 1995, with the increase primarily attributable to
offshore China and the U.K. sector of the North Sea. Production
from the Xijiang 30-2 field, which began producing in
October 1995, resulted in the higher 1996 China production
volumes. Foreign natural gas production increased 5 percent for
the year, as lower demand in Norway was more than offset by
higher production and increased demand in the U.K. sector of the
North Sea.
Special items in 1996 consisted primarily of a $25 million
after-tax impairment of certain Canadian proved properties.
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.
36
<PAGE>
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 was 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.
Foreign crude oil production was 23 percent higher in 1995,
compared with 1994, due to 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 1994 consisted primarily of income tax items
related to the company's China and Norway operations.
37
<PAGE>
GPM
1996 1995 1994
----------------------------
Millions of Dollars
----------------------------
Operating Income
Net income $144 10* 31*
Less special items 3 (11) (6)
- -----------------------------------------------------------------
Net operating income $141 21 37
=================================================================
*Preferred stock dividend requirements of subsidiary was
reclassified from GPM to Corporate and Other for segment
reporting.
Dollars Per Unit
----------------------------
Average Sales Prices
U.S. residue gas
(per thousand cubic feet) $ 2.20 1.49 1.79
U.S. natural gas liquids
(per barrel--unfractionated) 14.49 10.07 9.77
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
----------------------------
Operating Statistics
Natural gas purchases
Outside Phillips 1,360 1,247 1,164
Phillips 178 194 206
- -----------------------------------------------------------------
1,538 1,441 1,370
=================================================================
Raw gas throughput 1,913 1,620 1,505
- -----------------------------------------------------------------
Residue gas sales
Outside Phillips 1,002 833 853
Phillips 74 184 96
- -----------------------------------------------------------------
1,076 1,017 949
=================================================================
Thousands of Barrels Daily
----------------------------
Natural gas liquids net production
From Phillips E&P leasehold gas 17 19 21
From gas purchased outside
Phillips 131 125 130
- -----------------------------------------------------------------
148 144 151
=================================================================
1996 vs. 1995
GPM's net operating income increased substantially in 1996,
compared with 1995. The $120 million improvement was a result of
much improved margins, due to sharply higher natural gas liquids
(NGL) and residue gas sales prices and higher raw gas throughput
volumes. Earnings also benefited from significantly lower
operating expenses.
38
<PAGE>
NGL prices increased throughout 1996, with a particularly sharp
increase in the fourth quarter. Low industry inventory levels,
supply disruptions and increased demand in the petrochemicals
industry for NGL feedstocks have all served to drive prices
higher in 1996. NGL production volumes increased 3 percent,
mainly due to conversion of the Linam Ranch plant in New Mexico
to a cryogenic facility, which provided more efficient NGL
recovery rates, and acquisitions completed at the end of 1995.
Residue gas prices benefited in the first half of 1996 from an
increase in industry demand and a reduction in natural gas
storage levels. Higher summer cooling demand and the
replenishing of industry natural gas storage supplies sustained
improved prices through the summer and into the fall. Toward
year-end 1996, prices increased significantly due to the onset of
winter, as low industry storage levels compounded the impact of
cold weather on natural gas market prices. The 6 percent
increase in residue gas sales volumes in 1996 was primarily the
result of acquisitions completed at the end of 1995.
Controllable costs were 20 percent lower in 1996, compared with
1995, reflecting continuous cost improvement efforts, such as
technology enhancements, plant modernizations, plant
consolidations and reengineering efforts completed in 1995.
Special items in 1996 included a gain on the sale of an NGL plant
and gathering system, as well as a favorable adjustment to
previously accrued work force reduction charges. Special items
in 1995 consisted of work force reduction charges.
1995 vs. 1994
GPM's average annual raw gas throughput volumes in 1995 were
8 percent higher than in 1994. 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.
NGL average sales prices were slightly higher in 1995 than in
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. Operating costs were lower in 1995, compared with 1994, as
GPM lowered its overall cost structure.
Special items in 1994 consisted of work force reduction charges.
39
<PAGE>
RM&T
1996 1995 1994
----------------------------
Millions of Dollars
----------------------------
Operating Income
Net income $ 71 40 136
Less special items (35) (11) (7)
- -----------------------------------------------------------------
Net operating income $106 51 143
=================================================================
Dollars Per Unit
----------------------------
Average Sales Prices (per gallon)
Automotive gasoline-wholesale $.67 .58 .56
Automotive gasoline-retail .83 .74 .72
Distillates .64 .52 .51
Propane .50 .38 .35
- -----------------------------------------------------------------
Thousands of Barrels Daily
----------------------------
Operating Statistics
U.S. refinery crude oil
Capacity 345 345 320
Crude runs 329 333 317
Capacity utilization (percent) 95% 97 99
- -----------------------------------------------------------------
Petroleum products outside sales
United States
Automotive gasoline-wholesale 291 286 252
Automotive gasoline-retail 37 35 38
Aviation fuels 25 29 32
Distillates 138 135 128
Propane 26 23 25
Other products 15 18 18
- -----------------------------------------------------------------
532 526 493
Foreign 46 45 54
- -----------------------------------------------------------------
578 571 547
=================================================================
1996 vs. 1995
RM&T's net operating income in 1996 more than doubled that of
1995. The $55 million improvement was the result of higher
distillates margins, and, to a lesser extent, higher gasoline
margins and lower operating expenses.
Phillips' average distillates sales price for 1996 ended the year
$.12 per gallon higher, a 23 percent increase over 1995. Low
industry-wide inventories created a tight supply situation in
1996, compared with 1995, supporting improved distillates prices.
The company's wholesale gasoline price in 1996 averaged $.67 per
gallon, 16 percent higher than in 1995. However, crude oil
feedstock costs were 21 percent higher in 1996 than in 1995,
40
<PAGE>
partially offsetting the benefit of higher distillates and
gasoline sales prices.
The company's U.S. refineries ran at 95 percent of capacity in
1996, averaging 329,000 barrels of crude oil daily. This was
slightly lower than 1995, when a new company throughput record
was set, due to maintenance turnarounds during the first half of
1996. A maintenance turnaround is scheduled for the Sweeny,
Texas, refinery in 1997. Controllable costs at the U.S.
refineries ended the year 2 percent lower than a year ago,
despite a significant increase in fuel-gas costs.
Special items in 1996 consisted primarily of a $38 million after-
tax impairment of certain retail service stations that are either
being razed and rebuilt in connection with the company's
expansion program, or being held for sale. Special items in 1995
included an inventory writedown and work force reduction charges.
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 1995, 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 distillates margins.
Continued operating efficiencies and incremental debottlenecking
led the company to revise its U.S. crude oil refining capacity 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.
Special items in 1994 included work force reduction charges.
41
<PAGE>
Chemicals
1996 1995 1994
----------------------------
Millions of Dollars
----------------------------
Operating Income
Net income $266 386 259
Less special items (7) (4) 34
- -----------------------------------------------------------------
Net operating income $273 390 225
=================================================================
Millions of Pounds
Except as Indicated
----------------------------
Operating Statistics
Production*
Ethylene 2,587 2,465 2,590
Polyethylene 2,048 1,797 1,885
Propylene 418 434 372
Polypropylene 327 418 433
Paraxylene 622 578 393
Cyclohexane (millions of gallons) 169 133 174
- -----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.
Thousands of Barrels Daily
----------------------------
U.S. petroleum products
outside sales
Automotive gasoline 12 10 18
Liquefied petroleum gas 75 75 84
Other products 37 40 40
- -----------------------------------------------------------------
124 125 142
=================================================================
Natural gas liquids
Processing capacity 250 227 227
Liquids processed 205 199 207
- -----------------------------------------------------------------
1996 vs. 1995
Chemicals' net operating income declined 30 percent in 1996,
compared with the strong results from 1995, when industry
conditions were much more favorable. Lower margins for ethylene,
polyethylene and paraxylene were primarily responsible for the
decrease in operating income. Higher sales volumes for ethylene
and polyethylene, along with improved results from K-Resin
operations and improved NGL margins partially offset the earnings
decline.
Ethylene margins ended the year much lower than 1995, as rising
NGL feedstock costs, particularly late in the year, could not be
recovered in the marketplace. Ethylene production volumes were
5 percent higher in 1996 than in 1995, even with debottlenecking
work and a major scheduled maintenance turnaround of the olefins
unit at SOLP, in which the company owns a 50 percent equity
interest.
42
<PAGE>
Paraxylene margins began to decline in the second quarter of 1996,
and trended downward the remainder of the year. Weakening demand,
coupled with surplus industry capacity, combined to drive margins
down. Paraxylene production was 8 percent higher than a year ago,
as the first phase of a paraxylene expansion at the Puerto Rico
Core facility was completed in mid-1995, partially offset by
weather-related downtime in 1996.
In the company's plastics operations, polyethylene and
polypropylene margins were lower than a year ago, due to softening
industry conditions. The company's Houston Chemical Complex (HCC)
facility turned in an excellent operating performance in 1996,
with 14 percent higher polyethylene production than a year ago,
and its highest annual output ever.
Phillips has an equity interest in a partnership that owns the
polypropylene production facilities at HCC. While gross
production was only slightly lower than 1995, Phillips' share of
production in 1996 was 22 percent lower than last year, primarily
as a result of a decreasing equity interest in the partnership.
During the construction phase of the new facility, which was
completed during 1996, the company's equity ownership interest was
reduced on a sliding scale as the partner funded the construction
of the new facility.
Special items in 1996 represented a tax item related to the
company's Puerto Rico Core operations. Special items in 1995
included property impairments on an after-tax basis of $3 million.
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. Growing demand led to higher paraxylene margins in
1995.
In the company's plastics operations, higher polyethylene and
polypropylene margins in 1995 contributed to the higher Chemicals
earnings. Polyethylene margins, although higher than 1994, slowed
somewhat in 1995. Higher polypropylene margins led to higher
equity earnings from the company's interest in the Phillips Sumika
Polypropylene Company partnership.
43
<PAGE>
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.
Corporate and Other
Millions of Dollars
-----------------------
1996 1995* 1994*
-----------------------
Operating Results
Corporate and Other $ 312 (357) (284)
Less special items 610 (24) 33
- -----------------------------------------------------------------
Adjusted Corporate and Other $(298) (333) (317)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $(131) (131) (125)
Net interest (147) (173) (179)
Preferred dividend requirements (43) (32) (32)
Other 23 3 19
- -----------------------------------------------------------------
Adjusted Corporate and Other $(298) (333) (317)
=================================================================
*Preferred stock dividend requirements of subsidiary was
reclassified from GPM to Corporate and Other for segment
reporting.
1996 vs. 1995
Corporate general and administrative expenses were the same in
1996 as in 1995, due to lower salary costs being offset by higher
costs for employee incentive compensation programs and other
employee benefits.
Net interest represents interest income and expense, net of
capitalized interest. Net interest was lower in 1996, compared
with 1995, due to lower interest on tax contingencies, primarily
as a result of the favorable resolution of the Kenai LNG tax
case.
Preferred dividend requirements includes dividends on the
Phillips Gas Company preferred stock and on the preferred
securities of the Phillips 66 Capital Trust I (Trust). The Trust
securities were issued in May 1996, leading to higher preferred
dividend requirements in 1996, compared with 1995.
44
<PAGE>
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. In
1996, other benefited from lower tax accruals not directly
associated with operating segments.
Special items in 1996 primarily included an after-tax gain of
$565 million related to the favorable settlement of the Kenai LNG
tax case and favorable foreign currency gains of $40 million
after-tax. Special items in 1995 included property impairments
on an after-tax basis of $7 million, contingency accruals and
work force reduction charges.
1995 vs. 1994
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 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 was adversely impacted in 1995 by higher tax accruals not
directly associated with a specific operating segment.
Favorable special items in 1994 included an after-tax benefit of
$50 million from a capital-loss carryforward 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.
45
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
Except as Indicated
-----------------------
1996 1995 1994
-----------------------
Current ratio 1.1 .9 1.0
Total debt $3,129 3,116 3,124
Preferred stock of subsidiary $ 345 345 345
Company-obligated mandatorily
redeemable preferred securities $ 300 - -
Common stockholders' equity $4,251 3,188 2,953
Percent of total debt to capital* 39% 47 49
Percent of floating-rate debt to
total debt 22% 22 23
- -----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
company-obligated mandatorily redeemable preferred securities
and common stockholders' equity.
Cash from operations increased $489 million, a 31 percent
increase compared with 1995. The following events that occurred
during 1996 contributed to this increase: a 54 percent increase
in net operating income; cash refunds from the Internal Revenue
Service (IRS) of approximately $400 million as a result of the
favorable resolution of the Kenai LNG tax case; and a
$165 million increase in accounts payable. These increases were
partially offset by a decrease in the aggregate balance of
accounts receivable sold. This decrease resulted from a
$200 million receivable monetization program that was fully
utilized at year-end 1995, but which was not being utilized at
year-end 1996.
Improved operating results and the Kenai LNG settlement have
strengthened the company's equity base, reducing the percentage
of total debt to capital to its lowest level since 1983. An
increase in cash of $548 million, combined with a decrease in
accrued taxes of $439 million (another result of the favorable
resolution of the Kenai LNG tax case) resulted in an improved
current ratio of 1.1 for 1996, compared with .9 and 1.0 in 1995
and 1994, respectively.
The company's short-term liquidity position at December 31, 1996,
was stronger than indicated because the current cost of the
company's inventories was approximately $604 million greater than
their last-in, first-out (LIFO) carrying value.
During 1996, both Standard and Poor's and Moody's Investors
Service upgraded the ratings of Phillips' long-term public debt
to A- and A3, respectively. The new ratings are the highest
since 1985 and resulted in reductions in the company's cost of
debt.
46
<PAGE>
On July 8, 1996, Phillips' Board of Directors approved the
company's second dividend rate increase in two years, raising the
quarterly per share dividend to $.32, a 5 percent increase,
effective August 30, 1996.
The company has a $1.1 billion revolving bank credit facility,
and a $250 million commercial paper program that is supported by
a portion of the company's revolving credit line equal to
100 percent of commercial paper outstanding. At December 31,
1996, nothing was outstanding under this facility, while
$106 million of the facility supported the commercial paper
program.
During 1996, the company's wholly owned subsidiary, Phillips
Petroleum Company Norway, reduced its revolving credit facility
from $500 million to $300 million, lowering commitment fees for
having the line of credit available. At December 31, 1996,
$118 million of this facility was outstanding. The company
reduced the line of credit, primarily due to lower estimated
Ekofisk II redevelopment costs. The total cost of the project
was originally estimated at about $3 billion, with Phillips'
35 percent share of the cost being approximately $1 billion. The
total cost estimate has been reduced to about $2.5 billion, of
which Phillips' share is now estimated to be approximately
$880 million.
During first quarter 1996, the company filed with the Securities
and Exchange Commission a shelf registration for $750 million of
trust preferred securities and subordinated debt securities.
This shelf registration became effective in May 1996. In a
related transaction, the company formed four new statutory
business trusts, for the sole purpose of issuing trust securities
and investing the proceeds thereof in an equivalent amount of
Phillips subordinated debt securities. Phillips owns all of the
common stock of the trusts. In May, Phillips 66 Capital I
(Trust I) completed a $300 million underwritten public offering
of 8.24% Trust Originated Preferred Securities. The sole asset
of Trust I is $309 million of the company's 8.24% Junior
Subordinated Deferrable Interest Debentures due 2036, purchased
from Phillips. In January 1997, Phillips 66 Capital II
(Trust II) completed an additional $350 million underwritten
public offering of 8% Capital Securities. The sole asset of
Trust II is $361 million of the company's 8% Junior Subordinated
Deferrable Interest Debentures due 2037. Phillips fully and
unconditionally guarantees both trusts' obligations under the
securities.
During the second quarter of 1996, the company received
$115 million from institutional investors in exchange for a
variable interest in the net proceeds from production of certain
coal-seam gas properties.
47
<PAGE>
Also, during second quarter 1996, the company negotiated a master
leasing arrangement under which it will lease and supervise the
construction of retail outlets. An initial $50 million is
expected to be financed under the arrangement through mid-1997,
with the anticipation that the program will be expanded to
$100 million. The term of the master leasing arrangement is
seven years, with the individual leases including a fair-market-
value purchase option at the end of that period and certain
guaranteed residual values, if the company does not exercise the
purchase option.
During 1995, the company and a bank-sponsored entity entered into
two one-year agreements, with options to renew, which provided
for the revolving sale of credit card and trade receivables.
During 1996, the agreements were amended, extending the
expiration date of the liquidity facilities until November 1997.
The maximum aggregate amount of receivables that can be sold and
outstanding under both agreements is limited to $200 million,
none of which was outstanding at December 31, 1996.
The $345 million Series A 9.32% Cumulative Preferred Stock,
issued in 1992 by Phillips Gas Company (PGC), a subsidiary of
Phillips, becomes redeemable at the option of PGC, in whole, or
in part, on or after December 14, 1997. PGC is currently
reviewing its options, including the probable redemption of these
securities if it is economically attractive at that time.
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. During
1996, the company recognized a $42 million after-tax, non-
operating, non-cash foreign currency transaction gain, from
remeasuring sterling-denominated intercompany receivables into
dollars.
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 products 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.
During 1996, the company discontinued using forward exchange
contracts to offset certain intercompany receivables.
In 1995, Phillips' Board of Directors adopted 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,
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and prohibits the use of speculative, highly complex or leveraged
derivatives. The policy also requires review and approval by the
Chief Operating Officer and Chief Executive 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.
Phillips owns a 50 percent interest in SOLP, which owns and
operates an ethylene plant located adjacent to the company's
Sweeny, Texas, refinery. Late in 1995, First Olefins Limited
Partnership (FOLP), a general partner of SOLP, filed suit in
Delaware against the company and its subsidiary, American
Olefins, Inc., the managing general partner of SOLP, seeking an
injunction to halt construction on a debottlenecking project at
SOLP. The trial court denied FOLP's application by opinion dated
March 1, 1996. On April 2, 1996, the Delaware Supreme Court
denied FOLP's application for interlocutory appeal, thus
effectively foreclosing the effort to halt construction.
Construction has been completed, but the lawsuit remains on file
and may result in a trial of the issues at some future date. It
is believed that the ultimate resolution of this litigation will
not materially affect the operations of SOLP. The
debottlenecking project raised capacity of the unit from
1.5 billion pounds per year to 2 billion pounds per year.
To meet its liquidity requirements, including funding its capital
program, the company will look primarily to existing cash
balances, cash generated from operations and financing. Over the
next few years, the company plans to maintain its total debt
level in the range of $2.5 billion to $3.5 billion.
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Capital Spending
Capital Expenditures and Investments
Millions of Dollars
---------------------------------
Estimated
1997 1996 1995 1994
---------------------------------
E&P $ 905 981 856 707
GPM 100 85 274 172
RM&T 245 209 150 100
Chemicals 350 205 148 144
Corporate and Other 70 64 28 31
- -----------------------------------------------------------------
$1,670 1,544 1,456 1,154
=================================================================
United States $1,036 841 923 733
Foreign 634 703 533 421
- -----------------------------------------------------------------
$1,670 1,544 1,456 1,154
=================================================================
The company's improved operating results and the Kenai LNG tax
settlement enhanced Phillips' financial flexibility during 1996,
resulting in a 16 percent increase in the 1996 capital budget,
from $1.4 billion to $1.62 billion. Actual expenditures for 1996
were $1.5 billion, the highest since 1991.
Phillips' 1997 capital budget promotes the company's growth
strategy by supporting its aggressive worldwide exploration
program, expanding chemicals and plastics volumes, and continuing
growth in retail marketing operations. More of the company's
capital spending is being directed toward payout projects--
projects defined as those that generate income and increase
shareholder value. Other amounts are planned for maintenance or
environmental-compliance projects. The level of payout projects
has increased in recent years, from 43 percent in 1993 to a
targeted 76 percent in 1997. This improved level of payout
projects supports Management's objective of growing the company.
E&P
Capital spending for E&P during the three-year period ended
December 31, 1996, supported several major development projects
including J-Block, Armada and Britannia in the U.K. North Sea;
the Ekofisk II redevelopment in Norway; the Seastar and Mahogany
developments in North America; and the Xijiang fields, offshore
China. Exploratory drilling was focused on several subsalt
prospects in the Gulf of Mexico; the Bozhong Block in China's
Bohai Bay; eastern Algeria; the Norwegian, Danish, and U.K.
sectors of the North Sea; Nigeria; Tunisia; Papua New Guinea;
Cameroon; and the Timor Sea Zone of Cooperation. Acquisition of
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an additional interest in the Britannia development in the U.K.
North Sea was a significant portion of capital spending in 1994
and 1995. When the budget was increased in 1996, E&P received
the largest increase of all the business units. This increase
was primarily used for the company's worldwide exploration
program, for additional development drilling in North America,
and for the acquisition of additional interest in the Bayu-Undan
discovery in the Zone of Cooperation between Indonesia and
Australia.
Exploration drilling activities in 1996 in the subsalt play of
the Gulf of Mexico resulted in discoveries at the Agate and
Monazite prospects, while the Alexandrite exploration well was
unsuccessful. The company is currently evaluating the
feasibility of producing the Agate discovery through the Mahogany
platform, which would significantly lower production costs. The
company is also evaluating possible future exploration and
appraisal drilling activity in the subsalt area, including the
Monazite prospect.
The 1997 E&P capital budget is $905 million, 65 percent of which
is targeted for international projects that support the company's
growth strategy. Exploration will focus on projects that the
company believes have large reserve potential. These include the
subsalt area and deep-water prospects in the Gulf of Mexico; the
Borj Messouda area of Algeria; the Bozhong Block in Bohai Bay,
China; the Porcupine Basin offshore Ireland; and offshore western
Australia. Continued appraisal of the Tyonek Deep prospect,
previously referred to as the Sunfish prospect, in Alaska's Cook
Inlet is also planned. E&P's Global Ventures group is moving
forward with a possible heavy oil project in Venezuela and a
coal-seam gas project in China. The remaining capital is
allocated to potential new development projects in Alaska,
Denmark, Norway and the United Kingdom.
About 23 percent of E&P's 1997 funds are allocated to the
Ekofisk II redevelopment project in Norway. The new wellhead
platform was completed in 1996 and construction continues on the
new processing and transportation platform, which is expected to
be operational in 1998.
GPM
Capital expenditures for GPM during the three-year period ended
December 31, 1996, included acquisitions, technology and facility
upgrades, projects to streamline operations, and new well
connections. Following a large acquisition of gathering assets
in late 1995, capital spending decreased in 1996, with
expenditures directed toward asset maintenance, new well
connections and other acquisition opportunities.
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In December 1996, GPM Gas Corporation completed an acquisition
from ANR Pipeline Company of gas gathering assets primarily
located in northwest Oklahoma, increasing GPM's assets by
1,570 miles of gathering pipeline and 12 compressor stations.
These systems gather approximately 165 million cubic feet of gas
per day, increasing GPM's throughput by approximately 9 percent
over 1996's average throughput. The new system will be
integrated into GPM's existing facilities. The first of two
installment payments for these assets was made in December 1996,
with the final payment due in December 1997.
The 1997 GPM capital budget increased 18 percent over 1996 actual
expenditures. Most of the budgeted funds are scheduled to be
used to increase production volumes through acquisitions and new
well connections, as well as for investments in technology and
operating equipment to improve operating efficiency and provide
value-added producer services. The company continues to explore
various options for maximizing the value of its gas gathering,
processing and marketing assets.
In January 1997, the company acquired approximately 630 miles of
gathering pipeline and a majority interest in the North Cowden
plant from Amoco Production Company. The acquired assets are
located in the Permian Basin of West Texas and gather
approximately 40 million cubic feet of gas per day. The company
integrated the gathering facilities into its existing operations
and shut down the plant.
RM&T
Capital expenditures for RM&T during the three-year period ended
December 31, 1996, were primarily for refinery-upgrade projects--
projects to meet new environmental standards, to improve
operating integrity of key process units, and to install advanced
process control technology--as well as for safety projects.
Beginning in 1996 and accelerating in 1997, a greater share of
RM&T capital has been allocated to expansion of retail marketing
assets and key transportation assets.
The increase in RM&T's capital budget in 1996, coupled with the
utilization of a master leasing program, accelerated plans to
expand the number of company-operated retail outlets in the
United States from 300 to 500 over the next several years.
During the year, the company purchased 24 retail outlets, the
majority of which are in Albuquerque, New Mexico, and the Salt
Lake City, Utah, areas. In addition, seven new outlets were
completed and five existing units were razed and rebuilt using
the company's new, larger convenience store designs, with the
name Kicks 66 displayed along with the Phillips shield. In
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support of the retail marketing expansion efforts, the company is
expanding its capacity in a products pipeline running from
Amarillo, Texas, to Albuquerque, New Mexico, by 50 percent.
As part of a continuing effort to increase profitability, RM&T's
1997 capital budget provides for a 17 percent increase over
actual 1996 expenditures. Spending during 1997 is slated to
continue installation of process control technology upgrades at
the Borger and Sweeny, Texas, Complexes, as well as for the
retail marketing expansion program. During 1997, the company
plans to add 30 new outlets and raze and rebuild 18 outlets,
utilizing capital funds and the master leasing program.
Additionally, the company plans to sell approximately 40 service
stations.
At Sweeny, the company is evaluating a joint venture with
Corpoven, a subsidiary of the state oil company of Venezuela, to
install a coker for processing heavier crudes. In addition, the
company plans to install a continuous catalytic reformer to
convert a higher percentage of plant yield to higher-valued
petrochemical feedstock products. This project is expected to
commence in 1997, with completion scheduled for 2000.
Phillips and its co-venturer plan to convert a portion of the
Seaway pipeline system to refined products service, scheduled for
completion in early 1998. As part of this conversion, Phillips
will build a new pipeline to connect to its existing Midwest
distribution system near Wichita, Kansas. The new system will
permit Phillips to more efficiently move Gulf Coast products into
the growing Midwest market.
Chemicals
For the three-year period ended December 31, 1996, capital
spending for Chemicals focused on production expansion projects
utilizing improved technology and debottlenecking techniques.
These projects include a 400 million-pounds-per-year addition to
high-density polyethylene production capacity at HCC, of which
100 million pounds was completed in 1996. The project, which is
expected to be completed by mid-1998, will increase capacity to
2.2 billion pounds per year. Other projects include a
400 million-pounds-per-year increase in ethylene production at
the company's Sweeny Complex, which is now expected to be
producing in the second quarter of 1997; an increase in
paraxylene production at Phillips' Puerto Rico Core facility,
which is expected to increase capacity in the second quarter of
1997 to 880 million pounds from 675 million pounds per year; and
construction of a 220 million-pounds-per-year linear polyethylene
plant near Shanghai, China, of which the company will own
40 percent.
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The 1997 Chemicals capital budget increased 71 percent over 1996
spending. Spending for 1997 is aimed at growing Chemicals'
business with continued support of various new and ongoing
production expansion projects. As part of the company's strategy
to expand its non-cyclical specialty chemicals business, the
budget includes the addition of two new chemical business lines--
methyl mercaptan and dicyclopentadiene (DCPD). In addition to
the ongoing projects listed above, a Ryton debottlenecking
project is under way at the company's facility in Borger, Texas,
where capacity is expected to increase by 40 percent, to
21.6 million pounds per year, by late 1997. At HCC, the company
plans to expand its K-Resin production by 100 million pounds per
year, increasing capacity to 370 million pounds per year. Also,
the company plans to expand its high-density polyethylene pipe
production with projects in Mexico and Maryland.
The company is entering the methyl mercaptan market with
construction of a plant at its Borger Complex, scheduled to begin
in mid-1997. Methyl mercaptan is a sulfur-based chemical used in
the production of methionine, an important feed supplement for
poultry, and agricultural chemicals. The facility will be
capable of producing up to 100 million pounds a year, with first
production expected late in 1998.
The company plans to enter the DCPD market with the start-up of
an idle hydrotreating unit at Sweeny. DCPD, a by-product of
ethylene production, is used primarily in fiberglass-reinforced
polyester products. The company expects to produce about
40 million pounds a year of DCPD at the facility by mid-1998.
Contingencies
Legal and Tax Matters
The company has a number of issues outstanding with the IRS
related to tax years 1983 through 1992 that can proceed toward
final settlement as a result of resolving the Kenai LNG tax case.
Although it is too early to determine the final financial effects
of resolving these open years, a favorable outcome would have a
positive effect on net income and cash flow, while an unfavorable
one would not impact the company's net income or cash position.
While total resolution may require a number of years, the
majority of these open years are expected to be resolved in the
near term.
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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.
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 1995, Phillips reported 48 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, seven of these
sites have been resolved through consent decrees, deposits into
trust funds or otherwise. Six sites were also added during the
year. Of the 47 sites remaining at December 31, 1996, 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 eight sites,
Phillips has had no communication or activity with government
agencies or other PRPs in more than two years. Of the
15 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
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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
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, 1996, accruals of $9 million had been made for
the company's unresolved PRP sites. In addition, the company had
accrued $82 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 $6 million for
other environmental contingent liabilities, for total
environmental accruals of $97 million. No one site represents
more than 10 percent of the total.
Expensed environmental costs were $147 million in 1996 and are
expected to be approximately $145 million in 1997 and 1998. The
estimates for 1997 and 1998 do not include any amounts related to
the federal Superfund tax, which expired December 31, 1995, and
which has not been extended. Capitalized environmental costs
were $55 million in 1996, and are expected to be approximately
$80 million and $100 million in 1997 and 1998, respectively.
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,
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costs and tax rates. Based on the company's historical taxable
income, its expectations for the future, and available tax
planning strategies, 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
valuation allowance increased $53 million during 1996, primarily
due to an increase in loss carryforwards for various companies.
New Accounting Standards
FASB Statement No. 123, "Accounting for Stock-Based
Compensation," which establishes financial accounting and
reporting standards for stock-based employee compensation plans,
was effective for fiscal years beginning after December 15, 1995.
The Statement provides the option to continue under the
accounting provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees,"
providing that pro forma footnote disclosures of the effects on
net income and earnings per share, calculated as if the new
method had been implemented, are included. The company has
elected to continue under APB Opinion No. 25, but the pro forma
disclosures have been omitted, as the results were not materially
different from the amounts disclosed.
In October 1996, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities," which provides authoritative guidance on the
recognition, measurement, display, and disclosure of
environmental remediation liabilities. The company has adopted
the provisions of SOP 96-1, the impact of which required no
significant change in the company's environmental accounting or
disclosure.
J-Block Update
The J-Block production, processing and transportation facilities,
located in Block 30/7a of the U.K. North Sea, were completed on
schedule and below budget in mid-February 1996 and are available
for production and delivery of gas. Production has been delayed,
however, because the gas purchaser, Enron Europe Limited (EEL),
has decided not to take gas until sometime in the future under
its long-term take-or-pay agreements. The offshore U.K. gas
reserves in Blocks 30/7a and 30/12a (J-Block) are dedicated to a
single purchaser, EEL, under long-term take-or-pay gas sales
agreements guaranteed by its parent, Enron Corp. (Enron). Under
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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 estimate of future total
daily nominations for delivery is zero through September 1999.
Enron, EEL and Teesside Gas Transportation Limited (TGTL) have
also asserted that the J-Block transportation agreements, J-Block
gas sales agreements and parent company guarantees are
terminated. 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.
Gas injection facilities are currently being installed, which
will allow for initial production of liquids, while the
associated natural gas production would be reinjected for later
delivery. The U.K. government has approved these plans and the
facilities are scheduled to begin operating in April 1997.
The J-Block owners also own the rights to the reserves in
Block 30/6b immediately adjacent to J-Block, which are in
communication with J-Block reserves but not dedicated under the
above agreements. The J-Block owners are continuing to
investigate transportation, processing and sales of natural gas
from the adjoining block. In order to maximize the value of its
J-Block infrastructure, the company has also initiated and is
continuing an active drilling program to explore and appraise the
reserves in Blocks 30/2c and 30/13.
On March 29, 1996, the J-Block owners filed legal proceedings in
the English High Court in London seeking a declaration that EEL
as buyer under the J-Block gas sales agreements cannot refuse to
agree to a commissioning date for the J-Block facilities on the
basis of a decline in natural gas prices in the United Kingdom,
and cannot thereby delay commencement of its take-or-pay
obligations under the sales agreements. On May 8, 1996, the
English High Court ruled in favor of the J-Block owners. EEL
appealed that judgment. On October 10, 1996, the English Court
of Appeal reversed the May 8 decision, concluding that the date
for commissioning the J-Block facilities could be delayed by EEL
until the contract fall-back date of September 25, 1996. The
House of Lords, the highest court in England, is considering a
request by the J-Block owners for leave to hear an appeal of the
Appeal Courts decision. If leave to appeal is granted, it would
be expected to be heard sometime in 1997.
The J-Block owners have amended their claims in the English High
Court to enforce EEL's obligation to accept J-Block commissioning
gas on and after September 25, 1996, as well as to seek damages
resulting from EEL's breach. Trial of this amended claim by the
J-Block owners began in the English High Court on October 28,
1996, together with the related claim filed in 1995 by the owners
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of the Central Area Transmission System (CATS). The CATS' claim
against EEL's wholly owned subsidiary, TGTL, is for breach of
TGTL's obligation to pay the capacity reservation fee under the
Capacity Reservation and Transportation Agreement (CRTA), under
which J-Block gas is to be delivered to onshore processing
facilities. EEL and TGTL assert as defenses in this litigation
that the CRTA, the J-Block transportation agreements, and the
J-Block gas sales agreements are terminated. Although EEL agreed
in late 1996 to accept gas to run commissioning tests of the
J-Block facilities, the trial continues in the English High
Court, where judgment on the remaining issues is anticipated
later in 1997.
Further developments in this litigation are anticipated, and the
course of events and range of possible outcomes cannot be
predicted at this time. The company intends to vigorously assert
its interests in each of the pending matters.
The J-Block and Block 30/6b are operated by Phillips, which has a
36.5 percent interest. The company also owns 32.5 percent and
35 percent interests in Blocks 30/2c and 30/13, respectively.
OUTLOOK
Phillips' global growth strategy is reflected in its exploration
and drilling activity plans for the Gulf of Mexico, Alaska,
China, the United Kingdom, the North Sea, the Middle East,
Greenland, South Africa, Peru, Ireland and Australia. Also, the
company is marketing its expertise in its proprietary LNG
process.
Phillips and its co-venturers are evaluating plans to develop the
Bayu-Undan field, including plans to construct an onshore LNG
processing facility, using Phillips' proprietary technology to
liquefy the natural gas. The recent success of the fifth
appraisal well confirmed the southern extension of the Bayu-Undan
reservoir and completes Phillips' appraisal drilling program. A
decision on the field's commerciality is expected by late 1997 or
early 1998.
In early 1997, the company announced a discovery at the Jade
field in Block 30/2c, located about 12 miles north of the J-Block
area. The Jade accumulation is situated in a different license
block from those in which the J-Block fields are located, thus it
is not directly connected with the disputes and litigation
involving the J-Block gas sales contracts. In order to reduce
time to first production, development conceptual studies have
been progressing in parallel with appraisal drilling. Studies
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completed to date indicate that, if the field proves commercial,
production could begin as early as the fourth quarter of 1998.
Phillips is operator of the block and holds a 32.5 percent
interest.
The company is actively marketing its expertise in LNG technology
and is pursuing equity opportunities in major LNG projects around
the world. Additionally, the company and Bechtel Corporation
established an alliance to jointly develop LNG projects
worldwide. The projects will use Phillips' process, and Bechtel
will serve as the engineering and procurement contractor.
During 1996, Phillips secured rights to explore in several new
areas. New ventures include a joint exploration agreement with
Mobil Corporation for deep-water exploration in the Gulf of
Mexico; an exploration and production-sharing contract with the
Sultanate of Oman, marking a new phase of exploration for
Phillips in the Middle East; and a technical cooperation
agreement with South Africa's state-owned oil company for
exclusive rights to evaluate two blocks along the eastern coast
of Africa. In early 1997, Phillips signed a seven-year license
agreement to explore 3 million acres in southeastern Peru, and
acquired 38 percent of a license covering 2.3 million acres
offshore western Greenland.
Global expansion of the company's chemicals business continues
with new production capacity under construction. Opportunities
for new locations involving foreign joint-venture partners are
also being actively pursued.
Phillips has recently agreed to license its proprietary loop
reactor technology, used in the manufacture of polyethylene, in
North America. This is the first time in more than 20 years that
the company has agreed to license its polyethylene technology in
the United States, marking a major shift in the company's U.S.
licensing strategy.
Phillips is starting to replace many of its business and
operating computer systems. The new systems, based on software
from SAP America, Inc. and Oracle Corporation, will replace older
legacy systems and allow employees at different locations to
share financial and operating information more efficiently. The
first major use of the new software commenced January 1, 1997, in
certain areas of the company. Remaining business units and
staffs are scheduled for implementation in phases, with project
completion targeted for mid-1999. The new systems and software
are Year-2000 compatible, thus handling a portion of the
company's Year-2000 conversion requirements. The company is
currently developing conversion strategies for its remaining
systems.
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Phillips recognizes that the financial performances of the
businesses in the industries in which the company operates are
subject to significant fluctuations, and are affected by the
uncertainty of oil and natural gas prices. Oil prices have
recently been at their highest levels since the Gulf War, and
natural gas prices, despite seasonal volatility, have been at
their highest level since the mid-1980s. The futures market
currently reflects an expectation of declining crude prices
throughout 1997. Phillips concurs with this expectation.
However, the market remains supported by strong global demand
growth, historically low industry inventory levels, and the
potential for increased turmoil in the Middle East. Increased
gas drilling and rising deliverability may begin to soften
natural gas prices as the heating season ends. Demand growth
remains partially dependent on natural gas pricing versus
competing fuels, sustained economic growth, and weather
variances. The recent levels of oil and gas prices have
contributed significantly to the company's ability to improve its
financial performance, increase its cash balance, sustain its
capital budget, and fund its new growth initiatives.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Phillips is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 for any forward-looking
statement made by, or on behalf of, the company. The factors
identified in this cautionary statement are important factors
(but not necessarily all important factors) that could cause
actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the company.
Where any such forward-looking statement includes a statement of
the assumptions or bases underlying such forward-looking
statement, the company cautions that, while it believes such
assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and
actual results can be material, depending on the circumstances.
Where, in any forward-looking statement, the company, or its
Management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will
result, or be achieved or accomplished.
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Taking into account the foregoing, the following are identified
as important risk factors that could cause actual results to
differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the company:
o Plans to drill wells and develop offshore or onshore
exploration and production properties are subject to the
company's ability to obtain agreements from co-venturers or
partners, and governments; engage drilling, construction and
other contractors; obtain economical and timely financing;
geology, land or sea, or ocean conditions; world prices for
oil, natural gas and natural gas liquids; foreign and United
States laws, including tax laws; and the favorable
resolution in the case of J-Block of current litigation.
o Plans for the construction, modernization or debottlenecking
of domestic and foreign refineries and chemical plants, and
the timing of production from such plants are subject to, in
certain instances, approval from the company's and/or
subsidiaries' Boards of Directors; and in general, to the
issuance by foreign, federal, state, and municipal
governments, or agencies thereof, of building,
environmental and other permits; the availability of
specialized contractors and work force; worldwide prices and
demand for the products; availability of raw materials; and
transportation in the form of pipelines, railcars or trucks;
and, in certain instances, loan or project financing.
o The ability to meet liquidity requirements, including the
funding of the company's capital program from operations, is
subject to changes in the commodity prices of the company's
basic products of oil, natural gas and natural gas liquids,
over which Phillips has no control, and to a lesser extent
the commodity prices for its chemical and other products;
its ability to operate its refineries and chemical plants
consistently; and the effect of foreign and domestic
legislation of federal, state and municipal governments that
have jurisdiction in regard to taxes, the environment and
human resources.
o Estimates of proved reserves, raw natural gas supplies, cost
estimates of the Ekofisk II project, and planned spending
for maintenance and environmental remediation were developed
by company personnel using the latest available information
and data, and recognized techniques of estimating, including
those prescribed by the Securities and Exchange Commission,
generally accepted accounting principles and other
applicable requirements; however, new or revised information
or changes in scope or economics could cause results to
vary, perhaps materially.
62
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS PETROLEUM COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Management.................................... 64
Report of Independent Auditors.......................... 65
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994................ 66
Consolidated Balance Sheet at December 31, 1996
and 1995.............................................. 67
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994................ 68
Consolidated Statement of Changes in Common Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994......................................... 69
Accounting Policies..................................... 70
Notes to Financial Statements........................... 73
Supplementary Information
Oil and Gas Operations............................. 101
Selected Quarterly Financial Data.................. 119
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation Accounts and Reserves............ 124
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.
63
<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, 1996, 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, 1997
64
<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, 1996 and 1995, and
the related consolidated statements of income, changes in common
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1996. 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,
1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1996, 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, 1997
65
<PAGE>
- ------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
---------------------------
1996 1995 1994
---------------------------
Revenues
Sales and other operating revenues $15,731 13,368 12,211
Equity in earnings of
affiliated companies 4 127 84
Other revenues 72 26 72
- ------------------------------------------------------------------
Total Revenues 15,807 13,521 12,367
- ------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 9,896 8,182 7,292
Production and operating expenses 2,078 2,143 2,192
Exploration expenses 254 198 226
Selling, general and
administrative expenses 509 500 478
Depreciation, depletion and
amortization 941 871 794
Taxes other than income taxes 264 266 271
Interest expense 217 265 250
Preferred dividend requirements of
subsidiary and capital trust 47 32 32
- ------------------------------------------------------------------
Total Costs and Expenses 14,206 12,457 11,535
- ------------------------------------------------------------------
Income before income taxes, subsidiary
stock transaction and Kenai LNG tax
settlement 1,601 1,064 832
Gain on subsidiary stock transaction - - 20
Kenai LNG tax settlement 571 - -
- ------------------------------------------------------------------
Income before income taxes 2,172 1,064 852
Provision for income taxes 869 595 368
- ------------------------------------------------------------------
Net Income $ 1,303 469 484
==================================================================
Net Income Per Share of Common Stock $ 4.96 1.79 1.85
- ------------------------------------------------------------------
Average Common Shares Outstanding
(in thousands) 262,919 261,989 261,529
- ------------------------------------------------------------------
See Accounting Policies and Notes to Financial Statements.
66
<PAGE>
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
At December 31 Millions of Dollars
-------------------
1996 1995
-------------------
Assets
Cash and cash equivalents $ 615 67
Accounts and notes receivable
(less allowances: 1996--$20; 1995--$15) 1,988 1,522
Inventories 472 505
Deferred income taxes 117 229
Prepaid expenses and other current assets 114 86
- -----------------------------------------------------------------
Total Current Assets 3,306 2,409
Investments and long-term receivables 912 841
Properties, plants and equipment (net) 9,120 8,493
Deferred income taxes 85 121
Deferred charges 125 114
- -----------------------------------------------------------------
Total $13,548 11,978
=================================================================
Liabilities
Accounts payable $ 1,793 1,494
Notes payable and long-term debt due
within one year 574 19
Accrued income and other taxes 483 922
Other accruals 287 380
- -----------------------------------------------------------------
Total Current Liabilities 3,137 2,815
Long-term debt 2,555 3,097
Accrued dismantlement, removal and
environmental costs 783 657
Deferred income taxes 1,047 948
Employee benefit obligations 425 400
Other liabilities and deferred credits 700 522
- -----------------------------------------------------------------
Total Liabilities 8,647 8,439
- -----------------------------------------------------------------
Preferred Stock of Subsidiary and Other
Minority Interests 350 351
- -----------------------------------------------------------------
Company-Obligated Mandatorily Redeemable
Preferred Securities of Phillips
Capital Trust I 300 -
- -----------------------------------------------------------------
Common Stockholders' Equity
Common stock--500,000,000 shares authorized
at $1.25 par value
Issued (306,380,511 shares)
Par value 383 383
Capital in excess of par 1,999 1,966
Treasury stock (at cost: 1996--13,878,480
shares; 1995--15,047,246 shares) (757) (827)
Compensation and Benefits Trust (CBT)
(at cost: 1996 and 1995--
29,200,000 shares) (989) (989)
Foreign currency translation adjustments 54 39
Unearned employee compensation--Long-Term
Stock Savings Plan (LTSSP) (378) (414)
Retained earnings 3,939 3,030
- -----------------------------------------------------------------
Total Common Stockholders' Equity 4,251 3,188
- -----------------------------------------------------------------
Total $13,548 11,978
=================================================================
See Accounting Policies and Notes to Financial Statements.
