FORM 10-K
UNITED STATES
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
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
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 262,403,941 shares
of Common Stock, $1.25 Par Value, outstanding at January 31, 1998. The
aggregate market value of voting stock held by non-affiliates of the
registrant was $11,545,773,404 as of January 31, 1998. 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 412,179 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 11, 1998 (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.............. 3
E&P (Exploration and Production).............. 3
GPM (Gas Gathering, Processing and Marketing). 12
RM&T (Refining, Marketing and Transportation). 14
Chemicals..................................... 18
Other......................................... 21
Competition..................................... 23
General......................................... 24
3. Legal Proceedings................................. 25
4. Submission of Matters to a Vote of
Security Holders................................ 25
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Executive Officers of the Registrant.............. 26
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters..................... 28
6. Selected Financial Data........................... 29
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... 30
8. Financial Statements and Supplementary Data....... 68
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 126
PART III
10. Directors and Executive Officers of the
Registrant...................................... 127
11. Executive Compensation............................ 127
12. Security Ownership of Certain Beneficial
Owners and Management........................... 127
13. Certain Relationships and Related Transactions.... 127
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................... 128
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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," "may,"
"plan" or "plans," "scheduled," "would," "could," "should,"
"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 65.
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) -- which
explores for and produces crude oil, natural gas and natural gas
liquids on a worldwide basis; (2) Gas Gathering, Processing and
Marketing (GPM) -- which 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) -- which
refines, markets and transports crude oil and petroleum products,
primarily in the United States; (4) Chemicals -- which
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, 1997,
Phillips employed 17,100 people, slightly less than the previous
year.
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Phillips continued to focus on growth opportunities and operating
excellence in 1997. Current developments include the following:
o Phillips and Mobil Corporation established an alliance in
1996 for deep-water exploration in the Gulf of Mexico.
Seismic data was acquired in 1997, and drilling is scheduled
to begin in 1998. Phillips currently holds a one-third
ownership interest in 121 deep-water blocks.
o Work continued on the Ekofisk II redevelopment in 1997. The
new wellhead platform was completed in October 1996 and
production from the first well began in early 1997. Work
continues on the new processing/transportation platform.
Ekofisk II is scheduled for start-up in the fall of 1998.
o Phillips and its co-venturers are studying a plan to develop
both blocks of the Bayu-Undan gas/condensate discovery in
the Timor Sea Zone of Cooperation, initially as a gas-
reinjection project. Initial production is expected in
2002. A decision is pending on the location and type
of facility to liquefy the natural gas at a later stage in
the project's development.
o During 1997, Phillips and its co-venturers successfully bid
on risk service contracts for three production fields in
Venezuela with gross estimated reserves, after application
of enhanced recovery efforts, of 650 million to 900 million
barrels of oil.
o Phillips purchased oil and gas assets in the Zama/Virgo area
of northwest Alberta, Canada. The company's average working
interest in the Zama/Virgo area ranges between 90 and
100 percent for the oil and gas properties, with combined
estimated net reserves of oil and natural gas of 100 million
barrels-of-oil-equivalent (BOE).
o During third quarter 1997, Phillips and the Venezuelan state
oil company signed a Principles of Agreement to build a
58,000 barrels-per-day coker and related facilities at
Phillips' Sweeny, Texas, Complex for the processing of
heavier, lower-cost crude oil.
o The company and Qatar General Petroleum Corporation
signed an agreement for the development of a new
joint-venture petrochemical complex. The complex would
feature a 1.1 billion-pounds-per-year ethylene plant. It
would also feature manufacturing facilities capable of
producing one billion pounds per year of polyethylene and a
hexene-1 plant with a capacity of 100 million pounds per
year. Phillips would have a 49 percent interest in this
project.
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SEGMENT AND GEOGRAPHIC INFORMATION
Segment information about sales and other operating revenues,
earnings, total assets and additional information, located in
Note 19 -- Segment and Geographic Information in the Notes to
Financial Statements on pages 103 through 105, is incorporated
herein by reference.
Products which contributed more than 10 percent of consolidated
sales and other operating revenues follow:
1997 1996 1995
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Crude Oil 23% 26 26
Petroleum Products 41 42 41
Natural Gas 15 14 12
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 106 through 124 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 BOE.
o Developed and undeveloped acreage.
o Net wells completed, wells in progress and productive wells.
In 1997, Phillips' worldwide crude oil production averaged
232,000 barrels per day, a 6 percent increase from
219,000 barrels per day in 1996. In 1997, 67,000 barrels per day
of crude oil production was from the United States, down from
69,000 barrels per day in 1996. Lower U.S. production was due to
general production declines, primarily from the Point Arguello,
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South Marsh Island Blocks 146/147, and Prudhoe Bay fields. This
decline was partially offset by new production from the Mahogany
subsalt field in the Gulf of Mexico. Foreign crude oil
production was up 10 percent in 1997, reflecting higher
production in the U.K. sector of the North Sea with the start-up
of J-Block, and higher volumes from Norway.
E&P's worldwide production of natural gas liquids averaged
14,000 barrels per day in 1997, compared with 15,000 barrels per
day in 1996. U.S. production accounted for 4,000 barrels per day
in 1997, the same as in 1996.
The company's worldwide production of natural gas averaged
1,472 million cubic feet per day in 1997, down 4 percent from
1996. U.S. natural gas production decreased 7 percent in 1997,
to 1,024 million cubic feet per day, primarily attributable to
normal field declines, lower production from Blocks 70/71 in the
Garden Banks area of the Gulf of Mexico, and asset dispositions.
Higher production from the U.K. sector of the North Sea
contributed to a 5 percent increase in foreign natural gas
production in 1997.
Phillips' worldwide annual average crude oil sales price
decreased 8 percent in 1997, to $18.57 per barrel. Both U.S. and
foreign average prices were lower. E&P's annual average
worldwide natural gas sales price increased 9 percent, led by
11 percent higher sales prices in the United States.
The company's finding and development costs in 1997 were
$4.42 per BOE, compared with $7.55 in 1996. Over the last five
years, Phillips' finding and development costs averaged $4.17 per
BOE.
At December 31, 1997, Phillips held a combined 33.9 million net
developed and undeveloped acres, a 26 percent increase from
26.8 million net acres at year-end 1996. The increase in net
acreage is primarily attributable to new acreage in South Africa,
Peru, Greenland and Venezuela. At year-end, the company held
acreage in 21 nations, and produced hydrocarbons in six.
E&P -- U.S. OPERATIONS
Phillips' alliance with Mobil Corporation to jointly explore
deep-water blocks in the Gulf of Mexico moved forward in 1997.
Three-dimensional seismic surveys were acquired in 1997 and a
drilling program is scheduled to begin in 1998, with two to four
exploratory wells planned annually over the next three to five
years. The alliance covers 121 deep-water blocks, with Phillips
holding one-third of the ownership interests and Mobil two-
thirds.
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The company has drilled the majority of its subsalt portfolio on
the continental shelf in the Gulf of Mexico. Production has been
less than anticipated from the Mahogany field (Ship Shoal
Blocks 349/359), where work continues to boost output. A fifth
production well has been completed, and recompletions are planned
in other producing zones. In 1997, Mahogany's net production was
2,808 barrels of oil and 4.3 million cubic feet of natural gas
per day. Phillips plans to develop the Agate field (Ship Shoal
South Block 361) by connecting it to the Mahogany platform,
located about six miles away. First production from Agate is
expected in 1998. Phillips owns a 37.5 percent interest in the
Mahogany field, and a 50 percent interest in the Agate field.
In the North Cook Inlet of Alaska, Phillips has completed
appraisal drilling of the Tyonek Deep prospect, in which the
company owns a 100 percent working interest. Although the first
appraisal well did not encounter commercial quantities of
hydrocarbons, a second appraisal well, started in late 1997, was
successful, testing at a combined rate of 3,100 barrels of oil
per day. Two development wells are planned for 1998. Drilling
has taken place from the existing Tyonek platform, which has
continued to supply gas to the company's Kenai LNG facility.
Phillips owns a 10 to 25 percent interest in three satellite
fields of the Prudhoe Bay Unit: Schrader Bluff, S-Pad Kuparuk and
Northwest Eileen. A two-well appraisal-drilling program
began in the fall of 1997 at Schrader Bluff, and a three-well
program began in early 1998 at Northwest Eileen.
Liquefied natural gas (LNG) sales volumes from the company's
Kenai, Alaska, plant decreased 8 percent in 1997, compared with
1996, due to slightly lower customer demand. Through
refrigeration and compression techniques, and utilization of
Phillips' 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.
Net production from the company's three jointly owned coal mines
was 1.8 million tons in 1997, compared with 2.9 million tons in
1996. The mines are located in Louisiana, Texas and Wyoming.
Phillips has a 50 percent-equity interest in each. The reduction
in coal production was due to reduced demand for production from
the Dry Fork mine in Wyoming. However, as a result of
contractual minimum royalty payments to Phillips and the
allocation of most fixed costs to the operator at the present low
production level, the lower deliveries at Dry Fork did not
adversely impact Phillips' financial results.
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Construction is scheduled to begin in 1998 on a lignite mine in
Mississippi with an expected capacity of 3.2 million-tons-per-
year. Commercial production is expected to begin in 2000.
Phillips will own 75 percent of the mine, which will provide fuel
for a 440-megawatt power plant to be built and owned by a third
party in northeast Mississippi.
E&P -- NORWEGIAN OPERATIONS
Work continued on the Ekofisk II redevelopment in 1997. The new
wellhead platform was completed during 1996, with production
starting in early 1997. The new processing/transportation
platform was installed in September 1997. Full operation of
Ekofisk II is scheduled to begin in the fall of 1998.
The Ekofisk, Eldfisk, Embla and Tor fields will be connected to
the Ekofisk II facilities, as well as some third-party fields.
It is currently anticipated that the remaining fields in the
Ekofisk area -- Cod, Albuskjell, Edda, and West Ekofisk -- will
be shut-in by the end of 1998 because tie-in of these fields to
the new Ekofisk II facilities was determined to be uneconomical
based on remaining reserves, existing platform operating costs
and tie-in costs. However, a re-assessment of some of these
fields is ongoing and alternate development scenarios are being
studied. The abandonment plans for these fields have not yet
been finalized by the company, and are not scheduled to be
submitted to the Norwegian authorities until 1999. At
December 31, 1997, the company had accrued $44 million for
dismantlement and removal costs on these fields based on total
anticipated costs to Phillips of $48 million. The combined
liquids production for these fields in 1997 was 1,900 barrels per
day, about 2 percent of the company's Norway production.
Phillips received government approval to proceed with a water
injection program at the Eldfisk field, the second largest field
in the Ekofisk area. The project includes a new unmanned
platform, new pipelines and modification of existing facilities.
The platform, which will include water injection, gas lift and
gas injection equipment, is scheduled to begin operation in early
2000, and will be controlled from a nearby manned platform. The
completed facility will include eight injection wells -- seven
for water and one for gas. Total water injection capacity will
be 670,000 barrels per day, enough to serve Eldfisk and provide a
new source for the ongoing Ekofisk waterflood project 15 miles
away. This project is expected to increase Phillips' net Eldfisk
oil production from about 13,000 barrels per day to a peak of
26,000 barrels per day in 2004. At December 31, 1997, Phillips
owned a 37 percent working interest.
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In 1996, 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. The first exploratory well was a dry hole,
and work is ongoing to evaluate other prospects on the license.
Phillips was also awarded a 20 percent non-operating interest in
a block near the Norne field, where an exploratory well is
planned for the first quarter of 1998.
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 of the
field, with first production expected in late 1998 at an
anticipated net rate to Phillips of 6,000 barrels per day.
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. Siri East may be
developed as a satellite to Siri. Phillips is the operator and
holds a 35 percent interest in the second license, located in the
westernmost part of the Danish shelf immediately south of the
Ekofisk area, where three-dimensional seismic data is being
evaluated.
Phillips was awarded 38.25 percent interest in a license offshore
western Greenland covering 2.3 million acres, effective
January 1, 1997. Seismic data was acquired in the summer of
1997, and the first exploration well is planned for 1999.
E&P -- U.K. OPERATIONS
Commercial liquids production from J-Block began in April 1997,
following the commissioning of gas injection facilities on the
Judy platform. Commercial gas production also began in 1997,
after legal issues with the gas buyer were settled. In December
1997, net production averaged 23,000 barrels per day of liquids
and 108 million cubic feet per day of natural gas. Phillips is
the operator of J-Block, with a 36.5 percent interest.
The J-Block platform is designed to process 100,000 barrels of
oil per day and 450 million cubic feet of natural gas per day.
This additional capacity provides the infrastructure needed to
cost-effectively develop other discoveries in the area. The Jade
field, discovered in 1996, was successfully appraised in 1997.
Development options are being evaluated, with an expected
start-up in 2000 with a tie-in to the J-Block infrastructure.
Development options are being reviewed with the co-venturers and
the U.K. authorities. Phillips is the operator with a
32.5 percent interest.
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Also tying into the J-Block infrastructure will be the Janice
field, for which development approval was obtained in 1997.
Initial production is planned for 1998 at a net rate of
13,000 barrels of oil per day, and 5 million cubic feet per day
of natural gas. Gas production from Janice will be transported
to the J-Block facility, while the oil production will be
transported to Teesside, England, through an existing pipeline.
Phillips has a 24.4 percent interest in Janice.
Phillips has an interest in two fields being developed in the
U.K. North Sea--Armada and Britannia. Armada began production in
late 1997, averaging a net rate of 2,700 barrels of liquids and
44 million cubic feet of natural gas per day in December 1997.
Britannia is scheduled to begin production in mid-1998, averaging
net production of 2,800 barrels of liquids and 38 million cubic
feet of natural gas per day in 1999. The company has an
11.45 percent interest in Armada and a 6.78 percent interest in
Britannia.
A discovery well was drilled in 1997 on a prospect that straddles
two blocks in the U.K. North Sea. Named Kate, the well tested at
a combined rate from two intervals of 11,500 barrels of oil per
day, and 22 million cubic feet of natural gas per day. Phillips
and its co-venturers operate the 22/28a block (in which Phillips
holds a 62.74 percent interest), while Shell U.K. Exploration and
Production Company (Shell) and its co-venturers operate block
22/23b. The discovery well was funded 50/50 by the Phillips and
Shell groups. An appraisal well is planned for 1998. A
subsequent well, drilled by Shell in block 22/28a and funded
50/50 by the Phillips and Shell groups, also encountered a
potentially commercial hydrocarbon pay zone.
Phillips holds a 43.8 percent interest in the Renee field
(block 15/27) and a 27 percent interest in the Rubie field
(block 15/28b) in the U.K. North Sea. A successful appraisal
well was drilled on Renee in 1997, and tested at a combined rate
from two intervals of 10,250 barrels of oil and 7 million cubic
feet of gas per day. Phillips and its co-venturers will develop
the fields with subsea facilities tied into a third-party
floating production facility located about 13 miles away. The
company plans five wells for the area. Production could begin as
early as the fourth quarter of 1998, at a combined initial net
production rate of 9,000 barrels per day to Phillips.
In deep-water frontier areas of the Atlantic Ocean offshore the
United Kingdom and the Republic of Ireland, Phillips was awarded
46 blocks in two licensing rounds. During the summer of 1997,
Phillips and its co-venturers conducted extensive seismic surveys
over much of the newly acquired acreage. Further seismic
acquisition and the first exploratory well are planned for 1998.
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E&P -- OTHER OPERATIONS
China:
In the South China Sea, Phillips' combined net production of
crude oil from its Xijiang facilities averaged 15,000 barrels per
day in 1997, the same as in 1996. The company drilled a five-
mile extended-reach well from the Xijiang facilities to an
adjacent field, with production commencing in 1997.
Phillips' exploratory program on the Bozhong Block, off China's
northern coast in Bohai Bay, recorded two successful exploratory
wells. The Peng Lai 14-3-1 was the company's first successful
well and the Bozhong 36-2-1 was the second. An appraisal well
was started in early 1998. Phillips is the operator and holds a
60 percent interest in the block. China National Offshore Oil
Corporation has the right to acquire up to 51 percent interest in
any prospect development.
Nigeria:
In Nigeria, the company's non-operating interests in 23 fields
yielded net average crude oil production of 23,000 barrels per
day, 8 percent lower than 1996. Information contained in
Management's Discussion and Analysis on page 64 related to the
company's oil mining leases in Nigeria is incorporated herein by
reference.
Australia:
Phillips and its co-venturers are studying a plan to develop both
blocks of the Bayu-Undan gas/condensate discovery in the Timor
Sea Zone of Cooperation as a single field, with BHP Petroleum
Pty. Ltd. as unit operator. The field, located between Indonesia
and Australia, is planned to be developed initially as a
gas-reinjection project, with liquids production processed on a
floating processing, storage and offloading facility built from a
modified tanker. Initial production is expected in 2002.
In 1997, a successful exploration well was drilled offshore
northwestern Australia at the Athena prospect, in which Phillips
holds a 50 percent interest. The Athena well tested an extension
of a field discovered by an adjacent operator. Phillips and the
operator of the adjacent field are discussing development options
for these reserves with owners of nearby production facilities.
In the same area, an unsuccessful exploratory well was drilled on
the Andromeda prospect, where the company also holds a 50 percent
interest.
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Phillips was awarded a 40 percent interest in two offshore
licenses in the Carnarvon Basin, off the northwest shelf of
Australia. The new licenses are on either side of the license
containing Athena and Andromeda. Phillips plans to drill up to
10 wells in these three licenses over the next three years.
Venezuela:
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. The agreement was approved by the Venezuelan Congress
in the summer of 1997, and engineering studies are under way,
with a decision regarding construction expected by year-end 1998.
Production could begin in 1999 at a net rate to Phillips of
2,000 barrels of oil per day, with peak net production reaching
40,000 barrels of oil per day by 2006. Phillips has a 20 percent
interest in the project.
In mid-1997, Phillips obtained interests in three reactivation
blocks offshore western Venezuela: La Vela (50 percent),
Ambrosio (100 percent) and LL-652 (20 percent). Phillips will
operate the Ambrosio and La Vela blocks, and plans to drill new
wells and extend or re-complete certain existing wells. In
addition, improved recovery technology will be utilized to fully
exploit the fields. The company is conducting three-dimensional
seismic surveys on these blocks in 1998, with exploratory/
appraisal drilling scheduled to begin late in the year. Phillips
and its co-venturers have approved a plan to expand production
and initiate a waterflood project on the LL-652 block. Approval
of the development and improved recovery plans for the three
blocks is expected from Venezuela's national oil company in the
first quarter of 1998.
Other:
Phillips continued its exploration program on a block in the Borj
Messouda area of eastern Algeria. The first two exploratory
wells, drilled over the past two years, were unsuccessful. A
third well is scheduled to be drilled in the spring of 1998.
In two separate transactions, Phillips acquired an average
working interest ranging from 90 to 100 percent in the oil and
gas properties in the Zama/Virgo area in northwest Alberta,
Canada, with estimated total reserves of 100 million barrels-of-
oil-equivalent.
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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 4.6 million acres in southern Oman.
Acquisition of seismic data began in late 1997. The company
has committed to drill five wells over the nine-year
exploratory phase of the agreement, with the first well
planned for 1999.
o In early 1997, Phillips signed a seven-year license
agreement with Peru's state-owned oil company, which will
enable Phillips to explore 2.5 million acres in southeastern
Peru. An exploration well is planned for late 1998.
o Phillips is acquiring seismic data in block 17/18 of the
Indian Ocean, offshore South Africa. Exploratory drilling
is planned for early 1999. Phillips is the operator
of the 14.5 million acre sublease, with a 40 percent
interest.
E&P -- RESERVES
In 1997, on a BOE basis, Phillips replaced 164 percent of the
reserves it produced during the year, compared with 71 percent in
1996. The 1997 total includes replacement of 263 percent of
foreign production and 61 percent of U.S. production. Excluding
acquisitions and related property dispositions, Phillips replaced
125 percent of its total worldwide production.
U.S. reserves decreased 3 percent, while foreign reserves
increased 14 percent. Total worldwide proved reserves on a BOE
basis were 2.3 billion barrels at year-end. Crude oil reserves
and natural gas liquids reserves rose 9 percent, and natural gas
reserves increased 2 percent. Natural gas comprises 48 percent
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 1993 through
1997, Phillips' five-year-average BOE production replacement
equaled 126 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 re-evaluation 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, 1997. No difference exists between the
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company's estimated total proved reserves for year-end 1996 and
year-end 1995, which are shown in this filing, and estimates of
these reserves shown in a filing with another federal agency in
1997.
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 134 billion cubic feet of liquefied
natural gas. Production from one field in Alaska, with estimated
proved reserves greater than the company's obligation and
estimated production levels 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
- ---
GPM gathers and processes both natural gas purchased from others
and natural gas produced from the company's E&P reserves. The
natural gas liquids -- ethane, propane, butanes and pentanes --
are extracted and sold primarily to the company's Chemicals
operations, where they are used as feedstock or sold to outside
customers. The residue gas is sold to outside customers or used
as fuel in company operations. GPM owns 14 natural gas liquids
extraction plants, and operates or has an interest in three more.
The plants are located in Texas (11), Oklahoma (3), and New
Mexico (3). In addition, GPM operates gas gathering systems with
approximately 28,000 miles of gathering pipelines, with some
19,800 active meter connections to producing wells.
In January 1997, GPM purchased, from Amoco Production Company,
gathering assets in the Permian Basin of West Texas that gathered
approximately 40 million cubic feet of natural gas per day and
produced approximately 8,000 barrels per day of natural gas
liquids.
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<PAGE>
This purchase followed the late 1996 acquisition of gathering
assets, primarily located in northwest Oklahoma, from ANR
Pipeline Company. Together, these acquisitions contributed to a
5 percent increase in natural gas liquids production in 1997,
compared with 1996.
Technology continued to play a key role in GPM's objectives of
providing superior customer service, and operating its plants and
systems efficiently and consistently. A major improvement
effort -- adding distributive control system technology to all
GPM-owned and operated processing plants -- has begun and is
scheduled to be completed by the year 2000. With this
technology, plant operations can be monitored from a central
control room and plant operators have more accurate and timely
information. This improves operating consistency, increases the
extraction of natural gas liquids and lowers energy consumption.
An expansion of GPM's Spraberry plant, located in West Texas, was
completed in 1997. Distributive control system technology,
additional processing equipment and turbine-driven compression
were added, increasing plant capacity 63 percent -- to 65 million
cubic feet of natural gas per day.
Further technological improvements in 1997 included the
continuation of remote monitoring and control equipment
installation at GPM's key field compression sites, scheduled to
be completed by the year 2000. These improvements allow for the
monitoring of remote compressors from a central location,
providing a more efficient use of resources and reducing
compression downtime.
GPM also completed its installation of electronic flow
measurement and radio telemetry equipment. Wellhead production
data, which was once collected manually, may now be transmitted
electronically, providing more timely and accurate data, giving
producers more flexibility in monitoring their well production.
GPM's raw gas throughput averaged 1,983 million cubic feet per
day in 1997, compared with 1,913 million cubic feet per day in
1996, reflecting the impact of the acquisitions and expansions
discussed above. Raw gas purchased from Phillips E&P represented
approximately 8 percent of GPM's total 1997 throughput, compared
with 9 percent in 1996.
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<PAGE>
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
--------------------------
1997 1996 1995
--------------------------
From Phillips E&P leasehold gas 15 17 19
From gas purchased outside Phillips 140 131 125
- -----------------------------------------------------------------
155 148 144
=================================================================
Residue gas sales were 1,046 million cubic feet per day in 1997,
compared with 1,076 million cubic feet per day in 1996. GPM
sells residue gas under contracts with prices that change with
the gas markets. Approximately 58 percent of the residue gas
sales volumes were sold under contracts with a term of one year
or longer in 1997, compared with 64 percent in 1996. The
remaining residue gas sales volumes were either sold on a daily
or monthly basis.
At year-end 1997, gross raw natural gas supplies available for
processing through GPM-operated plants were estimated at
7.1 trillion cubic feet, the same as at year-end 1996. At year-
end 1997 and 1996, respectively, these supplies included about
643 million and 651 million barrels of natural gas liquids,
assuming full ethane extraction.
RM&T
- ----
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 91 percent of rated capacity in
1997, compared with 95 percent in 1996. The lower utilization
rate was the result of maintenance turnarounds in 1997, an
external power outage that affected the Sweeny refinery, and a
weather-related operating interruption at the Borger refinery.
The average purchase cost of a barrel of crude oil delivered to
the U.S. refineries in 1997 was $19.67 per barrel, 10 percent
lower than in 1996.
Forty-four percent of the crude oil processed by Phillips' U.S.
refineries in 1997 was supplied from the United States, with the
majority of the remainder provided by purchases from the Middle
East, primarily Saudi Arabia, and, to a lesser extent, South
14
<PAGE>
America, the North Sea, and West Africa. In 1996, 42 percent of
the crude oil processed came from the United States.
Net E&P production satisfied 65 percent of Phillips' 1997 crude
oil requirements, which consisted of U.S. refinery crude oil runs
(314,000 barrels per day) and crude oil supplied to the refinery
in Teesside, England (41,000 barrels per day). The ratio of net
crude oil production to requirements for 1998 is estimated at
67 percent based on production forecasts of 258,000 barrels per
day and estimated crude oil requirements of 387,000 barrels per
day. As in 1997, purchases in the United States; from the Middle
East, primarily Saudi Arabia; and, to a lesser degree, from South
America, the North Sea, and West Africa are expected to be the
major sources supplying the difference.
Output from refining operations -- automotive gasoline,
distillates, aviation fuels, chemical feedstocks and other
products -- averaged 366,000 barrels per day, compared with
384,000 barrels per day in 1996. The decrease is attributable to
the lower capacity utilization rate in 1997.
In late 1997, the company created a new supply chain organization
aimed at improving the profitability of its RM&T operations. The
effort involves improved coordination of materials handling from
feedstock acquisition through product supply and distribution to
final refined product sales. Upon full implementation of the
management program in late 1998, expected benefits are improved
sales and production forecasting, improved inventory management,
and lower costs for crude oil and refined products acquisition
and transportation.
Phillips continued an extensive process control modernization of
its U.S. refineries in 1997. With the start-up of central
control buildings at Sweeny and Woods Cross, and continued
connections of refinery units to the Borger control building, the
project neared the half-way point, with completion expected in
2001. The modernization project is intended to improve safety,
operating efficiency and product yields, while reducing operating
costs.
Phillips and an affiliate of the Venezuelan state oil company
signed a Principles of Agreement in 1997 to build a
58,000 barrels-per-day coker and related facilities at the Sweeny
Complex. Under the terms of the agreement, the producing unit of
the Venezuelan state oil company would supply up to
165,000 barrels per day of heavy Venezuelan crude oil to be
processed at the refinery. Phillips and the Venezuelan state oil
company would each have a 50 percent interest in the project. A
coker uses a thermal process to remove heavy materials from crude
oil and turn them into petroleum coke, a substitute for coal in
power generation. The remaining liquids are then sent to other
15
<PAGE>
units in the refinery to be upgraded into more valuable products,
such as gasoline and distillates. If the project goes forward,
construction could begin in late 1998, with completion in 2000.
Catalytic reforming is a key refinery process for producing large
quantities of high-octane gasoline, aromatics and hydrogen. Over
the years, the industry's catalytic reforming technology has
advanced, making the process more efficient at increasing the
yields of higher-margin aromatics. To capitalize on this
technology, Phillips is studying the replacement of two existing
catalytic reformers at its Sweeny facility with a new catalytic
reformer that can continue operations while the catalyst is
regenerated. This would increase aromatics yields with only a
small reduction in gasoline production. The project also would
provide more hydrogen, which would be needed for the proposed
coker.
In the first quarter of 1998 at the Sweeny Complex, Phillips and a
subsidiary of Central and South West Corporation (CSW) completed
the construction of a 325-megawatt cogeneration plant that
produces 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. At the Borger facility, Phillips and a subsidiary of
Southwestern Public Service Company continued construction of a
200-megawatt cogeneration facility. Scheduled for completion in
late 1998, the facility will produce electricity for the utility
and steam for use at the Borger Complex.
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 1997,
the second full year of implementation, the process helped
Phillips' three U.S. refineries reduce their recordable injuries
by 36 percent, compared with 1995. In 1997, environmental
measures were added to the process.
MARKETING
In the United States, the company's wholesale and retail
operations market refined products in 26 states under the
Phillips 66 trademark. Gasoline and other products are
distributed in the United States through approximately
7,500 retail outlets, bulk distributing plants, airport dealers
and marinas. Of these, Phillips owns and operates 274 retail
outlets, and operates another 59 on leased property.
RM&T s total gasoline sales volumes in the United States
decreased slightly during the year. Total distillates sales
volumes in RM&T decreased 6 percent in 1997. Both decreases were
16
<PAGE>
the result of lower spot sales. In total, RM&T petroleum
products sales in the United States, from both Phillips' refinery
output and purchased products, averaged 494,000 barrels per day
during 1997, compared with 506,000 barrels per day in 1996.
Phillips continued to build brand value in 1997 by expanding its
advertising and increasing its spending on marketer incentive and
support programs. These programs assist marketers in upgrading
their service stations and stores, and adding new services, such
as express-pay machines that allow customers to pay for their
gasoline purchases at the pump with a credit card.
The company continued its retail-marketing expansion in 1997,
with the opening of 24 new retail outlets. In addition,
10 existing units were razed and rebuilt. Since the program
began in 1996, the company has acquired 24 retail outlets,
opened 31 new ones, and razed and rebuilt 16 others.
The new outlets 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. The
majority of the additional retail units are in markets where
Phillips perceives it has a business or supply advantage. The
Borger refinery and a network of pipelines and terminals aid
Phillips in supplying the Southwest and Rocky Mountain regions.
In addition, the Woods Cross refinery is positioned to supply the
Salt Lake City area.
TRANSPORTATION
Phillips' RM&T and Chemicals segments own or have an interest in
6,900 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 early 1997, Phillips and its co-venturer in the Seaway
Pipeline Company (Seaway) entered a pipeline project to transport
gasoline and distillates from the Texas Gulf Coast to the
Midwest. The system is expected to have an initial average
capacity of 85,000 barrels per day. Scheduled for completion in
the second quarter of 1998, the project involves converting and
17
<PAGE>
expanding one of Seaway's existing crude oil pipelines to
transport refined products from Pasadena, Texas, to Cushing,
Oklahoma. The project also includes building a new 148-mile
pipeline from Cushing to connect to Phillips' existing pipeline
system at Wichita, Kansas. This connection provides access to
pipeline systems servicing the upper Midwest.
Phillips has signed a letter of intent to purchase a 25 percent
interest in Ultramar Diamond Shamrock Corporation's (UDS) El Paso
refined products terminal and pipeline system, a 408-mile
pipeline that extends from McKee, Texas, to El Paso, Texas, to
assist Phillips in supplying its retail expansion into the
Southwest. UDS plans to expand the capacity of the El Paso
system from 40,000 barrels per day to 60,000 barrels per day in
1998. Once completed, Phillips expects to increase its interest
in the terminal and pipeline system to 33 1/3 percent, with UDS
continuing as operator. Phillips is no longer pursuing its
previous plan to build a pipeline from the Borger refinery to
El Paso.
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. The company owns and operates processing
facilities at the Sweeny and Borger Complexes and has an
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.
Phillips also owns an equity interest in an ethylene/
propylene plant at the Sweeny Complex.
3) Plastics products -- Products manufactured in this operation
include polyethylene, polypropylene, K-Resin, plastic pipe
and Ryton. The company's major production facility is the
Houston Chemical Complex (HCC), near Houston, Texas. The
company also 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 six regionally located U.S. plants, as well
as through a joint venture in Mexico.
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<PAGE>
NGL
NGL is used as a feedstock to manufacture higher-value chemicals,
such as ethylene and propylene. The NGL business operated at
85 percent of rated fresh-feed capacity for the year, compared
with 82 percent in 1996. Total NGL fresh-feed processing
capacity is 250,000 barrels per day.
INTERMEDIATE PETROCHEMICALS
Phillips' ethylene and propylene are produced at the Sweeny
Complex, through both 100 percent-owned units and the
50 percent-owned Sweeny Olefins Limited Partnership (SOLP). 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 company completed the restart of a 100 percent-owned ethylene
unit in 1997 that had been idle since 1992. This project added
an additional 400 million pounds per year of ethylene capacity.
Phillips' share of the Sweeny Complex's annual ethylene and
propylene capacities, including SOLP, is 3.5 billion and
950 million pounds, respectively.
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 used as a feedstock for
nylon. In 1997, the company completed a paraxylene expansion at
Puerto Rico Core, increasing design capacity to 880 million
pounds per year.
As part of the company's growth strategy for its specialty
chemicals business, Phillips is constructing a 100 million-
pounds-per-year methyl mercaptan plant at its Borger Complex.
Construction began 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.
Phillips plans to build a hexene-1 facility at HCC with an annual
capacity of 200 million pounds. Construction is scheduled to
begin in 1998, with completion in 1999. Hexene-1 is produced
from ethylene and is a key feedstock in the manufacturing of
high-density and linear low-density polyethylene. Using
Phillips' new proprietary catalyst technology, hexene-1 can be
19
<PAGE>
produced with greater selectivity and purity than other processes
currently provide.
PLASTICS
At HCC, debottlenecking work continued in 1997 on the company's
polyethylene production. By project completion, scheduled for
1999, HCC's high-density polyethylene capacity will be
2.2 billion pounds per year, compared with 2.0 billion pounds at
year-end 1997. In 1997, HCC produced 1.8 billion pounds of
polyethylene, about the same as 1996, its highest ever annual
output of polyethylene. Polyethylene is used to manufacture a
wide variety of plastic products.
The expansion of Phillips' 50 percent-owned Singapore
polyethylene facility, which supplies polyethylene to markets in
Asia and the Pacific Rim, was completed in 1997. The expansion
brings the facility's total annual linear polyethylene capacity
to 860 million pounds.
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
40 percent-equity interest in the plant, which will use Phillips'
proprietary polyethylene technology. The plant will be located
at the 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
China.
Phillips and Qatar General Petroleum Corporation signed an
agreement for a joint venture to develop a new petrochemical
complex in Qatar. The complex would have expected annual
capacities of 1.1 billion pounds of ethylene, 1 billion pounds of
polyethylene and 100 million pounds of hexene-1. The
polyethylene facilities would use Phillips' proprietary
technology to produce high-density and linear low-density
polyethylene. If the project goes forward, construction would
begin in 1999, with commercial production in early 2002.
Phillips would own a 49 percent interest.
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
20
<PAGE>
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 790 million pounds. Phillips will eventually hold a
50 percent interest in PSPC.
K-Resin, a clear copolymer used in food and medical packaging, is
produced at HCC, with a current annual capacity of 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 in 1999.
Phillips' Driscopipe division manufactures polyethylene pipe,
utilizing six U.S. manufacturing facilities. Polyethylene pipe
is used in a variety of ways, including municipal water and
telecommunications applications. A new leased manufacturing
facility in Hagerstown, Maryland, began production in 1997.
Also, the Driscopipe division formed 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 1997 included:
o Upstream (E&P and GPM)
- Geophysical and computer specialists continued to develop
algorithms that produce clearer three-dimensional images
of hydrocarbon reserves.
- To support the vast computational requirements of
three-dimensional seismology and other techniques, the
company installed a Cray T3E computer. This replaced an
earlier Cray, cutting costs and increasing memory capacity
and processing speed.
- Three-dimensional seismic techniques, computer modeling of
reservoirs, simulation of alternative production
techniques and the analysis of water's effect on
production aided the company in its E&P work at
Bayu-Undan, Venezuela and the North Sea.
21
<PAGE>
o Downstream (RM&T and Chemicals)
- At Phillips' Woods Cross, Utah, refinery, start-up of a
new proprietary technology called Reduced Volatility
Alkylation Process (ReVAP) is under way. 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.
- Researchers assisted the refineries in achieving savings
in their crude oil and catalyst purchases by continuing to
develop 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
demonstrated at the Sweeny Complex. This technology
reduces the production of contaminants, allowing furnaces
used in ethylene production to operate more consistently.
- Researchers and operations employees successfully tested
metallocene catalysts in a commercial reactor at HCC in
1996. During 1997, the company further developed its
metallocene catalyst technology, and started construction
of a metallocene compounding facility that will ensure
catalyst supplies through the year 2000. Metallocenes are
"precision" catalysts that provide more control over the
structure and properties of polyethylene. The ability to
produce a broader range of polyethylene resins offers the
company opportunities to expand into higher-value markets.
- The company developed a catalyst that converts nearly all
acetylene -- an unwanted by-product produced during
ethylene manufacturing -- into additional ethylene. This
increases yields and reduces operating expenses.
Corporate Technology is also involved in a company-wide, long-
range effort to replace most of the company's older in-house-
developed and purchased computer systems, such as plant
maintenance, materials management and financial systems. The new
systems will primarily use programs from SAP America, Inc. and,
for certain 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, and is
scheduled to be fully implemented by July 1, 1999. Corporate
Technology is also involved in a company-wide Year 2000 project.
The "Year 2000" information contained in Management's Discussion
and Analysis on pages 59 and 60 is incorporated herein by
reference.
22
<PAGE>
Phillips received its 15,000th U.S. patent in January 1998. At
the end of 1997, Phillips held a total of 4,345 active patents in
55 countries worldwide, including 1,658 active U.S. patents.
During 1997, the company received 77 patents in the United
States, and 420 foreign patents. The profitability of any
business segment is not dependent upon any single patent,
trademark, license, franchise or concession.
The company's products and processes were licensed in
33 countries at year-end 1997, resulting in licensing revenues of
$112 million. Polypropylene-related licenses contributed about
70 percent of the total, with polyethylene-related licenses
contributing 12 percent.
COMPETITION
All phases of the businesses in which Phillips is engaged are
highly competitive. Phillips competes at various levels with
both petroleum and non-petroleum companies in providing energy,
chemicals and other products to the consumer. Several of the
company's competitors are larger and have substantially greater
resources.
While Phillips is one of approximately 20 large 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,
including state-owned companies. 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 natural gas liquids
feedstocks, which are upgraded into chemicals and plastics. The
23
<PAGE>
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
Phillips experienced a significant drop in the number of
recordable injuries during 1997. The recordable injury rate for
1997 was 1.18 per 200,000 man-hours, which is 22 percent lower
than the 1996 rate of 1.52. The rate of 1.18 compares very
favorably with the most recent American Petroleum Institute
industry recordable injury rate of 2.47, and sets a new record
for the company.
Company-sponsored research and development activities charged
against earnings were $56 million, $59 million and $51 million in
1997, 1996 and 1995, respectively.
The environmental information contained in Management's
Discussion and Analysis on pages 61 and 62 under the caption,
"Environmental" is incorporated herein by reference. It includes
information on expensed and capitalized environmental costs for
1997 and those expected for 1998 and 1999.
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.
24
<PAGE>
Item 3. LEGAL PROCEEDINGS
The following is a description of a legal proceeding involving
governmental authorities under federal, state and local laws
regulating the discharge of materials into the environment.
While it is not possible to predict the outcome of such
proceeding, if it were decided adversely to the company, there
would be no material effect on its consolidated financial
position. Nevertheless, such proceeding is reported pursuant to
the Securities and Exchange Commission's regulations.
In December 1997, the Department of Justice, on behalf of the
Environmental Protection Agency (EPA), filed a complaint in the
Federal District Court in Utah, Salt Lake City, alleging that
Phillips violated the Utah State Implementation Plan of the
National Ambient Air Quality Standards for PM-10 (small
particulate matter) at its Woods Cross, Utah, refinery. The
state of Utah, which has primary authority, concluded no action
should be taken against Phillips. The EPA however, has claimed
that it has jurisdiction. The EPA's over-filing complaint
alleges that Phillips failed to continuously operate an emission
monitor to test sulfur dioxide emissions from its sulfur recovery
unit tail gas incinerator, that Phillips exceeded its emission
limit on numerous occasions, and that the violations allegedly
ran from October 1994 to the present. The complaint seeks
unspecified civil penalties and injunctive relief. A demand has
been made for a civil penalty of $3 million. The company
continues to vigorously defend itself against the allegations.
Discussions with the EPA and the Department of Justice in regard
to settlement of the matter are occurring.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
25
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Position Held Age* Since
---- ------------- --- -------
W. W. Allen Chairman of the Board of 61 1988
Directors and Chief
Executive Officer
Knut Am Senior Vice President 54 1996
Exploration and Production
C. L. Bowerman Executive Vice President 58 1984
Director
R. G. Ceconi Senior Vice President 55 1991
Corporate Engineering
Raj K. Gupta Vice President 55 1997
Strategic Planning
K. L. Hedrick Executive Vice President 45 1994
J. L. Howe Senior Vice President 53 1992
Chemicals and Plastics
J. C. Mihm Senior Vice President 55 1988
Corporate Technology
T. C. Morris Senior Vice President and 57 1993
Chief Financial Officer
J. J. Mulva President and Chief Operating 51 1985
Officer
Director
M. J. Panatier** President and Chief Executive 49 1994
Officer of Phillips Gas
Company
B. Z. Parker Senior Vice President 50 1997
Refining, Marketing and
Transportation
Barbara J. Price Vice President Health, 53 1992
Environment and Safety
J. Bryan Whitworth Senior Vice President 59 1981
and General Counsel
- ------------------------
*On February 1, 1998.
**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.
26
<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 11, 1998. All of the executive officers named
above have been employed by the company for more than five years.
27
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Quarterly Common Stock Prices and Cash Dividends Per Share
Stock Price
-------------------
High Low Dividends
------------------- ---------
1997
First $46 7/8 40 1/8 .32
Second 45 37 3/8 .34
Third 52 1/4 42 15/16 .34
Fourth 52 1/8 44 7/8 .34
- -----------------------------------------------------------------
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
- -----------------------------------------------------------------
Closing Stock Price at December 31, 1997 $48 5/8
Number of Stockholders of Record at January 31, 1998 59,272
- -----------------------------------------------------------------
Phillips' common stock is traded primarily on the New York,
Pacific and Toronto stock exchanges.
28
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Millions of Dollars Except Per Share Amounts
--------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------
Sales and other
operating revenues $15,210 15,731 13,368 12,211 12,309
Income before
extraordinary items 959 1,303 469 484 245
Net income 959 1,303 469 484 243
Per common share --
basic
Income before
extraordinary
items 3.64 4.96 1.79 1.85 .94
Net income 3.64 4.96 1.79 1.85 .93
Per common share --
diluted
Income before
extraordinary
items 3.61 4.91 1.78 1.84 .93
Net income 3.61 4.91 1.78 1.84 .92
Total assets 13,860 13,548 11,978 11,453 11,035
Long-term debt 2,775 2,555 3,097 3,106 3,208
Company-obligated
mandatorily
redeemable preferred
securities of
Phillips Capital
Trusts I and II 650 300 - - -
Cash dividends declared
per common share 1.34 1.25 1.195 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.
29
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
February 23, 1998
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, 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," "may," "plan" or "plans,"
"scheduled," "would," "could," "should," "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 65.
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 1997 1996* 1995*
-----------------------
Exploration and Production (E&P) $ 609 493 373
Gas Gathering, Processing and
Marketing (GPM) 101 144 10
Refining, Marketing and
Transportation (RM&T) 137 54 20
Chemicals 297 245 367
Corporate and Other (185) 367 (301)
- -----------------------------------------------------------------
Net income $ 959 1,303 469
=================================================================
*Restated to reflect the transfer of the company's wholesale
propane business from RM&T to Chemicals. In addition, certain
costs previously held at Corporate are now aligned with the
operating segments.
30
<PAGE>
Earnings for the three years included the following special items
on an after-tax basis:
Millions of Dollars
----------------------
1997 1996 1995
----------------------
Kenai liquefied natural gas (LNG)
tax settlement $ 83 565 -
Property impairments (46) (183) (51)
Net gains on asset sales 16 14 -
Work force reduction charges (3) (2) (31)
Foreign currency gains (losses) (17) 41 (3)
Pending claims and settlements 15 (18) (12)
Other items - (5) (14)
- -----------------------------------------------------------------
Total special items $ 48 412 (111)
=================================================================
Net operating income, which excludes the above items, was
$911 million in 1997, $891 million in 1996 and $580 million in
1995.
1997 vs. 1996
E&P's net operating income was strong again in 1997, only
slightly below 1996. Growth projects and higher natural gas
prices mitigated the impact of 8 percent lower crude oil sales
prices. GPM's results decreased 35 percent, primarily as a
result of lower natural gas liquids prices.
Net operating income from Downstream operations increased
27 percent in 1997, leading to a 2 percent increase in the
company's net operating income in 1997, compared with 1996.
RM&T's earnings increased $50 million -- 56 percent -- mainly as
a result of improved refinery gasoline margins. Chemicals' net
operating income increased 17 percent, reflecting higher ethylene
margins and sales volumes, partially offset by lower aromatics
margins and sales volumes.
1996 vs. 1995
The company's E&P, GPM and RM&T segments all contributed to
significantly higher net operating income in 1996, compared with
1995. 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.
31
<PAGE>
RM&T's operating earnings in 1996 more than doubled those of
1995, 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.
Phillips at a Glance
1997 1996 1995
-----------------------
U.S. crude oil production (MBD) 67 69 79
Worldwide crude oil production (MBD) 232 219 222
U.S. natural gas production (MMCFD) 1,024 1,102 1,078
Worldwide natural gas production (MMCFD) 1,472 1,527 1,481
Worldwide natural gas liquids
production (MBD) 169 163 159
Liquefied natural gas sales (MMCFD) 119 130 125
Refinery utilization rate (%) 91 95 97
U.S. automotive gasoline sales (MBD) 335 340 331
U.S. distillates sales (MBD) 130 138 135
Worldwide petroleum products sales (MBD) 685 702 696
Natural gas liquids processed (MBD) 213 205 199
Ethylene production (MMlbs)* 3,171 2,587 2,465
Polyethylene production (MMlbs)* 2,039 2,048 1,797
Polypropylene production (MMlbs)* 439 327 418
Paraxylene production (MMlbs) 552 622 578
- -----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.
Income Statement Analysis
1997 vs. 1996
Sales and other operating revenues decreased 3 percent in 1997,
reflecting lower revenues from the sale of crude oil and
petroleum products, partially offset by higher natural gas
revenues and higher revenues from the company's chemicals and
plastics operations. The amount of crude oil sold in Phillips'
buy/sell marketing activities, utilized to supply crude oil to
the company's domestic refineries, decreased in 1997, lowering
crude oil revenues. This was also the primary reason for the
reduction in purchase costs in 1997. The decrease in petroleum
products revenues in 1997 was due to both lower sales prices and
volumes.
