<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-53519
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 5, 1998)
PHILLIPS PETROLEUM COMPANY
$300,000,000
6.65% Debentures due July 15, 2018
Interest payable January 15 and July 15
ISSUE PRICE: 99.690%
Interest on the Debentures is payable semi-annually on January 15 and July 15,
beginning January 15, 1999. The Debentures may be redeemed at any time at the
option of Phillips Petroleum Company (the "Company"), in whole or in part, at a
redemption price equal to the greater of (i) 100 percent of the principal amount
of such Debentures and (ii) as determined by the Quotation Agent (as defined
herein), the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments of
interest accrued as of the date of redemption) discounted to the date of
redemption on a semi-annual basis (assuming a 360-day year consisting of twelve
30-day months) at the Adjusted Treasury Rate (as defined herein) plus 15 basis
points plus, in each case, accrued interest thereon to the date of redemption.
See "Description of Debentures -- Optional Redemption" herein. The Debentures
are general unsecured obligations of the Company. The Debentures will be issued
only in registered form in denominations of $1,000 and integral multiples
thereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture 99.690% .875% 98.815%
- ----------------------------------------------------------------------------------------------
Total $299,070,000 $2,625,000 $296,445,000
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from July 6, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses payable by the Company of $300,000.
The Debentures are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Davis Polk
& Wardwell, counsel for the Underwriters. It is expected that the Debentures
will be ready for delivery in New York, New York, on or about July 6, 1998,
against payment therefor in immediately available funds.
J.P. MORGAN & CO.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
June 30, 1998.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, THE DEBENTURES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any Underwriter.
This Prospectus Supplement and the accompanying Prospectus do not constitute an
offer to sell or the solicitation of an offer to buy the Debentures by anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the accompanying Prospectus, nor
any sale made hereunder and thereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or thereof or that the information contained or
incorporated by reference herein or therein is correct as of any time subsequent
to the date of such information.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference............. S-3
Ratio of Earnings to Fixed Charges.......................... S-3
Use of Proceeds............................................. S-4
Description of Debentures................................... S-4
Underwriting................................................ S-6
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 3
Phillips Petroleum Company.................................. 3
The Trusts.................................................. 4
Ratios of Earnings to Fixed Charges......................... 4
Use of Proceeds............................................. 5
Description of the Senior Debt Securities and Subordinated
Debt Securities........................................... 5
Description of the Preferred Securities..................... 13
Description of the Preferred Securities Guarantees.......... 15
Effect of Obligations under the Subordinated Debt Securities
and the Guarantee......................................... 17
Description of Preferred Stock.............................. 19
Description of Depositary Shares............................ 19
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 22
Description of Common Stock................................. 23
Plan of Distribution........................................ 24
Legal Matters............................................... 25
Experts..................................................... 25
</TABLE>
S-2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31, 1997,
as amended, and its Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, which have previously been filed by the Company with the Securities
and Exchange Commission, are incorporated by reference in this Prospectus
Supplement.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Debentures shall be deemed to be incorporated by reference in this
Prospectus Supplement and to be a part hereof from the date of filing of such
documents. Any statement contained in this Prospectus Supplement or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus Supplement
to the extent that a statement contained herein or in any subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of this
Prospectus Supplement has been delivered, upon the written or oral request of
such person, a copy of any or all of the documents referred to above which have
been or may be incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to Dale J. Billam,
Secretary, Phillips Petroleum Company, 1234 Adams Building, Bartlesville,
Oklahoma 74004 (telephone (918) 661-5638).
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
--------------------- --------------------------------
1998 1997 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges........................ 6.1 5.5 5.4 6.9 3.4 3.2 2.3
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items, plus fixed
charges (excluding capitalized interest and the portion of the preferred
dividend requirements of a subsidiary not previously deducted from pretax
income, but including amortization of amounts previously capitalized), less
equity in undistributed earnings of companies owned less than 50 percent. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense, that portion of rental
expense which the Company believes to be representative of interest and the
amounts accrued to cover the preferred stock dividend requirements of a
subsidiary and capital trusts.
S-3
<PAGE> 4
USE OF PROCEEDS
The Company intends to add the net proceeds from the sale of the Debentures to
its general funds, to be used for general corporate purposes, including capital
expenditures, repayment or repurchases of outstanding long-term debt securities,
investments in subsidiaries, working capital, repayment of short-term commercial
paper notes and/or other business opportunities.