67
<PAGE>
- ------------------------------------------------------------------
Consolidated Statement of Cash Flows Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
-------------------------
1996 1995 1994
-------------------------
Cash Flows from Operating Activities
Net income $ 1,303 469 484
Adjustments to reconcile net income
to net cash provided by operating
activities
Non-working capital adjustments
Depreciation, depletion and
amortization 941 871 794
Dry hole costs and leasehold
impairment 117 66 95
Deferred taxes 163 9 (51)
Other 41 (77) (38)
Working capital adjustments
Increase (decrease) in aggregate
balance of accounts receivable
sold (200) 200 -
Increase in other accounts and
notes receivable (265) (245) (82)
Decrease (increase) in inventories 31 25 (10)
Decrease (increase) in prepaid
expenses and other current assets (26) 12 22
Increase in accounts payable 295 130 15
Increase (decrease) in taxes and
other accruals (315) 136 (26)
- ------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,085 1,596 1,203
- ------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (1,544) (1,456) (1,154)
Proceeds from asset dispositions 101 142 266
Long-term advances to affiliates and
other investments (98) (39) (20)
- ------------------------------------------------------------------
Net Cash Used for Investing Activities (1,541) (1,353) (908)
- ------------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 616 610 1,335
Repayment of debt (630) (619) (1,447)
Issuance of common stock 25 9 12
Issuance of company-obligated mandatorily
redeemable preferred securities 300 - -
Dividends paid on common stock (329) (313) (293)
Other 22 (56) 172
- ------------------------------------------------------------------
Net Cash Provided by (Used for)
Financing Activities 4 (369) (221)
- ------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 548 (126) 74
Cash and cash equivalents at
beginning of year 67 193 119
- ------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 615 67 193
==================================================================
See Accounting Policies and Notes to Financial Statements.
68
<PAGE>
- ------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Common Stockholders' Equity
Shares of Common Stock
-------------------------------------
Held in Held in
Issued Treasury CBT
-------------------------------------
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
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans (1,168,766)
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Other
- ------------------------------------------------------------------
December 31, 1996 306,380,511 13,878,480 29,200,000
==================================================================
- ------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Common Stockholders' Equity
Millions of Dollars
--------------------------------------
Common Stock
--------------------------------------
Par Capital in Treasury
Value Excess of Par Stock CBT
--------------------------------------
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)
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans 26 70
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Other 7
- ------------------------------------------------------------------
December 31, 1996 $383 1,999 (757) (989)
==================================================================
- ------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Common Stockholders' Equity
Millions of Dollars
-------------------------------------
Foreign Unearned
Currency Employee
Translation Compensation Retained
Adjustments --LTSSP Earnings
-------------------------------------
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
Net income 1,303
Cash dividends paid on
common stock (329)
Distributed under incentive
compensation plans (72)
Recognition of LTSSP
unearned compensation 36
Tax benefit of dividends on
unallocated LTSSP shares 7
Current period translation
adjustment 15
Other
- ------------------------------------------------------------------
December 31, 1996 54 (378) 3,939
==================================================================
See Accounting Policies and Notes to Financial Statements.
69
<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 1995 and 1994
financial statements have been reclassified to conform with
the 1996 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,
70
<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.
71
<PAGE>
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. Recoveries of environmental
remediation costs from other parties are recorded as assets
when their receipt is deemed probable. For all periods
presented, the company's accounting policies comply, in all
material respects, with the provisions of American Institute
of Certified Public Accountants Statement of Position 96-1,
"Environmental Remediation Liabilities."
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 common 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 LTSSP. Treasury stock and
shares held by the CBT are excluded from the daily weighted-
average number of common shares outstanding.
72
<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Accounting Changes
Effective January 1, 1996, the company made certain changes in
the estimated useful lives of its major domestic downstream
facilities. This change increased 1996 net income by
$19 million, $.07 per share. Also, effective January 1, 1996,
the company changed its method of accounting for the depreciation
of its Gas Gathering, Processing and Marketing segment's natural
gas plants and systems from the unit-of-production method to the
straight-line method, using an estimated life of 20 years for
most of these assets. As a result of the change, net income for
1996 was $18 million higher, or $.07 per share. The estimated
cumulative effect of the change was not material. These changes
were made to better reflect how the assets are expected to be
used over time, to provide a better matching of revenues and
expenses, and to be consistent with prevalent industry practice.
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.
Note 2--Inventories
Inventories at December 31 were:
Millions of Dollars
-------------------
1996 1995
-------------------
Crude oil and petroleum products $136 173
Chemical products 255 245
Materials, supplies and other 81 87
- -----------------------------------------------------------------
$472 505
=================================================================
Included in the amounts above were inventories valued on a LIFO
basis totaling $283 million and $336 million at December 31, 1996
and 1995, respectively. The remainder of the company's
73
<PAGE>
inventories are valued under various other methods, including
first-in, first-out (FIFO), weighted average and standard cost.
The inventories valued under LIFO would have been approximately
$604 million and $443 million higher at December 31, 1996 and
1995, respectively, had they been valued using the FIFO method.
Note 3--Investments and Long-Term Receivables
Components of investments and long-term receivables at
December 31 were:
Millions of Dollars
-------------------
1996 1995
-------------------
Investments in and advances to affiliated
companies $693 661
Long-term receivables 111 104
Other investments 108 76
- -----------------------------------------------------------------
$912 841
=================================================================
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
--------------------------
1996 1995 1994
--------------------------
Revenues $3,043 2,776 2,603
Income before income taxes 583 680 579
Net income 380 470 360
Current assets 936 758 689
Other assets 3,372 3,236 2,994
Current liabilities 887 889 622
Other liabilities 1,745 1,212 1,525
- -----------------------------------------------------------------
74
<PAGE>
At December 31, 1996, retained earnings included $19 million
related to the undistributed earnings of these affiliated
companies, and distributions received from them were
$107 million, $122 million and $103 million in 1996, 1995 and
1994, respectively.
At December 31, 1996, the company's 50 percent interest in Sweeny
Olefins Limited Partnership (SOLP), which owns and operates a
2 billion-pounds-per-year ethylene plant located adjacent to the
company's Sweeny, Texas, refinery, was carried at a net
investment of $187 million. During construction of this
facility, the company made advances to the partnership under a
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. The
balance of the subordinated loan at December 31, 1996, was
$152 million. During 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. The balance of this
subordinated loan at December 31, 1996, was $95 million. It is
not economically practicable to estimate the fair value of the
company's obligations to SOLP or to the participating banks.
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
-----------------------------------------------------
1996 1995
------------------------- ------------------------
Gross Net Gross Net
PP&E DD&A PP&E PP&E DD&A PP&E
------------------------- ------------------------
E&P $11,190 6,782 4,408 10,516 6,556 3,960
GPM 1,974 1,071 903 1,890 1,015 875
RM&T 3,619 1,718 1,901 3,463 1,573 1,890
Chemicals 2,773 1,164 1,609 2,646 1,140 1,506
Corporate
and Other 547 248 299 573 311 262
- ------------------------------------------------------------------
$20,103 10,983 9,120 19,088 10,595 8,493
==================================================================
75
<PAGE>
Note 5--Impairments
During 1996 and 1995, the company recognized the following
before-tax impairments:
Millions of Dollars
-------------------
1996 1995
-------------------
Additions to depreciation, depletion and
amortization
Point Arguello field $106 -
Canadian oil and gas properties 25 -
Other E&P properties - 81
Retail service stations 58 -
Idle chemical assets - 4
Idle corporate assets 1 13
- -----------------------------------------------------------------
190 98
Reductions in equity earnings
Point Arguello field 78 -
- -----------------------------------------------------------------
$268 98
=================================================================
After-tax, the above impairments by segment were:
Millions of Dollars
-------------------
1996 1995
-------------------
E&P $144 41
RM&T 38 -
Chemicals - 3
Corporate 1 7
- -----------------------------------------------------------------
$183 51
=================================================================
The facts and circumstances leading to the E&P impairments in
1996 were rapidly declining production rates and updated
production forecasts for the Point Arguello field offshore
California, and weaker natural gas price outlooks and
disappointing drilling and production results on certain Canadian
properties. The RM&T impairment in 1996 relates to the company's
retail expansion and image improvement program, and includes
stations that will be razed and rebuilt and others that the
company plans to sell.
The E&P impairments in 1995 were primarily the result of adopting
FASB Statement No. 121, which calls for evaluation of impairment
of E&P assets on a field-by-field basis, rather than using one
worldwide cost center for proved properties.
76
<PAGE>
The fair values of impaired E&P assets were determined by using
the present values of expected future cash flows. The fair
values of impaired RM&T assets were determined by using the
present values of expected future cash flows, as well as
information about sales and purchases of similar property in the
same geographic area. The fair values of idle Chemical and
Corporate assets considered to be impaired were determined based
on information about sales and purchases of similar assets.
Note 6--Accrued Dismantlement, Removal and Environmental Costs
At December 31, 1996 and 1995, the company had accrued
$686 million and $548 million, respectively, of dismantlement and
removal costs, primarily related to worldwide offshore production
facilities and to production facilities at Prudhoe Bay in Alaska.
Estimated total future dismantlement and removal costs at
December 31, 1996, were $940 million. These costs are accrued
primarily on the unit-of-production method.
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 $49 million and $58 million at December 31, 1996 and 1995,
respectively. Phillips had also accrued $33 million and
$34 million of environmental costs associated with discontinued
or sold operations at December 31, 1996 and 1995, respectively.
Also, $9 million and $7 million were included at December 31,
1996 and 1995, respectively, for sites where the company has been
named a Potentially Responsible Party. At the same dates,
$6 million and $10 million, respectively, had been accrued for
other environmental litigation. At December 31, 1996 and 1995,
total environmental accruals were $97 million and $109 million,
respectively.
77
<PAGE>
Note 7--Debt
Long-term debt due after one year at December 31 was:
Millions of Dollars
---------------------
1996 1995
---------------------
9 1/2% Notes Due 1997 $ 300 300
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 4% - 9% 232 220
Guarantees of LTSSP bank loans payable
at 4.8825% - 6.2% 451 476
Medium-term notes due various years
at 7.6% - 8% 100 100
Other obligations 27 1
- -----------------------------------------------------------------
Total debt 3,129 3,116
Notes payable and long-term debt due
within one year (574) (19)
- -----------------------------------------------------------------
Long-term debt $2,555 3,097
=================================================================
Maturities in 1997 through 2001 are: $574 million (included in
current liabilities), $32 million, $85 million, $17 million and
$647 million, respectively.
The company's LTSSP has two term loan agreements: one requiring
repayment in annual installments through the year 1998, and a
second with repayment required in 25 annual installments
beginning in 2005. The outstanding balance of the loans at
December 31, 1996, were $54 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. Because of
this option, all of the remaining $397 million due under this
loan has been included in the year 2001, in the maturities above.
The company does not anticipate a cessation of participation by
78
<PAGE>
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 of Directors
(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 13 for additional discussion of the LTSSP.)
The company has a $1.1 billion revolving bank credit facility,
and a $250 million commercial paper program that is supported by
a portion of the company's revolving credit line equal to
100 percent of the commercial paper outstanding. At December 31,
1996, nothing was outstanding under this facility, while
$106 million of the facility supported the commercial paper
program. At December 31, 1995, the revolving debt, including the
commercial paper, was classified as non-current based on the
company's ability and intent to refinance it on a long-term
basis.
During 1996, the company's wholly owned subsidiary, Phillips
Petroleum Company Norway, reduced its revolving credit facility
from $500 million to $300 million. At December 31, 1996,
$118 million of this facility was outstanding.
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.
Note 8--Contingencies
In the case of all known contingencies, the company accrues an
undiscounted liability when the loss is probable and the amount
is reasonably estimable. These liabilities are not reduced for
potential insurance recoveries. If applicable, undiscounted
receivables are accrued for probable 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.
79
<PAGE>
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change include contingent
liabilities recorded for 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 costs related to 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.
Tax--The company has a number of issues outstanding with the IRS
related to tax years 1983 through 1992 that can proceed toward
final settlement as a result of resolving the Kenai LNG tax case.
Although it is too early to determine the final financial effects
of resolving these open years, a favorable outcome would have a
positive effect on net income and cash flow, while an unfavorable
one would not impact the company's net income or cash position.
While total resolution may require a number of years, the
majority of these open years are expected to be resolved in the
near term.
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.
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<PAGE>
Note 9--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 1996 and 1995, 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. In addition, these contracts are also used to
manage exposures to currency exchange rate fluctuations stemming
from a foreign subsidiary's anticipated purchases denominated in
dollars and anticipated sales denominated in various European
currencies. All forward exchange contracts are adjusted monthly
to fair market value with recognition of the resulting gains and
losses. 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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<PAGE>
Notional U.S. Dollar Positions
------------------------------
Millions of Dollars
------------------------------
Average
Year-End Month-End
------------- -------------
1996 1995 1996 1995
------------- -------------
Source of Foreign Currency Risk
Sales of pounds sterling forward
to hedge sterling-denominated
receivables from a U.K.
subsidiary* $ - 523 407 416
Purchases of U.S. dollars forward
by a U.K. subsidiary to hedge
purchases of crude oil in U.S.
dollars 41 27 36 24
Purchases of U.S. dollars forward
by a Norwegian subsidiary to
hedge dollar-denominated debt - - 37 60
Sales of various European
currencies forward to hedge
foreign-currency-denominated
sales of chemical products 1 1 3 5
- -----------------------------------------------------------------
*At December 31, 1996, the company held contracts to sell pounds
sterling equivalent to $182 million, and offsetting contracts to
buy the same amount. Differences in exchange rates on the
various contract dates resulted in an asset of $14 million and a
liability of $19 million, both of which will be realized in
1997.
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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<PAGE>
Notional Volume Positions
----------------------------
Average
Year-End Month-End
Class of -------------- -------------
Derivative 1996 1995 1996 1995
---------- -------------- -------------
Source of Commodity Price Risk
Natural gas (billions of
British thermal units)
Sales of domestic natural
gas production Swaps 61,140 36,162 33,368 4,057
Futures - 350 - 86
Pricing difference
between purchases and
sales Swaps - 610 230 451
- ----------------------------------------------------------------------
Crude oil (thousands of
barrels)
Timing differences
between purchases and
sales Swaps - - 343 37
Futures 1,050 244 519 255
- ----------------------------------------------------------------------
Refined products (thousands
of barrels)
Feedstock-to-product
margins on gasoline
and distillates Swaps 4,789 2,859 6,401 575
Futures 641 638 625 228
- ----------------------------------------------------------------------
In the case of anticipated transactions, expected product sales
or margins are hedged up to 12 months into the future.
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 the company's 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.
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
83
<PAGE>
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.
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.
Swaps: Fair value is estimated based on quoted market prices of
comparable contracts, and approximates the net gains and losses
that would have been realized if the contracts had been closed
out at year-end.
Forward exchange contracts: Fair value is estimated by comparing
the contract rate to the spot rate in effect on December 31,
1996, and approximates the net gains and losses that 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.
Certain company financial instruments at December 31 were:
Millions of Dollars
------------------------------
Carrying Amount Fair Value
--------------- -------------
1996 1995 1996 1995
--------------- -------------
Financial assets
Forward exchange contracts $ 14 5 14 5
Futures - * - *
Swaps - - * *
Financial liabilities
Total debt, including
current maturities 3,129 3,116 3,293 3,397
Forward exchange contracts 19 2 19 2
Futures 1 1 1 1
Swaps - - 12 13
- -----------------------------------------------------------------
*Indicates amounts were less than $1 million.
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<PAGE>
Note 10--Preferred Stock
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.
Company-Obligated Mandatorily Redeemable Preferred
Securities of Phillips Capital Trust I
During February 1996, the company formed a new statutory business
trust, Phillips 66 Capital I (Trust I), of which the company owns
all of the common stock. The Trust exists for the sole purpose
of issuing trust securities and investing the proceeds thereof in
an equivalent amount of subordinated debt securities of Phillips.
On May 29, 1996, Trust I completed a $300 million underwritten
public offering of 12,000,000 shares of 8.24% Trust Originated
Preferred Securities (Preferred Securities). The sole asset of
Trust I is $309 million of Phillips' 8.24% Junior Subordinated
Deferrable Interest Debentures due 2036 (Subordinated Debt
Securities), purchased by Trust I on May 29, 1996. The
Subordinated Debt Securities are unsecured obligations of
Phillips and subordinate and junior in right of payment to all
present and future senior indebtedness of Phillips. The
Subordinated Debt Securities and related income statement effects
are eliminated in the company's consolidated financial
statements. The Subordinated Debt Securities are due May 29,
2036, and are redeemable in whole, or in part, at the option of
Phillips, on or after May 29, 2001, at a redemption price of
$25 per share, plus accrued and unpaid interest. When the
company redeems the Subordinated Debt Securities, Trust I is
required to apply all redemption proceeds to the immediate
redemption of the Preferred Securities.
Phillips fully and unconditionally guarantees Trust I's
obligations under the Preferred Securities.
85
<PAGE>
Note 11--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
may be redeemed by the company in whole, but not in part, for one
cent per Right.
Note 12--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,
1996, future minimum payments due under non-cancelable operating
leases were:
Millions
of Dollars
----------
1997 $ 86
1998 71
1999 56
2000 39
2001 31
Remaining years 257
- -----------------------------------------------------------------
$540
=================================================================
The amounts above do not include guaranteed residual values of
$208 million, primarily related to two liquefied natural gas
tankers under lease through the year 2000.
Operating lease rental expense for years ended December 31
was:
Millions of Dollars
------------------------
1996 1995 1994
------------------------
Total rentals $108 112 102
Less sublease rentals 2 3 6
- -----------------------------------------------------------------
$106 109 96
=================================================================
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<PAGE>
Note 13--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.
Net pension cost was:
Millions of Dollars
---------------------------------------
U.S. Plans Foreign Plans
------------------ ------------------
1996 1995 1994 1996 1995 1994
------------------ ------------------
Service cost $ 36 26 30 14 14 14
Interest cost 57 48 43 20 18 15
Return on assets
Actual (36) (86) 2 (32) (36) (2)
Deferred gains (losses) (7) 57 (30) 6 14 (14)
Amortization of
Net asset (7) (7) (7) - - -
Net losses (gains) 19 8 12 (2) (1) 1
Prior service cost 3 3 2 1 1 -
- -----------------------------------------------------------------
Net pension cost $ 65 49 52 7 10 14
=================================================================
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:
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<PAGE>
Millions of Dollars
------------------------------
U.S. Plans Foreign Plans
-------------- -------------
1996 1995 1996 1995
-------------- -------------
Plan assets at fair value $ 480 380 339 300
- -----------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested benefits 478 439 231 193
Non-vested benefits 31 31 - -
- -----------------------------------------------------------------
Accumulated benefit obligation 509 470 231 193
Effect of projected future
salary increases 268 290 84 77
- -----------------------------------------------------------------
Projected benefit obligation 777 760 315 270
- -----------------------------------------------------------------
Excess asset (obligation) (297) (380) 24 30
Unrecognized net asset (27) (34) (1) (1)
Unrecognized net (gains) losses 138 191 (14) (16)
Unrecognized prior service cost 44 35 10 9
- -----------------------------------------------------------------
Prepaid (accrued) pension cost
and deferred gain on reversion $(142) (188) 19 22
=================================================================
Assumptions--Weighted Average
at December 31
Rate of compensation increase 4.25% 4.25 4.00 4.00
Discount rate 7.50 7.25 7.40 7.50
Long-term rate of return on
assets 10.50 10.75 8.20 8.20
- -----------------------------------------------------------------
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
$47 million and $50 million at December 31, 1996 and 1995,
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 for 1995 do
not reflect contributions made in 1996 applicable to the 1995
plan year. After adding plan asset contributions of $42 million
for the 1995 plan year, which were paid in the following year,
and eliminating the non-qualified plan obligations that were not
payable from plan assets, the plan assets exceeded accumulated
plan liabilities for both 1996 and 1995.
88
<PAGE>
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.
Net postretirement benefit cost was:
Millions of Dollars
----------------------------------
Health Life
---------------- ----------------
1996 1995 1994 1996 1995 1994
---------------- ----------------
Service cost $ 2 2 2 1 1 1
Interest cost 6 6 8 4 4 4
Return on assets
Actual - - - (2) (2) (2)
Deferred losses - - - - - (1)
Amortization of
Net losses 1 1 - 2 1 -
Prior service cost (4) (4) - (1) (1) -
- -----------------------------------------------------------------
Net postretirement benefit cost $ 5 5 10 4 3 2
=================================================================
In determining net postretirement benefit cost, the company has
elected to amortize net gains and losses on a straight-line basis
over 10 years.
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<PAGE>
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
------------- -------------
1996 1995 1996 1995
------------- -------------
Plan assets at fair value, held
under a reserve deposit contract $ - - 31 34
- -----------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO)
Retirees 62 68 53 52
Fully eligible active
participants 10 9 4 4
Other active participants 10 11 3 4
- -----------------------------------------------------------------
82 88 60 60
- -----------------------------------------------------------------
APBO in excess of plan assets (82) (88) (29) (26)
Unrecognized net losses 2 9 14 15
Unrecognized prior service cost (13) (17) (3) (4)
- -----------------------------------------------------------------
Accrued postretirement benefit
cost $(93) (96) (18) (15)
=================================================================
Financial Assumptions
Discount rate 7.25% 7.00 7.25 7.00
Long-term rate of return on assets
(non-taxable) - - 7.00 7.00
Rate of compensation increase - - 4.25 4.25
- -----------------------------------------------------------------
At December 31, 1996, the health care cost trend rate is assumed
to decrease gradually from 7 percent in 1997 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, 1995.
Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the APBO by
$3 million and $4 million at December 31, 1996 and 1995,
respectively, and the aggregate of the service and interest cost
components by $1 million for both 1996 and 1995.
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.
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<PAGE>
Termination Benefits
The company recorded charges of $4 million, $69 million and
$59 million for severance benefits in connection with work force
reductions in 1996, 1995 and 1994, 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 1996, 1995 and 1994.
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 salary 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 common 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
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 $30 million, $33 million and $23 million in 1996, 1995
and 1994, respectively. This included compensation expense of
$30 million, $29 million and $22 million in 1996, 1995 and 1994,
respectively. Company contributions to the LTSSP in 1996, 1995
and 1994 were $14 million, $21 million and $12 million,
respectively. Dividends used to service debt were $39 million,
$36 million and $37 million in 1996, 1995 and 1994, respectively.
These dividends reduced the amount of expense recognized each
period. Interest incurred on the LTSSP debt in 1996, 1995 and
1994 was $27 million, $31 million and $24 million, respectively.
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<PAGE>
The total LTSSP shares as of December 31, 1996, were:
Unallocated shares 14,570,641
Allocated shares 16,427,907
- -----------------------------------------------------------------
Total LTSSP shares 30,998,548
=================================================================
Incentive Compensation Plans
The company has a Performance Incentive Program and an Annual
Incentive Compensation Plan to provide awards to most 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
$75 million, $52 million and $45 million were charged against
earnings in 1996, 1995 and 1994, 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
date the options were granted. The options have terms of 10 years
and normally become exercisable in increments of 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.
The company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25), and related Interpretations in accounting for its
employee stock options, and not the fair-value accounting provided
for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation." Because the exercise price of Phillips' employee
stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized under
APB No. 25. The effect of applying the fair-value method of
Statement No. 123 to the company's stock-based awards would result
in net income and earnings per share that are not materially
92
<PAGE>
different from amounts reported in the financial statements. A
summary of Phillips' stock option activity follows:
Weighted-Average
Options Exercise Price
---------- ----------------
Outstanding at December 31, 1993 5,614,501 $23.01
Granted 1,528,200 30.51
Exercised (672,509) 20.52
Forfeited (145,156) 30.00
- -----------------------------------------------------------------
Outstanding at December 31, 1994 6,325,036 24.93
Granted 1,331,972 31.73
Exercised (529,094) 22.12
Forfeited (45,193) 30.41
- -----------------------------------------------------------------
Outstanding at December 31, 1995 7,082,721 26.38
Granted 1,292,707 35.25
Exercised (1,384,966) 22.58
Forfeited (27,059) 33.74
- -----------------------------------------------------------------
Outstanding at December 31, 1996 6,963,403 $28.75
=================================================================
Outstanding at December 31, 1996
Weighted-Average
---------------------------------
Exercise prices: Options Remaining Lives Exercise Price
--------- --------------- --------------
$12.63 to $31.44 5,475,485 5.68 years $27.01
$32.25 to $44.25 1,487,918 8.91 years 35.17
- -----------------------------------------------------------------
Weighted-Average
Options Exercise Price
--------- ----------------
Exercisable
At December 31, 1996
Exercise prices: $12.63 to $31.44 3,548,226 $25.53
$32.25 to $44.25 78,608 34.62
- -----------------------------------------------------------------
At December 31, 1995 3,915,145 $23.75
- -----------------------------------------------------------------
At December 31, 1994 3,330,508 $22.42
- -----------------------------------------------------------------
Compensation and Benefits Trust
In 1995, the company established the CBT, an irrevocable grantor
trust, administered by an independent trustee and 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 that 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 votes shares held
93
<PAGE>
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 common
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.
Note 14--Taxes
Taxes charged to income were:
Millions of Dollars
-----------------------
1996 1995 1994
-----------------------
Taxes Other Than Income Taxes
Property $ 80 83 91
Production 65 54 56
Payroll 56 59 56
Environmental 40 58 57
Other 23 12 11
- -----------------------------------------------------------------
264 266 271
- -----------------------------------------------------------------
Income Taxes
Federal
Current (6) 95 74
Deferred 189 18 (41)
Foreign
Current 624 520 340
Deferred 43 (43) (14)
State and local
Current (2) 7 6
Deferred 21 (2) 3
- -----------------------------------------------------------------
869 595 368
- -----------------------------------------------------------------
Total taxes charged to income $1,133 861 639
=================================================================
94
<PAGE>
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:
Millions of Dollars
-------------------
1996 1995
-------------------
Deferred Tax Liabilities
Depreciation, depletion and amortization $2,001 1,786
Other 41 36
- -----------------------------------------------------------------
Total deferred tax liabilities 2,042 1,822
- -----------------------------------------------------------------
Deferred Tax Assets
Contingency accruals 47 154
Benefit plan accruals 212 200
Accrued dismantlement, removal and
environmental costs 279 238
Other financial accruals and deferrals 130 116
Alternative minimum tax and other
credit carryforwards 343 316
Loss carryforwards 359 327
Depreciation, depletion and amortization 13 6
Other 21 22
- -----------------------------------------------------------------
Total deferred tax assets 1,404 1,379
Less valuation allowance 208 155
- -----------------------------------------------------------------
Net deferred tax assets 1,196 1,224
- -----------------------------------------------------------------
Net deferred tax liabilities $ 846 598
=================================================================
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, its expectations for the future, and available
tax planning strategies, 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
valuation allowance increased $53 million during 1996, primarily
due to an increase in loss carryforwards for various companies.
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, 1996 and 1995, these temporary
differences were $248 million and $349 million, respectively.
95
<PAGE>
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, with
a reconciliation of tax at the federal statutory rate with the
provision for income taxes, were:
Percent of
Millions of Dollars Pretax Income
-------------------- --------------------
1996 1995 1994 1996 1995 1994
-------------------- --------------------
Income before income taxes
United States $1,179 332 346 54.3% 31.2 40.6
Foreign 993 732 506 45.7 68.8 59.4
- ---------------------------------------------------------------------
$2,172 1,064 852 100.0% 100.0 100.0
=====================================================================
Federal statutory
income tax $ 760 372 298 35.0% 35.0 35.0
Foreign taxes in excess of
federal statutory rate 337 267 169 15.5 25.0 19.8
Credit for producing fuel
from a non-conventional
source (27) (31) (44) (1.2) (2.9) (5.2)
Capital-loss carryforward - - (50) - - (5.8)
Kenai LNG tax settlement (194) - - (9.0) - -
Other (7) (13) (5) (.3) (1.2) (.6)
- ---------------------------------------------------------------------
$ 869 595 368 40.0% 55.9 43.2
=====================================================================
Excise taxes accrued on the sale of petroleum products were
$1,257 million, $1,150 million and $1,121 million for the years
ended December 31, 1996, 1995 and 1994, respectively. These
taxes are excluded from reported revenues and expenses.
Kenai LNG Tax Settlement--On February 26, 1996, the U.S. Tax
Court's previous decisions related to the company's sales of
liquefied natural gas (LNG) from its Kenai, Alaska, facility to
Japan, became final. The Tax Court's decisions supported the
company's position that more than 50 percent of the income for
years 1975 through 1978 was from a foreign source. The favorable
resolution of this issue increased net income in 1996 by
$565 million.
96
<PAGE>
Note 15--Cash Flow Information
Millions of Dollars
------------------------
1996 1995 1994
------------------------
Non-Cash Investing and Financing
Activities
Treasury stock awards issued (canceled)
under incentive compensation plans $ (3) 2 (15)
Issuance of promissory notes to purchase
property, plant and equipment 26 - -
Contribution of non-cash net assets to
equity-method affiliates - 55 109
Common stock issued to establish CBT - 989 -
- -----------------------------------------------------------------
Cash Payments
Interest
Debt $220 224 235
Taxes and other 41 19 48
- -----------------------------------------------------------------
$261 243 283
=================================================================
Income taxes $765 576 451
- -----------------------------------------------------------------
Note 16--Other Financial Information
Millions of Dollars
Except Per Share Amounts
------------------------
1996 1995 1994
------------------------
Interest
Incurred
Debt $ 222 228 237
Other 26 67 28
- -----------------------------------------------------------------
248 295 265
Capitalized (31) (30) (15)
- -----------------------------------------------------------------
Expensed $ 217 265 250
=================================================================
Maintenance and Repairs--expensed $ 416 413 441
- -----------------------------------------------------------------
Research and Development
Expenditures--expensed $ 59 51 71
- -----------------------------------------------------------------
Foreign Currency Transaction
Gains (Losses)--after-tax $ 41 (3) 3
- -----------------------------------------------------------------
Cash Dividends paid per
common share $1.25 1.195 1.12
- -----------------------------------------------------------------
97
<PAGE>
Note 17--Segment and Geographic Information
The company is 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 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.
98
<PAGE>
Analysis of Results by Business Segment
Millions of Dollars
--------------------------------
E&P GPM RM&T
--------------------------------
1996
Sales and Other Operating Revenues
Outside customers $2,574 913 9,054
Sales within Phillips 1,288 804 522
- ----------------------------------------------------------------------
Segment sales $3,862 1,717 9,576
======================================================================
Operating Profit $1,315 232 82
Equity in earnings of affiliates (56) - 18
Preferred dividend requirements
of subsidiary and capital
trust, and other minority
interests (1) - -
Corporate/non-operating items
Interest expense - - -
Kenai LNG tax settlement - - -
Other - - -
Income taxes (748) (88) (29)
- ----------------------------------------------------------------------
Net income $ 510 144 71
======================================================================
Assets
Identifiable assets $5,376 1,112 2,745
Investments in and advances
to affiliated companies 140 4 111
- ----------------------------------------------------------------------
Total assets $5,516 1,116 2,856
======================================================================
Depreciation, Depletion and
Amortization $ 576 73 172
- ----------------------------------------------------------------------
Capital Expenditures and Investments $ 981 85 209
- ----------------------------------------------------------------------
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
Preferred dividend requirements
of subsidiary and other
minority interests (1) - -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (549) (3) (15)
- ----------------------------------------------------------------------
Net income (loss) $ 390 10 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
Preferred dividend requirements
of subsidiary and other
minority interests (2) - -
Corporate/non-operating items
Interest expense - - -
Other - - -
Income taxes (400) (17) (66)
- ----------------------------------------------------------------------
Net income (loss) $ 342 31 136
======================================================================
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
- ----------------------------------------------------------------------
Analysis of Results by Business Segment
Millions of Dollars
-----------------------------------
Corporate
Chemicals and Other* Consolidated
-----------------------------------
1996
Sales and Other Operating Revenues
Outside customers $3,185 5 15,731
Sales within Phillips 698 36 -
- ----------------------------------------------------------------------
Segment sales $3,883 41 15,731
======================================================================
Operating Profit $ 344 7 1,980
Equity in earnings of affiliates 42 - 4
Preferred dividend requirements
of subsidiary and capital
trust, and other minority
interests - (47) (48)
Corporate/non-operating items
Interest expense - (217) (217)
Kenai LNG tax settlement - 571 571
Other - (118) (118)
Income taxes (120) 116 (869)
- ----------------------------------------------------------------------
Net income $ 266 312 1,303
======================================================================
Assets
Identifiable assets $2,399 1,223 12,855
Investments in and advances
to affiliated companies 438 - 693
- ----------------------------------------------------------------------
Total assets $2,837 1,223 13,548
======================================================================
Depreciation, Depletion and
Amortization $ 91 29 941
- ----------------------------------------------------------------------
Capital Expenditures and Investments $ 205 64 1,544
- ----------------------------------------------------------------------
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
Preferred dividend requirements
of subsidiary and other
minority interests - (32) (33)
Corporate/non-operating items
Interest expense - (265) (265)
Other - (215) (215)
Income taxes (167) 139 (595)
- ----------------------------------------------------------------------
Net income (loss) $ 386 (357) 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
Preferred dividend requirements
of subsidiary and other
minority interests - (32) (34)
Corporate/non-operating items
Interest expense - (250) (250)
Other - (204) (204)
Income taxes (94) 209 (368)
- ----------------------------------------------------------------------
Net income (loss) $ 259 (284) 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
- ----------------------------------------------------------------------
*Includes certain intersegment eliminations.
99
<PAGE>
Analysis of Results by Geographic Area
Millions of Dollars
-----------------------------------
United United
States Norway Kingdom Africa
-----------------------------------
1996
Sales and Other Operating Revenues
Outside customers $13,211 433 1,251 249
Sales within Phillips 162 762 - -
- ----------------------------------------------------------------------
Segment sales $13,373 1,195 1,251 249
======================================================================
Operating Profit $ 1,085 718 32 115
- ----------------------------------------------------------------------
Equity in Earnings of Affiliates $ (16) 10 3 -
- ----------------------------------------------------------------------
Assets
Identifiable assets $ 8,041 1,767 1,199 237
Investments in and advances to
affiliated companies 478 83 29 -
- ----------------------------------------------------------------------
Total assets $ 8,519 1,850 1,228 237
======================================================================
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
======================================================================
Analysis of Results by Geographic Area
Millions of Dollars
-----------------------------------
Other Worldwide
Areas Corporate Consolidated*
-----------------------------------
1996
Sales and Other Operating Revenues
Outside customers $ 587 - 15,731
Sales within Phillips 62 - -
- ----------------------------------------------------------------------
Segment sales $ 649 - 15,731
======================================================================
Operating Profit $ 30 - 1,980
- ----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 7 - 4
- ----------------------------------------------------------------------
Assets
Identifiable assets $ 543 1,068 12,855
Investments in and advances to
affiliated companies 103 - 693
- ----------------------------------------------------------------------
Total assets $ 646 1,068 13,548
======================================================================
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
======================================================================
*After elimination of intergeographic transactions.
Export sales totaled $522 million, $507 million and $382 million for
1996, 1995 and 1994, respectively.
100
<PAGE>
- -----------------------------------------------------------------
Oil and Gas Operations
Exploration and Production
In accordance with FASB Statement No. 69, "Disclosures about Oil
and Gas Producing Activities," and regulations of the Securities
and Exchange Commission, 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 102
Results of Operations 108
Statistics 110
Costs Incurred 114
Capitalized Costs 115
Standardized Measure of Discounted Future Net
Cash Flows Relating to Proved Oil and Gas
Reserve Quantities 116
101
<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 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
Revisions of
previous estimates 20 (4) 12 4 5 3
Improved recovery 49 13 36 - - -
Purchases of
reserves in place 2 2 - - - -
Extensions and
discoveries 10 6 - 1 2 1
Production (80) (25) (37) (2) (9) (7)
Sales of reserves
in place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1996 895 252 453 53 92 45
==================================================================
Developed
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
End of 1996 743 183 399 28 90 43
- ------------------------------------------------------------------
102
<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.
103
<PAGE>
Natural Gas
Years Ended ----------------------------------------------
December 31 Billions of Cubic Feet
----------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
----------------------------------------------
Developed and
Undeveloped
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
Revisions of
previous estimates 47 - 227 (90) - (90)
Improved recovery 58 1 57 - - -
Purchases of
reserves in place 21 21 - - - -
Extensions and
discoveries 165 141 - 8 - 16
Production (562) (394) (114) (30) (2) (22)
Sales of reserves
in place (70) (70) - - - -
- ------------------------------------------------------------------
End of 1996 6,367 3,917 1,304 724 242 180
==================================================================
Developed
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
End of 1996 5,196 3,625 1,109 303 28 131
- ------------------------------------------------------------------
104
<PAGE>
o Natural gas production may differ from gas production
(delivered for sale) on page 110, 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 Norway in 1996 are due in
part to higher prices and a new gas contract that allows more
produced gas, which previously would have been reinjected, to
be sold.
o Natural gas reserves are computed at 14.65 pounds per square
inch absolute and 60 degrees Fahrenheit.
105
<PAGE>
Natural Gas Liquids
Years Ended ---------------------------------------------
December 31 Millions of Barrels
---------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------
Developed and
Undeveloped
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
Revisions of
previous estimates 11 7 4 - - -
Improved recovery 2 - 2 - - -
Purchases of
reserves in place 1 1 - - - -
Extensions and
discoveries 3 3 - - - -
Production (15) (12) (2) - (1) -
- ------------------------------------------------------------------
End of 1996 198 129 42 7 19 1
==================================================================
Developed
End of 1993 162 132 29 - - 1
End of 1994 178 125 31 - 21 1
End of 1995 178 125 29 3 20 1
End of 1996 183 124 36 3 19 1
- ------------------------------------------------------------------
106
<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.
107
<PAGE>
o Results of Operations
Millions of Dollars
---------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------------
1996
Sales $1,510 723 308 144 197 138
Transfers 1,347 590 757 - - -
Other revenues 105 84 15 1 2 3
- ------------------------------------------------------------------------------
Total revenues 2,962 1,397 1,080 145 199 141
Production costs 744 392 222 46 49 35
Exploration expenses 254 111 22 36 23 62
Depreciation, depletion
and amortization* 646 415 104 41 13 73
Other related expenses 111 112 (12) 2 - 9
- ------------------------------------------------------------------------------
1,207 367 744 20 114 (38)
Provision for income taxes 754 102 542 9 101 -
- ------------------------------------------------------------------------------
Results of operations for
producing activities 453 265 202 11 13 (38)
Other earnings 57 64 - (2) - (5)
- ------------------------------------------------------------------------------
E&P net income $ 510 329 202 9 13 (43)
==============================================================================
1995
Sales $1,190 547 306 70 120 147
Transfers 1,125 447 650 - 28 -
Other revenues 128 99 22 1 2 4
- ------------------------------------------------------------------------------
Total revenues 2,443 1,093 978 71 150 151
Production costs 735 391 244 31 29 40
Exploration expenses 200 92 26 22 17 43
Depreciation, depletion
and amortization** 499 269 147 24 12 47
Other related expenses 127 65 46 7 (11) 20
- ------------------------------------------------------------------------------
882 276 515 (13) 103 1
Provision for income taxes 530 66 376 (3) 87 4
- ------------------------------------------------------------------------------
Results of operations for
producing activities 352 210 139 (10) 16 (3)
Other earnings 38 39 - - - (1)
- ------------------------------------------------------------------------------
E&P net income $ 390 249 139 (10) 16 (4)
==============================================================================
1994
Sales $1,166 640 261 89 124 52
Transfers 944 450 478 - 16 -
Other revenues 111 72 29 1 1 8
- ------------------------------------------------------------------------------
Total revenues 2,221 1,162 768 90 141 60
Production costs 807 441 269 33 38 26
Exploration expenses 228 106 32 25 28 37
Depreciation, depletion
and amortization 431 266 103 35 10 17
Other related expenses 61 59 (1) (1) 3 1
- ------------------------------------------------------------------------------
694 290 365 (2) 62 (21)
Provision for income taxes 366 47 280 (2) 56 (15)
- ------------------------------------------------------------------------------
Results of operations for
producing activities 328 243 85 - 6 (6)
Other earnings 14 14 - - - -
- ------------------------------------------------------------------------------
E&P net income $ 342 257 85 - 6 (6)
==============================================================================
*Includes before-tax property impairments in the United States of
$106 million for the Point Arguello field and $78 million for associated
equity facilities, and in Other Areas, $25 million for certain properties in
Canada.
**Includes before-tax property impairments in the United States and Norway of
$51 million and $27 million, respectively, due to the adoption of FASB
Statement No. 121.
108
<PAGE>
o Results of operations for producing activities consist of all
the activities within the E&P organization, except for an LNG
operation, minerals operations, and crude oil and gas
marketing activities, 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 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 99,
as depreciation of support equipment is 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.
109
<PAGE>
o Statistics
1996 1995 1994
Net Production ---------------------------
Thousands of Barrels Daily
---------------------------
Crude Oil
United States 69 79 90
Norway 99 100 82
United Kingdom 6 3 5
Africa 25 24 23
Other areas 20 16 6
- -----------------------------------------------------------------
219 222 206
=================================================================
Natural Gas Liquids
United States* 4 5 5
Norway 8 8 8
Other areas 3 2 1
- -----------------------------------------------------------------
15 15 14
=================================================================
*Represents amounts extracted attributable to E&P operations.
Additional quantities of NGL are extracted at GPM gas processing
plants (see NGL reserves page 107 for further discussion).
Natural Gas Millions of Cubic Feet Daily
----------------------------
United States (less gas equivalent
of liquids shown above)* 1,102 1,078 1,035
Norway (dry basis) 291 299 272
United Kingdom (dry basis) 81 46 58
Other areas 53 58 49
- -----------------------------------------------------------------
1,527 1,481 1,414
=================================================================
*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.
Dollars Per Unit
Average Sales Prices ----------------------------
Crude Oil--Per Barrel
United States $18.96 14.98 13.37
Norway 20.92 17.08 15.77
United Kingdom 21.09 17.17 16.06
Africa 21.45 17.60 16.10
Other areas 19.46 16.92 12.92
Total foreign 20.89 17.16 15.75
Worldwide 20.28 16.43 14.74
- -----------------------------------------------------------------
Natural Gas Liquids--Per Barrel
United States 15.81 11.01 11.60
Norway 9.59 9.73 8.59
- -----------------------------------------------------------------
Natural Gas (Lease)--Per Thousand
Cubic Feet
United States 2.10 1.37 1.69
Norway 2.61 2.66 2.34
United Kingdom 2.92 2.78 2.75
Other areas 1.27 1.12 1.53
Total foreign 2.52 2.50 2.31
Worldwide 2.25 1.77 1.92
- -----------------------------------------------------------------
110
<PAGE>
1996 1995 1994
-------------------------
Average Production Costs*--
Per Barrel-of-Oil-Equivalent
United States $4.17 4.06 4.50
Norway 3.90 4.24 5.46
United Kingdom 6.28 7.39 5.98
Africa 4.95 3.19 4.55
Other areas 3.28 4.16 5.00
Total foreign 4.15 4.28 5.36
Worldwide 4.16 4.16 4.85
- -----------------------------------------------------------------
*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 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 1996, compared with 1995, were higher in
the United States, primarily due to lower production volumes.
The increase in per-unit costs in Africa was caused by higher
costs, partly offset by higher production. Per-unit costs
were lower in Norway, the United Kingdom and Other areas.
The reduction in Norway was due to lower costs. The decline
in the United Kingdom was due to higher production, partly
offset by higher costs, while the improvement in Other areas
resulted from higher production coupled with lower costs.
111
<PAGE>
Acreage at December 31, 1996 Thousands of Acres
------------------
Gross Net
------------------
Developed
United States 1,628 1,173
Norway 45 17
United Kingdom 199 70
Africa 81 16
Other areas 283 97
- -----------------------------------------------------------------
2,236 1,373
=================================================================
Undeveloped
United States 2,449 1,682
Norway 1,468 362
United Kingdom 978 359
Africa* 29,495 13,574
Canada 1,420 271
Other areas 12,208 9,189
- -----------------------------------------------------------------
48,018 25,437
=================================================================
*Includes two Somalia concessions where operations have been
suspended by declarations of force majeure totaling 21,865 gross
and 8,135 net acres.
112
<PAGE>
Net Wells Completed* Productive Dry
---------------- ----------------
1996 1995 1994 1996 1995 1994
---------------- ----------------
Exploratory
United States 5 4 6 10 8 11
Norway - - - ** 1 **
United Kingdom ** - 2 2 ** 1
Africa - ** - 1 1 **
Other areas 1 4 1 7 3 2
- ------------------------------------------------------------------
6 8 9 20 13 14
==================================================================
Development
United States 90 87 88 7 6 7
Norway 2 2 - - - -
United Kingdom 3 3 ** - - -
Africa ** ** 1 - - -
Other areas 5 14 3 1 1 1
- ------------------------------------------------------------------
100 106 92 8 7 8
==================================================================
*Excludes farmout arrangements.
**Phillips' total proportionate interest was less than one.
Wells at Year-End 1996
Productive**
----------------------------
In Progress* Oil Gas
------------ ------------- ------------
Gross Net Gross Net Gross Net
------------ ------------- ------------
United States 58 29 13,197 2,914 5,460 2,906
Norway 2 1 140 50 33 9
United Kingdom 72 11 17 5 82 18
Africa 1 - 184 37 11 2
Other areas 21 6 886 364 251 87
- ------------------------------------------------------------------
154 47 14,424 3,370 5,837 3,022
==================================================================
*Includes wells that have been temporarily suspended.
**Includes 1,339 gross and 532 net multiple completion wells.
113
<PAGE>
o Costs Incurred
Millions of Dollars
---------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------------
1996
Acquisition $ 139 57 - - - 82
Exploration 267 101 25 49 20 72
Development 695 184 345 125 13 28
- ------------------------------------------------------------------
$1,101 342 370 174 33 182
==================================================================
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
==================================================================
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
$32 million, $27 million and $2 million in the United States
for 1996, 1995 and 1994, respectively, and $28 million and
$48 million in the United Kingdom for 1995 and 1994,
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.