32
<PAGE>
Equity in earnings of affiliated companies was $126 million in
1997, compared with $4 million in 1996. The 1996 period was
reduced by an investment impairment of $78 million related to
Point Arguello equity companies. In addition, equity earnings
from the company's interest in the Sweeny Olefins Limited
Partnership (SOLP) was much improved in 1997, reflecting higher
ethylene margins and sales volumes. This was partially offset by
lower earnings in 1997 from two equity companies in the plastics
business line. Other revenues increased 22 percent in 1997,
primarily as a result of higher interest income and revenues
associated with an environmental recovery project.
After adjustment for special items, controllable costs --
primarily production and operating expenses and selling, general
and administrative expenses -- increased 8 percent in 1997.
Expenses were higher due to increased production costs associated
with new volumes from expansions in the Chemicals segment; new
production from E&P's J-Block and Armada in the U.K. North Sea;
worldwide growth initiatives; and higher maintenance,
well-workover and fuel-gas costs. Exploration expenses decreased
5 percent in 1997, reflecting lower foreign dry hole expenses.
After adjusting for special items, depreciation, depletion and
amortization (DD&A) increased 7 percent in 1997, primarily
related to J-Block, which came online in mid-1997. Special items
primarily included E&P impairments in the Gulf of Mexico and the
U.K. North Sea in 1997, and in 1996, Canada and Point Arguello,
offshore California. 1996 also included an impairment of certain
retail service stations.
Taxes other than income taxes decreased slightly in 1997, as
lower foreign taxes were mostly offset by higher production
taxes.
Interest expense decreased 9 percent in 1997, reflecting lower
average debt levels in 1997 and higher capitalized interest
related to the Ekofisk II project. Preferred dividend
requirements increased 74 percent in 1997, as a result of the
issuance of mandatorily redeemable preferred securities in May
1996 and January 1997. The redemption of Phillips Gas Company's
preferred stock in December 1997 will lower preferred dividend
requirements in 1998 by approximately $32 million.
1996 vs. 1995
Sales and other operating revenues increased 18 percent in 1996,
compared with 1995, as a result of higher sales prices for crude
oil, natural gas and petroleum products. Equity earnings of
affiliated companies declined significantly in 1996, compared
with 1995. Over 60 percent of the decrease was a result of an
33
<PAGE>
investment impairment related to Point Arguello equity companies.
The remainder of the decrease was primarily attributable to lower
earnings from the company's interest in SOLP. Other revenues
increased $46 million in 1996, primarily as a result of higher
net gains on asset sales and higher interest income.
Total costs and expenses were 14 percent higher in 1996, compared
with 1995, primarily as a result of higher purchase costs,
reflecting higher prices for crude oil, natural gas and petroleum
products.
34
<PAGE>
Segment Results
E&P
1997 1996* 1995*
----------------------------
Millions of Dollars
----------------------------
Operating Income
Net income $609 493 373
Less special items (25) (159) (61)
- -----------------------------------------------------------------
Net operating income $634 652 434
=================================================================
Dollars Per Unit
----------------------------
Average Sales Prices
Crude oil (per barrel)
United States $17.41 18.96 14.98
Foreign 19.02 20.89 17.16
Worldwide 18.57 20.28 16.43
Natural gas -- lease
(per thousand cubic feet)
United States 2.33 2.10 1.37
Foreign 2.63 2.52 2.50
Worldwide 2.45 2.25 1.77
- -----------------------------------------------------------------
Average Production Costs per
Barrel-of-Oil-Equivalent
United States $ 4.85 4.30 4.19
Foreign 3.99 4.22 4.36
Worldwide 4.42 4.26 4.26
- -----------------------------------------------------------------
Finding and Development Costs per
Barrel-of-Oil-Equivalent
United States $ 7.21 6.24 2.79
Foreign 3.85 8.34 4.23
Worldwide 4.42 7.55 3.54
- -----------------------------------------------------------------
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
Millions of Dollars
----------------------------
Worldwide Exploration Expenses
Geological and geophysical $140 127 126
Leasehold impairment 22 28 30
Dry holes 69 89 36
Lease rentals 11 10 6
- -----------------------------------------------------------------
$242 254 198
=================================================================
35
<PAGE>
1997 1996 1995
----------------------------
Thousands of Barrels Daily
----------------------------
Operating Statistics
Crude oil produced
United States 67 69 79
Norway 104 99 100
United Kingdom 18 6 3
Africa 23 25 24
China 15 15 11
Canada 5 5 5
- -----------------------------------------------------------------
232 219 222
=================================================================
Natural gas liquids produced
United States 4 4 5
Norway 7 8 8
Other areas 3 3 2
- -----------------------------------------------------------------
14 15 15
=================================================================
Millions of Cubic Feet Daily
----------------------------
Natural gas produced
United States (less gas equivalent
of liquids shown above) 1,024 1,102 1,078
Norway* 275 291 299
United Kingdom* 122 81 46
Canada 51 53 58
- -----------------------------------------------------------------
1,472 1,527 1,481
=================================================================
*Dry basis.
Liquefied natural gas sales 119 130 125
- -----------------------------------------------------------------
1997 vs. 1996
E&P, the company's largest operating segment, recorded another
excellent earnings performance in 1997, with net operating income
of $634 million, only slightly lower than last year's strong
results. Several important growth projects benefited 1997
results, including the start-ups of J-Block and Armada in the
U.K. North Sea, and a full year's production from the Mahogany
subsalt field in the Gulf of Mexico. Also positively affecting
E&P's net operating income in 1997 were higher worldwide natural
gas sales prices and higher crude oil production from the
Norwegian North Sea. Factors that lowered 1997 net operating
income, compared with 1996, were lower crude oil sales prices;
lower U.S. crude oil and gas production; higher U.S. production
costs; and lower tax benefits from capital investments in Norway
associated with Ekofisk II.
36
<PAGE>
Phillips' average worldwide crude oil sales price was $18.57 per
barrel in 1997, 8 percent lower than 1996. Crude oil prices
generally trended downward during the first six months of 1997,
before stabilizing in the third quarter due to unanticipated
industry supply disruptions and tight inventory levels. Although
the fourth quarter's average price was little changed from the
third quarter, prices declined throughout the fourth quarter,
with Phillips' December prices at their lowest level since 1995.
Crude oil prices in the fourth quarter were under pressure from
warmer-than-normal weather that lowered seasonal demand, and
rising industry-wide production levels.
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.
U.S. E&P
- --------
Millions of Dollars
--------------------------
1997 1996* 1995*
--------------------------
Operating Income
Net income $360 320 239
Less special items (17) (136) (44)
- -----------------------------------------------------------------
Net operating income $377 456 283
=================================================================
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
1997 vs. 1996
Net operating income decreased 17 percent in the company's U.S.
E&P operations in 1997. Higher lease gas sales prices --
11 percent higher than a year ago -- were more than offset by
lower crude oil and lease gas production, lower crude oil
sales prices, and higher production costs. In addition, benefits
received from the allocation of foreign tax credits were lower as
well.
U.S. crude oil production declined 3 percent in 1997, reflecting
natural field declines at Point Arguello, offshore California;
Prudhoe Bay, Alaska; and South Marsh Island Blocks 146/147, Gulf
of Mexico. These declines were partially offset by new
production from the Mahogany subsalt field in the Gulf of Mexico.
U.S. natural gas production decreased 7 percent in 1997,
primarily attributable to normal field declines, lower production
from Garden Banks Blocks 70/71 in the Gulf of Mexico, and asset
dispositions. A major Garden Banks well was shut-in during part
of the year for workover activity.
37
<PAGE>
Special items in 1997, on an after-tax basis, primarily included
charges of $31 million for property impairments, a net gain on
asset sales of $7 million and a reversal of a contingent
liability of $7 million. Special items in 1996 on an after-tax
basis included 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, the most significant
of which related to an unfavorable court judgment regarding
producing properties in Alabama, which the company has appealed
to the Alabama Supreme Court.
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. crude oil production declined in 1996 as a result of
continuing production declines from the Point Arguello field,
general field declines in the Gulf of Mexico and Prudhoe Bay, 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 Garden Banks
Blocks 70/71, which came online in mid-year 1995; and property
acquisitions in south Louisiana, partially offset by lower
production from South Marsh Island Blocks 146/147.
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.
38
<PAGE>
Foreign E&P
- -----------
Millions of Dollars
--------------------------
1997 1996* 1995*
--------------------------
Operating Income
Net income $249 173 134
Less special items (8) (23) (17)
- -----------------------------------------------------------------
Net operating income $257 196 151
=================================================================
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
1997 vs. 1996
Net operating income from the company's foreign E&P operations
increased 31 percent in 1997, reflecting higher crude oil and
natural gas production and higher natural gas sales prices,
partially offset by lower crude oil prices. The J-Block and
Armada fields in the U.K. North Sea came online in 1997,
benefiting both financial results and production statistics for
the year.
Foreign crude oil production increased 10 percent in 1997, while
foreign natural gas production increased 5 percent. The crude
oil production increases are attributable to new production from
J-Block, and, to a lesser extent, higher production from the
Norwegian North Sea. New J-Block and Armada production
contributed to the increased natural gas production in 1997.
Special items in 1997 on an after-tax basis included property
impairments of the Ann and Allison fields in the U.K. North Sea
totaling $11 million, as well as foreign currency transaction
losses of $6 million, and a net gain on asset sales of
$9 million. Special items in 1996 consisted primarily of a
$25 million after-tax impairment of certain Canadian proved
properties.
1996 vs. 1995
Net operating income from the company's foreign E&P operations
increased 29 percent in 1996, compared with 1995. The
improvement 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.
39
<PAGE>
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. Foreign
natural gas production increased 5 percent in 1996, as lower
demand for Norway production was more than offset by higher
production and increased demand in the U.K. sector of the North
Sea.
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.
GPM
1997 1996 1995
----------------------------
Millions of Dollars
----------------------------
Operating Income
Net income $101 144 10
Less special items 9 3 (11)
- -----------------------------------------------------------------
Net operating income $ 92 141 21
=================================================================
Dollars Per Unit
----------------------------
Average Sales Prices
U.S. residue gas
(per thousand cubic feet) $ 2.42 2.20 1.49
U.S. natural gas liquids
(per barrel -- unfractionated) 12.60 14.49 10.07
- -----------------------------------------------------------------
Millions of Cubic Feet Daily
----------------------------
Operating Statistics
Natural gas purchases
Outside Phillips 1,371 1,360 1,247
Phillips 158 178 194
- -----------------------------------------------------------------
1,529 1,538 1,441
=================================================================
Raw gas throughput 1,983 1,913 1,620
- -----------------------------------------------------------------
Residue gas sales
Outside Phillips 990 1,002 833
Phillips 56 74 184
- -----------------------------------------------------------------
1,046 1,076 1,017
=================================================================
Thousands of Barrels Daily
----------------------------
Natural gas liquids net production
From Phillips E&P leasehold gas 15 17 19
From gas purchased outside
Phillips 140 131 125
- -----------------------------------------------------------------
155 148 144
=================================================================
40
<PAGE>
1997 vs. 1996
The company's gas gathering, processing and marketing segment
reported solid net operating income of $92 million in 1997.
However, this was 35 percent lower than the outstanding earnings
performance in 1996. Natural gas liquids (NGL) prices, a key
performance driver in this industry, while strong at $12.60 per
barrel, were still 13 percent lower than 1996's $14.49 per
barrel, resulting in lower margins and operating income for GPM.
In addition, operating expenses were higher in 1997, reflecting
acquisitions made in late 1996 and early 1997, the reactivation
in late 1997 of an idled processing plant, and higher repair and
maintenance costs associated with projects to improve plant and
system operating consistency.
GPM's unfractionated NGL sales prices generally stayed in the
$11 to $13 per barrel range in 1997, similar to 1996's profile,
with the exception of the fourth quarter of 1996. In that
quarter, NGL prices increased significantly, reaching almost
$21 per barrel in December 1996. NGL sales volumes increased
5 percent in 1997, primarily as a result of acquisitions and
improved operating consistency.
Residue gas sales prices continued to benefit from the effect of
increased industry demand and lower natural gas storage levels
experienced in 1996, resulting in average residue gas prices
increasing 10 percent in 1997. However, prices declined sharply
in December 1997 from the previous month, dropping 26 percent to
$2.33 per thousand cubic feet, reflecting the warmer-than-normal
winter weather. Residue gas sales volumes decreased slightly in
1997, reflecting field production declines in the Austin Chalk
area of south central Texas.
Special items in 1997 represented the settlement of a processing-
rights dispute with a producer-gatherer. 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.
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 NGL and residue gas
sales prices and higher raw gas throughput volumes. Earnings
also benefited from significantly lower operating expenses.
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
41
<PAGE>
acquisitions completed at the end of 1995. The 6 percent
increase in residue gas sales volumes in 1996 was primarily the
result of the 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 re-engineering efforts completed in 1995.
Special items in 1995 consisted of work force reduction charges.
RM&T
1997 1996* 1995*
--------------------------
Millions of Dollars
--------------------------
Operating Income
Net income $137 54 20
Less special items (2) (35) (11)
- -----------------------------------------------------------------
Net operating income $139 89 31
=================================================================
Dollars Per Unit
--------------------------
Average Sales Prices (per gallon)
Automotive gasoline -- wholesale $.66 .67 .58
Automotive gasoline -- retail .82 .83 .74
Distillates .60 .64 .52
- -----------------------------------------------------------------
Thousands of Barrels Daily
--------------------------
Operating Statistics
U.S. refinery crude oil
Rated capacity 345 345 345
Crude runs 314 329 333
Capacity utilization (percent) 91% 95 97
Refinery production 366 384 392
- -----------------------------------------------------------------
Petroleum products outside sales
United States
Automotive gasoline -- wholesale 285 291 286
Automotive gasoline -- retail 37 37 35
Aviation fuels 28 25 29
Distillates 130 138 135
Other products 14 15 18
- -----------------------------------------------------------------
494 506 503
Foreign 42 46 45
- -----------------------------------------------------------------
536 552 548
=================================================================
*Restated to reflect the transfer of the company's wholesale
propane business from RM&T to Chemicals. In addition, certain
costs previously held at Corporate are now aligned with the
operating segments.
42
<PAGE>
1997 vs. 1996
RM&T's net operating income increased for the second consecutive
year, reaching $139 million in 1997 -- a 56 percent increase over
1996. Improved margins from the company's U.S. refineries
primarily contributed to the increased RM&T earnings in 1997.
Crude oil acquisition costs were 10 percent lower in 1997, which
resulted in improved gasoline margins. Net operating income also
improved on higher margins for certain other refinery products,
partially offset by higher refinery costs, reflecting higher
utilities and maintenance expenses.
The company's refineries ran at 91 percent of capacity in 1997,
4 percent lower than the year before. The decrease was the
result of maintenance turnarounds, an external power outage that
affected the Sweeny refinery during the second quarter of 1997,
and a weather-related operating interruption at the Borger
refinery.
Results for RM&T's marketing business were slightly lower than a
year ago, mainly the result of lower gasoline margins. Earnings
benefited from higher revenues from convenience-store sales and
services. The company continued to build its brand value through
increased spending on marketer incentive and support programs and
advertising.
Special items in 1997 included certain costs associated with a
power outage at the Sweeny refinery. Special items in 1996
consisted primarily of a $38 million after-tax impairment of
certain retail service stations.
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 -- 23 percent -- than 1995.
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.
Special items in 1995 included an inventory write-down and work
force reduction charges.
43
<PAGE>
Chemicals
1997 1996* 1995*
---------------------------
Millions of Dollars
---------------------------
Operating Income
Net income $297 245 367
Less special items 3 (7) (4)
- -----------------------------------------------------------------
Net operating income $294 252 371
=================================================================
Millions of Pounds
Except as Indicated
---------------------------
Operating Statistics
Production**
Ethylene 3,171 2,587 2,465
Polyethylene 2,039 2,048 1,797
Propylene 486 418 434
Polypropylene 439 327 418
Paraxylene 552 622 578
Cyclohexane (millions of gallons) 164 169 133
- -----------------------------------------------------------------
Thousands of Barrels Daily
---------------------------
U.S. petroleum products
outside sales
Automotive gasoline 13 12 10
Liquefied petroleum gas 103 101 98
Other products 33 37 40
- -----------------------------------------------------------------
149 150 148
=================================================================
Natural gas liquids
Rated processing capacity 250 250 227
Liquids processed 213 205 199
- -----------------------------------------------------------------
*Restated to reflect the transfer of the company's wholesale
propane business from RM&T to Chemicals. In addition, certain
costs previously held at Corporate are now aligned with the
operating segments.
**Includes Phillips' share of equity affiliates' production.
1997 vs. 1996
Chemicals' net operating income increased 17 percent in 1997,
primarily on the strength of higher ethylene margins and volumes,
partially offset by lower margins and sales volumes at the Puerto
Rico Core facility, and higher costs associated with worldwide
growth initiatives. In total, earnings in the plastics business
were about the same as in 1996.
Ethylene production volumes increased 23 percent in 1997, boosted
by the completion of a project to restart a 100 percent-owned
400 million-pound ethylene unit that had been idle since 1992.
In addition, an incremental debottlenecking project was completed
in late 1996 at the 50 percent-owned Sweeny Olefins Limited
Partnership.
44
<PAGE>
Paraxylene and cyclohexane are produced at the company's Puerto
Rico Core facilities. Paraxylene margins were much lower than a
year ago, due to weakening demand and surplus industry capacity.
In addition, production volumes declined 11 percent in 1997,
primarily as a result of the plant being down most of the first
quarter of the year due to a paraxylene expansion project, which
increased the facility's total annual capacity to 880 million
pounds.
Polyethylene margins were higher than a year ago and production
of polyethylene remained strong during 1997. Combined, this
resulted in improved earnings performance from this business
line.
Phillips has an equity interest in a partnership that owns the
polypropylene production facilities at the Houston Chemical
Complex (HCC). The company's polypropylene production from these
facilities increased 34 percent in 1997, reflecting expanded
capacity attributable to a new, gas-phase polypropylene unit
completed in late 1996. However, the return from the company's
equity share was lower in 1997, due to lower polypropylene
margins.
Special items in 1997 primarily consisted of a gain on the
settlement of a license-related contingency. Special items in
1996 represented a tax item related to the company's Puerto Rico
Core operations.
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 1996 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.
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
45
<PAGE>
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 in 1996 than 1995, due to
softening industry conditions. The company's HCC facility turned
in an excellent operating performance in 1996, with its highest
annual polyethylene output ever.
Special items in 1995 included property impairments on an after-
tax basis of $3 million.
Corporate and Other
Millions of Dollars
-----------------------
1997 1996* 1995*
-----------------------
Operating Results
Corporate and Other $(185) 367 (301)
Less special items 63 610 (24)
- -----------------------------------------------------------------
Adjusted Corporate and Other $(248) (243) (277)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $ (72) (76) (75)
Net interest (113) (147) (173)
Preferred dividend requirements (71) (43) (32)
Other 8 23 3
- -----------------------------------------------------------------
Adjusted Corporate and Other $(248) (243) (277)
=================================================================
*Restated to reflect that certain costs previously held at
Corporate are now aligned with the operating segments.
1997 vs. 1996
Corporate general and administrative expenses decreased 5 percent
in 1997, reflecting increased allocations of corporate costs to
the operating segments, primarily related to information
technology.
Net interest represents interest income and expense, net of
capitalized interest. Net interest was lower in 1997, due to
higher capitalized interest and lower debt levels. In addition,
interest income was higher in 1997 as a result of increased cash
balances during most of the year.
Preferred dividend requirements includes dividends on Phillips
Gas Company preferred stock (which was redeemed in December
1997), and on the preferred securities of the Phillips 66
Capital I (Trust I) and Phillips 66 Capital II (Trust II) trusts.
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The Trust I securities were issued in May 1996 and the Trust II
securities were issued in January 1997, which resulted in the
higher preferred dividend requirements in 1997.
Other consists primarily of the company's captive insurance
subsidiary, along with income tax and other items that are not
directly associated with the operating segments. Other was
adversely impacted in 1997 by lower results from the captive
insurance subsidiary, as well as higher income taxes not directly
associated with the operating segments.
Special items in 1997 included an $83 million favorable
resolution of U.S. income tax issues covering the years 1983
through 1986, related primarily to income from the company's
Kenai liquefied natural gas facility. Also included were
contingency accruals, and foreign currency transaction losses of
$11 million, due to the revaluing of an intercompany,
sterling-denominated receivable. 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.
1996 vs. 1995
Corporate general and administrative expenses were about 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 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.
The Trust I securities issued in May 1996 resulted in higher
preferred dividend requirements in 1996, compared with 1995.
In 1996, Other benefited from lower tax accruals not directly
associated with operating segments.
Special items in 1995 included property impairments on an after-
tax basis of $7 million, contingency accruals and work force
reduction charges.
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CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
Except as Indicated
----------------------
1997 1996 1995
----------------------
Current ratio 1.1 1.1 .9
Total debt $3,009 3,129 3,116
Preferred stock of subsidiary $ - 345 345
Company-obligated mandatorily
redeemable preferred securities $ 650 300 -
Common stockholders' equity $4,814 4,251 3,188
Percent of total debt to capital* 36% 39 47
Percent of floating-rate debt to
total debt 30% 22 22
- -----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
company-obligated mandatorily redeemable preferred securities
and common stockholders' equity.
Cash from operations increased $160 million during 1997.
Included in both 1997 and 1996 were cash refunds from the
Internal Revenue Service (IRS) of $107 million and $400 million,
respectively, as a result of the favorable resolution of the
Kenai LNG tax case. Excluding the cash impact of these refunds,
cash from operations increased $453 million. Contributing to
this increase were a $20 million increase in net operating income
and a $161 million settlement related to J-Block gas production
in the U.K. sector of the North Sea (see Note 8 -- J-Block
Settlement). In addition, cash from operations in 1996 included
a $200 million reduction in the balance of accounts receivable
sold, while the receivable monetization program was inactive in
1997.
During 1997, the Phillips 66 Capital II trust completed a
$350 million underwritten public offering of 8% Capital
Securities. The sole asset of the trust is $361 million of the
company's 8% Junior Subordinated Deferrable Interest Debentures
due 2037. Phillips owns all of the common stock of the trust,
and fully and unconditionally guarantees the trust's obligation
under the securities.
Also during the year, the company's subsidiary, Phillips Gas
Company, redeemed its 13,800,000 shares of Series A 9.32%
Cumulative Preferred Stock at par for $345 million, plus accrued
dividends of $3 million. This redemption will reduce Phillips'
fixed charges by approximately $32 million annually.
During 1997, cash balances decreased $452 million. This decrease
in cash, together with $2.2 billion in cash from operating
activities and the issuance of the $350 million of company-
obligated mandatorily redeemable preferred securities, was used
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to fund the company's $2 billion capital spending program, to
retire the 9 1/2% Notes due 1997, to redeem the PGC preferred
stock and to pay common stock dividends. Capital expenditures in
1997 were about $500 million higher than in 1996, primarily due
to E&P acquisitions in Canada and Venezuela.
Phillips' equity base continued to strengthen in 1997, with the
percentage of total debt to capital at its lowest level in
14 years and the company's current ratio at 1.1 for the second
consecutive year.
The company's short-term liquidity position at December 31, 1997,
was stronger than indicated because the current cost of the
company's inventories was approximately $457 million greater than
their last-in, first-out (LIFO) carrying value.
During 1997, Phillips' Board of Directors approved the company's
third dividend increase in three years, raising the quarterly per
share dividend to $.34, a 6 percent increase, effective with the
June 2, 1997, payment.
In 1997, the company announced a stock repurchase program that
authorized the expenditure of up to $150 million to repurchase
shares of the company's common stock through December 31, 1999.
As a separate and additional program, in February 1998, Phillips'
Board of Directors authorized the repurchase of up to
$500 million of the company's common stock by year-end 1998.
Through February 20, 1998, approximately $115 million worth of
shares had been repurchased. In conjunction with the first
repurchase program, in late 1997, the company issued put options
on a notional 400,000 shares of the company's common stock at an
exercise price of $45 per share. If the options have intrinsic
value on their maturity date, the company can elect physical
settlement, net share settlement, or net cash settlement. Put
options on 200,000 notional shares having a maturity date of
January 29, 1998, were settled for a small cash payment. The
options on the remaining 200,000 shares mature April 29, 1998.
The company expanded its master leasing arrangement, under which
it leases and supervises the construction of retail outlets, from
$50 million to $100 million in 1997. The company also entered
into a $75 million master leasing arrangement to upgrade its
fleet of corporate planes during the year.
The company has agreements with a bank-sponsored entity for the
revolving sale of credit card and trade receivables. During
1997, these agreements were extended until September 1998, the
expiration date of the supporting liquidity facilities for the
bank-sponsored entity related to these agreements. The maximum
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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, 1997. However, on January 9,
1998, credit card and trade receivables totaling $200 million
were sold under the facilities.
At December 31, 1997, no portion of the company's $500 million
shelf registration of debt securities, which became effective in
1994, had been issued.
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.
Financial Instrument Market Risk
Phillips Petroleum Company and certain of its subsidiaries hold
derivative contracts and financial instruments that have cash
flow or earnings exposure to changes in commodity prices, foreign
exchange rates, or interest rates. Financial and commodity-based
derivative contracts are used to limit the risks inherent in some
foreign currency fluctuations and some crude oil, natural gas and
related products price changes faced by the company. In the
past, the company has, on occasion, hedged interest rates, and
may do so in the future should certain circumstances or
transactions warrant.
Phillips' Board of Directors has 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, 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.
Commodity Price Risk
The following table indicates the potential loss in earnings that
could result from a hypothetical 10 percent change in the year-
end market prices of the respective commodity-based swaps and
futures contracts. Because the latest expected maturity date of
all the swaps and futures contracts is less than one year from
the reporting date, the potential losses in earnings have not
been discounted to present values. All of the derivative losses
and gains shown below effectively offset the gains and losses on
the underlying commodity exposures that are being hedged. The
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fair values of the swaps are estimated based on quoted market
prices of comparable contracts, and approximate the net gains and
losses that would have been realized if the contracts had been
closed out at year end. The fair value of the futures are based
on quoted market prices obtained from the New York Mercantile
Exchange or the International Petroleum Exchange of London
Limited.
Millions of Dollars
-----------------------------
Sensitivity
of Fair
Value
to Assumed
Notional Fair Value at 10 Percent
Amount December 31, 1997 Change
-------- ----------------- -----------
Natural gas swaps
(billions of British
thermal units) 16,082 $2 (3)
Crude oil futures --
timing differences
between purchases
and refining
(thousands of barrels) 2,627 2 (5)
Feedstock-to-product
margin swaps
(thousands of barrels) 5,119 - (1)
Feedstock-to-product
margin futures
(thousands of barrels) 2,613 - (1)
- -----------------------------------------------------------------
Interest Rate Risk
The following table provides information about the company's
financial instruments that are sensitive to changes in interest
rates. The table presents principal cash flows and related
weighted-average interest rates by expected maturity dates.
Weighted-average variable rates are based on implied forward
rates in the yield curve at the reporting date. The carrying
amount of the company's floating-rate debt approximates its fair
value. The fair value of the fixed-rate financial instruments is
estimated based on quoted market prices.
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Millions of Dollars Except as Indicated
----------------------------------------------------------
Mandatorily
Redeemable
Preferred
Debt Securities
-------------------------------------- ------------------
Expected Fixed Average Floating Average Fixed Average
Maturity Rate Interest Rate Interest Rate Interest
Date Maturity Rate Maturity Rate Maturity Rate
- --------- -------- -------- -------- -------- -------- --------
1998 $ 1 6.69% $233 5.71% $ - -%
1999 85 7.96 - - - -
2000 1 6.03 - - - -
2001 250 8.99 158 6.91 - -
2002 1 6.03 110 6.35 - -
Remaining
years 1,772 8.44 398 6.86 650 8.11
- ---------------------------------------------------------------------
Total $2,110 - $899 - $650 -
=====================================================================
Fair value $2,302 - $899 - $675 -
=====================================================================
Foreign Currency Risk
At December 31, 1997, a Norwegian subsidiary, whose functional
currency is the kroner, had outstanding $158 million of floating
rate, revolving debt, denominated in U.S. dollars. The potential
foreign currency remeasurement loss in earnings from a
hypothetical 10 percent change in the year-end exchange rate is
$16 million. The section on interest rate risk contains
information about the fair value of this debt instrument.
At December 31, 1997, U.S. subsidiaries had outstanding
$439 million of long-term intercompany receivables from a U.K.
subsidiary denominated in pounds sterling and $164 million
outstanding from Canadian subsidiaries denominated in U.S.
dollars. While these intercompany balances are eliminated in
consolidation, exchange rate changes do affect consolidated
earnings. The potential foreign currency remeasurement loss in
non-cash earnings from a hypothetical 10 percent change in the
year-end exchange rate from these intercompany balances is
$60 million.
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Capital Spending
Capital Expenditures and Investments
Millions of Dollars
---------------------------------
Estimated
1998 1997 1996 1995
---------------------------------
E&P $1,001 1,346 981 856
GPM 90 116 85 274
RM&T* 343 235 209 150
Chemicals* 281 275 205 148
Corporate and Other 74 71 64 28
- -----------------------------------------------------------------
$1,789 2,043 1,544 1,456
=================================================================
United States $1,050 1,059 841 923
Foreign 739 984 703 533
- -----------------------------------------------------------------
$1,789 2,043 1,544 1,456
=================================================================
*Effective January 1, 1998, Phillips' NGL operations were moved
from the Chemicals segment to the RM&T segment. RM&T's
estimated 1998 budget includes $23 million for NGL. Comparable
amounts included in Chemicals for the years ended December 31,
1997, 1996, and 1995, respectively, were $14 million,
$18 million and $15 million.
The company's improved operating results, the settlement of the
J-Block gas production dispute, and additional refunds as a
result of the 1996 Kenai LNG tax case resolution have all
enhanced Phillips' financial flexibility during 1997. As a
result, the company increased its 1997 capital budget twice
during the year, from $1.67 billion to $2.09 billion, a
cumulative increase of 25 percent. Actual expenditures for 1997
were the highest since 1982.
Phillips' 1998 capital budget promotes the company's growth
strategy by supporting its worldwide exploration program and
development projects, expanding chemicals and plastics volumes,
upgrading refineries, and expanding pipeline systems. The level
of payout projects -- projects defined as those that generate
income and increase shareholder value -- is targeted at
74 percent in 1998. The remainder of the capital spending will
be directed toward maintenance or environmental-compliance
projects. This level of payout projects supports Management's
objective of increasing volumes of Phillips' major products -- a
key to earnings growth.
E&P
Capital spending for E&P during the three-year period ended
December 31, 1997, supported several major development projects
including J-Block, Armada and Britannia in the U.K. North Sea;
the Ekofisk II redevelopment and Eldfisk waterflood projects in
Norway; the Mahogany development in the Gulf of Mexico; and the
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<PAGE>
Xijiang fields, offshore China. Exploratory drilling was focused
on 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; the Timor Sea Zone of
Cooperation; and several subsalt prospects in the Gulf of Mexico.
Acquisitions of additional interests in the Bayu-Undan discovery
in the Zone of Cooperation between Indonesia and Australia, and
the Britannia development in the U.K. North Sea comprised
significant portions of capital spending in 1996 and 1995,
respectively. When the budget was increased during 1997, the
additional E&P funds were used primarily to purchase interests in
the Zama/Virgo area in northwest Alberta, Canada, and to acquire
the rights to operate and explore existing fields in northwest
Venezuela. These activities will also comprise a major portion
of E&P's capital spending in 1998.
In 1997, E&P's capital spending focused on several key
exploratory and development projects. In the U.K. North Sea, the
Jade field was successfully appraised, and with production
expected in 2000, will be tied in to the J-Block infrastructure.
Also in the J-Block area, approval was obtained to develop the
Janice field, where appraisal drilling was successfully completed
in early 1996. Initial production at Janice is expected in 1998.
Straddling the border of two license blocks in the U.K. North
Sea, the Kate discovery was drilled by Phillips in cooperation
with Shell U.K. Exploration and Production Company (Shell),
operator of the other block. An appraisal well is planned for
1998. In cooperation with Phillips, Shell drilled a subsequent
well in Phillips' block that also encountered a potentially
commercial hydrocarbon pay zone. In February 1998, the U.K.'s
Department of Trade and Industry approved development of
discoveries in the Renee and Rubie fields in the U.K. North Sea.
Offshore Australia, natural gas and gas/condensate were
discovered at the Athena 1 well. In China, successful
discoveries were announced at a Xijiang satellite field and in
the Bozhong Block of China's Bohai Bay.
E&P's capital budget for 1998 is $1 billion, 70 percent of which
is targeted for international projects that support the company's
growth strategy. Seismic and drilling programs are planned for
the three operating contracts Phillips won in Venezuela's third
reactivation round in 1997. The company plans to apply enhanced
recovery technology to fully exploit the fields. In addition,
spending will be focused on the development of the Zama/Virgo
area in Canada; development projects in the U.K. North Sea,
including the Jade, Janice and Renee/Rubie fields; the Siri field
in Denmark; and the development of extra-heavy oil reserves from
the Hamaca region of the Orinoco Oil Belt of Venezuela. Further
exploration in the United Kingdom is planned for 1998, as the
company was awarded 46 offshore license blocks in the Atlantic
Margin area, west of the United Kingdom and Ireland. Other
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<PAGE>
exploration planned for 1998 includes projects in China,
Australia, Africa, Greenland, Peru, Algeria, Venezuela, Nigeria
and Norway.
In addition to the development of the Zama/Virgo area in Canada,
key North America exploration and development projects continue
in the Gulf of Mexico and Alaska in 1998. The company plans to
use the technology developed for subsalt applications in its
exploration of the Gulf deep-water blocks. Phillips has acquired
a 33.33 percent interest in 121 offshore deep-water blocks, as
part of its alliance with Mobil Corporation. The companies plan
to drill their first joint deep-water well in 1998. The co-
venturers plan to accelerate their deep-water exploration after
taking delivery of a contracted drillship in late 1998. In
addition, recompletions of two wells in the Mahogany field
offshore Louisiana are planned.
In the North Cook Inlet of Alaska, Phillips has completed
appraisal drilling of the Tyonek Deep prospect, in which the
company owns a 100 percent working interest. The first appraisal
well did not encounter commercial quantities of hydrocarbons. A
second appraisal well, started in late 1997, was successful,
testing at a combined rate of 3,100 barrels of oil per day. Two
development wells are planned for 1998. Drilling has taken place
from the existing Tyonek platform, which has continued to supply
gas to the company's Kenai LNG facility.
The largest development project in E&P's 1998 capital budget is
the continued construction of the Ekofisk II project in the
Norwegian North Sea, which was 93 percent complete at
December 31, 1997, on time and under budget. It replaces the
majority of the facilities in the existing Ekofisk complex.
Some of the existing facilities that are to continue in operation
after the start-up of Ekofisk II in 1998 will be impacted by the
continuing subsidence in the Ekofisk area, and studies are in
progress to determine what future actions are necessary with
regard to these facilities. Future costs related to subsidence
of the existing facilities are not expected to materially impact
the financial position of the company.
The Norwegian Ministry of Petroleum and Energy has approved a
waterflood project for the Eldfisk field, also in the Greater
Ekofisk Area of the Norwegian North Sea. The project is expected
to commence in 1998 and will involve the construction of a new
unmanned platform, modifications to existing platforms, laying of
new pipelines, and an extensive drilling program. The platform,
scheduled to start up in early 2000, would be controlled from an
existing manned Eldfisk platform.
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<PAGE>
GPM
At GPM, capital spending during the three-year period ended
December 31, 1997, included acquisitions, technology and facility
upgrades, projects to streamline operations, and new well
connections. Following a large acquisition of gathering assets
in 1995, capital spending decreased in 1996 but then increased
substantially in 1997, primarily due to the purchase of gathering
assets from Amoco Production Company in January 1997. Remaining
1997 capital spending was directed toward expansion of GPM's
Spraberry plant in West Texas, asset maintenance, new well
connections and technology enhancements.
In 1998, GPM's capital budget is $90 million. 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.
RM&T
Capital spending for RM&T during the three-year period ended
December 31, 1997, was primarily for refinery-upgrade projects --
projects to meet new environmental standards, to improve
operating integrity of key processing units, and to install
advanced process control technology -- as well as for safety
projects. Central control buildings at the Sweeny, Texas, and
Woods Cross, Utah, facilities were started up during 1997. When
the modernization of these facilities is completed, all
manufacturing processes at the facilities will be managed from
the new central control centers. During 1997, the company also
continued the retail-marketing expansion that it began in 1996,
as well as continued to expand its key transportation assets.
The company continues to expand the number of company-operated
retail outlets in the United States from 300 in 1995, to 450
within the next five to 10 years. This expansion is being funded
through master leasing programs and capital expenditures. During
1997, 24 new retail outlets were opened and 10 existing units
were razed and rebuilt. Since the expansion program began, the
company has acquired 24 retail outlets, opened 31 new ones, and
razed and rebuilt 16 others. During 1998, the company plans to
raze and rebuild 15 outlets and add 30 new ones -- either by
acquisition of top-quality outlets in key geographical areas or
through construction. Both new outlets and those that are razed
and rebuilt utilize the new Kicks 66 convenience store design.
56
<PAGE>
The company plans to sell approximately 100 retail units in non-
strategic areas over the next few years.
The company is going forward with two major pipeline projects to
serve growth areas in the Midwest and the Southwest United
States. During the year, Phillips and its co-venturer in the
Seaway Pipeline Company (Seaway) announced plans to convert a
portion of an existing crude oil pipeline to refined products
service. In conjunction with this conversion, Phillips is
constructing a new 148-mile pipeline to connect the converted
line to the company's existing Midwest distribution system to
transport gasoline and distillates from the Gulf Coast to the
growing Midwest market. Construction is scheduled to be
completed in the second quarter of 1998. The company also
recently signed a letter of intent to purchase interests in
Ultramar Diamond Shamrock Corporation's El Paso terminal and
pipeline system, which will allow Phillips to transport petroleum
products to El Paso, Texas, and Tucson and Phoenix, Arizona.
As part of a continuing effort to increase profitability, RM&T's
1998 capital budget provides for a 38 percent increase over
actual 1997 expenditures, adjusted for the amount spent on NGL
operations during 1997. This increase results largely from
unique opportunities to expand pipeline capacity as outlined
above and plans to construct a new continuous catalytic reformer
at the Sweeny Complex to convert a higher percentage of plant
yield to higher-margin petrochemicals. This project is now
expected to commence in late 1998, with completion scheduled for
mid-2000. Spending is also planned during 1998 for the
installation of additional process control technology upgrades at
the Borger and Sweeny, Texas, Complexes, as well as for the
previously mentioned retail marketing upgrade program.
During 1997, Phillips and an affiliate of the Venezuelan state
oil company signed a Principles of Agreement to build a
58,000 barrels-per-day coker for processing heavier crudes, and
related facilities at Phillips' Sweeny Complex. Under terms of
the agreement, the producing unit of the Venezuelan state oil
company would supply up to 165,000 barrels per day of heavy
Venezuelan crude oil to be processed at the refinery. Subject to
negotiation of definitive documents and to the approval of the
respective Boards of Directors, construction could begin in late
1998, with completion in 2000. Total project cost is estimated
to be $600 million. Phillips would hold a 50 percent interest in
the project.
Phillips continues to explore various options for maximizing the
value of its RM&T assets.
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Chemicals
For the three-year period ended December 31, 1997, capital
spending for Chemicals focused on production expansion projects
utilizing improved technology and debottlenecking techniques.
Projects completed during 1997 included the restart of a
400 million-pounds-per-year ethylene unit at Sweeny that had been
idle for several years; a paraxylene expansion at the company's
Puerto Rico Core facility, which increased capacity to
880 million pounds per year; a polyethylene expansion that
brought plant capacity to 860 million pounds a year at a joint-
venture Singapore facility where the company has a 50 percent
interest; and a 40 percent expansion of the Ryton plant at the
company's Borger facility, increasing capacity to 21.6 million
pounds per year. Ongoing projects include a 400 million-pounds-
per-year debottlenecking of high-density polyethylene production
capacity at HCC, of which 200 million pounds was completed by
December 31, 1997. This debottlenecking, which is expected to be
completed by late-1999, will increase capacity to 2.2 billion
pounds per year. Other projects include a 100 million-pounds-
per-year methyl mercaptan plant at the company's Borger facility,
with first production expected late in 1998; and a 40 million-
pounds-per-year dicyclopentadiene hydrotreating unit at Sweeny,
which is expected to be completed in third quarter 1998. In
China, the company is participating in a joint venture that
recently signed loan agreements to partially fund the design and
construction of a 220 million-pounds-per-year polyethylene plant
near Shanghai, which is expected to start up in third quarter
1998. Phillips has a 40 percent interest in the joint venture,
and is guaranteeing the U.S. dollar portion of the loan
agreements, totaling approximately $34 million.
Chemicals' 1998 proposed capital spending is an increase of
8 percent over the actual amount spent in 1997, excluding the
amount spent on NGL operations. Spending is planned for various
new and ongoing production expansion projects -- the largest of
which is slated to fund a 100 million-pounds-per-year expansion
of the company's K-Resin copolymer plant at HCC, increasing
capacity to 370 million pounds per year by 1999. Also at HCC,
the company is moving forward with plans to build a 200 million-
pounds-per-year hexene-1 plant, based on Phillips' new,
proprietary catalyst technology. Construction is scheduled to
begin in 1998, with completion in 1999. At the Phillips Research
Center in Bartlesville, Oklahoma, the company is constructing a
plant to produce metallocene compounds, the key ingredients in
the company's proprietary metallocene catalysts. Scheduled to
come onstream late in first quarter 1998, the plant will produce
metallocene compounds in sufficient quantities to meet the needs
of Phillips and licensees through the year 2000.
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In 1997, Phillips entered into two separate agreements for
projects in Qatar. The company and Qatar General Petroleum
Corporation (QGPC) signed an agreement for a new joint venture to
develop a petrochemical complex. The complex would use Phillips'
proprietary polyethylene and hexene-1 manufacturing and catalyst
technology and would feature a 1.1 billion-pounds-per-year
ethylene plant. It would also feature manufacturing facilities
capable of producing one billion pounds per year of polyethylene
(high-density and linear low-density), and a hexene-1 plant with
a capacity of 100 million pounds per year. If the project goes
forward, construction of the complex would begin in 1999, with
commercial production in early 2002. The project is subject to
negotiation of definitive agreements and to the approval of the
Boards of Directors of QGPC and Phillips. Phillips would have a
49 percent interest in this project. The company also signed a
memorandum of understanding with QGPC and Sasol Limited of South
Africa providing for a feasibility study of a proposed joint
venture for a gas-to-liquids project. The feasibility study,
which is currently being conducted to fully assess the economics
and viability of the new venture, is scheduled to be completed in
first quarter 1998. If a plant is built, it would produce a total
of approximately 20,000 barrels per day of distillates and naphtha
and be scheduled for start-up in 2002. Phillips would hold a
15 percent equity interest in this joint venture.
Year 2000 Readiness
Until recently, computer programs were written to store only two
digits of date-related information in order to more efficiently
handle and store data, and are thus unable to distinguish between
the year 1900 and the year 2000. This is frequently referred to
as the "Year 2000 Problem." In April 1996, Phillips initiated a
company-wide Year 2000 Project to address this issue. Utilizing
internal and external resources, the company is in the process of
defining, assessing and converting, or replacing, various
programs, hardware and instrumentation systems to make them Year
2000 compatible. The company's Year 2000 Project is composed of
two components:
Business Applications
In 1995, Phillips began a worldwide business systems replacement
project. Based on a recent inventory of business computer
programs within Phillips, these new systems, which are Year 2000
compliant, will replace approximately 70 percent of the company's
business computer programs. An additional 12 percent of business
programs will be made compliant through the Year 2000 Project,
and 7 percent will be retired. The remaining non-compliant
programs are to be brought into compliance by the vendors who
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<PAGE>
supply the programs. The company is in the process of
identifying and prioritizing critical third parties and
customers, and will follow up with them concerning their plans
and progress in addressing the Year 2000 Problem.
The company's business applications Year 2000 Project is
scheduled to be completed by mid-1999 when the final phases of
the worldwide business systems replacement project are completed.
Process Control and Instrumentation (PC&I)
The company is currently evaluating the Year 2000 readiness of
PC&I with a comprehensive inventory of monitoring and control
devices for plants, refineries, pipelines, platforms, safety
systems and other similar operating installations. Plans
detailing the tasks and resources required to ensure PC&I Year
2000 readiness by the end of 1998 are expected to be in place by
the end of the second quarter. Costs associated with PC&I
upgrades are included in existing operating budgets.
The total cost associated with required modifications to become
Year 2000 compliant is not expected to be material to the
company's financial position.
An unexpected failure to have corrected a Year 2000 Problem could
result in an interruption in certain normal business activities
or operations. However, the company believes that, with the
implementation of new business systems and completion of its Year
2000 Project, significant interruptions will not be encountered.
Contingencies
Legal and Tax Matters
The company has a number of issues outstanding with the IRS
related to tax years 1987 through 1992 that are expected to be
resolved in the near term as a result of resolving the Kenai LNG
tax case. Although it is too early to determine the final
financial effects, 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.
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 the likelihood
is remote that future costs related to known contingent liability
exposures will exceed current accruals by an amount that would
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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 1996, Phillips reported 47 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Since then, six sites were
resolved through consent decrees, deposits into trust funds, or
otherwise. Two sites were added during the year. Of the
43 sites remaining at December 31, 1997, the company believes it
has a legal defense or its records indicate no involvement for
13 sites. At seven other sites, present information indicates
that it is probable that the company's exposure is less than
$100,000 per site. At seven sites, Phillips has had no
communication or activity with government agencies or other PRPs
in more than two years. Of the 16 remaining sites, the company
has provided for any probable costs that can be reasonably
estimated.
Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability. Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites. Although liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site. It
has, to date, been successful in sharing clean-up 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 clean-up, those potentially
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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 clean-up costs generally occur
after the parties obtain EPA or equivalent state agency approval.