DESCRIPTION OF DEBENTURES
The Debentures are limited to $300,000,000 in aggregate principal amount. The
Debentures are to be issued under an Indenture dated as of September 15, 1990,
as supplemented by Supplemental Indenture No. 1 dated May 23, 1991 (as so
supplemented hereinafter referred to as the "Indenture"), between the Company
and U.S. Bank Trust National Association, formerly First Trust National
Association (as successor to Continental Bank, National Association), as trustee
(hereinafter referred to as the "Trustee"). The following description of the
particular terms of the Debentures offered hereby supplements the description of
the general terms and provisions of the Senior Debt Securities under
"Description of the Senior Debt Securities and Subordinated Debt Securities" in
the accompanying Prospectus dated June 5, 1998.
Interest on the Debentures will accrue from July 6, 1998, and will be payable
semi-annually on each January 15 and July 15, commencing January 15, 1999, to
the persons in whose names the Debentures are registered at the close of
business on the January 1 or July 1 prior to the payment date at the annual rate
set forth on the cover page of this Prospectus Supplement.
Principal of and interest on the Debentures will be payable, and the Debentures
may be presented for transfer and exchange, at the corporate trust office or
agency of the Trustee in New York, New York, or Chicago, Illinois. Payment of
interest may also be made by check mailed to the registered holders, at the
option of the Company.
Neither the Indenture nor the Debentures contains covenants or other provisions
to afford protection to the holders of the Debentures in the event of a
recapitalization, holding company merger, or other transaction (leveraged or
otherwise) with the Company, its management or affiliates, except to the limited
extent described under "Description of the Senior Debt Securities and
Subordinated Debt Securities -- Limitation on Mergers and Sales of Assets" in
the accompanying Prospectus dated June 5, 1998.
OPTIONAL REDEMPTION
The Debentures will be redeemable, in whole or in part, at the option of the
Company at any time at a redemption price equal to the greater of (i) 100
percent of the principal amount of such Debentures, and (ii) as determined by
the Quotation Agent (as defined below), the sum of the present values of the
remaining scheduled payments of principal and interest thereon (not including
any portion of such payments of interest accrued as of the date of redemption)
discounted to the date of redemption on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined below) plus 15 basis points plus, in each case, accrued interest thereon
to the date of redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected
by the Quotation Agent as having a maturity comparable to the remaining term of
the Debentures to be redeemed that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of such
Debentures.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
S-4
<PAGE> 5
"Quotation Agent" means the Reference Treasury Dealer appointed by the Company.
"Reference Treasury Dealer" means (i) each of J.P. Morgan Securities Inc.,
Goldman, Sachs & Co., Merrill Lynch Government Securities Inc., and Morgan
Stanley & Co. Incorporated and their respective successors; provided, however,
that if the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (ii) any other Primary
Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of the Debentures to be redeemed.
Unless the Company defaults in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the Debentures or portions
thereof called for redemption.
S-5
<PAGE> 6
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated the date hereof, the Company has agreed to sell to each of the
Underwriters named below severally, and each of the Underwriters has severally
agreed to purchase, the principal amount of Debentures set forth opposite its
name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER DEBENTURES
----------- ------------
<S> <C>
J.P. Morgan Securities Inc.................................. $ 75,000,000
Goldman, Sachs & Co. ....................................... 75,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 75,000,000
Morgan Stanley & Co. Incorporated........................... 75,000,000
------------
Total................................................ $300,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are committed to take and pay for all of the Debentures, if any are taken.
The Underwriters initially propose to offer the Debentures directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price, less a concession
not in excess of 0.50 percent of the principal amount of the Debentures. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.25 percent of the principal amount of the Debentures to certain other
dealers. After the initial public offering of the Debentures, the public
offering price and such concessions may be changed by the Underwriters.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
In connection with the offering of the Debentures, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
Debentures. Specifically, the Underwriters may overallot in connection with the
offering of the Debentures, creating a syndicate short position. In addition,
the Underwriters may bid for, and purchase, Debentures in the open market to
cover syndicate shorts or to stabilize the price of the Debentures. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Debentures in the offering of the Debentures, if the syndicate repurchases
previously distributed Debentures in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Debentures above independent market levels.
The Underwriters are not required to engage in any of these activities, and may
end any of them at any time.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged, and may in the future engage, in commercial
banking and/or investment banking transactions with the Company and its
affiliates.
The Company is considering, but has not yet determined, whether it will apply
for listing of the Debentures on a national securities exchange. The Company has
been advised by the Underwriters that the Underwriters intend to make a market
in the Debentures, but are not obligated to do so and may discontinue to make a
market at any time without notice. No assurance can be given as to the liquidity
of the trading markets for the Debentures.