114
<PAGE>
o Capitalized Costs
At December 31 Millions of Dollars
-----------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
-----------------------------------------------
1996
Proved properties $10,809 5,446 3,009 1,545 404 405
Unproved properties 397 202 7 58 3 127
- ------------------------------------------------------------------
11,206 5,648 3,016 1,603 407 532
Accumulated
depreciation,
depletion and
amortization 6,701 4,034 1,538 678 226 225
- ------------------------------------------------------------------
$ 4,505 1,614 1,478 925 181 307
==================================================================
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
==================================================================
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, and
crude oil and gas marketing activities.
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.
115
<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.
116
<PAGE>
Discounted Future Net Cash Flows
Millions of Dollars
----------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
----------------------------------------------------
1996
Future cash inflows $42,271 19,847 14,755 3,728 2,580 1,361
Less:
Future production costs 8,536 3,824 3,194 704 510 304
Future development costs 2,186 873 820 337 92 64
Future income tax
provisions 15,266 4,896 7,957 611 1,576 226
- ------------------------------------------------------------------------------
Future net cash flows 16,283 10,254 2,784 2,076 402 767
10% annual discount 7,662 5,011 1,277 840 190 344
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 8,621 5,243 1,507 1,236 212 423
==============================================================================
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
==============================================================================
117
<PAGE>
Sources of Change in Discounted Future Net Cash Flows
Millions of Dollars
---------------------------
1996 1995 1994
---------------------------
Discounted future net cash flows
at the beginning of the year $ 5,667 3,813 3,575
- ------------------------------------------------------------------
Changes during the year
Revenues less production costs
for the year (2,113) (1,569) (1,295)
Net change in prices and
production costs 5,866 2,917 786
Extensions, discoveries and
improved recovery, less
estimated future costs 1,061 1,215 345
Development costs for the year 695 668 515
Changes in estimated future
development costs (311) (214) (49)
Purchases of reserves in place,
less estimated future costs 54 108 19
Sales of reserves in place,
less estimated future costs (66) (77) (55)
Revisions of previous quantity
estimates (224) (113) 10
Accretion of discount 1,003 668 592
Net change in income taxes (3,013) (1,747) (630)
Other 2 (2) -
- ------------------------------------------------------------------
Total changes 2,954 1,854 238
- ------------------------------------------------------------------
Discounted future net cash flows
at year-end $ 8,621 5,667 3,813
==================================================================
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, along with
extensions, discoveries and improved recovery, are calculated
using 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.
118
<PAGE>
- -------------------------------------------------------------------
Selected Quarterly Financial Data
Millions of Dollars
---------------------------------------------
Sales Income Before
and Other Income Taxes Net Net Income
Operating and Kenai LNG Net Operating Per Share of
Revenues Tax Settlement Income Income Common Stock
--------------------------------------------- ------------
1996
First $3,595 310 695 210 2.65
Second 3,937 443 221 221 .84
Third 3,852 435 187 208 .71
Fourth 4,347 413 200 252 .76
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
In the above table, amounts for net income include certain special
items. The impact of such items has been excluded in arriving at
net operating income. These special items are shown in the
following table.
119
<PAGE>
Special Items by Quarter
----------------------------------------------
Millions of Dollars
----------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Property impairments $(45) - - (49) (25) - (113) (2)
Kenai LNG tax
settlement 565 - - - - - - -
Net gains on asset
sales - - 5 - 9 - - -
Work force reduction
charges (1) (5) - (8) 1 (5) (2) (13)
Foreign currency
gains (losses) - 1 - - 2 (2) 39 (2)
Pending claims and
settlements (28) - (1) - (13) (11) 24 (1)
Other items (6) (6) (4) (8) 5 3 - (3)
- --------------------------------------------------------------------
Total special items $485 (10) - (65) (21) (15) (52) (21)
====================================================================
120
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
121
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information presented under the headings "Nominees for Election as
Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 12, 1997, is incorporated
herein by reference.* Information regarding the executive officers
appears in Part I of this report on pages 24 and 25.
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 12, 1997, 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
Compensation of Directors and Nominees
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 12, 1997, 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 12, 1997, 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.
122
<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 schedule listed in the
Index to Financial Statements and Financial Statement
Schedules, which appears on page 63, are filed as part
of this annual report.
2. Exhibits
--------
The exhibits listed in the Index to Exhibits, which
appears on pages 125 through 128, are filed as a part of
this annual report.
(b) Reports on Form 8-K
-------------------
During the three months ended December 31, 1996, the
registrant did not file any reports on Form 8-K.
123
<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)
1996
Deducted from
asset accounts:
Allowance for
doubtful accounts
and notes receivable $ 15 12 - 7 (c) 20
Deferred tax asset
valuation allowance 155 56 (1) 2 208
- ------------------------------------------------------------------------------
1995
Deducted from
asset accounts:
Allowance for
doubtful accounts
and notes receivable $ 20 2 - 7 (c) 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
- ------------------------------------------------------------------------------
(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.
124
<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 (incorporated by
reference to Exhibit 3(i) to Annual Report on
Form 10-K for the year ended December 31, 1995).
(ii) Bylaws of Phillips Petroleum Company, as amended
effective December 9, 1996.
4(a) Indenture dated as of September 15, 1990, between
Phillips Petroleum Company and First Trust National
Association (formerly Continental Bank, National
Association), relating to the 9 1/2% Notes due 1997
and the 9 3/8% Notes due 2011.
(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 Continental
Bank, National Association), 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)
(incorporated by reference to Exhibit 4(c) to Annual
Report on Form 10-K for the year ended December 31,
1995).
(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).
125
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
The company incurred during 1996 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
(incorporated by reference to Exhibit 10(a) to Annual
Report on Form 10-K for the year ended December 31,
1995).
(b) Letter Agreement dated December 23, 1984, among Mesa
Partners and related entities and Phillips Petroleum
Company (incorporated by reference to Exhibit 10(b)
to Annual Report on Form 10-K for the year ended
December 31, 1995).
(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 (incorporated by reference to Exhibit 10(c) to
Annual Report on Form 10-K for the year ended
December 31, 1995).
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).
126
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
10(e) 1990 Stock Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(e) to Annual
Report on Form 10-K for the year ended December 31,
1995).
(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).
(h) Principal Corporate Officers Supplemental Retirement
Plan of Phillips Petroleum Company (incorporated by
reference to Exhibit 10(h) to Annual Report on
Form 10-K for the year ended December 31, 1995).
(i) Phillips Petroleum Company Supplemental Executive
Retirement Plan.
(j) Key Employee Deferred Compensation Plan of Phillips
Petroleum Company.
(k) Non-Employee Director Retirement Plan of Phillips
Petroleum Company (incorporated by reference to
Exhibit 10(k) to Annual Report on Form 10-K for the
year ended December 31, 1995).
(l) Omnibus Securities Plan of Phillips Petroleum Company.
(m) Deferred Compensation Plan for Non-Employee Directors
of Phillips Petroleum Company (incorporated by
reference to Exhibit 10(m) to Annual Report on
Form 10-K for the year ended December 31, 1995).
(n) Key Employee Missed Credit Service Retirement Plan of
Phillips Petroleum Company.
127
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
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, 1996 (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, 1996 (to be filed by
amendment pursuant to Rule 15d-21).
(c) Form 11-K, Annual Report, of the Retirement Savings
Plan of Phillips Petroleum Company for the fiscal
year ended December 31, 1996 (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
128
<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, 1997 /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, 1997.
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/ J. K. Wagner
- --------------------------- Vice President and Controller
J. K. Wagner (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
129
<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
130
<PAGE>
Exhibit 3(ii)
BYLAWS
PHILLIPS PETROLEUM COMPANY
(INCORPORATED UNDER THE LAWS OF DELAWARE)
DECEMBER 9, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
LOCATION OF OFFICES
SECTION 1. LOCATION: ..................................... 1
ARTICLE II
STOCKHOLDERS MEETINGS
SECTION 1. ANNUAL MEETING: NOTICE: ....................... 1
SECTION 2. SPECIAL MEETINGS: NOTICE: ..................... 1
SECTION 3. QUORUM: ....................................... 2
SECTION 4. VOTING RIGHTS: PROXIES:
RECORD DATE: LIST OF STOCKHOLDERS: ........... 2
SECTION 5. CHAIRMAN AND SECRETARY OF MEETINGS: ........... 3
SECTION 6. ELECTION OF DIRECTORS: ........................ 3
SECTION 7. INSPECTORS: ................................... 4
SECTION 8. INDEPENDENT PUBLIC ACCOUNTANTS: ............... 5
SECTION 9. STOCKHOLDER ACTION: ........................... 5
SECTION 10. NOMINATIONS AND STOCKHOLDER BUSINESS: ......... 5
- i -
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. POWERS: ....................................... 8
SECTION 2. FIRST MEETING OF NEWLY ELECTED
BOARD OF DIRECTORS: ........................... 8
SECTION 3. REGULAR MEETINGS: ............................. 8
SECTION 4. SPECIAL MEETINGS: NOTICE: ..................... 9
SECTION 5. QUORUM AND VOTING: ............................ 9
SECTION 6. VACANCIES: ................................... 10
SECTION 7. COMMITTEES, APPOINTMENT AND
LIMITATION OF POWERS: ........................ 10
SECTION 8. AUDITING OF ACCOUNTS: ........................ 11
SECTION 9. CHANGE IN NUMBER OF DIRECTORS: ............... 11
SECTION 10. OTHER INTERESTS OF DIRECTORS: ................ 11
SECTION 11. SUBMISSION OF ACTS TO STOCKHOLDERS: .......... 11
SECTION 12. COMPENSATION TO DIRECTORS: ................... 12
SECTION 13. ELIGIBILITY OF DIRECTORS: .................... 12
SECTION 14. INDEMNIFICATION: ............................. 12
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ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. MEMBERS: ..................................... 15
SECTION 2. POWERS: ...................................... 15
SECTION 3. MEETINGS: .................................... 15
SECTION 4. QUORUM: ...................................... 15
SECTION 5. OFFICERS: SUBCOMMITTEES: ..................... 16
SECTION 6. VACANCIES: ................................... 16
ARTICLE V
COMMITTEE ON DIRECTORS' AFFAIRS
SECTION 1. MEMBERS: ..................................... 16
SECTION 2. POWERS: ...................................... 16
SECTION 3. MEETINGS: .................................... 17
SECTION 4. QUORUM AND VOTING: ........................... 17
SECTION 5. FAILURE TO ACT: .............................. 17
SECTION 6. RIGHTS OF STOCKHOLDERS: ...................... 17
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ARTICLE VI
AUDIT COMMITTEE
SECTION 1. MEMBERS: ..................................... 18
SECTION 2. POWERS: ...................................... 18
SECTION 3. DEFINITION: .................................. 19
SECTION 4. MEETINGS: .................................... 20
SECTION 5. STAFF: ....................................... 20
ARTICLE VII
COMPENSATION COMMITTEE
SECTION 1. MEMBERS: ..................................... 20
SECTION 2. POWERS: ...................................... 20
SECTION 3. MEETINGS: .................................... 21
SECTION 4. STAFF: ....................................... 21
ARTICLE VIII
PUBLIC POLICY COMMITTEE
SECTION 1. MEMBERS: ..................................... 21
SECTION 2. POWERS: ...................................... 22
SECTION 3. MEETINGS: .................................... 23
SECTION 4. STAFF: ....................................... 23
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ARTICLE IX
OFFICERS
SECTION 1. DESIGNATION: ................................. 23
SECTION 2. ELECTION: TERM OF OFFICE: .................... 24
SECTION 3. REMOVAL FROM OFFICE:
FAILURE TO PERFORM DUTIES: ................... 24
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS:
VICE CHAIRMAN: PRESIDENT: .................... 24
SECTION 5. CHIEF EXECUTIVE OFFICER: ..................... 25
SECTION 6. EXECUTIVE VICE PRESIDENTS:
VICE PRESIDENTS: ............................. 25
SECTION 7. SECRETARY: ................................... 25
SECTION 8. TREASURER: ................................... 26
SECTION 9. CONTROLLER: .................................. 26
SECTION 10. GENERAL: ..................................... 27
ARTICLE X
CAPITAL STOCK
SECTION 1. CERTIFICATES: FACSIMILE SIGNATURES:
LOST STOCK: .................................. 27
SECTION 2. TRANSFERS: PRESERVATION OF
CANCELED CERTIFICATES: FRACTIONAL SHARES:
TRANSFER AGENTS: ............................. 28
SECTION 3. DATE FOR DETERMINATION
OF STOCKHOLDERS: ............................. 28
SECTION 4. ADDITIONAL REGULATIONS: ...................... 29
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ARTICLE XI
POLITICAL ACTIVITIES
SECTION 1. COMPLIANCE WITH LAWS CONCERNING
POLITICAL CONTRIBUTIONS: ..................... 29
SECTION 2. POLITICAL CONTRIBUTIONS: ..................... 29
SECTION 3. POLITICAL COMMITTEE
AUTHORIZED BY FEDERAL LAW: ................... 30
SECTION 4. NONFEDERAL POLITICAL COMMITTEES: ............. 30
SECTION 5. OTHER POLITICAL ACTIVITIES: .................. 31
ARTICLE XII
MISCELLANEOUS
SECTION 1. CHECKS, NOTES AND DRAFTS: .................... 31
SECTION 2. SEAL: ........................................ 31
SECTION 3. DIVIDENDS AND RESERVES: ...................... 32
SECTION 4. WAIVER OF NOTICE: ............................ 32
SECTION 5. CHAIRMAN OF THE BOARD EMERITUS: .............. 32
SECTION 6. AMENDMENTS: .................................. 32
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BYLAWS
OF
PHILLIPS PETROLEUM COMPANY
ARTICLE I
LOCATION OF OFFICES
ARTICLE I. SECTION 1. LOCATION:
The statutory registered office shall be in Dover, Delaware,
and the principal operating offices shall be in Bartlesville,
Oklahoma. The company may also have offices or agencies in New
York, New York, and in such other places as the Board of
Directors or the Executive Committee may designate.
ARTICLE II
STOCKHOLDERS MEETINGS
ARTICLE II. SECTION 1.
ANNUAL MEETING: NOTICE:
An annual meeting of the stockholders of the company for the
election of directors and the transaction of such other business
as may properly come before the meeting shall be held, at such
place, on such date and at such time, as shall be determined by
the Board. Notice of the place, date and time of the meeting
shall be given by mailing at least 10 days, but not more than 60
days, previous to such meeting, postage prepaid, a copy of such
notice addressed to each stockholder at his post office address
as recorded on the books of the company. The Board of Directors
may postpone or reschedule any previously scheduled annual
meeting.
ARTICLE II. SECTION 2.
SPECIAL MEETINGS: NOTICE:
Special meetings of the stockholders, other than those
required by statute, may be called at any time by the Chairman of
the Board of Directors, the Vice Chairman, or the President, or
by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors. Notice of every
special
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meeting, stating the time, place and purpose, shall be given by
mailing, postage prepaid, at least 10 but not more than 60 days
before each such meeting, a copy of such notice addressed to each
stockholder of the company at his post office address as recorded
on the books of the company. The Board of Directors may
postpone, reschedule or cancel any previously scheduled special
meeting.
Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting
pursuant to the company's notice of meeting.
ARTICLE II. SECTION 3. QUORUM:
At any meeting of the stockholders the holders of a majority
of the issued and outstanding shares of the common stock, present
in person or by proxy, shall constitute a quorum for all purposes
unless otherwise provided by law.
If the holders of the amount of stock necessary to
constitute a quorum shall fail to attend in person or by proxy at
the time and place fixed for an annual or special meeting, the
person serving as chairman of the meeting may adjourn the
meeting, without notice other than by announcement of the time
and place at the meeting; provided, however, that if the
adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given in conformity with the
notice requirements for the meeting being adjourned. At any such
adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at
the original meeting.
ARTICLE II. SECTION 4.
VOTING RIGHTS: PROXIES:
RECORD DATE: LIST OF STOCKHOLDERS:
At each stockholders meeting every stockholder shall be
entitled to vote in person or by proxy appointed in accordance
with Delaware law.
The votes for directors shall be by ballot.
All questions shall be determined by a majority vote of the
stock represented at the meeting, unless a different vote is
required by law or by the Certificate of Incorporation of the
company.
For a period of at least 10 days prior to each meeting of
the stockholders, and during such meeting, there shall be
maintained a complete list, in alphabetical order, of all of the
stockholders entitled to vote at such meeting,
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indicating the address of and number of shares held by each,
which list shall be certified by the person in charge of the
stock ledger of the company. Only the persons in whose names
shares of stock are registered on the books of the company on the
record date for such meeting shall be entitled to vote.
Subsequent to the record date for any meeting, and prior to
such meeting, any proxy may submit his power of attorney to the
Secretary for examination. The certificate of the Secretary as
to the regularity of such power of attorney, and as to the number
of shares held by the stockholder who executed such power of
attorney, shall be received as prima facie evidence of the number
of shares represented by the holder of such power of attorney for
the purpose of establishing the presence of a quorum at such
meeting and of organizing the same, and for all other purposes.
ARTICLE II. SECTION 5.
CHAIRMAN AND SECRETARY OF MEETINGS:
The Chairman of the Board of Directors, and in his absence,
the Vice Chairman, and in the absence of both the Chairman and
the Vice Chairman, the President, shall act as chairman of and
preside at all meetings of stockholders. The Board of Directors
may appoint any stockholder to act as chairman of any such
meeting in the absence of the Chairman of the Board of Directors,
the Vice Chairman and the President. The chairman of any meeting
of stockholders shall determine the order of business and the
procedure at the meeting, including the determination of the date
and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at such meeting and
such other regulation of the manner of voting and the conduct of
discussion as he determines to be reasonably in order. The
chairman may adjourn any meeting of stockholders, whether
pursuant to Section 3 of this Article II or otherwise, and notice
of such adjournment need be given only if required by law.
The Secretary shall act at all meetings of the stockholders,
but, in the absence of the Secretary at any such meeting, an
Assistant Secretary of the company shall act in his stead, or the
presiding officer may appoint any other person to act as
secretary of the meeting.
ARTICLE II. SECTION 6.
ELECTION OF DIRECTORS:
The stockholders shall at each annual meeting select by
ballot a Board of Directors consisting of not less than eleven
nor more than twenty-one members, with the exact number to be
fixed from time to time by resolution of the Board. A majority
of the total number of directors elected shall be persons who are
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independent outside directors, as defined in this Section. The
persons receiving votes of a majority of the stock represented at
the meeting shall be directors for the ensuing year or until
their successors shall be elected.
As used in these Bylaws, the term "independent outside
directors" means any person who, on the date of his election,
(i) is not an officer or employee of this company; (ii) is not an
officer or employee of, or does not own directly or indirectly in
excess of 1% of the shares of, a corporation (A) which has
received payments from this company for property or services in
excess of 1% of its gross receipts during any one of the four
calendar years immediately preceding such date, as determined by
its financial statement for the year in question, or (B) which is
proposed to receive during the following year such payments in
excess of 1% of its gross receipts as determined by its financial
statement for the immediately preceding year; (iii) is not a
member, officer, or employee of any business or professional
organization (other than a corporation) which (A) has received
payments from this company for property or services in excess of
$250,000 during any one of the four calendar years immediately
preceding such date, or (B) is proposed to receive such payments
in excess of $250,000 in the following year; (iv) is not a person
who individually (as a share partner or otherwise) has received
payments, directly or indirectly, from this company in excess of
$25,000 (other than fees as a director) for property or services
sold or provided by him during any one of the four calendar years
immediately preceding such date, and is not proposed to receive
such payments in excess of $25,000 in the following year; and (v)
is not a member of or associate in a law firm which is proposed
to be or in the preceding four calendar years has been engaged by
this company. Notwithstanding the foregoing definition, any
person elected a director at this company's 1975 annual meeting
of stockholders, who was not an officer or employee of this
company when so elected and is not such an officer or employee on
the date on which his status is determined, shall be considered
within the definition of "independent outside director." As used
in this Section, the term "this company" means Phillips Petroleum
Company or any company which is controlled directly or indirectly
by it; and the term "officer or employee" shall not include any
director of a corporation who is not otherwise an officer or
employee of such corporation.
ARTICLE II. SECTION 7. INSPECTORS:
The company shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The company may
designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is
able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering
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upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
ARTICLE II. SECTION 8.
INDEPENDENT PUBLIC ACCOUNTANTS:
Independent public accountants ("accountants") designated by
the Board of Directors require approval by the stockholders. At
each annual meeting a vote of stockholders shall be taken to
ascertain their approval or disapproval of the accountants
designated by the Board as the accountants to audit the books,
records, and accounts of the company for the current fiscal year.
If the accountants designated by the Board are disapproved by the
stockholders, the Board shall determine whether to replace such
accountants for the current fiscal year, but in any case shall
not designate such accountants for the next fiscal year. If the
accountants designated by the Board are approved by the
stockholders, they shall not be discharged or removed by the
Board prior to the beginning of the next fiscal year, except with
the concurrence of the stockholders acting at a special meeting
called for that purpose. The accountants shall have access at
reasonable times to all records, documents, accounts, and
information of the company, and shall be entitled to require from
directors, officers, and employees of the company such
information and explanation as, in their opinion, are necessary
to enable them to make their certification or render their report
or opinion, or to pursue any inquiry which the Audit Committee
has directed them to conduct.
ARTICLE II. SECTION 9.
STOCKHOLDER ACTION:
Any action required or permitted to be taken by the
stockholders of the company 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.
ARTICLE II. SECTION 10.
NOMINATIONS AND STOCKHOLDER BUSINESS:
Nominations of persons for election to the Board of
Directors of the company and the proposal of business to be
considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the company's notice of meeting,
(b) by or at the direction of the Board of Directors, or (c) by
any stockholder of the company who was a stockholder of record
at the time of giving of notice provided for in this Section, who
is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section.
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For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to this
Section, the stockholder must have given timely notice thereof in
writing to the Secretary of the company, and such business must
be a proper subject for stockholder action under the Delaware
General Corporation Law. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive
offices of the company not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or
delayed by more than 60 days from such anniversary date, notice
by the stockholder to be timely must be so delivered not earlier
than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business
that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination
or proposal is made (i) the name and address of such stockholder,
as they appear on the company's books, and of such beneficial
owner, and (ii) the class and number of shares of the company
which are owned beneficially and of record by such stockholder
and such beneficial owner.
Notwithstanding anything in this Section to the contrary, in
the event that the number of directors to be elected to the Board
of Directors of the company is increased and there is no public
announcement specifying the size of the increased Board of
Directors made by the company at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered
to the Secretary at the principal executive offices of the
company not later than the close of business on the 10th day
following the day on which such public announcement is first made
by the company.
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Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting
pursuant to the company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be
elected pursuant to the company's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder
of the company who is a stockholder of record at the time of
giving of notice provided for in this Section, who shall be
entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section. Nominations by
stockholders of persons for election to the Board of Directors
may be made at such a special meeting of stockholders if the
stockholder's notice required by this Section shall be delivered
to the Secretary at the principal executive offices of the
company not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for
election as directors at any meeting of stockholders. Only such
business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the
procedures set forth in this Section. The chairman of the
meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in
this Section and, if any proposed nomination or business is not
in compliance with this Section, to declare that such defective
proposal shall be disregarded.
For purposes of this Section, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or
in a document publicly filed by the company with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act.
Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section. Nothing in
this Section shall be deemed to affect any rights of stockholders
to request inclusion of proposals in the company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
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ARTICLE III
DIRECTORS
ARTICLE III. SECTION 1. POWERS:
The Board of Directors shall have all the powers of the
company and all the management of its business, except as
otherwise provided by law. It shall appoint and remove all
officers, employees, and agents of the company except as
hereinafter stated, prescribe their duties, fix their
compensation except as hereinafter stated, and require, when
deemed advisable, security for their faithful service. It may
make rules and regulations not inconsistent with law and these
Bylaws for the guidance of the company's officers, employees, and
agents. Each director shall have full access to any and all
company records and shall have the right to interview any company
officer or employee with respect to any aspect of the company's
business. It shall cause a report to be made to the annual
meeting of the stockholders showing the business operations and
financial position of the company. It shall generally possess all
the powers and perform all the duties usually exercised by or
imposed upon boards of directors of similar corporations.
Directors who do not qualify as independent outside directors, as
defined in Section 6, Article II of these Bylaws, shall not vote
on the selection or retention of independent public accountants.
Although resignation, death, or removal of one or more
independent outside directors, as defined in Section 6, Article
II, may result in the Board's being composed of less than the
proportion of independent outside directors required by that
Section, the Board shall nevertheless have the same powers as
otherwise, but shall fill each such vacancy with an independent
outside director within a reasonable period of time.
ARTICLE III. SECTION 2.
FIRST MEETING OF NEWLY ELECTED BOARD OF DIRECTORS:
Immediately after each annual meeting of stockholders, the
newly elected directors shall meet at the place where the annual
meeting of stockholders was held, for the purpose of electing
officers and transacting any other business that shall come
before the meeting.
ARTICLE III. SECTION 3. REGULAR MEETINGS:
Regular meetings of the Board of Directors shall be held at
the offices of the company in Bartlesville, Oklahoma, at
8:30 a.m. on the second Monday of each month unless otherwise
designated by the Board, except (i) the meeting for which
provisions have been made in Section 2 of this Article III shall
count as the regular meeting for the month of May, and (ii) no
regular meeting shall be held
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in the months of March, June, August and November. No notice of
any regular meeting shall be necessary.
Regular meetings may be adjourned to be held at any place
within or without the States of Oklahoma and Delaware at the time
and place specified in the resolution of adjournment. No notice
of any adjourned meeting of any regular meeting shall be
necessary.
ARTICLE III. SECTION 4.
SPECIAL MEETINGS: NOTICE:
Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the Vice Chairman, the
President, the Secretary, or an Assistant Secretary, and shall be
called by any of said officers upon the request of at least three
directors. Any such meeting shall be held at the time and place,
within or without the States of Oklahoma and Delaware, specified
in the notice thereof. One day's notice of the time and place of
special meetings shall be given to each director by letter or
telegram sent to the residence or usual place of business of such
director.
No notice of any adjourned meeting of any special meeting
shall be necessary.
ARTICLE III. SECTION 5. QUORUM AND VOTING:
A majority of the total number of directors then in office
shall constitute a quorum for the transaction of business, but
less than a quorum may adjourn from time to time and from place
to place. The affirmative votes of a majority of the total
number of directors then in office shall be required to
constitute action by the Board of Directors, unless the vote of a
greater number shall be required by law and except as may be
otherwise provided in the Certificate of Incorporation of the
company; except that (i) only the affirmative votes of a majority
of the total number of independent outside directors then in
office shall be required on the question of the selection or
retention of independent public accountants, and (ii) only the
affirmative votes of a majority of the disinterested directors,
even though the disinterested directors be less than a quorum,
shall be required on any question involving the compensation of
directors other than those who are employees of the company.
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ARTICLE III. SECTION 6. VACANCIES:
A vacancy occurring in the Board of Directors shall be
filled by a person elected by the remaining members of the Board,
though less than a quorum, to serve until the next annual
election by the stockholders.
ARTICLE III. SECTION 7.
COMMITTEES, APPOINTMENT AND LIMITATION OF POWERS:
All committees shall be appointed by the Board of Directors,
except to the extent otherwise authorized by Section 5, Article
IX of these Bylaws, and except further, that the Executive
Committee may appoint subcommittees, as provided in Section 5,
Article IV of these Bylaws. No committee, whether or not
appointed by the Board, shall have authority to:
(a) declare dividends or distributions;
(b) approve or recommend to stockholders action or
proposals required by law to be approved by
stockholders;
(c) designate candidates for the office of director,
for purposes of proxy solicitation or otherwise,
or fill vacancies on the Board or any committee
thereof;
(d) amend the Bylaws;
(e) reduce earned or capital surplus;
(f) authorize or approve the reacquisition of shares
unless pursuant to a general formula or method
specified by the Board; or
(g) authorize or approve the issuance or sale of, or
any contract to issue or sell, shares or designate
the terms of a series of a class of shares,
provided that the Board, having acted regarding
general authorization for the issuance or sale of
shares, or any contract therefor, and, in the case
of a series, the designation thereof, may,
pursuant to a general formula or method specified
by the Board by resolution or by adoption of a
stock option or other plan, authorize a committee
to fix the terms upon which such shares may be
issued or sold, including, without limitation, the
price, the dividend rate, provisions for
redemption, sinking fund,
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conversion, preferential rights, and provisions
for other features of a class of shares, or a such
committee to adopt any final resolution setting
forth all the terms thereof and to authorize the
statement of the terms of a series for filing with
the Secretary of State of Delaware.
Nothing contained in this Section is intended to prohibit a
committee from submitting recommendations to the Board regarding
any matter.
ARTICLE III. SECTION 8.
AUDITING OF ACCOUNTS:
It shall be the duty of the Board of Directors to cause the
books and accounts of the company and vouchers and papers
relating thereto to be audited at least once a year.
ARTICLE III. SECTION 9.
CHANGE IN NUMBER OF DIRECTORS:
The Board of Directors may increase or decrease the number
of directors from time to time without approval of the
stockholders, provided that the proportion of independent outside
directors shall conform to the provisions of Section 6, Article
II of these Bylaws. Where the number of directors is increased,
the Board shall elect a person to fill each vacancy thus created,
to serve until the next annual election by the stockholders.
ARTICLE III. SECTION 10.
OTHER INTERESTS OF DIRECTORS:
No transaction between this company and any director or
officer or any corporation, partnership, association, or other
organization shall be affected by any personal interest in such
transaction of any director of this company except to the extent
provided by law.
ARTICLE III. SECTION 11.
SUBMISSION OF ACTS TO STOCKHOLDERS:
The Board of Directors may submit any transaction for
approval or ratification at any meeting of the stockholders.
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ARTICLE III. SECTION 12.
COMPENSATION TO DIRECTORS:
Directors, other than those who are employees of the
company, shall be compensated for their services as members of
the Board of Directors and of any committee thereof in such
manners and in such amounts as may be fixed from time to time by
the Board. In fixing such compensation, the Board shall take
into account not only the time required for attendance at
meetings of the Board and committees thereof, but also the time
spent in preparation for such meetings. Upon request, the
company shall furnish to any stockholder, without charge, a
statement of the total annual compensation of any director who is
not an employee of the company, showing the method by which such
compensation was computed. In addition to such compensation any
director may be reimbursed by the company for all reasonable
expenses incurred in attending meetings of the Board and its
committees. Subject to the provisions of Section 6, Article II,
nothing herein shall be construed to preclude any director from
serving the company in any other capacity and receiving
compensation therefor.
ARTICLE III. SECTION 13.
ELIGIBILITY OF DIRECTORS:
Any person shall be eligible for election as a director
unless his seventieth birthday will occur or has occurred on or
before the date of his election. Any employee who is also a
director, including the Chairman of the Board of Directors, shall
resign as a director upon his retirement as an employee.
ARTICLE III. SECTION 14.
INDEMNIFICATION:
Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact
that he is or was a director, officer or employee of the company
or is or was serving at the request of the company as a director,
officer employee of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer employee or
in any other capacity while serving as a director, officer
employee, shall be indemnified and held harmless by the company
to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that
such amendment permits the company to provide broader
indemnification rights than such law permitted
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the company to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees,
judgments, fines, Employee Retirement Income Security Act of 1974
excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in this
Section with respect to proceedings to enforce rights to
indemnification, the company shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the company.
The right to indemnification conferred in this Section shall
include the right to be paid by the company the expenses incurred
in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires,
an advancement of expenses incurred by an indemnitee in his
capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the company of an
undertaking, by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section
or otherwise. The rights to indemnification and to the
advancement of expenses conferred in this Section shall be
contract rights and such rights shall continue as to an
indemnitee who has ceased to be a director, officer or employee
and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
If a claim under this Section is not paid in full by the
company within 60 days after written claim had been received by
the company, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days,
the indemnitee may at any time thereafter bring suit against the
company to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit
brought by the company to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending
such suit. In (i) any suit brought by the indemnitee to enforce
a right to indemnification hereunder (but not in a suit brought
by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
company to recover an advancement of expenses pursuant to the
terms of an undertaking the company shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has
not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the
company (including its Board of
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Directors, independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such suit
that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the company (including its
Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense
to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses
hereunder, or by the company to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or
to such advancement of expenses, under this Section or otherwise
shall be on the company.
The rights to indemnification and to the advancement of
expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under
any statute, the company's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or
otherwise.
The company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of
the company or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss,
whether or not the company would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
The company may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and
rights to be paid by the company the expenses incurred in
defending any proceeding in advance of its final disposition, to
any agent of the company or to any agent of another corporation
or of a partnership, joint venture, trust or other enterprise,
including any employee benefit plan, serving as such agent at the
request of the company, to the fullest extent of the provisions
of this Section with respect to the indemnification and
advancement of expenses of directors, officers and employees of
the company.
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ARTICLE IV
EXECUTIVE COMMITTEE
ARTICLE IV. SECTION 1. MEMBERS:
The Board of Directors, by resolution adopted by a majority
of the whole Board, may establish an Executive Committee, the
members of which shall consist of the Chairman of the Board of
Directors, the President and three independent outside directors
of the Board, as defined in Section 6, Article II of these
Bylaws, designated by the Board. In addition, the Board may from
time to time designate one or more other directors to serve as
members of the Committee, provided that a majority of the members
of the Committee shall be independent outside directors.
ARTICLE IV. SECTION 2. POWERS:
Subject to the limitations stated in Sections 1 and 7 of
Article III and Sections 2 and 3 of Article XI of these Bylaws
and to any limitations imposed by law or imposed by the Board of
Directors, the Executive Committee may exercise all the powers of
the Board in the management of specified matters where such
authority is delegated to it by the Board, and also, subject to
the same limitations, when the Board is not in session, the
Committee shall have, and may exercise, all the powers and
authority of the Board in the management and business of the
company (including the power to authorize the seal of the company
to be affixed to all papers which may require it).
ARTICLE IV. SECTION 3. MEETINGS:
The Executive Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as to the Committee
shall seem appropriate and not inconsistent with the law or these
Bylaws. As provided by law, the Committee is authorized to hold
meetings by conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
ARTICLE IV. SECTION 4. QUORUM:
Three members of the Executive Committee shall constitute a
quorum for the transaction of business, but less than a quorum
may adjourn from time to time and from place to place. The vote
of the majority of the members present
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at a meeting at which a quorum is present or of three members
present at such meeting, whichever is greater, shall be required
to constitute action by the Committee, unless the vote of a
greater number shall be required by law.
ARTICLE IV. SECTION 5.
OFFICERS: SUBCOMMITTEES:
The Chairman of the Board, and in his absence the President,
shall preside at the meetings of the Executive Committee but, in
the absence of both the Chairman of the Board and the President,
the majority of the members of the Committee present at a meeting
shall appoint a member to preside at such meeting. The Secretary
of the company shall serve as secretary of the Committee, but in
the absence of the Secretary, the presiding officer at a meeting
shall appoint any other director or officer of the company to act
as secretary of such meeting. The Secretary shall keep the
records of the Committee. The Committee shall also have power to
appoint such subcommittees as it may deem necessary.
ARTICLE IV. SECTION 6. VACANCIES:
Vacancies occurring in the Executive Committee shall be
filled by the Board of Directors.
ARTICLE V
COMMITTEE ON DIRECTORS' AFFAIRS
ARTICLE V. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Committee on Directors'
Affairs of the Board containing at least three members and
consisting entirely of independent outside directors of the
Board, as defined in Section 6, Article II of these Bylaws, and
shall designate its chairman. The Board may from time to time
designate one or more independent outside directors as alternate
members of the Committee.
ARTICLE V. SECTION 2. POWERS:
By such date as may be specified by the Board of Directors
each year, the Committee on Directors' Affairs shall recommend
and submit to the Board for its approval a list of persons
proposed for nominations by the Board for election as directors
at the next annual stockholders meeting. If for any reason a
vacancy
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occurs in any slate of persons nominated by the Board for
election as directors, or a vacancy occurs on the Board between
annual meetings, the Committee shall, by the date specified by
the Board, submit to the Board for approval a recommendation of a
person to fill each such vacancy. Except as otherwise provided
in Section 5 of this Article V, only persons recommended by the
Committee shall be eligible for nomination by the Board for
election as directors or to fill a vacancy, but if the Board does
not approve of one or more of the persons recommended by the
Committee, the Committee shall submit a recommendation of other
persons by the date specified by the Board.
ARTICLE V. SECTION 3. MEETINGS:
The Committee on Directors' Affairs shall adopt such rules
and regulations for the calling and holding of its meetings and
for the transaction of business at such meetings as to the
Committee shall seem meet and consistent with law and these
Bylaws.
ARTICLE V. SECTION 4.
QUORUM AND VOTING:
Three members or a majority of the Committee on Directors'
Affairs, whichever is greater, shall constitute a quorum for the
transaction of business, but less than a quorum may adjourn from
time to time and from place to place. The vote of the majority
of the members present at a meeting at which a quorum is present
or of three members present at such meeting, whichever is
greater, shall be required to constitute action by the Committee,
unless the vote of a greater number shall be required by law.
ARTICLE V. SECTION 5.
FAILURE TO ACT:
If for any reason the Committee shall fail or determine not
to make a recommendation of director nominees with respect to any
annual stockholders meeting or with respect to any vacancy on the
Board by the date specified by the Board, the Board shall select
such nominees or fill such vacancy in such manner as it deems
appropriate.
ARTICLE V. SECTION 6.
RIGHTS OF STOCKHOLDERS:
Nothing in this Article V shall affect or restrict the right
of any stockholder to nominate any person for election as a
director where such nomination is
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otherwise authorized by law and made in accordance with Section
10, Article II of these Bylaws.
ARTICLE VI
AUDIT COMMITTEE
ARTICLE VI. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint an Audit Committee of at least
three members, consisting entirely of independent outside
directors of the Board, as defined in Section 6, Article II of
these Bylaws, and shall designate its chairman. From time to
time the Board may designate one or more independent outside
directors as alternate members of the Committee.
ARTICLE VI. SECTION 2. POWERS:
The Audit Committee shall have the following powers and
duties:
(a) The Committee shall recommend annually to the Board of
Directors the independent public accountants to be
engaged to audit the books, records, and accounts of
the company for the ensuing fiscal year. Only
accountants recommended by the Committee and approved
by the Board shall be engaged. In case of a vacancy in
the position of independent public accountants, the
Committee shall recommend and the Board shall approve
the engagement of other independent public accountants
to fill the vacancy until the next annual stockholders
meeting;
(b) The Committee shall arrange the details of the
engagement of the independent public accountants,
including the remuneration to be paid;
(c) The Committee shall review with the company's
independent public accountants, as well as the
company's Controller and other appropriate company
personnel, the following matters: (i) the company's
general policies and procedures with respect to audits
and accounting and financial controls; and (ii) the
general accounting and reporting principles and
practices which should be applied in preparing the
company's financial statements and conducting financial
audits of its affairs;
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(d) The Committee shall meet with the independent public
accountants as required, but at least twice a year, and
shall review with them the company's interim and
year-end financial statements, any certification,
report, or opinion which the independent public
accountants propose to render in connection with such
statements, and any other appropriate matter;
(e) The Committee shall meet with the company's internal
audit staff as required, but at least twice a year, and
shall review with that staff the company's interim and
year-end financial statements, and the extent to which
the company's accounting staff has implemented any
reforms suggested by the independent public accountants
or the Committee;
(f) The Committee shall have power to direct the
independent public accountants and the company's
internal audit staff to inquire into and report to it
on any corporate contract, transaction, or procedure;
the conduct of any corporate office, division, profit
center, subsidiary, or other unit; or any other matter
having to do with the company's business and affairs;
(g) The Committee shall become and remain apprised of those
matters relating to the payment by the company of
finders', promoters' or consultants' commissions or
fees, or any similar commissions or fees, as shall be
necessary to permit the Committee to recommend to the
Board the policies which the Board should adopt and the
action which the Board should take to prevent any use
of company funds or other assets which is unlawful or
contrary to Board policy; and
(h) The Committee shall make such reports and
recommendations to the Board in connection with the
foregoing functions as it shall deem appropriate or as
the Board may request, and shall take such action
thereon as the Board may direct it to take.
ARTICLE VI. SECTION 3. DEFINITION:
The term "independent public accountants" shall include
individuals, companies, or firms serving as the independent
outside auditors or independent outside public accountants for
the company.
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ARTICLE VI. SECTION 4. MEETINGS:
The Committee may adopt such rules and regulations for the
calling and holding of its meetings and for the transaction of
business at such meetings as shall be considered by the Committee
to be necessary or desirable; provided, that two members of the
Committee shall constitute a quorum for the transaction of the
business and the affirmative vote of a majority of the whole
Committee shall be required to constitute action by the
Committee.
ARTICLE VI. SECTION 5. STAFF:
The Committee may select and appoint such full-time or
part-time staff assistants, as the Committee deems necessary or
desirable, who shall perform such duties and responsibilities as
the Committee shall assign. The compensation of its staff shall
be fixed by the Committee in accordance with general company
policy, and any member of its staff may be discharged only by the
Committee.
ARTICLE VII
COMPENSATION COMMITTEE
ARTICLE VII. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Compensation Committee of at
least three members, consisting entirely of independent outside
directors of the Board, as defined in Section 6, Article II of
these Bylaws, and shall designate its chairman. From time to
time the Board may designate one or more independent outside
directors as alternate members of the Compensation Committee.
ARTICLE VII. SECTION 2. POWERS:
The Compensation Committee shall have the following powers
and duties:
(a) The Compensation Committee shall review and recommend
to the Board of Directors for its consideration and
determination the salaries of the Chairman of the Board
of Directors and the President, and to determine on its
own initiative the salaries of any Executive Officer (as
the term "Executive Officer" is defined from time to time
under Rule 3b-7 of the Securities Exchange Act of 1934,
as amended) or employee who has an annual salary of $250,000
or more;
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(b) The Compensation Committee shall consider and make
recommendations to the Board of Directors with respect
to (i) any proposals for the application of new
benefits and incentive compensation plans or programs
to officers who are also directors, and (ii) the
application to such officers of amendments to any then
existing such plans or programs which would
significantly increase the compensation of such
officers; and
(c) The Compensation Committee shall perform such other
duties as may, from time to time, be delegated to the
Compensation Committee under any compensation or
benefit plans.
ARTICLE VII. SECTION 3. MEETINGS:
The Compensation Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as shall be
considered by the Compensation Committee to be necessary or
desirable; provided, that two members of the Compensation
Committee shall constitute a quorum for the transaction of
business and the affirmative vote of a majority of the whole
Compensation Committee shall be required to constitute action by
the Compensation Committee.
ARTICLE VII. SECTION 4. STAFF:
The Compensation Committee shall be assisted by appropriate
corporate staffs, and in addition, the Compensation Committee may
obtain assistance from such other persons, who need not be
employees of the company, or organizations as it may deem
advisable, with the expenses incurred thereby to be borne by the
company.
ARTICLE VIII
PUBLIC POLICY COMMITTEE
ARTICLE VIII. SECTION 1. MEMBERS:
At the first meeting of each newly elected Board of
Directors, the Board shall appoint a Public Policy Committee of
at least three members, consisting entirely of independent
outside directors of the Board, as defined in Section 6, Article
II of these Bylaws, and shall designate its chairman. From time
to time the Board may designate one or more directors as
alternate members of the Public Policy Committee, provided that
those members and alternates from time to time
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serving as the Public Policy Committee shall at all times consist
entirely of independent outside directors.
ARTICLE VIII. SECTION 2. POWERS:
The Public Policy Committee shall have the following powers
and duties:
(a) The Public Policy Committee shall act in an advisory
capacity to the Board of Directors and the management
of the company in response to current and emerging
public policy issues and in development and review of
policies and budgets in respect of contributions,
including but not limited to contributions to
organizations whose primary purpose is charitable,
civic, cultural or educational;
(b) The Public Policy Committee shall identify, evaluate
and monitor the social, political, environmental,
occupational safety and health trends, issues and
concerns, domestic and foreign, which affect or could
affect the company's business activities and
performance;
(c) The Public Policy Committee shall review information
from company management and approve recommendations to
assist in the formulation and adoption of policies,
programs and practices concerning the matters set forth
in subparagraph (b) above, including but not limited to
ecological and environmental protection, employee
safety, ethical business conduct, consumer affairs,
alcohol and drug abuse, equal opportunity matters and
government relations;
(d) The Public Policy Committee shall exercise the powers
with respect to political activities conferred upon it
by the provisions of Article XI of these Bylaws; and
(e) The Public Policy Committee shall monitor and evaluate
on an ongoing basis the company's compliance with the
policies, programs and practices established under the
Public Policy Committee's oversight.
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ARTICLE VIII. SECTION 3. MEETINGS:
The Public Policy Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for
the transaction of business at such meetings as shall be
considered by the Public Policy Committee to be necessary or
desirable; provided that three members or a majority of the
Public Policy Committee, whichever is greater, shall constitute a
quorum for the transaction of business and the affirmative vote
of a majority of the whole Public Policy Committee shall be
required to constitute action by the Public Policy Committee.