At December 31, 1997, accruals of $7 million had been made for
the company's unresolved PRP sites. In addition, the company has
accrued $72 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 $4 million for
other environmental contingent liabilities, for total
environmental accruals of $83 million. No one site represents
more than 10 percent of the total. Included in the company's
planned remediation activities is a voluntary environmental
investigation of the former Okmulgee, Oklahoma, refinery that
Phillips sold in 1966, which has been closed since 1982. The
company plans to perform a clean-up effort to turn the area into
an industrial park.
Expensed environmental costs were $162 million in 1997 and are
expected to be approximately $150 million in 1998 and 1999. The
estimates for 1998 and 1999 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 $69 million in 1997, and are expected to be approximately
$100 million and $110 million in 1998 and 1999, respectively.
After an assessment of environmental exposures for clean-up 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, although claims for
recovery of remediation costs have been filed with certain of the
company's insurers. At this time, the company is progressing
with negotiations with several of its insurers. These
negotiations may result in Phillips' receipt of significant
settlement amounts in exchange for general releases of liability
or commutations of some of the company's liability and pollution
policies. However, the ultimate amount, if any, the terms of the
settlement, and the timing of recoveries remains uncertain.
Based on currently available information, the company believes
that the likelihood 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.
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Other
Phillips has deferred tax assets for the alternative minimum tax,
certain accrued liabilities, and loss carryforwards. Valuation
allowances have been established for certain foreign and state
net operating loss carryforwards that reduce deferred tax assets
to an amount that will more likely than not be realized.
Uncertainties that may affect the realization of these assets
include tax law changes and the future level of product prices,
costs and tax rates. Based on the company's historical taxable
income, 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 $24 million during 1997, primarily
due to an increase in loss carryforwards for various companies.
New Accounting Standards
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both
Statements are effective for fiscal years beginning after
December 15, 1997, and are disclosure-oriented statements.
Therefore, neither Statement will affect the company's reported
consolidated net income or cash flows. The company has not yet
determined the disclosure formats it will adopt in response to
these Statements, but it is anticipated that the composition and
number of its operating segments will be unchanged under
Statement No. 131.
OUTLOOK
Phillips continues its global growth strategy. In E&P, the
company plans exploration activity in Norway, the United Kingdom,
China, Australia, Algeria, South Africa, Peru, and the Gulf of
Mexico. Further, the company joined a study of a proposed Alaska
North Slope gas project. This study will examine the viability
of producing natural gas from Alaska's North Slope, transporting
it across the state, converting it to liquid natural gas, and
marketing it in the Far East. Phillips owns interests in the two
fields containing most of the North Slope gas reserves -- a small
interest in the Prudhoe Bay Unit and a 12 percent interest in the
undeveloped Point Thomson field.
Phillips and its co-venturers continue evaluating plans to
develop both blocks of the Bayu-Undan gas/condensate discovery in
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the Timor Sea Zone of Cooperation, as a single field, with BHP
Petroleum Pty. Ltd. as unit operator. The field initially is
planned to be developed as a gas-reinjection project. Initial
production is expected in 2002. A decision is pending on the
location and type of facility to liquefy the natural gas at a
later stage in the project's development.
The company has oil mining leases for production of oil and gas
in Nigeria. These interests are operated on behalf of the
company under a joint operating agreement (JOA) with Nigerian
Agip Oil Company for the life of the leases covered and until all
joint property has been disposed of and final settlement made.
The initial term of the leases was through June 13, 1997, and,
under the lease terms, the company is entitled to renewal of the
lease upon application, assuming it has performed its obligations
under the leases. The company believes it has performed its
obligations and the operator of the company's interests has made
timely application for renewal on behalf of the company. While
renewal of the leases has not yet been confirmed by Nigerian
authorities, the operator has been advised by the Nigerian
authorities that the renewal application is being processed and
that it should continue operations. Production has continued
unabated after June 13, 1997. Management expects that production
will continue and that renewals will be confirmed in due course.
The company's Nigerian interests represent approximately
7 percent of its currently reported total worldwide oil and gas
reserves, and the sale of the production from these reserves
contributed approximately $27 million to the company's after-tax
net income in 1997. The company's net investment in Nigeria at
December 31, 1997, was $180 million.
Global expansion of the company's chemicals business continues
with opportunities for new locations involving foreign joint-
venture partners. In an effort to meet growing worldwide demand
for plastics and petrochemicals, Phillips signed three letters of
intent with major petrochemical manufacturers in the People's
Republic of China. The letters of intent are to conduct joint
feasibility studies to build an ethylene complex and a K-Resin
copolymer plant, and to expand a polyethylene plant currently
under construction. In 1996, Phillips and Shanghai Petrochemical
Company Limited formed a joint venture to build a 220 million-
pounds-per-year plant, which is scheduled to come onstream in
1998.
In late 1997, the company created a new supply chain organization
to improve the profitability of its refining, marketing and
transportation activities. The effort involves improved
coordination of materials handling from feedstock acquisition
through product supply and distribution to final refined product
sales. Upon full implementation of the management system in late
1998, expected benefits are improved sales and production
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forecasting, inventory control, and lower costs for crude oil and
refined products acquisition and transportation.
Phillips experienced a significant drop in the number of
recordable injuries during 1997. The recordable injury rate for
1997 was 1.18 per 200,000 man-hours, which is 22 percent lower
than the 1996 rate of 1.52. The rate of 1.18 compares very
favorably with the most recent American Petroleum Institute
industry recordable injury rate of 2.47, and sets a new record
for the company. 1997 was the third year for the company's
Process for Safety Excellence program where business units
identify the safety management elements most critical to their
operations, evaluate their present level, set goals for each
element and develop initiatives for reaching those goals. During
1997, the process was expanded to include environmental
elements and is now called Process for Safety and Environmental
Excellence.
The impact of the recent economic downturn in Asia on the
businesses in which Phillips operates remains uncertain. Sales
revenues generated in Asian countries currently comprise a
relatively small percent of the company's total revenues, giving
the company minimal earnings exposure. The company continues to
monitor both short-term and long-term effects of the crisis on
supply and demand.
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 over which it has no
control. Crude oil prices in early 1998 have been considerably
lower than year-ago levels due in part to warmer-than-normal
weather that has dampened seasonal demand, the recent economic
downturn in Asia and rising production. Phillips is pursuing a
number of significant growth projects and expects to increase
1998 hydrocarbon production by 7 percent, which should help
offset lower oil and natural gas prices.
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.
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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.
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;
as well as subject to geological, land, or sea conditions;
world prices for oil, natural gas and natural gas liquids;
and foreign and United States laws, including tax laws.
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
approval from the company's and/or subsidiaries' Boards of
Directors; loan or project financing; the issuance by
foreign, federal, state, and municipal governments, or
agencies thereof, of building, environmental and other
permits; and the availability of specialized contractors and
work force. Production and delivery of the company's
products are subject to worldwide prices; supply and demand
for the products; availability of raw materials; and the
availability of transportation in the form of pipelines,
railcars, trucks or ships.
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
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have jurisdiction in regard to taxes, the environment and
human resources.
o Estimates of proved reserves, raw natural gas supplies,
project cost estimates 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.
o The Year 2000 Project and the date on which the company
believes it will be completed are based on Management's best
estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of
certain resources, third-party modification plans and other
factors. However, there can be no assurance that there will
not be a delay in, or increased costs associated with, the
implementation of the Year 2000 Project. Specific factors
that might cause differences between the estimates and
actual results include, but are not limited to, the
availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes,
timely responses by third-parties and suppliers, and similar
uncertainties. The company's inability to implement Year
2000 changes could have an adverse effect on future results
of operations.
o The date on which the company believes it will implement the
new SAP America, Inc. and Oracle Corporation business
computer systems is based on Management's best estimates,
which were derived utilizing numerous assumptions of future
events, including the continued availability of certain
resources, plans and other factors. However, there can be
no guarantee that these estimates will be achieved.
Specific factors that might cause differences between the
estimates and actual results include, but are not limited
to, the availability and cost of personnel trained in these
areas, the ability to implement interfaces between the new
systems and the systems that are not being replaced, and
similar uncertainties.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS PETROLEUM COMPANY
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Management.................................... 69
Report of Independent Auditors.......................... 70
Consolidated Statement of Income for the years
ended December 31, 1997, 1996 and 1995................ 71
Consolidated Balance Sheet at December 31, 1997
and 1996.............................................. 72
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995................ 73
Consolidated Statement of Changes in Common Stockholders'
Equity for the years ended December 31, 1997,
1996 and 1995......................................... 74
Notes to Financial Statements........................... 75
Supplementary Information
Oil and Gas Operations............................. 106
Selected Quarterly Financial Data.................. 125
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation Accounts and Reserves.......... 129
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.
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- ----------------------------------------------------------------
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, 1997, 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 23, 1998
69
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- -----------------------------------------------------------------
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, 1997 and 1996, 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, 1997. 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,
1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997, 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.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 23, 1998
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- ------------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
---------------------------
1997 1996 1995
---------------------------
Revenues
Sales and other operating revenues $15,210 15,731 13,368
Equity in earnings of
affiliated companies 126 4 127
Other revenues 88 72 26
- ------------------------------------------------------------------
Total Revenues 15,424 15,807 13,521
- ------------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 9,127 9,896 8,182
Production and operating expenses 2,199 2,079 2,143
Exploration expenses 242 254 198
Selling, general and
administrative expenses 631 508 500
Depreciation, depletion and
amortization 863 941 871
Taxes other than income taxes 263 264 266
Interest expense 198 217 265
Preferred dividend requirements of
subsidiary and capital trusts 82 47 32
- ------------------------------------------------------------------
Total Costs and Expenses 13,605 14,206 12,457
- ------------------------------------------------------------------
Income before income taxes and
Kenai LNG tax settlement 1,819 1,601 1,064
Kenai LNG tax settlement 81 571 -
- ------------------------------------------------------------------
Income before income taxes 1,900 2,172 1,064
Provision for income taxes 941 869 595
- ------------------------------------------------------------------
Net Income $ 959 1,303 469
==================================================================
Net Income Per Share of Common Stock
Basic $ 3.64 4.96 1.79
Diluted 3.61 4.91 1.78
- ------------------------------------------------------------------
Average Common Shares Outstanding
(in thousands)
Basic 263,392 262,919 261,989
Diluted 265,419 265,256 263,569
- ------------------------------------------------------------------
See Notes to Financial Statements.
71
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- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
At December 31 Millions of Dollars
-------------------
1997 1996
-------------------
Assets
Cash and cash equivalents $ 163 615
Accounts and notes receivable
(less allowances: 1997 -- $19; 1996 -- $20) 1,717 1,988
Inventories 500 472
Deferred income taxes 168 117
Prepaid expenses and other current assets 100 114
- -----------------------------------------------------------------
Total Current Assets 2,648 3,306
Investments and long-term receivables 964 912
Properties, plants and equipment (net) 10,022 9,120
Deferred income taxes 82 85
Deferred charges 144 125
- -----------------------------------------------------------------
Total $13,860 13,548
=================================================================
Liabilities
Accounts payable $ 1,546 1,793
Notes payable and long-term debt due
within one year 234 574
Accrued income and other taxes 365 483
Other accruals 300 287
- -----------------------------------------------------------------
Total Current Liabilities 2,445 3,137
Long-term debt 2,775 2,555
Accrued dismantlement, removal and
environmental costs 713 783
Deferred income taxes 1,257 1,047
Employee benefit obligations 436 425
Other liabilities and deferred credits 769 700
- -----------------------------------------------------------------
Total Liabilities 8,395 8,647
- -----------------------------------------------------------------
Preferred Stock of Subsidiary and Other
Minority Interests 1 350
- -----------------------------------------------------------------
Company-Obligated Mandatorily Redeemable
Preferred Securities of Phillips
Capital Trusts I and II 650 300
- -----------------------------------------------------------------
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 2,031 1,999
Treasury stock (at cost: 1997 -- 14,000,882
shares; 1996 -- 13,878,480 shares) (752) (757)
Compensation and Benefits Trust (CBT)
(at cost: 1997 and 1996 --
29,200,000 shares) (989) (989)
Foreign currency translation adjustments (8) 54
Unearned employee compensation -- Long-Term
Stock Savings Plan (LTSSP) (342) (378)
Retained earnings 4,491 3,939
- -----------------------------------------------------------------
Total Common Stockholders' Equity 4,814 4,251
- -----------------------------------------------------------------
Total $13,860 13,548
=================================================================
See Notes to Financial Statements.
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- ------------------------------------------------------------------
Consolidated Statement of Cash Flows Phillips Petroleum Company
Years Ended December 31 Millions of Dollars
-------------------------
1997 1996 1995
-------------------------
Cash Flows From Operating Activities
Net income $ 959 1,303 469
Adjustments to reconcile net income
to net cash provided by operating
activities
Non-working capital adjustments
Depreciation, depletion and
amortization 863 941 871
Dry hole costs and leasehold
impairment 91 117 66
Deferred taxes 283 163 9
J-Block settlement 161 - -
Other 12 41 (77)
Working capital adjustments
Increase (decrease) in aggregate
balance of accounts receivable
sold - (200) 200
Decrease (increase) in other
accounts and notes receivable 245 (265) (245)
Decrease (increase) in inventories (33) 31 25
Decrease (increase) in prepaid
expenses and other current assets 15 (26) 12
Increase (decrease) in accounts
payable (224) 295 130
Increase (decrease) in taxes and
other accruals (127) (315) 136
- ------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,245 2,085 1,596
- ------------------------------------------------------------------
Cash Flows From Investing Activities
Capital expenditures and investments,
including dry hole costs (2,043) (1,544) (1,456)
Proceeds from asset dispositions 21 101 142
Long-term advances to affiliates and
other investments (34) (98) (39)
- ------------------------------------------------------------------
Net Cash Used for Investing Activities (2,056) (1,541) (1,353)
- ------------------------------------------------------------------
Cash Flows From Financing Activities
Issuance of debt 468 212 97
Repayment of debt (569) (226) (106)
Purchase of common stock (50) - -
Issuance of common stock 20 25 9
Issuance of company-obligated mandatorily
redeemable preferred securities 350 300 -
Redemption of preferred stock of
subsidiary (345) - -
Dividends paid on common stock (353) (329) (313)
Other (162) 22 (56)
- ------------------------------------------------------------------
Net Cash Provided by (Used for)
Financing Activities (641) 4 (369)
- ------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents (452) 548 (126)
Cash and cash equivalents at
beginning of year 615 67 193
- ------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 163 615 67
==================================================================
See Notes to Financial Statements.
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- ------------------------------------------------------------------
Consolidated Statement of Changes Phillips Petroleum Company
in Common Stockholders' Equity
Shares of Common Stock
-------------------------------------
Held in Held in
Issued Treasury CBT
-------------------------------------
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
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans (971,198)
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Stock purchases 1,093,600
- ------------------------------------------------------------------
December 31, 1997 306,380,511 14,000,882 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, 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)
Net income
Cash dividends paid on
common stock
Distributed under incentive
compensation plans 32 55
Recognition of LTSSP
unearned compensation
Tax benefit of dividends on
unallocated LTSSP shares
Current period translation
adjustment
Stock purchases (50)
- ------------------------------------------------------------------
December 31, 1997 $383 2,031 (752) (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, 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
Net income 959
Cash dividends paid on
common stock (353)
Distributed under incentive
compensation plans (61)
Recognition of LTSSP
unearned compensation 36
Tax benefit of dividends on
unallocated LTSSP shares 7
Current period translation
adjustment (62)
Stock purchases
- ------------------------------------------------------------------
December 31, 1997 (8) (342) 4,491
==================================================================
See Notes to Financial Statements.
74
<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1 -- Accounting Policies
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 1996 and 1995
financial statements have been reclassified to conform with
the 1997 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 LIFO basis. Materials and
supplies are valued at, or below, average cost.
o Derivative Instruments -- Forward foreign currency contracts
designated and effective as hedges of firm commitments,
commodity futures and commodity option contracts designated
and effective as hedges are recorded at market value, either
through monthly adjustments for unrealized gains and losses
(forwards and options) or through daily settlements in cash
(futures), and the resulting gains and losses are deferred.
Forward foreign currency contracts designated and effective
as hedges of existing assets and liabilities are recorded at
market value through monthly adjustments, with immediate
recognition of the resulting gains and losses. Commodity
swaps and forward commodity contracts designated as hedges
are not recorded until the resulting cash flows are known.
The gains and losses from all of these derivative instruments
are recognized during the same period in which the gains and
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<PAGE>
losses from the underlying exposures being hedged are
recognized, except for gains and losses from hedges of asset
acquisitions that are reported as adjustments to the carrying
value of the assets.
In accordance with company risk-management policies, any
derivative instrument held by the company must relate to an
underlying, offsetting position, probable anticipated
transaction or firm commitment. Additionally, the hedging
instrument used must be expected to be highly effective in
achieving market value changes that offset the opposing
market value changes of the underlying transaction. If an
existing derivative position is terminated prior to expected
maturity or re-pricing, any deferred or resultant gain or
loss will continue to be deferred unless the underlying
position has ceased to exist. Deferred gains and losses,
deferred premiums paid for forward exchange contracts, and
deferred premiums paid for commodity option contracts are
reported on the balance sheet with other current assets or
other current liabilities. Gains and losses from derivatives
designated as hedges of sales are reported on the statement
of income with sales and other operating revenues, whereas
gains and losses from derivatives designated as hedges of
commodity purchases are reported with purchased crude oil and
products or with production and operating expenses, subject
to the effects of any related inventory costing reflected on
the balance sheet. Gains and losses from hedging feedstock-
to-product margins are reported with purchased crude oil and
products. Recognized gains and losses are reported on the
statement of cash flows in a manner consistent with the
underlying position being hedged.
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's 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's
judgment, exploratory wells are determined to be
commercially unsuccessful or dry holes, applicable costs
are expensed.
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<PAGE>
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 oil and gas production
facilities, including necessary site restoration, are accrued
using either the unit-of-production or the straight-line
method.
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 clean-ups 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."
77
<PAGE>
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 Net Income Per Share of Common Stock -- Basic 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. Diluted income per share
of common stock includes the above, plus "in the money" stock
options issued pursuant to company compensation plans.
Treasury stock and shares held by the CBT are excluded from
the daily weighted-average number of common shares outstanding
in both calculations.
Note 2 -- Accounting Changes
The company adopted FASB Statement No. 128, "Earnings per Share,"
effective for the year ending December 31, 1997. All prior-
period earnings per share data have been restated. This
Statement requires dual presentation of basic and diluted
earnings per share on the face of the income statement. "In the
money" stock options issued pursuant to company compensation
plans are the only dilutive securities in all periods presented.
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. Also 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. These changes were made
78
<PAGE>
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 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 Statement, the company
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 3 -- Inventories
Inventories at December 31 were:
Millions of Dollars
-------------------
1997 1996
-------------------
Crude oil and petroleum products $156 136
Chemical products 254 255
Materials, supplies and other 90 81
- -----------------------------------------------------------------
$500 472
=================================================================
Included in the amounts above were inventories valued on a LIFO
basis totaling $299 million and $283 million at December 31, 1997
and 1996, respectively. The remainder of the company's
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
$457 million and $604 million higher at December 31, 1997 and
1996, respectively, had they been valued using the FIFO method.
Note 4 -- Investments and Long-Term Receivables
Components of investments and long-term receivables at
December 31 were:
Millions of Dollars
-------------------
1997 1996
-------------------
Investments in and advances to affiliated
companies $722 693
Long-term receivables 97 111
Other investments 145 108
- -----------------------------------------------------------------
$964 912
=================================================================
79
<PAGE>
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
--------------------------
1997 1996 1995
--------------------------
Revenues $3,203 3,043 2,776
Income before income taxes 658 583 680
Net income 470 380 470
Current assets 856 936 758
Other assets 3,076 3,372 3,236
Current liabilities 777 887 889
Other liabilities 1,300 1,493 1,031
- -----------------------------------------------------------------
At December 31, 1997, retained earnings included $128 million
related to the undistributed earnings of these affiliated
companies, and distributions received from them were $96 million,
$107 million and $122 million in 1997, 1996 and 1995,
respectively.
At December 31, 1997, the company's 50 percent interest in 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 $240 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, 1997, was
$120 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, 1997, was $105 million. It is
not economically practicable to estimate the fair value of the
company's obligations to SOLP or to the participating banks.
80
<PAGE>
Note 5 -- 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
-----------------------------------------------------
1997 1996
------------------------- ------------------------
Gross Net Gross Net
PP&E DD&A PP&E PP&E DD&A PP&E
------------------------- ------------------------
E&P $11,924 6,982 4,942 11,190 6,782 4,408
GPM 2,080 1,136 944 1,974 1,071 903
RM&T 3,772 1,772 2,000 3,599 1,705 1,894
Chemicals 3,033 1,243 1,790 2,793 1,177 1,616
Corporate
and Other 617 271 346 547 248 299
- ------------------------------------------------------------------
$21,426 11,404 10,022 20,103 10,983 9,120
==================================================================
Note 6 -- Impairments
During 1997, 1996, and 1995, the company recognized the following
before-tax impairments:
Millions of Dollars
--------------------
1997 1996 1995
--------------------
Additions to depreciation, depletion and
amortization
Point Arguello field $ - 106 -
Garden Banks Blocks 70/71 field 39 - -
United Kingdom oil and gas properties 15 - -
Canadian oil and gas properties - 25 -
Other E&P properties 9 - 81
Retail service stations 1 58 -
Chemical assets 4 - 4
Idle Corporate assets - 1 13
- -----------------------------------------------------------------
68 190 98
Reductions in equity earnings
Point Arguello field - 78 -
- -----------------------------------------------------------------
$68 268 98
=================================================================
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<PAGE>
After-tax, the above impairments by segment were:
Millions of Dollars
--------------------
1997 1996 1995
--------------------
E&P $42 144 41
RM&T 1 38 -
Chemicals 3 - 3
Corporate - 1 7
- -----------------------------------------------------------------
$46 183 51
=================================================================
The facts and circumstances leading to the E&P impairments in
1997 were unsuccessful development drilling and downward reserve
revisions for the Garden Banks Blocks 70/71 field in the Gulf of
Mexico, increased drilling costs for a well at the West Cameron
Block 146 field in the Gulf of Mexico, and downward reserve
revisions for fields located in the U.K. North Sea.
The facts and circumstances leading to the E&P impairments in
1996 were rapidly declining production rates and 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.
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 Chemicals and Corporate
assets considered to be impaired were determined based on
information about sales and purchases of similar assets.
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<PAGE>
Note 7 -- Accrued Dismantlement, Removal and Environmental Costs
At December 31, 1997 and 1996, the company had accrued
$670 million and $686 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, 1997, were $986 million. These costs are accrued
primarily on the unit-of-production method.
Phillips had accrued environmental costs, primarily related to
clean-up of ponds and pits at domestic refineries and underground
storage tanks at U.S. service stations, and other various costs,
of $40 million and $49 million at December 31, 1997 and 1996,
respectively. Phillips had also accrued $32 million and
$33 million of environmental costs associated with discontinued
or sold operations at December 31, 1997 and 1996, respectively.
Also, $7 million and $9 million were included at December 31,
1997 and 1996, respectively, for sites where the company has been
named a PRP. At the same dates, $4 million and $6 million,
respectively, had been accrued for other environmental
litigation. At December 31, 1997 and 1996, total environmental
accruals were $83 million and $97 million, respectively.
Of the total $753 million of accrued dismantlement, removal and
environmental costs at December 31, 1997, $40 million was
classified as short-term on the balance sheet, under the caption
"Other accruals." At year-end 1996, the total $783 million was
classified as long-term.
Note 8 -- J-Block Settlement
On June 2, 1997, Phillips Petroleum Company United Kingdom
Limited and its co-venturers, Agip (U.K.) Limited and BG
Exploration and Production Limited reached a settlement with
Enron Europe Limited (Enron) concerning J-Block gas production in
the U.K. sector of the North Sea. Under the terms of the
settlement agreement, Enron made an immediate cash payment of
$440 million to the J-Block owners; the existing take-or-pay
depletion contract was amended to become a firm long-term supply
contract; and the fixed contract price for J-Block gas was
reduced to reflect current market conditions for long-term gas
sales contracts. The total contract gas quantity, however,
remains essentially the same. Phillips' share of the
$440 million cash payment was $161 million. The settlement
concluded all J-Block litigation with Enron. The income
associated with the cash payment will be recognized over the
remaining term of the supply contract.
83
<PAGE>
Note 9 -- Debt
Long-term debt at December 31 was:
Millions of Dollars
---------------------
1997 1996
---------------------
9 1/2% Notes Due 1997 $ - 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 2002 at 3.7% - 9% 474 232
Guarantees of LTSSP bank loans payable
at 4.98% - 6.1875% 425 451
Medium-term notes due various years
at 7.6% - 8% 84 100
Other obligations 7 27
- -----------------------------------------------------------------
Total debt 3,009 3,129
Notes payable and long-term debt due
within one year (234) (574)
- -----------------------------------------------------------------
Long-term debt $2,775 2,555
=================================================================
Maturities in 1998 through 2002 are: $234 million (included in
current liabilities), $85 million, $1 million, $408 million and
$111 million, respectively.
The company's LTSSP has two term-loan agreements: one requiring
repayment in annual installments through the year 1998, and a
second requiring annual installments beginning in 2005, and
continuing through 2015. The outstanding balances of the loans
at December 31, 1997, were $28 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 December 5, 2004, by giving not less than
180 days' prior notice to the LTSSP and the company. The company
does not anticipate a cessation of participation by the lenders,
and plans to commence scheduled repayments beginning in 2005.
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<PAGE>
Each bank participating in the LTSSP loan has the optional right,
if the current company 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 15 for additional discussion of the LTSSP.)
During 1997, Phillips increased its revolving bank credit
facility from $1.1 billion to $1.5 billion. The company's
commercial paper program is supported by this credit facility in
an amount equal to 100 percent of the commercial paper
outstanding. The commercial paper program was raised from
$250 million to $1.5 billion this year. At December 31, 1997,
nothing was outstanding under the revolving bank credit facility,
while $311 million in commercial paper was outstanding.
During 1997, the company's wholly owned subsidiary, Phillips
Petroleum Company Norway, refinanced its $300 million revolving
credit facility, maturing in 2001, to secure more favorable
interest rates. The committed amount and term remained
unchanged. At December 31, 1997, $158 million was outstanding
under this facility.
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 10 -- 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 or other third-
party recoveries. Based on currently available information, the
company believes that it is remote that future costs related to
known contingent liability exposures will exceed current accruals
by an amount that would have a material adverse impact on the
company's financial statements.
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
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<PAGE>
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 clean-up under these laws at federal Superfund and comparable
state sites. In the future, the company may be involved in
additional environmental assessments, clean-ups and proceedings.
Tax -- The company has a number of issues outstanding with the
IRS related to tax years 1987 through 1992 that are expected to
be resolved in the near term as a result of resolving the Kenai
LNG tax case. Although it is too early to determine the final
financial effects, 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.
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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Note 11 -- 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 1997 and 1996, 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. All forward exchange contracts are adjusted monthly
to fair market value with recognition of the resulting gains and
losses. At December 31, 1996, a U.K. subsidiary had purchased
forward 41 million U.S. dollars to hedge purchases of crude oil
in U.S. dollars. This notional amount represents only the
amounts hedged, not the net market exposure of items hedged,
which is significantly less. Any gain or loss from this position
offsets gains or losses on the underlying exposures. There were
no outstanding contracts at December 31, 1997.
Commodity Derivative Contracts -- Phillips uses commodity-based
swaps 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 of
the items hedged, which is significantly less.
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<PAGE>
Notional Volume Positions
-------------------------
December 31
Class of -------------------------
Derivative 1997 1996
---------- -------------------------
Source of Commodity Price Risk
Natural gas (billions of
British thermal units)
Sales of domestic natural
gas production Swaps 16,082 61,140
- -------------------------------------------------------------------
Crude oil (thousands of
barrels)
Timing differences
between purchases and
refining Futures 2,627 1,050
- -------------------------------------------------------------------
Refined products (thousands
of barrels)
Feedstock-to-product
margins on gasoline Swaps 5,119 4,789
and distillates Futures 2,613 641
- -------------------------------------------------------------------
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
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).
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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 and mandatorily redeemable preferred securities: The
carrying amount of the company's floating-rate debt approximates
fair value. The fair value of the fixed-rate debt and
mandatorily redeemable preferred securities 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 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
--------------- -------------
1997 1996 1997 1996
--------------- -------------
Financial assets
Forward exchange contracts $ - 14 - 14
Futures 3 - 3 -
Swaps - - 2 *
Financial liabilities
Total debt, including
current maturities 3,009 3,129 3,201 3,293
Mandatorily redeemable
preferred securities 650 300 675 303
Forward exchange contracts - 19 - 19
Futures - 1 - 1
Swaps - - 1 12
- -----------------------------------------------------------------
*Indicates amount was less than $1 million.
89
<PAGE>
Note 12 -- Preferred Stock
Company-Obligated Mandatorily Redeemable Preferred
Securities of Phillips Capital Trusts
During 1996 and 1997, the company formed two new statutory
business trusts, Phillips 66 Capital I (Trust I) and Phillips 66
Capital II (Trust II), in which the company owns all of the
common stock. The Trusts exist 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 I), purchased by Trust I on May 29, 1996. The
Subordinated Debt Securities I are unsecured obligations of
Phillips, subordinate and junior in right of payment to all
present and future senior indebtedness of Phillips. The
Subordinated Debt Securities I 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.
On January 17, 1997, Trust II completed a $350 million
underwritten public offering of 350,000 shares of 8% Capital
Securities (Capital Securities). The sole asset of Trust II is
$361 million of the company's 8% Junior Subordinated Deferrable
Interest Debentures due 2037 (Subordinated Debt Securities II)
purchased by Trust II on January 17, 1997. The Subordinated Debt
Securities II are unsecured obligations of Phillips, subordinate
and junior in right of payment to all present and future senior
indebtedness of Phillips, but equal in right of payment with
Subordinated Debt Securities I. The Subordinated Debt
Securities II are due January 15, 2037, and are redeemable in
whole, or in part, at the option of Phillips, on or after January
15, 2007, at a redemption price of $1,000 per share, plus accrued
and unpaid interest.
The subordinated debt securities and related income statement
effects are eliminated in the company's consolidated financial
statements. When the company redeems the subordinated debt
securities, Trusts I and II are required to apply all redemption
proceeds to the immediate redemption of the Trusts' Securities.
Phillips fully and unconditionally guarantees the Trusts'
obligations under the Preferred and Capital Securities.
90
<PAGE>
Preferred Stock of Subsidiary
In December 1997, the company's subsidiary, Phillips Gas Company,
redeemed its 13,800,000 shares of Series A 9.32% Cumulative
Preferred Stock at par.
Note 13 -- 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 14 -- 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,
1997, future minimum payments due under non-cancelable operating
leases were:
Millions
of Dollars
----------
1998 $ 88
1999 75
2000 51
2001 38
2002 35
Remaining years 245
- -----------------------------------------------------------------
$532
=================================================================
The amounts above do not include guaranteed residual values of
$263 million, related to two liquefied natural gas tankers under
lease through the year 2000, retail service stations and
corporate aircraft.
91
<PAGE>
Operating lease rental expense for years ended December 31
was:
Millions of Dollars
------------------------
1997 1996 1995
------------------------
Total rentals $119 108 112
Less sublease rentals 2 2 3
- -----------------------------------------------------------------
$117 106 109
=================================================================
Note 15 -- 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
------------------- ------------------
1997 1996 1995 1997 1996 1995
------------------- ------------------
Service cost $ 35 36 26 15 14 14
Interest cost 60 57 48 21 20 18
Return on assets
Actual (117) (36) (86) (52) (32) (36)
Deferred gains (losses) 68 (7) 57 26 6 14
Amortization of
Net asset (7) (7) (7) - - -
Net losses (gains) 14 19 8 (1) (2) (1)
Prior service cost 3 3 3 1 1 1
- -----------------------------------------------------------------
Net pension cost $ 56 65 49 10 7 10
=================================================================
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:
92
<PAGE>
Millions of Dollars
------------------------------
U.S. Plans Foreign Plans
-------------- -------------
1997 1996 1997 1996
-------------- -------------
Plan assets at fair value $ 626 480 373 339
- -----------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested benefits 581 478 256 231
Non-vested benefits 37 31 - -
- -----------------------------------------------------------------
Accumulated benefit obligation 618 509 256 231
Effect of projected future
salary increases 291 268 87 84
- -----------------------------------------------------------------
Projected benefit obligation 909 777 343 315
- -----------------------------------------------------------------
Excess asset (obligation) (283) (297) 30 24
Unrecognized net asset (20) (27) (1) (1)
Unrecognized net (gains) losses 125 138 (13) (14)
Unrecognized prior service cost 45 44 9 10
- -----------------------------------------------------------------
Prepaid (accrued) pension cost
and deferred gain on reversion $(133) (142) 25 19
=================================================================
Assumptions -- Weighted Average
at December 31
Rate of compensation increase 4.25% 4.25 3.70 4.00
Discount rate 7.00 7.50 7.00 7.40
Long-term rate of return on
assets 10.25 10.50 7.80 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.
For 1997, domestic plan assets exceeded the accumulated benefit
obligation reflected above, which includes liabilities of
$57 million for supplemental retirement plans that are not
qualified under the Employee Retirement Income Security Act of
1974 (ERISA). For 1996, domestic plan assets exceeded the
accumulated benefit obligation after eliminating liabilities of
$47 million related to non-qualified plans. These non-qualified
plans are funded by irrevocable grantor trusts, not out of the
plan assets reflected in the above schedule.
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.
93
<PAGE>
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
---------------- ----------------
1997 1996 1995 1997 1996 1995
---------------- ----------------
Service cost $ 2 2 2 1 1 1
Interest cost 5 6 6 4 4 4
Return on assets
Actual - - - (2) (2) (2)
Deferred losses - - - - - -
Amortization of
Net losses - 1 1 1 2 1
Prior service cost (4) (4) (4) - (1) (1)
- -----------------------------------------------------------------
Net postretirement benefit cost $ 3 5 5 4 4 3
=================================================================
In determining net postretirement benefit cost, the company has
elected to amortize net gains and losses on a straight-line basis
over 10 years.
94
<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
------------- -------------
1997 1996 1997 1996
------------- -------------
Plan assets at fair value, held
under a reserve deposit contract $ - - 29 31
- -----------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO)
Retirees 53 62 53 53
Fully eligible active
participants 11 10 5 4
Other active participants 10 10 3 3
- -----------------------------------------------------------------
74 82 61 60
- -----------------------------------------------------------------
APBO in excess of plan assets (74) (82) (32) (29)
Unrecognized net losses 7 2 12 14
Unrecognized prior service cost (23) (13) (3) (3)
- -----------------------------------------------------------------
Accrued postretirement benefit
cost $(90) (93) (23) (18)
=================================================================
Financial Assumptions
Discount rate 6.75% 7.25 6.75 7.25
Long-term rate of return on assets
(non-taxable) - - 6.60 7.00
Rate of compensation increase - - 4.25 4.25
- -----------------------------------------------------------------
At December 31, 1997, the health care cost trend rate is assumed
to decrease gradually from 7 percent in 1998 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 that
freezes the company's contribution at 2004 levels. The same
health care cost trend rate was used at December 31, 1996.
Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the APBO by
$4 million and $3 million at December 31, 1997 and 1996,
respectively, and the aggregate of the service and interest cost
components by $1 million for both 1997 and 1996.
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.
95
<PAGE>
Termination Benefits
The company recorded charges of $5 million, $4 million and
$69 million for severance benefits in connection with work force
reductions in 1997, 1996 and 1995, 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 1997, 1996 and 1995.
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 $27 million, $30 million and $33 million in 1997, 1996
and 1995, respectively. This included compensation expense of
$27 million, $30 million and $29 million in 1997, 1996 and 1995,
respectively. Company contributions to the LTSSP in 1997, 1996
and 1995 were $20 million, $14 million and $21 million,
respectively. Dividends used to service debt were $32 million,
$39 million and $36 million in 1997, 1996 and 1995, respectively.
These dividends reduced the amount of expense recognized each
period. Interest incurred on the LTSSP debt in 1997, 1996 and
1995 was $26 million, $27 million and $31 million, respectively.
96
<PAGE>
The total LTSSP shares as of December 31, 1997, were:
Unallocated shares 12,732,919
Allocated shares 17,446,774
- -----------------------------------------------------------------
Total LTSSP shares 30,179,693
=================================================================
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 $64 million, $75 million and $52 million were charged against
earnings in 1997, 1996 and 1995, 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 different from amounts reported in the financial
97
<PAGE>
statements. A summary of Phillips' stock option activity
follows:
Weighted-Average
Options Exercise Price
---------- ----------------
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 35.26
Exercised (1,384,966) 22.58
Forfeited (27,059) 33.74
- ---------------------------------------------- ----------------
Outstanding at December 31, 1996 6,963,403 $28.76
Granted 1,181,103 44.93
Exercised (1,177,307) 25.01
Forfeited (50,948) 40.25
- ---------------------------------------------- ----------------
Outstanding at December 31, 1997 6,916,251 $32.07
============================================== ----------------
Outstanding at December 31, 1997
Weighted-Average
----------------------------------
Exercise Prices Options Remaining Lives Exercise Price
- ---------------- --------- --------------- --------------
$12.63 to $31.44 4,331,966 4.97 years $27.63
$32.25 to $50.72 2,584,285 8.45 years 39.52
- -----------------------------------------------------------------
Exercisable at December 31
Weighted-Average
Exercise Prices Options Exercise Price
---------------- --------- ----------------
1997 $12.63 to $31.44 3,436,254 $26.74
$32.25 to $50.72 412,916 35.34
- -----------------------------------------------------------------
1996 - 3,626,834 $25.72
- -----------------------------------------------------------------
1995 - 3,915,145 $23.75
- -----------------------------------------------------------------
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
by the CBT in accordance with voting directions from eligible
employees, as specified in a trust agreement with the trustee.
98
<PAGE>
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 16 -- Taxes
Taxes charged to income were:
Millions of Dollars
------------------------
1997 1996 1995
------------------------
Taxes Other Than Income Taxes
Property $ 82 80 83
Production 69 65 54
Payroll 55 56 59
Environmental 37 40 58
Other 20 23 12
- -----------------------------------------------------------------
263 264 266
- -----------------------------------------------------------------
Income Taxes
Federal
Current 145 (6) 95
Deferred 142 189 18
Foreign
Current 547 624 520
Deferred 72 43 (43)
State and local
Current 16 (2) 7
Deferred 19 21 (2)
- -----------------------------------------------------------------
941 869 595
- -----------------------------------------------------------------
Total taxes charged to income $1,204 1,133 861
=================================================================
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:
99
<PAGE>
Millions of Dollars
-------------------
1997 1996
-------------------
Deferred Tax Liabilities
Depreciation, depletion and amortization $2,129 2,001
Other 39 41
- -----------------------------------------------------------------
Total deferred tax liabilities 2,168 2,042
- -----------------------------------------------------------------
Deferred Tax Assets
Contingency accruals 53 47
Benefit plan accruals 214 212
Accrued dismantlement, removal and
environmental costs 264 279
Other financial accruals and deferrals 116 130
Alternative minimum tax and other
credit carryforwards 344 343
Loss carryforwards 383 359
Depreciation, depletion and amortization - 13
Other 19 21
- -----------------------------------------------------------------
Total deferred tax assets 1,393 1,404
Less valuation allowance 232 208
- -----------------------------------------------------------------
Net deferred tax assets 1,161 1,196
- -----------------------------------------------------------------
Net deferred tax liabilities $1,007 846
=================================================================
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 $24 million during 1997, 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, 1997 and 1996, these temporary
differences were $239 million and $248 million, respectively.
Determination of the amount of unrecognized deferred taxes on
these temporary differences is not practicable due to foreign tax
credits and exclusions.
100
<PAGE>
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
-------------------- --------------------
1997 1996 1995 1997 1996 1995
-------------------- --------------------
Income before income taxes
United States $ 909 1,179 332 47.8% 54.3 31.2
Foreign 991 993 732 52.2 45.7 68.8
- ---------------------------------------------------------------------
$1,900 2,172 1,064 100.0% 100.0 100.0
=====================================================================
Federal statutory
income tax $ 665 760 372 35.0% 35.0 35.0
Foreign taxes in excess of
federal statutory rate 320 337 267 16.8 15.5 25.0
Credit for producing fuel
from a non-conventional
source (29) (27) (31) (1.5) (1.2) (2.9)
Kenai LNG tax settlement (31) (194) - (1.6) (9.0) -
Other 16 (7) (13) .8 (.3) (1.2)
- ---------------------------------------------------------------------
$ 941 869 595 49.5% 40.0 55.9
=====================================================================
Excise taxes accrued on the sale of petroleum products were
$1,331 million, $1,257 million and $1,150 million for the years
ended December 31, 1997, 1996 and 1995, 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 relating to the company's sales of 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.
Final resolution of all outstanding issues with the IRS was
achieved for years 1983 through 1986. Refunds, including
interest, of $107 million, primarily relating to the company's
sales of LNG from its Kenai, Alaska, facility, increased net
income in 1997 by $83 million. The company also has a number of
issues outstanding with the IRS related to tax years 1987 through
1992, further discussed in Note 10 -- Contingencies.
101
<PAGE>
Note 17 -- Cash Flow Information
Millions of Dollars
------------------------
1997 1996 1995
------------------------
Non-Cash Investing and Financing
Activities
Issuance of promissory notes to purchase
property, plant and equipment $ - 26 -
Contribution of non-cash net assets to
equity-method affiliates - - 55
Fair market value of property, plant
and equipment exchanged as part of a
broader monetary transaction 49 - -
Common stock issued to establish CBT - - 989
- -----------------------------------------------------------------
Cash Payments
Interest
Debt $212 220 224
Taxes and other 22 31 19
- -----------------------------------------------------------------
$234 251 243
=================================================================
Income taxes $770 765 576
- -----------------------------------------------------------------
Note 18 -- Other Financial Information
Millions of Dollars
Except Per Share Amounts
------------------------
1997 1996 1995
------------------------
Interest
Incurred
Debt $ 212 222 228
Other 32 26 67
- -----------------------------------------------------------------
244 248 295
Capitalized (46) (31) (30)
- -----------------------------------------------------------------
Expensed $ 198 217 265
=================================================================
Maintenance and Repairs -- expensed $ 493 416 413
- -----------------------------------------------------------------
Research and Development
Expenditures -- expensed $ 56 59 51
- -----------------------------------------------------------------
Foreign Currency Transaction
Gains (Losses) -- after-tax $ (17) 41 (3)
- -----------------------------------------------------------------
Cash Dividends paid per
common share $1.34 1.25 1.195
- -----------------------------------------------------------------
102
<PAGE>
Note 19 -- 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.
103
<PAGE>
Analysis of Results by Business Segment
Millions of Dollars
-----------------------------------
E&P GPM RM&T
-----------------------------------
1997
Sales and Other Operating Revenues
Outside customers $3,379** 952 7,347**
Sales within Phillips 567 759 350
- ----------------------------------------------------------------------
Segment sales $3,946 1,711 7,697
======================================================================
Operating Profit $1,316 161 190
Equity in earnings of affiliates 39 1 15
Preferred dividend requirements
of subsidiary and capital
trusts, and other minority
interests 1 - -
Corporate/non-operating items
Interest expense - - -
Kenai LNG tax settlement - - -
Other - - -
Income taxes (747) (61) (68)
- ----------------------------------------------------------------------
Net income (loss) $ 609 101 137
======================================================================
Assets
Identifiable assets $5,894 1,102 2,636
Investments in and advances
to affiliated companies 140 4 110
- ----------------------------------------------------------------------
Total assets $6,034 1,106 2,746
======================================================================
Depreciation, Depletion and
Amortization $ 548 77 119
- ----------------------------------------------------------------------
Capital Expenditures and Investments $1,346 116 235
- ----------------------------------------------------------------------
1996
Sales and Other Operating Revenues
Outside customers $2,574 913 8,857
Sales within Phillips 1,288 804 522
- ----------------------------------------------------------------------
Segment sales $3,862 1,717 9,379
======================================================================
Operating Profit $1,289 232 56
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 (739) (88) (20)
- ----------------------------------------------------------------------
Net income $ 493 144 54
======================================================================
Assets
Identifiable assets $5,376 1,112 2,738
Investments in and advances
to affiliated companies 140 4 111
- ----------------------------------------------------------------------
Total assets $5,516 1,116 2,849
======================================================================
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 $ 876 13 7
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 (541) (3) (4)
- ----------------------------------------------------------------------
Net income (loss) $ 373 10 20
======================================================================
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
- ----------------------------------------------------------------------
Analysis of Results by Business Segment
Millions of Dollars
-----------------------------------
Corporate
Chemicals and Other* Consolidated
-----------------------------------
1997
Sales and Other Operating Revenues
Outside customers $3,528 4 15,210
Sales within Phillips 538 28 -
- ----------------------------------------------------------------------
Segment sales $4,066 32 15,210
======================================================================
Operating Profit $ 371 16 2,054
Equity in earnings of affiliates 71 - 126
Preferred dividend requirements
of subsidiary and capital
trusts, and other minority
interests - 82 83
Corporate/non-operating items
Interest expense - (198) (198)
Kenai LNG tax settlement - 81 81
Other - (246) (246)
Income taxes (145) 80 (941)
- ----------------------------------------------------------------------
Net income (loss) $ 297 (185) 959
======================================================================
Assets
Identifiable assets $2,638 868 13,138
Investments in and advances
to affiliated companies 468 - 722
- ----------------------------------------------------------------------
Total assets $3,106 868 13,860
======================================================================
Depreciation, Depletion and
Amortization $ 95 24 863
- ----------------------------------------------------------------------
Capital Expenditures and Investments $ 275 71 2,043
- ----------------------------------------------------------------------
1996
Sales and Other Operating Revenues
Outside customers $3,382 5 15,731
Sales within Phillips 698 36 -
- ----------------------------------------------------------------------
Segment sales $4,080 41 15,731
======================================================================
Operating Profit $ 312 7 1,896
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 - (34) (34)
Income taxes (109) 87 (869)
- ----------------------------------------------------------------------
Net income $ 245 367 1,303
======================================================================
Assets
Identifiable assets $2,406 1,223 12,855
Investments in and advances
to affiliated companies 438 - 693
- ----------------------------------------------------------------------
Total assets $2,844 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 $ 452 16 1,364
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 - (129) (129)
Income taxes (156) 109 (595)
- ----------------------------------------------------------------------
Net income (loss) $ 367 (301) 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
- ----------------------------------------------------------------------
*Includes certain intersegment eliminations.