S-6
<PAGE> 7
PROSPECTUS
$1,000,000,000
PHILLIPS PETROLEUM COMPANY
SENIOR DEBT SECURITIES
---------------------
SUBORDINATED DEBT SECURITIES
---------------------
PREFERRED STOCK
---------------------
DEPOSITARY SHARES
---------------------
COMMON STOCK
---------------------
STOCK PURCHASE CONTRACTS
---------------------
STOCK PURCHASE UNITS
---------------------
PREPAID STOCK PURCHASE CONTRACTS
---------------------
PHILLIPS 66 CAPITAL III
PHILLIPS 66 CAPITAL IV
PHILLIPS 66 CAPITAL V
PHILLIPS 66 CAPITAL VI
PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED BY
PHILLIPS PETROLEUM COMPANY
---------------------
Phillips Petroleum Company ("Phillips" or the "Company"), a Delaware
corporation, may from time to time offer (i) its unsecured senior debt
securities (the "Senior Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities") consisting of debentures, notes or other
evidences of indebtedness, (ii) shares of its preferred stock, with or without
par value (the "Preferred Stock"), which may be represented by depositary shares
as described herein, (iii) shares of its common stock, par value $1.25 per share
(the "Common Stock"), (iv) stock purchase contracts ("Stock Purchase Contracts")
to purchase Common Stock or Preferred Stock or (v) stock purchase units ("Stock
Purchase Units"), each representing ownership of a Stock Purchase Contract and
any of (x) Senior Debt Securities or Subordinated Debt Securities, (y) debt
obligations of third parties, including U.S. Treasury Securities, or (z)
Preferred Securities (as defined below) of a Phillips Capital Trust (as defined
below), securing the holder's obligation to purchase Common Stock under the
Stock Purchase Contract. Such securities may be offered in one or more separate
classes or series, in amounts, at prices and on terms to be determined by market
conditions at the time of sale and to be set forth in a supplement or
supplements to this Prospectus (a "Prospectus Supplement"). Such securities may
be sold for U.S. dollars, foreign denominated currency or currency units;
amounts payable with respect to any such securities may likewise be payable in
U.S. dollars, foreign denominated currency or currency units -- in each case as
the Company specifically designates.
Phillips 66 Capital III, Phillips 66 Capital IV, Phillips 66 Capital V and
Phillips 66 Capital VI (each a "Phillips Capital Trust"), each a statutory
business trust formed under the laws of the State of Delaware, may offer, from
time to time, preferred securities, representing undivided beneficial interests
in the assets of the respective Phillips Capital Trust ("Preferred Securities").
The payment of periodic cash distributions ("distributions") with respect to
Preferred Securities of each of the Phillips Capital Trusts out of moneys held
by each of the Phillips Capital Trusts, and payment on liquidation, redemption
or otherwise with respect to such Preferred Securities, will be guaranteed by
Phillips to the extent described herein (each a "Preferred Securities
Guarantee"). See "Description of the Preferred Securities Guarantees" below.
Phillips' obligations under the Preferred Securities Guarantees are subordinate
and junior in right of payment to all other liabilities of Phillips and rank
pari passu with the most senior preferred stock, if any, issued from time to
time by Phillips. Subordinated Debt Securities may be issued and sold from time
to time in one or more series to a Phillips Capital Trust, or a trustee of such
Phillips Capital Trust, in connection with the investment of the proceeds from
the offering of Preferred Securities and Common Securities (as defined herein,
together the "Trust Securities") of such Phillips Capital Trust. The
Subordinated Debt Securities purchased by a Phillips Capital Trust may be
subsequently distributed pro rata to holders of Preferred Securities and Common
Securities in connection with the dissolution of such Phillips Capital Trust
upon the occurrence of certain events as may be described in an accompanying
Prospectus Supplement.