ARTICLE VIII. SECTION 4. STAFF:
The Public Policy Committee shall be assisted by
appropriate corporate staffs, and in addition, the Public Policy
Committee may obtain assistance from such other persons, who need
not be employees of the company, or organizations as it may deem
advisable, with the expenses incurred thereby to be borne by the
company.
ARTICLE IX
OFFICERS
ARTICLE IX. SECTION 1.
DESIGNATION:
The officers of the Company shall consist of a Chairman of
the Board of Directors and a President, each of whom shall be a
director, one or more Executive Vice Presidents, one or more Vice
Presidents, a Secretary, a Treasurer, and a Controller, who need
not be but may be directors, and such other officers, including a
Vice Chairman of the Board of Directors who shall be a director,
as may be elected or appointed by the Board of Directors. Except
for the offices of Chairman of the Board of Directors, Vice
Chairman, President, and Executive Vice President, any two
offices may be held by the same person.
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ARTICLE IX. SECTION 2.
ELECTION: TERM OF OFFICE:
The officers of the company shall be elected by the Board of
Directors at its first meeting after the annual meeting of the
stockholders and thereafter as appropriate. Each officer shall
hold office from the date of his election until the first meeting
of the directors held after the next annual meeting of the
stockholders, or until his successor is elected.
ARTICLE IX. SECTION 3.
REMOVAL FROM OFFICE:
FAILURE TO PERFORM DUTIES:
Any officer of the company may be removed with or without
cause by the Board of Directors. If any officer shall be unable
or refuse or fail to perform any of the duties of his office, the
officer of the company which has been designated the chief
executive officer pursuant to Section 5 of this Article may
designate any other person or persons to perform such duties
until such time as the Board may act with respect thereto.
ARTICLE IX. SECTION 4.
CHAIRMAN OF THE BOARD OF DIRECTORS:
VICE CHAIRMAN: PRESIDENT:
The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors and of the stockholders. In
the absence of the Chairman, the Vice Chairman, and in the
absence of both the Chairman and the Vice Chairman, the President
shall preside at all such meetings. The Chairman, Vice Chairman,
or the President is empowered to sign any contract, deed,
certificate, or other instrument or document authorized by the
Board or the Executive Committee, or required by law to be signed
by such officer or officers.
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ARTICLE IX. SECTION 5.
CHIEF EXECUTIVE OFFICER:
The Chairman of the Board of Directors shall be the chief
executive officer of the company. The Chairman of the Board of
Directors may designate the Vice Chairman or the President to act
as chief executive officer during the Chairman's absence. The
chief executive officer of the company shall have general and
active supervision over the business, affairs and operations of
the company and over its several officers, agents and employees,
subject, however, to the control of the Board and the Executive
Committee. The chief executive officer shall see that all orders
and resolutions of the Board and the Executive Committee are
carried into effect, and, in general, shall perform all duties
incident to the position of chief executive officer and such
other duties as may from time to time be assigned by the Board or
the Executive Committee. The chief executive officer may
delegate and assign to other officers, employees and agents of
the company or to committees appointed by him such duties as the
chief executive officer considers proper and not inconsistent
with these Bylaws or any delegations and assignments made by the
Board or the Executive Committee.
ARTICLE IX. SECTION 6.
EXECUTIVE VICE PRESIDENTS:
VICE PRESIDENTS:
The Executive Vice Presidents and the Vice Presidents shall
have such authority and shall perform such duties as may be
delegated to them pursuant to these Bylaws. The power of the
Executive Vice Presidents and the Vice Presidents to sign on
behalf of the company any contract, deed, certificate, or other
instrument or document authorized by the Board of Directors or
the Executive Committee shall be coordinate with like powers of
the Chairman of the Board of Directors, the Vice Chairman, and
the President and shall have the same effect as if signed by the
Chairman or the President.
ARTICLE IX. SECTION 7. SECRETARY:
The Secretary shall attend to the giving of all notices of
all meetings of the Board of Directors and stockholders, shall
attend all such meetings and shall record the minutes of such
meetings in books provided for that purpose. He shall be the
custodian of all papers brought before the Board for action or
ordered on file. He shall have the custody of the corporate
seal, and shall, as necessary or appropriate, affix and attest
the same on all documents authorized by the Board or the
Executive Committee. He shall make or cause to be made the
necessary or appropriate determinations as to the owners of stock
pursuant to the establishment of a record date, as provided in
Section 3, Article X of these
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Bylaws, and shall prepare or cause to be prepared the required or
appropriate stockholder lists or records reflecting these
determinations. Such list shall be certified by the Secretary or
other person in charge of the stock ledger of the company.
The Secretary shall have such other authority and duties as
may be assigned to him in accordance with these Bylaws.
The Board may appoint one or more Assistant Secretaries who
shall assist the Secretary in the performance of his duties and
shall perform all the duties of the Secretary in his absence.
ARTICLE IX. SECTION 8. TREASURER:
The Treasurer shall keep full and accurate accounts of all
receipts and disbursements. With the approval of the Board of
Directors he shall deposit all moneys and other valuable effects
in the name and to the credit of the company in such depositories
as he may select and, under direction of the Board, he shall
disburse the same. He shall have authority to receive and give
receipts for all moneys due and payable to the company from any
source whatsoever and to give full discharge for the same, and to
endorse for deposit on behalf of the company all checks, drafts,
notes, warrants, orders and other papers requiring endorsement.
He may be required to give a bond in any amount satisfactory to
the Board for the faithful performance of the duties of his
office and for the restoration to the company in case of his
death, resignation or removal from office, of all books, papers,
vouchers, money or other property of whatever kind in his
possession, belonging to the company.
The Treasurer shall have such other authority and duties as
may be assigned to him in accordance with these Bylaws.
The Board may appoint one or more Assistant Treasurers who
shall assist the Treasurer in the performance of his duties and
shall perform all the duties of the Treasurer in his absence.
ARTICLE IX. SECTION 9. CONTROLLER:
The Controller shall be the officer principally in charge of
the accounts of the company, and shall have such other authority
and duties as may be assigned to him in accordance with these
Bylaws.
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The Board of Directors may appoint one or more Deputy
Controllers and Assistant Controllers who shall assist in the
performance of all the duties of the Controller in his absence.
ARTICLE IX. SECTION 10. GENERAL:
All other officers of the company shall have such powers and
duties as may be assigned in accordance with these Bylaws.
ARTICLE X
CAPITAL STOCK
ARTICLE X. SECTION 1. CERTIFICATES:
FACSIMILE SIGNATURES: LOST STOCK:
Certificates of stock shall be issued in numerical order,
and every holder of stock in the company shall be entitled to a
certificate or certificates signed by, or in the name of, the
company, by the Chairman of the Board of Directors, the Vice
Chairman, the President, an Executive Vice President, or a Vice
President, or by two or more of them, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer,
of the company, certifying the number of shares owned by him in
the company. If such certificate is countersigned by a transfer
agent other than the company or its employee, or by a registrar
other than the company or its employee, any other signature on
the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the company with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
The seal of the company, or a facsimile thereof, may, but
shall not be required to be affixed to certificates for shares of
stock.
The name of each person to whom a certificate of stock shall
be issued, together with the number of shares and the date of
issue, shall be entered upon the books of the company.
If any certificate of stock shall be lost, stolen, mutilated
or destroyed, the Board of Directors shall cause a new
certificate of stock to be issued in the place
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of such certificate and may, in its discretion, require the owner
of the replaced certificate, or his legal representatives, to
give the company a bond, in such form and amount as the Board may
direct, sufficient to indemnify the company and other interested
persons against any loss on account of the issuance or any action
in connection with the issuance of any such new certificate.
ARTICLE X. SECTION 2. TRANSFERS:
PRESERVATION OF CANCELED CERTIFICATES:
FRACTIONAL SHARES: TRANSFER AGENTS:
Transfer of shares of the common stock of the company shall
be made upon its books by the holder thereof, in person or by
attorney duly authorized, upon the surrender of a certificate or
certificates, properly endorsed, for a like number of shares. No
new certificate shall be issued until the former certificate or
certificates for the same number of shares shall have been
surrendered and canceled, except in the case of a certificate
issued in replacement as provided in Section 1 of this Article X.
All certificates surrendered to the company for transfer
shall be canceled and each certificate canceled shall be
preserved for a period of 10 years after cancellation, or for
such shorter or longer period as the Chairman of the Board of
Directors, the Vice Chairman, or the President, with the approval
of the General Counsel of the company, may direct from time to
time.
No certificate for less than one share of the common stock
shall be issued; however, scrip for fractional shares may be
issued on such terms and conditions as the Board of Directors may
prescribe.
The Board of Directors may appoint such stock transfer
agents and assistant transfer agents, and stock registrars, as it
shall deem proper and may require all stock certificates to bear
the signature or facsimile signature of a transfer agent, and of
a registrar, or either of them.
ARTICLE X. SECTION 3.
DATE FOR DETERMINATION OF STOCKHOLDERS:
For the purpose of enabling the company to determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60
-28-
<PAGE>
days prior to any other action. In such case, only such persons
in whose names shares of stock are registered on the books of the
company on the date so fixed shall be considered stockholders for
the purpose or purposes for which such determination was made,
notwithstanding any transfer of any stock on the books of the
company after any such record date.
ARTICLE X. SECTION 4.
ADDITIONAL REGULATIONS:
The Board of Directors may at any time adopt such additional
and further rules and regulations relating to common stock and
stock certificates as it deems appropriate and not inconsistent
with the law or these Bylaws.
ARTICLE XI
POLITICAL ACTIVITIES
ARTICLE XI. SECTION 1.
COMPLIANCE WITH LAWS CONCERNING POLITICAL CONTRIBUTIONS:
Any officer or employee of the company who fails to comply
with all federal, state, and local laws regarding corporate
contributions and expenditures in connection with election of
public officials shall be subject to appropriate disciplinary
action, which may include discharge from employment. The Audit
Committee of the Board of Directors shall be responsible for
monitoring compliance with those laws and shall require written
annual assurances by principal corporate officers of their
compliance with these laws and policies adopted by the Board. In
performing that responsibility, the Committee shall utilize the
services of the company's independent public accountants, its
internal audit staff, and its General Counsel.
ARTICLE XI. SECTION 2.
POLITICAL CONTRIBUTIONS:
Except as otherwise provided in the succeeding paragraph,
the Board of Directors shall have the sole and non-delegable
power and authority to authorize the use of company funds and
facilities to make political contributions and expenditures, if
and to the extent permitted by applicable law, to or in support
of political candidates, political committees (including but not
limited to political committees established by the company
pursuant to Section 4 of this Article XI), and political parties,
in connection with nomination and election of candidates for
state or local office.
-29-
<PAGE>
The Public Policy Committee (subject to any rules or
restrictions which the Board may establish) shall have and may
exercise the power and authority of the Board to authorize such
contributions, expenditures, and use of company funds and
facilities, if and to the extent permitted by applicable law.
The Public Policy Committee may delegate such power and
authority, in whole or in part, to the Vice President with
responsibility for the Company's government relations activities,
subject to such further rules and restrictions as the Committee
may specify. All contributions made pursuant to the authority
granted by this paragraph shall be reported quarterly to the
Board.
ARTICLE XI. SECTION 3.
POLITICAL COMMITTEE AUTHORIZED BY FEDERAL LAW:
The Board of Directors shall have the sole and non-delegable
power and authority to authorize the establishment,
administration, and solicitation of contributions to a separate
segregated fund to be utilized for political purposes by the
company as authorized by Section 441b of Title 2 of the United
States Code. No such separate segregated fund shall be
established or administered by the company, except through a
political committee, organized as provided in Section 432 of
Title 2 of the United States Code, registered as provided in
Section 433 of such Title, and otherwise operated in compliance
with law. Any decision of the Board authorizing the
establishment of a political committee permitted by Section 441b
of Title 2 shall be noted in its minutes. The minutes shall
include an estimate of the annual cost to the company of
establishing, administering, and soliciting for such committee.
Any such committee which is established shall report in writing
to the Board on its activities not later than March 15 of each
year. Such report shall include a summary of any reports filed
with the Federal Election Commission or any other government
agency, together with a statement of the costs incurred by the
company in connection with such a committee during the preceding
year.
ARTICLE XI. SECTION 4.
NONFEDERAL POLITICAL COMMITTEES:
The Board of Directors or the Public Policy Committee or the
Vice President with responsibility for the Company's government
relations activities (subject to any rules and regulations which
the Public Policy Committee may establish), and each of them
shall have the power and authority to authorize the
establishment, administration, and solicitation of contributions
to one or more political committees, and to authorize use of
corporate funds to pay or bear all costs associated with such
establishment, administration, and solicitation, and to authorize
use of such political committees by the company to make political
contributions and expenditures or otherwise support candidates
for state or local office, authorized committees of such
candidates, and other political committees supporting state or
local candidates; provided, however, that the foregoing
-30-
<PAGE>
authorizations may be granted and committees so established may
be so used only if permitted by applicable state law and only to
the extent, if any, permitted by such law. Such political
committees as may be established by the company shall be
registered if required by applicable state law and shall
otherwise be operated in compliance with law. Any decision of
the Board authorizing establishment of such a committee shall be
noted in its minutes. By March 15 following the calendar year in
which such a committee is otherwise established, such
establishment shall be reported to the Board and noted in its
minutes. Any such committee shall report in writing to the Board
on its activities not later than March 15 of each year. Such
report shall include a summary of any reports filed by the
committee with any government agency, together with a statement
of costs incurred by the company in connection with such
committee during the preceding year.
ARTICLE XI. SECTION 5.
OTHER POLITICAL ACTIVITIES:
Nothing contained in these Bylaws shall be deemed to
prohibit any officer or employee from engaging in political
activities in an individual capacity at his own expense or from
making political contributions or expenditures of his personal
funds or from expressing views and taking appropriate action as a
company officer or employee with respect to legislative or
political matters affecting the company and not pertaining to
election of public officials.
ARTICLE XII
MISCELLANEOUS
ARTICLE XII. SECTION 1.
CHECKS, NOTES AND DRAFTS:
All checks, notes, drafts, warrants, or orders for the
payment of money, shall be executed on behalf of the company by
such person or persons, and in such manner by such method as the
Board of Directors may from time to time specify.
ARTICLE XII. SECTION 2. SEAL:
The seal of the company shall be in the form of a circle and
shall bear the name of the company, the name of the state under
the laws of which it is incorporated, and the year of its
incorporation.
-31-
<PAGE>
ARTICLE XII. SECTION 3.
DIVIDENDS AND RESERVES:
The Board of Directors may declare dividends to the full
extent permitted by the law, provided the Board from time to time
may set apart out of any funds available for dividends a reserve
or reserves for any proper purpose and may abolish any such
reserve.
ARTICLE XII. SECTION 4.
WAIVER OF NOTICE:
Whenever notice is required to be given under any provision
of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a written waiver thereof signed by the
person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII. SECTION 5.
CHAIRMAN OF THE BOARD EMERITUS:
The Board of Directors may, from time to time, at its
discretion, create the honorary position of Chairman of the Board
Emeritus, without executive functions, and elect a person to fill
the position so created.
ARTICLE XII. SECTION 6. AMENDMENTS:
Subject to the provisions of the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed
in whole or in part by the stockholders at any annual meeting or
at any special meeting provided that the notice of such special
meeting shall contain a statement of the contemplated alteration,
amendment or repeal. Subject to the laws of the State of
Delaware, the Certificate of Incorporation, and these Bylaws, the
Board of Directors shall have power to make, alter, amend and
repeal these Bylaws in whole or in part, except those Bylaws
adopted by stockholders of the company or those Bylaws as to
which power to make, alter, amend or repeal is reserved to
stockholders of the company.
-32-
<PAGE>
Exhibit 4(a)
======================================================
PHILLIPS PETROLEUM COMPANY,
ISSUER
AND
CONTINENTAL BANK, NATIONAL ASSOCIATION,
TRUSTEE
-----------
INDENTURE
Dated as of September 15, 1990
-----------
======================================================
<PAGE>
TIE-SHEET
of provisions of Trust Indenture Act of 1939 with Indenture dated as of
September 15, 1990 between Phillips Petroleum Company and Continental
Bank, National Association, Trustee:
Section of Act Section of Indenture
-------------- --------------------
310(a)(1) and (2)...................... 6.09
310(a)(3) and (4) ..................... Not applicable
310(b)................................. 6.08 and 6.10(a)(b) and (d)
310(c)................................. Not applicable
311(a) and (b)......................... 6.13
311(c)................................. Not applicable
312(a)................................. 4.01 and 4.02(a)
312(b) and (c)......................... 4.02(b) and (c)
313(a)................................. 4.04(a)
313(b)(1).............................. Not applicable
313(b)(2).............................. 4.04(b)
313(c)................................. 4.04(c)
313(d)................................. 4.04(d)
314(a)................................. 4.03
314(b)................................. Not applicable
314(c)(1) and (2)...................... 13.05
314(c)(3).............................. Not applicable
314(d)................................. Not applicable
314(e)................................. 13.05
314(f)................................. Not applicable
315(a) (c) and (d)..................... 6.01
315(b)................................. 5.08
315(e)................................. 5.09
316(a)(1).............................. 5.01 and 5.07
316(a)(2).............................. Omitted
316(a) last sentence................... 7.04
316(b)................................. 5.04
317(a)................................. 5.02
317(b)................................. 3.04(a)
318(a)................................. 13.07
- ---------------
This tie-sheet is not part of the Indenture as executed.
<PAGE>
TABLE OF CONTENTS*
-------------
PAGE
----
PARTIES.................................................... 1
RECITALS................................................... 1
Authorization of Indenture............................. 1
Compliance with Legal Requirements..................... 1
Purpose of and Consideration for Indenture............. 1
ARTICLE ONE.
DEFINITIONS.
SECTION 1.01. Definitions.................................. 1
Attributable Debt.......................... 2
Authenticating Agent....................... 2
Board of Directors......................... 2
Company.................................... 2
Consolidated Adjusted Net Assets........... 3
Event of Default........................... 3
Funded Debt................................ 3
Indenture.................................. 3
Interest................................... 3
Mortgage................................... 3
Officers' Certificate...................... 4
Opinion of Counsel......................... 4
Original Issue Date........................ 4
Original Issue Discount Security........... 4
Person..................................... 4
Principal Office of the Trustee............ 4
Responsible Officer........................ 5
Restricted Property........................ 5
Restricted Subsidiary...................... 5
Security or Securities; Outstanding........ 5
Securityholder............................. 6
Subsidiary................................. 7
Trustee.................................... 7
Trust Indenture Act of 1939................ 7
U.S. Government Obligations................ 7
Yield to Maturity.......................... 8
- ------------------
* This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
ii PAGE
----
ARTICLE TWO.
SECURITIES.
SECTION 2.01. Forms Generally............................. 8
SECTION 2.02. Form of Trustee's Certificate of
Authentication............................ 8
SECTION 2.03. Amount Unlimited: Issuable in Series........ 9
SECTION 2.04. Authentication and Dating................... 10
SECTION 2.05. Date and Denomination of Securities......... 12
SECTION 2.06. Execution of Securities..................... 13
SECTION 2.07. Exchange and Registration of Transfer of
Securities................................ 13
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen
Securities................................ 14
SECTION 2.09. Temporary Securities........................ 16
SECTION 2.10. Cancellation of Securities Paid, etc........ 16
ARTICLE THREE.
PARTICULAR COVENANTS OF THE COMPANY.
SECTION 3.01. Payment of Principal, Premium and Interest.. 17
SECTION 3.02. Offices for Notices and Payments, etc....... 17
SECTION 3.03. Appointments to Fill Vacancies in Trustee's
Office.................................... 18
SECTION 3.04. Provision as to Paying Agent................ 18
SECTION 3.05. Limitation on Liens......................... 19
SECTION 3.06. Limitation on Sales and Leasebacks.......... 20
SECTION 3.07. Certificate to Trustee...................... 22
ARTICLE FOUR.
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE.
SECTION 4.01. Securityholders' Lists...................... 22
SECTION 4.02. Preservation and Disclosure of Lists........ 22
SECTION 4.03. Reports by Company.......................... 24
SECTION 4.04. Reports by Trustee.......................... 25
ARTICLE FIVE.
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT.
SECTION 5.01. Events of Default........................... 27
SECTION 5.02. Payment of Securities on Default; Suit
Therfor................................... 30
SECTION 5.03. Application of Moneys Collected by Trustee.. 32
SECTION 5.04. Proceedings by Securityholders.............. 33
SECTION 5.05. Proceedings by Trustee...................... 34
SECTION 5.06. Remedies of Cumulative and Continuing....... 34
<PAGE>
iii PAGE
----
SECTION 5.07. Direction of Proceedings and Waiver of
Defaults by Majority of Securityholders... 34
SECTION 5.08. Notice of Defaults.......................... 35
SECTION 5.09. Undertaking to Pay Costs.................... 36
ARTICLE SIX.
CONCERNING THE TRUSTEE.
SECTION 6.01. Duties and Responsibilities of Trustee...... 36
SECTION 6.02. Reliance on Documents, Opinions, etc........ 38
SECTION 6.03. No Responsibility for Recitals, etc......... 39
SECTION 6.04. Trustee, Authenticating Agent, Paying
Agents, Transfer Agents or Registrar may
Own Securities............................ 39
SECTION 6.05. Moneys to be Held in Trust.................. 39
SECTION 6.06. Compensation and Expenses of Trustee........ 40
SECTION 6.07. Officers' Certificate as Evidence........... 40
SECTION 6.08. Conflicting Interest of Trustee............. 41
SECTION 6.09. Eligibility of Trustee...................... 47
SECTION 6.10. Resignation or Removal of Trustee........... 47
SECTION 6.11. Acceptance by Successor Trustee............. 49
SECTION 6.12. Succession by Merger, etc................... 50
SECTION 6.13. Limitation on Rights of Trustee as a
Creditor.................................. 51
SECTION 6.14. Authenticating Agents....................... 55
ARTICLE SEVEN.
CONCERNING THE SECURITYHOLDERS.
SECTION 7.01. Action by Securityholders................... 57
SECTION 7.02. Proof of Execution by Securityholders....... 57
SECTION 7.03. Who Are Deemed Absolute Owners.............. 57
SECTION 7.04. Securities Owned by Company Deemed Not
Outstanding............................... 58
SECTION 7.05. Revocation of Consents; Future Holders Bound 58
ARTICLE EIGHT.
SECURITYHOLDERS' MEETINGS.
SECTION 8.01. Purposes of Meetings........................ 59
SECTION 8.02. Call of Meetings by Trustee................. 59
SECTION 8.03. Call of Meetings by Company or Security-
holders................................... 60
SECTION 8.04. Qualifications for Voting................... 60
SECTION 8.05. Regulations................................. 60
SECTION 8.06. Voting...................................... 61
<PAGE>
iv PAGE
----
ARTICLE NINE.
SUPPLEMENTAL INDENTURES.
SECTION 9.01. Supplemental Indentures without Consent of
Securityholders........................... 62
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders........................... 63
SECTION 9.03. Compliance with Trust Indenture Act; Effect
of Supplemental Indentures................ 65
SECTION 9.04. Notation on Securities...................... 65
SECTION 9.05. Evidence of Compliance of Supplemental
Indenture to be Furnished Trustee......... 65
ARTICLE TEN.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.
SECTION 10.01. Company May Consolidate, etc., on Certain
Terms..................................... 66
SECTION 10.02. Successor Corporation to be Substituted for
Company................................... 66
SECTION 10.03. Securities to be Secured in Certain Events.. 67
SECTION 10.04. Opinion of Counsel to be Given Trustee...... 67
ARTICLE ELEVEN.
SATISFACTION AND DISCHARGE OF INDENTURE.
SECTION 11.01. Discharge of Indenture...................... 68
SECTION 11.02. Deposited Moneys and U.S. Government
Obligations to be Held in Trust by
Trustee................................... 68
SECTION 11.03. Paying Agent to Repay Moneys Held........... 69
SECTION 11.04. Return of Unclaimed Moneys.................. 69
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligation..................... 69
ARTICLE TWELVE.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS.
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations............................... 71
ARTICLE THIRTEEN.
MISCELLANEOUS PROVISIONS.
SECTION 13.01. Successors.................................. 72
SECTION 13.02. Official Acts by Successor Corporation...... 72
<PAGE>
v PAGE
----
SECTION 13.03. Addresses for Notices, etc.................. 72
SECTION 13.04. New York Contract........................... 72
SECTION 13.05. Evidence of Compliance with Conditions
Precedent................................. 72
SECTION 13.06. Legal Holidays.............................. 73
SECTION 13.07. Trust Indenture Act to Control.............. 73
SECTION 13.08. Table of Contents, Headings, etc............ 73
SECTION 13.09. Execution in Counterparts................... 73
ARTICLE FOURTEEN.
REDEMPTION OF SECURITIES--MANDATORY AND
OPTIONAL SINKING FUND.
SECTION 14.01. Applicability of Article.................... 74
SECTION 14.02. Notice of Redemption; Selection of
Securities................................ 74
SECTION 14.03. Payment of Securities Called for Redemption. 75
SECTION 14.04. Mandatory and Optional Sinking Fund......... 75
TESTIMONIUM................................................ 79
SIGNATURES................................................. 79
ACKNOWLEDGMENTS............................................ 80
<PAGE>
THIS INDENTURE, dated as of , 1990, between PHILLIPS
PETROLEUM COMPANY, a Delaware corporation (hereinafter sometimes called
the "Company"), and Continental Bank, National Association, as trustee
(hereinafter sometimes called the "Trustee"),
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue from time to time of its unsecured debentures, notes
or other evidence of indebtedness to be issued in one or more series (the
"Securities") up to such principal amount or amounts as may from time to
time be authorized in accordance with the terms of this Indenture and, to
provide the terms and conditions upon which the Securities are to be
authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all acts and things necessary to make this Indenture a
valid agreement according to its terms, have been done and performed;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
In consideration of the premises, and the purchase of the
Securities by the holders thereof, the Company covenants and agrees
with the Trustee for the equal and proportionate benefit of the
respective holders from time to time of the Securities or of a series
thereof, as follows:
ARTICLE ONE.
DEFINITIONS.
SECTION 1.01. Definitions. The terms defined in this Section
1.01 (except as herein otherwise expressly provided or unless the context
otherwise requires) for all purposes of this Indenture and of any
indenture supplemental hereto shall have the respective meanings
specified in this Section 1.01. All other terms used in this Indenture
which are defined in the Trust Indenture Act of 1939, as amended, or
which are by reference therein defined in the Securities Act of 1933, as
amended, shall (except as herein otherwise expressly provided or unless
the context otherwise requires) have the meanings assigned to such terms
in said Trust Indenture Act and in said Securities Act as in force at the
date of this Indenture as originally executed. All accounting terms used
herein and not expressly defined shall have the meanings assigned to such
terms in accordance with generally
<PAGE>
2
accepted accounting principles and the term "generally accepted
accounting principles" means such accounting principles as are generally
accepted at the time of any computation. The words "herein", "hereof"
and "hereunder" and other words of similar import refer to this Indenture
as a whole and not to any particular Article, Section or other
subdivision.
Attributable Debt:
The term "Attributable Debt" shall mean, as to any particular
lease under which any Person is at the time liable, at any date as of
which the amount thereof is to be determined, the total net amount of
rent (discounted from the respective due dates thereof at the rate per
annum equal to the interest rate borne by the Securities, or, in the case
of Original Issue Discount Securities, equal to the Yield to Maturity, in
each case compounded semi-annually) required to be Paid by such Person
under such lease during the remaining term thereof. The net amount of
rent required to be paid under any such lease for any such period shall
be the total amount of the rent payable by the lessee with respect to
such period, but may exclude amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates and
similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall also include
the amount of such penalty, but no rent shall be considered as required
to be paid under such lease subsequent to the first date upon which it
may be so terminated.
Authenticating Agent:
The term "Authenticating Agent" shall mean any agent or agents
of the Trustee which at the time shall be appointed and acting pursuant
to Section 6.14.
Board of Directors:
The term "Board of Directors" shall mean the Board of Directors
or the Executive Committee or any other duly authorized committee thereof
of the Company.
Company:
The term "Company" shall mean Phillips Petroleum Company, a
Delaware corporation, and, subject to the Provisions of Article Ten,
shall include its successors and assigns.
<PAGE>
3
Consolidated Adjusted Net Assets:
The term "Consolidated Adjusted Net Assets" shall mean the total
amount of assets after deducting therefrom (a) all current liabilities
(excluding any thereof which are by their terms extendible or renewable
at the option of the obligor thereon to a time more than 12 months after
the time as of which the amount thereof is being computed), and (b) total
prepaid expenses and deferred charges.
Event of Default:
The term "Event of Default" shall mean any event specified in
Section 5.01, continued for the period of time, if any, and after the
giving of the notice, if any, therein designated.
Funded Debt:
The term "Funded Debt" shall mean all indebtedness for money
borrowed having a maturity of more than 12 months from the date as of
which the amount thereof is to be determined or having a maturity of
less than 12 months but by its terms being renewable or extendible beyond
12 months from such date at the option of the borrower.
Indenture:
The term "Indenture" shall mean this instrument as originally
executed or, if amended or supplemented as herein provided, as so amended
or supplemented, or both, and shall include the form and terms of
particular series of Securities established an contemplated hereunder.
Interest:
The term "Interest" shall mean, when used with respect to non-
interest bearing Securities, interest payable after maturity.
Mortgage:
The term "Mortgage" shall mean and include any mortgage, pledge,
lien, security interest, conditional sale or other title retention
agreement or other similar encumbrance.
<PAGE>
4
Officers' Certificate:
The term "Officers' Certificate" shall mean a certificate signed
by the Chairman of the Board, the President or any Vice President, and by
the Treasurer, an Assistant Treasurer, the Comptroller, an Assistant
Comptroller, the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee.
Opinion of Counsel:
The term "Opinion of Counsel" shall mean an opinion in writing
signed by legal counsel, who may be an employee of or counsel to the
Company, or may be other counsel satisfactory to the Trustee. Each
such opinion shall inside the statements provided for in Section 13.05 if
and to the extent required by the provisions of such Section.
Original Issue Date:
The term "Original Issue Date" of any Security (or any portion
thereof) shall mean the earlier of (a) the date of such Security or (b)
the date of any Security (or portion thereof) for which such Security was
issued (directly or indirectly) on registration of transfer, exchange or
substitution.
Original Issue Discount Security:
The term "Original Issue Discount Security" shall mean any
Security which provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof pursuant to Section 5.01.
Person:
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
Principal Office of the Trustee:
The term "principal office of the Trustee", or other similar
term, shall mean the principal office of the Trustee, at which at any
particular time its corporate trust business shall be administered.
<PAGE>
5
Responsible Officer:
The term "Responsible Officer", when used with respect to the
Trustee, shall mean the chairman and vice chairman of the board of
directors, the chairman or vice-chairman of the executive committee of
the board of directors, the president, any vice president, the cashier,
any assistant cashier, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, any senior trust officer, any trust
officer, the controller, any assistant controller or any other officer or
assistant officer of the Trustee customarily performing functions similar
to those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because
of his knowledge of and familiarity with the particular subject.
Restricted Property:
The term "Restricted Property" shall mean (a) any interest in
property located in the United States (including any interest in property
located off the coast of the United States operated pursuant to leases
from any governmental body) which is producing crude oil, natural gas or
natural gas liquids in paying quantities or (b) any refining or
manufacturing plant located in the United States, except (1) related
facilities employed in transportation or marketing or (2) any refining or
manufacturing plant, or any portion thereof, which, in the opinion of the
Board of Directors, is not a principal plant in relation to the
activities of the Company and its Restricted Subsidiaries as a whole.
Restricted Subsidiary:
The term "Restricted Subsidiary" shall mean any Subsidiary which
owns a Restricted Property if substantially all of the tangible property
in which such Subsidiary has an interest is (a) located in the United
States or (b) is located off the coast of the United States and is
operated pursuant to leases from any governmental body.
Security or Securities; Outstanding:
The terms "Security" or "Securities" shall have the meaning
stated in the first recital of this Indenture and more particularly means
any security or securities, as the case may be, authenticated and
delivered under this Indenture.
<PAGE>
6
The term "outstanding" (except as otherwise provided in Section
6.08), when used with reference to Securities, shall, subject to the
provisions of Section 7.04. mean, as of any particular time, all
Securities authenticated and delivered by the Trustee or the
Authenticating Agent under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or the
Authenticating Agent or delivered to the Trustee for
cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall
have been deposited in trust with the Trustee or with any
paying agent (other than the Company) or shall have been
set aside and segregated in trust by the Company (if the
Company shall act as its own paying agent), provided that,
if such Securities, or portions thereof, are to be redeemed
prior to maturity thereof, notice of such redemption shall
have been given as in Article Fourteen provided or
provision satisfactory to the Trustee shall have been made
for giving such notice; and
(c) Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered
pursuant to the terms of Section 2.08 unless proof
satisfactory to the Company and the trustee is presented
that any such Securities are held by bona fide holders in
due course.
In determining whether the holders of the requisite principal
amount of outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, the
principal amount of an Original Issue Discount Security that shall be
deemed to be outstanding for such purposes shall be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon a declaration of acceleration of the maturity thereof
pursuant to Section 5.01.
Securityholder:
The terms "Securityholder", "holder of Securities", or other
similar terms, shall mean any person in whose name at the time a
particular Security is registered on the register kept by the Company or
the Trustee for that purpose in accordance with the terms hereof.
<PAGE>
7
Subsidiary:
The term "Subsidiary" shall mean a corporation a majority of the
outstanding voting stock of which is owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and
one or more other Subsidiaries. For the purposes of this definition,
"voting stock" means stock having voting power for the election of
directors, whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
Trustee:
The term "Trustee" shall mean the Person identified as "Trustee"
in the first paragraph hereof, and, subject to the provisions of Article
Six hereof, shall also include its successors and assigns as Trustee
hereunder.
Trust Indenture Act of 1939:
The term "Trust Indenture Act of 1939" shall mean the Trust
Indenture Act of 1939 as in force at the date of execution of this
Indenture, except as provided in Section 9.03.
U.S. Government Obligations:
The term "U.S. Government Obligations" shall mean securities
that are (i) direct obligations of the United States of America for the
payment of which its full faith and credit is pledged or (ii) obligations
of an entity controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case under clauses (i) or (ii)
are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of
a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the
specific payment of interest on or principal of the U.S. Government
Obligation evidenced by such depository receipt.
<PAGE>
8
Yield to Maturity:
The term "Yield to Maturity" shall mean the yield to maturity on
a series of Securities, calculated at the time of issuance of such series
of Securities, or if applicable, at the most recent redetermination of
interest on such series and calculated in accordance with accepted
financial practice.
ARTICLE TWO.
SECURITIES.
SECTION 2.01. Forms Generally. The Securities of each series
shall be in substantially the form as shall be established by or pursuant
to a resolution of the Board of Directors or in one or more indentures
supplemental hereto, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon
as may be required to comply with any law or with any rules made pursuant
thereto or with any rules of any securities exchange or all as may,
consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other
manner, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
SECTION 2.02. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication on all Securities shall be in
substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
CONTINENTAL BANK, NATIONAL
ASSOCIATION
as Trustee
By.........................
Authorized Officer
<PAGE>
9
SECTION 2.03. Amount Unlimited; Issuable in Series. The
aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall
be established in or pursuant to a resolution of the Board of Directors
or established in one or more indentures supplemental hereto, prior to
the issuance of Securities of any series,
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other
Securities);
(2) any limit upon the aggregate Principal amount of the
Securities of the series which may be authenticated and
delivered under this Indenture (except for Securities
authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of
the series pursuant to Section 2.07, 2.08, 2.09, 9.04 or
14.03);
(3) the date or dates on which the principal of and premium, if
any, on the Securities of the series is payable;
(4) the rate or rates at which the Securities of the series
shall bear interest, if any, or the method by which such
interest may be determined, the date or dates from which
such interest shall accrue, the interest payment dates on
which such interest shall be payable and the record dates
for the determination of holders to whom interest is
payable;
(5) the place or places where the principal of, and premium, if
any, and any interest on Securities of the series shall be
payable;
(6) the price or prices at which, the period or periods within
which and the terms and conditions upon which Securities of
the series may be redeemed, in whole or in part, at the
option of the Company, pursuant to any sinking fund or
otherwise;
(7) the obligation, if any, of the Company to redeem, purchase
or repay Securities of the series pursuant to any sinking
fund or analogous provisions or at the option of a
Securityholder thereof and the price or prices at which and
the period or periods within which and the
<PAGE>
10
terms and conditions upon which Securities of the series
shall be redeemed, purchased or repaid, in whole or in
part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which Securities of
the series shall be issuable;
(9) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series which
shall be payable upon declaration of acceleration of the
maturity thereof pursuant to Section 5.01 or provable in
bankruptcy pursuant to Section 5.02;
(10) any Events of Default with respect to the Securities of a
particular series, if not set forth herein;
(11) any trustee, authenticating or paying agents, warrant
agents, transfer agents or registrars with respect to the
Securities of such series;
(12) whether the Securities of the series shall be issued in
whole or in part in the form of one or more global
Securities and, in such case, the depositary for such
global Security or Securities, and whether beneficial
owners of interests in any such global Securities may
exchange such interests for other Securities of such series
in the manner provided in Section 2.07, and the manner and
the circumstances under which and the place or places where
any such exchanges may occur if other than in the manner
provided in Section 2.07, and any other terms of the series
relating to the global nature of the Securities of such
series and the exchange, registration or transfer thereof
and the payment of any principal thereof, or interest or
premium, if any, thereon; and
(13) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially
identical except as to denomination and except as may otherwise be
provided in or pursuant to such resolution of the Board of Directors or
in any such indenture supplemental hereto.
SECTION 2.04. Authentication and Dating. At any time and from
time to time after the execution and delivery of this Indenture, the
Company may deliver Securities of any series executed by the Company to
<PAGE>
11
the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Securities to or upon the written order of
the Company, signed by its Chairman of the Board of Directors, President
or one of its Vice Presidents and by its Treasurer or any Assistant
Treasurer, without any further action by the Company hereunder. In
authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 6.01) shall
be fully protected in relying upon:
(1) a copy of any resolution or resolutions of the Board of
Directors relating thereto and, if applicable, an
appropriate record of any action taken pursuant to such
resolution, in each case certified by the Secretary or an
Assistant Secretary of the Company;
(2) an executed supplemental indenture, if any;
(3) an Officers' Certificate setting forth the form and terms
of the Securities as required pursuant to Sections 2.01 and
2.03, respectively; and
(4) an Opinion of Counsel prepared in accordance with Section
13.05 which shall also state
(a) that the form of such Securities has been established by or
pursuant to a resolution of the Board of Directors or by a
supplemental indenture as permitted by Section 2.01 in
conformity with the provisions of this Indenture;
(b) that the terms of such Securities have been established by
or pursuant to a resolution of the Board of Directors or by
a supplemental indenture as permitted by Section 2.03 in
conformity with the provisions of this Indenture;
(c) that such Securities, when authenticated and delivered by
the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of
Counsel, will constitute valid and legally binding
obligations of the Company;
(d) that all laws and requirements in respect of the execution
and delivery by the Company of the Securities have been
complied with and that authentication and delivery of the
Securities by the Trustee will not violate the terms of the
Indenture; and
<PAGE>
12
(e) such other matters as the Trustee may reasonably request.
The Trustee shall have the right to decline to authenticate and
deliver any Securities under this Section if the Trustee, being advised
by counsel, determines that such action may not lawfully be taken or if
the Trustee in good faith by its board of directors or trustees,
executive committee, or a trust committee of directors or trustees and/or
vice presidents shall determine that such action would expose the Trustee
to personal liability to existing holders.
SECTION 2.05. Date and Denomination of Securities. The
Securities shall be issuable as registered Securities without coupons and
in such denominations as shall be specified as contemplated by Section
2.03. In the absence of any such specification with respect to the
Securities of any series, the Securities of such Series shall be issuable
in the denominations of $1,000 and any multiple thereof. The Securities
shall be numbered, lettered, or otherwise distinguished in such manner or
in accordance with such plans as the officers of the Company executing
the same may determine with the approval of the Trustee as evidenced
by the execution and authentication thereof.
Every Security shall be dated the date of its authentication,
shall bear interest, if any from such date and shall be payable on such
dates, in each case, as contemplated by Section 2.03.
The person in whose name any Security of any series is
registered at the close of business on any record date (as hereinafter
defined) with respect to any interest payment date shall be entitled to
receive the interest, if any, payable on such interest payment date
notwithstanding the cancellation of such Security upon any transfer or
exchange subsequent to the record date and prior to such interest payment
date; provided, however, that if and to the extent the Company shall
default in the payment of the interest due on such interest payment date,
such defaulted interest shall be paid to the persons in whose names
outstanding Securities are registered on a subsequent record date
established by notice given by mail by or on behalf of the Company
to the holders of Securities not less than 15 days preceding such
subsequent record date, such subsequent record date to be not less than 5
days preceding the date of payment of such defaulted interest. The term
"record date" as used in this Section with respect to any interest
payment date shall mean if such interest payment date is the first day of
a calendar month, the fifteenth day of the next preceding calendar month
and shall mean, if such interest payment date is the fifteenth day of a
<PAGE>
13
calendar month, the first day of such calendar month, whether or not such
record date is a business day.
SECTION 2.06. Execution of Securities. The Securities shall be
signed in the name and on behalf of the Company by the facsimile
signature of its Chairman of the Board of Directors, President or one of
its Vice Presidents and by the facsimile signature of its Treasurer or
one of its Assistant Treasurers, under its corporate seal which may be
affixed thereto or printed, engraved or otherwise reproduced thereon, by
facsimile or otherwise, and which need not be attested. Only such
Securities as shall bear thereon a certificate of authentication
substantially in the form hereinbefore recited, executed by the Trustee
or the Authenticating Agent, shall be entitled to the benefits of this
Indenture or be valid or obligatory for any purpose. Such certificate by
the Trustee or the Authenticating Agent upon any Security executed by the
Company shall be conclusive evidence that the Security so authenticated
has been duly authenticated and delivered hereunder and that the holder
is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have signed any of
the Securities shall cease to be such officer before the Securities so
signed shall have been authenticated and delivered by the Trustee or the
Authenticating Agent, or disposed of by the Company, such Securities
nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Securities had not ceased to be such
officer of the Company; and any Security may be signed on behalf of the
Company by such persons as, at the actual date of the execution of such
Security, shall be the proper officers of the Company, although at
the date of the execution of this Indenture any such person was not such
an officer.
SECTION 2.07. Exchange and Registration of Transfer of
Securities. Subject to Section 2.03(12), Securities of any series may
be exchanged for a like aggregate principal amount of Securities of the
same series of other authorized denominations. Securities to be
exchanged may be surrendered at the principal office of the Trustee or at
any office or agency to be maintained by the Company for such purpose as
provided in Section 3.02, and the Company or the Trustee shall execute
and register and the Trustee or the Authenticating Agent shall
authenticate and deliver in exchange therefor the Security or Securities
which the Securityholder making the exchange shall be entitled to
receive. Upon due presentment for registration of transfer of any
Security of any series at the principal office of the
<PAGE>
14
Trustee or at any office or agency of the Company maintained for such
purpose as provided in Section 3.02, the Company or the Trustee shall
execute and register and the Trustee or the Authenticating Agent shall
authenticate and deliver in the name of the transferee or transferees a
new Security or Securities of the same series for a like aggregate
principal amount. Registration or registration of transfer of any
Security by the Trustee or by any agent of the Company appointed pursuant
to Section 3.02, and delivery of such Security, shall be deemed to
complete the registration or registration of transfer of such Security.
The Company or the Trustee shall keep, at the principal office
of the Trustee, a register for each series of Securities issued hereunder
in which, subject to such reasonable regulations as it may prescribe, the
Company or the Trustee shall register all Securities and shall register
the transfer of all Securities as in this Article Two provided. Such
register shall be in written form or in any other form capable of being
converted into written form within a reasonable time.
All Securities presented for registration of transfer or for
exchange or payment shall (if so required by the Company or the Trustee
or the Authenticating Agent) be duly endorsed by, or be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company and the Trustee or the Authenticating Agent duly executed by, the
holder or his attorney duly authorized in writing.
No service charge shall be made for any exchange or registration
of transfer of Securities, but the Company or the Trustee may require
payment of a sum sufficient to cover any tax, fee or other governmental
charge that may be imposed in connection therewith.
The Company or the Trustee shall not be required to exchange or
register a transfer of (a) any Security for a period of 15 days next
preceding the date of selection of Securities of such series for
redemption, or (b) any Securities of any series selected, called or being
called for redemption in whole or in part, except in the case of any
Securities of any series to be redeemed in part, the portion thereof not
so to be redeemed.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities.
In case any temporary or definitive Security shall become mutilated or be
destroyed, lost or stolen, the Company shall execute, and upon its
request, the Trustee shall authenticate and deliver, a new Security of
the same series bearing a number not contemporaneously outstanding, in
exchange and
<PAGE>
15
substitution for the mutilated Security, or in lieu of and in
substitution for the Security so destroyed, lost or stolen. In every
case the applicant for a substituted Security shall furnish to the
Company and the Trustee such security or indemnity as may be required by
them to save each of them harmless, and, in every case of destruction,
loss or theft, the applicant shall also furnish to the Company and the
Trustee evidence to their satisfaction of the destruction, loss or theft
of such Security and of the ownership thereof.