**Certain foreign crude oil marketing activities were transferred from
RM&T to E&P in 1997. This had the effect of increasing E&P outside
sales by $652 million in 1997. The effect on E&P's net income was
not material.
104
<PAGE>
Analysis of Results by Geographic Area
Millions of Dollars
-----------------------------------
United United
States Norway Kingdom Africa
-----------------------------------
1997
Sales and Other Operating Revenues
Outside customers $12,633 448 1,268 209
Sales within Phillips 177 743 2 1
- ----------------------------------------------------------------------
Segment sales $12,810 1,191 1,270 210
======================================================================
Operating Profit $ 1,183 673 64 111
- ----------------------------------------------------------------------
Equity in Earnings of Affiliates $ 111 13 3 -
- ----------------------------------------------------------------------
Assets
Identifiable assets $ 8,169 1,714 1,247 231
Investments in and advances to
affiliated companies 517 84 29 -
- ----------------------------------------------------------------------
Total assets $ 8,686 1,798 1,276 231
======================================================================
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 $ 1,013 725 30 114
- ----------------------------------------------------------------------
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 (Loss) $ 708 497 (8) 99
- ----------------------------------------------------------------------
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
======================================================================
Analysis of Results by Geographic Area
Millions of Dollars
-----------------------------------
Other Worldwide
Areas Corporate Consolidated*
-----------------------------------
1997
Sales and Other Operating Revenues
Outside customers $ 652 - 15,210
Sales within Phillips 57 - -
- ----------------------------------------------------------------------
Segment sales $ 709 - 15,210
======================================================================
Operating Profit $ 23 - 2,054
- ----------------------------------------------------------------------
Equity in Earnings of Affiliates $ (1) - 126
- ----------------------------------------------------------------------
Assets
Identifiable assets $ 971 806 13,138
Investments in and advances to
affiliated companies 92 - 722
- ----------------------------------------------------------------------
Total assets $ 1,063 806 13,860
======================================================================
1996
Sales and Other Operating Revenues
Outside customers $ 587 - 15,731
Sales within Phillips 62 - -
- ----------------------------------------------------------------------
Segment sales $ 649 - 15,731
======================================================================
Operating Profit $ 14 - 1,896
- ----------------------------------------------------------------------
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 (Loss) $ 68 - 1,364
- ----------------------------------------------------------------------
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
======================================================================
*After elimination of intergeographic transactions.
Export sales totaled $494 million, $522 million and $507 million for
1997, 1996 and 1995, respectively.
105
<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 U.S.
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 Page
- -----------------------------------------------------------------
Proved Reserves Worldwide 107
Results of Operations 113
Statistics 116
Costs Incurred 120
Capitalized Costs 121
Standardized Measure of Discounted Future Net
Cash Flows Relating to Proved Oil and Gas
Reserve Quantities 122
106
<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 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
Revisions of
previous estimates 54 (1) 42 3 7 3
Improved recovery 79 6 73 - - -
Purchases of
reserves in place 8 - - - - 8
Extensions and
discoveries 66 10 - 30 2 24
Production (85) (23) (39) (7) (9) (7)
Sales of reserves
in place (23) - - - - (23)
- ------------------------------------------------------------------
End of 1997 994 244 529 79 92 50
==================================================================
Developed
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
End of 1997 744 189 409 30 89 27
- ------------------------------------------------------------------
107
<PAGE>
o Proved reserves are those quantities of crude oil, natural
gas and natural gas liquids (NGL) that, upon analysis of
geological and engineering data, appear with reasonable
certainty to be recoverable in the future from known oil and
gas reservoirs under existing economic and operating
conditions. As additional information becomes available or
conditions change, estimates must be revised.
o Developed reserves are those portions of proved reserves that
are recoverable through existing well bores, and production
equipment and facilities.
o Purchases of reserves in place in Other Areas for 1997 result
from the acquisition of proved properties in the Zama/Virgo
area in Canada.
o Extensions and discoveries in Other Areas for 1997 include
11 million barrels in Venezuela in which the company has an
economic interest through risk service contracts. At year-
end 1997, the company's total worldwide crude oil reserves
include 11 million barrels related to such contracts.
o Sales of reserves in place in Other Areas for 1997 include
22 million barrels related to an exchange of a proved
property in Canada.
108
<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 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
Revisions of
previous estimates (194) (57) (103) (37) - 3
Improved recovery 73 1 72 - - -
Purchases of
reserves in place 532 7 - - - 525
Extensions and
discoveries 316 280 - 22 - 14
Production (541) (357) (111) (48) (1) (24)
Sales of reserves
in place (32) (1) - - - (31)
- ------------------------------------------------------------------
End of 1997 6,521 3,790 1,162 661 241 667
==================================================================
Developed
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
End of 1997 4,812 3,371 884 346 27 184
- ------------------------------------------------------------------
109
<PAGE>
o Natural gas production may differ from gas production
(delivered for sale) on page 116, primarily because the
quantities above omit the gas equivalent of the liquids,
where applicable, but include gas consumed at the lease.
o Purchases of reserves in place in Other Areas for 1997 result
from the acquisition of proved properties in the Zama/Virgo
area in Canada.
o Sales of reserves in place in Other Areas for 1997 are for a
Canadian property.
o Natural gas reserves are computed at 14.65 pounds per square
inch absolute and 60 degrees Fahrenheit.
110
<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 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
Revisions of
previous estimates 1 - 1 - - -
Improved recovery 2 - 2 - - -
Purchases of
reserves in place 5 - - - - 5
Extensions and
discoveries 5 5 - - - -
Production (15) (11) (3) (1) - -
Sales of reserves
in place (1) (1) - - - -
- ------------------------------------------------------------------
End of 1997 195 122 42 6 19 6
==================================================================
Developed
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
End of 1997 172 116 31 4 19 2
- ------------------------------------------------------------------
111
<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.
o Purchases of reserves in place in Other Areas for 1997 result
from the acquisition of proved properties in the Zama/Virgo
area in Canada.
112
<PAGE>
o Results of Operations
Millions of Dollars
---------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------------
1997
Sales $1,562 687 279 261 162 173
Transfers 1,339 596 743 - - -
Other revenues 130 58 44 12 1 15
- -----------------------------------------------------------------------------
Total revenues 3,031 1,341 1,066 273 163 188
Production costs 792 428 217 68 39 40
Exploration expenses 245 103 29 30 14 69
Depreciation, depletion
and amortization* 518 251 107 113 11 36
Other related expenses 131 92 20 (2) (13) 34
- -----------------------------------------------------------------------------
1,345 467 693 64 112 9
Provision for income taxes 747 132 499 20 96 -
- -----------------------------------------------------------------------------
Results of operations for
producing activities 598 335 194 44 16 9
Other earnings 11 25 - - - (14)
- -----------------------------------------------------------------------------
E&P net income $ 609 360 194 44 16 (5)
=============================================================================
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 762 404 225 48 50 35
Exploration expenses 259 113 22 36 24 64
Depreciation, depletion
and amortization*** 646 415 104 41 13 73
Other related expenses 114 112 (12) 2 - 12
- -----------------------------------------------------------------------------
1,181 353 741 18 112 (43)
Provision for income taxes 745 97 541 8 100 (1)
- -----------------------------------------------------------------------------
Results of operations for
producing activities 436 256 200 10 12 (42)
Other earnings 57 64 - (2) - (5)
- -----------------------------------------------------------------------------
E&P net income $ 493 320 200 8 12 (47)
=============================================================================
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 753 403 247 32 31 40
Exploration expenses 205 94 26 22 18 45
Depreciation, depletion
and amortization**** 499 270 147 24 11 47
Other related expenses 129 65 46 8 (11) 21
- -----------------------------------------------------------------------------
857 261 512 (15) 101 (2)
Provision for income taxes 521 61 375 (4) 87 2
- -----------------------------------------------------------------------------
Results of operations for
producing activities 336 200 137 (11) 14 (4)
Other earnings 37 39 - - - (2)
- -----------------------------------------------------------------------------
E&P net income $ 373 239 137 (11) 14 (6)
=============================================================================
*Includes before-tax property impairments in the United States and the
United Kingdom of $48 million and $15 million, respectively.
**Restated to reflect that certain costs previously held at Corporate are
now aligned with the operating segments.
***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.
113
<PAGE>
o Results of operations for producing activities consist of all
the activities within the E&P organization, except for a
liquefied natural gas 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 (DD&A) in Results of
Operations differs from that shown for total Exploration and
Production in Analysis of Results by Business Segment on
page 104, mainly due to depreciation of support equipment
being reclassified to production or exploration expenses, as
applicable, in Results of Operations. In addition, other
earnings includes certain E&P activities, including their
related DD&A charges.
o Other related expenses are primarily third-party
transportation expense, foreign currency gains and losses and
other miscellaneous expenses.
114
<PAGE>
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.
115
<PAGE>
o Statistics
Net Production 1997 1996 1995
---------------------------
Thousands of Barrels Daily
---------------------------
Crude Oil
United States 67 69 79
Norway 104 99 100
United Kingdom 18 6 3
Africa 23 25 24
Other areas 20 20 16
- -----------------------------------------------------------------
232 219 222
=================================================================
Natural Gas Liquids
United States* 4 4 5
Norway 7 8 8
Other areas 3 3 2
- -----------------------------------------------------------------
14 15 15
=================================================================
*Represents amounts extracted attributable to E&P operations.
Additional quantities of NGL are extracted at GPM gas processing
plants (see NGL reserves page 112 for further discussion).
Millions of Cubic Feet Daily
Natural Gas ----------------------------
United States (less gas equivalent
of liquids shown above)* 1,024 1,102 1,078
Norway (dry basis) 275 291 299
United Kingdom (dry basis) 122 81 46
Other areas 51 53 58
- -----------------------------------------------------------------
1,472 1,527 1,481
=================================================================
*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 $17.41 18.96 14.98
Norway 19.09 20.92 17.08
United Kingdom 18.77 21.09 17.17
Africa 19.25 21.45 17.60
Other areas 18.50 19.46 16.92
Total foreign 19.02 20.89 17.16
Worldwide 18.57 20.28 16.43
- -----------------------------------------------------------------
Natural Gas Liquids -- Per Barrel
United States $15.14 15.81 11.01
Norway 10.16 9.59 9.73
- -----------------------------------------------------------------
Natural Gas (Lease) -- Per Thousand
Cubic Feet
United States $ 2.33 2.10 1.37
Norway 2.57 2.61 2.66
United Kingdom 3.22 2.92 2.78
Other areas 1.64 1.27 1.12
Total foreign 2.63 2.52 2.50
Worldwide 2.45 2.25 1.77
- -----------------------------------------------------------------
116
<PAGE>
1997 1996 1995
-------------------------
Average Production Costs* --
Per Barrel-of-Oil-Equivalent
United States $4.85 4.30 4.19
Norway 3.79 3.95 4.30
United Kingdom 4.74 6.56 7.62
Africa 4.45 5.06 3.40
Other areas 3.71 3.28 4.19
Total foreign 3.99 4.22 4.36
Worldwide 4.42 4.26 4.26
- -----------------------------------------------------------------
*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.
117
<PAGE>
Acreage at December 31, 1997 Thousands of Acres
------------------
Gross Net
------------------
Developed
United States 1,563 1,150
Norway 45 17
United Kingdom 197 69
Africa 81 16
Other areas 607 268
- -----------------------------------------------------------------
2,493 1,520
=================================================================
Undeveloped
United States 2,950 1,771
Norway 2,061 505
United Kingdom 1,868 612
Africa* 43,995 17,635
Canada 1,276 324
Other areas 21,500 11,505
- -----------------------------------------------------------------
73,650 32,352
=================================================================
*Includes two Somalia concessions where operations have been
suspended by declarations of force majeure totaling 21,865 gross
and 8,135 net acres.
118
<PAGE>
Net Wells Completed* Productive Dry
---------------- ----------------
1997 1996 1995 1997 1996 1995
---------------- ----------------
Exploratory
United States 6 5 4 6 10 8
Norway - - - 1 ** 1
United Kingdom ** ** - ** 2 **
Africa - - ** - 1 1
Other areas - 1 4 1 7 3
- ------------------------------------------------------------------
6 6 8 8 20 13
==================================================================
Development
United States 121 90 87 7 7 6
Norway 4 2 2 - - -
United Kingdom ** 3 3 - - -
Africa ** ** ** - - -
Other areas 5 5 14 ** 1 1
- ------------------------------------------------------------------
130 100 106 7 8 7
==================================================================
*Excludes farmout arrangements.
**Phillips' total proportionate interest was less than one.
Wells at Year-End 1997
Productive**
----------------------------
In Progress* Oil Gas
------------ ------------- ------------
Gross Net Gross Net Gross Net
------------ ------------- ------------
United States 48 24 12,978 2,876 5,577 2,919
Norway 5 2 151 54 33 9
United Kingdom 32 4 17 5 85 19
Africa 3 1 185 37 11 2
Other areas 11 5 792 250 397 206
- ------------------------------------------------------------------
99 36 14,123 3,222 6,103 3,155
==================================================================
*Includes wells that have been temporarily suspended.
**Includes 1,373 gross and 551 net multiple completion wells.
119
<PAGE>
o Costs Incurred
Millions of Dollars
---------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
---------------------------------------------------
1997
Acquisition $ 428 29 - - - 399
Exploration 307 128 29 54 18 78
Development 774 265 292 140 11 66
- ------------------------------------------------------------------
$1,509 422 321 194 29 543
==================================================================
1996
Acquisition $ 139 57 - - - 82
Exploration 272 103 25 49 21 74
Development 695 184 345 125 13 28
- ------------------------------------------------------------------
$1,106 344 370 174 34 184
==================================================================
1995
Acquisition $ 78 45 - 28 1 4
Exploration 223 87 33 27 22 54
Development 668 233 192 204 6 33
- ------------------------------------------------------------------
$ 969 365 225 259 29 91
==================================================================
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
$6 million, $32 million and $27 million in the United States
for 1997, 1996 and 1995, respectively, and $28 million in the
United Kingdom for 1995. In addition, the 1997 amount in
Other Areas includes $317 million for proved properties
acquired in Canada, of which $49 million represents the fair
value of a property in Canada exchanged for interests in
other Canadian properties.
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.
120
<PAGE>
o Capitalized Costs
At December 31 Millions of Dollars
-----------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
-----------------------------------------------
1997
Proved properties $11,346 5,613 2,909 1,661 419 744
Unproved properties 469 230 - 67 4 168
- ------------------------------------------------------------------
11,815 5,843 2,909 1,728 423 912
Accumulated
depreciation,
depletion and
amortization (6,898) (4,230) (1,440) (768) (240) (220)
- ------------------------------------------------------------------
$ 4,917 1,613 1,469 960 183 692
==================================================================
1996
Proved properties $10,730 5,375 2,997 1,545 404 409
Unproved properties 397 202 - 58 3 134
- ------------------------------------------------------------------
11,127 5,577 2,997 1,603 407 543
Accumulated
depreciation,
depletion and
amortization 6,701 4,034 1,538 678 226 225
- ------------------------------------------------------------------
$ 4,426 1,543 1,459 925 181 318
==================================================================
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.
121
<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.
122
<PAGE>
Discounted Future Net Cash Flows
Millions of Dollars
----------------------------------------------------
United United Other
Total States Norway Kingdom Africa Areas
----------------------------------------------------
1997
Future cash inflows $29,967 11,346 11,866 3,245 1,731 1,779
Less:
Future production costs 9,659 4,309 3,439 660 450 801
Future development costs 2,409 908 703 392 80 326
Future income tax
provisions 8,796 1,732 5,565 518 925 56
- ------------------------------------------------------------------------------
Future net cash flows 9,103 4,397 2,159 1,675 276 596
10 percent annual discount 3,789 2,070 844 525 130 220
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 5,314 2,327 1,315 1,150 146 376
==============================================================================
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 15,268 4,896 7,957 611 1,577 227
- ------------------------------------------------------------------------------
Future net cash flows 16,281 10,254 2,784 2,076 401 766
10 percent annual discount 7,392 4,924 1,137 822 190 319
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 8,889 5,330 1,647 1,254 211 447
==============================================================================
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 percent annual discount 4,619 2,693 695 821 164 246
- ------------------------------------------------------------------------------
Discounted future
net cash flows $ 5,960 3,476 1,096 910 180 298
==============================================================================
123
<PAGE>
Sources of Change in Discounted Future Net Cash Flows
Millions of Dollars
---------------------------
1997 1996 1995
---------------------------
Discounted future net cash flows
at the beginning of the year $ 8,889 5,960 3,813
- ------------------------------------------------------------------
Changes during the year
Revenues less production costs
for the year (2,109) (2,113) (1,569)
Net change in prices and
production costs (7,764) 5,866 2,917
Extensions, discoveries and
improved recovery, less
estimated future costs 1,001 1,061 1,215
Development costs for the year 774 695 668
Changes in estimated future
development costs (526) (311) (214)
Purchases of reserves in place,
less estimated future costs 151 54 108
Sales of reserves in place,
less estimated future costs (101) (66) (77)
Revisions of previous quantity
estimates 74 (224) (113)
Accretion of discount 1,541 1,003 668
Net change in income taxes 3,384 (3,038) (1,454)
Other - 2 (2)
- ------------------------------------------------------------------
Total changes (3,575) 2,929 2,147
- ------------------------------------------------------------------
Discounted future net cash flows
at year-end $ 5,314 8,889 5,960
==================================================================
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 prices, 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.
124
<PAGE>
- ---------------------------------------------------------------------
Selected Quarterly Financial Data
Millions of Dollars
----------------------------------------
Income
Before Net Net
Income Income Income
Sales Taxes Per Share Per Share
and Other and Kenai Net of Common of Common
Operating LNG Tax Net Operating Stock -- Stock --
Revenues Settlement Income Income Basic Diluted
---------------------------------------- --------- ---------
1997
First $3,944 493 227 247 .86 .86
Second 3,709 466 307 214 1.17 1.15
Third 3,844 461 216 247 .82 .81
Fourth 3,713 399 209 203 .79 .79
- ---------------------------------------------------------------------
1996
First $3,595 310 695 210 2.65 2.63
Second 3,937 443 221 221 .84 .83
Third 3,852 435 187 208 .71 .70
Fourth 4,347 413 200 252 .76 .75
- ---------------------------------------------------------------------
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.
Special Items by Quarter
----------------------------------------------
Millions of Dollars
----------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
1997 1996 1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ----------
Kenai LNG tax
settlement $ - 565 80 - 3 - - -
Property impairments - (45) (11) - (25) (25) (10) (113)
Net gains on asset
sales - - 7 5 - 9 9 -
Foreign currency
gains (losses) (20) - 6 - (12) 2 9 39
Pending claims and
settlements - (28) 16 (1) 2 (13) (3) 24
Other items - (7) (5) (4) 1 6 1 (2)
- --------------------------------------------------------------------
Total special items $(20) 485 93 - (31) (21) 6 (52)
====================================================================
125
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
126
<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 11, 1998, is incorporated
herein by reference.* Information regarding the executive officers
appears in Part I of this report on pages 26 and 27.
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 11, 1998, 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 11, 1998, 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 11, 1998, 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.
127
<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 68, are filed as part
of this annual report.
2. Exhibits
--------
The exhibits listed in the Index to Exhibits, which
appears on pages 130 through 133, are filed as a part of
this annual report.
(b) Reports on Form 8-K
-------------------
During the three months ended December 31, 1997, the
registrant did not file any reports on Form 8-K.
128
<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)
1997
Deducted from asset accounts:
Allowance for doubtful
accounts and
notes receivable $ 20 7 - 8 (c) 19
Deferred tax asset
valuation allowance 208 27 (3) - 232
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
(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.
129
<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 July 14, 1997 (incorporated by reference to
Exhibit 3(ii) to Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997).
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 (incorporated by
reference to Exhibit 4(a) to Annual Report on
Form 10-K for the year ended December 31, 1996).
(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.
(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) (incorporated by reference to
Exhibit 4(d) to Annual Report on Form 10-K for the
year ended December 31, 1996).
130
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
The company incurred during 1997 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.
(e) 1990 Stock Plan of Phillips Petroleum Company.
131
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
10(f) Annual Incentive Compensation Plan of Phillips
Petroleum Company.
(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 (incorporated by reference to Exhibit
10(i) to Annual Report on Form 10-K for the year
ended December 31, 1996).
(j) Key Employee Deferred Compensation Plan of Phillips
Petroleum Company.
(k) Non-Employee Director Retirement Plan of Phillips
Petroleum Company.
(l) Omnibus Securities Plan of Phillips Petroleum Company.
(m) Deferred Compensation Plan for Non-Employee Directors
of Phillips Petroleum Company.
(n) Key Employee Missed Credited Service Retirement Plan of
Phillips Petroleum Company (incorporated by reference
to Exhibit 10(n) to Annual Report on Form 10-K for
the year ended December 31, 1996).
(o) Phillips Petroleum Company Stock Plan for Non-Employee
Directors.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of Phillips Petroleum Company.
23 Consent of Independent Auditors.
132
<PAGE>
PHILLIPS PETROLEUM COMPANY
INDEX TO EXHIBITS
(Continued)
Exhibit
Number Description
- ------- -----------
27(a) Financial Data Schedule.
(b) Restated Financial Data Schedules (restated to reflect
the adoption of Financial Accounting Standards Board
(FASB) Statement No. 128, "Earnings per Share," for
the 1997 interim periods).
(c) Restated Financial Data Schedules (restated to reflect
the adoption of FASB Statement No. 128, for the years
1995 and 1996, and the interim periods of 1996).
99(a) Form 11-K, Annual Report, of the Thrift Plan of
Phillips Petroleum Company for the fiscal year ended
December 31, 1997 (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, 1997 (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, 1997 (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
133
<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
/s/ W. W. Allen
February 23, 1998 ----------------------------------
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 23, 1998.
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/ Rand C. Berney
- --------------------------- Vice President and Controller
Rand C. Berney (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
134
<PAGE>
Signature Title
--------- -----
/s/ David L. Boren
- --------------------------- Director
David L. Boren
/s/ James B. Edwards
- --------------------------- Director
James B. Edwards
/s/ Larry D. Horner
- --------------------------- Director
Larry D. Horner
/s/ Randall L. Tobias
- --------------------------- Director
Randall L. Tobias
/s/ Victoria J. Tschinkel
- --------------------------- Director
Victoria J. Tschinkel
135
<PAGE>
Exhibit 4(d)
- -----------------------------------------------------------------
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 the 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
Therefor ................................. 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 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
Securityholders .......................... 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
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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.
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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 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 as 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.
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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 include 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.
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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.
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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.
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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.
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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
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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
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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
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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
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(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
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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
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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
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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.
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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. Cancellation 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 are 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 is 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 other, 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. Limitation 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 any 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 (buy 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 as 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
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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 all 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 the 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.
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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 full 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.
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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
<PAGE>
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 (c) 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
<PAGE>
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
<PAGE>
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
Securityholders, 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 herein
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
<PAGE>
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 as 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
<PAGE>
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
<PAGE>
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 of 25% of any
such class of security. Promptly after May 15, in each
calendar year, the Trustee shall make a check 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 as collateral security
under this Indenture, irrespective of any default hereunder, or
(iii) any security which it holds as agent for collection, or as
custodian, escrow agent, or depositary, or in any similar
representative capacity.
Except as provided in the next preceding paragraph hereof,
the word "security" or "securities" as 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 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-
<PAGE>
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 entitles 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;
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 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, 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.
<PAGE>
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 as
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
<PAGE>
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, have 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 all
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 resignation 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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62
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 as
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 Counsel 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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68
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 properly 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 directly 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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69
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 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 as 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;
<PAGE>
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,
<PAGE>
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
<PAGE>
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.
<PAGE>
74
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 the 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 as 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.
<PAGE>
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 DeLaney
- ------------------------------
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)--continued
PHILLIPS PETROLEUM COMPANY
SUPPLEMENTAL INDENTURE NO. 1
Dated as of May 23, 1991
Supplemental Indenture No. 1 dated as of May 23, 1991,
between PHILLIPS PETROLEUM COMPANY, a corporation organized and
existing under the laws of the State of Delaware (hereinafter
referred to as the "Company"), and CONTINENTAL BANK, NATIONAL
ASSOCIATION, a national banking association duly organized and
existing under the laws of the United States of America
(hereinafter referred to as the "Trustee").
W I T N E S S E T H:
The Company and the Trustee have executed and delivered
an Indenture dated as of September 15, 1990 (the "Indenture").
The Company desires to amend the Indenture to provide
for the issuance of Securities of a series on a continuous basis
and with differing terms and to expressly provide that the
Securities of such series may be denominated in currencies other
than the currency of the United States of America or may provide
that the amount of payments of principal of and any premium or
interest thereon may be determined with reference to an index.
Section 9.01 of the Indenture provides for the Company,
when authorized by the Board of Directors, and the Trustee to
enter into an indenture supplemental to the Indenture to amend
such Indenture by creating such provisions as shall not adversely
affect the interests of any Holder.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE
WITNESSETH:
For and in consideration of the premises and the
purchase of the Securities by the holders thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of
all holders of Securities or of such series thereof, as follows:
<PAGE>
ARTICLE ONE
RELATION TO INDENTURE; DEFINITIONS
SECTION 1.01. This Supplemental Indenture No. 1
constitutes an integral part of the Indenture.
SECTION 1.02. For all purposes of this Supplemental
Indenture No. 1:
(1) Capitalized terms used herein without definition
shall have the meanings specified in the Indenture;
(2) All references herein to Articles and Sections,
unless otherwise specified, refer to the corresponding
Articles and Sections of this Supplemental Indenture No. 1;
and
(3) The terms "hereof", "herein", "hereby", "hereto",
"hereunder" and "herewith" refer to this Supplemental
Indenture.
ARTICLE TWO
PROVISIONS APPLICABLE EXCLUSIVELY TO
THE SERIES OF MEDIUM-TERM NOTES
SECTION 2.01. There shall be a series of Securities
designated the "Medium-Term Notes" (the "Notes"). The Notes
shall be limited to an aggregate principal amount of up to U.S.
$300,000,000 (or the equivalent thereof, determined as of the
respective dates of issuance of Notes, in any other currency or
currencies) and shall be issued at any time or from time to time.
SECTION 2.02. Each Note shall have the particular
terms (which need not be substantially identical to the terms of
any other Notes) established in accordance with or as
contemplated by this Section 2.02. Each fixed rate Note ("Fixed
Rate Note") shall be in substantially the form attached as
Exhibit A hereto, and each floating rate Note ("Floating Rate
Note") shall be in substantially the form attached as Exhibit B
hereto.
Any two of the Chairman of the Board, the President,
and the Vice President and Treasurer (each a "Designated
Officer") may at any time and from time to time, on behalf of the
Company, authorize the issuance of Notes and in connection
therewith establish, or, if all of the Notes of such series may
not be
-2-
<PAGE>
originally issued at one time, to the extent deemed appropriate,
prescribe the manner of determining within any limitations
established by such Designated Officer (subject in either case to
the limitations set forth in this Supplemental Indenture and the
Indenture), the following;
(1) the date or dates on which the principal and
premium, if any, of the Notes is payable;
(2) the rate or rates (or method by which determined)
at which the Notes shall bear interest, if any, the date or
dates from which such interest shall accrue, the interest
payment dates on which such interest shall be payable and,
in the case of registered Notes, the record dates for the
determination of holders to whom such interest is payable;
(3) if an Original Issue Discount Security, the Yield
to Maturity;
(4) the price or prices at which, the period or periods
within which and the terms and conditions upon which Notes
may be redeemed, in whole or in part, at the option of the
Company, pursuant to any sinking fund or otherwise;
(5) the obligation, if any, of the Company to redeem,
purchase or repay Notes pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof
and the price or prices at which and the period or periods
within which and the terms and conditions upon which Notes
shall be redeemed, purchased or repaid, in whole or in part,
pursuant to such obligation;
(6) if other than denominations of $100,000 and
integral multiples of $1,000 in excess thereof (or, in the
case of any Note denominated in other than U.S. dollars, the
amount of the Specified Currency (as defined below) for such
Note which is equivalent, at the noon buying rate in The
City of New York for cable transfers for such Specified
Currency on the first Business Day in The City of New York
and the country issuing such Specified Currency (or, in the
case of European Currency Units, in Brussels, Belgium) next
preceding the date on which the Company accepts the offer to
purchase such Note, to U.S. $100,000 (rounded down to an
integral multiple of 1,000 units of such Specified Currency)
and any greater amount that is an integral multiple of 1,000
units of such Specified Currency), the denominations in
which Notes shall be issuable;
-3-
<PAGE>
(7) if the amount of payments of principal of and any
premium or interest on the Notes may be determined with
reference to an index, the manner in which such amounts
shall be determined;
(8) if other than the principal amount thereof, the
portion of the principal amount of Notes which shall be
payable upon declaration of acceleration of the maturity
thereof pursuant to Section 5.01 of the Indenture or
provable in bankruptcy pursuant to Section 5.02 of the
Indenture;
(9) any Events of Default with respect to the Notes, if
not set forth in the Indenture;
(10) whether the Notes shall be issued in registered or
bearer form, with or without coupons;
(11) whether the Notes shall be issued in whole or in
part in the form of one or more Global Notes and, in such
case, the Depositary for such Global Note or Notes, which
Depositary must be a clearing agency registered under the
Debt Securities Exchange Act of 1934;
(12) if other than United States dollars, the currency
or currencies, including composite currencies, in which
payment of the principal of and any premium and interest on
the Notes shall be payable (the "Specified Currency"); and
(13) any other terms of the Notes (which terms shall
not be inconsistent with the provisions of this Supplemental
Indenture or the Indenture).
In connection with the Notes, the officers of the
Company specified in the Indenture may execute and deliver one or
more Officers' Certificates setting forth, or, if all of the
Notes may not be originally issued at one time, to the extent
deemed appropriate describing the manner of determining, the
foregoing terms of the Notes, established or prescribed, as the
case may be, in accordance with the foregoing.
SECTION 2.03. The places of payment for the principal
of the Notes shall be the Borough of Manhattan, the City of New
York or Chicago, Illinois. Interest, if any, on the Notes will
be paid by check, draft or wire, as specified in the terms
thereof. The Trustee shall be the paying agent (the "Paying
Agent") for the Notes.
SECTION 2.04. Unless otherwise provided in the terms
of a particular Note, definitive Notes of any authorized
denomination shall be exchangeable for a like aggregate principal
amount of Notes denominated in the same Specified Currency and
bearing interest (if any) at the same rate or having the same
Yield to
-4-
<PAGE>
Maturity and maturity and of different authorized denominations
upon surrender of such Notes with a request for such exchange at
the designated office of the Trustee in the Borough of Manhattan,
the City of New York or Chicago, Illinois,
SECTION 2.05. Unless otherwise specified in a
particular Note, payments of principal of (and premium, if any)
and interest on each Note will be made in U.S. dollars, provided,
--------
however, that payments of principal(and premium, if any) and
- -------
interest on Notes denominated in a Specified Currency other than
U.S. dollars will be made in such Specified Currency (i) at the
option of the holders thereof under the procedures described in
the two following paragraphs and (ii) at the option of the
Company in the case of imposition of exchange controls or other
circumstances beyond the control of the Company. If specified in
a particular Note, the amount of principal payable on such Note
will be determined by reference to an index or formula described
therein.
Unless otherwise specified in the terms of a Note, and
except as provided in the next paragraph, payments of interest
and principal (and premium, if any) with respect to any Note
denominated in a Specified Currency other than U.S. dollars will
be made in U.S. dollars unless the registered holder of such Note
on the relevant Regular Record Date or at maturity, redemption or
repayment as the case may be, has transmitted a written request
to elect to receive such payment in a Specified Currency other
than U.S. dollars to the Trustee at its Corporate Trust Office or
agency in the Borough of Manhattan, the City of New York or
Chicago, Illinois on or prior to such Regular Record Date or the
date 15 days prior to maturity, redemption or repayment as the
case may be. Such request may be in writing (mailed or hand
delivered) or by cable or telex or, if promptly confirmed in
writing, by other form of facsimile transmission. Any such
request made with respect to any Note by a registered holder will
remain in effect with respect to any further payments of interest
and principal (and premium, if any) with respect to such Note
payable to such holder, unless such request is revoked on or
prior to the relevant Regular Record Date or the date 15 days
prior to maturity, redemption or repayment as the case may be.
Unless otherwise provided in the applicable Officers'
Certificate, Continental Bank, National Association will be the
Exchange Rate Agent (the "Exchange Rate Agent") with respect to
the Notes.
-5-
<PAGE>
Unless otherwise indicated in the terms of a particular
Note, the "Regular Record Date" with respect to any Floating Rate
Note shall be the date 15 calendar days prior to each Interest
Payment Date, whether or not such date shall be a Business Day,
and the "Regular Record Date" with respect to any Fixed Rate Note
shall be the January 1 and July 1 next preceding the January 15
and July 15 Interest Payment Dates.
Unless otherwise indicated in the terms of a particular
Note and except as provided below, interest will be payable, in
the case of Floating Rate Notes which reset daily, weekly or
monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year (as
respectively indicated in such Notes); in the case of Floating
Rate Notes which reset quarterly, on the third Wednesday of
March, June, September and December of each year; in the case of
Floating Rate Notes which reset semi-annually, on the third
Wednesday of the two months of each year specified in such Notes;
and in the case of Floating Rate Notes which reset annually, on
the third Wednesday of the month specified in such Notes (each an
"Interest Payment Date"), and in each case, at maturity.
Payments of interest on any Fixed Rate Note or Floating
Rate Note with respect to any Interest Payment Date will include
interest accrued to but excluding such Interest Payment Date;
provided, however, that if the Interest Reset Dates (as defined
- -------- -------
in a particular Note) with respect to any Floating Rate Note are
daily or weekly, interest payable on such Note on any Interest
Payment Date, other than interest payable on the date on which
principal on such Note is payable, will include interest accrued
to but excluding the day following the next preceding Regular
Record Date.
With respect to a Floating Rate Note, accrued interest
from the date of issue or from the last date to which interest
has been paid shall be calculated by multiplying the face amount
of such Floating Rate Note by an accrued interest factor. Such
accrued interest factor shall be computed by adding the interest
factor calculated for each day from the date of issue, or from
the last date to which interest has been paid, to but excluding
the date for which accrued interest is being calculated. The
interest factor for a Floating Rate Note (expressed as a decimal)
for each such day shall be computed either (i) by dividing the
interest rate (expressed as a decimal) applicable to such date by
360 or (ii) by the actual number of days in the year, as
specified in such Note. Interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
-6-
<PAGE>
SECTION 2.06. For the purposes of the Notes and this
Section 2.06, the term "Agent Member" means a member of, or
participant in, a Depositary; the term "Depositary" means, with
respect to Notes issuable or issued in whole or in part in the
form of one or more Global Notes, the Person designated as
Depositary by the Company pursuant to Section 2.02 hereof (or a
successor Depositary), and if at any time there is more than one
such Person, "Depositary" as used with respect to the Notes shall
mean the respective Depositary with respect to particular Notes;
and the term "Global Note" means a global certificate evidencing
all or part of the series of Notes, issued to the Depositary for
the series or such portion of the series, and registered in the
name of such Depositary or its nominee.
Notwithstanding Section 2.07 of the Indenture, except
as otherwise specified as contemplated by Section 2.02 hereof,
any Global Note shall be exchangeable only as provided in this
paragraph. A Global Note shall be exchangeable pursuant to this
Section if (x) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such Global
Note or if at any time the Depositary ceases to be a clearing
agency registered under the Debt Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and a successor Depositary is
not appointed by the Company, (y) the Company in its sole
discretion determines that all Global Notes then outstanding
hereunder and under the Indenture shall be exchangeable for
definitive Notes in registered form or (z) an Event of Default
with respect to the Notes represented by such Global Note has
occurred and is continuing. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable for
definitive Notes in registered form, bearing interest (if any) at
the same rate or pursuant to the same formula, having the same
date of issuance, redemption provisions, if any, Specified
Currency, maturity and other terms and of differing denominations
aggregating a like amount. Such definitive Notes shall be
registered in the names of the owners of the beneficial interests
in such Global Note as such names are from time to time provided
by the relevant participants in the Depositary holding such
Global Note (as such participants are identified from time to
time by such Depositary).
Any Global Note that is exchangeable pursuant to the
preceding paragraph shall be exchangeable for Notes issuable in
denominations of $100,000 and integral multiples of $1,000 in
excess thereof and registered in such names as the Depositary
that is the holder of such Global Note shall direct.
No Global Note may be transferred except as a whole by
a nominee of the Depositary to the Depositary or another nominee
of the Depositary or by the Depositary or any such nominee to a
successor of the Depositary or a nominee of such successor.
Except as provided above, owners solely of beneficial interests
in
-7-
<PAGE>
a Global Note shall not be entitled to receive physical delivery
of Notes in definitive form and will not be considered the
holders thereof for any purpose under the Indenture or this
Supplemental Indenture.
In the event that a Global Note is surrendered for
redemption in part pursuant to Section 14.02 of the Indenture,
the Company shall execute, and the Trustee shall authenticate and
deliver to the Depositary for such Global Note, without service
charge, a new Global Note in a denomination equal to and in
exchange for the unredeemed portion of the principal of the
Global Note so surrendered.
The Trustee shall fix a record date for the purpose of
determining the Persons entitled to waive any past default
hereunder or the Persons entitled to consent to any indenture
supplemental to the Indenture. If a record date is fixed, the
holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to waive any default
hereunder, or to retract any such waiver previously given, or to
consent to such supplemental indenture or to revoke any such
consent previously given, as the case may be, whether or not such
holders remain holders after such record date. No such waiver or
consent shall be valid or effective for more than 90 days after
such record date.
The Agent Members shall have no rights under the
Indenture or this Supplemental Indenture with respect to any
Global Note held on their behalf by a Depositary, and such
Depositary may be treated by the Company, the Trustee, and any
agent of the Company or the Trustee as the owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any
Agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by
a Depositary or impair, as between a Depositary and its Agent
Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note, including without
limitation the granting of proxies or other authorization of
participants to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action which a holder
is entitled to give or take under the Indenture.
SECTION 2.07. Unless otherwise specified in an
Officers' Certificate delivered pursuant to Section 2.02 with
respect to such Notes, whenever for purposes of this Indenture
any action may be taken by the holders of a specified percentage
in aggregate principal amount of Securities of all series or all
series affected by a particular action at the time outstanding
and, at such time, there are Notes outstanding which are
denominated in a coin or currency other than U.S. Dollars
(including ECUs), then the principal amount of such Notes which
-8-
<PAGE>
shall be deemed to be outstanding for the purpose of taking such
action shall be that amount of U.S. Dollars that could be
obtained for such amount at the Market Exchange Rate. For
purposes of this section, Market Exchange rate shall mean the
noon U.S. Dollar buying rate in New York City for cable transfers
of that currency as published by the Federal Reserve Bank of New
York; provided, however, in the case of ECUs, Market Exchange
Rate shall mean the rate of exchange determined by the Commission
of the European Communities (or any successor thereto) as
published in the Official Journal of the European Communities
(such publication or any successor publication, the "Journal").
If such market Exchange Rate is not available for any reason with
respect to such currency, the Trustee shall use, in its sole
discretion and without liability on its part, such quotation of
the Federal Reserve Bank of New York, or, in the case of ECUs,
the rate of exchange as published in the Journal, as of the most
recent available date, or quotations or, in the case of ECUs,
rates of exchange from one or more major banks in the City of New
York or in the country of issue of the currency in question,
which for purposes of the ECU shall be Brussels, Belgium, or such
other quotations or, in the case of ECU, rates of exchange as the
Trustee shall deem appropriate.
All decisions and determinations of the Trustee
regarding the Market Exchange Rate or any alternative
determination provided for in the preceding paragraph shall be in
its sole discretion and shall, in the absence of manifest error,
be conclusive to the extent permitted by law for all purposes and
irrevocably binding upon the Company and all holders.
SECTION 2.08. References in the Indenture to the
"Yield to Maturity" of Securities shall be deemed, solely with
respect to the Notes, to refer to the respective yields to
maturity, calculated at the respective times of issuance of the
particular Notes or, if applicable, at the respective most recent
redeterminations of interest on such respective Notes and
calculated in accordance with accepted financial practice.
References in Article V of the Indenture to the "rate" or "rate
of interest" of Securities shall be deemed, solely with respect
to the notes, to refer to the respective rates or rates of
interest of the particular Notes.
SECTION 2.09. Notwithstanding the provisions of
Sections 2.04 and 13.05 of the Indenture, if all Notes are not to
be originally issued at one time, it shall not be necessary to
deliver the Officers' Certificate and the Opinion of Counsel
otherwise required pursuant to Section 13.05 or the written order
of the Company otherwise required pursuant to Section 2.04 at or
prior to the time of authentication of each Note if such
documents are delivered at or prior to the time of authentication
upon original issuance of the first Note to be issued.
-9-
<PAGE>
SECTION 2.10. If any Securities described in
subsections (a) or (b) of Section 11.01 or Section 11.05 of the
Indenture are Notes which are denominated and, at the election of
the holders of such Notes or otherwise, are payable, in a
currency or currencies other than United States dollars, then in
order to satisfy the deposit conditions in Section 11.01 or
Section 11.05 with respect to any such Notes, the Company shall
deposit or cause to be deposited as specified in Section 11.01 or
Section 11.05 the required amount in the currency or currencies
in which such Notes are denominated or in direct obligations of
the sovereign nation or sovereign nations issuing such currency
or currencies and denominated in such currency or currencies.
-10-
<PAGE>
IN WITNESS WHEREOF, PHILLIPS PETROLEUM COMPANY has
caused this Supplemental Indenture No. 1 to be signed,
acknowledged and delivered by its Chairman of the Board,
President, Vice President and Treasurer or its Assistant
Treasurer and its corporate seal to be affixed hereunto and the
same to be attested by its Secretary or Assistant Secretary; and
CONTINENTAL BANK, National Association has caused this
Supplemental Indenture No. 1 to be signed, acknowledged and
delivered by one of its Vice Presidents, and its seal to be
affixed hereunto and the same to be attested by one of its Trust
Officers, all as of the day and year first written above.
PHILLIPS PETROLEUM COMPANY
(Corporate Seal)
BY: /s/ J. M. McKee
----------------------------
Title: Assistant Treasurer
Attest: /s/ G. C. Meese
-----------------------
Secretary
CONTINENTAL BANK, NATIONAL
ASSOCIATION, as Trustee
(Corporate Seal)
By: /s/ A. H. Lenters
----------------------
Title: Vice President
Attest: /s/ Debra DeLaney
-----------------------
Trust Officer
-11-
<PAGE>
STATE OF OKLAHOMA )
) SS:
COUNTY OF WASHINGTON )
On the 17th Day of May 1991, before me personally came
--------------------
J. M. McKee, to me known, who, being by me duly sworn, did depose
- -----------
and say that he resides at Bartlesville, Oklahoma, U.S.A.; that
------------------------------
he is an Assistant Treasurer 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/ Jean J. Morrison
---------------------------------
Notary Public
(NOTARIAL SEAL)
My Commission expires August 8, 1994.
--------------
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
On the 20th day of May, 1991, 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, U.S.A.; that
-------------------------
he is a Vice President of Continental, Bank, N.A., 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/ Carol Cohen
--------------------------------
Notary Public
(NOTARIAL SEAL)
My Commission Expires .
--------------
--------------------------------
"OFFICIAL SEAL"
CAROL COHEN
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 10-29-94
---------------------------------
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<PAGE>
EXHIBIT A
CUSIP NO. PRINCIPAL AMOUNT:
REGISTERED NO.
PHILLIPS PETROLEUM COMPANY
MEDIUM-TERM FIXED RATE NOTE
Due From Nine Months to 30 Years From Date of Issue
Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street,
New York, New York) to the issuer or its agent for registration
of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust
Company and any payment is made to Cede & Co., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL since the registered owner hereof, Cede & Co.,
has an interest herein.*
If applicable, the following will be completed solely
for purposes of the U.S. Federal Income Tax "Original Issue
Discount" rules, as that term is defined in Section 1273 of the
Internal Revenue Code of 1986, as amended. This information is
provided solely for the purposes of applying the U.S. Federal
Income Tax Original Issue Discount ("OID") rules to the
certificate and is based on an interpretation of proposed
Treasury regulations. The Issue Date of this certificate is
__________________.
*Applies to Global Notes only
<PAGE>
This certificate has been issued with ___________________________
of OID per $1,000 of initial principal amount. The annual yield
to maturity is _____% based on semi-annual compounding. The
amount of OID attributable to the initial accrual period is
_____________ per $1,000 of initial principal amount, contributed
under the ______________________________ method as defined in
proposed Treasury regulations.
ORIGINAL ISSUE DATE: INTEREST RATE PER ANNUM: % MATURITY DATE:
INTEREST PAYMENT DATES: SPECIFIED CURRENCY:
(if other than
U.S. dollars)
ISSUE PRICE: % REDEEMABLE ON OR AFTER:
(AT OPTION OF THE AUTHORIZED DENOMINATIONS:
COMPANY) (Only applicable if
Specified Currency is
INITIAL DATE ON WHICH THE other than U.S. dollars)
NOTE IS REPAYABLE AT THE
OPTION OF THE HOLDER: EXCHANGE RATE AGENT:
(Only applicable if
Specified Currency
INITIAL REPAYMENT PERCENTAGE: INITIAL REDEMPTION is other than
PERCENTAGE: U.S. dollars)
ANNUAL REPAYMENT PERCENTAGE
REDUCTION: ANNUAL REDEMPTION DEPOSITARY:
PERCENTAGE REDUCTION: (Only applicable if Note
is a Global Note)
SINKING FUND:
OID DEFAULT AMOUNT: DEFAULT RATE:
(Only applicable if Note (Only applicable if Note
issued at original issue issued at original issue
discount) discount)
-2-
<PAGE>
PHILLIPS PETROLEUM COMPANY, a corporation duly
organized and existing under the laws of the State of Delaware
(herein called the "Company"), for value received, hereby
promises to pay to _____________________________________________,
or registered assigns, the principal sum of______________________
__________________ at the office or agency of the Company in the
Borough of Manhattan, The City of New York, or Chicago, Illinois,
on the maturity date shown above, or if such date is not a
Business Day (as defined below), the next succeeding Business Day
(the "Maturity Date"), and to pay interest on said principal sum
at the rate per annum (computed on the basis of a 360-day year of
twelve 30-day months) shown above, semi-annually on each Interest
Payment Date set forth above from and after the date of this Note
and on the Maturity Date or date of redemption or repayment, if
any, until payment of said principal sum has been made or duly
provided. The Company will make such payments in respect of non-
U.S. dollar denominated Notes in U.S. dollars; provided, however,
-------- -------
that payments of principal (and premium, if any) and interest on
Notes denominated in other than U.S. dollars will be made in a
Specified Currency other than U.S. dollars (i) at the election of
the holder as provided herein and (ii) at the election of the
Company in the case of imposition of exchange controls or other
circumstances beyond the control of the Company. Unless this
Note is a Note which has been issued upon transfer of, in
exchange for, or in replacement of a predecessor Note, interest
on this Note shall accrue from the Original Issue Date indicated
above. If this Note has been issued upon transfer of, in
exchange for, or in
-3-
<PAGE>
replacement of a predecessor Note, interest on this Note shall
accrue from the last Interest Payment Date to which interest was
paid on such predecessor Note or, if no interest was paid on such
predecessor Note, from the Original Issue Date indicated above.