(continued on next page)
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 5, 1998
<PAGE> 8
(This page intentionally left blank)
<PAGE> 9
Specific terms of the particular Senior Debt Securities, Subordinated Debt
Securities, Preferred Stock, Common Stock, Stock Purchase Contracts, Stock
Purchase Units, Preferred Securities and the related Preferred Securities
Guarantee, in respect of which this Prospectus is being delivered (the "Offered
Securities") will be set forth in an accompanying Prospectus Supplement or
Supplements, together with the terms of the offering of the Offered Securities,
the initial price thereof and the net proceeds from the sale thereof. The
Prospectus Supplement will set forth with regard to the particular Offered
Securities, certain terms thereof, including, where applicable, (i) in the case
of Senior Debt Securities and Subordinated Debt Securities, the ranking as
senior or subordinated Debt Securities, the specific designation, aggregate
principal amount, purchase price, maturity, interest rate (which may be fixed or
variable) if any, the time and method of calculating interest payments, if any,
listing, if any, on a securities exchange, authorized denomination, any
exchangeability, conversion, redemption, prepayment or sinking fund provisions,
the currency or currencies or currency unit or units in which principal,
premium, if any, or interest, if any, is payable, the right of Phillips, if any,
to defer payment of interest on the Subordinated Debt securities and the maximum
length of such deferral period, the initial public offering price and any other
specific terms of the Debt Securities; (ii) in the case of Preferred Stock, the
specific designation, number of shares, purchase price and the rights,
preferences and privileges thereof and any qualifications or restrictions
thereon (including dividends, liquidation value, voting rights, par value, if
any, terms for the redemption, conversion or exchange thereof and any other
specific terms of the Preferred Stock), listing, if any, on a securities
exchange and whether the Company has elected to offer the Preferred Stock in the
form of depositary shares; (iii) in the case of Common Stock, the number of
shares offered, the initial offering price, market price and dividend
information; (iv) in the case of Stock Purchase Contracts, the designation and
number of shares of Common Stock or Preferred Stock issuable thereunder, the
purchase price of the Common Stock or Preferred Stock, the date or dates on
which the Common Stock or Preferred Stock is required to be purchased by the
holders of the Stock Purchase Contracts, any periodic payments required to be
made by the Company to the holders of the Stock Purchase Contracts or vice
versa, and the terms of the offering and sale thereof; (v) in the case of Stock
Purchase Units, the specific terms of the Stock Purchase Contracts and any Debt
Securities or debt obligations of third parties or Preferred Securities of a
Phillips Capital Trust securing the holders' obligation to purchase the Common
Stock or Preferred Stock under the Stock Purchase Contracts, the ability of a
holder of such Stock Purchase Units to settle early the underlying Stock
Purchase Contract by delivering cash in exchange for the underlying collateral
and, if applicable, whether the Company will issue to such holder a Prepaid
Stock Purchase Contracts as a result of such early settlement and the specific
terms of the Prepaid Stock Purchase Contract and the terms of the offering and
sale of such Stock Purchase Units; and (vi) in the case of Preferred Securities
of a Phillips Capital Trust, the specific designation, number of securities,
liquidation amount per security, initial public offering price, and any listing
on a securities exchange, distribution rate (or method of calculation thereof),
dates on which distributions shall be payable and dates from which distributions
shall accrue, voting rights, if any, terms for any conversion or exchange into
other securities, any redemption or sinking fund provisions, any other rights,
preferences, privileges, limitations or restrictions relating to the Preferred
Securities and the terms upon which the proceeds of the sale of the Preferred
Securities shall be used to purchase a specific series of Subordinated Debt
Securities of the Company.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Offered Securities shall not exceed
$1,000,000,000. The Prospectus Supplement relating to any series of Offered
Securities will contain information concerning certain United States federal
income tax considerations, if applicable to the Offered Securities.
Phillips and/or each of the Phillips Capital Trusts may sell the Offered
Securities directly, through agents designated from time to time, or through
underwriters or dealers. See "Plan of Distribution" below. If any agents of
Phillips and/or any Phillips Capital Trust or any underwriters or dealers are
involved in the sale of the Offered Securities, the names of such agents,
underwriters or dealers and any applicable commissions and discounts will be set
forth in any related Prospectus Supplement.
This Prospectus may not be used to consummate sales of securities unless
accompanied by a Prospectus Supplement.
<PAGE> 10
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS OR ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PHILLIPS
PETROLEUM COMPANY, THE PHILLIPS CAPITAL TRUSTS OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PHILLIPS PETROLEUM
COMPANY OR THE PHILLIPS CAPITAL TRUSTS SINCE THE DATE HEREOF. THIS PROSPECTUS OR
ANY ACCOMPANYING PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by Phillips and the Phillips Capital Trusts with the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Offered Securities. This
Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC, although it does include a summary of the
material terms of the Senior Debt Indenture and the Subordinated Debt Indenture
(each as defined herein) and the Declaration of Trust of each Phillips Capital
Trust. Reference is made to such Registration Statement and to the exhibits
relating thereto for further information with respect to the Company, the
Phillips Capital Trusts and the Offered Securities. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC or incorporated by
reference herein are not necessarily complete, and, in each instance, reference
is made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference.