The Trustee may authenticate any such substituted Security and
deliver the same upon the written request or authorization of any officer
of the Company. Upon the issuance of any substituted Security, the
Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any
other expenses connected therewith. In case any Security which has
matured or is about to mature or has been called for redemption in full
shall become mutilated or be destroyed, lost or stolen, the Company may,
instead of issuing a substitute Security, pay or authorize the payment of
the same (without surrender thereof except in the case of a mutilated
Security) if the applicant for such payment shall furnish to the Company
and the Trustee such security or indemnity as may be required by them to
save each of them harmless and, in case of destruction, loss or theft,
evidence satisfactory to the Company and to the Trustee of the
destruction, loss or theft of such Security and of the ownership thereof.
Every substituted Security of any series issued pursuant to the
provisions of this Section 2.08 by virtue of the fact that any such
Security is destroyed, lost or stolen shall constitute an additional
contractual obligation of the Company, whether or not the destroyed, lost
or stolen Security shall be found at any time, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any
and all other Securities of the same series duly issued hereunder. All
Securities shall be held and owned upon the express condition that, to
the extent permitted by applicable law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities and shall preclude any and
all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or
payment of negotiable instruments or other securities without their
surrender.
<PAGE>
16
SECTION 2.09. Temporary Securities. Pending the preparation of
definitive Securities of any series the Company may execute and the
Trustee shall authenticate and deliver temporary Securities (printed or
lithographed). Temporary Securities shall be issuable in any authorized
denomination, and substantially in the form of the definitive Securities
but with such omissions, insertions and variations as may be appropriate
for temporary Securities, all as may be determined by the Company. Every
such temporary Security shall be executed by the Company and be
authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with the same effect, as the
definitive Securities. Without unreasonable delay the Company will
execute and deliver to the Trustee or the Authenticating Agent
definitive Securities and thereupon any or all temporary Securities of
such series may be surrendered in exchange therefor, at the principal
office of the Trustee or at any office or agency maintained by the
Company for such Purpose as provided in Section 3.02, and the Trustee or
the Authenticating Agent shall authenticate and deliver in exchange
for such temporary Securities a like aggregate principal amount of such
definitive Securities. Such exchange shall be made by the Company at its
own expense and without any charge therefor except that in case of any
such exchange involving a registration of transfer the Company may
require payment of a sum sufficient to cover any tax, fee or other
governmental charge that may be imposed in relation thereto. Until so
exchanged, the temporary Securities of any series shall in all respects
be entitled to the same benefits under this Indenture as definitive
Securities of the same series authenticated and delivered hereunder.
SECTION 2.10. Cancellations of Securities Paid, etc. All
Securities surrendered for the purpose of payment, redemption, exchange
or registration of transfer, shall, if surrendered to the Company or any
paying agent, be surrendered to the Trustee and promptly cancelled by it,
or, if surrendered to the Trustee or any Authenticating Agent, shall be
promptly cancelled by it, and no Securities shall be issued in lieu
thereof except as expressly permitted by any of the provisions of this
Indenture. All Securities cancelled by any Authenticating Agent shall be
delivered to the Trustee. The Trustee shall destroy cancelled Securities
and shall deliver a certificate of such destruction to the Company. If
the Company shall acquire any of the Securities, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Securities unless and until
the same am surrendered to the Trustee for cancellation.
<PAGE>
17
ARTICLE THREE.
PARTICULAR COVENANTS OF THE COMPANY.
SECTION 3.01. Payment of Principal, Premium and Interest. The
Company covenants and agrees for the benefit of each series of Securities
that it will duly and punctually pay or cause to be paid the principal of
and premium, if any, and interest on each of the Securities of that
series at the place, at the respective times and in the manner provided
in such Securities. Each installment of interest on the Securities of
any series may be paid by mailing checks for such interest payable to the
order of the holders of Securities entitled thereto as they appear on the
registry books of the Company.
SECTION 3.02. Offices for Notices and Payments, etc. So long as
any of the Securities remains outstanding, the Company will maintain in
the Borough of Manhattan, The City of New York and in Chicago, Illinois,
an office or agency where the Securities of each series may be presented
for payment, an office or agency where the Securities of that Series may
be presented for registration of transfer and for exchange as in this
Indenture provided and an office or agency where notices and demands to
or upon the Company in respect of the Securities of that Series or of
this Indenture may be served. The Company will give to the Trustee
written notice of the location of any such office or agency and of any
change of location thereof. Until otherwise designated from time to time
by the Company in a notice to the Trustee, or specified as contemplated
by Section 2.03, any such office or agency for all of the above purposes
shall be the office or agency of the Trustee. In case the Company shall
fail to maintain any such office or agency in the Borough of Manhattan,
The City of New York and in Chicago, Illinois, or shall fail to give such
notice of the location or of any change in the location thereof,
presentations and demands may be made and notices may be served at the
principal office of the Trustee.
In addition to any such office or agency, the Company may from
time to time designate one or more offices or agencies outside the
Borough of Manhattan, The City of New York or Chicago, Illinois, where
the Securities may be presented for registration of transfer and for
exchange in the manner provided in this Indenture, and the Company may
from time to time rescind such designation, as the Company may deem
desirable or expedient; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain any such office or agency in the Borough of Manhattan, The City
of New York and in Chicago,
<PAGE>
18
Illinois, for the purposes above mentioned. The Company will give to the
Trustee prompt written notice of any such designation or rescission
thereof.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's
Office. The Company, whenever necessary to avoid or fill a vacancy in
the office of Trustee, will appoint, in the manner provided in Section
6.10, a Trustee, so that there shall at all times be a Trustee hereunder.
Section 3.04. Provision as to Paying Agent. (a) If the Company
shall appoint a paying agent other than the Trustee with respect to the
Securities of any series, it will cause such paying agent to execute and
deliver to the Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provision of this Section 3.04,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium, if any, or
interest, if any, on the Securities of such series (whether
such sums have been paid to it by the Company or by any
other obligor on the Securities of such series) in trust
for the benefit of the holders of the Securities of such
series; and
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Securities of such
series) to make any payment of the principal of and
Premium, if any, or interest, if any, on the Securities of
such series when the same shall be due and payable.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of and premium, if any, or
interest, if any, on the Securities of any series, set aside, segregate
and hold in trust for the benefit of the holders of the Securities of
such series a sum sufficient to pay such principal, premium or interest
so becoming due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor under
the Securities of such series) to make any payment of the principal of
and premium, if any, or interest, if any, on the Securities of such
series when the same shall become due and payable.
(c) Anything in this Section 3.04 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge with respect to one or more or all
series of Securities hereunder,
<PAGE>
19
or for any other reason, pay or cause to be paid to the Trustee all sums
held in trust for any such series by the Trustee or any paying agent
hereunder, as required by this Section 3.04, such sums to be held by the
Trustee upon the trusts herein contained.
(d) Anything in this Section 3.04 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this
Section 3.04 is subject to Sections 11.03 and 11.04.
SECTION 3.05. Limitation on Liens. The Company will not itself
and will not permit any Restricted Subsidiary to, incur, issue, assume,
or guarantee any notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed, secured by a Mortgage on any Restricted
Property, or on any shares of stock or indebtedness of a Restricted
Subsidiary, without effectively providing concurrently with the
incurrence, issuance, assumption or guarantee of such secured
indebtedness that the Securities of each series (together with, if the
Company shall so determine, any other indebtedness of the Company or such
Restricted Subsidiary then existing or thereafter created ranking on a
parity with the Securities of each series) shall be secured equally and
ratably with (or prior to) such secured indebtedness, so long as such
secured indebtedness shall be so secured, unless, after giving effect
thereto, the aggregate amount of all such secured indebtedness (excluding
any indebtedness secured by Mortgages of the types referred to in clauses
(a) through (e) below) plus all Attributable Debt of the Company and its
Restricted Subsidiaries in respect of sale and leaseback transactions (as
defined in Section 3.06) involving Restricted Property, but excluding any
Attributable Debt in respect of any such sale and leaseback transactions,
the proceeds of which have been applied to the retirement of Funded Debt
pursuant to clause (c) of Section 3.06, would not exceed 10% of
Consolidated Adjusted Net Assets as shown on the latest audited
consolidated financial statements of the Company, provided, however, that
this Section 3.05 shall not apply to:
(a) Mortgages on property of, or on any shares of stock or
indebtedness of, any corporation existing at the time such
corporation becomes a Subsidiary;
(b) Mortgages on property existing at the time of acquisition
thereof (including acquisition through merger or
consolidation) or to secure the payment of all or any part
of the purchase price or construction cost thereof or to
secure any indebtedness incurred prior to, at the time of,
or within 6 months after, the acquisition or
<PAGE>
20
completion of such property for the purpose of financing
all or any part of the purchase price or construction cost
thereof;
(c) Mortgages to secure the cost of exploration, drilling or
development of, or the cost of improvements to, such
property as is, in the opinion of the Board of Directors,
substantially unimproved, or to secure indebtedness
incurred for the purpose of financing any such costs;
(d) Mortgages in favor of the Company or any Restricted
Subsidiary; and
(e) any extension, renewal or replacement (or successive
extensions, renewals or replacements), as a whole or in
part, of any Mortgage referred to in the foregoing clauses
(a) to (d), inclusive; provided, that such extension,
renewal or replacement Mortgage shall be limited to all or
a part of the same property that secured the Mortgage
extended, renewed or replaced (plus improvements on such
property).
The following types of transactions, among others, shall not be
deemed to create indebtedness secured by a Mortgage within the meaning of
the foregoing paragraph:
(1) the sale or transfer of crude oil, natural gas or natural
gas liquids in place for a period of time until, or in an
amount such that, the purchaser or transferee will realize
therefrom a specified amount of money (however determined)
or a specified amount of such oil, gas or gas liquids, or
any other interest in property commonly referred to as a
"production payment"; and
(2) the Mortgage of any property of the Company or any
Subsidiary in favor of the United States of America, or any
State, or any entity, department, agency, instrumentality
or political subdivision of either, to secure partial,
progress, advance or other payments to the Company or any
Subsidiary pursuant to the provisions of any contract or
statute, or the Mortgage of any property to secure
indebtedness of the pollution control or industrial revenue
bond type.
SECTION 3.06. Limitations on Sales and Leasebacks. The Company
will not itself, and will not permit any Restricted Subsidiary to, enter
into any arrangement with any bank, insurance company or other lender or
investor (not including the Company or any Restricted Subsidiary), or to
<PAGE>
21
which any such lender or investor is a party, providing for the leasing
by the Company or such Restricted Subsidiary for a period, including
renewals, in excess of 3 years of any Restricted Property which has been
owned and operated by the Company or such Restricted Subsidiary for more
than 6 months and which has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such lender or investor or to
any person to whom funds have been or are to be advanced by such lender
or investor on the security of such Restricted Property (herein referred
to as a "sale and leaseback transaction") unless either:
(a) the Company or such Restricted Subsidiary could create
indebtedness secured by a Mortgage Pursuant to Section 3.05
on the Restricted Property to be leased, in an amount equal
to the Attributable Debt with respect to such sale and
leaseback transaction, without equally and ratably securing
the Securities of each series.
(b) since the date hereof and within a period commencing 12
months prior to the consummation of the sale and leaseback
transaction and ending 12 months after the consummation of
such sale and leaseback transaction, the Company or any
Restricted Subsidiary, as the case may be, has expended or
will expend for any Restricted Property an amount equal to
(i) the greater of (x) the net proceeds of such sale and
leaseback transaction and (y) the fair market value of the
Restricted Property so leased at the time of entering into
such transaction, as determined by the Board of Directors
(the greater of the sums specified in clauses (x) and (y)
being referred to herein as the "Net Proceeds of such
transaction"), and the Company elects to designate such
amount as satisfying any obligation it would otherwise have
under clause (c) hereof or (ii) a part of the Net Proceeds
of such transaction and the Company elects to designate
such amount as satisfying part of the obligation it would
otherwise have under clause (c) hereof and applies an
amount equal to the remainder of such Net Proceeds as
provided in clause (c) hereof; or
(c) the Company, within 12 months of the consummation of any
such sale and leaseback transaction, applies an amount
equal to the Net Proceeds of such transaction (less any
amount elected under clause (b) of this Section 3.06) to
the retirement of Funded Debt of the Company ranking on a
parity with the Securities of each series. No retirement
referred to in this clause (c) may be effected by payment
at
<PAGE>
22
maturity or pursuant to any mandatory sinking fund or
prepayment provision.
SECTION 3.07. Certificate to Trustee. The Company will deliver
to the Trustee on or before April 30 in each year (beginning with April
30, 1991), so long as Securities of any series are outstanding hereunder,
an Officers' Certificate stating that in the course of the performance by
the signers of their duties as officers of the Company they would
normally have knowledge of any default by the Company in the performance
of any covenants contained in Sections 3.05, 3.06 and 10.03, stating
whether or not they have knowledge of any such default and, if so,
specifying each such default of which the signers have knowledge and the
nature thereof.
ARTICLE FOUR.
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE.
SECTION 4.01. Securityholders' Lists. The Company covenants and
agrees that it will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each record date
for each series of Securities, a list, in such form as the
Trustee may reasonably require, of the names and addresses
of the Securityholders of such series of Securities as of
such record date (and on dates to be determined pursuant to
Section 2.03 for non-interest bearing securities in each
year); and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company, of any
such request, a list of similar form and content as of a
date not more than 15 days prior to the time such list is
furnished,
except that no such lists need be furnished so long as the Trustee is in
possession thereof by reason of its acting as Security registrar for such
series.
SECTION 4.02. Preservation and Disclosure of Lists. (a) The
Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders
of each series of Securities (1) contained in the most recent list
furnished to it as provided in Section 4.01 or (2) received by it in the
capacity of Securities registrar
<PAGE>
23
(if so acting) hereunder. The Trustee may destroy any list furnished to
it as provided in Section 4.01 upon receipt of a new list so furnished.
(b) In case 3 or more holders of Securities of any series
(hereinafter referred to as "applicants") apply in writing to the Trustee
and furnish to the Trustee reasonable proof that each such applicant has
owned a Security of such series for a period of at least 6 months
preceding the date of such application, and such application states that
the applicants desire to communicate with other holders of Securities of
such series or with holders of all Securities with respect to their
rights under this Indenture or under such Securities and is accompanied
by a copy of the form of proxy or other communication which such
applicants propose to transmit, then the Trustee shall within 5 business
days after the receipt of such application, at its election, either:
(1) afford such applicants access to the information preserved
at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 4.02, or
(2) inform such applicants as to the approximate number of
holders of such series or all Securities, as the case may
be, whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with the
Provisions of subsection (a) of this Section 4.02, and as
to the approximate cost of mailing to such Securityholders
the form of proxy or other communication, if any, specified
in such application.
If the Trustee shall elect not to afford such applicants access
to such information, the Trustee shall, upon the written request of such
applicants, mail to each Securityholder of such series or all Securities,
as the case may be, whose name and address appear in the information
preserved at the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 4.02 a copy of the form of proxy or other
communication which is specified in such request with reasonable
promptness after a tender to the Trustee of the material to be mailed and
of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within 5 days after such tender, the Trustee shall mail
to such applicants and file with the Securities and Exchange Commission,
together with a copy of the material to be mailed, a written statement
to the effect that in the opinion of the Trustee, such mailing would be
contrary to the best interests of the holders of Securities of such
series or all Securities, as the case may be, or would be in Violation of
applicable law. Such written statement shall specify the basis
<PAGE>
24
of such opinion. If said Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if, after
the entry of an order sustaining 1 or more of such objections, said
Commission shall find, after notice and opportunity for hearing, that all
the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all such
Securityholders with reasonable promptness after the entry of such order
and the renewal of such tender; otherwise the Trustee shall be relieved
of an obligation or duty to such applicants respecting their application.
(c) Each and every holder of Securities, by receiving and
holding the same, agrees with Company and the Trustee that neither the
Company nor the Trustee nor any paying agent shall be held accountable by
reason of the disclosure of any such information as to the names and
addresses of the holders of Securities in accordance with the provisions
of subsection (b) of this Section 4.02, regardless of the source from
which such information was derived, and that the Trustee shall not be
held accountable by reason of mailing any material pursuant to a request
made under said subsection (b).
SECTION 4.03. Reports by Company. (a) The Company covenants and
agrees to file with the Trustee, within 15 days after the Company is
required to file the same with the Securities and Exchange Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as said
Commission may from time to time by rules and regulations prescribe)
which the Company may be required to file with said Commission pursuant
to Section 13 or Section 15 (d) of the Securities Exchange Act of 1934,
or, if the Company is not required to file information, documents or
reports pursuant to either of such sections, then to file with the
Trustee and said Commission, in accordance with rules and regulations
prescribed from time to time by said Commission, such of the
supplementary and periodic information, documents and reports which may
be required pursuant to Section 13 of the Securities Exchange Act of 1934
in respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations.
(b) The Company covenants and agrees to file with the Trustee
and the Securities and Exchange Commission, in accordance with the rules
and regulations prescribed from time to time by said Commission, such
additional information, documents and reports with respect to compliance
by
<PAGE>
25
the Company with the conditions and covenants provided for in this
Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail to all
holders of Securities, as the names and addresses of such holders appear
upon the Security register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to subsections (a) and (b)
of this Section 4.03 as may be required by rules and regulations
prescribed from time to time by the Securities and Exchange Commission.
SECTION 4.04. Reports by the Trustee. (a) On or before March 1,
1991, and on or before March 1 in every year thereafter, so long as any
Securities are outstanding hereunder, the Trustee shall transmit to the
Securityholder of each series of Securities for which such Trustee is
appointed, as hereinafter in this Section 4.04 provided, a brief report
dated as of a date convenient to the Trustee no more than 60 nor less
than 45 days prior thereto with respect to:
(1) its eligibility under Section 6.09, and its qualification
under Section 6.08, or in lieu thereof, if to the best of
its knowledge it has continued to be eligible and qualified
under such Sections, a written statement to such effect;
(2) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding
the making thereof) made by the Trustee (as such) which
remain unpaid on the date of such report, and for the
reimbursement of which it claims or may claim a lien or
charge, prior to that of the Securities, on any property or
funds held or collected by it as Trustee, except that the
Trustee shall not be required (but may elect) to state such
advances if such advances so remaining unpaid aggregate not
more than 1/2 of 1% of the principal amount of the
Securities for any series outstanding on the date of such
report;
(3) the amount, interest rate, and maturity date of all other
indebtedness owing by the Company (or by any other obligor
on the Securities) to the Trustee in its individual
capacity, on the date of such report, with a brief
description of any property held as collateral security
therefor, except an indebtedness based upon a creditor
rela-
<PAGE>
26
tionship arising in any manner described in paragraph (2),
(3), (4) or (6) of subsection (b) of Section 6.13;
(4) the property and funds, if any, physically in the
possession of the Trustee, as such, on the date of such
report;
(5) any additional issue of Securities which the Trustee has
not previously reported; and
(6) any action taken by the Trustee in the performance of its
duties under this Indenture which it has not previously
reported and which in its opinion materially affects the
Securities, except action in respect of a default, notice
of which has been or is to be withheld by it in accordance
with the provisions of Section 5.08.
(b) The Trustee shall transmit to the Securityholders for each
series as hereinafter provided, a brief report with respect to the
character and amount of any advances (and if the Trustee elects so to
state, the circumstances surrounding the making thereof) made by the
Trustee (as such), since the date of the last report transmitted pursuant
to the provisions of subsection (a) of this Section 4.04 (or, if no such
report has yet been so transmitted, since the date of execution of this
Indenture), for the reimbursement of which it claims or may claim a lien
or charge prior to that of the Securities of such series on property or
funds held or collected by it as Trustee, and which it has not previously
reported pursuant to this subsection, except that the Trustee shall not
be required (but may elect) to report such advances if such advances
remaining unpaid at any time aggregate 10% or less of the principal
amount of Securities for such series outstanding at such time, such
report to be transmitted within 90 days after such time.
(c) Reports pursuant to this Section 4.04 shall be transmitted
by mail to all holders of Securities as the names and addresses of such
holders appear upon the Security register.
(d) A copy of each such report shall at the time of such
transmission to Securityholders, be filed by the Trustee with each stock
exchange upon which the Securities of any applicable series are listed
and also with the Securities and Exchange Commission. The Company will
notify the Trustee when and as the Securities of any series become listed
on any stock exchange.
<PAGE>
27
ARTICLE FIVE.
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 5.01. Events of Default. In case one or more of the
following Events of Default with respect to Securities of any series or
such other events as may be established with respect to the Securities of
that series as contemplated by Section 2.03 hereof shall have occurred
and be continuing:
(a) default in the payment of any interest upon any Securities
of that series when it becomes due and payable, and
continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal
of (or premium, if any, on) any Securities of that series
as and when the same shall become due and payable either at
maturity, upon redemption (including redemption for the
sinking fund), by declaration or otherwise; or
(c) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a
covenant or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically
dealt with and other than those set forth exclusively in
terms of any particular series of Securities established as
contemplated in this Indenture), and continuance of such
default or breach for a period of 90 days after there has
been given, by registered or certified mail to the Company
by the Trustee or to the Company and the Trustee by the
holders of at least 10% in principal amount of the
outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default"
hereunder, or
(d) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect,
or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company
or for any substantial part of its property, or ordering
the winding-up or liquidation of its affairs and such
decree or order shall remain unstayed and in effect for a
period of 90 consecutive days; or
<PAGE>
28
(e) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under any such law,
or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or
of any substantial part of its property, or shall make any
general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due.
If an Event of Default described in clause (a) or (b) or established
pursuant to Section 2.03 occurs and is continuing, then, and in each and
every such case, unless the principal of all of the Securities of such
series shall have already become due and payable, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the
Securities of all series affected thereby then outstanding hereunder, by
notice in writing to the Company (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if the Securities
of that series are Original Issue Discount Securities, such portion of
the principal amount as may be specified in the terms of that series) of
all Securities affected thereby and the interest accrued thereon, if any,
to be due and payable immediately, and upon any such declaration the same
shall become immediately due and payable. If an Event of Default
described in clause (c), (d) or (e) occurs and is continuing, then and
in each and every such case, unless the principal of all the Securities
shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of all the
Securities then outstanding hereunder (treated as one class), by notice
in writing to the Company (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if any Securities
are Original Issue Discount Securities, such portion of the principal as
may be specified in the terms thereof) of all the Securities then
outstanding and interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become
immediately due and payable.
The foregoing provisions, however, are subject to the condition
that if, at any time after the principal (or, if the Securities are
Original Issue Discount Securities, such portion of the Principal as may
be specified in the terms thereof) of the Securities of any series (or of
all the Securities, as the case may be) shall have been so declared due
and payable, and before any
<PAGE>
29
judgment or decree for the payment of the moneys due shall have been
obtained or entered as hereinafter provided, the Company shall pay or
shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest upon all the Securities of such series (or of
all the Securities, as the case may be) and the principal of and premium,
if any, on any and all Securities of such series (or of all the
Securities, as the case may be) which shall have become due otherwise
than by acceleration (with interest upon such principal and premium, if
any, and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the same
rate as the rate of interest or Yield to Maturity (in the case of
Original Issue Discount Securities) specified in the Securities of such
series, (or at the respective rates of interest or Yields to Maturity of
all the Securities, as the case may be) to the date of such payment or
deposit) and such amount as shall be sufficient to cover reasonable
compensation to the Trustee and each predecessor Trustee, their
respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Trustee and each
Predecessor Trustee except as a result of negligence or bad faith, and if
any and all Events of Default under the Indenture, other than the
non-payment of the principal of or premium, if any, on Securities which
shall have become due by acceleration, shall have been cured, waived or
otherwise remedied an provided herein - then and in every such case the
holders of a majority in aggregate principal amount of the Securities of
such series (or of all the Securities, as the case may be) then
outstanding, by written notice to the Company and to the Trustee, may
waive all defaults with respect to that series (or with respect to all
Securities, as the case may be, in such case, treated as a single class)
and rescind and annul such declaration and its consequences, but no such
waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such rescission or annulment or for any other reason
or shall have been determined adversely to the Trustee, then and in every
such case the Company, the Trustee and the holders of the Securities
shall be restored respectively to their several positions and rights
hereunder, and all rights, remedies and powers of the Company, the
Trustee and the holders of the Securities shall continue as though no
such proceeding had been taken.
<PAGE>
30
SECTION 5.02. Payment of Securities on Default; Suit Therefor.
The Company covenants that (a) in case default shall be made in the
payment of any installment of interest upon any of the Securities of any
series as and when the same shall become due and payable, and such
default shall have continued for a period of 30 days, or (b) in case
default shall be made in the payment of the principal of or premium, if
any, on any of the Securities of any series as and when the same shall
have become due and payable, whether at maturity of the Securities of
that series or upon redemption or by declaration or otherwise - then,
upon demand of the Trustee, the Company will pay to the Trustee, for the
benefit of the holders of the Securities of that series, the whole amount
that then shall have become due and payable on all such Securities of
that series for principal and premium, if any or interest, or both, as
the case may be, with interest upon the overdue principal and premium, if
any, and (to the extent that payment of such interest is enforceable
under applicable law) upon the overdue installments of interest at the
rate or Yield to Maturity (in the case of Original Issue Discount
Securities) borne by the Securities of that series; and, in addition
thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including a reasonable compensation to the
Trustee, its agents, attorneys and counsel, and any expenses or
liabilities incurred by the Trustee hereunder other than through its
negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any actions
or proceedings at law or in equity for the collection of the sums so due
and unpaid, and may prosecute any such action or proceeding to judgment
or final decree, and may enforce any such judgment or final decree
against the Company or any other obligor on such Securities and collect
in the manner provided by law out of the property of the Company or any
other obligor on such Securities wherever situated the moneys adjudged or
decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the
Securities of any series under Title 11, United States Code, or any other
applicable law, or in case a receiver or trustee shall have been
appointed for the property of the Company or such other obligor, or in
the case of any other similar judicial proceedings relative to the
Company or other obligor upon the Securities of any series, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of the
<PAGE>
31
Securities of any series shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand pursuant to the provisions of this
Section 5.02, shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the
whole amount of principal and interest (or, if the Securities of that
series are Original Issue Discount Securities such portion of the
principal amount as may be specified in the terms of that series) owing
and unpaid in respect of the Securities of such series and, in case of
any judicial proceedings, to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for reasonable compensation to the
Trustee and each predecessor Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of mail expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee, except as a result of negligence or bad faith) and
of the Securityholders allowed in such judicial proceedings relative to
the Company or any other obligor on the Securities of any series, or to
the creditors or property of the Company or such other obligor, unless
prohibited by applicable law and regulations, to vote on behalf of the
holders of title Securities or any series in any election of a trustee or
a standby trustee in arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or person performing similar
functions in comparable proceedings, and to collect and receive any
moneys or other property payable or deliverable on any such claims, and
to distribute the same after the deduction of its charges and expenses;
and any receiver, assignee or trustee in bankruptcy or reorganization is
hereby authorized by each of the Securityholders to make such payments to
the Trustee, and, in the event that the Trustee shall consent to the
making of such payments directly to the Securityholders, to pay to the
Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Trustee, each predecessor Trustee and their
respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made by the Trustee and each
predecessor Trustee except as a result of negligence or bad faith.
Nothing herein contained shall be construed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities of any series or the rights of any
holder thereof or to authorize the Trustee to vote in respect of the
claim of any Securityholder in any such proceeding.
<PAGE>
32
All rights of action and of asserting claims under this
Indenture, or under any of the Securities, may be enforced by the Trustee
without the possession of any of the Securities, or the production
thereof on any trial or other proceeding relative thereto, and any such
suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall
be for the ratable benefit of the holders of the Securities.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this
Indenture to which the Trustee shall be a party) the Trustee shall be
held to represent all the holders of the Securities, and it shall not be
necessary to make any Holders of the Securities parties to any
such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee. Any
moneys collected by the Trustee shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution
of such moneys, upon presentation of the several Securities in respect of
which moneys have been collected, and stamping thereon the payment, if
only partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection
applicable to such series and reasonable compensation to the Trustee, its
agents, attorneys and counsel, and of all other expenses and
liabilities incurred, and all advances made, by the Trustee except as a
result of its negligence or bad faith;
SECOND: In case the principal of the outstanding Securities in
respect of which moneys have been collected shall not have become due and
be unpaid, to the payment of interest on the Securities of such series,
in the order of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest or Yield to Maturity
(in the case of Original Issue Discount Securities) at the rate borne by
the Securities of such series, such payments to be made ratably to the
persons entitled thereto;
THIRD: In case the principal of the outstanding Securities in
respect of which moneys have been collected shall have become due, by
declaration or otherwise, to the payment of the whole amount then owing
and unpaid upon the Securities of such series for principal and premium,
if any, and interest, with interest on the overdue principal
<PAGE>
33
and premium, if any, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of such series; and in case such
moneys shall be insufficient to pay in the whole amount so due and unpaid
upon the Securities of such series, then to the payment of such principal
and premium, if any, and interest without preference or priority of
principal and premium, if any, over interest, or of interest over
principal and premium, if any, or of any installment of interest over any
other installment of interest, or of any Security of such series over any
other Security of such series, ratably to the aggregate of such principal
and premium, if any, and accrued and unpaid interest.
SECTION 5.04. Proceedings by Securityholders. No holder of any
Security of any series shall have any right by virtue of or by availing
of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless such holder previously shall have given to
the Trustee written notice of default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than 25%
in aggregate principal amount of the Securities of that series then
outstanding or, in the case of any Event of Default described in clause
(c), (d) or (e) of Section 5.01. 25% in aggregate principal amount of all
Securities then outstanding, shall have made written request upon the
Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities
to be incurred therein or thereby, and the Trustee for 60 days after its
receipt of such notice, request and offer of indemnity shall have failed
to institute any such action, suit or proceeding, it being understood and
intended, and being expressly covenanted by the taker and holder of every
Security with every other taker and holder and the Trustee, that no one
or more holders of Securities of any series shall have any right in any
manner whatever by virtue of or by availing of any provision of this
Indenture to affect, disturb or prejudice the rights of any other holder
of Securities, or to obtain or seek to obtain priority over or preference
to any other such holder, or to enforce any right under this Indenture,
except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Securities of the applicable series.
<PAGE>
34
Notwithstanding any other Provisions in this Indenture, however,
the right of any holder of any Security to receive payment of the
principal of, premium, if any, and interest, if any, on such Security, on
or after the same shall have become due and payable, or to institute suit
for the enforcement of any such payment, shall not be impaired or
affected without the consent of such holder.
SECTION 5.05. Proceedings by Trustee. In case of an Event of
Default hereunder the Trustee may in its discretion proceed to protect
and enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to protect
and enforce any of such rights, either by suit in equity or by action at
law or by proceeding in bankruptcy or otherwise, whether for the specific
enforcement of any covenant or agreement contained in this Indenture or
in aid of the exercise of any power granted in this Indenture, or to
enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing. All powers
and remedies given by this Article Five to the Trustee or to the
Securityholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Securities, by
judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture,
and no delay or omission of the Trustee or of any holder of any of the
Securities to exercise any right or power accruing upon any default
occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of Section 5.04,
every power and remedy given by this Article Five or by law to the
Trustee or to the Securityholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the
Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders. The holders of a majority in aggregate
principal amount of the Securities of any or all series affected (voting
as one class) at the time outstanding shall have the right to direct the
time, method, and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on
the Trustee; provided, however, that (subject to the provisions of
Section 6.01) the Trustee shall have the right to decline to follow any
such direction if the
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35
Trustee shall determine that the action so directed would be unjustly
prejudicial to the holders not taking part in such direction or if the
Trustee being advised by counsel determines that the action or proceeding
so directed may not lawfully be taken or if the Trustee in good faith by
its board of directors or trustees, executive committee, or a trust
committee of directors or trustees and/or Responsible Officers shall
determine that the action or proceedings so directed would involve the
Trustee in personal liability. Prior to any declaration accelerating the
maturity of any series of the Securities, or of all the Securities, as
the case may be, the holders of a majority in aggregate principal amount
of the Securities of that series at the time outstanding may on behalf of
the holders of all of the Securities of such series waive any past
default or Event of Default including any default established pursuant to
Section 2.03 (or, in the case of an event specified in clause (c), (d) or
(e) of Section 5.01, the holders of a majority in aggregate principal
amount of all the Securities then outstanding (voting as one class) may
waive such default or Event of Default), and its consequences except a
default (a) in the payment of principal of, premium, if any, or interest
on any of the Securities or (b) in respect of covenants or provisions
hereof which cannot be modified or amended without the consent of the
holder of each Security affected. Upon any such waiver the Company, the
Trustee and the holders of the Securities of that series (or of all
Securities, as the case may be) shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other default or Event of Default or impair
any right consequent thereon. Whenever any default or Event
of Default hereunder shall have been waived as permitted by this Section
5.07, said default or Event of Default shall for all purposes of the
Securities of that series (or of all Securities, as the case may be) and
this Indenture be deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults. The Trustee shall, within 90
days after the occurrence of a default with respect to the Securities of
any series, mail to all Securityholders of that series, as the names and
addresses of such holders appear upon the Security register, notice of
all defaults with respect to that series known to the Trustee, unless
such defaults shall have been cured before the giving of such notice (the
term "defaults" for the purpose of this Section 5.08 being hereby defined
to be the events specified in clauses (a), (b), (c), (d) and (e) of
Section 5.01, not including periods of grace, if any, provided for
therein, and irrespective of the giving of written notice specified in
clause (e) of Section 5.01); and provided that,
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36
except in the case of default in the Payment of the principal of,
premium, if any, or interest on any of the Securities of such series, the
Trustee shall be protected in withholding such notice if and so long as
the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Securityholders of such series; and provided further, that in the case of
any default of the character specified in Section 5.01 (c) no such notice
to Securityholders of such series shall be given until at least 60 days
after the occurrence thereof but shall be given within 90 days after such
occurrence.
SECTION 5.09. Undertaking to Pay Costs. All parties to this
Indenture agree, and each holder of any Security by his acceptance
thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs,
including reasonable attorneys fees, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section
5.09 shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Securityholder, or group of Securityholders of any
series holding in the aggregate more than 10% in principal amount of the
Securities of that series (or, in the case of any suit relating to or
arising under clause (c), (d) or (e) of Section 5.01, 10% in aggregate
principal amount of all Securities) outstanding, or to any suit
instituted by any Securityholder for the enforcement of the payment of
the principal of or premium, if any, or interest on any Security against
the Company on or after the same shall have become due and payable.
ARTICLE SIX
CONCERNING THE TRUSTEE.
SECTION 6.01. Duties and Responsibilities of Trustee. With
respect to the holders of any series of Securities issued hereunder, the
Trustee, prior to the occurrence of an Event of Default with respect to
securities of that series and after the curing or waiving of all Events
of Default which may have occurred, with respect to securities of that
series, undertakes to perform such duties and only such duties as are
specifically set forth in this
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37
Indenture. In case an Event of Default with respect to the Securities of
a series has occurred (which has not been cured or waived) the Trustee
shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise,
as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect
to Securities of a series and after the curing or waiving
of all Events of Default with respect to that series which
may have occurred
(1) the duties and obligations of the Trustee with respect to
Securities of a series shall be determined solely by the
express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and
obligations with respect to such series as are specifically
set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture; but, in the case of any such certificates or
opinions which by any Provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers
of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith, in
accordance with the direction of the Securityholders
pursuant to Section 5.07, relating to the time, method and
place of conducting any proceeding for any
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38
remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is reasonable ground
for believing that the repayment of such funds or liability is not
reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc. Except as
otherwise provided in Section 6.01
(a) the Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond,
note, debenture or other paper or document believed by it
to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an
Officers' Certificate (unless other evidence in respect
thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to
the Trustee by a copy thereof certified by the Secretary or
an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or omitted by
it hereunder in good faith and in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request, order or direction of any of the Securityholder,
pursuant to the provisions of this Indenture, unless such
Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or
thereby;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers
conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default,
the Trustee shall not be bound to make any investigation
into the facts or matters stated
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39
in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval,
bond, debenture, coupon or other paper or document, unless
requested in writing to do so by the holders of not less
than a majority in principal amount of the Securities of
all series affected then outstanding; provided, however,
that if the payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity
against such expense or liability as a condition to so
proceeding; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly
or by or through agents (including any Authenticating
Agent) or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of
any such agent or attorney appointed by it with due care.
SECTION 6.03. No Responsibility for Recitals, etc. The recitals
contained herein and in the Securities (except in the certificate of
authentication of the Trustee or the Authenticating Agent) shall be taken
as the statements of the Company and the Trustee and the Authenticating
Agent assume no responsibility for the correctness of the same. The
Trustee and the Authenticating Agent make no representations as to the
validity or sufficiency of this Indenture or of the Securities. The
Trustee and the Authenticating Agent shall not be accountable for the use
or application by the Company of any Securities or the proceeds of any
Securities authenticated and delivered by the Trustee or the
Authenticating Agent in conformity with the provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities. The Trustee or any
Authenticating Agent or any paying agent or any transfer agent or any
Security registrar, in its individual or any other capacity, may become
the owner or pledgee of Securities with the same rights it would have if
it were not Trustee, Authenticating Agent, paying agent, transfer agent
or Security registrar.
SECTION 6.05. Moneys to be Held in Trust. Subject to the
provisions of Section 11.04, all moneys received by the Trustee or any
paying agent shall, until used or applied an herein provided, be held in
trust for the purpose for which they were received, but need not be
segregated from
<PAGE>
40
other funds except to the extent required by law. The Trustee and any
paying agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company. So
long as no Event of Default shall have occurred and be continuing all
interest allowed on any such moneys shall be paid from time to time upon
the written order of the Company, signed by the Chairman of the Board of
Directors, the President or a Vice President or the Treasurer or an
Assistant Treasurer of the Company.
SECTION 6.06. Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and
the expenses and disbursements of its counsel and of all persons not
regularly in its employ and any amounts paid by the Trustee to any
Authenticating Agent pursuant to Section 6.14) except any such expense,
disbursement or advance as may arise from its negligence or bad faith.
The Company also covenants to indemnify the Trustee for, and to hold it
harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Trustee and arising out of or
in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim of
liability in the premises. The obligations of the Company under this
Section 6.06 to compensate the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder. Such additional indebtedness shall be
secured by a lien prior to that of the Debentures upon all property and
funds held or collected by the Trustee as such, except funds held in
trust for the benefit of the holders of particular Securities.
SECTION 6.07. Officers' Certificate as Evidence. Except as
otherwise provided in Sections 6.01 and 6.02, whenever in the
administration of the provisions of this Indenture the Trustee shall
deem it necessary or desirable that a matter be proved or established
prior to taking or omitting any action hereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may,
in the absence of negligence or bad faith on the part of the Trustee, be
deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such
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41
Certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or
omitted by it under the provisions of this Indenture upon the faith
thereof.
SECTION 6.08. Conflicting Interest of Trustee. (a) If the
Trustee has or shall acquire any conflicting interest, as defined in this
Section 6.08, it shall, within 90 days after ascertaining that it has
such conflicting interest, either eliminate such conflicting interest or
resign in the manner and with the effect specified in Section 6.10.
(b) In the event that the Trustee shall fail to comply with the
provisions of subsection (a) of this Section 6.08, the Trustee shall,
within 10 days after the expiration of such 90-day period, transmit
notice of such failure to all holders of Securities, as the names and
addresses of such holders appear upon the Securities register.
(c) For the purposes of this Section 6.08 the Trustee shall be
deemed to have a conflicting interest with respect to Securities of any
series if
(1) the Trustee is trustee under this Indenture with respect to
the Securities of any other series or under another
indenture under which any other securities, or certificates
of interest or participation in any other securities, of
the Company or other obligor on the Securities of such
series (each of which is hereafter in this Section called a
"Security party") are outstanding, unless such other
indenture is a collateral trust indenture under which the
only collateral consists of Securities issued under this
Indenture; provided that there shall be excluded from the
operation of this paragraph, this Indenture with respect to
the Securities of any other series and any other indenture
or indentures under which other securities, or certificates
of interest or participation in other securities, of a
Security party, are outstanding if (i) this Indenture is
and, if applicable, this Indenture and such other indenture
or indentures are wholly unsecured and such other indenture
or indentures are hereafter qualified under the Trust
Indenture Act of 1939, unless the Securities and Exchange
Commission shall have found and declared by order pursuant
to subsection (b) of Section 305 or subsection (c) of
Section 307 of the Trust Indenture Act of 1939 that
differences exist between the provisions of this Indenture
with respect to Securities of such series and one or more
other series or, if applicable, this Indenture and the
provisions of such other indenture or indentures which are
so likely to involve a material conflict of interest as to
make it necessary in the public interest or for the
protection of
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42
investors to disqualify the Trustee from acting as such
under this Indenture and such other indenture or
indentures, or (ii) the Company shall have sustained the
burden of proving, on application to the Securities and
Exchange Commission and after opportunity for hearing
thereon, that trusteeship under this Indenture with respect
to Securities of such series and one or more other series
or, if applicable, this Indenture and such other indenture
or indentures is not so likely to involve a material
conflict of interest as to make it necessary in the public
interest or for the protection of investors to disqualify
the Trustee from acting as such under this Indenture with
respect to Securities of such series and one or more other
series or, if applicable, this Indenture and one of such
indentures;
(2) the Trustee or any of its directors or executive officers
is an obligor upon the Securities of any series issued
under this Indenture or an underwriter for a Security
party;
(3) the Trustee directly or indirectly controls or is directly
or indirectly controlled by or is under direct or indirect
common control with a Security party or an underwriter for
a Security party;
(4) the Trustee or any of its directors or executive officers
is a director, officer, partner, employee, appointee, or
representative of a Security party, or of an underwriter
(other than the Trustee itself) for a Security party who is
currently engaged in the business of underwriting, except
that (A) one individual may be a director and/or an
executive officer of the Trustee and a director and/or an
executive officer of a Security party, but may not be at
the same time an executive officer of both the Trustee and
a Security party; (B) if and so long as the number of
directors of the Trustee in office is more than 9, one
additional individual may be a director and/or an executive
officer of the Trustee and a director of a Security party;
and (C) the Trustee may be designated by a Security party
or by an underwriter for a Debenture party to act in the
capacity of transfer agent, registrar, custodian, paying
agent, fiscal agent, escrow agent, or depositary, or in any
other similar capacity, or, subject to the provisions of
paragraph (1) of this subsection (c), to act as trustee
whether under an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by a Security party or by any
director, partner, or executive officer thereof, or 20% or
more of such voting securities is
<PAGE>
43
beneficially owned, collectively, by any 2 or more of such
persons; or 10% or more of the voting securities of the
Trustee is beneficially owned either by an underwriter for
a Security party or by any director, partner, or executive
officer thereof, or is beneficially owned, collectively, by
any 2 or more such persons;
(6) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default,
(A) 5% or more of the voting securities, or 10% or more of
any other class of security, of a Security party, not
including the Securities issued under this Indenture and
securities issued under any other indenture under which the
Trustee is also trustee, or (B) 10% or more of any class of
security of an underwriter for a Security party;
(7) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default,
5% or more of the voting securities of any person who, to
the knowledge of the Trustee, owns 10% or more of the
voting securities of, or controls directly or indirectly or
is under direct or indirect common control with, a Security
party;
(8) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default,
10% or more of any class of security of any person who, to
the knowledge of the Trustee, owns 50% or more of the
voting securities of a Security party; or
(9) the Trustee owns on May 15 in any calendar year, in the
capacity of executor, administrator, testamentary or inter
vivos trustee, guardian, committee or conservator, or in
any other similar capacity, an aggregate of 25% or more of
the voting securities, or of any class of security, of any
person, the beneficial ownership of a specified percentage
of which would have constituted a conflicting interest
under paragraph (6), (7), or (8) of this subsection (c).
As to any such securities of which the Trustee acquired
ownership through becoming executor, administrator or
testamentary trustee of an estate which included them, the
provisions of the preceding sentence shall not apply, for a
period of 2 years from the date of such acquisition, to the
extent that such securities included in such estate do not
exceed 25% of such voting securities or 25% of any such
class of security. Promptly after May 15, in each calendar
year, the Trustee shall make a cheek of its holdings of
such securities in any of the above-mentioned capacities as
of such May 15. If the Company fails to make payment in
full of
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44
principal of or interest on any of the Securities when and
as the same become due and payable, and such failure
continues for 30 days thereafter, the Trustee shall make a
prompt check of its holdings of such securities in any of
the above-mentioned capacities as of the date of the
expiration of such 30-day period and, after such date,
notwithstanding the foregoing provisions of this paragraph
(9), all such securities so held by the Trustee, with sole
or joint control over such securities vested in it, shall,
but only so long as such failure shall continue, be
considered as though beneficially owned by the Trustee for
the purposes of paragraphs (6), (7), and (8) of this
subsection (c).
The specifications of percentages in paragraphs (5) to (9),
inclusive, of this subsection (c) shall not be construed as indicating
that the ownership of such percentages of the securities of a person is
or is not necessary or sufficient to constitute direct or indirect
control for the purposes of paragraph (3) or (7) of this subsection (c).