The first payment of interest on a Note originally issued and
dated between a Record Date (as defined below) and an Interest
Payment Date will be due and payable on the Interest Payment Date
following the next succeeding Record Date to the registered owner
on such next succeeding Record Date. Subject to certain
exceptions provided in the Indenture referred to on the reverse
hereof, the interest so payable on any Interest Payment Date will
be paid to the person in whose name this Note is registered at
the close of business on the fifteenth calendar day next
preceding such Interest Payment Date (each such date a "Record
Date"), and interest payable at maturity or upon redemption or
repayment (other than a Maturity Date, redemption date or
repayment date which is an Interest Payment Date) will be paid to
the person to whom said principal sum is payable.
Payment of interest on this Note due on any Interest
Payment Date (other than interest on this Note due to the holder
hereof on the Maturity Date or a redemption or repayment date, if
any) to be made in U.S. dollars, will be paid by check mailed to
the person entitled thereto at his last address as it appears on
the registry books of the Company. Notwithstanding the preceding
sentence, a holder of U.S. $10,000,000 or more in aggregate
principal amount of Notes having the same Interest Payment Date
will be entitled to receive payments of interest, other than
-4-
<PAGE>
interest due at maturity or any date of redemption or repayment,
by wire transfer of immediately available funds if appropriate
wire transfer instructions have been received by the Trustee as
set forth herein. Payment of the principal of, premium, if any,
and interest, if any, on this Note due to the holder hereof at
maturity or upon earlier redemption or repayment to be made in
U.S. dollars will be paid, in immediately available funds, upon
presentation of this Note at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City
of New York, or Chicago, Illinois.
Payments of interest to be made in a currency or
currency unit other than U.S. dollars (other than interest on
this Note due to the holder hereof on the Maturity Date or date
of redemption or repayment, if any) will be paid by wire transfer
of immediately available funds to a designated account maintained
in _______________________________ or other jurisdiction
(Country of Specified Currency)
acceptable to the Company and the Trustee as shall have been
designated at least 5 Business Days prior to the Interest Payment
Date by the registered holder of this Note on the relevant Record
Date. Payment in a currency or currency unit, other than U.S.
dollars, of the principal of and premium and interest, if any, on
this Note due to the holder hereof at maturity or upon any
earlier redemption or repayment will be made by wire transfer of
immediately available funds to a designated account maintained in
_______________________________, or other jurisdiction acceptable
(Country of Specified Currency)
to the Company and the Trustee as shall have been
-5-
<PAGE>
designated at least 5 Business Days prior to the Maturity Date by
the registered Holder of this Note at maturity, provided that
this Note is presented for surrender to the paying agent under
the Indenture (the "Paying Agent") in time for the Paying Agent
to make such payment in such funds in accordance with its normal
procedures.
Any such designation for wire transfer purposes shall
be made by filing the appropriate information with the Trustee at
its Corporate Trust Office or agency in the Borough of Manhattan,
The City of New York, or Chicago, Illinois and, unless revoked by
written notice to the Paying Agent, received by the Paying Agent
on or prior to the Record Date immediately preceding the
applicable Interest Payment Date or the fifteenth calendar day
preceding the Maturity Date or applicable date of redemption or
repayment, as the case may be, shall remain in effect with
respect to further payments with respect to this Note payable to
such holder.
The holder of any Note denominated in a Specified
Currency other than U.S. dollars may elect to receive payments in
a Specified Currency other than U.S. dollars by transmitting a
written request for such payment to the principal office of the
Paying Agent on or prior to the Record Date immediately preceding
any Interest Payment Date or at least fifteen calendar days prior
to the Maturity Date or date of redemption or repayment, if
applicable. Such request may be in writing (mailed or hand
delivered) or by cable or telex or, if promptly confirmed in
writing, by other form of facsimile transmission. The holder of
-6-
<PAGE>
any such Note may elect to receive payment in a Specified
Currency other than U.S. dollars for all principal, premium and
interest payments, if any, and need not file a separate election
for each payment. Any such election will remain in effect until
revoked by written notice to the Paying Agent, but written notice
of any such revocation must be received by the Paying Agent on or
prior to the Record Date immediately preceding the applicable
Interest Payment Date or the fifteenth calendar day preceding the
Maturity Date or applicable date of redemption or repayment.
If a payment with respect to this Note cannot be made
by wire transfer because the required designation has not been
received by the Trustee on or before the requisite date or for
any other reason, a notice will be mailed to the holder at its
registered address requesting a designation pursuant to which
such wire transfer can be made and, upon the Trustee's receipt of
such a designation, such payment will be made within 5 Business
Days of such receipt. The Company will pay any administrative
costs imposed by banks in connection with making payments by wire
transfer, but any tax, assessment or governmental charge imposed
upon payments will be borne by the holder or holders of this Note
in respect of which payments are made.
If the principal of (and premium, if any) or interest
on this Note is payable in other than U.S. dollars and such
Specified Currency is not available due to the imposition of
exchange controls or other circumstances beyond the control of
the Company, the Company will be entitled to satisfy its
obligations to the holder of this Note by making payment in U.S.
dollars on the basis
-7-
<PAGE>
of the most recently available exchange rate as specified by the
Exchange Rate Agent as provided herein.
Any payment on this Note due on any day which is not a
Business Day in The City of New York or which is not a Business
Day in the City of Chicago, Illinois (or if this Note is
denominated in other than U.S. dollars, which is not a Business
Day in the country issuing the Specified Currency (or, if this
Note is denominated in European Currency Units ("ECUs"),
Brussels, Belgium)) need not be made on such day, but may be made
on the next succeeding Business Day with the same force and
effect as if made on the due date and no interest shall accrue on
such payment for the period from and after such date.
If this Note is a Global Note as specified on the face
------------------------------------------------------
hereof, the following legend is applicable: "THIS GLOBAL NOTE
- ------------------------------------------
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY OR BY
A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OF ANOTHER NOMINEE
OF THE DEPOSITARY."
"Business Day" shall mean, as used herein with respect
to any particular location, each Monday, Tuesday, Wednesday,
Thursday or Friday which is (a) not a day on which banking
institutions in such location are authorized or obligated by law
or executive order to close and (b) in the event that this Note
is denominated in a Specified Currency other than U.S. dollars,
not a day on which banking institutions in ____________________
(Principal Financial
________________________________________ (or, if this Note is
Center of Country of Specified Currency)
denominated
-8-
<PAGE>
in ECUs, in Brussels, Belgium) are authorized or obligated by law
or executive order to close.
Additional provisions of this Note are contained on the
reverse hereof and such provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for
any purpose until the Certificate of Authentication hereon shall
have been signed by an authorized officer of the Trustee or its
duly authorized agent under the Indenture referred to on the
reverse hereof.
IN WITNESS WHEREOF, PHILLIPS PETROLEUM COMPANY has
caused this instrument to be signed by the facsimile signatures
of its duly authorized officers, and has caused a facsimile of
its corporate seal to be affixed hereto or imprinted hereon.
Dated:
TRUSTEE's CERTIFICATE OF AUTHENTICATION PHILLIPS PETROLEUM COMPANY
This Note is one of a designated series
of Securities described in the
Indenture referred to on the reverse
hereof By:
Title: Chairman of the
Board of Directors
By:
CONTINENTAL BANK, National Association, Title: Vice President and
as Trustee, Treasurer
By: __________________________________
Authorized Officer
Attest:
Secretary
OR
CONTINENTAL BANK, National Association, [SEAL]
as Authenticating Agent for the Trustee
By: ___________________________________
Authorized Officer
-9-
<PAGE>
PHILLIPS PETROLEUM COMPANY
MEDIUM-TERM FIXED RATE NOTE
Due From Nine Months to 30 Years From Date of Issue
This Note is one of a duly authorized issue of
debentures, notes or other evidences of indebtedness of the
Company (hereinafter called the "Securities"), all issued or to
be issued under and pursuant to an indenture dated as of
September 15, 1990, as supplemented by Supplemental Indenture No.
1 dated as of May 10, 1991 (hereinafter called the "Indenture"),
duly executed and delivered by the Company to Continental Bank,
National Association, as Trustee (hereinafter called the
"Trustee"), to which Indenture reference is hereby made for a
description of the rights, duties and immunities thereunder of
the Trustee and the rights thereunder of the holders of the
Securities. As provided in the Indenture, the Securities may be
issued in one or more series, which different series may be
issued in various aggregate principal amounts, may mature at
different times, may bear interest, if any, at different rates,
may be subject to different redemption provisions, if any, may be
subject to different sinking, purchase or analogous funds, if
any, may be subject do different covenants and events of default,
and may otherwise vary as in the Indenture provided or permitted.
This Note is one of a series of the Securities, which series is
limited in aggregate principal amount to $__________ designated
as the Medium-Term Notes Due From 9 Months to 30 Years From Date
of Issue (the "Notes") of the Company. The Notes may mature at
different
-10-
<PAGE>
times, bear interest, if any, at different rates, be redeemable
at the option of the Company at different times or not at all, be
repayable at the option of the holder at different times or not
at all, be issued at an original issue discount and be
denominated in different currencies.
If this Note is denominated in a currency or currency
unit other than U.S. dollars, any U.S. dollar amount to be
received by a holder of this Note will be based on the highest
bid quotation (rounded up to the nearest cent) in The City of New
York received by the Exchange Rate Agent as of 11:00 A.M., New
York City time, on the second Business Day preceding the
applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent) for the
purchase by the quoting dealer of the Specified Currency for U.S.
dollars for settlement on such payment date, in an amount equal
to the aggregate amount of the Specified Currency payable to all
holders of Notes receiving U.S. dollar payments on such payment
date and at which the applicable dealer commits to execute a
contract. If three such bid quotations are not available,
payments will be made in the Specified Currency. All currency
exchange costs associated with any payments in a Specified
Currency other than U.S. dollars will be borne by the holder of
the Note by deductions from such payments.
If the principal, premium (if any) or interest on this
Note is payable in a currency or currency unit other than U.S.
dollars and, due to the imposition of exchange controls or other
circumstances beyond the control of the Company, the Specified
-11-
<PAGE>
Currency is not available at the time of any scheduled payment of
principal or interest to be made in the Specified Currency, then
the Company shall be entitled to satisfy its obligations
hereunder by making such payment in U.S. dollars. Any such
payment shall be made on the basis of the noon buying rate in The
City of New York for cable transfers of the Specified Currency as
certified for customs purposes by the Federal Reserve Bank of New
York (the "Market Exchange Rate") on the second day prior to such
payment, or if such Market Exchange Rate is not then available,
on the basis of the most recently available Market Exchange Rate.
Any payment under such circumstances in U.S. dollars where
required payment is in a Specified Currency will not constitute a
default under the Indenture.
In case an Event of Default, as defined in the
Indenture, with respect to the Notes shall have occurred and be
continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not
less than 66 2/3% in aggregate principal amount of the
outstanding Securities of all series issued under the Indenture
which are affected thereby (voting as one class), at the time
outstanding, evidenced as in the Indenture provided, to execute
supplemental indentures adding any provisions to or changing in
any manner or eliminating any of the provisions of the Indenture
or any indenture supplemental thereto or modifying in any manner
the
-12-
<PAGE>
rights of the holders of the Notes; provided, however, that no
-------- -------
such supplemental indenture shall (i) extend the fixed maturity
of any Security, or reduce the principal amount thereof or any
premium thereon, or reduce the rate or extend the time of payment
of interest thereon, or reduce any amount payable upon the
redemption thereof without the consent of the holder of each such
Security so affected, (ii) reduce the aforesaid percentage of
Securities, the consent of the holders of which is required for
any such supplemental indenture, without the consent of the
holders of all Securities affected then outstanding or (iii)
modify, without the written consent of the Trustee, the rights,
duties or immunities of the Trustee. The Indenture also contains
provisions permitting the holders of a majority in aggregate
principal amount of the Securities of any series (or of all
Securities, as the case may be) then outstanding, prior to any
declaration accelerating the maturity of such Securities, to
waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences, except in each case a failure to pay principal or
premium, if any, or interest on such Securities or except in the
event of a default in respect of covenants or provisions in the
Indenture or herein which cannot be modified or amended without
the consent of the holder of each Security affected. Any such
consent or waiver by the holder of this Note (unless revoked as
provided in the Indenture) shall be conclusive and binding upon
such holder and upon all future holders and owners of this Note
and any Notes which may be issued upon the registration of
-13-
<PAGE>
transfer hereof or in exchange or substitution therefor,
irrespective of whether or not any notation thereof is made upon
this Note or other such Notes.
If so provided on the face of this Note, this Note may
be redeemed by the Company on and after the date so indicated on
the face hereof. On and after the date, if any, from which this
Note may be redeemed, this Note may be redeemed in whole or in
part, at the option of the Company at a redemption price equal to
the product of the principal amount of this Note to be redeemed
multiplied by the Redemption Percentage. The Redemption
Percentage shall initially equal the Initial Redemption
Percentage specified on the face of this Note, and shall decline
at each anniversary of the initial date that this Note is
redeemable by the amount of the Annual Redemption Percentage
Reduction specified on the face of this Note, until the
Redemption Percentage is equal to 100%.
If so provided on the face of this Note, this Note is
subject to redemption in part, through the operation of the
sinking fund provided for in the Indenture, on and after the date
so indicated on the face hereof and at the price equal to the
sinking fund redemption price noted on the face hereof, together
with accrued interest to the date fixed for redemption. At its
option, the Company may pay into the sinking fund for the
retirement of the Notes, in cash except as provided in the
Indenture, on the dates specified on the face hereof, an amount
sufficient to redeem an additional principal amount of the Notes
up to an amount specified on the face hereof at the sinking fund
-14-
<PAGE>
redemption price. To the extent that the right to such optional
sinking fund payment is not exercised in any year, it shall not
be cumulative or carried forward to any subsequent year.
If so provided on the face of this Note, this Note will
be repayable in whole or in part in increments of $1,000 or, in
the case of non-U.S. dollar denominated Notes, of an amount equal
to the integral multiples referred to on the face hereof under
"Authorized Denominations" (or, if no such reference is made, an
amount equal to the minimum Authorized Denomination) provided
that the remaining principal amount of any Note surrendered for
partial repayment shall be at least $100,000 or, in the case of
non-U.S. dollar denominated Notes, the minimum Authorized
Denomination referred to on the face hereof, on any Business Day
on or after the "Initial Date on which the Note is Repayable at
the Option of the Holder" (as stated on the face hereof), at the
option of the holder, at the repayment amount specified on the
face hereof, plus accrued interest, if any, to the repayment
date. In order for the exercise of the option to be effective
and the Notes to be repaid, the Company must receive at the
applicable address of the Paying Agent set forth below or at such
other place or places of which the Company shall from time to
time notify the holder of the within note, on or before the
fifteenth, but not earlier than the twenty-fifth calendar day,
or, if such day is not a Business Day, the next succeeding
Business Day, prior to the repayment date, either (i) this Note,
with the form below entitled "Option to Elect Repayment" duly
completed, or (ii) a telegram, telex, facsimile transmission, or
letter from a member of a
-15-
<PAGE>
national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or a trust company
in the United States of America setting forth (a) the name,
address, and telephone number of the holder of this Note, (b) the
principal amount of this Note and the amount of this Note to be
repaid, (c) a statement that the option to elect repayment is
being exercised thereby, and (d) a guarantee stating that the
Company will receive this Note, with the form below entitled
"Option to Elect Repayment" duly completed, not later than five
Business Days after the date of such telegram, telex, facsimile
transmission, or letter (and this Note and form duly completed
are received by the Company by such fifth Business Day). Any
such election shall be irrevocable. The address to which such
deliveries are to be made are as follows: (i) to Continental
Bank, National Association, Attention: Corporate Trust Division,
231 LaSalle Street, Chicago, Illinois 60697, if delivery is made
by regular or registered mail, (ii) to Continental Bank, National
Association, Corporate Trust Operations, 19th Floor, 231 South
LaSalle Street, Chicago, Illinois 60697, if delivery is made by
hand, armored car or courier service or (iii) to Continental
Bank, National Association, Attention: Corporate Trust Division,
231 South LaSalle Street, Chicago, Illinois 60697, if delivery is
by telegram or facsimile transmission (or, at such other places
as the Company shall notify the holders of the Notes). All
questions as to the validity, eligibility (including time of
receipt) and acceptance of any Note for repayment will be
determined by the Company, whose determination will be final,
binding and non-
-16-
<PAGE>
appealable. No transfer or exchange of any Note (or, in the
event that any Note is to be repaid in part, the portion of the
Note to be repaid) will be permitted after exercise of a
repayment option.
If this Note is issued with an original issue discount,
(i) if an Event of Default with respect to the Notes shall have
occurred and be continuing, the amount of principal of this Note
which may be declared due and payable in the manner, with the
effect and subject to the conditions provided in the Indenture,
shall be determined in the manner set forth under "OID Default
Amount" on the face hereof, and (ii) in the case of a default of
payment in principal upon acceleration, redemption, repayment at
the option of the holder or at the stated maturity hereof, in
lieu of any interest otherwise payable, the overdue principal of
this Note shall bear interest at a rate of interest per annum
equal to the Default Rate stated on the face hereof (to the
extent that the payment of such interest shall be legally
enforceable), which shall accrue from the date of such
acceleration, redemption, repayment at the option of the holder
or stated maturity, as the case may be, to the date payment has
been made or duly provided for or such default has been waived in
accordance with the terms of the Indenture.
The Notes are issuable in global or definitive form
without coupons in denominations of $100,000 and integral
multiples of $1,000 in excess thereof or, if the Specified
Currency is other than U.S. dollars, in the denominations
indicated on the face hereof. Upon due presentment for
-17-
<PAGE>
registration of transfer of this Note at the office or agency of
the Company in the Borough of Manhattan, The City of New York, or
Chicago, Illinois, a new Note or Notes in authorized
denominations in the Specified Currency for an equal aggregate
principal amount and like interest rate and maturity will be
issued to the transferee in exchange therefor, subject to the
limitations provided in the Indenture and to the limitations
described below if applicable, without charge except for any tax
or other governmental charge imposed in connection therewith.
If this Note is a Global Note (as specified on the face
hereof), this Note is exchangeable only if (x) the Depositary
notifies the Company that it is unwilling or unable to continue
as Depositary for this Global Note or if at any time the
Depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, and a successor
Depositary is not appointed by the Company, (y) the Company in
its sole discretion determines that this Note shall be
exchangeable for definitive Notes in registered form or (z) an
Event of Default with respect to the Notes represented hereby has
occurred and is continuing. If this Note is exchangeable
pursuant to the preceding sentence, it shall be exchangeable for
definitive Notes in registered form, bearing interest (if any) at
the same rate or pursuant to the same formula, having the same
date of issuance, redemption provisions, if any, Specified
Currency, Maturity Date and other terms and of differing
denominations aggregating a like amount.
-18-
<PAGE>
No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note at the places,
at the respective times, at the rate and in the currency herein
prescribed.
The Company, the Trustee and any paying agent may deem
and treat the registered holder hereof as the absolute owner of
this Note at such holder's address as it appears on the registry
books of the Company as kept by the Trustee or duly authorized
agent of the Company (whether or not this Note shall be overdue),
for the purpose of receiving payment of or on account hereof and
for all other purposes, and neither the Company nor the Trustee
nor any paying agent shall be affected by any notice to the
contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid,
effectually satisfy and discharge liability for moneys payable on
this Note.
No recourse under or upon any obligation, covenant or
agreement contained in the Indenture or in any indenture
supplemental thereto of any Note, or because of any indebtedness
evidenced thereby, shall be had against any incorporator, or
against any past, present or future stockholder, officer or
director, as such, of the Company or of any successor
corporation, either directly or through the Company or any
successor corporation, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment
or by any legal
-19-
<PAGE>
or equitable proceeding or otherwise, all such personal liability
of every such incorporator, stockholder, officer and director, as
such, being expressly waived and released by the acceptance
hereof and as a condition of and as part of the consideration for
the issuance of this Note.
Terms used herein which are defined in the Indenture
shall have the respective meanings assigned thereto in the
Indenture.
This Note shall be governed by and construed in
accordance with the laws of the State of New York.
-------------------------
OPTION TO ELECT REPAYMENT
TO BE COMPLETED ONLY IF THIS NOTE IS REPAYABLE
AT THE OPTION OF THE HOLDER AND THE HOLDER
ELECTS TO EXERCISE SUCH RIGHTS
The undersigned hereby irrevocably requests and
instructs the Company to repay the within Note (or portion
thereof specified below) pursuant to its terms at a price equal
to the principal amount thereof, together with interest to the
repayment date, to the undersigned, at __________________________
_________________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Company must receive at
the applicable address of the Paying Agent set forth above or at
such other place or places of which the Company shall from time
to time notify the holder of the within Note, on or before the
-20-
<PAGE>
fifteenth, but not earlier than the twenty-fifth, calendar day,
or, if such day is not a Business Day, the next succeeding
Business Day, prior to the repayment date, (i) this Note, with
this "Option to Elect Repayment" form duly completed, or (ii) a
telegram, telex, facsimile transmission, or letter from a member
of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or a trust company
in the United States of America setting forth (a) the name,
address, and telephone number of the holder of the Note, (b) the
principal amount of the Note and the amount of the Note to be
repaid, (c) a statement that the option to elect repayment is
being exercised thereby, and (d) a guarantee stating that the
Note to be repaid with the form entitled "Option to Elect
Repayment" on the reverse of the Note duly completed will be
received by the Company not later than five Business Days after
the date of such telegram, telex, facsimile transmission, or
letter (and such Note and form duly completed are received by the
Company by such fifth Business Day).
If less than the entire principal amount of the within
Note is to be repaid, specify the portion thereof (which shall be
an integral multiple of $1,000 or, if the Note is denominated in
a currency other than U.S. dollars, of an amount equal to the
integral multiples referred to on the face hereof under
"Authorized Denominations" (or, if no such reference is made, an
amount equal to the minimum Authorized Denomination)) which the
holder elects to have repaid: _____________________________; and
specify the denomination or denominations (which shall be
$100,000
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<PAGE>
or an integral multiple of $1,000 in excess thereof or, if the
Note is denominated in a currency other than U.S. dollars, an
Authorized Denomination) of the Note or Notes to be issued to the
holder for the portion of the within Note not being repaid (in
the absence of any specification, one such Note will be issued
for the portion not being repaid): _________________
Date: _______________ ___________________________________
Notice: The signature to this
Option to Elect Repayment must
correspond with the name as written
upon the face of the Note in every
particular without alteration or
enlargement or any other change
whatsoever.
------------------
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<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--........ Custodian......
TEN ENT--as tenants by the (Cust) (Minor)
entireties
JT TEN --as joint tenants with Under Uniform Gifts to Minors Act
right of survivorship
and not as tenants in
common ...........................................
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please Insert Social Security or
Other Identifying Number of Assignee
____________________________________
/________________________________/________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
____________________________________________________________________________
____________________________________________________________________________
the within Note of PHILLIPS PETROLEUM COMPANY and does hereby irrevocably
constitute and appoint ______________________________________________
attorney to transfer the said Note on the books of the Company, with full
power of substitution in the premises.
Dated:_______________ __________________________________________
__________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.
-23-
<PAGE>
EXHIBIT B
CUSIP NO. PRINCIPAL AMOUNT:
REGISTERED NO.
PHILLIPS PETROLEUM COMPANY
MEDIUM-TERM FLOATING RATE NOTE
Due From Nine Months to 30 Years From Date of Issue
Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street,
New York, New York) to the issuer or its agent for registration
of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust
Company and any payment is made to Cede & Co., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL since the registered owner hereof, Cede & Co.,
has an interest herein.*
If applicable, the following will be completed solely
for purposes of the U.S. Federal Income Tax "Original Issue
Discount" rules, as that term is defined in Section 1273 of the
Internal Revenue Code of 1986, as amended. This information is
provided solely for the purposes of applying the U.S. Federal
Income Tax Original Issue Discount ("OID") rules to the
certificate and is based on an interpretation of proposed
Treasury regulations. The Issue Date of this certificate is
________________. This certificate has been issued with
_______________________________
*Applies to Global Notes only
<PAGE>
of OID per $1,000 of initial principal amount. The annual yield
to maturity is _____% based on semi-annual compounding. The
amount of OID attributable to the initial accrual period is
______________ per $1,000 of initial principal amount,
contributed under the ___________________________ method as
defined in proposed Treasury regulations.
ORIGINAL ISSUE DATE: INITIAL INTEREST RATE: MATURITY DATE:
INTEREST RATE BASIS: MAXIMUM INTEREST RATE: INDEX MATURITY:
INTEREST PAYMENT PERIOD: MINIMUM INTEREST RATE: SPREAD: +
-
INTEREST PAYMENT DATES: INTEREST RESET DATE: SPREAD MULTIPLIER:
INTEREST CALCULATION DATES: INTEREST RATE RESET PERIOD: CALCULATION AGENT:
INTEREST DETERMINATION AUTHORIZED DENOMINATIONS: SPECIFIED CURRENCY
DATES: (Only applicable if (if other than
Specified Currency is U.S. Dollars)
other than U.S. dollars)
INITIAL DATE ON WHICH THE REDEEMABLE ON OR AFTER: EXCHANGE RATE AGENT:
NOTE IS REPAYABLE AT THE (AT OPTION OF COMPANY) (Only applicable if
OPTION OT THE HOLDER: Specified Currency
is other than U.S.
dollars)
INITIAL REPAYMENT INITIAL REDEMPTION DEPOSITARY:
PERCENTAGE: PERCENTAGE: (Only applicable if
this Note is a
ANNUAL REPAYMENT ANNUAL REDEMPTION Global Note)
PERCENTAGE REDUCTION: PERCENTAGE REDUCTION:
SINKING FUND:
OID DEFAULT AMOUNT: DEFAULT RATE:
(Only applicable if Note (Only applicable if Note is
is issued at original issued at original issue
issue discount) discount)
-2-
<PAGE>
PHILLIPS PETROLEUM COMPANY, a corporation duly
organized and existing under the laws of the State of Delaware
(herein called the "Company"), for value received, hereby
promises to pay to __________________________, or registered
assigns, the principal sum of __________________________________
at the office or agency of the Company in the Borough of
Manhattan, The City of New York, or Chicago, Illinois, on the
maturity date shown above (except to the extent redeemed or
repaid prior to such date), or if such date is not a Business
Day, the next succeeding Business Day (the "Maturity Date"), and
to pay interest thereon at a rate per annum equal to the Initial
Interest Rate specified above until the first Interest Reset Date
specified above and thereafter at a rate per annum determined in
accordance with the provisions specified on the reverse hereof
until the principal hereof is paid or duly made available for
payment. The Company will pay interest in arrears monthly,
quarterly, semi-annually or annually as specified above under
"Interest Payment Period", on each Interest Payment Date
specified above, commencing with the first Interest Payment Date
following the Original Issue Date specified above, and on the
Maturity Date or date of redemption or repayment, if any, on said
principal sum at said offices or agencies; provided, however,
-------- -------
that if any Interest Payment Date specified above (or any date of
redemption or repayment) would otherwise fall on a day that is
not a Business Day (as defined herein), such Interest Payment
Date (or redemption or repayment date) will be the following day
that is a Business Day, except that in the event that the
Interest Rate Basis for
-3-
<PAGE>
this Note is LIBOR, if such day falls in the next calendar month,
such Interest Payment Date (or redemption or repayment date) will
be the next preceding day that is a Business Day; provided,
--------
further, that if the Original Issue Date occurs between a Record
- -------
Date (as defined herein) and the next succeeding Interest Payment
Date, interest payments will commence on the second Interest
Payment Date succeeding the Original Issue Date to which the
registered holder of this Note on the Record Date with respect to
such second Interest Payment Date. The Company will make
payments of principal (and premiums, if any) and interest in
respect of non-U.S. dollar denominated Notes in U. S. dollars;
provided, however, that payments of principal (and premium, if
- -------- -------
any) and interest on Notes denominated in other than U.S. dollars
will be made in a Specified Currency other than U.S. dollars (i)
at the election of the holder as provided herein and (ii) at the
election of the Company in the case of imposition of exchange
controls or other circumstances beyond the control of the
Company.
Interest on this Note will accrue from the most recent
date to which interest has been paid or duly provided for, or, if
no interest has been paid or duly provided for, from the Original
Issue Date, until the principal hereof has been paid or duly made
available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will,
subject to certain exceptions described herein, be paid to the
person in whose name this Note (or one or more predecessor Notes)
is registered at the close of business on the date fifteen
calendar days prior to such Interest Payment Date (whether or not
-4-
<PAGE>
a Business Day) (each such date a "Record Date"); provided,
---------
however, that interest payable on the Maturity Date (or any
- --------
redemption or repayment date) will be payable to the person to
whom the principal hereof shall be payable. "Business Day" shall
mean, as used herein with respect to any particular location,
each Monday, Tuesday, Wednesday, Thursday or Friday which is (a)
not a day on which banking institutions in such location are
authorized or obligated by law or executive order to close, (b)
in the event that the Interest Rate Basis for this Note is LIBOR,
a London Business Day and (c) in the event that this Note is
denominated in a Specified Currency other than U.S. dollars, not
a day on which banking institutions in
____________________________________________________________ (or,
(Principal Financial Center of Country of Specified Currency)
if this Note is denominated in European Currency Units ("ECUs"),
in Brussels, Belgium) are authorized or obligated by law or
executive order to close. "London Business Day" shall mean any
day on which dealings in deposits in U.S. dollars are transacted
in the London interbank market.
Payment of interest on this Note due on any Interest
Payment Date (other than interest on this Note due to the holder
hereof on the Maturity Date or a redemption or repayment date, if
any) to be made in U.S. dollars, will be made by check mailed to
the person entitled thereto at the holder's last address as it
appears on the registry books of the Company. Notwithstanding
the preceding sentence, a holder of U.S. $10,000,000 or more in
aggregate principal amount of Notes having the same Interest
-5-
<PAGE>
Payment Date will be entitled to receive payments of interest,
other than interest due at maturity or any date of redemption or
repayment, by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received by the
Trustee as set forth herein. Payment of the principal of,
premium, if any, and interest, if any, on this Note due to the
holder hereof at maturity or upon earlier redemption or repayment
to be made in U.S. dollars, will be made, in immediately
available funds, upon presentation of this Note at the office or
agency of the Company maintained for that purpose in the Borough
of Manhattan, The City of New York, or Chicago, Illinois.
Payments of interest to be made in a currency or
currency unit other than U.S. dollars (other than interest on
this Note due to the holder hereof on the Maturity Date or date
of redemption or repayment, if any) will be paid by wire transfer
of immediately available funds to a designated account maintained
in _______________________________, or other jurisdiction
(Country of Specified Currency)
acceptable to the Company and the Trustee as shall have been
designated at least 5 Business Days prior to the Interest Payment
Date by the registered holder of this Note on the relevant Record
Date. Payment in a currency, or currency unit, other than U.S.
dollars, of the principal and premium and interest, if any, on
this Note due to the holder hereof at maturity or upon any
earlier redemption or repayment will be made by wire transfer of
immediately available funds to a designated account maintained in
_______________________________, or other jurisdiction acceptable
(Country of Specified Currency)
-6-
<PAGE>
to the Company and the Trustee as shall have been designated at
least 5 Business Days prior to the Maturity Date by the
registered holder of this Note at maturity, provided that this
Note is presented for surrender to the paying agent under the
Indenture (the "Paying Agent") in time for the Paying Agent to
make such payment in such funds in accordance with its normal
procedures.
Any such designation for wire transfer purposes shall
be made by filing the appropriate information with the Trustee at
its Corporate Trust Office or agency in the Borough of Manhattan,
The City of New York, or Chicago, Illinois and, unless revoked by
written notice to the Paying Agent received by the Paying Agent
on or prior to the Record Date immediately preceding the
applicable Interest Payment Date or the fifteenth calendar day
preceding the Maturity Date or applicable date of redemption or
repayment, as the case may be, shall remain in effect with
respect to any further payments with respect to this Note payable
to such holder.
The holder of any Note denominated in a Specified
Currency other than U.S. dollars may elect to receive payments in
a Specified Currency other than U.S. dollars by transmitting a
written request for such payment to the principal offices of the
Paying Agent on or prior to the Record Date immediately preceding
any Interest Payment Date or at least fifteen calendar days prior
to the Maturity Date or date of redemption or repayment, if
applicable. Such request may be in writing (mailed or hand
delivered) or by cable or telex or, if promptly confirmed in
writing, by other form of facsimile transmission. The holder of
-7-
<PAGE>
any such Note may elect to receive payment in a Specified
Currency other than U.S. dollars for all principal, premium and
interest payments and need not file a separate election for each
payment. Any such election will remain in effect until revoked
by written notice to the Paying Agent, but written notice of any
such revocation must be received by the Paying Agent on or prior
to the Record Date immediately preceding the applicable Interest
Payment Date or the fifteenth calendar day preceding the Maturity
Date or applicable date of redemption or repayment.
If a payment with respect to this Note cannot be made
by wire transfer because the required designation has not been
received by the Trustee on or before the requisite date or for
any other reason, a notice will be mailed to the holder at its
registered address requesting a designation pursuant to which
such wire transfer can be made and, upon the Trustee's receipt of
such a designation, such payment will be made within 5 Business
Days of such receipt. The Company will pay any administrative
costs imposed by banks in connection with making payments by wire
transfer, but any tax, assessment or governmental charge imposed
upon payments will be borne by the holder or holders of this Note
in respect of which payments are made.
If the principal of (and premium, if any) or interest
on this Note is payable in other than U.S. dollars and such
Specified Currency is not available due to the imposition of
exchange controls or other circumstances beyond the control of
the Company, the Company will be entitled to satisfy its
obligations to the holder of this Note by making payment in U.S.
dollars on the basis
-8-
<PAGE>
of the most recently available exchange rate as specified by the
Exchange Rate Agent as provided herein.
If this Note is a Global Note as specified on the face
------------------------------------------------------
hereof, the following legend is applicable: "THIS GLOBAL NOTE
- ------------------------------------------
MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY OR BY
A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE
OF THE DEPOSITARY."
Additional provisions of this Note are contained on the
reverse hereof and such provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for
any purpose until the Certificate of Authentication hereon shall
have been signed by an authorized officer of the Trustee or its
duly authorized agent under the Indenture referred to on the
reverse hereof.
-9-
<PAGE>
IN WITNESS WHEREOF, PHILLIPS PETROLEUM COMPANY has
caused this instrument to be signed by the facsimile signatures
of its duly authorized officers, and has caused a facsimile of
its corporate seal to be affixed hereto or imprinted hereon.
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION PHILLIPS PETROLEUM COMPANY
This Note is one of a designated series
of Securities described in the
Indenture referred to on the reverse
hereof By:
Title: Chairman of the
Board of Directors
By:
CONTINENTAL BANK, National Association, Title: Vice President and Treasurer
as Trustee,
By:______________________________
Authorized Officer
Attest:
Secretary
OR
CONTINENTAL BANK, National Association, [SEAL]
as Authenticating Agent for the Trustee
By: _____________________________
Authorized Officer
-10-
<PAGE>
PHILLIPS PETROLEUM COMPANY
MEDIUM-TERM FLOATING RATE NOTE
Due From 9 Months to 30 Years From Date of Issue
This Note is one of a duly authorized issue of
debentures, notes or other evidences of indebtedness of the
Company (hereinafter called the "Securities"), all issued or to
be issued under and pursuant to an indenture dated as of
September 15, 1990 as supplemented by Supplemental Indenture No.
1 dated as of May 23, 1991 (hereinafter called the "Indenture"),
duly executed and delivered by the Company to Continental Bank,
National Association, as Trustee (hereinafter called the
"Trustee"), to which Indenture reference is hereby made for a
description of the rights, duties and immunities thereunder of
the Trustee and the rights thereunder of the holders of the
Securities. As provided in the Indenture, the Securities may be
issued in one or more series, which different series may be
issued in various aggregate principal amounts, may mature at
different times, may bear interest, if any, at different rates,
may be subject to different redemption provisions, if any, may be
subject to different sinking, purchase or analogous funds, if
any, may be subject to different covenants and events of default,
and may otherwise vary as in the Indenture provided or permitted.
This Note is one of a series of the Securities, which series is
limited in aggregate principal amount to $________, designated as
the Medium-Term Notes Due From 9 Months to 30 Years From Date of
Issue (the "Notes") of the Company. The Notes may mature at
different
-11-
<PAGE>
times, bear interest, if any, at different rates, be redeemable
at the option of the Company at different times or not at all, be
repayable at the option of the holder at different times or not
at all and be denominated in different currencies.
Subject to applicable provisions of law and except as
specified herein, this Note will bear interest at the rate
determined in accordance with the applicable provisions below by
reference to the Interest Rate Basis specified on the face
hereof. The interest rate in effect from the date of issue to
the first Interest Reset Date shall be the Initial Interest Rate
specified on the face hereof. Commencing with the first Interest
Reset Date specified on the face hereof following the Original
Issue Date specified on the face hereof, the rate at which
interest on this Note is payable shall be adjusted daily, weekly,
monthly, quarterly, semi-annually or annually as specified on the
face hereof under "Interest Rate Reset period"; provided,
--------
however, that the interest rate in effect hereon for the 10
- -------
calendar days immediately prior to the maturity hereof (or, with
respect to any principal amount to be redeemed or repaid, any
redemption or repayment date) will be that in effect on the tenth
day next preceding the Maturity Date or such date of redemption
or repayment, as the case may be. Each such adjusted rate shall
be applicable from and including the Interest Reset Date to which
it relates to but not including the next succeeding Interest
Reset Date or until maturity, as the case may be. If any
Interest Reset Date would otherwise be a day that is not a
Business Day, such Interest Reset Date shall be postponed to the
next succeeding day
-12-
<PAGE>
that is a Business Day, except that if the Interest Rate Basis
specified on the face hereof is LIBOR and such Business Day is in
the next succeeding calendar month, such Interest Reset Date
shall be the next preceding Business Day.
Unless otherwise specified on the face hereof, the
Interest Determination Date pertaining to an Interest Reset Date
for Notes bearing interest calculated by reference to the CD
Rate, Commercial Paper Rate, Federal Funds Rate, LIBOR and Prime
Rate will be the second Business Day next preceding such Interest
Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for Notes bearing interest calculated by
reference to the Treasury Rate shall be the day of the week in
which such Interest Reset Date falls on which Treasury bills
normally would be auctioned; provided, however, that if as a
-------- -------
result of a legal holiday an auction is held on the Friday of the
week preceding such Interest Reset Date, the related Interest
Determination Date shall be such preceding Friday; and provided,
--------
further, that if an auction shall fall on any Interest Reset
- -------
Date, then the Interest Reset Date shall instead be the first
Business Day following the date of such auction.
Unless otherwise specified on the face hereof, the
"Calculation Date" pertaining to any Interest Determination Date
will be the earlier of the tenth calendar day after such Interest
Determination Date or the next succeeding Record Date after such
Interest Determination Date or, if either such day is not a
Business Day, the next succeeding Business Day.
-13-
<PAGE>
Determination of Interest Rate Per Annum for Prime
--------------------------------------------------
Rate Notes. If the Interest Rate Basis specified on the face
- ----------
hereof is Prime Rate, the interest rate per annum determined with
respect to any Interest Determination Date specified on the face
hereof shall equal the rate, adjusted by the addition or
subtraction of the Spread, if any, specified on the face hereof,
or by multiplication by the Spread Multiplier, if any, specified
on the face hereof, set forth for the relevant Prime Rate
Interest Determination Date in "Statistical Release H.15(519),
Selected Interest Rates", published by the Board of Governors of
the Federal Reserve System under the heading "Bank Prime Loan",
or any successor publication ("Release H.15(519)"). In the event
that such rate is not published prior to 9:00 A.M., New York City
time, on the relevant Calculation Date, then the Prime Rate with
respect to such Interest Reset Date will be the arithmetic mean
(adjusted or multiplied as described above) of the rates of
interest publicly announced by each bank that appears on the
display designated as page "NYMF" on the Reuter Monitor Money
Rates Service (or such other page as may replace the NYMF page on
that service for the purpose of displaying prime rates or base
lending rates of major United States banks) ("Reuters Screen NYMF
Page") as such bank's prime rate or base lending rate as in
effect for such Prime Rate Interest Determination Date as quoted
on the Reuters Screen NYMF Page on such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the
Reuters Screen NYMF Page on such Prime Rate Interest
Determination Date, the Prime Rate with respect to such Interest
Reset Date will be the
-14-
<PAGE>
arithmetic mean (adjusted or multiplied and calculated as
described above) of the prime rates or base lending rates (quoted
on the basis of the actual number of days in the year divided by
a 360-day year) as of the close of business on such Prime Rate
Interest Determination Date by three major money center banks in
The City of New York selected by the Calculation Agent; provided,
--------
however, that if fewer than three banks selected as aforesaid by
- -------
the Calculation Agent are quoted as mentioned in this sentence,
the Prime Rate with respect to such Interest Reset Date will be
the Prime Rate in effect on such Prime Rate Interest
Determination Date.
Determination of Interest Rate Per Annum for LIBOR
--------------------------------------------------
Notes. If the Interest Rate Basis specified on the face hereof
- -----
is LIBOR, the interest rate per annum determined with respect to
any Interest Determination Date specified on the face hereof
shall equal the arithmetic mean (as calculated by the Calculation
Agent specified on the face hereof) of offered rates for deposits
of not less than U.S. $1,000,000 having the Index Maturity
specified on the face hereof, commencing on the second Business
Day immediately following such LIBOR Interest Determination Date,
which appear on the Reuters Screen LIBO Page (as defined herein)
as of 11:00 A.M., London time, on such Interest Determination
Date, adjusted by the addition or subtraction of the Spread, if
any, specified on the face hereof, or by multiplication by the
Spread Multiplier, if any, specified on the face hereof;
provided, however, that if fewer than two such offered rates so
- -------- -------
appear on the Reuters Screen LIBO Page, the Calculation Agent
shall request the principal
-15-
<PAGE>
London office of each of four major banks in the London interbank
market selected by the Calculation Agent to provide a quotation
of the rate at which such bank offered to prime banks in the
London interbank market at approximately 11:00 A.M., London time,
on such Interest Determination Date, deposits in U.S. dollars
having the Index Maturity specified on the face hereof and in a
principal amount not less than U.S. $1,000,000 and equal to an
amount that is representative for a single transaction in such
market at such time, and the interest rate per annum hereon shall
equal the arithmetic mean (adjusted or multiplied as described
above) of (a) such quotations, if at least two quotations are
provided, or (b), if fewer than two such quotations are provided,
the rates quoted at approximately 11:00 A.M., New York City time
on such Interest Determination Date by three major banks in The
City of New York selected by the Calculation Agent for loans in
U.S. dollars to leading European banks having the Index Maturity
specified on the face hereof and in a principal amount that is
not less than U.S. $1,000,000 and is representative for a single
transaction in such market at such time, in either case, adjusted
or multiplied and calculated as described above; provided,
--------
however, that if not all of the three banks selected by the
- -------
Calculation Agent pursuant to clause (b) above are quoting as
described above, the interest rate per annum hereon with respect
to such Interest Determination Date shall be the LIBOR in effect
hereon on such Interest Determination Date. "Reuters Screen LIBO
Page" shall mean the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may
replace the LIBO page on that
-16-
<PAGE>
service for the purpose of displaying London interbank offered
rates of major banks).
Determination of Interest Rate Per Annum for Treasury
-----------------------------------------------------
Rate Notes. If the Interest Rate Basis specified on the face
- ----------
hereof is Treasury Rate, the interest rate per annum determined
with respect to any Interest Determination Date specified on the
face hereof shall equal the rate for the auction held on such
date of direct obligations of the United States ("Treasury
Bills") having the Index Maturity specified on the face hereof as
published in Release H.15(519), under the heading "U.S.
Government Securities/Treasury Bills/Auction Average
(Investment)" or, if not so published by 9:00 A.M., New York City
time, on the Interest Calculation Date (as specified on the face
hereof) pertaining to such Interest Determination Date, the
auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) as
otherwise reported by the United States Department of the
Treasury, in either case, adjusted by the addition or subtraction
of the Spread, if any, specified on the face hereof, or by
multiplication by the Spread Multiplier, if any, specified on the
face hereof. In the event that the results of the auctions of
Treasury Bills having the Index Maturity specified on the face
hereof are not published or reported as provided above by 3:00
P.M., New York City time, on such Interest Calculation Date or if
no such auction is held on such Interest Determination Date, then
the interest rate per annum with respect to such Interest
Calculation Date shall be calculated by the
-17-
<PAGE>
Calculation Agent and shall be the yield to maturity (expressed
as a bond equivalent, on the basis of a year of 365 or 366 days,
as applicable, and applied on a daily basis) calculated using the
arithmetic mean (adjusted or multiplied as described above) of
the secondary market bid rates, as of approximately 3:30 P.M.,
New York City time, on such Interest Determination Date, of three
leading primary United States government securities dealers in
The City of New York selected by the Calculation Agent for the
issue of Treasury bills with a remaining maturity closest to the
Index Maturity specified on the face hereof, adjusted or
multiplied as described above; provided, however, that if the
-------- -------
dealers selected as aforesaid by the Calculation Agent are not
quoting as described in this sentence, the interest rate per
annum hereon with respect to such Interest Determination Date
shall be the Treasury Rate in effect hereon on such Interest
Determination Date.