Phillips is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Reports, proxy statements and other information concerning Phillips can be
inspected and copied at prescribed rates at the SEC's Public Reference Room,
Judiciary Plaza, 450 Fifth Street, Northwest, Washington, D.C. 20549, as well as
the following Regional Offices of the SEC: 7 World Trade Center, New York, New
York 10048; and Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Such reports, proxy statements and other information may also be
accessed through the SEC's web site on the Internet (http://www.sec.gov). Such
reports, proxy statements and other information may also be inspected at the
offices of the following stock exchanges on which certain of the Company's
securities are listed: the New York Stock Exchange, 20 Broad Street, New York,
New York 10005; the Pacific Exchange, 301 Pine Street, San Francisco, California
94104; and The Toronto Stock Exchange, The Exchange Tower, 2 First Canadian
Place, Toronto, Ontario, Canada M5X 1J2.
No separate financial statements of any of the Phillips Capital Trusts have
been included herein. Phillips does not consider that such financial statements
would be material to holders of the Preferred Securities because (i) all of the
voting securities of each of the Phillips Capital Trusts will be owned, directly
or indirectly, by Phillips, a reporting company under the Exchange Act, (ii)
each of the Phillips Capital Trusts has no independent operations but exists for
the sole purpose of issuing securities representing undivided beneficial
interests in the assets of such Phillips Capital Trust and investing the
proceeds thereof in Subordinated Debt Securities issued by Phillips, and (iii)
Phillips' obligations described herein and in any accompanying Prospectus
Supplement to provide certain indemnities in respect of and be responsible for
2
<PAGE> 11
certain costs, expenses, debts and liabilities of each of Phillips 66 Capital
III, IV, V and VI under the Subordinated Debt Indenture and any supplemental
indenture thereto and pursuant to the Declarations of each Trust, the guarantee
issued with respect to Preferred Securities issued by that Trust, the
Subordinated Debt Securities purchased by that Trust and the related Indenture,
taken together, constitute a full and unconditional guarantee of payments due on
the Preferred Securities. See "Description of the Subordinated Debt Securities"
and "Description of the Preferred Securities Guarantees."
The Phillips Capital Trusts are not currently subject to the information
reporting requirements of the Exchange Act. The Phillips Capital Trusts will
become subject to such requirements upon the effectiveness of the Registration
Statement, although they intend to seek and expect to receive exemptions
therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, and its Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, which have been previously filed by the Company with the SEC, are
incorporated by reference in this Prospectus.
All documents filed by Phillips pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offering of the Offered Securities shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus or
in a document incorporated or deemed to be incorporated by reference herein or
in any Prospectus Supplement shall be deemed to be modified or superseded for
purposes of this Prospectus or any Prospectus Supplement to the extent that a
statement contained herein or therein (or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein or therein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus or any Prospectus Supplement.
Phillips will provide without charge to each person to whom a copy of this
Prospectus has been delivered, upon the written or oral request of such person,
a copy of any or all of the documents referred to above which have been or may
be incorporated by reference herein (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to Dale J. Billam,
Secretary, Phillips Petroleum Company, 1234 Adams Building, Bartlesville,
Oklahoma 74004 (telephone (918) 661-5638).
PHILLIPS PETROLEUM COMPANY
Phillips Petroleum Company, incorporated in Delaware in 1917, is a fully
integrated oil company engaged in petroleum exploration and production on a
worldwide basis, petroleum refining and marketing, and natural gas gathering and
processing, principally in the United States. Phillips also produces and
distributes chemicals worldwide. Its principal executive offices are located in
the Phillips Building, Bartlesville, Oklahoma 74004 (telephone (918) 661-6600).