For the purposes of paragraphs (6), (7), (8), and (9) of this
subsection (c) only, (A) the terms "security" and "securities" shall
include only such securities as are generally known as corporate
securities, but shall not include any note or other evidence of
indebtedness issued to evidence an obligation to repay moneys lent to a
person by one or more banks, trust companies or banking firms, or any
certificate of interest or participation in any such note or evidence of
indebtedness; (B) an obligation shall be deemed to be in default when a
default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (C) the Trustee shall not be deemed to
be the owner or holder of (i) any security which it holds as collateral
security (as trustee or otherwise) for an obligation which is not in
default as defined in clause (B) above, or (ii) any security which it
holds an collateral security under this Indenture, irrespective of any
default hereunder, or (iii) any security which it holds as agent for
collection, or an custodian, escrow agent, or depositary, or in any
similar representative capacity.
Except an provided in the next preceding paragraph hereof, the
word "security" or "securities" an used in this Indenture shall mean any
note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, pre-organization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional undivided
interest in oil, gas or other mineral rights, or,
<PAGE>
45
in general, any interest or instrument commonly known as a "security" or
any certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase any of the foregoing.
(d) For the Purposes of this Section 6.08:
(1) The term "underwriter" when used with reference to a
Security party shall mean every person who, within 3 years
prior to the time as of which the determination is made,
has purchased from such Security party with a view to, or
has offered or sold for such Security party in connection
with, the distribution of any security of such Security
party outstanding at such time, or has participated or has
had a direct or indirect participation in any such
undertaking, or has participated or has had a participation
in the direct or indirect underwriting of any such
undertaking, but such term shall not include a person whose
interest was limited to a commission from an underwriter or
dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" shall mean any director of a
corporation or any individual performing similar functions
with respect to any organization whether incorporated or
unincorporated.
(3) The term "person" shall mean an individual, a
corporation, a partnership, an association, a joint-stock
company, a trust, an unincorporated organization, or a
government or political subdivision thereof. As used in
this paragraph, the term "trust" shall include only a trust
where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.
(4) The term "voting security" shall mean any security
presently in direction or entitling the owner or holder
thereof to vote in the direction or management of the
affairs of a person, or any security issued under or
pursuant to any trust, agreement or arrangement whereby a
trustee or trustees or agent or agents for the owner or
holder of such security are presently entitled to vote in
the direction or management of the affairs of a person.
(5) The term "executive officer" shall mean the president,
every vice president, every trust officer, the cashier, the
secretary, and the treasurer of a corporation, and any
individual customarily performing similar functions with
respect to any organization whether incorpo-
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46
rated or unincorporated but shall not include the chairman
of the board of directors.
The percentages of voting securities and other securities
specified in this Section 6.08 shall be calculated in accordance with the
following provisions:
(A) A specified percentage of the voting securities of the
Trustee, the Company or any other person referred to in
this Section 6.08 (each of whom is referred to as a
"person" in this paragraph) means such amount of the
outstanding voting securities of such person as entities
the holder or holders to cast such specified percentage of
the aggregate votes which the holders of all the
outstanding voting securities of such person are entitled
to cast in the direction or management of the affairs of
such person.
(B) A specified percentage of a class of securities of a person
means such percentage of the aggregate amount of securities
of the class outstanding.
(C) The term "amount", when used in regard to securities, means
the principal amount if relating to evidences of
indebtedness, the number of shares if relating to capital
shares, and the number of units if relating to any other
kind of security.
(D) The term "outstanding" means issued and not held by or for
the account of the issuer. The following securities shall
not be deemed outstanding within the meaning of this
definition:
(i) securities of an issuer held in a sinking fund relating
to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund
relating to another class of securities of the issuer,
if the obligation evidenced by such other class of
securities is not in default as to principal or
interest or otherwise;
(iii) securities pledged by the issuer thereof as security
for an obligation of the issuer not in default as to
principal or interest or otherwise;
(iv) securities held in escrow if placed in escrow by the
issuer thereof;
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47
provided, however, that any voting securities of an issuer
shall be deemed outstanding if any person other than the
issuer is entitled to exercise the voting rights thereof.
(E) A security shall be deemed to be of the same class as
another security if both securities confer upon the holder
or holders thereof substantially the same rights and
privileges: provided, however, that, in the case of secured
evidences of indebtedness, all of which are issued under a
single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be
deemed sufficient to constitute such series different
classes, and provided, further, that, in the case of
unsecured evidences of indebtedness, differences in the
interest rates or maturity dates thereof shall not be
deemed sufficient to constitute them securities of
different classes, whether or not they are issued under a
single indenture.
SECTION 6.09. Eligibility of Trustee. The Trustee hereunder
shall at all times be a corporation organized and doing business under
the laws of the United States or any State or Territory thereof or of the
District of Columbia authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least
$5,000,000, subject to supervision or examination by Federal, State,
Territorial, or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 6.09 the combined
capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.09, the Trustee shall
resign immediately in the manner and with the effect specified in Section
6.10.
SECTION 6.10. Resignation or Removal of Trustee. (a) The
Trustee, or any trustee or trustees hereafter appointed, may at any time
resign with respect to one or more or all series of Securities by giving
written notice of such resignation to the Company and by mailing notice
thereof to the holders of the applicable series of Securities at their
addresses as they shall appear on the Security register. Upon receiving
such notice of resignation, the Company shall promptly appoint a
successor trustee or trustees with respect to the applicable series by
written instrument, in duplicate, executed by order of its Board of
Directors, one copy of which instrument shall
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48
be delivered to the resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so appointed with
respect to any series of Securities and have accepted appointment within
60 days after the mailing of such notice of resignation to the affected
Securityholders, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee, or any
Securityholder who has been a bona fide holder of a Security or
Securities of the applicable series for at least 6 months may, subject to
the provisions of Section 5.09, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any,
as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur -
(1) the Trustee shall fail to comply with the provisions
of subsection (a) of Section 6.08 after written request
therefor by the Company or by any Securityholder who has
been a bona fide holder of a Security or Securities for at
least 6 months, or
(2) the Trustee shall cease to be eligible in accordance
with the provisions of Section 6.09 and shall fail to
resign after written request therefor by the Company or by
any such Securityholder, or
(3) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order
of the Board of Directors, 1 copy of which instrument shall be delivered
to the Trustee so removed and 1 copy to the successor trustee, or,
subject to the provisions of Section 5.09, any Securityholder who has
been a bona fide holder of a Security or Securities of the applicable
series for at least 6 months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
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49
(c) The holders of a majority in aggregate principal amount of
the Securities of one or more series (each series voting as a class) or
all series at the time outstanding may at any time remove the Trustee
with respect to the applicable series of Securities or all series, as the
case may be, and nominate a successor trustee with respect to the
applicable series of Securities or all series, as the case may be, which
shall be deemed appointed as successor trustee with respect to the
applicable series unless within 10 days after such nomination the Company
objects thereto, in which case the Trustee so removed or any
Securityholder of the applicable series, upon the terms and conditions
and otherwise as in subsection (a) of this Section 6.10 provided, may
petition any court of competent jurisdiction for an appointment of a
successor trustee with respect to such series.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section
6.10 shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 6.10 shall execute, acknowledge
and deliver to the Company and to its predecessor trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or
removal of the predecessor trustee with respect to all or any applicable
series shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations with respect to such series of its
predecessor hereunder, with like effect as if originally named as trustee
herein; but, nevertheless, on the written request of the Company or of
the successor trustee, the trustee ceasing to act shall, upon payment of
any amounts then due it pursuant to the provisions of Section 6.06,
execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request
of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers. Any
trustee ceasing to act shall nevertheless, retain a lien upon all
property or funds held or collected by such trustee to secure any amounts
then due it pursuant to the provisions of Section 6.06.
If a successor trustee is appointed with respect to the
Securities of one or more (but not all) series, the Company, the
predecessor trustee and each successor trustee with respect to the
Securities of any applicable series
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50
shall execute and deliver an indenture supplemental hereto which shall
contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the predecessor
trustee with respect to the Securities of any series as to which the
predecessor trustee is not retiring shall continue to be vested in the
predecessor trustee, and shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trustee hereunder by more than one trustee, it
being understood that nothing herein or in such supplemental indenture
shall constitute such trustees co-trustees of the same trust and that
each such trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any
other such trustee.
No successor trustee shall accept appointment as provided in
this Section 6.11 unless at the time of such acceptance such successor
trustee shall be qualified under the provisions of Section 6.08 and
eligible under the provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as
provided in this Section 6.11, the Company shall mail notice of the
succession of such trustee hereunder to the holders of Securities of any
applicable series at their addresses as they shall appear on the Security
register. If the Company fails to mail such notice within 10 days after
the acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the
Company.
SECTION 6.12. Succession by Merger, etc. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of
the Trustee, shall be the successor of the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of
the parties hereto.
In case at the time such successor to the Trustee shall succeed
to the trusts created by this Indenture any of the Securities of any
series shall have been authenticated but not delivered, any such
successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated,
and in case at that time any of the Securities of any series shall not
have been authenticated, any successor to the Trustee may authenticate
such Securities either in the
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51
name of any predecessor hereunder or in the name of the successor
trustee, and in all such cases such certificates shall have the full
force which it is anywhere in the Securities of such series or in this
Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of
authentication of any predecessor Trustee or authenticate Securities of
any series in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a Creditor.
(a) Subject to the provisions of subsection (b) of this Section 6.13, if
the Trustee shall be or shall become a creditor, directly or indirectly,
secured or unsecured, of the Company or of any other obligor on the
Securities (each of which is hereafter in this Section 6.13 called a
"Security party") within 4 months prior to a default, as defined in
subsection (c) of this Section 6.13, or subsequent to such a default,
then, unless and until such default shall be cured, the Trustee shall set
apart and hold in a special account for the benefit of the Trustee
individually, the holders of the Securities, and the holders of other
indenture securities (as defined in paragraph (2) of subsection (c) of
this Section 6.13)
(1) an amount equal to any and all reductions in the amount due
and owing upon any claim as such creditor in respect of
principal or interest, effected after the beginning of such
4-month period and valid as against such Security party and
its other creditors, except any such reduction resulting
from the receipt or disposition of any property described
in paragraph (2) of this subsection, or from the exercise
of any right of set-off which the Trustee could have
exercised if a petition in bankruptcy had been filed by or
against such Security party upon the date of such default;
and
(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or in
satisfaction or composition thereof, or otherwise, after
the beginning of such 4-month period, or an amount equal to
the proceeds of any such property, if disposed of, subject,
however, to the rights, if any, of such Security party and
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right
of the Trustee:
(A) to retain for its own account (i) payments made on account
of any such claim by any person (other than such Security
party) who
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52
is liable thereon, and (ii) the proceeds of the bona fide
sale of any such claim by the Trustee to a third person,
and (iii) distributions made in cash, securities, or other
property in respect of claims filed against such Security
party in bankruptcy or receivership or in proceedings for
reorganization pursuant to Title 11, United States Code or
applicable state law;
(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so
held prior to the beginning of such 4-month period;
(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by
it as security for any such claim, if such claim was
created after the beginning of such 4-month period and such
property was received as security therefor simultaneously
with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so
received the Trustee had no reasonable cause to believe
that a default, as defined in subsection (c) of this
Section 6.13, would occur within 4 months; or
(D) to receive payment on any claim referred to in paragraph
(B) or (C), against the release of any property held as
security for such claim as provided in such paragraph (B)
or (C), as the case may be, to the extent of the fair value
of such property.
For the purposes of paragraphs (B), (C), and (D), property
substituted after the beginning of such 4-month period for property held
as security at the time of such substitution shall, to the extent of the
fair value of the property released have the same status as the property
released, and, to the extent that any claim referred to in any of such
paragraphs is created in renewal of or in substitution for or for the
purpose of repaying or refunding any pre-existing claim of the Trustee as
such creditor, such claim shall have the same status as such pre-existing
claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof shall be
apportioned between the Trustee, the Securityholders and the holders of
other indenture securities in such manner that the Trustee, the
Securityholders and the Holders of other indenture securities realize, as
a result of payments from such special account and payments of dividends
on claims filed against such Security party in bankruptcy or receivership
or in proceedings for reorgani-
<PAGE>
53
zation pursuant to Title 11, United States Code, or applicable state law,
the same percentage of their respective claims, figured before crediting
to the claim of the Trustee anything on account of the receipt by it from
such Security party of the funds and property in such special account and
before crediting to the respective claims of the Trustee, the
Securityholders, and the holders of other indenture securities dividends
on claims flied against such Security party in bankruptcy or receivership
or in proceedings for reorganization pursuant to Title 11, United States
Code, or applicable state law, but after crediting thereon receipts on
account of the indebtedness represented by their respective claims from
all sources other than from such dividends and from the funds and
property so held in such special account. As used in this paragraph,
with respect to any claim, the term "dividends" shall include any
distribution with respect to such claim, in bankruptcy or receivership or
in proceedings for reorganization pursuant to Title 11, United States
Code, or applicable state law, whether such distribution is made in cash,
securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim.
The court in which such bankruptcy, receivership, or proceeding for
reorganization is pending shall have jurisdiction (i) to apportion among
the Trustee, the Securityholders, and the holders of other indenture
securities, in accordance with the provisions of this Paragraph, the
funds and property held in such special account and
the proceeds thereof, or (ii) in lieu of such apportionment, in whole or
in part, to give to the provisions of this paragraph due consideration in
determining the fairness of the distributions to be made to the Trustee,
the Securityholders and the holders of other indenture securities with
respect to their respective claims, in which event it shall not be
necessary to liquidate or to appraise the value of any securities or
other property held in such special account or as security for any such
claim, or to make a specific allocation of such distributions as between
the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning
of such 4-month period shall be subject to the provisions of this
subsection (a) as though such resignation or removal had not occurred.
If any Trustee has resigned or been removed prior to the beginning of
such 4-month period, it shall be subject to the provisions of this
subsection (a) if and only if the following conditions exist:
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54
(i) the receipt of property or reduction of claim which would
have given rise to the obligation to account, if such
Trustee had continued as trustee, occurred after the
beginning of such 4-month period, and
(ii) such receipt of property or reduction of claim occurred
within 4 months after such resignation or removal.
(b) There shall be excluded from the operation of subsection
(a) of this Section 6.13 a creditor relationship arising from
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity
of 1 year or more at the time of acquisition by the
Trustee;
(2) advances authorized by a receivership or bankruptcy court
of competent jurisdiction, or by this Indenture, for the
purpose of preserving any property which shall at any time
be subject to the lien of this Indenture or of discharging
tax liens or other prior liens or encumbrances thereon, if
notice of such advance and of the circumstances surrounding
the making thereof is given to the Securityholders at the
time and in the manner provided in Section 4.04 with
respect to reports pursuant to subsections (a) and (b)
thereof, respectively;
(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer agent,
registrar, custodian, paying agent, fiscal agent or
depositary, or other similar capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of
goods or securities sold in a cash transaction as defined
in subsection (c) of this Section 6.13;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act, as amended, which is directly
or indirectly a creditor of a Security party; or
(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or obligations
which fall within the classification of self-liquidating
paper as defined in subsection (c) of this Section 6.13.
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55
(c) As used in this Section 6.13:
(1) The term "default" shall mean any failure to make payment
in full of the principal of or interest upon any of the
Securities or upon the other indenture securities when and
as such principal or interest becomes due and payable;
(2) The term "other indenture securities" shall mean securities
upon which a Security party is an obligor (as defined in
the Trust Indenture Act of 1939) outstanding under any
other indenture (A) under which the Trustee is also
trustee, (B) which contains provisions substantially
similar to the provisions of subsection (a) of this Section
6.13, and (C) under which a default exists at the time of
the apportionment of the funds and property held in said
special account;
(3) The term "cash transaction" shall mean any transaction in
which full payment for goods or securities sold is made
within seven days after delivery of the goods or securities
in currency or in checks or other orders drawn upon banks
or bankers and payable upon demand;
(4) The term "self-liquidating paper" shall mean any draft,
bill of exchange, acceptance or obligation which is made,
drawn, negotiated or incurred by a Security party for the
purpose of financing the purchase, processing, manufacture,
shipment, storage or sale of goods, wares or merchandise
and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or
merchandise or the receivables or proceeds arising from the
sale of the goods, wares or merchandise previously
constituting the security; provided that the security is
received by the Trustee simultaneously with the creation of
the creditor relationship with such Security party arising
from the making, drawing, negotiating or incurring of the
draft, bill of exchange, acceptance or obligation.
SECTION 6.14. Authenticating Agents. There may, be 1 or more
Authenticating Agents appointed by the Trustee upon the request of the
Company with power to act on its behalf and subject to its direction in
the authentication and delivery of Securities of any series issued upon
exchange or transfer thereof as fully to all intents and purposes an
though any such Authenticating Agent had been expressly authorized to
authenticate and deliver Securities of such series; provided, that the
Trustee shall have no liability to the Company for any acts or omissions
of the Authenticating Agent with respect to the authentication and
delivery of Securities of any
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56
series. Any such Authenticating Agent shall at all times be a
corporation organized and doing business under the laws of the United
States or of any State or Territory thereof or of the District of
Columbia authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of at least $5,000,000 and being
subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually pursuant to law or the requirements of such
authority, then for the purposes of this Section 6.14 the combined
capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section,
it shall resign immediately in the manner and with the effect herein
specified in this Section.
Any corporation into which any Authenticating Agent may be
merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, consolidation or conversion to
which any Authenticating Agent shall be a party, or any corporation
succeeding to the corporate trust business of any Authenticating Agent,
shall be the successor of such Authenticating Agent hereunder, if such
successor corporation is otherwise eligible under this Section 6.14,
without the execution or filing of any paper or any further act on the
part of the parties hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign with respect to
one or more or all series of Securities by giving written notice of
resignation to the Trustee and to the Company. The Trustee may at any
time terminate the agency of any Authenticating Agent with respect to one
or more or all series of Securities by giving written notice of
termination to such Authenticating Agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in
case at any time any Authenticating Agent shall cease to be eligible
under this Section 6.14, the Trustee may, and upon the request of the
Company shall, promptly appoint a successor Authenticating Agent with
respect to the applicable series eligible under this Section 6.14, shall
give written notice of such appointment to the Company and shall mail
notice of such appointment to an holders of the applicable series of
Securities as the names and addresses of such holders appear on the
Security register. Any successor Authenticating Agent with respect to
all or any series upon acceptance of its appointment hereunder shall
become vested with all rights, powers, duties and responsi-
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57
bilities with respect to such series of its predecessor hereunder, with
like effect as if originally named as Authenticating Agent herein.
The Trustee agrees to pay to any Authenticating Agent from time
to time reasonable compensation for its services, and the Trustee shall
be entitled to be reimbursed for such payments, subject to Section 6.06.
Any Authenticating Agent shall have no responsibility or liability for
any action taken by it as such in accordance with the directions of the
Trustee.
ARTICLE SEVEN.
CONCERNING THE SECURITYHOLDERS.
SECTION 7.01. Action by Securityholders. Whenever in this
Indenture it is provided that the holders of a specified percentage in
aggregate principal amount of the Securities of any or all series may
take any action (including the making of any demand or request, the
giving of any notice, consent or waiver or the taking of any other
action) the fact that at the time of taking any such action the holders
of such specified percentage have joined therein may be evidenced (a) by
any instrument or any number of instruments of similar tenor executed by
such Securityholders in person or by agent or proxy appointed in writing,
or (b) by the record of such holders of Securities voting in favor
thereof at any meeting of such Securityholders duly called and held in
accordance with the provisions of Article Eight, or (c) by a combination
of such instrument or instruments and any such record of such a meeting
of such Securityholders.
SECTION 7.02. Proof of Execution by Securityholders. Subject to
the provisions of Section 6.01, 6.02 and 8.05, proof of the execution of
any instrument by a Securityholder or his agent or proxy shall be
sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Trustee or in such manner as
shall be satisfactory to the Trustee. The ownership of Securities shall
be proved by the Security register or by a certificate of the Security
registrar.
The record of any Securityholders' meeting shall be proved in
the manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners. Prior to due
presentment for registration of transfer of any Security, the Company,
the Trustee, any Authenticating Agent, any paying agent, any transfer
agent and any Security registrar may deem the person in whose name such
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58
Security shall be registered upon the Security register to be, and may
treat him as, the absolute owner of such Security (whether or not such
Security shall be overdue) for the purpose of receiving payment of or on
account of the principal of, premium, if any, and interest on such
Security and for all other purposes; and neither the Company nor the
Trustee nor any Authenticating Agent nor any paying agent nor any
transfer agent nor any Security registrar shall be affected by any notice
to the contrary. All such payments so made to any holder for the time
being or upon his order shall be valid, and, to the extent of the sum or
sums so paid, effectual to satisfy and discharge the liability for moneys
payable upon any such Security.
Section 7.04. Securities Owned by Company Deemed Not
Outstanding. In determining whether the holders of the requisite
aggregate principal amount of Securities have concurred in any direction.
consent or waiver under this Indenture, Securities which are owned by the
Company or any other obligor on the Securities or by any person directly
or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any other obligor on the Securities
shall be disregarded and deemed not to be outstanding for the purpose of
any such determination; provided that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction,
consent or waiver, only Securities which the Trustee knows are so owned
shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as outstanding for the purposes of this
Section 7.04 if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right to vote such Securities and that the pledgee
is not the Company or any such other obligor or person directly or
indirectly controlling or controlled by or under direct or indirect
common control with the Company or any such other obligor. In the case
of a dispute as to such right, any decision by the Trustee taken upon the
advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound. At
any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 7.01, of the taking of any action by the holders of
the percentage in aggregate principal amount of the Security specified in
this Indenture in connection with such action, any holder of a Security
(or any Security, issued in whole or in part in exchange or substitution
therefor) the serial number of which is shown by the evidence to be
included in the Securities the Holders of which have consented to such
action may by filing written notice with the Trustee at its principal
office and upon proof of holding as
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59
provided in Section 7.02, revoke such action so far as concerns such
Security (or so far as concerns the principal amount represented by any
exchanged or substituted Security). Except as aforesaid any such
action taken by the holder of any Security shall be conclusive and
binding upon such holder and upon all future holders and owners of such
Security, and of any Security issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto
is made upon such Security or any Security issued in exchange or
substitution therefor.
ARTICLE EIGHT.
SECURITYHOLDERS' MEETINGS.
SECTION 8.01. Purposes of Meetings. A meeting of
Securityholders of any or all series may be called at any time and from
time to time pursuant to the provisions of this Article Eight for any of
the following purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the
waiving of any default hereunder and its consequences, or
to take any other action authorized to be taken by
Securityholders pursuant to any of the provisions of
Article Five;
(b) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article Six;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the Provisions of Section
9.02; or
(d) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal
amount of such Securities under any other provision of this
Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Trustee. The Trustee may at
any time call a meeting of Securityholders of any or all series to take
any action specified in Section 8.01, to be held at such time and at such
place in the Borough of Manhattan, The City of New York, as the Trustee
shall determine. Notice of every meeting of the Securityholders of any
or all series, setting forth the time and the place of such meeting and
in general terms the action proposed to be taken at such meeting, shall
be mailed to holders of Securities of each series affected at their
addresses as they shall
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60
appear on the Securities of each series affected register. Such notice
shall be mailed not less than 20 nor more than 180 days prior to the date
fixed for the meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders.
In case at any time the Company pursuant to a resolution of the Board of
Directors, or the holders of at least 10% in aggregate principal amount
of the Securities of any or all series, as the case may be, then
outstanding, shall have requested the Trustee to call a meeting of
Securityholders of any or all series, as the case may be, by written
request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of
such meeting within 20 days after receipt of such request, then the
Company or such Securityholders may determine the time and the place in
said Borough of Manhattan for such meeting and may call such meeting to
take any action authorized in Section 8.01, by mailing notice thereof as
provided in Section 8.02.
SECTION 8.04. Qualifications for Voting. To be entitled to vote
at any meeting of Securityholders a person shall (a) be a holder of one
or more Securities with respect to which the meeting is being held or (b)
a person appointed by an instrument in writing as proxy by a holder of
one or more such Securities. The only persons who shall be entitled to
be present or to speak at any meeting of Securityholders shall be the
persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of
the Company and its counsel.
SECTION 8.05. Regulations. Notwithstanding any other provisions
of this Indenture, the Trustee may make such reasonable regulations as it
may deem advisable for any meeting of Securityholders, in regard to proof
of the holding of Securities and of the appointment of proxies, and in
regard to the appointment and duties of inspectors of votes, the
submission and examination of proxies, certificates and other evidence of
the right to vote, and such other matters concerning the conduct of the
meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been
called by the Company or by Securityholders as provided in Section 8.03,
in which case the Company or the Securityholders calling the meeting, as
the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman
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61
and a permanent secretary of the meeting shall be elected by majority
vote of the meeting.
Subject to the provisions of Section 7.04, at any meeting each
holder of Securities with respect to which such meeting is being held or
proxy therefor shall be entitled to 1 vote for each $1,000 principal
amount (in the case of Original Issue Discount Securities, such principal
amount to be determined as provided in the definition "outstanding") of
Securities held or represented by him; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Security
challenged as not outstanding and ruled by the chairman of the meeting to
be not outstanding. The chairman of the meeting shall have no right to
vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the person to vote on behalf
of other Securityholders. Any meeting of Securityholders duly called
pursuant to the provisions of Section 8.02 or 8.03 may be adjourned from
time to time by a majority of those present, whether or not constituting
a quorum, and the meeting may be held as so adjourned without further
notice.
SECTION 8.06. Voting. The vote upon any resolution submitted to
any meeting of holders of Securities with respect to which such meeting
is being held shall be by written ballots on which shall be subscribed
the signatures of such holders or of their representatives by proxy and
the serial number or numbers of the Securities held or represented by
them. The permanent chairman of the meeting shall appoint 2 inspectors
of votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting
their verified written reports in triplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of
Securityholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by
1 or more persons having knowledge of the facts setting forth a copy of
the notice of the meeting and showing that said notice was mailed as
provided in Section 8.02. The record shall show the serial numbers of
the Securities voting in favor of or against any resolution. The record
shall be signed and verified by the affidavits of the permanent chairman
and secretary of the meeting and 1 of the duplicates shall be delivered
to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the
meeting.
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Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE NINE.
SUPPLEMENTAL INDENTURES.
SECTION 9.01. Supplemental Indentures without Consent of
Securityholders. The Company when authorized by a resolution of the
Board of Directors, and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto for 1 or more
of the following purposes:
(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by
the successor corporation of the covenants, agreements and
obligations of the Company pursuant to Article Ten hereof,
(b) to add to the covenants of the Company such further
covenants, restrictions or conditions for the protection of
the holders of all or any series of Securities (and if such
covenants are to be for the benefit of less than all series
of Securities stating that such covenants are expressly
being included for the benefit of such series) as the Board
of Directors and the Trustee shall consider to be for the
protection of the holders of such Securities, and to make
the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions
or conditions a default or an Event of Default permitting
the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth, provided
however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may
provide for a particular period of grace after default
(which period may be shorter or longer than that allowed in
the case of other defaults) or may provide for an
immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;
(c) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities registrable
as to principal only) and to provide for exchangeability of
such Securities with the Securities issued hereunder in
fully registered form and to make all appropriate changes
for such purpose;
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63
(d) to secure the Securities pursuant to the requirements of
Section 10.03 or otherwise; or
(e) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture
which may be defective or inconsistent with any other
provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to
matters or questions arising under this Indenture; provided
that any such action shall not adversely affect the
interests of the holders of the Securities;
(f) to establish the form or terms of Securities of any series
as permitted by Section 2.01 and 2.03, including, without
limitation, any terms relating to the issuance, exchange,
registration or transfer of Securities issued in whole or
in part in the form of one or more global Securities and
the payment of any principal thereof, or interest or
premium, if any, thereon; and
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the
Securities of one or more series and to add to or change
any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration
of the trusts hereunder by more than one trustee, pursuant
to the requirements of Section 6.11.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Any supplemental indenture authorized by the provisions of this
Section 9.01 may be executed by the Company and the Trustee without the
consent of the holders of any of the Securities at the time outstanding,
notwithstanding any of the provisions of Section 9.02.
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders. With the consent (evidenced as provided in Section
7.01) of the holders of not less than 66 2/3% in aggregate principal
amount of the Securities at the time outstanding of all series affected
by such supplemen-
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64
tal indenture (voting as a class), the Company, when authorized by a
resolution of the Board of Directors, and the Trustee may from time to
time and at any time enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights of the
holders of the Securities of each series so affected; provided, however,
that no such supplemental indenture shall (i) extend the fixed maturity
of any Security, or reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount thereof or any premium
thereon, or reduce any amount payable on redemption thereof or make the
principal thereof or any interest or premium thereon payable in any coin
or currency other than that provided in the Securities, or reduce the
amount of the principal of an Original Issue Discount Security that would
be due and payable upon an acceleration of the maturity thereof pursuant
to Section 5.01 or the amount thereof provable in bankruptcy pursuant to
Section 5.02, or impair or affect the right of any Securityholder to
institute suit for payment thereof or the right of repayment, if any, at
the option of the holder, without the consent of the holder of each
Security so affected, or (ii) reduce the aforesaid percentage of
Securities the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of each
Security then affected.
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been
included solely for the benefit of one or more particular series of
Securities, or which modifies the rights of Securityholders of such
series with respect to such covenant or provision, shall be deemed not to
affect the rights under this Indenture or the Securityholders of any
other series.
Upon the request of the Company accompanied by a copy of a
resolution of the Board of Directors certified by its Secretary or
Assistant Secretary authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the
consent of Securityholders as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee
may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
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65
It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall
approve the substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures. Any supplemental indenture executed pursuant to
the provisions of this Article Nine shall comply with the Trust
Indenture Act of 1939, as then in effect. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article Nine,
this Indenture shall be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee,
the Company and the holders of Securities of each series affected thereby
shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed
to be part of the terms and conditions of this Indenture for any and all
purposes.
SECTION 9.04. Notation on Securities. Securities of any series
authenticated and delivered after the execution of any supplemental
indenture affecting such series pursuant to the provisions of this
Article Nine may bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company
or the Trustee shall so determine, new Securities of any series so
modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may be prepared and executed by the Company,
authenticated by the Trustee or the Authenticating Agent and delivered in
exchange for the Securities of any series then outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture
to be Furnished Trustee. The Trustee, subject to the provisions of
Sections 6.01 and 6.02, may receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant hereto complies with the requirements of this Article
Nine.
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66
ARTICLE TEN.
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.
SECTION 10.01. Company May Consolidate, etc., on Certain Terms.
The Company shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially
as an entirety to any Person, unless:
(1) the corporation formed by such consolidation or into which
the Company is merged or the Person which acquires by
conveyance or transfer the properties and assets of the
Company substantially as an entirety shall be a corporation
organized and existing under the laws of the United States
of America or any State or the District of Columbia, and
shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment
of the principal of and premium, if any, and interest on
all the Securities and the performance and observance of
every covenant or condition of this Indenture on the part
of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse
of time, or both, would become an Event of Default, shall
have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that
such consolidation, merger, conveyance or transfer and
such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 10.02. Successor Corporation to be Substituted for
Company. In case of any such consolidation, merger, conveyance or
transfer and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the due and punctual payment of
the principal of and premium, if any, and interest on all of the
Securities and the due and punctual performance and observance of all of
the covenants and conditions of this Indenture to be performed or
observed by the Company, such successor corporation shall succeed to and
be substituted for the Company, with the same effect as if it had been
named herein an the party of the first part, and the Company thereupon
shall be relieved of any further liability or obligation hereunder or
upon the Securities. Such successor corporation there-
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67
upon may cause to be signed, and may issue either in its own name or in
the name of Phillips Petroleum Company, any or all of the Securities
issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee or the Authenticating Agent;
and, upon the order of such successor corporation instead of the Company
and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee or the Authenticating Agent shall
authenticate and deliver any Securities which previously shall have been
signed and delivered by the officers of the Company to the Trustee or the
Authenticating Agent for authentication, and any Securities which such
successor corporation thereafter shall cause to be signed and delivered
to the Trustee or the Authenticating Agent for that purpose. All the
Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter
issued in accordance with the terms of this Indenture as though all of
such Indentures had been issued at the date of the execution hereof.
SECTION 10.03. Securities to be Secured in Certain Events. If,
upon any such consolidation or merger of the Company, or upon any such
conveyance or transfer of the property and assets of the Company
substantially as an entirety or upon any consolidation or merger of any
Restricted Subsidiary with or into any other Subsidiary, or upon any
conveyance or transfer of the property and assets of any Restricted
Subsidiary substantially as an entirety to any other Subsidiary, any
Restricted Property of the Company or any Restricted Subsidiary or any
shares of stock or indebtedness of any Restricted Subsidiary owned
immediately prior thereto would thereupon become subject to any Mortgage
(other than Mortgages which would be permitted under Section 3.05 without
the Company's having to secure the Securities equally and ratably), the
Company, prior to any such consolidation, merger, conveyance or transfer,
will by indenture supplemental hereto secure the Securities (together
with, if the Company shall so determine, any other indebtedness of the
Company or such Restricted Subsidiary then existing or thereafter created
ranking on a parity with the Securities) by a direct lien on such
Restricted Property, shares of stock or indebtedness, prior to all liens
other than any theretofore existing thereon.
SECTION 10.04. Opinion of Consul to be Given Trustee. The
Trustee, subject to the provisions of Sections 6.01 and 6.02, may receive
an Opinion of Counsel as conclusive evidence that any consolidation,
merger, conveyance or transfer, and any assumption, permitted or required
by the terms of this Article Ten complies with the provisions of this
Article Ten.
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ARTICLE ELEVEN.
SATISFACTION AND DISCHARGE OF INDENTURE.
SECTION 11.01. Discharge of Indenture. When (a) the Company
shall deliver to the Trustee for cancellation all Securities theretofore
authenticated (other than any Securities which shall have been destroyed,
lost or stolen and which shall have been replaced or paid as provided in
Section 2.08) and not theretofore cancelled, or (b) all the Securities
not theretofore cancelled or delivered to the Trustee for cancellation
shall have become due and payable, or are by their terms to become due
and payable within 1 year or are to be called for redemption within 1
year under arrangements satisfactory to the Trustee for the giving of
notice of redemption, and the Company shall deposit with the Trustee, in
trust, funds sufficient to pay at maturity or upon redemption all
of the Securities (other than any Securities which shall have been
destroyed, lost or stolen and which shall have been replaced or paid as
provided in Section 2.08) not theretofore cancelled or delivered to the
Trustee for cancellation, including principal and premium, if any, and
interest due or to become due to such date of maturity or redemption
date, as the case may be, but excluding, however, the amount of any
moneys for the payment of principal of, and premium, if any, or interest
on the Securities (1) theretofore repaid to the Company in accordance
with the provisions of Section 11.04, or (2) paid to any State or to the
District of Columbia pursuant to its unclaimed property or similar laws,
and if in either case the Company shall also pay or cause to be paid all
other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect, and the Trustee, on demand of the Company
accompanied by any Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture, the
Company, however, hereby agreeing to reimburse the Trustee for any costs
or expenses thereafter reasonably and property incurred by the Trustee in
connection with this Indenture or the Securities.
SECTION 11.02. Deposited Moneys and U.S. Government Obligations
to be Held in Trust by Trustee. Subject to the provisions of Section
11.04, all moneys and U.S. Government Obligations deposited with the
Trustee pursuant to Sections 11.01 or 11.05 shall be held in trust and
applied by it to the payment, either directed or through any paying agent
(including the Company if acting as its own paying agent), to the holders
of the particular Securities for the payment of which such moneys or U.S.
Government
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Obligations have been deposited with the Trustee, of all sums due and to
become due thereon for principal, premium, if any, and interest.
SECTION 11.03. Paying Agent to Repay Moneys Held. Upon the
satisfaction and discharge of this Indenture all moneys then held by any
paying agent of the Securities (other than the Trustee) shall, upon
demand of the Company, be repaid to it or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability
with respect to such moneys.
SECTION 11.04. Return of Unclaimed Moneys. Any moneys deposited
with or paid to the Trustee or any paying agent for payment of the
principal of, and premium, if any, or interest on Securities and not
applied but remaining unclaimed by the holders of Securities for 3 years
after the date upon which the principal of, and premium, if any, or
interest on such Securities, as the case may be, shall have become due
and payable, shall be repaid to the Company by the Trustee or such paying
agent on written demand; and the holder of any of the Securities shall
thereafter look only to the Company for any payment which such holder may
be entitled to collect and all liability of the Trustee or such paying
agent with respect to such moneys shall thereupon cease.
SECTION. 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations. At the Company's option, either (a) the Company
shall be deemed to have been Discharged (as defined below) from its
respective obligations with respect to any series of Securities on the
91st day after the applicable conditions set forth below have been
satisfied or (b) the Company shall cease to be under any obligation to
comply with any term, provision or condition set forth in Sections 3.05,
3.06, 10.01 and 10.03 with respect to any series of Securities at any
time after the applicable conditions set forth below have been satisfied:
(1) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee or the Defeasance Agent (as
defined below) as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the
benefit of the holders of the Securities of such series (i)
money in an amount, or (ii) U.S. Government Obligations
which through the payment of interest and principal in
respect thereof in accordance with their terms will
provide, not later than one day before the due date of any
payment, money in an amount, or (iii) a combination of (i)
and (ii), sufficient, in the opinion (with respect to (ii)
and (iii)) of a nationally recognized firm of independent
public
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accountants expressed in a written certification thereof
delivered to the Trustee and the Defeasance Agent, if any,
to pay and discharge each installment of principal
(including any mandatory sinking fund payments) of, and
interest and premium, if any, on, the outstanding
Securities of such series on the dates such installments of
principal, interest or premium are due;
(2) if the Securities of such series are then listed on any
national securities exchange, the Company shall have
delivered to the Trustee and the Defeasance Agent, if any,
an Opinion of Counsel to the effect that the exercise of
the option under this Section 11.05 would not cause such
Securities to be delisted from such exchange;
(3) no Event of Default or event which with notice or lapse of
time would become an Event of Default with respect to the
Securities of such series shall have occurred and be
continuing on the date of such deposit; and
(4) the Company shall have delivered to the Trustee and the
Defeasance Agent, if any, an Opinion of Counsel to the
effect that holders of the Securities of such series will
not recognize income, gain or loss for United States
Federal income tax purposes as a result of the exercise of
the option under this Section 11.05 and will be subject to
United States Federal income tax on the same amount and in
the same manner and at the same times an would have been
the case if such option had not been exercised, and, in the
case of the Securities of such series being Discharged,
such opinion shall be accompanied by a private letter
ruling to that effect received from the United States
Internal Revenue Service or a revenue ruling pertaining to
a comparable form of transaction to that effect published
by the United States Internal Revenue Service.
"Discharged" means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by, and obligations
under, the Securities of such series and to have satisfied all the
obligations under this Indenture relating to the Securities of such
series (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except (A) the rights of
holders of Securities of such series to receive, from the trust fund
described in clause (1) above, payment of the principal of and the
interest and premium, if any, on such Securities when such payments are
due; (B) the Company's obligations with respect to such Securities under
Sections 2.07, 2.08, 5.02 and 11.04;
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71
and (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder.
"Defeasance Agent" means another financial institution which is
eligible to act as Trustee hereunder and which assumes all of the
obligations of the Trustee necessary to enable the Trustee to act
hereunder. In the event such a Defeasance Agent is appointed pursuant to
this section, the following conditions shall apply:
1. The Trustee shall have approval rights over the document
appointing such Defeasance Agent and the document setting
forth such Defeasance Agent's rights and responsibilities;
2. The Defeasance Agent shall provide verification to the
Trustee acknowledging receipt of sufficient money and/or
U.S. Government Obligations to meet the applicable
conditions set forth in this Section 11.05;
3. The Trustee shall determine whether the Company shall be
deemed to have been Discharged from its respective
obligations with respect to any series of Securities or
whether the Company shall cease to be under any obligation
to comply with any term, provision or condition set forth in
Sections 3.05, 3.06, 10.01 and 10.03 with respect to any
series of Securities.
ARTICLE TWELVE.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS.
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations. No recourse for the payment of the principal of or premium,
if any, or interest on any Security, or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Indenture or in
any supplemental indenture, or in any Security, or because of the
creation of any indebtedness represented thereby, shall be had against
any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation of the
Company, either directly or through the Company or any successor
corporation of the Company, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of,
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72
and as a consideration for, the execution of this Indenture and the issue
of the Securities.
ARTICLE THIRTEEN.
MISCELLANEOUS PROVISIONS.
SECTION 13.01. Successors. All the covenants, stipulations,
promises and agreements in this Indenture contained by the Company shall
bind its successors and assigns whether so expressed or not.
SECTION 13.02. Official Acts by Successor Corporation. Any act
or proceeding by any provision of this Indenture authorized or required
to be done or performed by any board, committee or officer of the Company
shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
SECTION 13.03. Addresses for Notices, etc. Any notice or demand
which by any provision of this Indenture is required or permitted to be
given or served by the Trustee or by the holders of Securities on the
Company may be given or served by being deposited postage prepaid by
registered or certified mail in a post office letter box addressed
(until another address is filed by the Company with the Trustee for the
purpose) to the Company, 630 Fifth Avenue, Suite 1970, New York, N.Y.,
10111, Attention: Manager, Investor Relations, Phillips Petroleum
Company. Any notice, direction, request or demand by any Securityholder
to or upon the Trustee shall be deemed to have been sufficiently given or
made, for all purposes, if given or made in writing at the office of the
Trustee, addressed to the Trustee, 231 South LaSalle Street, 7th Floor,
Chicago, Illinois 60697, Attention: Corporate Trust Division.
SECTION 13.04. New York Contract. This Indenture and each
Security shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be governed by and
construed in accordance with the laws of said State.
SECTION 13.05. Evidence of Compliance with Conditions Precedent.
Upon any application or demand by the Company to the Trustee to take any
action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the
opinion of the signers all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied with
and an Opinion of
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73
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include (1) a statement
that the person making such certificate or opinion has read such covenant
or condition, (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (3) a statement that,
in the opinion of such person, he has made such examination or
investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been complied
with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 13.06. Legal Holidays. In any case where the date of
payment of interest on or principal of the Securities will be in The City
of New York, New York or Chicago, Illinois a legal holiday or a day on
which banking institutions are authorized by law to close, the payment of
such interest on or principal of the Securities need not be made on such
date but may be made on the next succeeding day not in either City a
legal holiday or a day on which banking institutions are authorized by
law to close, with the same force and effect as if made on the date of
payment and no interest shall accrue for the period from and after such
date.
SECTION 13.07. Trust Indenture Act to Control. If and to the
extent that any provision of this Indenture limits, qualifies or
conflicts with another provision included in this Indenture which is
required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, such required provision
shall control.
SECTION 13.08. Table of Contents, Headings, etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not
to be considered a part hereof, and shall in no way modify or restrict
any of the terms or provisions hereof.
SECTION 13.09. Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an
original, but such counterparts shall together constitute but one and the
same instrument.
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ARTICLE FOURTEEN.
REDEMPTION OF SECURITIES - MANDATORY AND
OPTIONAL SINKING FUND.
SECTION 14.01 Applicability of Article. The provisions of this
Article shall be applicable to the Securities of any series which are
redeemable before their maturity or to any sinking fund for the
retirement of Securities of a series except as otherwise specified as
contemplated by Section 2.03 for Securities of such series.
SECTION 14.02. Notice of Redemption; Selection of Securities.
In case the Company shall desire to exercise the right to redeem all, or,
as the case may be, any part of the Securities of any series in
accordance with their terms, it shall fix a date for redemption and shall
mail a notice of such redemption at least 30 and not more than 60 days
prior to the date fixed for redemption to the holders of Securities of
such series so to be redeemed as a whole or in part at their last
addresses as the same appear on this Security register. Such mailing
shall be by first class mail. The notice if mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether
or not the holder receives such notice. In any case, failure to give
such notice by mail or any defect in the notice to the holder of any
Security of a series designated for redemption as a whole or in part
shall not affect the validity of the proceedings for the redemption of
any other Security of such series.
Each such notice of redemption shall specify the date fixed for
redemption, the redemption price at which Securities of such series are
to be redeemed,. the place or places of payment, that payment will be
made upon presentation and surrender of such Securities, that interest
accrued to the date fixed for redemption will be paid an specified in
said notice, and that on and after said date interest thereon or on the
portions thereof to be redeemed will cease to accrue. If less than all
the Securities of such series are to be redeemed the notice of redemption
shall specify, the numbers of the Securities of that series to be
redeemed. In case any Security of a series is to be redeemed in part
only, the notice of redemption shall state the portion of the principal
amount thereof to be redeemed and shall state that on and after the date
fixed for redemption, upon surrender of such Security, a new Security or
Securities of that series in principal amount equal to the unredeemed
portion thereof will be issued.
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75
Prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit
with the Trustee or with 1 or more paying agents an amount of money
sufficient to redeem on the redemption date all the Securities so called
for redemption at the appropriate redemption price, together with accrued
interest to the date fixed for redemption.