Determination of Interest Rate Per Annum for
--------------------------------------------
Commercial Paper Rate Notes. If the Interest Rate Basis
- ---------------------------
specified on the face hereof is Commercial Paper Rate, the
Interest Rate per annum determined with respect to any Interest
Determination Date Specified on the face hereof shall equal (a)
the Money Market Yield (as defined herein) of the rate on such
Interest Determination Date for commercial paper having the Index
Maturity specified on the face hereof, (i) as such rate is
published in Release H.15(519), under the heading "Commercial
Paper", or (ii) if such rate is not published prior to 9:00 A.M.,
New York City time, on the Interest Calculation Date (as
specified on the face hereof) pertaining to such Interest
Determination Date, as
-18-
<PAGE>
published by the Federal Reserve Bank of New York in its daily
statistical release, "Composite 3:30 P.M. Quotations for U.S.
Government Securities", or any successor publication of the
Federal Reserve Bank of New York ("Composite Quotations"), under
the heading "Commercial Paper", or (b) if by 3:00 P.M., New York
City time, on such Interest Calculation Date, such rate is not
published in either of such publications, the Money Market Yield
of the arithmetic mean of the offered rates, as of 11:00 A.M.,
New York City time, on such Interest Determination Date, of three
leading dealers of commercial paper in The City of New York
selected by the Calculation Agent for commercial paper having the
Index Maturity specified on the face hereof placed for industrial
issuers whose bond rating is "AA", or the equivalent, from a
nationally recognized rating agency, in each of the above cases
adjusted by the addition or subtraction of the Spread, if any,
specified on the face hereof, or by multiplication by the Spread
Multiplier, if any, specified on the face hereof; provided,
--------
however, that if fewer than three such dealers are quoting as
- -------
described above, the interest rate per annum hereon with respect
to such Interest Determination Date shall be the Commercial Paper
Rate in effect hereon on such Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a
percentage) calculated in accordance with the following formula:
Money Market Yield = 100 x 360 x D
---------------------------
360 - (D x M)
-19-
<PAGE>
where "D" refers to the per annum rate for commercial paper,
quoted on a bank discount basis and expressed as a decimal; and
"M" refers to the actual number of days in the interest period
for which interest is being calculated.
Determination of Interest Rate Per Annum for CD Rate
----------------------------------------------------
Notes. If the Interest Rate Basis specified on the face hereof
- -----
is CD Rate, the Interest Rate per annum determined with respect
to any Interest Determination Date specified on the face hereof
shall equal the rate, adjusted by the addition or subtraction of
the Spread, if any, specified on the face hereof, or by
multiplication by the Spread Multiplier, if any, specified on the
face hereof, for the relevant CD Interest Determination Date for
negotiable certificates of deposit having the specified Index
Maturity as published in Release H.15(519) under the heading "CDs
(Secondary Market)". In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the relevant
Calculation Date, then the CD Rate with respect to such Interest
Reset Date shall be the rate (adjusted or multiplied as described
above) on such CD Rate Interest Determination Date for negotiable
certificates of deposit having the specified Index Maturity as
published in Composite Quotations under the heading "Certificates
of Deposit". If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either Release
H.15(519) or Composite Quotations, the CD Rate with respect to
such Interest Reset Date shall be calculated by the Calculation
Agent and shall be the arithmetic mean (adjusted or multiplied as
described above) of the secondary market offered rates, as of
10:00 A.M., New York City
-20-
<PAGE>
time, on such CD Rate Interest Determination Date, of three
leading nonbank dealers of negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent
for negotiable certificates of deposit of major United States
money market banks of the highest credit standing with a
remaining maturity closest to the specified Index Maturity in a
denomination of U.S. $5,000,000; provided, however, that, if
-------- -------
fewer than three dealers selected as aforesaid by the Calculation
Agent are quoting as mentioned in this sentence, the CD Rate with
respect to such Interest Reset Date will be the CD Rate in effect
on such CD Rate Interest Determination Date.
Determination of Interest Rate Per Annum for Federal
----------------------------------------------------
Funds Rate Notes. If the Interest Rate Basis specified on the
- ----------------
face hereof is Federal Funds Rate, the Interest Rate per annum
determined with respect to any Interest Determination Date
specified on the face hereof shall equal the rate, adjusted by
the addition or subtraction of the Spread, if any, specified on
the face hereof, or by multiplication by the Spread Multiplier,
if any, specified on the face hereof, on the relevant Federal
Funds Interest Determination Date for Federal Funds as published
in Release H.15(519) under the heading "Federal Funds
(Effective)". In the event that such rate is not published prior
to 9:00 A.M., New York City time, on the relevant Calculation
Date, then the Federal Funds Rate with respect to such Interest
Reset Date will be the rate (adjusted or multiplied as described
above) on such Federal Funds Interest Determination Date as
published in Composite Quotations under the heading "Federal
Funds/Effective
-21-
<PAGE>
Rate". If by 3:00 P.M., New York City time, on such Calculation
Date such rate is not published in either Release H.15(519) or
Composite Quotations, the Federal Funds Rate with respect to such
Interest Reset Date shall be calculated by the Calculation Agent
and shall be the arithmetic mean (adjusted or multiplied as
described above) of the rates, as of 11:00 A.M., New York City
time, on such Federal Funds Interest Determination Date, for the
last transaction in overnight Federal Funds arranged by three
leading brokers of Federal Funds transactions in The City of New
York selected by the Calculation Agent; provided, however, that
-------- -------
if fewer than three brokers selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, the
Federal Funds Rate with respect to such Interest Reset Date will
be the Federal Funds Rate in effect on such Federal Funds
Interest Determination Date.
Notwithstanding the foregoing, the interest rate per
annum hereon shall not be greater than the Maximum Interest Rate,
if any, or less than the Minimum Interest Rate, if any, specified
on the face hereof. The Calculation Agent shall calculate the
interest rate hereon in accordance with the foregoing on or
before each Interest Calculation Date.
The interest rate on this Note will in no event be
higher than the maximum rate permitted by New York law as the
same may be modified by United States law of general application.
At the request of the holder hereof, the Calculation
Agent will provide to the holder hereof the interest rate hereon
then in effect and, if determined, the interest rate which will
-22-
<PAGE>
become effective as a result of a determination made on the most
recent Interest Determination Date with respect to this Note.
Interest payments hereon will include interest accrued
to but excluding the applicable Interest Payment Date or the
Maturity Date (or any earlier redemption or repayment date), as
the case may be; provided, however, that if the rate at which
-------- -------
interest on this Note is payable shall be adjusted daily or
weekly as specified on the face hereof under "Interest Rate Reset
Period" and as determined in accordance with the provisions
hereof, interest payable on any Interest Payment Date, other than
interest payable on any date on which principal hereof is
payable, will include interest accrued to and including the
Record Date next preceding such Interest Payment Date. Accrued
Interest hereon from the Original Issue Date or from the last
date to which interest hereon has been paid, as the case may be,
shall be an amount calculated by multiplying the principal amount
hereof by an accrued interest factor. Such accrued interest
factor shall be computed by adding the interest factors
calculated for each day from the Original Issue Date or from the
last date to which interest shall have been paid or duly provided
for, as the case may be, up to but not including the date for
which accrued interest is being calculated. The interest factor
for each such day shall be computed by dividing the interest rate
per annum applicable to such day by 360 if the Interest Rate
Basis specified on the face hereof is Prime Rate, LIBOR,
Commercial Paper Rate, CD Rate or Federal Funds Rate or by the
actual number of days in the year if the Interest Rate Basis
specified on the face hereof is
-23-
<PAGE>
Treasury Rate. All percentages used in or resulting from any
calculation of the rate of interest on this Note will be rounded,
if necessary, to the nearest one hundred-thousandth of a
percentage point (.0000001), with five one-millionths of a
percentage point round upward, and all dollar amounts used in or
resulting from such calculation on this Note will be rounded to
the nearest cent (with one-half cent rounded upward).
If this Note is denominated in a currency or currency
unit other than U.S. dollars, any U.S. dollar amount to be
received by a holder of this Note will be based on the highest
bid quotation (rounded to the nearest cent) in The City of New
York received by the Exchange Rate Agent as of 11:00 A.M., New
York City time, on the second Business Day preceding the
applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent) for the
purchase by the quoting dealer of the Specified Currency for U.S.
dollars for settlement on such payment date, in an amount equal
to the aggregate amount of the Specified Currency payable to all
holders of Notes receiving U.S. dollar payments on such payment
date and at which the applicable dealer commits to execute a
contract. If three such bid quotations are not available,
payments will be made in the Specified Currency. All currency
exchange costs associated with any payments in U.S. dollars will
be borne by the holder of the Note by deductions from such
payments.
If the principal, premium (if any) or interest on this
Note is payable in a currency or currency unit other than U.S.
dollars and, due to the imposition of exchange controls or other
-24-
<PAGE>
circumstances beyond the control of the Company, the Specified
Currency is not available at the time of any scheduled payment of
principal, premium or interest to be made in the Specified
Currency, then the Company shall be entitled to satisfy its
obligations hereunder by making such payment in U.S. dollars.
Any such payment shall be made on the basis of the noon buying
rate in The City of New York for cable transfers of the Specified
Currency as certified for customs purposes by the Federal Reserve
Bank of New York (the "Market Exchange Rate") on the second day
prior to such payment, or if such Market Exchange Rate is not
then available, on the basis of the most recently available
Market Exchange Rate. Any payment under such circumstances in
U.S. dollars where required payment is in a Specified Currency
will not constitute a default under the Indenture.
In case an Event of Default, as defined in the
Indenture, with respect to the Notes shall have occurred and be
continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not
less than 66 2/3% in aggregate principal amount of the
outstanding Securities of all series issued under the Indenture
which are affected thereby (voting as one class), at the time
outstanding, evidenced as in the Indenture provided, to execute
supplemental indentures adding any provisions to or changing in
any manner or eliminating any of the provisions of the Indenture
or of any
-25-
<PAGE>
indenture supplemental thereto or modifying in any manner the
rights of the holders of the Notes; provided, however, that no
-------- -------
such supplemental indenture shall (i) extend the fixed maturity
of any Security, or reduce the principal amount thereof or any
premium thereon, or reduce the rate or extend the time of payment
of interest thereon, or reduce any amount payable upon the
redemption thereof without the consent of the holder of each such
Security so affected, (ii) reduce the aforesaid percentage of
Securities, the consent of the holders of which is required for
any such supplemental indenture, without the consent of the
holders of all Securities affected then outstanding or (iii)
modify, without the written consent of the Trustee, the rights,
duties or immunities of the Trustee. The Indenture also contains
provisions permitting the holders of a majority in aggregate
principal amount of the Securities of any series (or of all
Securities, as the case may be) then outstanding, prior to any
declaration accelerating the maturity of such Securities, to
waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences, except in each case for failure to pay principal or
premium, if any, or interest on such Securities or except in the
event of a default in respect of covenants or provisions in the
Indenture or herein which cannot be modified or amended without
the consent of the holder of each Security affected. Any such
consent by the holder of this Note (unless revoked as
provided in the Indenture) shall be conclusive and binding upon
such holder and upon all future holders and owners of this Note
and any Notes
-26-
<PAGE>
which may be issued upon the registration of transfer hereof or
in exchange or substitution therefor, irrespective of whether or
not any notation thereof is made upon this Note or other such
Notes.
If so provided on the face of this Note, this Note may
be redeemed by the Company on and after the date so indicated on
the face hereof. On and after the date, if any, from which this
note may be redeemed, this Note may be redeemed in whole or in
part at the option of the Company at a redemption price equal to
the product of the principal amount of this Note to be redeemed
multiplied by the Redemption Percentage. The Redemption
Percentage shall initially equal the Initial Redemption
Percentage specified on the face of this Note, and shall decline
at each anniversary of the initial date that this Note is
redeemable by the amount of the Annual Redemption Percentage
Reduction specified on the face of this Note, until the
Redemption Percentage is equal to 100%.
If so provided on the face of this Note, this Note is
subject to redemption in part, through the operation of the
sinking fund provided for in the Indenture, on and after the date
so indicated on the face hereof and at the price equal to the
sinking fund redemption price noted on the face hereof, together
with accrued interest to the date fixed for redemption. At its
option, the Company may pay into the sinking fund for the
retirement of the Notes, in cash except as provided in the
Indenture, on the dates specified on the face hereof, an amount
sufficient to redeem an additional principal amount of the Notes
up to an amount specified on the face hereof at the sinking fund
-27-
<PAGE>
redemption price. To the extent that the right to such optional
sinking fund payment is not exercised in any year, it shall not
be cumulative or carried forward to any subsequent year.
If so provided on the face of this Note, this Note will
be repayable in whole or in part in increments of $1,000 or, in
the case of non-U.S. dollar denominated Notes, of an amount equal
to the integral multiples referred to on the face hereof under
"Authorized Denominations" (or, if no such reference is made, an
amount equal to the minimum Authorized Denomination) provided
that the remaining principal amount of any Note surrendered for
partial repayment shall be at least $100,000 or, in the case of
non-U.S. dollar denominated Notes, the minimum Authorized
Denomination referred to on the face hereof, on any Business Day
on or after the "Initial Date on Which the Note is Repayable at
the Option of the Holder" (as stated on the face hereof), at the
option of the holder, at the repayment amount specified on the
face hereof, plus accrued interest, if any, to the repayment
date. In order for the exercise of the option to be effective
and the Notes to be repaid, the Company must receive at the
applicable address of the Paying Agent set forth below or at such
other place or places of which the Company shall from time to
time notify the holder of the within Note, on or before the
fifteenth, but not earlier than the twenty-fifth day, or, if such
day is not a Business Day, the next succeeding Business Day,
prior to the repayment date, either (i) this Note, with the form
below entitled "Option to Elect Repayment" duly completed, or
(ii) a telegram, telex, facsimile transmission, or letter from a
member of a
-28-
<PAGE>
national securities exchange or the National Association of
Securities Dealers, Inc., or a commercial bank or a trust company
in the United States of America setting forth (a) the name,
address, and telephone number of the holder of this Note, (b) the
principal amount of this Note and the amount of this Note to be
repaid, (c) a statement that the option to elect repayment is
being exercised thereby, and (d) a guarantee stating that the
Company will receive this Note, with the form below entitled
"Option to Elect Repayment" duly completed, not later than five
Business Days after the date of such telegram, telex, facsimile
transmission, or letter (and this Note and form duly completed
are received by the Company by such fifth Business Day). Any
such election shall be irrevocable. The addresses to which such
deliveries are to be made are as follows: (i) to Continental
Bank, National Association, Attention: Corporate Trust Division,
231 South LaSalle Street, Chicago, Illinois 60697, if delivery is
made by regular or registered mail, (ii) to Continental Bank,
National Association, Corporate Trust Operations, 19th Floor, 231
South LaSalle Street, Chicago, Illinois 60697, if delivery is
made by hand, armored car or courier service or (iii) to
Continental Bank, National Association, Attention: Corporate
Trust Division, 231 South LaSalle Street, Chicago, Illinois
60697, if delivery is by telegram or facsimile transmission (or
at such other places as the Company shall notify the holders of
the Notes). All questions as to the validity, eligibility
(including time of receipt) and acceptance of any Note for
repayment will be determined by the Company, whose determination
will be final, binding and non-
-29-
<PAGE>
appealable. No transfer or exchange of any Note (or, in the
event that any Note is to be repaid in part, the portion of the
Note to be repaid) will be permitted after exercise of a
repayment option.
If this Note is issued with an original issue discount,
(i) if an Event of Default with respect to the Notes shall have
occurred and be continuing, the amount of principal of this Note
which may be declared due and payable in the manner, with the
effect and subject to the conditions provided in the Indenture,
shall be determined in the manner set forth under "OID Default
Amount" on the face hereof, and (ii) in the case of a default of
payment in principal upon acceleration, redemption, repayment at
the option of the holder or at the stated maturity hereof, in
lieu of any interest otherwise payable, the overdue principal of
this Note shall bear interest at a rate of interest per annum
equal to the Default Rate stated on the face hereof (to the
extent that the payment of such interest shall be legally
enforceable), which shall accrue from the date of such
acceleration, redemption, repayment at the option of the holder
or stated maturity, as the case may be, to the date payment has
been made or duly provided for or such default has been waived in
accordance with the terms of the Indenture.
The Notes are issuable in global or definitive form
without coupons in denominations of $100,000 and integral
multiples of $1,000 in excess thereof or, if the Specified
Currency is other than U.S. dollars, in the denominations
indicated on the face hereof. Upon due presentment for
-30-
<PAGE>
registration of transfer of this Note at the office or agency of
the Company in the Borough of Manhattan, The City of New York, or
Chicago, Illinois, a new Note or Notes in authorized
denominations in the Specified Currency for an equal aggregate
principal amount and like interest rate and maturity will be
issued to the transferee in exchange therefor, subject to the
limitations provided in the Indenture and to the limitations
described below if applicable, without charge except for any tax
or other governmental charge imposed in connection therewith.
If this Note is a Global Note (as specified on the face
hereof), this Note is exchangeable only if (x) the Depositary
notifies the Company that it is unwilling or unable to continue
as Depositary for this Global Note or if at any time the
Depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, and a successor
Depositary is not appointed by the Company, (y) the Company in
its sole discretion determines that this Note shall be
exchangeable for definitive Notes in registered form or (z) an
Event of Default with respect to the Notes represented hereby has
occurred and is continuing. If this Note is exchangeable
pursuant to the preceding sentence, it shall be exchangeable for
definitive Notes in registered form, bearing interest (if any) at
the same rate or pursuant to the same formula, having the same
date of issuance, redemption provisions, if any, Specified
Currency, Maturity Date and other terms and of differing
denominations aggregating a like amount.
-31-
<PAGE>
No reference herein to the Indenture and no provision
of this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note at the places,
at the respective times, at the rate and in the currency herein
prescribed.
The Company, the Trustee, and any paying agent may deem
and treat the registered holder hereof as the absolute owner of
this Note at such holder's address as it appears on the registry
books of the Company as kept by the Trustee or duly authorized
agent of the Company (whether or not this Note shall be overdue),
for the purpose of receiving payment of or on account hereof and
for all other purposes, and neither the Company nor the Trustee
nor any paying agent shall be affected by any notice to the
contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid,
effectually satisfy and discharge liability for moneys payable on
this Note.
No recourse under or upon any obligation, covenant or
agreement contained in the Indenture or in any indenture
supplemental thereto or in any Note, or because of any
indebtedness evidenced thereby, shall be had against any
incorporator, or against any past, present or future stockholder,
officer or director, as such, of the Company or of any successor
corporation, either directly or through the Company or of any
successor corporation, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment
-32-
<PAGE>
or by any legal or equitable proceeding or otherwise, all such
personal liability of every such incorporator, stockholder,
officer and director, as such, being expressly waived and
released by the acceptance hereof and as a condition of and as
part of the consideration for the issuance of this Note.
Terms used herein which are defined in the Indenture
shall have the respective meanings assigned thereto in the
Indenture.
This Note shall be governed by and construed in
accordance with the laws of the State of New York.
_________________________
OPTION TO ELECT REPAYMENT
TO BE COMPLETED ONLY IF THIS NOTE IS REPAYABLE
AT THE OPTION OF THE HOLDER AND THE HOLDER
ELECTS TO EXERCISE SUCH RIGHTS
The undersigned hereby irrevocably requests and
instructs the Company to repay the within Note (or portion
thereof specified below) pursuant to its terms at a price equal
to the principal amount thereof, together with interest to the
repayment date, to the undersigned, at ________________________
_______________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid the Company must receive at
the applicable address of the Paying Agent set forth above or at
such other place or places of which the Company shall from time
to time notify the holder of the within Note, on or before the
fifteenth, but not earlier than the twenty-fifth, calendar day,
-33-
<PAGE>
or, if such day is not a Business Day, the next succeeding
Business Day, prior to the repayment date, (i) this Note, with
this "Option to Elect Repayment" form duly completed, or (ii) a
telegram, telex, facsimile transmission, or letter from a member
of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or a trust company
in the United States of America setting forth (a) the name,
address, and telephone number of the holder of the Note, (b) the
principal amount of the Note and the amount of the Note to be
repaid, (c) a statement that the option to elect repayment is
being exercised thereby, and (d) a guarantee stating that the
Note to be repaid with the form entitled "Option to Elect
Repayment" on the reverse of the Note duly completed will be
received by the Company not later than five Business Days after
the date of such telegram, telex, facsimile transmission, or
letter (and such Note and form duly completed are received by the
Company by such fifth Business Day).
If less than the entire principal amount of the within
Note is to be repaid, specify the portion thereof (which shall be
an integral multiple of $1,000 or, if the Note is denominated in
a currency other than U.S. dollars, of an amount equal to the
integral multiples referred to on the face hereof under
"Authorized Denominations" (or, if no such reference is made, an
amount equal to the minimum Authorized Denomination)) which the
holder elects to have repaid: ______________________________; and
specify the denomination or denominations (which shall be
$100,000 or an integral multiple of $1,000 in excess thereof or,
if the
-34-
<PAGE>
Note is denominated in a currency other than U.S. dollars, an
Authorized Denomination) of the Note or Notes to be issued to the
holder for the portion of the within Note not being repaid (in
the absence of any specification, one such Note will be issued
for the portion not being repaid): _____________________
Date:___________ _____________________________________________
Notice: The signature to this Option to Elect
Repayment must correspond with the name as
written upon the face of the Note in every
particular without alteration or enlargement
or any other change whatsoever.
________________________
-35-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--........ Custodian......
TEN ENT--as tenants by the (Cust) (Minor)
entireties
JT TEN --as joint tenants with Under Uniform Gifts to Minors Act
right of survivorship
and not as tenants in
common ...........................................
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please Insert Social Security or
Other Identifying Number of Assignee
____________________________________
/__________________________________/_______________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
___________________________________________________________________________
___________________________________________________________________________
the within Note of PHILLIPS PETROLEUM COMPANY and does hereby irrevocably
constitute and appoint ______________________________________________
attorney to transfer the said Note on the books of the Company, with full
power of substitution in the premises.
Dated:_______________ _________________________________________
_________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.
-36-
<PAGE>
Exhibit 10(d)
Amended by the Board of Directors 1/12/98
1986 STOCK PLAN
OF
PHILLIPS PETROLEUM COMPANY
--------------------------
1. PURPOSE
-------
The purpose of the 1986 Stock Plan of Phillips Petroleum
Company is to provide incentive earnings opportunities to
those key employees whose decisions and actions most
directly affect the profitability and growth of the Company
and its subsidiaries. Since the incentive earnings
opportunities under this Plan are based on the market value
of the Company's Common Stock it will have the additional
effect of increasing these employees' identity of interest
with that of the Company's stockholders. There are two
programs permitted by this Plan; a Stock Option Plan and the
Strategic Incentive Plan.
2. DEFINITIONS
-----------
a) "Board" shall mean the Board of Directors of the Company.
b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
c) "Company" shall mean Phillips Petroleum Company.
d) "Committee" shall mean the Compensation Committee of the
Board of Directors as appointed from time to time, and
consisting of not less than three Board members. Each
member of the Committee shall be a "disinterested person"
as that term is now or hereafter defined in Rule 16(b)(3)
of the Securities and Exchange Commission.
e) "Earned Award" shall mean the award which an SIP
Participant is entitled to receive under the Strategic
Incentive Plan.
f) "Employee" shall mean any person employed by the Company
or a Subsidiary on a full-time salaried basis, including
officers and employee directors thereof.
1
<PAGE>
g) "Fair Market Value" shall mean the average of the highest
price and the lowest price at which Stock shall have been
sold on the date of the grant of the Option as reflected
on the consolidated tape of New York Stock Exchange
issues. In the event that any Option shall be granted on
a date on which there were no such sales of Stock, the
fair market value of Stock on such date shall be the
average of the highest price and lowest price at which
Stock shall have been sold on the last trading day
preceding the date of grant of such Option as reflected
on the consolidated tape of New York Stock Exchange
issues.
h) "Incentive Stock Option" or "ISO" shall mean an Option
grant which meets or complies with the terms and
conditions set forth in Section 422A of the Code and
Treasury regulations promulgated thereunder.
i) "Indicators of Performance" shall mean the criteria which
the Committee will use at the conclusion of the
Performance Period to evaluate the Company's overall
performance as described in Section 9(b) of this Plan.
j) "Strategic Incentive Plan Participant" or "SIP
Participant" shall mean any eligible Employee who has
been so designated by the Committee.
k) "Option" or "Stock Option" shall mean a right granted
under the Plan to an Optionee to purchase a stated number
of shares of Stock at a stated exercise price.
l) "Optionee" shall mean an employee who has received a
Stock Option granted under the Plan.
m) "Performance Period" shall mean a period established by
the Committee beginning on the first day of a calendar
year, of not less than three consecutive calendar years,
at the conclusion of which settlement will be made with a
SIP Participant with respect to his Earned Award.
n) "Plan" shall mean the 1986 Stock Plan of Phillips
Petroleum Company.
2
<PAGE>
o) "Restricted Stock" shall mean Stock which is not
transferable except in accordance with the terms
established for such transfer at the time of its issue in
accordance with the plan under which it was issued.
p) "Stock" shall mean the common stock, including both
Restricted and unrestricted Stock, of the Company.
q) "Stock Appreciation Right" or "SAR" shall mean the right
of an Optionee to exercise his Option in accordance with
Section 8 of this Plan.
r) "Subsidiary" shall mean any corporation, a majority of
the voting stock of which is beneficially owned, directly
or indirectly, by the Company.
s) "Target Award" shall mean the award, expressed in shares
of Stock, which will be considered an Earned Award,
absent any adjustment thereto for individual performance,
if the Committee determines pursuant to Section 9(b) of
this Plan that the Company's overall performance was
"competitive".
t) "Total Disability" and "Totally Disabled" shall mean that
condition in which, by reason of bodily injury or
disease, an employee is and will at all times thereafter
be wholly prevented from engaging in any occupation or
employment for compensation, profit or gain. All
determinations of Total Disability shall be made by the
insurance company carrying the group life insurance plan
of the Company on the date on which the employee, whether
or not eligible for benefits under such insurance plan,
becomes Totally Disabled.
3. ADMINISTRATION
--------------
The Committee is authorized, subject to the provisions of
the Plan, from time to time to establish such rules and
regulations and to appoint such agents as it deems
appropriate for the proper administration of the Plan, and
to make such determinations under, and such interpretations
of, and to take such steps in connection with the Plan or
the Options
3
<PAGE>
or Stock Appreciation Rights or the Strategic Incentive Plan
as it deems necessary or advisable. Each determination,
interpretation, or other action made or taken pursuant to
the provisions of the Plan by the Committee shall be final
and shall be binding and conclusive for all purposes and
upon all persons.
4. ELIGIBILITY
-----------
Only those Employees who, in the sole judgment of the
Committee, may have a significant effect on the
profitability and growth of the Company, shall be eligible
to receive Options and Stock Appreciation Rights under this
Plan. Of such Employees, those who are in positions
evaluated at grade 35 or higher under the Company's salary
administration system are eligible for participation in the
Strategic Incentive Plan; provided, however, the Committee
may also permit Employees eligible for Participation in the
Plan evaluated at less than grade 35 to participate in the
Strategic Incentive Plan if in the opinion of the Committee
such Employees have a significant effect on the Company's
long term growth and profitability.
5. MAXIMUM SHARES AVAILABLE
------------------------
The Stock to be distributed under the Plan may be either
authorized and unissued shares or issued shares whether held
in the treasury of the Company or otherwise. The total
amount of Stock which, under the provisions of this Plan,
may be subject to delivery on the exercise of Options,
issued in satisfaction of exercised options or SAR's, or
issued under the Strategic Incentive Plan shall not exceed
3.5% of the number of issued and outstanding shares of
Stock, determined as of the effective date of this Plan.
The maximum number of shares is subject to adjustment in
accordance with the provisions of Section 10 hereof.
6. STOCK OPTIONS
-------------
4
<PAGE>
a) Award of Options: (i) The Committee, at any time and
-----------------
from time to time prior to December 31, 1990, may grant
Options under the Plan to eligible Employees, for such
numbers of shares and having such terms as the Committee
shall designate, subject, however, to the provisions of
the Plan. The Committee will also determine the type of
Option granted (e.g., ISO, nonstatutory, other statutory
Options as from time to time may be permitted by the
Code) or a combination of various types of Options.
Options designated as ISOs shall comply with all the
provisions of Section 422A of the Code and applicable
Treasury Department regulations. The aggregate Fair
Market Value (determined at the time the Option is
granted) of Stock with respect to which ISOs are
exercisable for the first time by any individual during a
calendar year under all plans of the Company, and any
subsidiary shall not exceed $100,000. The date on which
an Option shall be granted shall be the date of the
Committee's authorization of such grant. Any individual
at any one time and from time to time may hold more than
one Option granted under the Plan or under any other
Stock plan of the Company. (ii) Each Option shall be
evidenced by a Stock Option Agreement in such form and
containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time
shall approve.
b) Exercise Price. The price at which shares of Stock may
---------------
be purchased under an Option shall not be less than 100
percent of the Fair Market Value of the Stock on the date
the Option is granted.
c) Term of Options. The period during which an option may
----------------
be exercised shall be determined by the Committee;
provided, that such period will not be longer than ten
years from the date on which the Option is granted for
those Options designated as ISOs or 11 years for other
types of Options. The date or dates on which installment
portion(s) of an Option may be exercised during the term
of an Option shall be
5
<PAGE>
determined by the Committee and may vary from Option to
Option. If the Committee makes no such specific
arrangement with respect to an Option, each such Option
granted pursuant to the Plan shall become exercisable in
four installments. The first such installment shall
become exercisable on the first anniversary of the date
of the grant for 25 percent of the number of shares of
Stock subject to the Option. Thereafter, on each
anniversary of the date of the grant an installment shall
become exercisable for an additional 25 percent of the
number of shares of Stock subject to the Option until the
Option shall have become fully exercisable. To the
extent that an installment is not exercised when it
becomes exercisable, it shall not expire but shall
continue to be exercisable at any time thereafter until
the Option shall be cancelled, expire or be surrendered.
In no event, however, will any option or portion of an
option be exercisable within six months of its grant
date. The Committee may accelerate the exercise schedule
on outstanding Options, if in its sole judgment
conditions are such to warrant such acceleration.
d) Termination of Employment. (i) If, prior to a date one
--------------------------
year from the date an Option shall have been granted, the
Optionee's employment with the Company or Subsidiary
shall be terminated for any reason, such Option shall be
cancelled and all rights thereunder shall cease; provided
that an option granted in any year to an Optionee who
terminates his employment on January 1 of the following
year due to retirement pursuant to the terms of a
retirement plan of the Company or a Subsidiary shall not
be cancelled for that reason, and provided, further, the
Committee may, in its sole discretion determine that all
or any portion of any other Option shall not be cancelled
due to termination of employment prior to a date one year
from the date the Option shall have been granted. (ii)
If, on or after one year from the date an Option shall
have been granted, an Optionee's employment with the
Company or Subsidiary is
6
<PAGE>
terminated for any reason except retirement pursuant to
the terms of a retirement plan of the Company or a
Subsidiary, Total Disability, or death, any Option
granted to him under the Plan shall be cancelled on such
termination; provided, that the Committee may, in its
sole discretion, determine that all or a portion of any
such Option shall not be cancelled. (iii) If, on or
after a date one year from the date the Option is
granted, an Optionee shall terminate employment by reason
of retirement pursuant to a retirement plan of the
Company or Subsidiary, or by reason of Total Disability,
the Optionee shall retain all rights provided by the
Option at the time of such termination of employment. If
on or after a date one year from the date the Option is
granted, or such shorter period as may be permitted
pursuant to (d) (ii) above, an Optionee shall die while
in the employ of the Company or Subsidiary or after
termination of employment by reason of retirement
pursuant to a retirement plan of the Company or
Subsidiary, the executor or administrator of the estate
of the Optionee or the person or persons to whom the
Option shall have been validly transferred by the
executor or the administrator pursuant to will or the
laws of descent and distribution shall have the right to
exercise the Option to the same extent the Optionee could
have, had he not died. No transfer of an Option by the
Optionee by will or by the laws of descent and
distribution shall be effective to bind the Company
unless the Company shall have been furnished with written
notice thereof and a copy of the will and such other
evidence as the Company may deem necessary to establish
the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of
such Option. (iv) Transfer of employment between the
Company and a Subsidiary or between Subsidiaries shall
not constitute termination of employment for the purpose
of any Option granted under the Plan. Whether any leave
of absence shall constitute termination of employment for
the purposes of any Option granted
7
<PAGE>
under the Plan shall be determined in each case by the
Committee in its sole discretion.
e) Payment for Shares. (i) The exercise price for all
-------------------
shares of Stock purchased upon the exercise of an Option,
or a portion thereof, shall be paid in full at the time
of such exercise. Such payment may be made in cash, by
tendering shares of Stock having a value on the date of
exercise equal to the exercise price, or tendering shares
of Restricted Stock having a value on the date of
exercise equal to the exercise price. Such value shall
be the Fair Market Value except that the applicable date
for determination of the highest and lowest price on the
New York Stock Exchange shall be the date on which the
Option is exercised, or if not a trading date, then the
last trading day on such Exchange preceding the date on
which the Option is exercised. If Restricted Stock is
used in such exercise, the resulting new shares shall
have the same restrictions as the tendered shares. The
number of shares so restricted shall not be less than the
number of shares of Restricted Stock tendered. The
Committee may, in its sole discretion and judgment, limit
the extent to which shares of Stock or shares of
Restricted Stock may be used in exercising Options. (ii)
The Stock delivered to the Optionee upon exercise of an
Option, whether or not Restricted Stock is used for
payment of the purchase price of the Option may, at the
discretion of the Committee, have restrictions placed on
it, provided that the Stock Option agreement with the
Optionee covering the Option permits such use of
Restricted Stock.
7. DETRIMENTAL ACTIVITIES
----------------------
If the Committee determines that, subsequent to the grant of
any Option, the Optionee has engaged or is engaging in any
activity which, in the sole judgment of the Committee, is or
may be detrimental to the Company or a Subsidiary, the
Committee may refuse to
8
<PAGE>
honor the exercise of such Optionee's Options already
requested, and cancel the Option or Options granted to that
Optionee.
8. STOCK APPRECIATION RIGHTS
-------------------------
a) Grant. The Committee may, at its discretion, affix Stock
------
Appreciation Rights to any Option, either at the time of
its initial granting to the Optionee or at a later date.
The addition of such SARs must be accomplished prior to
the completion of the period during which the Option may
be exercised and such exercise period may not be extended
beyond that which was initially established. The
Committee may establish any SAR terms and conditions that
it desires at the time such SAR is established, provided
that, notwithstanding any provision of this Plan to the
contrary, the terms and conditions of a SAR related to an
ISO shall be the same as the terms applicable to the
underlying ISO.
b) Exercise of Stock Appreciation Right. (i) A Stock
-------------------------------------
Appreciation Right shall be exercisable at such time as
may be determined by the Committee, which shall be not
less than six months after its grant, and provided
further that a Stock Appreciation Right shall be
exercisable only to the extent that the related Option
could be exercised. Option shares with respect to which
the related Stock Appreciation Right shall have been
exercised may not again be subjected to Options under
this Plan. Upon the exercise of a Stock Appreciation
Right, that portion of the Option underlying the Stock
Appreciation Right will be considered as having been
exercised. (ii) The Committee may impose any other
conditions upon the exercise of a Stock Appreciation
Right, which conditions may include a condition that the
Stock Appreciation Right may only be exercised in
accordance with rules and regulations adopted by the
Committee from time to time. Such rules and regulations
may govern the right to exercise Stock Appreciation
Rights granted prior to the adoption or
9
<PAGE>
amendment of such rules and regulations as well as Stock
Appreciation Rights granted thereafter. The exercise of
a Stock Appreciation Right for cash shall be made only
during the periods specified in Rule 16b-3(e)(3)(iii) of
the Securities and Exchange Commission. (iii) Upon the
exercise of a Stock Appreciation Right, the Company shall
give to an Optionee an amount (less any applicable
withholding taxes) equivalent to the excess of the value
of the shares of Stock for which the right is exercised
on the date of such exercise over the exercise price of
such shares under the related Option. The value on the
date of exercise shall be the Fair Market Value as
determined in Section 6(e) of this Plan. Such amount
shall be either in cash or in shares of Stock or both as
the Committee shall determine. Such determination may be
made at the time of the granting of the Stock
Appreciation Right and may be changed at any time
thereafter. The shares may consist either in whole or in
part of authorized and unissued shares of Stock or issued
shares of Stock whether held in the treasury of the
Company or otherwise. No fractional shares of Stock
shall be issued and the Committee shall determine whether
cash shall be given in lieu of such fractional share or
whether such fractional share shall be eliminated.
c) Expiration or Termination of Stock Appreciation Rights.
-------------------------------------------------------
(i) Subject to (c)(ii), each Stock Appreciation Right and
all rights and obligations thereunder shall expire on a
date to be determined by the Committee. (ii) A Stock
Appreciation Right shall terminate and may no longer be
exercised upon the termination of the related Option.
d) Amend, Suspension or Termination of Stock Appreciation
------------------------------------------------------
Rights. The Committee may at any time amend, suspend or
-------
terminate any Stock Appreciation Right theretofore
granted under the Plan.
9. STRATEGIC INCENTIVE PLAN
------------------------
10
<PAGE>
a) Administrative Procedure. Normally, the Committee shall
-------------------------
adopt administrative procedures applicable to a
Performance Period prior to, or within 30 days after, the
date designated by the Committee for the Commencement of
such Performance Period. The Committee may, however,
adopt such administrative procedures more than 30 days
after such commencement if in its opinion such delayed
action is appropriate. Such procedures shall establish
Indicators of Performance and the Target Awards
applicable to the Performance Period. Indicators of
Performance may vary from Performance Period to
Performance Period.
b) Indicators of Performance. Indicators of Performance may
--------------------------
include, but shall not be limited to, increased
shareholder value, earnings per share, return on
shareholder's equity, return on assets and/or other
similar criteria. Such indicators may be based on the
Company's performance compared to the performance of one
or more selected companies in the petroleum industry
during the same Performance Period or may relate solely
to the Company's performance during the Performance
Period or a combination of such indicators. At the
completion of the Performance Period, the Committee will
review the Company's actual performance with respect to
the Indicators of Performance and, in its sole judgment,
rank the Company's overall performance. Such ranking may
range from "noncompetitive" through "competitive" to
"outstanding". In arriving at such ranking the Committee
may take into consideration, and make appropriate
adjustments for, events occurring during the Performance
Period which the Committee, in its sole judgment,
concludes have affected the performance of the Company or
any selected company with respect to any of the
Indicators of Performance. No earned Awards will be
granted if the Company's overall performance is ranked
"noncompetitive". Subject to individual performance
adjustments therein, if any, pursuant to paragraph 9(c)
of this Plan, if the Company's
11
<PAGE>
overall performance is ranked "competitive", Target
Awards will result; higher or lower ranking will result
in greater or lesser awards provided that in no event,
including individual performance adjustments, shall the
Earned Award of a SIP Participant exceed 150% of his
Target Award.
c) Award Adjustments. The Committee in its sole discretion
------------------
may make adjustments in awards determined under paragraph
(b) of this Section based on the SIP Participant's
individual performance during the Performance Period.
The administrative procedures for each Performance Period
shall establish the method to be used by the Committee in
determining which, if any, SIP Participants may receive
such performance adjustments and, subject to the maximum
set out in paragraph (b) of this Section, the size of
such adjustments.
d) Partial Performance Period Participation. The
-----------------------------------------
administrative procedures adopted for each Performance
Period shall also include procedures to be used in
determining the extent to which an Employee shall
participate in a partial Performance Period due to either
assignment to a position which makes eligible to be a SIP
Participant after the beginning of such Performance
Period or termination of employment prior to the
completion of such a Performance Period in which he was a
SIP Participant.
e) Award Settlement. With respect to each Performance
-----------------
Period, settlement of all Earned Awards shall be made in
Stock as soon as practicable following the date on which
the Committee determines the size of Earned Awards;
provided that the Committee may decide to settle such
awards over a period or periods of time as the Committee
shall deem appropriate.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
-----------------------------------------
In the event of a reorganization, recapitalization, Stock
split, Stock dividend, exchange of
12
<PAGE>
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 adjustment to outstanding Awards as it determines
appropriate so as to prevent dilution or enlargements of
rights.
11. MISCELLANEOUS
-------------
a) Except as otherwise required by law, no action taken
under the Plan shall be taken into account in determining
any benefits under any pension, retirement, thrift,
profit sharing, group insurance, or other benefit plan
maintained by the Company or any Subsidiary, unless such
other plan specifically provides for such inclusion.
b) No Option or Stock Appreciation Right or right under the
Strategic Incentive Plan shall be transferable other than
by will or the laws of descent and distribution. During
the lifetime of an Optionee, any Option or Stock
Appreciation Right shall be exercisable only by him or by
his duly appointed guardian or legal representative.
c) The Company shall have the right to withhold from any
settlement hereunder any federal, state, or local taxes
required by law to be withheld. Such withholding may be
satisfied by the withholding of shares of Stock by the
Company if the Optionee so requests in a manner
prescribed by the Committee, if the Committee so
approves, and such withholding of shares does not violate
any applicable laws, rules or regulations of federal,
state or local authorities.
d) All administrative expenses associated with the
administration of the Plan shall be borne by the Company.
e) Masculine pronouns and other words of masculine gender
used herein shall refer to both men and women.
13
<PAGE>
f) The titles and headings of the sections in this Plan are
for convenience of reference only and in the event of any
conflicts, the text of the Plan, rather than such titles
or headings, shall control.
12. AMENDMENT AND TERMINATION
-------------------------
The Board may at any time terminate or amend this Plan in
such respect as it shall deem advisable, provided, the Board
may not, without further approval of the stockholders of the
Company amend the Plan so as to (i) increase the number of
shares of Stock which may be issued under the Plan, except
as provided for in Section 10; (ii) materially modify the
requirements as to eligibility for participation; (iii)
materially increase the benefits accruing to Participants
under the Plan; (iv) extend the duration of the Plan beyond
the date approved by the stockholders; or (v) increase the
maximum dollar amount of ISOs which an individual Optionee
may exercise during any calendar year beyond that permitted
in the Code and applicable regulations of the Treasury
Department. Notwithstanding the foregoing, no such
termination or amendment may adversely affect the rights of
any Participant under any Award that is outstanding at the
time of such termination or amendment without the
Participant's consent.
13. DURATION OF THE PLAN
--------------------
The Plan shall become effective on approval by the
stockholders at the annual meeting of the stockholders in
April of 1986, retroactive to January 1, 1986, and shall
terminate on December 31, 1990.
14. CHANGE OF CONTROL
-----------------
a) In the event of a Change of Control:
i) Any Stock Options and Stock Appreciation Rights
outstanding as of the date of the Change of Control
that are not then fully exercisable and vested,
shall become fully exercisable and vested to the
full extent of the original grant;
14
<PAGE>
ii) All restrictions and other limitations applicable to
any Restricted Stock shall lapse, and such
Restricted Stock shall become free of all
restrictions and become fully vested and
transferable to the full extent of the original
grant;
iii) All Performance Awards and other Awards outstanding
as of the date of the Change of Control shall be
considered to be earned and payable in full, and any
deferral or other restriction shall lapse and except
as provided in subsection (c) of this Section 14,
such Performance Units shall be settled in cash as
promptly as is practicable; and
iv) Section 7 of the Plan, and all noncompetition
covenants and other similar restrictive covenants
applicable to any outstanding Awards, shall lapse
and become null and void and of no further effect.
b) A "Change of Control" shall mean:
i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934 as amended (a
"Person")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of 20% or more of
either (a) the then outstanding shares of common
stock of the Company (the "Outstanding Company
Common Stock") or (b) the combined voting power of
the then outstanding voting securities of the
Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any
acquisition pursuant to a
15
<PAGE>
transaction which complies with clauses (A), (B) and
(C) of subsection (iii) of this Section 14(b); or
ii) Individuals who, as of January 12, 1998, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to January 12, 1998,
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising
the Incumbent Board shall be considered as though
such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs
as a result of an actual or threatened election
contest with respect to the election or removal of
directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person
other than the Board; or
iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the
assets of the Company or the acquisition of assets
of another entity (a "Corporate Transaction"), in
each case, unless, following such Corporate
Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate
Transaction beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Corporate
Transaction (including, without limitation, a
corporation which as a result of such transaction
16
<PAGE>
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Corporate Transaction of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting
from such Corporate Transaction) beneficially own,
directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such
Corporate Transaction or the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C)
at least a majority of the members of the board of
directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Corporate Transaction; or
iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
c) Notwithstanding the foregoing, if any right to receive
cash granted pursuant to this Section 14 would make a
Change of Control transaction ineligible for pooling-of-
interest accounting under APB No. 16 that but for the
nature of such right would be eligible for such
accounting treatment, the Committee shall have the
ability to substitute for the cash payable pursuant to
such right Stock or other securities with a fair market
value equal to the cash that would otherwise be payable
hereunder.
17
<PAGE>
027a
18
<PAGE>
Exhibit 10(e)
Amended by the Board of Directors 1/12/98
1990 STOCK PLAN
OF
PHILLIPS PETROLEUM COMPANY
--------------------------
(As Approved April 25, 1989)
1. PURPOSE
-------
The purpose of the 1990 Stock Plan of Phillips Petroleum
Company is to provide incentive earnings opportunities to
those key employees whose decisions and actions most
directly affect the profitability and growth of the Company
and its subsidiaries. Since the incentive earnings
opportunities under this Plan are based on the market value
of the Company's Common Stock, it will have the additional
effect of increasing these employees' identity of interest
with that of the Company's stockholders. There are two
programs permitted by this Plan; a Stock Option Plan and the
Strategic Incentive Plan.
2. DEFINITIONS
-----------
a) "Board" shall mean the Board of Directors of the
Company.
b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
c) "Company" shall mean Phillips Petroleum Company.
<PAGE>
d) "Committee" shall mean the Compensation Committee of
the Board of Directors as appointed from time to time,
and consisting of not less than three Board members.