3
<PAGE> 12
THE TRUSTS
Each of Phillips 66 Capital III, Phillips 66 Capital IV, Phillips 66
Capital V and Phillips 66 Capital VI is a statutory business trust formed under
Delaware law pursuant to (i) a separate declaration of trust (each a
"Declaration") executed by the Company, as sponsor for such trust (the
"Sponsor") and the Phillips Capital Trustees (as defined herein) for such trust
and (ii) the filing of a certificate of trust with the Delaware Secretary of
State on February 23, 1996, in the case of Phillips 66 Capital III and Phillips
66 Capital IV and on May in the case of Phillips 66 Capital V and Phillips 66
Capital VI. Each Phillips Capital Trust exists for the exclusive purposes of (i)
issuing the Preferred Securities and common securities representing undivided
beneficial interests in the assets of such Trust (the "Common Securities" and,
together with the Preferred Securities, the "Trust Securities"), (ii) investing
the gross proceeds of the Trust Securities in the Subordinated Debt Securities,
and (iii) engaging in only those other activities necessary or incidental
thereto. All of the Common Securities will be directly or indirectly owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities except that upon an event
of default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Company will, directly or indirectly, acquire
Common Securities in an aggregate liquidation amount equal to 3 percent of the
total capital of each Phillips Capital Trust. Each Phillips Capital Trust has a
term of approximately 55 years, but may earlier terminate as provided in the
Declaration. Each Phillips Capital Trust's business and affairs will be
conducted by the trustees (the "Phillips Capital Trustees") appointed by the
Company, as the direct or indirect holder of all the Common Securities. The
holder of the Common Securities will be entitled to appoint, remove or replace
any of, or increase or reduce the number of, the Phillips Capital Trustees of a
Phillips Capital Trust. The duties and obligations of the Phillips Capital
Trustees shall be governed by the Declaration of such Phillips Capital Trust. A
majority of the Phillips Capital Trustees (the "Regular Trustees") of each
Phillips Capital Trust will be persons who are employees or officers of or
affiliated with the Company. One Phillips Capital Trustee of each Phillips
Capital Trust will be a financial institution which will be unaffiliated with
the Company and which shall act as property trustee and as indenture trustee for
purposes of the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), pursuant to the terms set forth in a Prospectus Supplement (the "Property
Trustee"). In addition, unless the Property Trustee maintains a principal place
of business in the State of Delaware, and otherwise meets the requirements of
applicable law, one Phillips Capital Trustee of each Phillips Capital Trust will
have its principal place of business or reside in the State of Delaware (the
"Delaware Trustee"). The Company will pay all fees and expenses related to the
Phillips Capital Trusts and the offering of Trust Securities, the payment of
which will be guaranteed by the Company. The office of the Delaware Trustee for
each Phillips Capital Trust in the State of Delaware is The Bank of New York
(Delaware), White Clay Center, Route 273, Newark, Delaware 19711. The principal
place of business of each Phillips Capital Trust shall be c/o Phillips Petroleum
Company, 3 Phillips Building, Bartlesville, Oklahoma 74004.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratios of earnings to fixed charges and
of earnings to combined fixed charges and preferred stock dividends for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEARS ENDED DECEMBER 31
------------ ------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges.................. 6.1 5.5 5.4 6.9 3.4 3.2 2.3
Ratio of earnings to
combined fixed charges
and preferred stock
dividends................ 6.1 5.5 5.4 6.9 3.4 3.2 2.3
</TABLE>
For the purpose of computing the ratios of earnings to fixed charges and of
earnings to combined fixed charges and preferred stock dividends, earnings
consist of income before income taxes and extraordinary
4
<PAGE> 13
items, plus fixed charges (excluding capitalized interest and the portion of the
preferred dividend requirements of a subsidiary not previously deducted from
pretax income, but including amortization of amounts previously capitalized),
less equity in undistributed earnings of companies owned less than 50 percent.
Fixed charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense, that portion of rental
expense which the Company believes to be representative of interest and the
amounts accrued to cover the preferred stock dividend requirements of a
subsidiary and capital trusts. A statement setting forth the computation of the
unaudited ratios of earnings to fixed charges and of earnings to combined fixed
charges and preferred stock dividends is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
USE OF PROCEEDS
Phillips intends to add the net proceeds from the sale of the Offered
Securities to its general funds, to be used for general corporate purposes,
including capital expenditures, repayment or repurchases of outstanding
long-term debt securities, investments in subsidiaries, working capital,
repayment of short-term commercial paper notes and/or other business
opportunities. Each Phillips Capital Trust will use all proceeds received from
the sale of the Offered Securities to purchase Subordinated Debt Securities from
Phillips.
DESCRIPTION OF THE SENIOR DEBT SECURITIES AND
SUBORDINATED DEBT SECURITIES
The Company's unsecured Senior Debt Securities and Subordinated Debt
Securities (collectively, the "Debt Securities"), consisting of notes,
debentures or other evidences of indebtedness, may be issued from time to time
in one or more series, in the case of Senior Debt Securities, under a Senior
Indenture dated as of September 15, 1990, as supplemented by Supplemental
Indenture No. 1 dated as of May 23, 1991 (as so supplemented, the "Senior Debt
Indenture") between the Company and U.S. Bank Trust National Association, as
successor to Continental Bank, National Association, as Trustee, and in the case
of Subordinated Debt Securities, under a Subordinated Indenture dated as of May
23, 1996 (the "Subordinated Debt Indenture") between the Company and the Bank of
New York, as Trustee. The Senior Debt Indenture and the Subordinated Debt
Indenture are sometimes hereinafter referred to individually as an "Indenture"
and collectively as the "Indentures." U.S. Bank Trust, Continental Bank and The
Bank of New York, in each of their respective capacities as trustee under the
respective Indentures, is sometimes referred to hereinafter as the "Trustee."