If less than all the Securities of a series are to be redeemed,
the Company will give the Trustee notice not less than 60 days prior to
the redemption date as to the aggregate principal amount of Securities of
that series to be redeemed and the Trustee shall select, in such manner
as in its sole discretion it shall deem appropriate and fair, the
Securities of that series or portions thereof (in integral multiples of
$1,000, except as otherwise set forth in the applicable form of Security)
to be redeemed.
SECTION 14.03. Payment of Securities Called for Redemption. If
notice of redemption has been given as provided in Section 14.02 or
Section 14.04, the Securities or portions of Securities of the series
with respect to which such notice has been given shall become due and
payable on the date and at the place or places stated in such notice at
the applicable redemption price, together with interest accrued to the
date fixed for redemption, and on and after said date (unless the Company
shall default in the payment of such Securities at the redemption price,
together with interest accrued to said date) interest on the Securities
or portions of Securities of any series so called for redemption shall
cease to accrue. On presentation and surrender of such Securities at a
place of payment specified in said notice, the said Securities or the
specified portions thereof shall be paid and redeemed by the Company at
the applicable redemption price, together with interest accrued thereon
to the date fixed for redemption.
Upon presentation of any Security of any series redeemed in part
only, the Company shall execute and the Trustee shall authenticate and
deliver to the holder thereof, at the expense of the Company, a new
Security or Securities of such series of authorized denominations, in
principal amount equal to the unredeemed portion of the Security so
presented.
SECTION 14.04. Mandatory and Optional Sinking Fund. The minimum
amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided
for by the terms of Securities of any series is herein referred to as an
<PAGE>
76
"optional sinking fund payment". The last date on which any
such payment may be made is herein referred to as a "sinking fund payment
date".
In lieu of making all or any part of any mandatory sinking fund
payment with respect to any Securities of a series in cash, the Company
may at its option (a) deliver to the Trustee Securities of that series
theretofore purchased by the Company and (b) may apply as a credit
Securities of that series which have been redeemed either at the election
of the Company pursuant to the terms of such Securities or through the
application of optional sinking fund payments pursuant to the next
succeeding paragraph, in each case in satisfaction of all or any part of
any mandatory sinking fund payment, provided that such Securities have
not been previously so credited. Each such Security so delivered or
applied as a credit shall be credited at the sinking fund redemption
price for such Securities and the amount of any mandatory sinking fund
shall be reduced accordingly. If the Company intends so to deliver or
credit such Securities with respect to any mandatory sinking fund payment
it shall deliver to the Trustee at least 60 days prior to the next
succeeding sinking fund payment date for such series (a) a certificate
signed by the Treasurer or an Assistant Treasurer of the Company
specifying the portion of such sinking fund payment, if any, to be
satisfied by payment of cash and the portion of such sinking fund
payment, if any, which is to be satisfied by delivering and crediting
such Securities and (b) any Securities to be so delivered. All
Securities so delivered to the Trustee shall be cancelled by the Trustee
and no Securities shall be authenticated in lieu thereof if the Company
fails to deliver such certificate and Securities at or before the time
provided above, the Company shall not be permitted to satisfy any portion
of such mandatory sinking fund payment by delivery or credit of
Securities.
At its option the Company may pay into the sinking fund for the
retirement of Securities of any particular series, on or before each
sinking fund payment date for such series, any additional sum in cash as
specified by the terms of such series of Securities. If the Company
intends to exercise its right to make any such optional sinking fund
payment, it shall deliver to the Trustee at least 60 days prior to the
next succeeding sinking fund payment date for such Series a certificate
signed by the Treasurer or an Assistant Treasurer of the Company stating
that the Company intends to exercise such optional right and specifying
the amount which the Company intends to pay on such sinking fund payment
date. If the Company fails to deliver such certificate at or before the
time provided above, the Company shall not be permitted to make any
optional sinking fund payment with
<PAGE>
77
respect to such sinking fund payment date. To the extent that such right
is not exercised in any year it shall not be cumulative or carried
forward to any subsequent year.
If the sinking fund payment or payments (mandatory or optional)
made in cash plus any unused balance of any preceding sinking fund
payments made in cash shall exceed $50,000 (or a lesser sum if the
Company shall so request) with respect to the Securities of any
particular series, it shall be applied by the Trustee or 1 or more paying
agents on the next succeeding sinking fund payment date to the redemption
of Securities of such series at the sinking fund redemption price
together with accrued interest to the date fixed for redemption. The
Trustee shall select, in the manner provided in Section 14.02, for
redemption on such sinking fund payment date a sufficient principal
amount of Securities of such series to absorb said cash, as nearly as may
be, and the Trustee shall, at the expense and in the name of the Company,
thereupon cause notice of redemption of Securities of such series to be
given in substantially the manner and with the effect provided in
Sections 14.02 and 14.03 for the redemption of Securities of that series
in part at the option of the Company, except that the notice of
redemption shall also state that the Securities of such series are being
redeemed for the sinking fund. Any sinking fund moneys not so applied or
allocated by the Trustee or any paying agent to the redemption of
Securities of that series shall be added to the next cash sinking fund
payment received by the Trustee or such paying agent and, together with
such payment, shall be applied in accordance with the provisions of this
Section 14.04. Any and all sinking fund moneys held by the Trustee or
any paying agent on the maturity date of the Securities of any particular
series, and not held for the payment or redemption of particular
Securities of such series, shall be applied by the Trustee or such paying
agent, together with other moneys, if necessary, to be deposited
sufficient for the purpose, to the payment of the principal of the
Securities of that series at maturity.
On or before each sinking fund payment date, the Company shall
pay to the Trustee or to 1 or more paying agents in cash a sum equal to
all interest accrued to the date fixed for redemption on Securities to be
redeemed on the next following sinking fund payment date pursuant to this
Section.
Neither the Trustee nor any paying agent shall redeem any
Securities of a series with sinking fund moneys, and the Trustee shall
not mail any notice of redemption of Securities for such series by
operation of the sinking fund, during the continuance of a default in
payment of interest on
<PAGE>
78
such Securities or of any Event of Default (other than an Event of
Default occurring as a consequence of this paragraph), except that if the
notice of redemption of any Securities shall theretofore have been mailed
in accordance with the provisions hereof, the Trustee or any paying agent
shall redeem such Securities if cash sufficient for that purpose shall be
deposited with the Trustee or such paying agent for that purpose in
accordance with the terms of this Article Fourteen. Except as aforesaid,
any moneys in the sinking fund for such series at the time when any such
default or Event of Default shall occur and any moneys thereafter paid
into the sinking fund shall, during the continuance of such default or
Event of Default, be held as security for the payment of all such
Securities; provided, however, that in case such Event of Default or
default, shall have been cured or waived as provided herein, such moneys
shall thereafter be applied on the next succeeding sinking fund payment
date on which such moneys may be applied pursuant to the provisions of
this Section 14.04.
CONTINENTAL BANK, NATIONAL ASSOCIATION hereby accepts the trusts
in this Indenture declared and provided, upon the terms and conditions
hereinabove set forth.
<PAGE>
79
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed by their respective officers thereunto duly
authorized and their respective corporate seals to be hereunto duly
affixed and attested, all as of the day and year first above written.
PHILLIPS PETROLEUM COMPANY
Issuer
By /s/ J.J. Mulva
----------------------
[CORPORATE SEAL]
Attest:
/s/ Terry B. Nance
- ---------------------
Assistant Secretary
CONTINENTAL BANK, NATIONAL
ASSOCIATION
Trustee
By /s/ A.H. Lenters
-----------------------
[CORPORATE SEAL]
Attest:
/s/ Debra DeLovey
- ---------------------
Trust Officer
<PAGE>
80
STATE OF OKLAHOMA | ss.:
COUNTY OF WASHINGTON|
On the 14th day of November, 1990, before me personally came
J.J. Mulva, to me known, who, being by me duly sworn, did depose and say
that he resides at BARTLESVILLE, OKLAHOMA; that he is a Vice President,
Treasurer and Chief Financial Officer of PHILLIPS PETROLEUM COMPANY, one
of the corporations described in and which executed the above instrument;
that he knows the corporate seal of said corporation; that the seal
affixed to the said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation; and
that he signed his name thereto by like authority.
/s/ Ann J. Anderson
-------------------------
Notary Public
My Commission expires: January 6, 1994
[ NOTARIAL SEAL ]
STATE OF ILLINOIS| ss.:
COUNTY OF COOK |
On the 15th day of November 1990, before me personally came A.H.
Lenters, to me known, who, being by me duly sworn, did depose and say
that he resides at Chicago, Illinois; that he is an Vice President of
Continental Bank, National Association, one of the corporations described
in and which executed the above instrument; that he knows the corporate
seal of said corporation; that the seal affixed to the said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by
like authority.
/s/ V. Washington
------------------------
Notary Public
[ NOTARIAL SEAL ]
-----------------------------------
| "OFFICIAL SEAL" |
| V. WASHINGTON |
| NOTARY PUBLIC, STATE OF ILLINOIS |
| MY COMMISSION EXPIRES 9-20-92 |
------------------------------------
<PAGE>
Exhibit 4(d)
AMENDMENT TO RIGHTS AGREEMENT
-----------------------------
AMENDMENT, dated as of May 16, 1990, to 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, as Rights Agent (the "Rights Agent").
The Company and the Rights Agent have heretofore executed and
entered into the Rights Agreement. Pursuant to Section 27 of the
Rights Agreement, the Company and the Rights Agent may from
time to time supplement or amend the Rights Agreement in accordance
with the provisions of Section 27 thereof. All acts and things
necessary to make this Amendment a valid agreement, enforceable
according to its terms, have been done and performed, and the execution
and delivery of this Amendment by the Company and the Rights Agent have
been in all respects duly authorized by the Company and the Rights
Agent.
In consideration of the foregoing and the mutual agreements
set forth herein, the parties hereto agree as follows:
1. Section 1(a) of the Rights Agreement is hereby modified and
amended by adding the following sentence to the end thereof:
Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise
be an Acquiring Person, as defined
<PAGE>
pursuant to the foregoing provisions of this paragraph (a), has
become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such
Person would no longer be an Acquiring Person, as defined pursuant
to the foregoing provisions of this paragraph (a), then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of
this Agreement.
2. Section 1 of the Rights Agreement is hereby further modified and
amended by deleting paragraphs (i) and (o) thereof in their entirety and
relettering paragraphs (j) through (n) thereof accordingly.
3. Section 11(a) of the Rights Agreement is hereby modified and
amended by deleting subparagraph (iii) thereof in its entirety,
renumbering subparagraph (iv) thereof as subparagraph (iii), and
amending and modifying subparagraph (ii) thereof to read in its entirety
as follows:
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, 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-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
-2-
<PAGE>
of Common Shares of the Company as shall equal the result obtained
by (x) multiplying the then current Purchase Price by the number of
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
such event. 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 such event, 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 to the preceding sentence or any
Associate or Affiliate thereof
-3-
<PAGE>
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.
4. Section 11 (a) of the Rights Agreement is hereby further
modified and amended by adding to the end of newly renumbered
subparagraph (iii) thereof the following sentence:
In the event the Company shall, after good faith effort, be unable
to take all such action as may be necessary to authorize such
additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exercise of a
Right, a number of Preferred Shares or fraction thereof such that
the current per share market price of one Preferred Share multiplied
by such number or fraction is equal to the current per share market
price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
5. Section 23 of the Rights Agreement is hereby modified and amended
to read in its entirety as follows:
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any
Person becomes an Acquiring
-4-
<PAGE>
Person, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 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.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to
subsection (a) 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, 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
-5-
<PAGE>
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 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.
6. Section 24 of the Rights Agreement is hereby modified and
amended by deleting paragraph (c) thereof in its entirety, relettering
paragraphs (d) and (e) thereof as paragraphs (c) and (d), respectively,
and amending and modifying the newly relettered paragraph (c) thereof
to read in its entirety as follows:
In the event that there shall not be sufficient common 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 for issuance upon exchange of the
Rights. In the event the Company shall, after good faith effort, be
unable to take all such action as may be necessary to authorize such
additional
-6-
<PAGE>
Common Shares, the Company shall substitute, for each Common Share
that would otherwise be issuable upon exchange of a Right, a number
of Preferred Shares or fraction thereof such that the current per
share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one
Common Share as of the date of issuance of such Preferred Shares or
fraction thereof.
7. This Amendment to the Rights Agreement shall be governed by and
construed in accordance with 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.
8. This Amendment to the Rights Agreement may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
Terms not defined herein shall, unless the context otherwise requires,
have the meanings assigned to such terms in the Rights Agreement.
9. In all respects not inconsistent with the terms and provisions of
this Amendment to the Rights Agreement, the Rights Agreement is hereby
ratified, adopted, approved and confirmed. In executing and delivering
this Amendment, the Rights Agent shall be entitled to all the privileges
and immunities afforded to the
-7-
<PAGE>
Rights Agent under the terms and conditions of the Rights Agreement.
10. If any term, provision, covenant or restriction of this
Amendment to the Rights 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 Amendment to the Rights Agreement, and of the Rights Agreement,
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and attested, all as of the date and year first above
written.
Attest: PHILLIPS PETROLEUM COMPANY
By: /s/ D.L. Cone By: /s/ J.J. Mulva
------------------------- ------------------------
Vice President
Attest: MANUFACTURERS HANOVER TRUST
COMPANY
By: /s/ Leslie A. DeLuca By: /s/ Lawrence E. Dennedy
------------------------- ------------------------
Assistant Vice President Lawrence E. Dennedy
Vice President
-8-
<PAGE>
Exhibit 10(i)
BOARD OF DIRECTORS AMENDED
JANUARY 8, 1996
PHILLIPS PETROLEUM COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SECTION I - PURPOSE
-------------------
The purpose of the Phillips Petroleum Company Supplemental
Executive Retirement Plan ("Plan") is to supplement the retirement
benefits of Retiring eligible employees who were hired in mid-
career. Phillips Petroleum Company ("Company") recognizes that
from time to time, it retains the services of employee(s) after the
employee has performed services at another company (or companies)
for varying periods of time, in order to obtain the special skills
and expertise developed by the key employee during these other
periods of employment. These employees generally forego all or a
portion of their potential retirement benefits upon leaving their
previous employer(s). This Plan, therefore, supplements retirement
benefits to at least partially compensate for the loss of retire-
ment benefits accrued at the previous employer(s). The amount of
supplemental benefit payable under this Plan will not cause a
Retiring eligible employee's retirement benefit to equal or exceed
a full career Retiring eligible employee's benefit.
SECTION II - DEFINITION OF TERMS
--------------------------------
a) Retirement Income Plan is the Retirement Income Plan of
Phillips Petroleum Company.
b) Retirement (or Retire, or is termination of employment with
Retiring) the Company on or after the
employee's earliest early retire-
ment date as defined in the Retire-
ment Income Plan. It includes ter-
mination of employment at an age
below 55 only when Section V ap-
plies.
c) Credited Service, as determined in accordance with
Final Average Earnings, the provisions of the Retirement
Normal Retirement Date, Income Plan.
and Early Retirement Date
d) Total Final Average is the average of the high 3 earn-
-1-
<PAGE>
Earnings ings, excluding Incentive Compensa-
tion Plan Awards, paid in consecu-
tive years of the last 10 years
prior to termination of employment
plus the average of the high 3
Incentive Compensation Plan Awards
for any of such last 10 years under
the Incentive Compensation Plan,
whether paid or deferred and the
Key Employee Missed Credited Ser-
vice Retirement Plan.
e) Total Credited Service is an employee's Credited Service
plus any additional months of ser-
vice as calculated under the Prin-
cipal Corporate Officers Supplemen-
tal Retirement Plan and Missed
Credited Service as defined in sub-
section (j) of Section II of Arti-
cle I in the Retirement Income
Plan.
SECTION III - ELIGIBLE EMPLOYEES
--------------------------------
All employees of the Company who are participants in the Retirement
Income Plan and who, a) as of November 1, 1988 participated in the
Incentive Compensation Plan as members of Teams I, II, III
(including those individuals promoted to such levels through
November 1, 1988, ie: Grade 33 or above and ICP eligible), or b)
were active employee participants or were eligible to participate
in the Key Employee Death Protection Plan on the date of its
termination (December 31, 1986), c) are hired subsequent to
November 1, 1988 and at the time of hire are recommended for
participation in the Plan by the Vice President, Planning and
Corporate Relations and Services with approval by the Chief
Executive Officer, or d) prior to retirement are recommended for
participation in the Plan by the Vice President, Planning and
-2-
<PAGE>
Corporate Relations and Services with approval by the Chief
Executive Officer, will be eligible for benefits under this Plan.
SECTION IV - ELIGIBILITY FOR BENEFITS
-------------------------------------
An eligible employee as described in Section III who commences
retirement benefits under the Retirement Income Plan, will be
eligible to receive the benefit amount described in Section VI only
if the results of (a) below exceed the results of (b) below where:
(a) is the lesser of the following percentages;
(i) 2.4% times the greater of the eligible employee's
Credited Service or the Employee's Total Credited
Service at the time of Retirement; or
(ii) the Maximum SERP Benefit Percentage shown in the
schedule below based upon the eligible employee's
attained age at Retirement
and, (b) is the percentage derived by multiplying 1.6% times the
eligible employee's Total Credited Service at the time of
Retirement.
Attained
Age at Maximum SERP
Retirement Benefit Percentage
---------- ------------------
65 60.0%
64 58.4%
63 56.8%
62 55.2%
61 53.6%
60 52.0%
59 50.4%
58 48.8%
57 47.2%
56 45.6%
55 44.0%
54 or younger -0-
-3-
<PAGE>
SECTION V - SPECIAL ELIGIBILITY
-------------------------------
An eligible employee as described in Section III who is less than
age 55 and who is laid off under the Layoff Plan of Phillips
Petroleum Company and/or the Supplemental Layoff Plan of Phillips
Petroleum Company and/or the Enhanced Supplemental Layoff Pay Plan
of Phillips Petroleum Company or any similar plans which may be
adopted by the Company from time to time, will be eligible to
receive the benefit described in Section VI if the results of (a)
below exceed the results of (b) below where:
(a) is the lesser of the following percentages;
(i) 2.4% times the greater of an eligible employee's
Credited Service, or the employee's Total Credited
Service at the time of layoff; or
(ii) the Maximum SERP Benefit Percentage shown in the
schedule below based upon the eligible employee's
attained age at the time of layoff.
and, (b) is the percentage derived by multiplying 1.6% times the
eligible employee's Total Credited Service at the time of
layoff.
Attained Age
at the time Maximum SERP
of Layoff Benefit Percentage
------------ ------------------
54 42.4%
53 40.8%
52 39.2%
51 37.6%
50 36.0%
49 34.4%
48 32.8%
47 31.2%
46 29.6%
45 28.0%
44 26.4%
43 24.8%
42 23.2%
-4-
<PAGE>
Attained Age
at the time Maximum SERP
of Layoff Benefit Percentage
------------ ------------------
41 21.6%
40 20.0%
39 18.4%
38 16.8%
37 15.2%
36 13.6%
35 12.0%
34 10.4%
33 8.8%
32 7.2%
31 5.6%
30 4.0%
29 2.4%
28 0.8%
SECTION VI - BENEFIT AMOUNT
---------------------------
An eligible employee who qualifies for benefits under this Plan in
accordance with Sections IV and V will be eligible to receive
retirement benefits from the Plan as follows:
A. With respect to eligible employees who commence retirement
benefits on or after their Normal Retirement Date -
multiply the lesser of (a)(i) or (a) (ii) as computed in
Sections IV or V, as applicable, times the greater of the
employee's Final Average Earnings or the employee's Total
Final Average Earnings and with the results reduced by the
portion of the eligible employee's Primary Social Security
benefit as determined in the same manner as such reduction
is determined under the Final Average Earnings formula of
the Retirement Income Plan.
B. With respect to eligible employees who commence retirement
benefits at an Early Retirement Date - benefits will be
-5-
<PAGE>
calculated in the same manner as the benefits for Normal
Retirement Date, as described in A. of this Section, but
reduced for early retirement in the same manner as is
applicable under the Retirement Income Plan.
In either A. or B. above the Retirement Income Plan calculations
shall be made 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 the resulting benefit amount will be reduced by
applicable retirement benefit payments for which the retiree is
eligible from any of the following plans, or any other similar plan
or plans, of the Company or any of its subsidiary or affiliated
companies; Retirement Income Plan, Retirement Restoration Plan of
Phillips Petroleum Company, Key Employee Deferred Compensation Plan
of Phillips Petroleum Company, the Retirement Makeup Plan of
Phillips Petroleum Company, Principal Corporate Officers Supplemen-
tal Retirement Plan of Phillips Petroleum Company, the Phillips
Petroleum Company Key Employee Death Protection Plan and the Key
Employee Missed Credited Service Retirement Plan.
SECTION VII - PAYMENT OF RETIREMENT BENEFITS
--------------------------------------------
Subject to the requirement that the manner of payment of retirement
benefits determined in accordance with this Plan, the Retirement
Restoration Plan of Phillips Petroleum Company, the Key Employee
Deferred Compensation Plan of Phillips Petroleum Company, the
Principal Corporate Officers Supplemental Retirement Plan of
-6-
<PAGE>
Phillips Petroleum Company, and the Retirement Makeup Plan of
Phillips Petroleum Company, shall be the same, and subject further
to the condition that a Retiring eligible employee who receives
retirement payments under this Plan other than in one lump-sum
payment, shall agree to be available during the payment period to
provide, from time to time, advice and consultation to the Company
after reasonable notice, or forfeit his/her remaining unpaid
benefits, therefore:
(i) The Retiring eligible employee may elect on the forms
prescribed by the Company to have such retirement payments
paid on a straight-life annuity basis, or to have such
life annuity payments converted in the manner provided by
the Retirement Income Plan to any one of the other forms
of payment which the Retiring eligible employee would be
entitled to select (except the lump-sum settlement option)
if such payments were to be paid to the Retiring eligible
employee under the Retirement
Income Plan.
(ii) Notwithstanding (i) above, an eligible employee who is
commencing retirement benefits at age 60 or older may, not
later than 30 days prior to commencing retirement bene-
fits, 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,
-7-
<PAGE>
(b) whether such lump-sum payment shall be paid to the
employee on or as soon as practicable after the
employee's commencement of retirement benefits,
(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 Retiring eligible
employees who are not members of the Board of Directors and the
Compensation Committee of the Board of Directors, with respect to
Retiring eligible employees who are members of the Board of
Directors, shall consider such indication of preference and shall
respectively decide whether to accept or reject the preferences
expressed. In the event the Chief Executive Officer or the
Compensation Committee, as applicable, accepts such Retiring
eligible employee's preference, such retirement benefit shall be
paid in one lump sum as soon as practicable after the later of such
acceptance or the Retiring eligible employee's retirement benefit
commencement date; or if applicable, credited as of the eligible
employee's retirement benefit commencement date as an award under
the Key Employee Deferred Compensation Plan.
SECTION VIII - METHOD OF PROVIDING BENEFITS
-------------------------------------------
This Plan shall be unfunded. All benefits shall be provided solely
from the general assets of the Company and any rights accruing to
an eligible employee under the Plan shall be those of a general
creditor; provided, however, that the Company may establish a
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grantor trust to satisfy part or all of its Plan payment obliga-
tions so long as the plan remains unfunded for purposes of Title I
of ERISA.
SECTION IX - MISCELLANEOUS PROVISIONS
-------------------------------------
(a) No right or interest of an eligible employee 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 Chief Executive Officer
except to the extent otherwise specifically stated herein, and
the Chief Executive Officer's decisions in all matters relating
to the interpretation and application thereof shall be final.
(c) The Chief Executive Officer, may amend or terminate this Plan
at any time if, in his or her sole judgment such amendment or
termination is deemed desirable. However, such amendments may
not increase the benefits payable hereunder to any Officer of
the Company who is also currently a Director of the Company.
(d) No amount accrued or payable hereunder shall be deemed to be
a portion of an eligible employee'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 Income Plan.
(e) Participation or nonparticipation in this Plan shall not affect
any eligible employee's employment status, or confer any
special rights other than those expressly stated in the Plan.
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<PAGE>
(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 substan-
tially all of the Company's assets and business or with or into
which the Company may be consolidated or merged.
(g) The payment of benefits to eligible employees commencing
retirement benefits under this Plan is contingent upon their
not engaging in activities during the payment period which, in
the evaluation of the Chief Executive Officer, are detrimental
to the Company. Such determination that an eligible employee
has engaged in activities detrimental to the Company will
result in the forfeiture of his/her unpaid benefits.
(h) 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.
SECTION X - EFFECTIVE DATE
--------------------------
This Plan became effective January 1, 1987.
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<PAGE>
Exhibit 10(j)
BOARD OF DIRECTORS
APPROVED - JANUARY 13, 1997
KEY EMPLOYEE DEFERRED COMPENSATION PLAN OF
PHILLIPS PETROLEUM COMPANY
PURPOSE
The purpose of the Key Employee Deferred Compensation Plan of Phillips
Petroleum Company (the "Plan") is to attract and retain key employees
by providing them with an opportunity to defer receipt of cash amounts
which otherwise would be paid to them under various compensation
programs or plans by the Company.
SECTION 1. Definitions.
(a) "Award" shall mean the United States cash dollar amount
(i) allotted to an Employee under the terms of an Incentive
Compensation Plan or the Long Term Incentive Compensation Plan,
or (ii) required to be credited to an Employee's Deferred
Compensation Account pursuant to the Incentive Compensation
Plan, the Long Term Incentive Compensation Plan, the Strategic
Incentive Plan, the Long Term Incentive Plan, or any similar
plans, or any administrative procedure adopted pursuant thereto,
(iii) credited as a result of a Participant's deferral of the
receipt of the value of the Stock which would otherwise be
delivered to an Employee by the Committee acting, in its sole
discretion, to lapse restrictions on Restricted Stock previously
awarded or
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which may be awarded to the Participant pursuant to the
Incentive Compensation Plan, the Long Term Incentive
Compensation Plan, the Strategic Incentive Plan, the Long Term
Incentive Plan, the Omnibus Securities Plan, or any similar
plans, or any administrative procedure adopted pursuant thereto,
(iv) credited resulting from a lump sum distribution from any of
the Company's non-qualified retirement plans and/or plans which
provide for a retirement supplement, (v) resulting from the
forfeiture of Restricted Stock, required by the Company, of key
employees who become employees of GPM Gas Corporation,
(vi) credited as a result of an Employee's deferral of the receipt
of the lump sum cash payment from the Employee's account in the
Defined Contribution Makeup Plan, (vii) credited as a result of
an Employee's voluntary reduction of Salary, (viii) credited as a
result of an Employee's deferral of the settlement of a Long
Term Performance Unit Award, or (ix) any other amount determined
by the Committee to be an Award under the Plan. Sections 2 and
3 of this Plan shall not apply with respect to Awards included
under (ii), (v), and (vii) above and a participant receiving
such an Award shall be deemed, with respect thereto, to
have elected a Section 5(b)(i) payment option--10 annual
installments commencing about one year after retirement, but
subject to revision under the terms of this Plan.
(b) "Board of Directors" shall mean the board of directors of the
Company.
(c) "Chief Executive Officer (CEO)" shall mean the Chief Executive
Officer of the Company.
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(d) "Committee" shall mean the Compensation Committee of the Board
of Directors.
(e) "Company" shall mean Phillips Petroleum Company.
(f) "Deferred Compensation Account" shall mean an account
established and maintained for each Participant in which is
recorded the amounts of Awards deferred by a Participant, the
deemed gains, losses and earnings accrued thereon and payments
made therefrom all in accordance with the terms of the Plan.
(g) "Defined Contribution Makeup Plan" shall mean the Defined
Contribution Makeup Plan of Phillips Petroleum Company or any
similar plan or successor plans.
(h) "Disability" shall mean the inability, in the opinion of the
Company's group life insurance carrier or the Company's Medical
Director, of a Participant, because of an injury or sickness, to
work at a reasonable occupation which is available with the
Company or at any gainful occupation which the Participant is or
may become fitted.
(i) "Employee" shall mean any individual who is a salaried employee
of the Company or of a Participating Subsidiary who is eligible
to receive an Award from an Incentive Compensation Plan or has
Restricted Stock and is not subject to taxation in countries
other than the United States of America either at the time of
any preference election pursuant to Section 3 of the Plan or on
the date that an Award would be deferred and credited to a
Deferred Compensation Account pursuant to Section 4, generally
3
<PAGE>
classified as a U.S. Domestic Employee; provided, however, that
the Plan Administrator may approve exceptions to allow
individuals generally classified as Expatriates and Nationals
who have Restricted Stock, but who are not subject to the
reporting requirements under Section 16 of the Exchange, to be
regarded as Employees.
(j) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time or any successor statute.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended and in effect from time to time, or any successor
statute.
(l) "Incentive Compensation Plan" shall mean the Incentive
Compensation Plan of the Company, or the Annual Incentive
Compensation Plan of Phillips Petroleum Company, or similar plan
of a Participating Subsidiary, or any similar or successor
plans, or all, as the context may require.
(m) "Long-Term Incentive Compensation Plan" shall mean the Long-Term
Incentive Compensation Plan of the Company which was terminated
December 31, 1985.
(n) "Long-Term Incentive Plan" shall mean the Long-Term Incentive
Plan, or similar or successor plan, established under the
Omnibus Securities Plan of Phillips Petroleum Company.
4
<PAGE>
(o) "Participant" shall mean a person for whom a Deferred
Compensation Account is maintained.
(p) "Participating Subsidiary" shall mean a subsidiary of the
Company, of which the Company beneficially owns, directly or
indirectly, more than 50% of the aggregate voting power of all
outstanding classes and series of stock, where such subsidiary
has adopted one or more plans making participants eligible for
participation in this Plan and one or more Employees of which
are Potential Participants.
(q) "Plan Administrator" shall mean the person designated by the
Chief Executive Officer to carry out ministerial duties related
to the Plan.
(r) "Potential Participant" shall mean a person who has received a
notice specified in Section 2.
(s) "Restricted Stock" shall mean shares of Stock which have certain
restrictions attached to the ownership thereof.
(t) "Retirement Income Plan" shall mean the Retirement Income Plan
of the Company or a similar retirement plan of the Participating
Subsidiary pursuant to the terms of which the Participant
retires.
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<PAGE>
(u) "Settlement Date" shall mean the date on which all acts under
the Incentive Compensation Plan or the Long-Term Incentive
Compensation Plan or actions directed by the Committee, as the
case may be, have been taken which are necessary to make an
Award payable to the Participant.
(v) "Salary" shall mean the monthly equivalent rate of pay for an
Employee before adjustments for any before-tax voluntary
reductions.
(w) "Stock" means shares of common stock of the Company, par value
$1.25.
(x) "Strategic Incentive Plan" shall mean the Strategic Incentive
Plan portion of the 1986 Stock Plan of the Company, of the 1990
Stock Plan of the Company, and of any successor plans of similar
nature.
(y) "Long Term Performance Unit Award" shall mean a Performance
Award as authorized by Section 4.4 of the Omnibus Securities
Plan, or similar or successive plan, where the applicable
administrative procedure for such award provides that the
recipient is eligible to indicate a preference to defer all or
any part of such award.
SECTION 2. Notification of Potential Participants.
(a) Incentive Compensation Plan. Each year, during September,
Employees who are eligible to receive an Award in the
immediately following calendar year under the
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<PAGE>
Company's or a Participating Subsidiary's Incentive Compensation
Plan will be notified and given the opportunity, in a manner
prescribed by the Plan Administrator, to indicate a preference
concerning deferral of all or part of such Award.
(b) Restricted Stock Awards. Each year Employees who are or will
become 55 years of age prior to the end of the calendar year or
who are over 55 years old and have not previously been notified
will be notified and given the opportunity, in a manner
prescribed by the Plan Administrator, to indicate a preference
concerning the deferral of the receipt of the value of all or
part of the Stock which would otherwise be delivered to the
Employees in the event the Committee acting, in its sole
discretion, lapses restrictions on Restricted Stock previously
awarded or which may be awarded to the Employees.
(c) Lump Sum Distribution from Non-Qualified Retirement Plans. With
respect to the lump sum distribution permitted from the
Company's non-qualified retirement plans and/or plans which
provide for a retirement supplement, Employees may indicate, in
a manner prescribed by the Plan Administrator, a preference for
all or part of the lump sum distribution, if any, to be
considered an Award under this Plan.
(d) Lump Sum from Defined Contribution Makeup Plan. Employees who
will receive a lump sum cash payment from their account under
the Defined Contribution Makeup Plan, may indicate, in a manner
prescribed by the Plan Administrator, a preference concerning
deferral of all of part of such payment.
7
<PAGE>
(e) Salary Reduction. Annually, Employees on the U.S. dollar
payroll may elect, in a manner prescribed by the Plan
Administrator, a voluntary reduction of Salary for each
pay period of the following calendar year, in which case the
Company will credit a like amount as an Award hereunder,
provided that the amount of such reduction shall be not less
than $100 per month nor more than 50% of the Employee's Salary
in effect as of the date of the election.
(f) Long Term Performance Unit Award. As soon as practicable
following the grant of a Long Term Performance Unit Award,
employees will be notified and given the opportunity, in a
manner prescribed by the Plan Administrator, to indicate a
preference concerning deferral of all or part of such Award.
SECTION 3. Indication of Preference or Election to Defer Award.
(a) Incentive Compensation Plan. If a Potential Participant prefers
to defer under this Plan all or any part of the Award to which a
notice received under Section 2(a) pertains, the Potential
Participant must indicate such preference (i) if the Potential
Participant is subject to Section 16 of the Exchange Act, to the
Committee, or (ii) if the Potential Participant is not subject
to Section 16 of the Exchange Act, to the CEO. The Potential
Participant's preference must be received on or before October 1
of the year in which said Section 2(a) notice was received.
Such indication must be in writing signed by the Potential
Participant, and, must state the portion of the Award the
Potential Participant desires to be deferred. If an indication
is not received by
8
<PAGE>
October 1, the Potential Participant will be deemed to have
elected to receive any ICP award awarded by the Committee.
Such indication of preference, if accepted, becomes irrevocable on
October 1 of the year in which the indication is submitted to the
Committee or CEO. The Committee or CEO, as applicable, shall consider
such indication of preference as submitted and shall decide whether to
accept or reject the preference expressed on or before December 15 of
the year in which the Potential Participant has submitted the
indication of preference to it for Awards under Section 2(a). The
Potential Participant shall be notified in writing of the decision.
(b) Restricted Stock. If a Potential Participant prefers to defer
under this Plan the value of all or any part of the Restricted
Stock to which a notice received under Section 2(b) pertains,
the Potential Participant must indicate such preference (i) if
the Potential Participant is subject to Section 16 of the
Exchange Act, to the Committee, or (ii) if the Potential
Participant is not subject to Section 16 of the Exchange Act, to
the CEO. The Potential Participant's preference must be received
on or before October 1 of the year in which said Section 2(b)
notice was received. Such indication must be in writing signed
by the Potential Participant, and, must state the portion of the
value of the Restricted Stock the Potential Participant desires
to be deferred. If an indication is not received by October 1,
the Potential Participant will be deemed to have elected to
receive any shares for which the restrictions have been lapsed
by the Committee. Such indication of preference becomes
irrevocable on October 1 of the year in which the indication is
submitted to the Committee or CEO. The Committee or CEO, as
appli-
9
<PAGE>
cable, shall consider such indication of preference as submitted
and shall decide whether to accept or reject the preference
expressed. The Potential Participant shall be notified in
writing of the decision. A deferral of the value of the
Restricted Stock will be paid under the terms of Section 5(b)(i)
hereof--10 annual installments commencing about one year after
retirement, but subject to revision under the terms
of this Plan.
(c) Lump Sum Distribution from Non-Qualified Retirement Plans. If a
Potential Participant prefers to defer under this Plan all or
part of the lump sum distribution to which Section 2(c)
pertains, the Potential Participant must indicate such
preference (i) if the Potential Participant is subject to
Section 16 of the Exchange Act, to the Committee or (ii) if the
Potential Participant is not subject to Section 16 of the
Exchange Act, to the CEO. The Potential Participant's
preference must be received in the period beginning 90 days
prior to and ending no less than 30 days prior to the date
of commencement of retirement benefits under such plans. Such
indication must be in writing signed by the Potential
Participant, and must state the portion of the lump sum
distribution the Potential Participant desires to be deferred.
The Committee or CEO, as applicable, shall consider such
indication of preference as submitted and shall decide whether
to accept or reject the preference expressed as soon as
practicable. Such indication of preference, if accepted,
becomes irrevocable on the date of such acceptance.
10
<PAGE>
(d) Lump Sum from Defined Contribution Makeup Plan. If a Potential
Participant prefers to defer under this Plan all or part of the
lump sum cash payment to which Section 2(d) pertains, the
Potential Participant must indicate such preference (i) if the
Potential Participant is subject to Section 16 of the Exchange
Act, to the Committee or (ii) if the Potential Participant is
not subject to Section 16 of the Exchange Act, to the CEO. The
Potential Participant's preference must be received in the
period beginning 365 days prior to and ending no less than 90
days prior to the Participant's retirement date except that if a
Potential Participant is notified of layoff during or after the
year in which the Potential Participant reaches age 50 and if
there is not at least 120 days between the date the Potential
Participant is notified of layoff and the Potential
Participant's termination date, the Potential Participant's
preference must be received within 30 days of being notified of
layoff. Such indication must be in writing signed by the
Potential Participant, and must state the portion of the lump
sum payment the Potential Participant desires to be deferred.
The Committee or CEO, as applicable, shall consider such
indication of preference as submitted and shall decide whether
to accept or reject the preference expressed as soon as
practicable. Such indication of preference, if accepted,
becomes irrevocable on the date of such acceptance. A deferral
of the lump sum from the Defined Contribution Makeup Plan
will be paid under the terms of Section 5(b)(i) hereof--10
annual installments commencing about one year after retirement,
but subject to revision under the terms of the Plan.
(e) Salary Reduction. If a Potential Participant elects to
voluntarily reduce Salary and receive an Award hereunder in lieu
thereof, the Potential Participant's election must be
11
<PAGE>
received on or before November 30 prior to the beginning of the
calendar year of the elected deferral. Such election must be in
writing signed by the Potential Participant, and must state the
amount of the salary reduction the Potential Participant elects.
Such election becomes irrevocable on November 30 prior to the
beginning of the calendar year. An Award in lieu of voluntarily
reduced salary will be paid under the terms of Section 5(b)(i)
hereof--10 annual installments commencing about one year after
retirement, but subject to revision under the terms of the Plan.
(f) Long Term Performance Unit Award. If a Potential Participant
prefers to defer under this Plan the value of all or any part of
the Long Term Performance Unit Award to which a notice received
under Section 2(f) pertains, the Potential Participant must
indicate such preference (i) if the Potential Participant is
subject to Section 16 of the Exchange Act, to the Committee, or
(ii) if the Potential Participant is not subject to Section 16
of the Exchange Act, to the CEO. The Potential Participant's
preference must be received on or before 90 days from the grant
date of the Long Term Performance Unit Award. Such indication
must be in writing signed by the Potential Participant, and,
must state the portion of the value of the Long Term Performance
Unit Award the Potential Participant desires to be deferred. If
an indication is not received by 90 days from the grant date of
the award, the Potential Participant will be deemed to have
elected not to defer any portion of the award. Such indication
of preference becomes irrevocable 90 days from the grant date of
the award. The Committee or CEO, as applicable, shall consider
such indication of preference as submitted and shall decide
whether to accept or reject the preference expressed. The
12
<PAGE>
Potential Participant shall be notified in writing of the
decision. A deferral of the value of the Long Term Performance
Unit Award will be paid under the terms of Section 5(b) (i)
hereof--10 annual installments commencing about one year after
retirement, but subject to revision under the terms of this
Plan.
SECTION 4. Deferred Compensation Accounts.
(a) Credit for Deferral. Amounts deferred pursuant to Section 3(a)
will be credited to the Participant's Deferred Compensation
Account as soon as practicable, but not less than 30 days after
the Settlement Date of the Incentive Compensation Plan. Amounts
deferred pursuant to Section 3(b) will be credited at market
value of the underlying Restricted Stock as soon as practicable,
but not later than 30 days after the date as of which the
Committee elects to lapse the restrictions. Amounts deferred
pursuant to Section 3(d), 3(e), and 3(f) will be credited to the
Participant's Deferred Compensation Account as soon as
practicable, but not later than 30 days after the cash payment
would have been made had it not been deferred. Amounts deferred
pursuant to other provisions of this plan shall be credited as
soon as practicable after the date assigned to the deferral by
the Company or by the Committee.
(b) Designation of Investments. The amount in each Participant's
Deferred Compensation Account shall be deemed to have been
invested and reinvested from time to time, in such "eligible
securities" as the Participant shall designate. Prior to or in
the absence of a Participant's designation, the Company shall
designate an "eligible security" in
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<PAGE>
which the Participant's Deferred Compensation Account shall be
deemed to have been invested until designation instructions are
received from the Participant. Eligible securities are those
securities 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
Participant'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 Participant's Deferred Compensation
Account.
Notwithstanding anything to the contrary in this section 4(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 Participant'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).
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
14
<PAGE>
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.
The Treasurer of the Company may also designate a Fund Manager
to provide services which may include recordkeeping, Participant
accounting, Participant communication, payment of installments
to the Participant, tax reporting and any other services
specified by the Company in agreement with the Fund Manager.
(c) Payments. A Participant'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.
15
<PAGE>
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 Plan Administrator 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, the Plan Administrator and any fiduciary of the
Plan.
(d) Statements. At least one time per year the Company or the
Company's designee will furnish each Participant a written
statement setting forth the current balance in the Participant's
Deferred Compensation Account, the amounts credited or debited
to such account since the last statement and the payment
schedule of deferred Awards and deemed gains, losses and
earnings accrued thereon as provided by the deferred payment
option selected by the Participant.
SECTION 5. Payments from Deferred Compensation Accounts.
(a) Election of Method of Payment for an Incentive Compensation Plan
Award. At the time a Potential Participant submits an
indication of preference to defer all or any part of an Award
under an Incentive Compensation Plan as provided in Section 3(a)
above, the Potential Participant shall also elect in a manner
prescribed by the Plan Administrator, which of the payment
options, provided for in Paragraph (b) of this Section, shall
apply to the deferred portion of said Award adjusted for any
deemed gains, losses and earnings accrued thereon credited to
the Participant's Deferred
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<PAGE>
Compensation Account under this Plan. Subject to Paragraphs
(e), (g) and (h) of this Section, if the Committee or CEO, as
appropriate, accepts the Potential Participant's indication of
preference, the election of the method of payment of the amount
deferred shall become irrevocable.
(b) Payment Options. A Potential Participant may elect to have the
deferred portion of an Incentive Compensation Plan Award
adjusted for any deemed gains, losses and earnings accrued
thereon paid:
(i) (Post-Retirement) in 10 annual installments, the payment of
the first of such installments to commence on the first day
of the first calendar quarter which is on or after the
first anniversary of the Potential Participant's first day
of retirement under the terms of the Retirement Income
Plan, or
(ii) (Pre-Retirement) in 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 of such
installments to commence, as soon as practicable after any
date specified by the Potential Participant, so long as
such date is the first day of a calendar quarter, is on or
after the Settlement Date, is at least one year from the
date the payout option was elected, and is prior to the
date the Potential Participant will attain the
Participant's Normal Retirement Date under the terms of the
Retirement Income Plan.
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<PAGE>
(c) Election of Method of Payment of the Value of Restricted Stock.
As provided in Section 3(b) above, a deferral of the value of
all or part of the Restricted Stock will be considered payment
option (b)(i) of this Section subject to Paragraphs (e) and (g)
of this Section.
(d) Election of Method of Payment of a Lump Sum Distribution from
Non-Qualified Retirement Plans. At the time a Potential
Participant submits an indication of preference to defer all or
part of the lump sum distribution as provided in Section 3(c)
above, the Potential Participant shall also elect in a manner
prescribed by the Plan Administrator which payment option shall
apply to the deferred lump sum adjusted for any gains, losses
and earnings to be accrued thereon credited to the Participant's
Deferred Compensation Account under this Plan. The payment
options are annual installments of not less than 5 nor more than
10, semi-annual installments of not less than 10 nor more than
20, or 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 Potential Participant, 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 Paragraph (g) of this Section, if the Committee or
CEO, as appropriate, accepts the Potential Participant's
indication of preference, the election of the method of payment
of the amount deferred shall become irrevocable.
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<PAGE>
(e) Payment Option Revisions. If a Section 5(b)(i) payment option
applies to any part of the balance of a Participant's Deferred
Compensation Account, the Participant may revise such payment
option as follows:
(i) Prior to Retirement. The Participant at any time during a
period beginning 365 days prior to and ending 90 days prior
to the date the Participant retires under the terms of the
Retirement Income Plan, may, with respect to the total
of all amounts subject to such payment option at the time
of the Participant's retirement, in the manner prescribed
by the Plan Administrator, revise such payment option and
elect one of the payment options specified in (e)(iii) of
this Section to apply to such total amount in place of such
payment option.
(ii) Upon Layoff. If a Participant who is eligible to retire
under the terms of the Retirement Income Plan or who is
laid off during or after the year in which the Participant
reaches age 50 is notified of layoff and if there is not at
least 120 days between the date the Participant is notified
of layoff and the Participant's termination date, the
Participant may, within 30 days of being notified of
layoff, in the manner prescribed by the Plan Administrator,
revise such payment option and elect one of the payment
options specified in (e)(iii) of this Section to apply to
such total amount in place of the such payment option.