Each member of the Committee shall be a "disinterested
person" as that term is now or hereafter defined in
Rule 16(b)(3) of the Securities and Exchange
Commission.
e) "Earned Award" shall mean the award which an SIP
Participant is entitled to receive under the Strategic
Incentive Plan.
f) "Employee" shall mean any person employed by the
Company or a Subsidiary on a full-time salaried basis,
including officers and employee directors thereof.
g) "Fair Market Value" shall mean the average of the
highest price and the lowest price at which Stock shall
have been sold on the date of the grant of the Option
as reflected on the consolidated tape of New York Stock
Exchange issues. In the event that any Options shall
be granted on a date on which there were no such sales
of Stock, the fair market value of Stock on such date
shall be the average of the highest price and the
lowest price at which Stock shall have been sold on the
last trading day preceding the date of grant of such
Option as reflected on the consolidated tape of New
York Stock Exchange issues.
2
<PAGE>
h) "Incentive Stock Option" or "ISO" shall mean an Option
which meets or complies with the terms and conditions
set forth in Section 422A of the Code and Treasury
regulations promulgated thereunder.
i) "Indicators of Performance" shall mean the criteria
which the Committee will use at the conclusion of the
Performance Period to evaluate the Company's overall
performance as described in Section 9(b) of this Plan.
j) "Strategic Incentive Plan Participant" or "SIP
Participant" shall mean any eligible Employee who has
been so designated by the Committee.
k) "Option" or "Stock Option" shall mean a right granted
under the Plan to an Optionee to purchase a stated
number of shares of Stock at a stated exercise price.
l) "Optionee" shall mean an employee who has received a
Stock Option granted under the Plan.
m) "Performance Period" shall mean a period established by
the Committee beginning on the first day of a calendar
year, of not less than three consecutive calendar
years, at the conclusion of which settlement will be
made with a SIP Participant with respect to his Earned
Award.
3
<PAGE>
n) "Plan" shall mean the 1990 Stock Plan of Phillips
Petroleum Company.
o) "Restricted Stock" shall mean Stock which is not
transferable except in accordance with the terms
established for such transfer at the time of its issue
in accordance with the plan under which it was issued.
p) "Stock" shall mean the common stock, including both
Restricted and unrestricted Stock, of the Company.
q) "Stock Appreciation Right" or "SAR" shall mean the
right of an Optionee to exercise an Option granted in
accordance with Section 8 of this Plan.
r) "Subsidiary" shall mean any corporation, a majority of
the voting stock of which is beneficially owned,
directly or indirectly, by the Company.
s) "Target Award" shall mean the award, expressed in
shares of Stock, which will be considered an Earned
Award, absent any adjustment thereto for individual
performance, if the Committee determines pursuant to
Section 9(b) of this Plan that the Company's overall
performance was "competitive."
t) "Total Disability" and "Totally Disabled" shall mean
the condition in which, by reason of bodily injury or
disease, an employee is and will at all
4
<PAGE>
times thereafter be wholly prevented from engaging in
any occupation or employment for compensation, profit
or gain. All determinations of Total Disability shall
be made by the insurance company carrying the group
life insurance plan of the Company on the date on which
the employee, whether or not eligible for benefits
under such insurance plan, becomes Totally Disabled.
3. ADMINISTRATION
--------------
The Committee is authorized, subject to the provisions of
the Plan, from time to time to establish such rules and
regulations and to appoint such agents as it deems
appropriate for the proper administration of the Plan, and
to make such determinations under, and such interpretations
of, and to take such steps in connection with the Plan or
the Options or Stock Appreciation Rights or the Strategic
Incentive Plan as it deems necessary or advisable. Each
determination, interpretation, or other action made or taken
pursuant to the provision of the Plan by the Committee shall
be final and shall be binding and conclusive for all
purposes and upon all persons. Notwithstanding any
provision of the Plan or any Administrative Procedure
adopted thereunder which may be capable of being construed
to the contrary, no discretion concerning the administration
of the Plan insofar as it relates to persons subject to
Section 16 of the Securities Exchange Act of 1934 shall be
afforded to a person who is not a disinterested person in
respect of the Plan.
5
<PAGE>
4. ELIGIBILITY
-----------
Only those Employees who, in the sole judgment of the
Committee, may have a significant effect on the
profitability and growth of the Company, shall be eligible
to receive Options and Stock Appreciation Rights under this
Plan. Of such Employees, those who are in positions
evaluated at grade 35 or higher under the Company's salary
administration system are eligible for participation in the
Strategic Incentive Plan; provided, however, the Committee
may also permit Employees eligible for Participation in the
Plan evaluated at less than grade 35 to participate in the
Strategic Incentive Plan if in the opinion of the Committee
such Employees have a significant effect on the Company's
long term growth and profitability.
5. MAXIMUM SHARES AVAILABLE
------------------------
The Stock to be distributed under the Plan may be either
authorized and unissued shares or issued shares whether held
in the treasury of the Company or otherwise. The total
amount of Stock which, under the provisions of this Plan,
may be subject to delivery on the exercise of Options,
issued in satisfaction of exercised Options or SAR's, or
issued under the Strategic Incentive Plan shall not exceed
8.6 million shares of the Company's Stock, which represents
approximately 3.5% of the number of issued and outstanding
shares of Stock as of December 31, 1988. The maximum number
of shares is subject to adjustment in accordance with the
provisions of Section 10 hereof. In determining the number
of shares subject to delivery under this Plan, those
represented by cancelled Options, forfeited Options,
6
<PAGE>
expired Options and non-earned awards under the Strategic
Incentive Plan shall be returned upon the occurrence of such
event to the pool of shares available for distribution under
the Plan and may be the subject of further Options or SAR's,
or may be issued under the Strategic Incentive Plan.
6. STOCK OPTIONS
-------------
a) Award of Options. (i) The Committee, at any time and
-----------------
from time to time prior to December 31, 1994, may grant
Options under the Plan to eligible Employees, for such
numbers of shares and having such terms as the
Committee shall designate, subject, however, to the
provisions of the Plan. The Committee will also
determine the type of Option granted (e.g., ISO,
nonstatutory, other statutory Options as from time to
time may be permitted by the Code) or a combination of
various types of Options. Options designated as ISO's
shall comply with all the provisions of Section 422A(b)
of the Code and applicable Treasury Department
regulations. The aggregate Fair Market Value
(determined at the time the Option is granted) of Stock
with respect to which ISO's are exercisable for the
first time by any individual during a calendar year
under all plans of the Company, and any subsidiary
shall not exceed $100,000. All shares over the
$100,000 first exercisable value shall be granted as a
non-qualified Option. The date on which an Option
shall be granted shall be the date of the Committee's
authorization of such grant. Any individual at any one
time and from time to time may hold more than one
Option granted under the Plan or under
7
<PAGE>
any other Stock plan of the Company. (ii) Each Option
shall be evidenced by a Stock Option Agreement in such
form and containing such provisions not inconsistent
with the provisions of the Plan as the Committee from
time to time shall approve.
b) Exercise Price. The price at which shares of Stock may
---------------
be purchased under an Option shall not be less than 100
percent of the Fair Market Value of the Stock on the
date the Option is granted.
c) Term of Options. The period during which an Option may
----------------
be exercised shall be determined by the Committee;
provided, that such period will not be longer than ten
years from the date on which the Option is granted for
those Options designated as ISO's or 11 years for other
types of Options. The date or dates on which
installment portion(s) of an Option may be exercised
during the term of an Option shall be determined by the
Committee and may vary from Option to Option. If the
Committee makes no such specific arrangement with
respect to an Option, each such Option granted pursuant
to the Plan shall become exercisable in four
installments. The first such installment shall become
exercisable on the first anniversary of the date of the
grant for 25 percent of the number of shares of Stock
subject to the Option. Thereafter, on each anniversary
of the date of the grant an installment shall become
exercisable for an additional 25 percent of the number
of shares of Stock subject to the Option until the
Option
8
<PAGE>
shall have become fully exercisable. To the extent
that an installment is not exercised when it becomes
exercisable, it shall not expire but shall continue to
be exercisable at any time thereafter until the Option
shall be cancelled, expire or be surrendered. The
Committee may accelerate the exercise schedule on
outstanding Options, if in its sole judgment conditions
are such to warrant such acceleration.
d) Termination of Employment. (i) If, prior to a date
--------------------------
one year from the date an Option shall have been
granted, the Optionee's employment with the Company or
Subsidiary shall be terminated for any reason, such
Option shall be cancelled and all rights thereunder
shall cease; provided that an Option granted in any
year to an Optionee who terminates employment on
January 1 of the following year due to retirement
pursuant to the terms of a retirement plan of the
Company or a Subsidiary shall not be cancelled for that
reason, and provided, further, the Committee may, in
its sole discretion determine that all or any portion
of any other Option shall not be cancelled due to
termination of employment prior to a date one year from
the date the Option shall have been granted.
(ii) If, on or after one year from the date an Option
shall have been granted, an Optionee's employment with
the Company or Subsidiary is terminated for any reason
except retirement pursuant to the terms of a retirement
plan of the Company or a Subsidiary, Total Disability,
or death,
9
<PAGE>
any Option so granted under the Plan shall be cancelled
on such termination; provided, that the Committee may,
in its sole discretion, determine that all or a portion
of any such Option shall not be cancelled.
(iii) If, on or after a date one year from the date the
Option is granted, an Optionee shall terminate
employment by reason of retirement pursuant to a
retirement plan of the Company or Subsidiary, or by
reason of Total Disability, the Optionee shall retain
all rights provided by the Option at the time of such
termination of employment. If on or after a date one
year from the date the Option is granted, or such
shorter period as may be permitted pursuant to (d)(ii)
above, an Optionee shall die while in the employ of the
Company or Subsidiary or after termination of
employment by reason of retirement pursuant to a
retirement plan of the Company or Subsidiary, the
executor or administrator of the estate of the Optionee
or the person or persons to whom the Option shall have
been validly transferred by the executor or the
administrator pursuant to will or the laws of descent
and distribution shall have the right to exercise the
Option to the same extent the Optionee could have, had
the Optionee not died. No transfer of an Option by the
Optionee by will or by the laws of descent and
distribution shall be effective to bind the Company
unless the Company shall have been furnished with
written notice thereof and a copy of the will and such
other evidence as the Company may deem necessary to
establish
10
<PAGE>
the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions
of such Option.
(iv) Transfer of employment between the Company and a
Subsidiary or between Subsidiaries shall not constitute
termination of employment for the purpose of any Option
granted under the Plan. Whether any leave of absence
shall constitute termination of employment for the
purposes of any Option granted under the Plan shall be
determined in each case by the Committee in its sole
discretion.
e) Payment for Shares. (i) The exercise price for all
-------------------
shares of Stock purchased upon the exercise of an
Option, or a portion thereof, shall be paid in full at
the time of such exercise. Such payment may be made in
cash, by tendering shares of Stock having a value on
the date of exercise equal to the exercise price, or
tendering shares of Restricted Stock having a value on
the date of exercise equal to the exercise price. Such
value shall be the Fair Market Value except that the
applicable date for determination of the highest and
lowest price on the New York Stock Exchange shall be
the date on which the Option is exercised, or if not a
trading date, then the last trading day on such
Exchange preceding the date on which the Option is
exercised. If Restricted Stock is used in such
exercise, the resulting new shares shall have the same
restrictions as the tendered shares. The number of
shares so restricted shall not be less than the number
of shares of
11
<PAGE>
Restricted Stock tendered. The Committee may, in its
sole discretion and judgment, limit the extent to which
shares of Stock or shares of Restricted Stock may be
used in exercising Options.
(ii) The Stock delivered to the Optionee upon exercise
of an Option, whether or not Restricted Stock is used
for payment of the purchase price of the Option may, at
the discretion of the Committee, have restrictions
placed on it, provided that the Stock Option Agreement
with the Optionee covering the Option permits such use
of Restricted Stock.
f) Should a withholding tax obligation arise upon the
exercise of an Option, the withholding tax may be
satisfied by withholding shares of Stock or by payment
of cash.
7. DETRIMENTAL ACTIVITIES
----------------------
If the Committee determines that, subsequent to the grant of
any Option, the Optionee has engaged or is engaging in any
activity which, in the sole judgment of the Committee, is or
may be detrimental to the Company or a Subsidiary, the
Committee may refuse to honor the exercise of such
Optionee's Options already requested, and cancel the Option
or Options granted to that Optionee.
12
<PAGE>
8. STOCK APPRECIATION RIGHTS
-------------------------
a) Grant. The Committee may, at its discretion, affix
------
Stock Appreciation Rights to any Option, either at the
time of its initial granting to the Optionee or at a
later date. The addition of such SAR's must be
accomplished prior to the completion of the period
during which the Option may be exercised and such
exercise period may not be extended beyond that which
was initially established. The Committee may establish
any SAR terms and conditions that it desires at the
time such SAR is established, provided that, to the
extent permitted by applicable law, notwithstanding any
provision of this Plan to the contrary, the terms and
conditions of a SAR related to an ISO shall be the same
as the terms applicable to the underlying ISO.
b) Exercise of Stock Appreciation Right. (i) A Stock
-------------------------------------
Appreciation Right shall be exercisable at such time as
may be determined by the Committee, which shall be not
less than six months after its grant, and provided
further that a Stock Appreciation Right shall be
exercisable only to the extent that the related Option
could be exercised. Option shares with respect to
which the related Stock Appreciation Right shall have
been exercised may not again be subjected to Options
under this Plan. Upon the exercise of a Stock
Appreciation Right, that portion of the Option
underlying the Stock Appreciation Right will be
considered as having been exercised.
13
<PAGE>
(ii) The Committee may impose any other conditions
upon the exercise of a Stock Appreciation Right, which
conditions may include a condition that the Stock
Appreciation Right may only be exercised in accordance
with rules and regulations adopted by the Committee
from time to time. Such rules and regulations may
govern the right to exercise Stock Appreciation Rights
granted prior to the adoption or amendment of such
rules and regulations as well as Stock Appreciation
Rights granted thereafter. The exercise of a Stock
Appreciation Right for cash shall be made only during
the periods specified in Rule 16b-3 of the Securities
and Exchange Commission.
(iii) Upon the exercise of a Stock Appreciation Right,
the Company shall give to an Optionee an amount (less
any applicable withholding taxes, which at the
Company's discretion may be settled by withholding
shares of Stock or by payment of cash) equivalent to
the excess of the value of the shares of Stock for
which the right is exercised on the date of such
exercise over the exercise price of such shares under
the related Option. The value on the date of exercise
shall be the Fair Market Value as determined in Section
6(e) of this Plan. Such amount shall be either in cash
or in shares of Stock or both as the Committee shall
determine. Such determination may be made at the time
of the granting of the Stock Appreciation Right and may
be changed at any time thereafter. The shares may
consist either
14
<PAGE>
in whole or in part of authorized and unissued shares
of Stock or issued shares of Stock whether held in the
treasury of the Company or otherwise. No fractional
shares of Stock shall be issued and the Committee shall
determine whether cash shall be given in lieu of such
fractional share or whether such fractional share shall
be eliminated.
c) Expiration or Termination of Stock Appreciation Rights.
-------------------------------------------------------
(i) Subject to (c)(ii), each Stock Appreciation Right
and all rights and obligations thereunder shall expire
on a date to be determined by the Committee.
(ii) A Stock Appreciation Right shall terminate and may
no longer be exercised upon the termination of the
related Option.
d) Amendment, Suspension or Termination of Stock
---------------------------------------------
Appreciation Rights. The Committee may, at any time,
--------------------
amend, suspend, or terminate any Stock Appreciation
Right theretofore granted under the Plan.
9. STRATEGIC INCENTIVE PLAN
------------------------
a) Administrative Procedure. Normally, the Committee
-------------------------
shall adopt administrative procedures applicable to a
Performance Period prior to, or within 30 days after,
the date designated by the Committee for the
Commencement of such Performance Period. The Committee
may, however, adopt such administrative procedures more
than 30 days after
15
<PAGE>
such commencement if in its option such delayed action
is appropriate. Such procedures shall establish
Indicators of Performance and the Target Awards
applicable to the Performance Period. Indicators of
Performance may vary from Performance Period to
Performance Period.
b) Indicators of Performance. Indicators of Performance
--------------------------
may include, but shall not be limited to, increased
shareholder value, earnings per share, return on
shareholder's equity, return on assets and/or other
similar criteria. Such indicators may be based on the
Company's performance compared to the performance of
one or more selected companies in the petroleum
industry during the same Performance Period or may
relate solely to the Company's performance during the
Performance Period or a combination of such indicators.
At the completion of the Performance Period, the
Committee will review the Company's actual performance
with respect to the Indicators of Performance, and, in
its sole judgment, rank the Company's overall
performance. Such ranking may range from
"noncompetitive" through "competitive" to
"outstanding." In arriving at such ranking, the
Committee may take into consideration, and make
appropriate adjustments for, events occurring during
the Performance Period, which the Committee, in its
sole judgment, concludes have affected the performance
of the Company or any selected company with respect to
any of the Indicators of Performance. No Earned Awards
will be granted if the Company's overall performance is
ranked "non-competitive." Subject
16
<PAGE>
to individual performance adjustments therein, if any,
pursuant to paragraph 9(c) of this Plan, if the
Company's overall performance is ranked "competitive,"
Target Awards will result; higher or lower ranking will
result in greater or lesser awards provided that in no
event, including individual performance adjustments,
shall the Earned Award of a SIP Participant exceed 150%
of the SIP Participant's Target Award.
c) Award Adjustments. The Committee in its sole
------------------
discretion may make adjustments in awards determined
under paragraph (b) of this Section based on the SIP
Participant's individual performance during the
Performance Period. The administrative procedures for
each Performance Period shall establish the method to
be used by the Committee in determining which, if any,
SIP Participants may receive such performance
adjustments and, subject to the maximum set out in
paragraph (b) of this Section, the size of such
adjustments.
d) Partial Performance Period Participation. The
-----------------------------------------
administrative procedures adopted for each Performance
Period shall also include procedures to be used in
determining the extent to which an Employee shall
participate in a partial Performance Period due to
either assignment to a position which makes the
Employee eligible to be a SIP Participant after the
beginning of such Performance Period or termination of
employment prior to the
17
<PAGE>
completion of such a Performance Period in which the
Employee was a SIP Participant.
e) Award Settlement. With respect to each Performance
-----------------
Period, settlement of all Earned Awards shall be made
in Stock as soon as practicable following the date on
which the Committee determines the size of Earned
Awards; provided that the Committee may decide to
settle such awards over a period or periods of time as
the Committee shall deem appropriate.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
-----------------------------------------
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 adjustment to outstanding Awards as it determines
appropriate so as to prevent dilution or enlargement of
rights.
11. MISCELLANEOUS
-------------
a) Except as otherwise required by law, no action taken
under the Plan shall be taken into account in
determining any benefits under any pension, retirement,
thrift, profit sharing, group insurance, or other
benefit plan
18
<PAGE>
maintained by the Company or any Subsidiary, unless
such other plan specifically provides for such
inclusion.
b) No Option or Stock Appreciation Right or right under
the Strategic Incentive Plan shall be transferable
other than by will or the laws of descent and
distribution. During the lifetime of an Optionee, any
Option or Stock Appreciation Right shall be exercisable
only by the Optionee or the Optionee's duly appointed
guardian or legal representative.
c) The Company shall have the right to withhold from any
settlement hereunder any Federal, state, or local taxes
required by law to be withheld. Such withholding may
be satisfied by the withholding of shares of Stock by
the Company if the Optionee so requests in a manner
prescribed by the Committee, if the Committee so
approves, and such withholding of shares does not
violate any applicable laws, rules or regulations of
Federal, state or local authorities.
d) All administrative expenses associated with the
administration of the Plan shall be borne by the
Company.
e) Masculine pronouns and other words of masculine gender
used herein shall refer to both men and women.
19
<PAGE>
f) The titles and headings of the sections in this Plan
are for convenience of reference only and in the event
of any conflict, the text of the Plan, rather than such
titles or headings, shall control.
12. AMENDMENT AND TERMINATION
-------------------------
The Board may, at any time, terminate or amend this Plan in
such respect as it shall deem advisable, provided, the Board
may not, without further approval of the stockholders of the
Company if such approval is required in order that
transactions in Company securities under the Plan be exempt
from the operation of Section 16(b) of the Securities
Exchange Act of 1934, amend the Plan so as to (i) increase
the number of shares of Stock which may be issued under the
Plan, except as provided for in Section 10; (ii) materially
modify the requirements as to eligibility for participation;
(iii) materially increase the benefits accruing to
Participants under the Plan; (iv) extend the duration of the
Plan beyond the date approved by the stockholders; or (v)
increase the maximum dollar amount of ISO's which an
individual Optionee may first exercise during any calendar
year beyond that permitted in the Code and applicable
regulations of the Treasury Department. Notwithstanding the
foregoing, no such termination or amendment may adversely
affect the rights of any Participant under any Award that is
outstanding at the time of such termination or amendment
without the Participant's consent.
20
<PAGE>
13. DURATION OF THE PLAN
--------------------
The Plan shall become effective on January 1, 1990, provided
that it has been approved by the stockholders at the annual
meeting of the stockholders in April of 1989, and shall
terminate on December 31, 1994.
14. CHANGE OF CONTROL
-----------------
a) In the event of a Change of Control:
i) Any Stock Options and Stock Appreciation Rights
outstanding as of the date of the Change of
Control that are not then fully exercisable and
vested, shall become fully exercisable and vested
to the full extent of the original grant;
ii) All restrictions and other limitations applicable
to any Restricted Stock shall lapse, and such
Restricted Stock shall become free of all
restrictions and become fully vested and
transferable to the full extent of the original
grant;
iii) All Performance Awards and other Awards
outstanding as of the date of the Change of
Control shall be considered to be earned and
payable in full, and any deferral or other
restriction shall lapse and except as provided in
subsection (c) of this Section 14, such
21
<PAGE>
Performance Units shall be settled in cash as
promptly as is practicable; and
iv) All noncompetition covenants and other similar
restrictive covenants applicable to any
outstanding Awards shall lapse and become null and
void and of no further effect.
b) A "Change of Control" shall mean:
i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 as
amended (a "Person")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated
under the Securities Exchange Act of 1934) of 20%
or more of either (a) the then outstanding shares
of common stock of the Company (the "Outstanding
Company Common Stock") or (b) the combined voting
power of the then outstanding voting securities of
the Company entitled to vote generally in the
election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for
the purposes of this subsection (i), the following
acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or
22
<PAGE>
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company or (D) any acquisition pursuant to a
transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 14(b);
or
ii) Individuals who, as of January 12, 1998,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority
of the Board; provided, however, that any
individual becoming a director subsequent to
January 12, 1998, whose election, or nomination
for election by the Company's shareholders, was
approved by a vote of at least a majority of the
directors then comprising the Incumbent Board
shall be considered as though such individual were
a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose
initial assumption of office occurs as a result of
an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than
the Board; or
iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or
other disposition of all or substantially all of
the assets of the Company or the acquisition of
assets of another entity (a "Corporate
Transaction"), in each case,
23
<PAGE>
unless, following such Corporate Transaction, (A)
all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding
shares of common stock and the combined voting
power of the then outstanding voting securities
entitled to vote generally in the election of
directors, as the case may be, of the corporation
resulting from such Corporate Transaction
(including, without limitation, a corporation
which as a result of such transaction owns the
Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Corporate Transaction of the Outstanding
Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no
Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Corporate Transaction)
beneficially own, directly or indirectly, 20% or
more of, respectively, the then outstanding shares
of common stock of the corporation resulting from
such Corporate Transaction or the combined voting
power of the then outstanding voting securities of
such corporation except to
24
<PAGE>
the extent that such ownership existed prior to
the Corporate Transaction and (C) at least a
majority of the members of the board of directors
of the corporation resulting from such Corporate
Transaction were members of the Incumbent Board at
the time of the execution of the initial
agreement, or of the action of the Board,
providing for such Corporate Transaction; or
iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the
Company.
c) Notwithstanding the foregoing, if any right to receive
cash granted pursuant to this Section 14 would make a
Change of Control transaction ineligible for pooling-of-
interests accounting under APB No. 16 that but for the
nature of such right would be eligible for such
accounting treatment, the Committee shall have the
ability to substitute for the cash payable pursuant to
such right Stock or other securities with a fair market
value equal to the cash that would otherwise be payable
hereunder.
cc1990 - a Stock Plan98
25
<PAGE>
Exhibit 10(f)
Amended by the Board of Directors 1/12/98
ANNUAL INCENTIVE COMPENSATION PLAN
OF
PHILLIPS PETROLEUM COMPANY
Section 1. Purpose and Establishment
The purpose of the Annual Incentive Compensation Plan of
Phillips Petroleum Company (the "Plan") is to benefit the
shareholders of Phillips Petroleum Company 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 all employees to work as a team to achieve
the Company's mission of being the top performer in each of our
businesses through the recognition and reward of such performance
on an annual basis when measured against predetermined annual
performance objectives.
The Annual Incentive Compensation Plan of Phillips Petroleum
Company is established effective January 1, 1993.
1
<PAGE>
Section 2. Definitions
As used in this Plan:
(a) "Award" means the grant of cash or any other form of
Share based or non-Share based Award granted pursuant to
this Plan.
(b) "Award Agreement" means a written agreement between the
Company and a Participant that sets forth the terms,
conditions and any limitations applicable to an Award
granted to the Participant.
(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 contingently 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:
Surviving spouse
2
<PAGE>
Surviving children in equal shares
To the estate of the Participant.
(d) "Board" means the Board of Directors of Phillips
Petroleum Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended and in effect 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 responsibilities.
(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.
(i) "Employee" means any individual who is a salaried
3
<PAGE>
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 Per Share" 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 the 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.
(l) "Participant" means any Employee who has been designated
by the Committee to be eligible for an Award under this
Plan.
(m) "Participating Subsidiary" means a subsidiary of the
4
<PAGE>
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 the
Plan.
(n) "Performance Measures" means the criteria which the
Committee will use to evaluate the Company's
performance.
(o) "Plan Year" means calendar year.
(p) "Restricted Stock" means shares of Stock which have
certain restrictions attached to the ownership thereof.
(q) "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.
(r) "Rule 16b-3" has the meaning described in Section 12(c).
(s) "Section 16" means Section 16 of the Exchange Act or any
successor regulation and the rules promulgated
thereunder
5
<PAGE>
as they may be amended from time to time.
(t) "Stock" mean shares of common stock of the Company, par
value $1.25.
(u) "Stock Unit" means the right to receive a payment
equivalent in value to one share of Stock on the date of
payment.
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. Performance Measures
As soon as practicable after the beginning of the year the
Committee shall determine the Performance Measures for the Plan
Year and shall advise Participants of the Performance Measures.
The Performance Measures may include corporate, group, business
unit and Staff objectives. The objectives may include a
combination of financial and/or operational criteria and may be
measured
6
<PAGE>
solely against internal targets or in comparison to the
performance of an industry peer group or both. The Committee
shall establish a threshold Performance Measure applicable to
overall financial performance of the Company which must be
achieved before Awards for the Plan Year will be granted.
Section 5. Determination of Awards
Following the completion of the Plan Year, the Committee will
review the Company's performance with respect to the Performance
Measures, and in its sole judgment, determine the amount and
manner of Awards to be granted to eligible Employees. No Awards
will be granted if the threshold Performance Measure established
under Section 4 is not achieved.
Section 6. Payment of Awards
(a) Each Award may be made at the discretion of the
Committee either in cash, in Stock, in Restricted Stock,
in Stock Units, or in another form as determined by the
Committee and may be made partly in one form and partly
in one or more other forms. In the case of an Award in
Stock, Restricted Stock, or Stock Units, the number
shall be determined by using the Fair Market Value Per
share of Stock on the date of the Award, provided,
however, that
7
<PAGE>
no Employee whose acquisition of Stock, Restricted
Stock, Stock Units or other form of Award would be
subject to the provisions of Section 16 of the Exchange
Act shall be eligible to receive an Award otherwise than
in cash, and the Committee shall grant Awards to such
persons only in cash, unless prior to the grant of any
such Award all action necessary to qualify such award
for the exemption under Rule 16b-3 shall have been
taken.
(b) The payment of any Award shall be subject to such
obligations or conditions as the Committee may specify
in making or recommending the Award, but Awards need not
be evidenced by Award Agreements.
(c) Part or all of a cash Award may be deferred by a
Participant under the terms of the Key Employee Deferred
Compensation Plan of Phillips Petroleum Company or any
successor plan thereto.
(d) Any Award payable in Stock or Restricted Stock may, in
the discretion of the Committee, be paid part or all in
cash, on each date on which payment in Stock or
Restricted Stock would otherwise have been made, in an
amount equal to the Fair Market Value per share of Stock
on each such date, multiplied by the number of shares of
8
<PAGE>
Stock or Restricted Stock which would otherwise have
been paid on such date.
(e) Awards may be granted in Restricted Stock that is issued
to a Participant and is subject to such terms,
conditions and restrictions as the Committee deems
appropriate, which may include 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 rights to receive any cash or stock
dividend on such Stock.
(f) Awards may be granted in Stock Units that are subject to
such terms and conditions as the Committee deems
appropriate. The number of Stock Units awarded with
respect to any Award shall be the number determined by
using the Fair Market Value per share of Stock on the
date of the Award. Any Award made in Stock Units may,
in
9
<PAGE>
the discretion or the recommendation of the Committee,
be paid in shares of Stock on each date on which payment
in cash would otherwise be made.
(g) In lieu of the foregoing forms of payment of Awards, the
Committee may specify or recommend any other form of
payment which it determines to be of substantially
equivalent economic value to the cash value of the Award
including, without limitation, forms involving payments
to a trust or trusts for the benefit of one or more
Participants.
(h) Each payment of an Award that is to be made in cash
shall be from the general funds of the Company or the
Participating Subsidiary making the payment.
(i) In the event the Participant resigns during the Plan
Year or before Awards are paid for the Plan Year, no
Awards shall be made to that Participant, provided, that
the Committee may, in its sole discretion, determine
that an Award shall be made with respect to the period
of time during which the Participant was an Employee.
(j) In the event the Participant transfers to a non-
participating subsidiary or otherwise becomes ineligible
prior
10
<PAGE>
to the end of the Plan Year, the Participant may remain
a Participant for the purpose of all Awards which shall
have been made prior to the Participant's transfer or
prior to the Participant becoming ineligible or are to
be made, but in such later case, only with respect to
the period of time during which the Participant was an
eligible Participant.
(k) In the event the Participant terminates employment by
reason of Disability, the Participant may remain a
Participant for the purpose of all Awards which shall
have been made prior to the Participant's Disability or
are to be made, but in such later case, only with
respect to the period of time prior to the Disability.
(l) In the event the Participant terminates employment by
Retirement, the Participant may remain a Participant for
the purpose of all Awards which shall have been made
prior to Retirement or are to be made, but in such later
case, only with respect to the period of time during
which the Participant was an Employee.
(m) In the event of the death of a Participant to whom an
Award is to be or shall have been made, the Award or any
portion thereof remaining unpaid may be paid to such
11
<PAGE>
Participant's Beneficiary either in the manner in which
payment would have been made had the Participant not
died or in such other manner as may be determined by the
Committee.
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) To the extent permitted by Section 12, the Committee is
authorized to
(i) determine which Employees shall be Participants in
the Plan and which form of Awards shall be granted
to Participants,
(ii) establish, amend and rescind rules, regulations and
guidelines relating to this Plan as it deems
appropriate,
12
<PAGE>
(iii) interpret and administer this Plan, Awards and
Award Agreements,
(iv) establish, modify and terminate terms and
conditions of Award Agreements,
(v) grant waivers and accelerations of Plan, Award and
Award Agreement restrictions and
(vi) take any other action necessary for the proper
administration and operation of the Plan, all of
which shall be executed in accordance with the
objectives of this Program.
(c) The Committee may delegate to the officers or employees
of the Company the authority to carry out any of its
responsibilities under and described in this Plan, under
such conditions or limitations as the Committee may
establish, other than its authority with regard to
Participants who are subject to Section 16.
(d) Determinations of the Committee and its designees shall
be final, binding and conclusive on the Company, its
Participating Subsidiaries, shareholders, Employees and
Participants. No member of the Committee or any of its
13
<PAGE>
designees shall be personally liable for any action or
determination made in good faith with respect to this
Program, any Award, or any Award Agreement.
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.
Section 9. Change of Control
(a) In the event of a Change of Control, all restrictions and
other limitations applicable to any Restricted Stock shall
lapse, and such Restricted Stock shall become free of all
restrictions and become fully vested and transferable to the
full extent of the original grant.
14
<PAGE>
(b) A "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act (a "Person")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (a) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (b) the combined
voting power of the then outstanding voting securities
of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of
this subsection (i), the following acquisitions shall
not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or
(D) any acquisition pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 9(b); or
(ii) Individuals who, as of January 12, 1998, constitute the
Board (the "Incumbent Board") cease for any reason to
15
<PAGE>
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to January 12, 1998, whose election, or
nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office
occurs as a result of an actual or threatened election
contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other
than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of
the Company or the acquisition of assets of another
entity (a "Corporate Transaction"), in each case,
unless, following such Corporate Transaction, (A) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate
Transaction beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting
16
<PAGE>
power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the
case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate
Transaction of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any employee benefit plan
(or related trust) of the Company or such corporation
resulting from such Corporate Transaction) beneficially
own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then
outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the
Corporate Transaction and (C) at least a majority of the
members of the board of directors of the corporation
resulting from such Corporate Transaction were members
of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board,
providing for such Corporate Transaction; or
17
<PAGE>
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
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.
Section 11. 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
18
<PAGE>
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 12. Amendments and Termination
(a) The Committee or the Board, as appropriate, may, insofar
as permitted by law, from time to time, suspend or
terminate this Plan or revise or amend it in any respect
whatsoever; provided, however, unless the Committee or
the Board, as appropriate, specifically otherwise
provides, any revision or amendment that would cause
this Plan to fail to comply with any requirement of
applicable law, regulation or rule if such amendment
were not approved by the shareholders of the Company
shall not be effective unless and until the approval of
the shareholders of the Company is obtained.
(b) Subject to the terms and conditions and within the
limitations of this Plan, the Committee may amend,
cancel, modify or extend outstanding Awards granted
under this Plan, but no such action taken after a Change
of Control, at the request of a third party seeking to
effect a Change of Control, or otherwise in connection
19
<PAGE>
with or in anticipation of a Change of Control, may
adversely affect the rights of any Participant with
respect to any outstanding award without such
Participant's consent.
(c) This Plan is intended to comply with 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 ("Rule 16b-3")
with respect to Participants who are subject to Section
16 of the Exchange Act. Should the requirements of Rule
16b-3 change, the Board or the Committee, as
appropriate, may amend the program to comply with the
requirements of the amended Rule 16b-3 or its successor
provision or provisions.
Section 13. 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.
20
<PAGE>
Section 14. Limits of Liability
(a) Any liability of the Company to any Participant with
respect to an Award shall be based solely upon
contracted 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 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.
2DP/026
01/08/98
21
<PAGE>
Exhibit 10(j)
Board of Directors Amended
January 12, 1998
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 in the event restrictions
lapse on Restricted Stock previously awarded or 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
1
<PAGE>
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
(ix) 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.
(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
2
<PAGE>
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 or Rehired
Participant who satisfies the conditions of Section 5(i)
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 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. Employee shall also include
former employees who Retire or are Laid Off and are
eligible to receive a lump sum distribution from non-
qualified retirement plans.
(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.
3
<PAGE>
(m) "Layoff" or "Laid Off" shall mean layoff under the
Phillips Layoff Plan or any similar plan which the
Company may adopt from time to time under the terms of
which the Participant executes and does not revoke a
general release of liability, acceptable to the Company,
under such layoff plan.
(n) "Long-Term Incentive Compensation Plan" shall mean the
Long-Term Incentive Compensation Plan of the Company
which was terminated December 31, 1985.
(o) "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.
(p) "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.
(q) "Newhire Employee" shall mean any Employee who is hired
or rehired during a calendar year.
(r) "Participant" shall mean a person for whom a Deferred
Compensation Account is maintained.
(s) "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.
4
<PAGE>
(t) "Plan Administrator" shall mean the person designated by
the Chief Executive Officer to carry out ministerial
duties related to the Plan.
(u) "Potential Participant" shall mean a person who has
received a notice specified in Section 2.
(v) "Rehired Participant" shall mean a Participant who
subsequent to Retirement or Layoff is rehired by the
Company and whose employment status is classified as
regular full-time or its equivalent.
(w) "Restricted Stock" shall mean shares of Stock which have
certain restrictions attached to the ownership thereof.
(x) "Retirement" or "Retire", or "Retiring" shall mean
termination of employment with the Company on or after
the earliest early retirement date as defined in the
Retirement Income Plan.
(y) "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.
(z) "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.
(aa) "Salary" shall mean the monthly equivalent rate of pay
for an Employee before adjustments for any before-tax
voluntary reductions.
5
<PAGE>
(bb) "Stock" means shares of common stock of the Company, par
value $1.25.
(cc) "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.
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
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 restrictions lapse 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
6
<PAGE>
Plan, may indicate, in a manner prescribed by the Plan
Administrator, a preference concerning deferral of all of
part of such payment.
(e) Salary Reduction. Annually, Employees and Newhire
----------------
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, or for Newhire Employees the remainder of
the calendar year in which they are hired, 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, in a manner prescribed by the Plan
Administrator, (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 state the
portion of the Award 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 ICP award awarded by the
Committee.
7
<PAGE>
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, except that, in the
event of any of the following:
i) the Employee is demoted to a job
classification/grade that is no longer eligible to
receive an Award from an Incentive Compensation
Plan,
ii) the Employee's employment status is classified to a
status other than regular full-time or its
equivalent,
iii) the Employee is receiving Unavoidable Absence
Benefits (UAB) pay such that the pay received is
less than his/her pay had been prior to being on
UAB,
the Employee can request, subject to approval by the Plan
Benefits Administrator, that his/her indication of preference
to defer, whether approved or not, be revoked for that
Incentive Compensation Plan 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 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, in a manner prescribed by the Plan
Administrator, (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 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 are lapsed. 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
8
<PAGE>
applicable, 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, in a manner prescribed by
the Plan Administrator, (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 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.
(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, in a manner prescribed by the Plan
Administrator, (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
9
<PAGE>
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 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 must make an
election, in the manner prescribed by the Plan
Administrator, which must be received on or before
November 30 prior to the beginning of the calendar year
of the elected deferral or for Newhire Employees prior to
their first day of employment or reemployment. 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 or for Newhire Employees
on their first day of employment or reemployment, except
that in the event of any of the following:
i) the Employee is demoted to a job
classification/grade that is no longer
eligible to receive an Award from an Incentive
Compensation Plan,
ii) the Employee's employment status is classified
to a status other than regular full-time or
its equivalent,
10
<PAGE>
iii) the Employee is receiving Unavoidable Absence
Benefits (UAB) pay such that the pay received
is less than his/her pay had been prior to
being on UAB,
the Employee can request, subject to approval by the Plan
Benefits Administrator, that his/her election to
voluntarily reduce his/her salary be revoked for the
remainder 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,
in a manner prescribed by the Plan Administrator, (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 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 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
11
<PAGE>
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
restrictions lapse. For this purpose, the market value
of the underlying Restricted Stock shall be based on the
higher of (i) the average of the high and low selling
prices of the Company Stock on the date the restrictions
lapse or the last trading day before the day the
restrictions lapse if such date is not a trading day or
(ii) the average of the high three monthly Fair Market
Values of the Company Stock during the twelve calendar
months preceding the month in which the restrictions
lapse. The monthly Fair Market Value of the Company
Stock is the average of the daily Fair Market Value of
the Stock for each trading day of the month. The daily
Fair Market Value of the Stock shall be deemed equal to
the average of the high and low selling prices of the
Stock on the New York Stock Exchange, as reported in the
Wall Street Journal. 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 but not
later than 30 days after the date the Award would
otherwise be payable.
(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
12
<PAGE>
security" in 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 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
13
<PAGE>
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.
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.
14
<PAGE>
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
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
15
<PAGE>
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.
(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.
(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:
16
<PAGE>
(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 (e)(i) or (e)(ii) of this Section, the
Participant, 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.
17
<PAGE>
(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).
(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 surviving spouse,
surviving children (natural or adopted) in equal shares,
or the Estate 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 Compen-
18
<PAGE>
sation 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.
(i) Rehire of Participant
---------------------
In the event a Participant is a Rehired Participant,
he/she will be eligible to receive notifications as
specified in Section 2 and will be eligible to submit an
Indication of Preference or Election to Defer as
specified in Section 3, if the Participant agrees to the
suspension of payments from his/her Deferred Compensation
Account during the period of reemployment by the Company.
Upon termination of reemployment, such payments shall
resume on the same schedule as was in effect at the time
the Participant previously Retired or was Laid Off.
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 Partici-
pant, 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.
19
<PAGE>
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.
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.
20
<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 obligations so long as the Plan
remains unfunded for federal tax purposes and for
purposes of Title I of ERISA.
21
<PAGE>
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.
O:\hr\5_pb\wordproc\2dp\kedcpRED
1/7/98
22
<PAGE>
Exhibit 10(k)
Board of Directors Amended
February 9, 1998
NON-EMPLOYEE DIRECTOR RETIREMENT PLAN
OF PHILLIPS PETROLEUM COMPANY
ARTICLE I - PURPOSE
-------------------
The Non-Employee Director Retirement Plan is intended to provide
Non-Employee Directors with income commencing upon their
retirement from service on the Phillips Petroleum Company Board
of Directors.
ARTICLE II - DEFINITIONS
------------------------
The following terms, when used in this Plan, have the following
meaning unless the context clearly indicates otherwise:
1. "Annual Board Service Retainer" shall mean the sum of
the cash compensation paid for Board service exclusive
of compensation for committee membership and of fees
for attendance at Board or Committee meetings, if any,
plus the value of the Company common stock granted, if
any, to a Non-Employee Director during the twelve
calendar months immediately preceding the date on which
the Non-Employee Director retires, such value to be
determined as the product of the number of shares of
such common stock granted multiplied by the higher of
the Fair Market Value for the last year or the average
of the high three Fair Market Values calculated in
accordance
- 1 -
<PAGE>
with Article II, Section 6, for the last ten years
preceding the Non-Employee Director's retirement.
2. "Board" shall mean the Board of Directors of the
Company.
3. "Chief Executive Officer" shall mean the Chief
Executive Officer of the Company.
4. "Company" shall mean Phillips Petroleum Company.
5. "Disability" shall mean that condition in which, by
reason of bodily injury or disease, a Non-Employee
Director is prevented from serving in such capacity.
All determinations of Disability shall be made by a
physician selected by the Company.
6. "Fair Market Value" shall be calculated as the average
of the high three monthly fair market values of the
Company common stock during the twelve calendar months
preceding the month in which the Non-Employee Director
retires. The monthly fair market value of the Company
common stock is the average of the daily fair market
value of the stock for each trading day of the month.
The daily fair market value of the stock shall be
deemed equal to the average of the high and low selling
prices of the stock on the New York Stock Exchange, as
reported in the Wall Street Journal.
- 2 -
<PAGE>
7. "Non-Employee Director" shall mean a member of the
Board of Directors who is not a present employee nor
former employee of the Company or any of its
subsidiaries.
8. "Normal Retirement Date" shall mean the date of the
Annual Stockholders Meeting of the Company in the year
in which the director is no longer eligible for
election as a director as defined in the Bylaws of the
Company, currently the year in which the director
attains age 71.
9. "Plan" shall mean the Non-Employee Director Retirement
Plan of Phillips Petroleum Company, the terms and
provisions of which are herein set forth, together with
such amendments thereto as may hereafter from time to
time be adopted.
10. "Retires" or "Retirement" shall mean the termination of
Board service due to a) the Non-Employee Director's not
being nominated for election to the Board; or b) the
Non-Employee Director's not being reelected to Board
service after being so nominated; or c) the Non-
Employee Director's resignation from Board service as a
result of the Director's Disability or any reason,
acceptable to a majority of the remaining members of
the Board of Directors.
11. "Years of Service" shall mean the number of full and
- 3 -
<PAGE>
partial consecutive calendar years during which the
Non-Employee Director was a member of the Board;
provided, however that only a Non-Employee Director
whose Normal Retirement Date occurs in 1998, shall
accrue Years of Service after December 31, 1997, and
further that no Non-Employee Director shall accrue
Years of Service after the date of the 1998 Annual
Stockholders Meeting of the Company.
ARTICLE III - ELIGIBILITY
-------------------------
Only Non-Employee Directors are eligible to participate in the
Plan.
ARTICLE IV - PAYMENT OF RETIREMENT BENEFITS
-------------------------------------------
Upon Retirement from Board service each Non-Employee Director
shall receive payments under this Plan. Notwithstanding anything
to the contrary in this Plan, no payments shall be made under
this Plan for any Non-Employee Director who has given written
consent to the Company to receive an Award of Restricted Stock,
as of March 2, 1998, under the Phillips Petroleum Company Stock
Plan for Non-Employee Directors representing and in lieu of his
or her accrued benefits under this Plan.
a) These payments shall be made on a monthly basis
beginning on or about the first of the month after
Retirement. The amount of these monthly payments shall
be equal to the Annual Board Service Retainer divided
by
- 4 -
<PAGE>
12; provided, however, that the amount of payments to
any retired Non-Employee Director who has commenced
receiving payments from this Plan prior to April 10,
1995, shall not be increased or paid in a different
manner, but shall be paid in the same amount and manner
as in effect at the time payments commenced. These
payments shall continue for a number of months equal to
Years of Service times 12.
b) Notwithstanding (a) above, a Retiring Non-Employee
Director may, not earlier than 150 days nor later than
30 days prior to the date retirement benefit payments
would begin, express a preference, in the manner
prescribed by the Chief Executive Officer, to have the
monthly payment provided hereunder converted to one
lump sum payment which is calculated as the present
value of the monthly payment amount using the December
1 of the year prior to Retirement rate of the 30-year
Treasury Bond as quoted in the Federal Reserve
Statistical Release Bulletin No. H.15, or the
comparable successor publication, and the number of
Years of Service.
All or part of such lump sum payment may be either paid
to the Non-Employee Director or considered for deferral
under the Deferred Compensation Plan for Non-Employee
Directors of Phillips Petroleum Company. The Chief
Executive Officer shall consider such indication of
preference for a lump sum and shall respectively decide
- 5 -
<PAGE>
in the Chief Executive Officer's sole discretion
whether to accept or reject the preference expressed.