The Indentures are included as exhibits to the Registration Statement of which
this Prospectus is a part. The following description summarizes the material
terms of the Indentures and the Debt Securities and is qualified in its entirety
by reference to the detailed provisions of the applicable Indenture, which
contains the full text of such provisions, including the definition of certain
terms used herein, and other information regarding the Debt Securities. Wherever
particular sections or defined terms of the applicable Indenture are referred
to, such sections or defined terms are incorporated herein by reference as part
of the statement made, and the statement is qualified in its entirety by such
reference. Any Debt Securities offered by this Prospectus and the accompanying
Prospectus Supplement are referred to herein as the "Offered Debt Securities."
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provide that the Debt Securities
may be issued from time to time in one or more series. The Debt Securities are
issuable in one or more series pursuant to an indenture supplemental to the
Indenture or a resolution of the Company's Board of Directors or a special
committee appointed thereby (each, a "Supplemental Indenture").
Reference is made to the Prospectus Supplement relating to the particular
Debt Securities being offered thereby for the following terms: (1) the
designation of such Debt Securities; (2) the aggregate principal amount of such
Debt Securities; (3) the percentage of their principal amount at which such Debt
Securities will be issued; (4) the date or dates on which such Debt Securities
will mature and the right, if any, to extend such date or dates; (5) the rate or
rates, if any, per annum, at which such Debt Securities will bear interest, or
the method of determination of such rate or rates; (6) the date or dates from
which such interest shall accrue, the interest payment dates on which such
interest will be payable or the manner of determination of such
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<PAGE> 14
interest payment dates and the record dates for the determination of holders to
whom interest is payable on any such interest payment dates; (7) the right, if
any, to extend the interest payment periods and the duration of such extension;
(8) provisions for a sinking purchase or other analogous fund, if any; (9) the
period or periods, if any, within which, the price or prices of which, and the
terms and conditions upon which such Debt Securities may be redeemed, in whole
or in part, at the option of the Company or the holder; (10) the form of such
Debt Securities; (11) any provisions for payment of additional amounts for taxes
and any provision for redemption, in the event the Company must comply with
reporting requirements in respect of a Debt Security or must pay such additional
amounts in respect of any Debt Security; (12) the terms and conditions, if any,
upon which the Debt Securities of such series may be repayable prior to maturity
at the option of the holder thereof (which option may be conditional) and the
price or prices in the currency or currency unit in which such Debt Securities
are payable; (13) the currency, currencies or currency units for which such Debt
Securities may be purchased and the currency, currencies or currency units in
which the principal of and interest, if any, on such Debt Securities may be
payable; (14) the terms and conditions, if any, pursuant to which such Debt
Securities may be converted or exchanged for other securities of the Company or
any other person; (15) the terms and conditions, if any, pursuant to which the
principal of and premium, if any, and interest, if any, on such Debt Securities
are payable at the election of the Company or the holder thereof, in securities
or other property; and (16) any other specific terms of the Debt Securities.
Principal, premium, if any, and interest, if any, will be payable, and the Debt
Securities offered hereby will be transferable, at the corporate trust office of
the Trustee in New York, New York, provided that payment of interest, if any,
may be made at the option of the Company by check mailed to the address of the
person entitled thereto as it appears in the Security Register.
If a Prospectus Supplement specifies that a series of Debt Securities is
denominated in a currency or currency unit other than United States dollars,
such Prospectus Supplement shall also specify the denomination in which such
Debt Securities will be issued and the coin or currency in which the principal,
premium, if any, and interest, if any, on such Debt Securities will be payable,
which may be United States dollars based upon the exchange rate for such other
currency or currency unit existing on or about the time a payment is due.
The Indentures contain no covenants or other provisions to afford
protection to holders of the Debt Securities in the event of a highly leveraged
transaction or a change in control of the Company, except to the limited extent
described under "Limitation on Mergers and Sales of Assets" below.
FORM, EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be issued in fully registered form without coupons and in
denominations of $1,000 and integral multiples thereof. No service charge will
be made for any transfer or exchange of the Debt Securities, but the Company or
the Debt Trustee may require payment of a sum sufficient to cover any tax or
other government charge payable in connection therewith. Where Debt Securities
of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special United
States federal income tax considerations, applicable to any such Debt Securities
and to payment on and transfer and exchange of such Debt Securities will be
described in the applicable Prospectus Supplement. Bearer Debt Securities will
be transferrable by delivery.