(iii) Payment Options After Revision. If a Participant revises a
Section 5(b)(i) payment option as specified in (c)(i) or
(c)(ii) of this Section, the Participant,
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<PAGE>
subject to the exception in (e)(iv) of this Section, may
select payments in 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 with the first
installment to commence, as soon as practicable following
any date specified by the Participant so long as such date
is the first day of a calendar quarter, is on or after the
Participant's first day of retirement or the first day the
Participant is no longer an Employee following layoff, is
at least one year from the date the payment option was
revised and is not more than two calendar quarters after
the Participant's 70th birthday.
(iv) Payment Option After Revision Exception. If a Participant
elected a Section 5(b)(i) payment option for amounts
deferred prior to January 1, 1994, the Participant may
select payments in one lump sum or annual installments of
not less than 5 nor more than 20 in addition to the payment
options specified in (e)(iii) of this Section, provided
that the commencement date specified by the Participant
would be permitted under paragraph (e)(iii) of this
Section.
(f) Installment Amount. The amount of each installment shall be
determined by dividing the balance in the Participant'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).
20
<PAGE>
(g) Death of Participant. Upon the death of a Participant, the
Participant's beneficiary or beneficiaries designated in
accordance with Section 6, or in the absence of an effective
beneficiary designation, the spouse, children (natural or
adopted), or the legal representative of the deceased
Participant, in that order of priority, shall receive payments
in accordance with the payment options selected by the
Participant, whether 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.
(h) Termination of Employment.
In the event a Participant's employment with the Company or a
Participating Subsidiary terminates for any reason other than
death, retirement under the Retirement Income Plan, Disability,
or by layoff during or after the year in which the Participant
reaches age 50, the entire balance of the Participant's Deferred
Compensation Account shall be paid to the Participant in one
lump sum as soon as practicable after the date the Participant
terminates employment, provided however, the Committee, in its
sole discretion, may elect to make such payments in the amounts
and on such schedule as it may determine.
21
<PAGE>
SECTION 6. Designation of Beneficiary
Each Participant shall designate a beneficiary or beneficiaries to
receive the entire balance of the Participant's Deferred
Compensation Account by giving signed written notice of such
designation to the Plan Administrator. The Participant may from
time to time change or cancel any previous beneficiary designation
in the same manner. The last beneficiary designation received by
the Plan Administrator shall be controlling over any prior
designation and over any testamentary or other disposition. After
acceptance by the Plan Administrator of such written designation, it
shall take effect as of the date on which it was signed by the
Participant, whether the Participant is living at the time of such
receipt, but without prejudice to the Company or the CEO on account
of any payment made under this Plan before receipt of such
designation.
SECTION 7. Nonassignability
The right of a Participant, or beneficiary, or other person who
becomes entitled to receive payments under this Plan, shall not be
assignable or subject to garnishment, attachment or any other legal
process by the creditors of, or other claimants against, the
Participant, beneficiary, or other such person.
22
<PAGE>
SECTION 8. Administration.
The Chief Executive Officer may adopt such rules, regulations and
forms as deemed desirable for administration of the Plan and shall
have the discretionary authority to allocate responsibilities under
the Plan to such other persons as may be designated, whether or not
employee members of the Board of Directors, including the
appointment of a person to be the Plan Administrator. The decision
of the Chief Executive Officer with respect to any questions arising
as to the interpretation of the Plan shall be final, conclusive and
binding; provided, however that all such decisions, interpretations
and actions which affect or have the potential to affect the
benefits hereunder of any person who is, at the time of such
decision, interpretation or action, subject to the provisions of
Section 16 of the Exchange Act shall be referred by the CEO to the
Committee, which shall in such case have sole power to make such
decision or interpretation or to take or cause to be taken such
action.
SECTION 9. Employment not Affected by Plan.
Participation or nonparticipation in this Plan shall neither
adversely affect any person's employment status, or confer any
special rights on any person other than those expressly stated in
the Plan. Participation in the Plan by an Employee of the Company
or of a Participating Subsidiary shall not affect the Company's or
the Participating Subsidiary's right to terminate the Employee's
employment or to change the Employee's compensation or position.
23
<PAGE>
SECTION 10. Determination of Recipients of Awards.
The determination of those persons who are entitled to Awards under
the Incentive Compensation Plan and any other such plans shall be
governed solely by the terms and provisions of the applicable plan,
and the selection of an Employee as a Potential Participant or the
acceptance of an indication of preference to defer an Award
hereunder shall not in any way entitle such Potential Participant to
an Award.
SECTION 11. Method of Providing Payments.
(a) Nonsegregation. Amounts deferred pursuant to this Plan and the
crediting of amounts to a Participant'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 Participant
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.
(b) Funding. It is the intention of the Company that this Plan
shall be unfunded for federal tax purposes and for purposes of
Title I of ERISA; provided, however, that the Company may
establish a grantor trust to satisfy part or all of its Plan
payment
24
<PAGE>
obligations so long as the Plan remains unfunded for federal tax
purposes and for purposes of Title I of ERISA.
SECTION 12. Amendment or Termination of Plan.
The Company reserves the right to amend this Plan from time to time
or to terminate the Plan entirely, provided, however, that no
amendment may affect the balance in a Participant's account on the
effective date of the amendment. No Participant shall participate
in a decision to amend or terminate this Plan. In the event of
termination of the Plan, the Chief Executive Officer, in his sole
discretion, may elect to pay to the participant in one lump sum as
soon as practicable after termination of the Plan, the balance then
in the Participant's account.
SECTION 13. Miscellaneous Provisions.
(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
substantially 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.
25
<PAGE>
Exhibit 10(l)
Shareholder Approved
5/10/93
Amended by the Board of Directors 1/13/97
OMNIBUS SECURITIES PLAN
OF
PHILLIPS PETROLEUM COMPANY
(Amended and Restated)
Section 1. Purpose and Establishment.
The purpose of the Omnibus Securities Plan of Phillips Petroleum
Company (the "Plan") is to benefit the Company's stockholders by
encouraging high levels of performance by individuals whose
performance is a key element in achieving the Company's continued
financial and operational success, and to enable the Company to
recruit, reward, retain and motivate employees to work as a team to
achieve the Company's mission of being the top performer in each of
our businesses by rewarding the creation of shareholder value.
The Omnibus Securities Plan of Phillips Petroleum Company shall
become effective January 1, 1993 upon its adoption by the Company's
stockholders at the 1993 Annual Meeting.
Section 2. Definitions.
For purposes of the Plan, the following terms, as used herein,
shall have the meaning specified:
(a) "Award" or "Awards" means an award granted pursuant to Section
4 hereof.
(b) "Award Agreement" means an agreement described in Section 5
hereof entered into between the Company and a Participant,
setting forth the terms, conditions and any limitations
applicable to the Award granted to the Participant.
<PAGE>
(c) "Beneficiary" means a person or persons designated by a
Participant to receive, in the event of death, any unpaid
portion of an Award held by the Participant. Any Participant
may, subject to such limitations as may be prescribed by the
Committee, designate one or more persons primarily or contin-
gently as beneficiaries in writing upon forms supplied by and
delivered to the Company, and may revoke such designations in
writing. If a Participant fails effectively to designate a
beneficiary, then the Award will be paid in the following
order of priority:
(i) Surviving spouse;
(ii) Surviving children in equal shares;
(iii) To the estate of the Participant.
(d) "Board" means the Board of Directors of the Company as it may
be comprised from time to time.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(f) "Committee" means the Compensation Committee of the Board or
any successor committee with substantially the same responsi-
bilities.
(g) "Company" means Phillips Petroleum Company, a Delaware
corporation or any successor corporation.
(h) "Disability" shall mean the inability, in the opinion of the
Company's group life insurance carrier, of a Participant,
because of an injury or sickness, to work at a reasonable
occupation which is available with the Company or at any
gainful occupation which the Participant is or may become
fitted.
-2-
<PAGE>
(i) "Employee" means any individual who is a salaried employee of
the Company or any Participating Subsidiary.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor
statute.
(k) "Fair Market Value" in reference to the common Stock of the
Company means
(i) the average of the reported highest and lowest sale
prices per share of such Stock as reported on the composite
tape of New York Stock Exchange transactions (or such
other reporting system as shall be selected by the
Committee) on the relevant date; or
(ii) in the absence of reported sales on that date, the
average of the reported highest and lowest sales prices
per share on the last previous day for which there was a
reported sale.
The Committee shall determine the Fair Market Value of any
security that is not publicly traded, using such criteria as
it shall determine, in its sole discretion, to be appropriate
for such valuation.
(l) "Insider" means any person who is subject to Section 16 of the
Exchange Act.
(m) "Participant" means an Employee who has been designated by the
Committee to be eligible for an Award pursuant to this Plan.
(n) "Participating Subsidiary" means a subsidiary of the Company,
of which the Company beneficially owns, directly or
indirectly, more than 50% of the aggregate voting power of all
outstanding classes and series of stock, and one or more
Employees of which are Participants, or are eligible for
Awards pursuant to this Plan.
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<PAGE>
(o) "Restricted Stock" means shares of Stock which have certain
restrictions attached to the ownership thereof, which may be
issued under Section 4.3.
(p) "Retirement" means termination of employment with the Company
or a Participating Subsidiary which qualifies the Employee for
Retirement as that term is defined in the Retirement Income
Plan of Phillips Petroleum Company or of the applicable
retirement plan of a Participating Subsidiary.
(q) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities
and Exchange Commission as now in force or as such regulation
or successor regulation shall be hereafter amended.
(r) "Section 16" means Section 16 of the Exchange Act or any
successor regulation and the rules promulgated thereunder as
they may be amended from time to time.
(s) "Stock" means shares of Common Stock of the Company, par value
$1.25.
(t) "Stock Appreciation Right" means a right, the value of which
is determined relative to the appreciation in value of shares
of Stock, which may be issued under Section 4.2.
(u) "Stock Option" means a right to purchase shares of Stock
granted pursuant to Section 4.1 and includes Incentive Stock
Options and Non-Qualified Stock Options as defined in Section
4.1.
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<PAGE>
Section 3. Eligibility.
Awards may be granted only to Employees who are designated as
Participants from time to time by the Committee. The Committee
shall determine which Employees shall be Participants, the types of
Awards to be made to Participants and the terms, conditions and
limitations applicable to the Awards.
Section 4. Awards
Awards may include, but are not limited to, those described in this
Section 4. The Committee may grant Awards singly, in tandem or in
combination with other Awards, as the Committee may in its sole
discretion determine. Subject to the other provisions of this
Plan, Awards may also be granted in combination or in tandem with,
in replacement of, or as alternatives to, grants or rights under
this Plan and any other employee plan of the Company.
4.1 Stock Options
A Stock Option is a right to purchase a specified number of shares
of Stock at a specified price during such specified time as the
Committee shall determine.
(a) Options granted may be either of a type that complies with the
requirements of incentive stock options as defined in Section
422 of the Code ("Incentive Stock Options") or of a type that
does not comply with such requirements ("Non-Qualified
Options"), provided however, that the aggregate number of
shares which may be subject to Incentive Stock Options under
this Plan shall not exceed twenty million (20,000,000) shares
of Stock.
(b) The exercise price per share of any Stock Option shall be no
less than the Fair Market Value per share of the Stock subject
to the option on the date the Stock Option is granted.
-5-
<PAGE>
(c) A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the Company specifying
the number of shares of Stock to be purchased.
(d) The exercise price of the Stock subject to the Stock Option
may be paid in cash or, at the discretion of the Committee,
may also be paid by the tender of Stock already owned by the
Participant, or through a combination of cash and Stock, or
through such other means the Committee determines are
consistent with the Plan's purpose and applicable law. No
fractional shares of Stock will be issued or accepted.
4.2 Stock Appreciation Rights
A Stock Appreciation Right is a right to receive, upon surrender of
the right, but without payment, an amount payable in cash and/or
shares of Stock under the terms and conditions as the Committee
shall determine.
(a) A Stock Appreciation Right may be granted in tandem with part
or all of, in addition to, or completely independent of a
Stock Option or any other Award under this Plan. A Stock
Appreciation Right issued in tandem with a Stock Option may be
granted at the time of grant of the related Stock Option or at
any time thereafter during the term of the Stock Option.
(b) The amount payable in cash and/or shares of Stock with respect
to each right shall be equal in value to a percent of the
amount by which the Fair Market Value per share of Stock on
the exercise date exceeds the exercise price of the Stock
Appreciation Right. The applicable percent shall be
established by the Committee. The amount payable in shares of
Stock, if any, is determined with reference to the Fair Market
Value on the date of exercise.
(c) Stock Appreciation Rights issued in tandem with Stock Options
shall be exercisable only to the extent that the Stock Options
to which they relate are exercisable. Upon exercise of the
Stock Appreciation Right, the Participant shall surrender to
the Company the underlying
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<PAGE>
Stock Option. Stock Appreciation Rights issued in tandem with Stock
Options shall automatically terminate upon the exercise of such
Stock Options.
4.3 Restricted Stock
Restricted Stock is Stock that is issued to a Participant and is
subject to such terms, conditions and restrictions as the Committee
deems appropriate, which may include, but are not limited to,
restrictions upon the sale, assignment, transfer or other disposition
of the Restricted Stock and the requirement of forfeiture of
the Restricted Stock upon termination of employment under certain
specified conditions. The Committee may provide for the lapse of
any such term or condition or waive any term or condition based on
such factors or criteria as the Committee may determine. The
Participant shall have, with respect to awards of Restricted Stock,
all of the rights of a shareholder of the Company, including the
right to vote the Restricted Stock and the right to receive any
cash or stock dividends on such Stock. No more than thirty percent
(30%) of the total number of shares of Stock available for Awards
under the Plan shall be issued during the duration of the Plan as
Restricted Stock.
4.4 Performance Awards
Performance Awards may be granted under this Plan from time to time
based on the terms and conditions as the Committee deems
appropriate provided that such Awards shall not be inconsistent
with the terms and purposes of this Plan. Performance Awards are
Awards which are contingent upon the performance of all or a
portion of the Company and/or its Subsidiaries or which are
contingent upon the individual performance of a Participant.
Performance Awards may be in the form of performance units,
performance shares and such other forms of performance Awards which
the Committee shall determine. The Committee shall determine the
performance measurements and criteria for such performance Awards.
-7-
<PAGE>
4.5 Other Awards
The Committee may from time to time grant Stock, other Stock based
and non-Stock based Awards under the Plan including without
limitations those Awards pursuant to which Shares of Stock are or
may in the future be acquired, Awards denominated in Stock units,
securities convertible into Stock, phantom securities and dividend
equivalents. The Committee shall determine the terms and conditions
of such other Stock, Stock based and non-Stock based Awards
provided that such Awards shall not be inconsistent with the terms
and purposes of this Plan.
Section 5. Award Agreements.
Each Award under this Plan shall be evidenced by an Award Agreement
setting forth the number of shares of Stock or other security,
Stock Appreciation Rights, or units subject to the Award and such
other terms and conditions applicable to the Award as determined by
the Committee.
(a) Award Agreements shall include the following terms:
(i) Non-assignability:
-----------------
A provision that the Awards under the Plan other than Awards
representing Non-Qualified Stock Options shall not be
assigned, pledged or otherwise transferred except by will or by
the laws of descent and distribution and that during the
lifetime of a Participant, an Award other than an Award
representing Non-Qualified Stock Options shall be exercised
only by such Participant or by the Participant's guardian or
legal representative.
(ii) Termination of Employment:
-------------------------
A provision describing the treatment of an Award in the event
of the Retirement, Disability, death or other termination of a
Participant's employment with the Company, including but not
limited to terms relating to the vesting, time for exercise,
forfeiture or cancellation of an Award in such circumstances.
-8-
<PAGE>
(iii) Rights as Stockholder:
---------------------
A provision that a Participant shall have no rights as a
stockholder with respect to any securities covered by an Award
until the date the Participant becomes the holder of record.
Except as provided in Section 8 hereof, no adjustment shall be
made for dividends or other rights, unless the Award Agreement
specifically requires such adjustment, in which case,
grants of dividend equivalents or similar rights shall
not be considered to be a grant of any other stockholder
right.
(iv) Withholding:
-----------
A provision requiring the withholding of applicable taxes
required by law from all amounts paid in satisfaction of an
Award. In the case of an Award paid in cash, the withholding
obligation shall be satisfied by withholding the applicable
amount and paying the net amount in cash to the Participant.
In the case of Awards paid in shares of Stock or other
securities of the Company, a Participant may satisfy the
withholding obligation by paying the amount of any taxes in
cash or, with the approval of the Committee, shares of Stock or
other securities may be deducted from the payment to
satisfy the obligation in full or in part as long as such
withholding of shares does not violate any applicable laws,
rules or regulations of federal, state or local authorities.
The number of shares to be deducted shall be determined by
reference to the Fair Market Value of such shares of Stock on
the applicable date.
(v) Holding Period:
--------------
In the case of an Award to an Insider:
(A) of an equity security, a provision stating (or the
effect of which is to require) that such security
must be held for a least six months (or such longer
period as the Committee in its discretion speci-
fies) from the date of acquisition; or
(B) of a derivative security with a fixed exercise
price within the meaning of Section 16, a provision
stating (or the effect of which is to require) that
at least six months (or such longer period as the
Committee in its discretion specifies) must elapse
from the date of acquisition of the derivative
security
-9-
<PAGE>
to the date of disposition of the derivative security
(other than upon exercise or conversion) or its underlying
equity security; or
(C) of a derivative security without a fixed exercise
price within the meaning of Section 16, a provision
stating (or the effect of which is to require) that
at least six months (or such longer period as the
Committee in its discretion specifies) must elapse
from the date upon which such price is fixed to the
date of disposition of the derivative security
(other than by exercise or conversion) or its
underlying equity security.
(b) Award Agreements may include the following terms:
(i) Replacement, Substitution, and Reloading:
----------------------------------------
Any provisions
(A) permitting the surrender of outstanding Awards or
securities held by the Participant in order to
exercise or realize rights under other Awards, or
in exchange for the grant of new Awards under
similar or different terms (including the grant of
reload options), or,
(B) requiring holders of Awards to surrender outstanding
Awards as a condition precedent to the grant of
new Awards under the Plan.
(ii) Transferability of Non-Qualified Stock Options:
----------------------------------------------
Such provisions as the Committee may, in its discretion,
authorize in any particular case, with respect to all or any
portion of any Non-Qualified Stock Options to be granted to
Participant, the transfer by such Participant of any such Non-
Qualified Stock Options to (a) the spouse, children or
grandchildren (including in each case stepchildren or step
grandchildren) of the Participant (all such persons
collectively "Immediate Family Members":), (b)
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<PAGE>
a trust or trusts for the exclusive benefit of persons all of
whom are Immediate Family Members, or (c) a partnership in
which all partners are Immediate Family Members, provided that
following any such permitted transfer, subsequent transfers of
transferred Non-Qualified Stock Options, except by will or the
laws of descent and distribution, are prohibited. Following
any transfer contemplated hereby, the transferred Non-Qualified
Stock Options shall continue to be subject to all of the terms
hereof and Administrative Procedure and the Award Agreement
pursuant to which it was originally granted and the transferee
shall be obliged to comply in all respects with all of the
terms and conditions hereof, the Administrative Procedure and
the Awards Agreement in the same manner as if the transferee
were a Participant hereunder.
(ii) Other Terms:
-----------
Such other terms as are necessary and appropriate to effect an
Award to the Participant including but not limited to the term
of the Award, vesting provisions, deferrals, any requirements
for continued employment with the Company, any other
restrictions or conditions (including performance requirements)
on the Award and the method by which restrictions or conditions
lapse, effect on the Award of a Change of Control as
defined in Section 9, the price, amount or value of
Awards.
Section 6. Shares of Stock Subject to the Plan
(a) Subject to the adjustment provisions of Section 8 hereof, the
number of Shares for which Awards may be granted in each
calendar year during any part of which the Plan is in effect
(including, for the purpose of this limitation, shares of
Stock which have been or may be the subject of Awards under
the Prior Plans as defined in Section 17 hereof during such
year) shall not exceed eight-tenths of one percent (.8%) of
the total issued and outstanding shares of Stock on December
31 of the immediately preceding year. In the event that not
all of the shares available in one year are used for Awards in
that year, the number of shares not used
-11-
<PAGE>
for Awards that year shall be carried forward and shall be available
for Awards in succeeding calendar years in addition to the eight-
tenths of one percent (.8%) of shares that would otherwise be
available in such years.
(b) Any unexercised or undistributed portion of any terminated,
expired, exchanged, or forfeited Award or Awards settled in
cash in lieu of shares of Stock shall be available for further
Awards in addition to those available under Section 6(a)
hereof.
(c) For the purposes of computing the total number of shares of
Stock granted under the Plan, the following rules shall apply
to Awards payable in Stock or other securities, where appropriate:
(i) except as provided in (v) of this Section, each Stock
Option shall be deemed to be the equivalent of the
maximum number of shares that may be issued upon exercise
of the particular Stock Option;
(ii) except as provided in (v) of this Section, each other
Stock-based Award payable in some other security shall be
deemed to be equal to the number of shares to which it
relates;
(iii) except as provided in (v) of this Section, where the
number of shares available under the Award is variable on
the date it is granted, the number of shares shall be
deemed to be the maximum number of shares that could be
received under that particular Award;
(iv) where one or more types of Awards (both of which are
payable in shares of Stock or another security) are
granted in tandem with each other, such that the exercise
of one type of Award with respect to a number of shares
cancels an equal number of shares of the other, each
joint Award shall be deemed to be the equivalent of the
number of shares under the other; and
-12-
<PAGE>
(v) each share awarded or deemed to be awarded under the
preceding subsections shall be treated as shares of
Stock, even if the Award is for a security other than
Stock.
Additional rules for determining the number of shares of Stock
granted under the Plan may be made by the Committee, as it deems
necessary or appropriate.
(d) The Stock which may be issued pursuant to an Award under the
Plan may be treasury or authorized but unissued Stock or Stock
may be acquired, subsequently or in anticipation of the
transaction, in the open market to satisfy the requirements of
the Plan.
Section 7. Administration.
(a) The Plan and all Awards granted pursuant thereto shall be
administered by the Committee so as to permit the Plan to
comply with Rule 16b-3. A majority of the members of the
Committee shall constitute a quorum. The vote of a majority
of a quorum shall constitute action by the Committee.
(b) The Committee shall periodically determine the Participants in
the Plan and the nature, amount, pricing, timing, and other
terms of Awards to be made to such individuals.
(c) The Committee shall have the power to interpret and administer
the Plan. All questions of interpretation with respect to the
Plan, the number of shares of Stock or other security, Stock
Appreciation Rights, or units granted, and the terms of any
Award Agreements shall be determined by the Committee and its
determination shall be final and conclusive upon all parties
in interest. In the event of any conflict between an Award
Agreement and the Plan, the terms of the Plan shall govern.
(d) It is the intent of the Company that the Plan and Awards
hereunder satisfy and be interpreted in a manner, that, in the
case of Participants who are or may be Insiders, satisfies the
applica-
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<PAGE>
ble requirements of Rule 16b-3, so that such persons
will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 and will not be subjected to
avoidable liability thereunder. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with the
intent expressed in this Section 7(d), that provision to the
extent possible shall be interpreted and deemed amended so as
to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall
be deemed void as applicable to Insiders.
(e) The Committee may delegate to the officers or employees of the
Company the authority to execute and deliver such instruments
and documents, to do all such acts and things, and to take all
such other steps deemed necessary, advisable or convenient for
the effective administration of the Plan in accordance with
its terms and purpose, except that the Committee may not
delegate any discretionary authority with respect to substantive
decisions or functions regarding the Plan or Awards
thereunder as these relate to Insiders including but not
limited to decisions regarding the timing, eligibility,
pricing, amount or other material term of such Awards.
Section 8. Adjustments Upon Changes in Capitalization.
Subject to any required action by the Company's shareholders, in
the event of a reorganization, recapitalization, Stock split, Stock
dividend, exchange of Stock, combination of Stock, merger,
consolidation or any other change in corporate structure of the
Company affecting the Stock, or in the event of a sale by the
Company of all or a significant part of its assets, or any
distribution to its shareholders other than a normal cash dividend,
the Committee may make appropriate adjustment in the number, kind,
price and value of Stock authorized by this Plan and any adjustments
to outstanding Awards as it determines appropriate so as to
prevent dilution or enlargement of rights.
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<PAGE>
Section 9. Change of Control
(a) In the event of a Change of Control of the Company, in
addition to any action required or authorized by the terms of
an Award Agreement, the Committee may, in its discretion,
recommend that the Board of Directors take any of the following
actions as a result of, or in anticipation of, any such
event to assure fair and equitable treatment of the Plan
Participants:
(i) accelerate time periods for purposes of vesting in, or
realizing gain from, any outstanding Award made pursuant
to the Plan;
(ii) offer to purchase any outstanding Award made pursuant to
this Plan from the holder for its equivalent cash value,
as determined by the Committee, as of the date of the
Change of Control; or
(iii) make adjustments or modifications to outstanding Awards
as the Committee deems appropriate to maintain and
protect the rights and interests of Plan Participants following
such Change of Control.
Any such action approved by the Board of Directors shall be
conclusive and binding on the Company and all Plan Participants.
(b) For the purposes of this Section, a "Change of Control" shall
mean the earliest date on which either of the following events
shall occur:
(i) An individual, entity or group shall acquire, otherwise
than directly from the Company, beneficial ownership of
20% or more of the outstanding common stock or voting
power of the Company, provided that no such individual,
entity or group shall be deemed to beneficially own any
securities held by:
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<PAGE>
(A) the Company or any of its subsidiaries; or
(B) any employee benefit plan of the Company or any of
its subsidiaries, or
(ii) The persons who were directors of Phillips Petroleum
Company on February 12, 1990, together with those who
subsequently became directors of Phillips Petroleum
Company and whose election, or nomination for election by
the Company's shareholders, was approved by the vote of
at least a majority of the directors who were directors
on February 12, 1990, or directors whose nomination or
election was approved as provided above (the "Continuing
Directors"), shall cease to constitute a majority of the
Board or of its successor by merger, consolidation or
sale of assets.
However, a majority of the Continuing Directors may approve
any event described in (a) of this Section and determine, for
purposes of this Plan that a Change of Control has not
occurred.
Section 10. Rights of Employees.
(a) Status as an eligible Employee shall not be construed as a
commitment that any Award will be made under the Plan to such
eligible Employee or to eligible Employees generally.
(b) Nothing contained in the Plan (or in any other documents
related to this Plan or to any Award) shall confer upon any
Employee or Participant any right to continue in the employ or
other service of the Company or constitute any contract or
limit in any way the right of the Company to change such
person's compensation or other benefits or to terminate the
employment of such person with or without cause.
-16-
<PAGE>
Section 11. Awards in Foreign Countries.
The Committee shall have the authority to adopt such modifications,
procedures and subplans as may be necessary or desirable to comply
with provisions of the laws of foreign countries in which the
Company or its Participating Subsidiaries may operate to assure the
viability of the benefits of Awards made to Participants employed
in such countries and to meet the purpose of this Plan.
Section 12. Compliance with Applicable Legal Requirements
No certificate for Stock distributable pursuant to this Plan shall
be issued and delivered unless the issuance of such certificate
complies with all applicable legal requirements including, without
limitation, compliance with the provisions of applicable state
securities laws, the Securities Act of 1933, as amended from time
to time or any successor statute, the Exchange Act and the
requirements of the exchanges on which the Company's Stock may, at
the time, be listed.
Section 13. Amendment and Termination.
The Board of Directors may at any time amend, suspend or terminate
the Plan. The Committee may at any time alter or amend any or all
Award Agreements under the Plan to the extent permitted by law.
However, no such action may, without further approval of the
stockholders of the Company, be effective if such approval is
required in order that transactions in Company securities under the
Plan be exempt from the operation of Section 16(b) of the Securities
Exchange Act of 1934 and may not 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
8;
(ii) materially modify the requirements as to eligibility for
participation,
-17-
<PAGE>
(iii) materially increase the benefits accruing to Participants
under the Plan; or
(iv) extend the duration beyond the date approved by the
stockholders.
Section 14. Unfunded Plan.
The Plan shall be unfunded. Neither the Company nor the Board of
Directors shall be required to segregate any assets that may at any
time be represented by Awards made pursuant to the Plan. Neither
the Company, the Committee, nor the Board of Directors shall be
deemed to be a trustee of any amounts to be paid under the Plan.
Section 15. Limits of Liability.
(a) Any liability of the Company to any Participant with respect
to an Award shall be based solely upon contractual obligations
created by the Plan and the Award Agreement.
(b) Neither the Company nor any member of the Board of Directors
or of the Committee, nor any other person participating in any
determination of any question under the Plan, or in the
interpretation, administration or application of the Plan,
shall have any liability to any party for any action taken or
not taken, in good faith under the Plan.
Section 16. Duration of the Plan.
This Plan shall become effective on January 1, 1993 upon the
adoption by the Company's stockholders at the 1993 Annual Meeting
and the Committee shall have authority to grant Awards hereunder
until December 31, 2002 subject to the ability of the Board of
Directors to terminate the Plan as provided in Section 13.
-18-
<PAGE>
Section 17. Termination of Other Plans.
Effective upon the adoption of the Plan by stockholders, no further
grants of options, stock appreciation rights, stock or restricted
stock shall be made under the Company's 1986 Stock Plan and 1990
Stock Plan ("Prior Plans"). Thereafter, all grants and awards made
under the Prior Plans prior to that date shall continue in
accordance with the terms of the Prior Plans.
-19-
<PAGE>
Exhibit 10(n)
BOARD OF DIRECTORS APPROVED
JANUARY 8, 1996
KEY EMPLOYEE MISSED CREDITED SERVICE RETIREMENT PLAN OF
PHILLIPS PETROLEUM COMPANY
PURPOSE
The purpose of the Key Employee Missed Credited Service Retirement Plan
of Phillips Petroleum Company (the "Plan") is to attract and retain key
employees by restoring retirement benefits which are missing for certain
periods of Company service. This Plan is intended to be and shall be
administered as an unfunded excess benefit plan for a select group of
Highly Compensated Employees.
SECTION I. Definitions.
-----------
As used in this Plan:
(a) "Board" shall mean the board of directors of the Company.
(b) "Chief Executive Officer (CEO)" shall mean the Chief Executive
Officer of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(d) "Committee" shall mean the Compensation Committee of the
Board.
(e) "Company" shall mean a company or other corporation which is
a member of the control group of corporations (defined in
1
<PAGE>
Code Section 414(b)) of which Phillips Petroleum Company is
a member.
(f) "Employee" shall mean a person who is an active participant
in the Retirement Plan and who qualifies as a Highly Compensated
Employee who as of May 1, 1995 is classified on the
Company's records as a job schedule 51 grades 32 and above,
all schedule 66 job grades, or a job schedule 70L grades 07
or 08.
(g) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, or any successor
statute.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and in effect from time to time, or any
successor statute.
(i) "Foreign Plan Offset" shall mean the amounts of the vested
monthly retirement income from the I.E.L. Pension Plan or
foreign retirement plans maintained or sponsored by the
Company which is or would be payable in the form of a single
life annuity upon reaching normal retirement age under such
plans. If necessary, such retirement income shall be converted
into a dollar amount using the exchange rate for the
effective date of the Employee's transfer onto the U.S.
payroll (or the next business day rate if there is no rate
for that day) as published in the Wall Street Journal, and
shall be converted into a monthly single life annuity using
the actuarial standards set out in Section 5 of Article V of
the Retirement Plan for a deemed commencement date as of the
2
<PAGE>
first day of the month of transfer into the Retirement Plan.
The Foreign Plan Offset shall be limited to no more than the
amount by which the Missed Credited Service Retirement
Benefit of the Employee would have been increased by the
Missed Credited Service Months attributable to the months of
participation in the I.E.L. Pension Plan or other foreign
plans.
(j) "Highly Compensated Employee" shall mean an Employee who is
Highly Compensated within the meaning of ERISA Sections
3(36) and 4(b)(5) subject to Section IV.
(k) "Incentive Compensation Plan" shall mean the Incentive
Compensation Plan of the Company, or the Annual Incentive
Compensation Plan of Phillips Petroleum Company, or similar
plan of a Participating Subsidiary, or any similar or successor
plans, or all, as the context may require.
(l) "KEDCP" shall mean the Key Employee Deferred Compensation
Plan of Phillips Petroleum Company or any similar or successor
plans.
(m) "Missed Credited Service Months" shall mean the number of
months during any employment period with the Company not
included as Credited Service in the Retirement Plan as
calculated in Section II.
(n) "Missed Credited Service Retirement Benefit" shall mean the
supplemental retirement benefit that would be calculated
under the Retirement Plan using as Credited Service the
Missed Credited Service Months in addition to the Credited
Service and using Total Final Average Earnings, without
3
<PAGE>
regard for Internal Revenue Service limitations relating to
Code Sections 401(a)(17) or 415, and reduced by:
(1) any offset applied to the retirement benefit which
would be payable at normal retirement age due to a Foreign Plan
Offset or due to withdrawals or benefit commencement from the
Retirement Plan or the Key Employee Supplemental Retirement
Plan, made in the manner specified in the Retirement Plan, and
(2) retirement benefits payable from the Retirement Plan
and from the Key Employee Supplemental Retirement Plan.
(o) "Participating Subsidiary" shall mean a subsidiary of the
Company, of which the Company beneficially owns, directly or
indirectly, more than 50% of the aggregate voting power of
all outstanding classes and series of stock, where such
subsidiary has adopted one or more plans making participants
eligible for participation in this Plan.
(p) "Plan" shall mean the Key Employee Missed Credited Service
Retirement Plan of Phillips Petroleum Company, the terms of
which are stated in and by this document.
(q) "Plan Administrator" shall mean the person designated by the
Chief Executive Officer to carry out ministerial duties
related to the Plan.
(r) "Retirement Plan" shall mean the Retirement Income Plan of
Phillips Petroleum Company, which plan is qualified under
Code Section 401(a). The following terms used in the Plan
shall be determined in accordance with the provisions of the
Retirement Income Plan:
4
<PAGE>
(1) Approved Leave of Absence
(2) Credited Service
(3) Non-contributory Benefits Schedule and
(4) Normal Retirement Date
(s) "Total Final Average Earnings" shall mean the average of the
high 3 earnings, excluding Incentive Compensation Plan
awards, paid in consecutive years of the last 11 years
including the year prior in which termination of employment
occurs plus the average of the high 3 Incentive Compensation
awards for any of such last 11 years under the Incentive
Compensation Plan, whether paid or deferred.
SECTION II. Eligibility for Benefits.
-------------------------
Each Employee shall be eligible for a Missed Credited Service
Retirement Benefit as a result of Missed Credited Service Months
for service with the Company (provided that the full number of
months as calculated below exceeds one) during any period of
employment on the direct payroll of the Company which is not
included as Credited Service under the other rules of the Retirement
Plan, except for months attributable to the following:
(a) Service while classified as an employee eligible for
participation in the Retirement Savings Plan of Phillips
Petroleum Company or its predecessor plans,
(b) Service with a company prior to its acquisition by the
Company,
5
<PAGE>
(c) Service while classified on Company's records as a Temporary or
Intermittent employee prior to January 1, 1990,
(d) Service as a non-managerial retail marketing outlet
employee,
(e) Service in a category which is specifically excluded
from the Retirement Plan by the definition of Employee
or by Article II of the Retirement Plan at the time the
person becomes an Employee, with the exception of international
expatriates and foreign nationals,
(f) Periods while on an Approved Leave of Absence,
(g) Service as an employee who has commenced retirement
benefits on or after his earliest Early Retirement Date
and thereafter resumes employment duties with the Company,
(h) Service associated with absence due to a strike,
(i) Periods associated with absence due to discharge,
or
(j) An earlier employment period with the Company followed
by an absence from employment exceeding (i) 120 months
from the end of employment date if that date occurred on
or before January 1, 1985, or (ii) 60 months from the
end of employment date if that date occurred after January 1,
1985.
In calculating the Missed Credited Service Months under this
paragraph, the beginning and ending dates of an employment
period shall be deemed to be as follows:
6
<PAGE>
Actual Beginning or Ending Dates Deemed Date
----------------------------------------------
December 17 through January 16 January 1
January 17 through February 16 February 1
February 17 through March 16 March 1
March 17 through April 16 April 1
April 17 through May 16 May 1
May 17 through June 16 June 1
June 17 through July 16 July 1
July 17 through August 16 August 1
August 17 through September 16 September 1
September 17 through October 16 October 1
October 17 through November 16 November 1
November 17 through December 16 December 1
For the purposes of this Plan, the number of full months
during any period of employment will be determined by subtracting
the beginning deemed date and actual year from the
ending deemed date and actual year. The Missed Credited
Service Months restored pursuant to the provisions of this
Plan should be deemed to have been completed under the Non-
contributory Benefits Schedule of the Retirement Plan but
shall not entitle any Employee to current service benefits,
as described in Article IV of the Retirement Plan, with
respect to such period.
7
<PAGE>
SECTION III. Plan Benefits.
--------------
Supplemental payments will be made in the amount of the Missed
Credited Service Retirement Benefit to the Employee or the
Employee's surviving spouse (in the case of the death of an
Employee prior to retirement or the death of a former Employee
prior to commencing retirement benefits).
SECTION IV. Form and Payment of Benefits.
-----------------------------
Subject to the requirement that the manner of payment of
supplemental retirement benefits which an Employee is eligible to
receive under this Plan, the Key Employee Supplemental Retirement
Plan of Phillips Petroleum Company, the Principal Corporate
Officers Supplemental Retirement Plan of Phillips Petroleum
Company, the Phillips Petroleum Company Supplemental Executive
Retirement Plan, the Phillips Petroleum Company Key Employee
Death Protection Plan and any similar plan or plans of the
Company or a Participating Subsidiary, shall be the same and,
subject further to the condition that an Employee who receives
payments under this Plan in the manner described in Section IV
(b) hereof, shall agree to be available to provide from time to
time advice and consultation to the Company after reasonable
notice and for reasonable compensation therefor:
(a) An Employee may elect in the manner prescribed by the
Company to have the payments provided for hereunder made
8
<PAGE>
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 payments which
the Employee would be entitled to select (except the lump-sum
settlement option) if such payments were to be paid to the
Employee under the Retirement Plan.
(b) Notwithstanding (a) above, an Employee who is commencing
retirement benefits at age 60 or older may, not earlier
than 90 days nor later than 30 days prior to commencing
retirement benefits, express a preference, in the manner
prescribed by the Plan Administrator, to have the pay-
ment of the amounts provided for hereunder converted in
the manner provided by the Retirement Plan from a life
annuity basis to one lump-sum payment of which all or
part of the lump sum payment is either paid to the Em-
ployee or considered an award pursuant to the provisions
of KEDCP. The Chief Executive Officer, with respect
to Employees who are not subject to Section 16 of the
Exchange Act, and the Committee, with respect to Employees
who are subject to Section 16 of the Exchange Act, shall
consider such indication of preference and shall respec-
tively 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 applicable, accepts
such Employee's preference, part or all of the Plan
9
<PAGE>
benefits shall be paid in a lump sum as soon as practicable
after the later of such acceptance or the Employee's retirement
benefit commencement date or credited as of the Employee's
retirement benefit commencement date to the Employee's KEDCP
account as applicable.
SECTION V. 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 an
eligible Employee or Retiree under the Plan shall be those of a
general creditor; provided, however, that the Company may establish a
grantor trust to satisfy part or all of its Plan payment
obligations so long as the Plan remains an unfunded excess
benefit plan for purposes of Title I of ERISA.
SECTION VI. Nonassignability.
-----------------
The right of an Employee, or beneficiary, or other person who
becomes entitled to receive payments under this Plan, shall not
be assignable or subject to garnishment, attachment or any other
legal process by the creditors of, or other claimants against,
the Employee, beneficiary, or other such person.
10
<PAGE>
SECTION VII. Administration.
---------------
The Plan shall be administered by the Chief Executive Officer.
The Chief Executive Officer may adopt such rules, regulations and
forms as deemed desirable for administration of the Plan and
shall have the discretionary authority to allocate responsibilities
under the Plan to such other persons as may be designated,
whether or not employee members of the Board, including the
appointment of a person to be the Plan Administrator. The
decision of the Chief Executive Officer with respect to any
questions arising as to the interpretation of the Plan shall be
final, conclusive and binding; provided, however that all such
decisions, interpretations and actions which affect or have the
potential to affect the benefits hereunder of any person who is,
at the time of such decision, interpretation or action, subject
to the provisions of Section 16 of the Exchange Act shall be
referred by the CEO to the Committee, which shall in such case
have sole power to make such decision or interpretation or to
take or cause to be taken such action.
SECTION VIII. Employment not Affected by Plan.
--------------------------------
Participation or nonparticipation in this Plan shall neither
adversely affect any person's employment status, or confer any
special rights on any person other than those expressly stated in
the Plan. Participation in the Plan by an Employee of the
Company or of a Participating Subsidiary shall not affect the
11
<PAGE>
Company's or the Participating Subsidiary's right to terminate
the Employee's employment or to change the Employee's compensation or
position.
SECTION IX. Miscellaneous Provisions.
-------------------------
(a) The Board reserves the right to amend or terminate this Plan
at any time, if, in the sole judgment of the Board, such
amendment or termination is deemed desirable; provided that
no member of the Board who is also an Employee or Retiree
shall participate in any action which has the actual or
potential effect of increasing his or her benefits hereunder,
and further provided, the Company shall remain liable
for any benefits accrued under this Plan prior to the date
of amendment or termination.
(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) No amount accrued or payable hereunder shall be deemed to be
a portion of an Employee's compensation or earnings for the
purpose of any other employee benefit plan adopted or main-
12
<PAGE>
tained by the Company, nor shall this Plan be deemed to
amend or modify the provisions of the Retirement Plan.
(d) 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.
13
<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
--------------------------------------
1996 1995 1994 1993 1992
--------------------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles $2,172 1,064 852 538 511
Distributions in excess of (less than)
equity in earnings of less-than-
fifty-percent-owned companies 76 (1) 2 9 (3)
Fixed charges, excluding
capitalized interest and the
portion of the preferred dividend
requirements of a subsidiary not
previously deducted from income* 328 364 340 363 442
- -----------------------------------------------------------------------------
$2,576 1,427 1,194 910 950
=============================================================================
Fixed Charges
Interest and expense on
indebtedness, excluding
capitalized interest $ 237 285 266 290 392
Capitalized interest 33 31 15 11 16
Preferred dividend requirements
of a subsidiary 68 73 56 71 3
One-third of rental expense,
net of subleasing income,
for operating leases 35 36 32 30 38
- -----------------------------------------------------------------------------
$ 373 425 369 402 449
=============================================================================
Ratio of Earnings to Fixed Charges 6.9 3.4 3.2 2.3 2.1
- -----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$10 million each in 1996, 1995, 1994 and 1992, and $11 million in 1993.
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 in 1995, and
$1 million each in 1994, 1993 and 1992. Interest attributable to the LTSSP
borrowings in 1996 was minimal.
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF PHILLIPS PETROLEUM COMPANY
Listed below are subsidiaries of the registrant at December 31, 1996.
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 Anadarko Gathering Company Delaware
GPM Gas Corporation Delaware
Phillips Alaska Natural Gas Corporation Delaware
Phillips China Inc. Liberia
Phillips Coal Company Nevada
Phillips Gas Company Delaware
Phillips Investment Company Nevada
Phillips Oil Company (Nigeria) Limited Nigeria
Phillips Petroleum Canada Ltd. Canada
Phillips Petroleum Chemicals Belgium
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 Denmark Cayman Islands
Phillips Petroleum International Investment Company Delaware
Phillips Petroleum Resources, Ltd. Delaware
Phillips Petroleum Timor Sea Inc. 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
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated
February 21, 1997, 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,
1996, 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
Phillips Petroleum Company Form S-3 File No. 333-01209
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 Form S-8 File No. 33-28669
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 21, 1997
<PAGE>
<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,
1996, and the related consolidated statement of income for the year ended
December 31, 1996, 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 615
<SECURITIES> 0
<RECEIVABLES> 2,008
<ALLOWANCES> 20
<INVENTORY> 472
<CURRENT-ASSETS> 3,306
<PP&E> 20,103
<DEPRECIATION> 10,983
<TOTAL-ASSETS> 13,548
<CURRENT-LIABILITIES> 3,137
<BONDS> 2,555
300
0
<COMMON> 636
<OTHER-SE> 3,615
<TOTAL-LIABILITY-AND-EQUITY> 13,548
<SALES> 15,731
<TOTAL-REVENUES> 15,807
<CGS> 13,169<F1>
<TOTAL-COSTS> 13,433<F2>
<OTHER-EXPENSES> 47<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217
<INCOME-PRETAX> 2,172
<INCOME-TAX> 869
<INCOME-CONTINUING> 1,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,303
<EPS-PRIMARY> 4.96
<EPS-DILUTED> 4.96
<FN>
<F1> Purchased crude oil and products + Production and operating expenses +
Exploration expenses + Depreciation, depletion and amortization.
<F2> CGS + Taxes other than income taxes.
<F3> Preferred dividend requirements of subsidiary and capital trust.
</FN>
</TABLE>