In the event the Chief Executive Officer accepts such
Non-Employee Director's preference for a lump sum, part
or all of the retirement benefit shall be paid in a
lump sum as soon as practicable after the later of such
acceptance or on or about the first of the month after
Retirement.
ARTICLE V - DEATH OF NON-EMPLOYEE DIRECTOR
------------------------------------------
In the event a Non-Employee Director dies prior to Retirement, no
benefits shall be payable from this Plan. After commencement of
Retirement payments, if paid as a monthly payment determined in
accordance with Article IV (a), such monthly payments will
continue until the total number of payments has been made, or the
death of the retired Non-Employee Director, whichever occurs
first. If death occurs first, then the remaining payments shall
be made to the surviving spouse, if any. If there is no
surviving spouse, or if the surviving spouse should die, then
there will be no further payment obligation under this Plan.
ARTICLE VI - ADMINISTRATION
---------------------------
The Chief Executive Officer is authorized, subject to the
provisions of the Plan, to establish rules and regulations, to
make determinations under and such interpretations of, and to
take steps in connection with the Plan as the Chief Executive
Officer
- 6 -
<PAGE>
deems necessary or advisable, and to appoint agents as the Chief
Executive Officer deems appropriate for the proper administration
of the Plan. Each determination, interpretation, or other action
made or taken pursuant to the provisions of the Plan by the Chief
Executive Officer shall be reported to the Board of Directors and
once so reported shall be final and shall be binding and
conclusive for all purposes and upon all persons.
ARTICLE VII - TERMINATION OR AMENDMENT OF THE PLAN
--------------------------------------------------
The Board may at any time terminate the Plan and may from time to
time alter or amend the Plan, or any part thereof, (including any
amendment deemed necessary to ensure that the Company may comply
with any regulatory requirement); provided, however, that no
director may act to terminate or amend the Plan if such action
would either increase benefits payable under the Plan to that
director or remove or reduce the risk that such director's
benefits under the Plan might be forfeited. Such termination or
amendment will not negatively impact any rights or benefits
accrued to date of such termination or amendment under this Plan.
After the 1998 Annual Stockholders Meeting of the Company and
upon the final payment of all amounts owed to Retired Non-
Employee Directors and their surviving spouses, this Plan shall
automatically terminate without further action of this Board.
- 7 -
<PAGE>
ARTICLE VIII - NON-ASSIGNABILITY
--------------------------------
Retirement payments may not be pledged, anticipated, assigned
(either at law or in equity), alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process.
ARTICLE IX - MISCELLANEOUS
--------------------------
(a) All amounts payable under this Plan are unfunded and
unsecured benefits and shall be paid solely from the general
assets of the Company and any rights accruing to the Non-
Employee Director or the surviving spouse under the Plan shall
be those of a unsecured general creditor; provided,
however, that the Company may establish a grantor trust to
pay part or all of its Plan payment obligations so long as
the Plan remains unfunded for federal tax purposes.
(b) Except as otherwise provided herein, the Plan shall be
binding upon the Company, its successors and assigns,
including but not limited to any corporation which may
acquire all or substantially all of the Company's assets and
business or with or into which the Company may be
consolidated or merged.
(c) This Plan shall be construed, regulated, and administered in
accordance with the laws of the State of Delaware except to
the extent that said laws have been preempted by the laws of
the United States.
- 8 -
<PAGE>
ARTICLE X - EFFECTIVE DATE OF THE PLAN
---------------------------------------
The Plan is amended and restated effective as of January 1, 1998.
2DP/015
2/10/98
2:29PM
- 9 -
<PAGE>
Exhibit 10(l)
Amended by the Board of Directors 1/12/98
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 contingently 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
responsibilities.
(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.
-3-
<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.
-4-
<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
-6-
<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 legal 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
-8-
<PAGE>
vesting, time for exercise, forfeiture or
cancellation of an Award in such circumstances.
(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 specifies) 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
-9-
<PAGE>
specifies) must elapse from the date of
acquisition of the derivative security 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 of such Non-Qualified Stock
Options to (a) the spouse, children or grandchildren
(including in each case stepchildren or step
grandchildren)
-10-
<PAGE>
of the Participant (all such persons collectively
"Immediate Family Members":), (b) 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 Award Agreement in the same manner
as if the transferee were a Participant hereunder.
(iii) 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
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<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
-12-
<PAGE>
of the other, each joint Award shall be deemed to be
the equivalent of the number of shares under the
other; and
(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.
-13-
<PAGE>
(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 applicable 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.
-14-
<PAGE>
Section 9. Change of Control
(a) In the event of a Change of Control:
(i) Any Stock Options and Stock Appreciation Rights
outstanding as of the date of the Change of Control
that are not then fully exercisable and vested, shall
become fully exercisable and vested to the full
extent of the original grant;
(ii) All restrictions and other limitations applicable to
any Restricted Stock shall lapse, and such Restricted
Stock shall become free of all restrictions and
become fully vested and transferable to the full
extent of the original grant;
(iii) All Performance Awards and other Awards outstanding
as of the date of the Change of Control shall be
considered to be earned and payable in full, and any
deferral or other restriction shall lapse and except
as provided in subsection (c) of this Section 9, such
Performance Units shall be settled in cash as
promptly as is practicable; and
(iv) All noncompetition covenants and other similar
restrictive covenants applicable to any outstanding
Awards shall lapse and become null and void and of no
further effect.
(b) A "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14 (d)(2)
of the Exchange Act (a "Person")) of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (a) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (b) the combined power of the then
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<PAGE>
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from
the Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D)
any acquisition pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 9(b); or
(ii) Individuals who, as of January 12, 1998, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to January 12, 1998,
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the
assets of the Company or the acquisition of assets of
another entity (a "Corporate Transaction"), in each
case, unless, following such Corporate Transaction,
(A) all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities
-16-
<PAGE>
immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the
then outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation resulting from such
Corporate Transaction (including, without limitation,
a corporation which as a result of such transaction
owns the Company or all or substantially all of the
Company's assets either directly or through one or
more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Corporate Transaction of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting
from such Corporate Transaction) beneficially own,
directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the
corporation resulting from such Corporate Transaction
or the combined voting power of the then outstanding
voting securities of such corporation except to the
extent that such ownership existed prior to the
Corporate Transaction and (C) at least a majority of
the members of the board of directors of the
corporation resulting from such Corporate Transaction
were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the
action of the Board, providing for such Corporate
Transaction; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) Notwithstanding the foregoing, if any right to receive cash
granted pursuant to this Section 9 would make a Change of
Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 that but for the nature of such
right would be eligible for such accounting treatment, the
Committee shall have the ability to substitute for the cash
payable pursuant to
-17-
<PAGE>
such right Stock or other securities with a fair market
value equal to the cash that would otherwise be payable
hereunder.
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.
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.
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<PAGE>
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, but no such
alteration or amendment may adversely affect the rights of the
Participant in question without such Participant's consent.
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,
(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.
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<PAGE>
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.
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.
Omnibus.sec/wc98
01/02/98
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<PAGE>
Exhibit 10(m)
Board of Directors Amended
February 9, 1998
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
PHILLIPS PETROLEUM COMPANY
Section 1. Purpose of the Plan
-------------------
The purpose of the Deferred Compensation Plan for Non-Employee
Directors ("Plan") is to provide a program whereby a member of
the Board of Directors of Phillips Petroleum Company ("Company")
who is not an officer, present employee, nor former employee of
the Company or any of its subsidiaries ("Non-Employee Director")
may:
1) defer the payment of all or a specific amount of the cash
compensation payable to the Non-Employee Director for
services rendered as a Non-Employee Director ("Cash
Compensation")
2) elect to receive part or all of the shares of unrestricted
Phillips Petroleum Company common stock $1.25 par value
("Common Stock") awarded to the Non-Employee Director for
services rendered as a Non-Employee Director as shares of
Restricted Stock under the terms of the Phillips Petroleum
Company Stock Plan for Non-Employee Directors ("Stock
Compensation"),
3) elect to delay the lapsing of restrictions on restricted
stock due to the attainment of certain ages under the terms
of the Phillips Petroleum Company Stock Plan for Non-Employee
-1-
<PAGE>
Directors ("Restricted Stock Lapsing")
4) defer the value of shares of unrestricted Common Stock which
would otherwise be delivered to the Non-Employee Director as
a result of restrictions being lapsed on shares of Restricted
Stock under the terms of the Phillips Petroleum Company Stock
Plan for Non-Employee Directors ("Value of Restricted
Stock"), and
5) defer the payment of all or a portion of the lump sum payment
from the Non-Employee Director Retirement Plan ("Retirement
Payment").
Section 2. Indication of Preference to Defer
---------------------------------
(a) Cash Compensation. For each calendar year, a Non-Employee
-----------------
Director may indicate a preference to have payment of part
or all of the Non-Employee Director's Cash Compensation
deferred. On or before December 1 of each year, the
indication of preference to defer Cash Compensation to be
earned in the next calendar year may be made by giving
written notice thereof to the Corporate Secretary, except
that such indication of preference may be made by the end of
the month in which a Non-Employee Director is first elected
to the Board of Directors or within 30 days of the date the
amount of the Cash Compensation is changed. The Chief
Executive Officer (CEO) shall consider such indication of
preference and shall decide whether to accept or reject the
preference expressed as soon as practicable. Such
indication
-2-
<PAGE>
of preference, if accepted, becomes irrevocable on the date
of such acceptance.
(b) Stock Compensation. For each calendar year, a Non-Employee
------------------
Director may indicate a preference to receive Restricted
Stock instead of unrestricted Common Stock. On or before
December 1 of each year, such indication of preference to
receive Restricted Stock instead of unrestricted Common
Stock that would be awarded in January of the year after the
next calendar year may be made by giving written notice
thereof to the Corporate Secretary, except that such
indication of preference may be made within 30 days of the
amendment of this Plan providing for this election, within
30 days of the date the number of shares awarded as Stock
Compensation is changed, or by the end of the month in which
a Non-Employee Director is first elected to the Board of
Directors. The CEO shall consider such indication of
preference and shall decide whether to accept or reject the
preference expressed as soon as practicable. Such
indication of preference, if accepted, to receive Restricted
Stock becomes irrevocable on the date of such acceptance.
(c) Restricted Stock Lapsing. Each year Non-Employee Directors
------------------------
who are or will become 65 years of age prior to the end of
that calendar year or who are over 65 years old and have not
previously been given the opportunity may indicate a
preference to delay the lapsing of restrictions on
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<PAGE>
Restricted Stock that would otherwise be lapsed based on
their age under the terms of the Phillips Petroleum Company
Stock Plan for Non-Employee Directors until the day the
Director retires from the Board of Directors. The Non-
Employee Director must make the indication of preference by
giving written notice thereof to the Corporate Secretary on
or before December 1 of that year except that such
indication of preference may be made within 30 days of the
amendment of this plan providing for such indication of
preference or by the end of the month in which a Non-
Employee Director if first elected to the Board of Directors
if such Director would receive shares of Common Stock as a
result of restrictions being lapsed on shares of Restricted
Stock based on their age under the terms of the Phillips
Petroleum Company Stock Plan for Non-Employee Directors.
The CEO shall consider such indication of preference and
shall decide whether to accept or reject the preference
expressed as soon as practicable. Such indication of
preference, if accepted, to delay the lapsing of
restrictions on Restricted Stock becomes irrevocable on the
date of such acceptance.
(d) Value of Restricted Stock. Each year Non-Employee Directors
--------------------------
who are or will become 65 years of age prior to the end of
that calendar year or who are over 65 years old and have not
previously been given the opportunity may indicate a
preference concerning the deferral of the receipt of the
value of all or part of the Common Stock which would
-4-
<PAGE>
otherwise be delivered to the Non-Employee Director as a
result of restrictions being lapsed on shares of Restricted
Stock. The Non-Employee Director must indicate such
preference to the CEO of the Company and it must be received
by the Corporate Secretary on or before December 1 of that
year except that such indication of preference may be made
within 30 days of the amendment of this Plan providing for
such indication of preference or by the end of the month in
which a Non-Employee Director is first elected to the Board
of Directors if such Director would receive shares of Common
Stock as a result of restrictions being lapsed on shares of
Restricted Stock under the terms of the Phillips Petroleum
Company Stock Plan for Non-Employee Directors prior to the
next period for indicating such preference. The CEO shall
consider such indication of preference 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.
(e) Retirement Payment. If a Non-Employee Director prefers to
------------------
defer under this Plan all or part of the lump sum payment
from the Non-Employee Director Retirement Plan, the Non-
Employee Director must indicate such preference to the Chief
Executive Officer (CEO) of the Company. The Non-Employee
Director's preference must be received by the Corporate
Secretary in the period beginning 150 days prior to and
ending no less than 30 days prior to the date the retirement
-5-
<PAGE>
payment is to be made. Such indication must be in writing
signed by the Non-Employee Director and must state the
portion of the lump sum payment the Non-Employee Director
desires to be deferred. The CEO shall consider such
indication of preference as submitted and shall decide
whether to accept or reject the preference expressed as soon
as practicable. Such indication of preference, if accepted,
becomes irrevocable on the date of such acceptance.
Section 3. Deferred Compensation Accounts
------------------------------
(a) Credit for Deferral. The Company will establish and
-------------------
maintain an account for each Non-Employee Director who
defers Cash Compensation, the Value of Restricted Stock
and/or a Retirement Payment in which will be credited the
amounts deferred. Amounts deferred shall be credited as
soon as practicable but not later than 30 days after the
date the payment would otherwise have been made. The value
of the underlying Restricted Stock shall be the higher of
(a) the average of the high and low selling prices of the
Common Stock on the date the restrictions lapse or the last
trading day before the day the restrictions lapse if such
date is not a trading day, or (b) the average of the high
three monthly Fair Market Values of the Common Stock during
the twelve calendar months preceding the month in which the
restrictions lapse. The monthly Fair Market Value of the
Common Stock is the average of the daily Fair Market Value
-6-
<PAGE>
of the Common Stock for each trading day of the month. The
daily Fair Market Value of the Common Stock shall be deemed
equal to the average of the reported highest and lowest
sales prices per share of such Common Stock as reported on
the composite tape of the New York Stock Exchange
transactions, as reported in the Wall Street Journal.
(b) Designation of Investments. The amount in each Non-Employee
--------------------------
Director's Deferred Compensation Account shall be deemed to
have been invested and reinvested from time to time, in such
"eligible securities" as the Non-Employee Director shall
designate. Prior to or in the absence of a Non-Employee
Director's designation, the Company shall designate an
"eligible security" in which the Non-Employee Director's
Deferred Compensation Account shall be deemed to have been
invested until designation instructions are received from
the Non-Employee Director. Eligible securities are those
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 Non-Employee Director's Deferred
Compensation Account will be adjusted to reflect the deemed
gains, losses and earnings as though the amount deferred was
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<PAGE>
actually invested and reinvested in the eligible securities
for the Non-Employee Director's Deferred Compensation
Account.
Notwithstanding anything to the contrary in this section
3(b), in the event the Company actually purchases or sells
such securities in the quantities and at the times the
securities are deemed to be purchased or sold for a Non-
Employee Director's Deferred Compensation Account, the
Account shall be adjusted accordingly to reflect the price
actually paid or received by the Company for such securities
after adjustment for all transaction expenses incurred
(including without limitation brokerage fees and stock
transfer taxes).
In the case of any deemed purchase not actually made by the
Company, the Deferred Compensation Account shall be charged
with a dollar amount equal to the quantity and kind of
securities deemed to have been purchased multiplied by the
fair market value of such security on the date of reference
and shall be credited with the quantity and kind of
securities so deemed to have been purchased. In the case of
any deemed sale not actually made by the Company, the
account shall be charged with the quantity and kind of
securities deemed to have been sold, and shall be credited
with a dollar amount equal to the quantity and kind of
securities deemed to have been sold multiplied by the fair
-8-
<PAGE>
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 may also designate a Fund Manager to provide
services which may include recordkeeping, Non-Employee
Director accounting, Non-Employee Director communication,
payment of installments to the Non-Employee Director, tax
reporting and any other services specified by the Company in
agreement with the Fund Manager.
(c) Payments. A Non-Employee Director's Deferred Compensation
--------
Account shall be debited with respect to payments made from
the account pursuant to this Plan as of the date such
payments are made from the account. The payment shall be
made as soon as practicable, but no later than 30 days,
after the installment payment date.
If any person to whom a payment is due hereunder is under
legal disability as determined in the sole discretion of the
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<PAGE>
Chief Executive Officer, the Company shall have the power to
cause the payment due such person to be made to such
person's guardian or other legal representative for the
person's benefit, and such payment shall constitute a full
release and discharge of the Company and any fiduciary of
the Plan.
(d) Statements. At least one time per year the Company or the
----------
Company's designee will furnish each Non-Employee Director a
written statement setting forth the current balance in the
Non-Employee Director's Deferred Compensation Account, the
amounts credited or debited to such account since the last
statement and the payment schedule of deferred amounts and
deemed gains, losses and earnings accrued thereon as
provided by the deferred payment option selected by the Non-
Employee Director.
Section 4. Deferred Payment Options
------------------------
(a) Payment Options for Cash Compensation and the Value of
------------------------------------------------------
Restricted Stock. A Non-Employee Director, at the time
----------------
notice of an indication of preference to defer Cash
Compensation or the Value of Restricted Stock is given,
shall also specify in writing whether the Cash Compensation
or the Value of Restricted Stock deferred by such indication
and any deemed gains, losses and earnings accrued thereon is
to be paid in one lump sum or in annual installments of not
-10-
<PAGE>
less than 5 nor more than 10. If a lump sum payment is
selected, the Non-Employee Director will specify the date
the lump sum payment is to be made so long as the date is
the first day of a calendar quarter and is at least one year
from the date of the election or is specified as the first
day of the calendar quarter following retirement from the
Board of Directors. If annual installments of not less than
5 nor more than 10 are selected, the first installment will
begin as soon as practicable after the first day of the
calendar quarter which is on or after the Non-Employee
Director's retirement. After a payment option is selected
the first time a Non-Employee Director defers Cash
Compensation or the value of Restricted Stock, all
subsequent deferrals of Cash Compensation and/or the value
of Restricted Stock will have the same payment option
b) Payment Options for Retirement Payment.
--------------------------------------
(i) The payment option for a deferred Retirement Payment
for a Non-Employee Director who has previously
deferred Cash Compensation or the Value of
Restricted Stock will be the same as the payment
option for the deferred Compensation.
(ii) The payment option for a deferred Retirement Payment
for a Non-Employee Director who has not previously
deferred Cash Compensation or the Value of
Restricted Stock will be 10 annual installments with
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<PAGE>
the first installment to begin as soon as
practicable after the first day of the calendar
quarter which is on or after the Non-Employee
Director's Retirement, except that a different
payment schedule may be selected by the Non-Employee
Director at the time the Non-Employee Director
submits a preference to defer all or part of the
lump sum Retirement payment. The payment options in
this situation are: annual installments of not less
than 5 nor more than 10, 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 Non-
Employee Director, so long as such date is the first
day of a calendar quarter and is at least one year
from the date the payout option was selected.
Subject to Section 5, if the CEO, accepts the Non-
Employee Director's indication of preference, the
method of payment of the deferred Retirement Payment
shall become irrevocable.
(c) Payment Option Revision. If a Non-Employee Director
-----------------------
specified annual installments of not less than 5 nor more
than 10 pursuant to Section 4(a) herein, the Non-Employee
Director may at any time during a period beginning 365 days
prior to and ending 90 days prior to the date the Non-
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<PAGE>
Employee Director terminates Board service due to (a) not
being nominated for election to the Board; or (b) not being
reelected to Board service after being so nominated; or (c)
resignation from Board service as a result of the Director's
disability or any reason acceptable to a majority of the
remaining members of the Board of Directors ("Retires" or
"Retirement"), in the manner prescribed by the Company,
revise such payment option and select one of the following
payment options in place of such payment option:
(i) annual installments of not less than 5 nor more than
10,
(ii) semi-annual installments of not less than 10 nor
more than 20, or
(iii) quarterly installments of not less than 20 nor more
than 40,
with the first installment to commence, as soon as
practicable following any date specified by the Non-Employee
Director so long as such date is the first day of a calendar
quarter, is on or after the Non-Employee Director's first
day of Retirement and is at least one year from the date the
payment option was revised.
(d) Installment Amount. The amount of each installment
------------------
shall be determined by dividing the balance in the Non-
Employee Director's Deferred Compensation Account as of the
date the
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<PAGE>
installment is to be paid, by the number of installments
remaining to be paid (inclusive of the current installment).
Section 5. Death of Non-Employee Director
------------------------------
Upon the death of a Non-Employee Director, the Non-Employee
Director's beneficiary or beneficiaries designated in accordance
with Section 6 of this Plan, or, in the absence of an effective
beneficiary designation, the surviving spouse, the surviving
children (natural or adopted) in equal shares, or the Estate of
the deceased Non-Employee Director, in that order of priority,
shall receive the beneficiary's or beneficiaries' portion of the
payments in accordance with the deferred payment schedule
selected by the Non-Employee Director, whether the Non-Employee
Director's death occurred before or after such payments have
commenced; provided, however, such payments may be made in a
different manner if the beneficiary or beneficiaries entitled to
receive such payments, due to an unanticipated emergency caused
by an event beyond the control of the beneficiary or
beneficiaries that results in financial hardship to the
beneficiary or beneficiaries, so requests and the CEO gives
written consent to the method of payment requested.
Section 6. Designation of Beneficiary
--------------------------
Each Non-Employee Director who defers under this Plan shall
designate a beneficiary or beneficiaries to receive the entire
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<PAGE>
balance of the Non-Employee Director's Deferred Compensation
Account by giving signed written notice of such designation to
the Corporate Secretary. The Non-Employee Director may from time
to time change or cancel any previous beneficiary designation in
the same manner. The last written beneficiary designation
received by the Corporate Secretary shall be controlling over any
prior designation and over any testamentary or other disposition.
After receipt by the Corporate Secretary of such written
designation, it shall take effect as of the date on which it was
signed by the Non-Employee Director, whether the Non-Employee
Director is living at the time of such receipt, but without
prejudice to the Company on account of any payment made under
this Plan before receipt of such designation.
Section 7. Nonassignability
----------------
The right of a Non-Employee Director or beneficiary or other
person who becomes entitled to receive payments under this Plan
shall not be pledged, assigned or subject to garnishment,
attachment or any other legal process by the creditors of or
other claimants against the Non-Employee Director, beneficiary,
or other such person.
Section 8. Administration, Interpretation and Amendment
--------------------------------------------
The Plan shall be administered by the Chief Executive Officer of
the Company. The decision of the Chief Executive Officer with
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<PAGE>
respect to any questions arising as to the interpretation of this
Plan, including the severability of any and all of the provisions
thereof, shall be final, conclusive and binding. The Company
reserves the right to amend this Plan from time to time or to
terminate the Plan entirely, provided, however, that no amendment
may affect the balance in a Non-Employee Director's account on
the effective date of the amendment. A Non-Employee Director
shall not participate in a decision to amend or terminate this
Plan. In the event of termination of the Plan, the Chief
Executive Officer in the Chief Executive Officer's sole
discretion, may elect to pay in one lump sum as soon as
practicable after termination of the Plan, the balance then in
the Non-Employee Director's account.
Section 9. Nonsegregation
--------------
Amounts deferred pursuant to this Plan and the crediting of
amounts to a Non-Employee Director's Deferred Compensation
Account shall represent the Company's unfunded and unsecured
promise to pay compensation in the future. With respect to said
amounts, the relationship of the Company and a Non-Employee
Director shall be that of debtor and general unsecured creditor.
While the Company may make investments for the purpose of
measuring and meeting its obligations under this Plan such
investments shall remain the sole property of the Company subject
to claims of its creditors generally, and shall not be deemed to
form or be included in any part of the Deferred Compensation
-16-
<PAGE>
Account.
Section 10. Funding
-------
All amounts payable under the Plan are unfunded and unsecured
benefits and shall be paid solely from the general assets of the
Company and any rights accruing to the Non-Employee Director or
the beneficiary under this Plan shall be those of an unsecured
general creditor; provided, however, that the Company may
establish a grantor trust to pay part or all of its Plan payment
obligations so long as the Plan remains unfunded for federal tax
purposes.
Section 11. Miscellaneous
-------------
(a) Except as otherwise provided herein, the Plan shall be
binding upon the Company, its successors and assigns,
including but not limited to any corporation which may
acquire all or 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 Delaware except to
the extent that said laws have been preempted by the laws of
the United States.
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<PAGE>
Section 12. Effective Date of the Plan
--------------------------
This Plan is amended and restated effective as of January 1,
1998.
2DP/016REV
02/10/98 2:33 PM
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<PAGE>
Exhibit 10(o)
Board of Directors Approved
February 9, 1998
PHILLIPS PETROLEUM COMPANY
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I - PURPOSES OF THE PLAN
--------------------------------
The purposes of this Plan are to enable non-employee members of
the Board of Directors to acquire additional stock ownership and
further alignment with shareholders of the Company, and to
attract and retain highly qualified individuals as directors of
this Company without significantly changing the total amount of
non-employee director compensation.
ARTICLE II - DEFINITIONS
------------------------
1. "Award" shall mean a grant of Restricted Stock or
Unrestricted Stock pursuant to this Plan.
2. "Beneficiary" means a person or persons designated by a Non-
Employee Director to receive, in the event of death, any shares
of Common Stock held by the Non-Employee Director under this
Plan. Any Non-Employee Director may designate one or more persons
primarily or contingently as beneficiaries in writing upon forms
supplied by and delivered to the Company, and may revoke such
designations in writing. If a Non-Employee Director fails
effectively to designate a beneficiary, then such shares will be
paid in the following order of priority:
(i) Surviving Spouse,
(ii) Surviving children (natural or adopted) in equal
shares,
(iii)To the Estate of the Non-Employee Director.
3. "Board" means the Board of Directors of the Company.
4. "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 as amended (a "Person")) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 20% or
more of either (a) the then outstanding shares of Common Stock of
the Company (the "Outstanding Company Common Stock") or (b) the
combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of Control:
(A) any acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (D) any
acquisition pursuant to a transaction which complies with clauses
(A), (B) and (C) of Subparagraph (iii) of this Paragraph 4; or
(ii) Individuals who, as of January 12, 1998, constitute the
<PAGE>
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to January 12, 1998,
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the
combined voting power of the then outstanding voting securities
of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction were
members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing
for such Corporate Transaction; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
5. "Chief Executive Officer" shall mean the Chief Executive
Officer of the Company.
6. "Company" shall mean Phillips Petroleum Company.
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<PAGE>
7. "Common Stock" shall mean the common stock of the Company
having a par value of $1.25 per share.
8. "Disability" shall mean that condition in which, by reason
of bodily injury or disease, a Non-Employee Director is prevented
from serving in such capacity. All determinations of Disability
shall be made by a physician selected by the Chief Executive
Officer.
9. "Fair Market Value" in reference to a share of Common Stock
of the Company shall be deemed equal to the average of the
reported highest and lowest sales prices per share of such Common
Stock on the applicable date, or the last trading day before the
applicable day if such date is not a trading day, as reported on
the composite tape of the New York Stock Exchange transactions
for the applicable date, as reported in the Wall Street Journal.
10. "Non-Employee Director" shall mean a member of the Board who
is not an employee or former employee of the Company or any of
its subsidiaries.
11. "Normal Retirement Date" shall mean the date of the Annual
Stockholders Meeting of the Company in the year in which the
director is no longer eligible for election as a director as
determined by the Bylaws of the Company, currently the year in
which the director attains age 71.
12. "Plan" shall mean the Phillips Petroleum Company Restricted
Stock Plan for Non-Employee Directors, including any amendments
thereto as may hereafter from time to time be adopted.
13. "Restricted Stock" shall mean Common Stock awarded under
this Plan, which is subject to certain forfeiture and
transferability restrictions as may be provided in the Plan.
14. "Retires" or "Retirement" shall mean the termination of
Board service due to (a) the Non-Employee Director's not being
nominated for election to the Board; (b) the Non-Employee
Director's not being reelected to Board service after being so
nominated; or (c) the Non-Employee Director's resignation from
Board service as a result of the director's Disability.
15. "Unrestricted Stock" shall mean Common Stock either Awarded
under this Plan to a Non-Employee Director as part of his or her
annual retainer or issued to such Director upon the lapsing of
restrictions on Restricted Stock, and which is nonforfeitable and
free of transferability restrictions under the Plan.
ARTICLE III - ELIGIBILITY
-------------------------
Each Non-Employee Director who is participating in the Non-
Employee Director Retirement Plan of Phillips Petroleum Company
( the "NED
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<PAGE>
Retirement Plan") on December 31, 1997, and (i) whose Normal
Retirement Date is after 1998, and (ii) who consents in writing
on or before February 27, 1998, to receive an Award of Restricted
Stock in this Plan in lieu of a benefit from the NED Retirement
Plan, is eligible to participate and shall be a participant in
this Plan. All Non-Employee Directors who are first elected to
serve on the Board after 1997 are eligible and will participate
in this Plan. After the date of the 1998 Annual Stockholders
Meeting of the Company, all Non-Employee Directors of the Company
are eligible and will participate in this Plan.
ARTICLE IV - AWARDS OF COMMON STOCK
-----------------------------------
1. There shall be an Award of shares of Restricted Stock to
each eligible Non-Employee Director representing the converted
present value of the accrued benefit of each Non-Employee
Director who has consented in writing on or before February 27,
1998, to the conversion of his or her benefits under the NED
Retirement Plan to such an Award under this Plan, such Award to
be made effective in its entirety on the first business day of
March 1998, for prior service and in lieu of a benefit payable
from the NED Retirement Plan. Such Award shall be equal to the
converted present value of the Non-Employee Director's benefits
under the NED Retirement Plan (the "Conversion Amount"). The
Conversion Amount shall be determined by calculating to a single
lump sum the present value of the monthly payment provided under
the NED Retirement Plan using the December 1, 1997 rate of the
30-year Treasury Bond as quoted in the Federal Reserve
Statistical Release Bulletin No. H.15 and the number of Years of
Service (as defined in the NED Retirement Plan) through December
31, 1997, and assuming that such monthly payments are deemed to
begin on January 1, 1998. The number of shares Awarded pursuant
to this Paragraph 1 shall be determined by dividing the
Conversion Amount by (i) the Fair Market Value of the Common
Stock as of January 12, 1998, and rounding up to the next higher
whole number.
2. On the first business day of March, 1998, there shall be an
Award of 400 shares of Restricted Stock to each eligible Non-
Employee Director for past service during the director's then-
current term of office; or in respect of a Non-Employee Director
who served in such term of office only subsequent to the first
business day of March 1998 for the term ending on the date of the
1998 Annual Stockholders Meeting of the Company, then such Award
shall be effective in its entirety on the fifteenth day of the
month following the month of such director's election, for past
services during the first term in which the Non-Employee Director
serves. After December 31, 1998, there shall be an Award of 400
shares of Restricted Stock to each eligible Non-Employee Director
each year, such Award to be made effective in its entirety on the
first business day in January of each year for past service
during the director's then-current term of office; or in respect
of a Non-Employee Director who served in such term of office only
subsequent to the first of January of that term of office and
prior to the Annual Stockholders Meeting of the Company for that
year, then such Award shall be effective in its entirety on the
fifteenth
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<PAGE>
day of the month following the month of such director's election,
for past services during the first term in which the Non-Employee
Director serves.
3. Subject to Paragraph 4 hereof, after December 31, 1998,
there shall be an Award of 1,000 shares of Unrestricted Stock to
each Non-Employee Director each year, such Award to be made
effective in its entirety on the first business day in January of
each year for past service during the director's then-current
term of office; or in respect of a Non-Employee Director who
served in such term of office only subsequent to the first of
January of that term of office and prior to the Annual
Stockholders Meeting of the Company for that year, then such
Award shall be effective in its entirety on the fifteenth day of
the month following the month of such director's election, for
past services during the first term in which the Non-Employee
Director serves.
4. After December 31, 1998, for each Non-Employee Director who
properly elects to receive Restricted Stock in lieu of part or
all of the director's Award of Unrestricted Stock , there shall
be an additional Award of shares of Restricted Stock to each such
Non-Employee Director each year that such election is made, such
Award to be made effective in its entirety at the time the
Unrestricted Stock would have been issued for past service,
representing the number of shares of Unrestricted Stock which the
Non-Employee Director has elected to receive as Restricted Stock.
Such election shall be made in the manner and at the times
provided in the Deferred Compensation Plan for Non-Employee
Directors of Phillips Petroleum Company ("DCPNED"). The
Restricted Stock Awarded pursuant to this Paragraph in lieu of
such Unrestricted Stock shall thereafter be subject to the terms
of this Plan and be subject to forfeiture and all restrictions as
Restricted Stock under the terms of this Plan.
5. Each Non-Employee Director who receives an Award of
Restricted Stock on the first business day of March 1998 pursuant
to Paragraphs 1 or 2 of this Article shall also receive an Award
of a dividend equivalent to be determined as though such shares
Awarded to the director on the first business day of March 1998
were continuously held by the Plan for the director from the
first business day of January 1998 until the first business day
of March 1998. All dividends earned on any Restricted Stock held
under this Plan (including dividend equivalent amounts Awarded
pursuant to the preceding sentence) shall be reinvested in
additional shares of Restricted Stock on the date such dividends
are payable and such additional shares of Restricted Stock shall
be subject to the terms and conditions generally applicable to
Restricted Stock under the Plan. The number of shares of
Restricted Stock acquired through this reinvestment of dividends
shall be acquired at the Fair Market Value of Common Stock on the
date such dividends are payable and shall be purchased through
the Company's dividend reinvestment program if practicable;
provided, however if not purchased through the dividend
reinvestment program, the shares purchased with dividends shall
be rounded up to the next higher whole number.
-5-
<PAGE>
6. The Restricted Stock held for the benefit of each Non-
Employee Director shall be held in escrow for the Non-Employee
Director by the Treasurer of the Company. The Non-Employee
Director will have all rights of ownership to such Restricted
Stock including, but not limited to, voting rights and the right
to receive dividends (provided such dividends must be reinvested
in Restricted Stock), and other distributions, except that the
Non-Employee Director shall not have the right to sell, transfer,
assign, pledge or otherwise dispose of such shares until the
escrow is terminated. The escrow shall end as to shares of such
stock on the earliest date restrictions on Restricted Stock lapse
pursuant to Article V.
7. Upon termination of the Restricted Stock escrow, the Company
shall deliver to the Non-Employee Director his or her shares of
such Common Stock free of any restrictions. Unless the Non-
Employee Director has requested to defer receipt in the manner
and at the times provided in the DCPNED, the director will
receive such unrestricted shares of Common Stock as soon as
practicable after the termination of the escrow as to those
shares. A Non-Employee Director who has properly and timely
elected to have receipt of part or all of the shares of
Restricted Stock for which restrictions lapse deferred shall
receive instead a credit to his or her account in the DCPNED in
an amount and at the time determined pursuant to the terms of the
DCPNED.
ARTICLE V - TERMS AND CONDITIONS OF RESTRICTED STOCK
----------------------------------------------------
1. All Restricted Stock Awarded or held under the Plan shall be
subject to the following terms and conditions:
A. Shares of Restricted Stock shall be, subject to
Subparagraph B, forfeitable, nontransferable and
nonassignable and may not be pledged, anticipated, assigned
(either at law or in equity), alienated, or subject to
attachment, garnishment, levy, execution, or other legal or
equitable process until the restrictions lapse pursuant to
Subparagraphs B or C hereof.
B. Each share of Restricted Stock shall become
nonforfeitable, transferable and all restrictions shall
lapse upon the earliest to occur of (i) the Non-Employee
Director's Retirement, including Retirement due to
Disability, (ii) the Non-Employee Director's death, (iii) a
Change of Control, or (iv) the Non-Employee Director's
termination of Board service for any reason other than those
described in clauses (i), (ii), and (iii), but only if a
majority of the remaining directors of the Board consent to
the vesting of such shares and the lapsing of such
restrictions.
C. Shares of Restricted Stock shall become nonforfeitable,
transferable and all restrictions shall lapse on the first
business day of October of each year in the following
amounts unless the Non-Employee Director has elected, under
the terms of the DCPNED, to delay the lapsing of such
restrictions until the day of the Director's retirement:
(i) 20% of all shares of Restricted Stock held under the
-6-
<PAGE>
Plan for the Non-Employee Director in the year in which
he or she will attain age 66;
(ii) 25% of all shares of Restricted Stock held under
the Plan for the Non-Employee Director in the year in
which he or she will attain age 67;
(iii)33 1/3 % of all shares of Restricted Stock held
under the Plan for the Non-Employee Director in the
year in which he or she will attain age 68;
(iv) 50% of all shares of Restricted Stock held under
the Plan for the Non-Employee Director in the year in
which he or she will attain age 69; and
(v) 100% of all shares of Restricted Stock held under
the Plan for the Non-Employee Director in the year in
which he or she will attain age 70.
ARTICLE VI - ADJUSTMENTS
------------------------
Subject to any required action by the Company's shareholders, if
the class of shares of Restricted Stock then subject to the Plan
is changed into or exchanged for a different number or kind of
shares or securities, as the result of any one or more
reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or similar events, 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, an adjustment shall be made in the number and/or type
of shares or securities for which Restricted Stock has been or
may thereafter be Awarded under this Plan so as to prevent
dilution or enlargement of rights.
ARTICLE VII - ADMINISTRATION OF THE PLAN
----------------------------------------
The Plan shall be administered by the Chief Executive Officer who
is authorized to adopt rules and regulations, to make
determinations under and such determinations of, and to take
steps in connection with the Plan as the Chief Executive Officer
deems necessary or advisable, and to appoint agents as the Chief
Executive Officer deems appropriate for the proper administration
of the Plan. Each determination, interpretation, or other action
made or taken pursuant to the provisions of the Plan by the Chief
Executive Officer shall be reported to the Board and once so
reported shall be final and shall be binding and conclusive for
all purposes and upon all persons.
ARTICLE VIII - MISCELLANEOUS
----------------------------
1. The Chief Executive Officer may rely upon information
reported to him or her by officers or employees of the Company
with delegated responsibilities and shall not be liable for any
act of commission or omission of others or, except in
circumstances involving his or her own bad faith, for any act
taken or omitted by himself or herself.
-7-
<PAGE>
2. The Plan and each Award hereunder shall be subject to all
applicable laws and the rules and regulations of governmental
authorities promulgated thereunder.
3. Shares of Common Stock received with respect to Restricted
Stock received pursuant to a stock split, dividend reinvestment,
stock dividend or other change in the capitalization of the
Company will be held subject to the same restrictions on
transferability that are applicable to such shares Awarded
hereunder as Restricted Stock.
4. All amounts payable under this Plan are unfunded and
unsecured benefits and shall be paid solely from the general
assets of the Company and any rights accruing to the Non-Employee
Director or his or her Beneficiaries under the Plan shall be
those of a general creditor; provided, however, that the Company
may establish a grantor trust to pay part or all of its Plan
payment obligations so long as the Plan remains unfunded for
federal tax purposes.
5. 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.
6. This Plan shall be construed, regulated, and administered in
accordance with the laws of the State of Delaware except to the
extent that said laws have been preempted by the laws of the
United States.
ARTICLE X - AMENDMENT OR TERMINATION
------------------------------------
The Board of Directors of the Company may amend or terminate the
Plan. No amendment or termination of the Plan shall deprive any
Non-Employee Director or former Non-Employee Director or any
Beneficiary of any rights or benefits accrued to the date of such
amendment or termination.
ARTICLE XI - EFFECTIVE DATE
---------------------------
The Plan is effective as of January 1, 1998.
o:\2dp\nedstk
2/10/98
2:26 PM
-8-
<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
--------------------------------------
1997 1996 1995 1994 1993
--------------------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles $1,900 2,172 1,064 852 538
Distributions in excess of (less than)
equity in earnings of less-than-
fifty-percent-owned companies (22) 76 (1) 2 9
Fixed charges, excluding
capitalized interest and the
portion of the preferred dividend
requirements of a subsidiary not
previously deducted from income* 352 328 364 340 363
- ----------------------------------------------------------------------------
$2,230 2,576 1,427 1,194 910
============================================================================
Fixed Charges
Interest and expense on
indebtedness, excluding
capitalized interest $ 217 237 285 266 290
Capitalized interest 46 33 31 15 11
Preferred dividend requirements
of a subsidiary 113 68 73 56 71
One-third of rental expense,
net of subleasing income,
for operating leases 39 35 36 32 30
- ----------------------------------------------------------------------------
$ 415 373 425 369 402
============================================================================
Ratio of Earnings to Fixed Charges 5.4 6.9 3.4 3.2 2.3
- ----------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately
$14 million in 1997, $10 million each in 1996, 1995 and 1994, 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, 1995, and again in 1997. Consolidated interest expense
includes interest attributable to the LTSSP borrowings of $3 million in 1995,
and $1 million each in 1994 and 1993. Interest attributable to the LTSSP
borrowings was minimal in 1997 and 1996.
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF PHILLIPS PETROLEUM COMPANY
Listed below are subsidiaries of the registrant at December 31, 1997.
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
--------------- ---------------------
66 Pipe Line Company Delaware
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 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 Timor Sea Pty Ltd New South Wales
Phillips Petroleum UK Investment Corporation Delaware
Phillips Petroleum Venezuela L.L.C. Delaware
Phillips Pipe Line Company Delaware
Phillips Pt. Arguello Production Company Delaware
Phillips Puerto Rico Core Inc. Delaware
Phillips Texas Pipeline Company, Ltd. Texas
Phillips-New Mexico Partners, L.P. 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 23, 1998, 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,
1997, 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
Omnibus Securities Plan of
Phillips Petroleum Company Form S-8 File No. 333-31355
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 23, 1998
<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,
1997, and the related consolidated statement of income for the year ended
December 31, 1997, 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 163
<SECURITIES> 0
<RECEIVABLES> 1,736
<ALLOWANCES> 19
<INVENTORY> 500
<CURRENT-ASSETS> 2,648
<PP&E> 21,426
<DEPRECIATION> 11,404
<TOTAL-ASSETS> 13,860
<CURRENT-LIABILITIES> 2,445
<BONDS> 2,775
650
0
<COMMON> 673
<OTHER-SE> 4,141
<TOTAL-LIABILITY-AND-EQUITY> 13,860
<SALES> 15,210
<TOTAL-REVENUES> 15,424
<CGS> 12,431<F1>
<TOTAL-COSTS> 12,694<F2>
<OTHER-EXPENSES> 82<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 1,900
<INCOME-TAX> 941
<INCOME-CONTINUING> 959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 959
<EPS-PRIMARY> 3.64
<EPS-DILUTED> 3.61
<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 trusts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
applicable 1997 interim financial statements of Phillips Petroleum Company,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 861 774 899
<SECURITIES> 0 0 0
<RECEIVABLES> 1,752 1,782 1,800
<ALLOWANCES> 19 20 20
<INVENTORY> 452 521 565
<CURRENT-ASSETS> 3,290 3,390 3,486
<PP&E> 20,278 20,316 20,839
<DEPRECIATION> 11,046 11,037 11,291
<TOTAL-ASSETS> 13,657 13,823 14,216
<CURRENT-LIABILITIES> 2,732 2,591 2,823
<BONDS> 2,555 2,507 2,507
650 650 650
0 0 0
<COMMON> 663 649 689
<OTHER-SE> 3,727 3,937 4,032
<TOTAL-LIABILITY-AND-EQUITY> 13,657 13,823 14,216
<SALES> 3,944 7,653 11,497
<TOTAL-REVENUES> 3,994 7,757 11,652
<CGS> 3,192<F1> 6,222<F1> 9,349<F1>
<TOTAL-COSTS> 3,266<F2> 6,358<F2> 9,550<F2>
<OTHER-EXPENSES> 20<F3> 41<F3> 62<F3>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 54 103 153
<INCOME-PRETAX> 493 1,035 1,501
<INCOME-TAX> 266 501 751
<INCOME-CONTINUING> 227 534 750
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 227 534 750
<EPS-PRIMARY> .86 2.03 2.85
<EPS-DILUTED> .86 2.01<F4> 2.82<F4> <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 trusts.
<F4> Restated to reflect the adoption of Financial Accounting Standards Board
Statement No. 128, "Earnings per Share."
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
applicable 1996 and 1995 annual and interim financial statements of
Phillips Petroleum Company, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 DEC-31-1995
<CASH> 164 223 346 615 67
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 1,640 1,837 1,721 2,008 1,537
<ALLOWANCES> 17 20 20 20 15
<INVENTORY> 472 523 504 472 505
<CURRENT-ASSETS> 2,452 2,755 2,764 3,306 2,409
<PP&E> 19,273 19,570 19,847 20,103 19,088
<DEPRECIATION> 10,734 10,844 10,998 10,983 10,595
<TOTAL-ASSETS> 12,236 12,766 12,929 13,548 11,978
<CURRENT-LIABILITIES> 2,472 2,352 2,499 3,137 2,815
<BONDS> 2,910 2,954 2,855 2,555 3,097
0 300 300 300 0
0 0 0 0 0
<COMMON> 585 613 626 636 533
<OTHER-SE> 3,238 3,369 3,476 3,615 2,655
<TOTAL-LIABILITY-AND-EQUITY> 12,236 12,766 12,929 13,548 11,978
<SALES> 3,595 7,532 11,384 15,731 13,368
<TOTAL-REVENUES> 3,602 7,577 11,474 15,807 13,521
<CGS> 3,033<F1> 6,295<F1> 9,490<F1> 13,170<F1> 11,394<F1>
<TOTAL-COSTS> 3,099<F2> 6,427<F2> 9,691<F2> 13,434<F2> 11,660<F2>
<OTHER-EXPENSES> 8<F3> 18<F3> 32<F3> 47<F3> 32<F3>
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 59 118 171 217 265
<INCOME-PRETAX> 881 1,324 1,759 2,172 1,064
<INCOME-TAX> 186 408 656 869 595
<INCOME-CONTINUING> 695 916 1,103 1,303 469
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 695 916 1,103 1,303 469
<EPS-PRIMARY> 2.65 3.49 4.20 4.96 1.79
<EPS-DILUTED> 2.63<F4> 3.46<F4> 4.16<F4> 4.91<F4> 1.78<F4>
<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.
<F4> Restated to reflect the adoption of Financial Accounting Standards Board
Statement No. 128, "Earnings per Share."
</FN>
</TABLE>