Unless otherwise provided in the applicable Prospectus Supplement,
principal and premium, if any, or interest, if any, will be payable and the Debt
Securities may be surrendered for payment or transferred at the offices of the
Trustee as paying and authenticating agent, provided that payment of interest on
registered securities may be made at the option of the Company by check mailed
to the address of the person entitled thereto as it appears in the Security
Register. Payment of Debt Securities in bearer form will be made at such paying
agencies outside of the United States as the Company may appoint.
6
<PAGE> 15
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Global Depositary"), or its nominee, identified in the
Prospectus Supplement relating to such series. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denomination
equal to the portion of the aggregate principal amount of Outstanding Debt
Securities of the series to be represented by such Global Security or
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in definitive registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Global Depositary
for such Global Security to a nominee for such Global Depositary and except in
the circumstances described in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
and a description of the Global Depositary will be provided in the applicable
Prospectus Supplement.
CERTAIN TERMS OF THE SENIOR DEBT SECURITIES
Certain Covenants of the Company
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, incur, issue, assume or guarantee any indebtedness for
borrowed money secured by a mortgage, pledge or other lien ("Mortgage") on any
Restricted Property, or on any shares of stock or indebtedness of a Restricted
Subsidiary, without providing that the Senior Debt Securities shall be secured
equally and ratably with (or prior to) such secured indebtedness, unless after
giving effect thereto the aggregate amount of all such indebtedness so secured
(other than indebtedness secured by excepted Mortgages referred to in the
following sentence), together with all Attributable Debt of the Company and its
Restricted Subsidiaries in respect of sale and leaseback transactions involving
Restricted Property, except sale and leaseback transactions, the proceeds of
which are applied to the retirement of funded debt, would not exceed 10 percent
of Consolidated Adjusted Net Assets as shown on the Company's latest audited
consolidated financial statements. This restriction will 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 six months after such
acquisition or completion of such property for the purpose of financing all or
any part of the purchase price or construction cost thereof, (c) Mortgages on
substantially unimproved property to secure the cost of exploration, drilling or
development of, or improvements to, such property, and (d) Mortgages in favor of
the Company or a Restricted Subsidiary, and will not apply to any extension,
renewal or replacement of any Mortgage referred to in the foregoing clauses (a)
through (d), inclusive. The following types of transactions are not deemed to
create indebtedness secured by Mortgage (a) 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 will realize therefrom a specified amount of
money or of such oil, gas or gas liquids, or any other interest in property
commonly referred to as a "production payment," and (b) the Mortgage of any
property of the Company or any Subsidiary in favor of governmental bodies to
secure partial progress, advance or other payments to the Company or any
Subsidiary pursuant to any contract or statute, or the Mortgage of any property
to secure indebtedness of the pollution control or industrial revenue bond type.
LIMITATION ON SALES AND LEASEBACKS. Neither the Company nor any Restricted
Subsidiary may enter into any sale and leaseback transaction involving any
Restricted Property which has been owned or operated by the Company or such
Restricted Subsidiary for more than six months unless (a) the Company or such
Restricted Subsidiary could mortgage such property in an amount equal to the
Attributable Debt with respect to the sale and leaseback transaction without
equally and ratably securing the Securities of each series, (b) since the date
of the Senior Debt Indenture 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
7
<PAGE> 16
sale and leaseback transaction, the Company or any Restricted Subsidiary 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 of the
Company (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) hereof) to the retirement of Funded
Debt of the Company ranking on a parity with the Securities of each series. This
restriction will not apply to certain sale and leaseback transactions (a)
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries, or (b) involving the taking back of a lease for a period of less
than three years.
CERTAIN DEFINITIONS. "Attributable Debt" is defined to mean the total net
amount of rent (discounted at the rate per annum indicated in the Senior Debt
Indenture) required to be paid during the remaining term of any lease.
"Consolidated Adjusted Net Assets" is defined to 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.
"Restricted Property" is defined to 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 (i) related transportation or marketing facilities, or (ii) any
refining or manufacturing plant or portion thereof which, in the opinion of the
Board of Directors of the Company, is not a principal plant in relation to the
activities of the Company and its Restricted Subsidiaries as a whole.
"Restricted Subsidiary" is defined to 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. The Company currently has no Restricted
Subsidiaries.
"Subsidiary" is defined to 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.
Limitation on Mergers and Sales of Assets
The Company shall not consolidate with, or merge into, any corporation or
convey or transfer its properties and assets substantially as an entirety to any
Person unless the successor entity shall be a corporation organized under the
laws of the United States or any State or the District of Columbia and shall
expressly assume the obligations of the Company under the Senior Debt Indenture.
If, upon any such consolidation, merger, conveyance or transfer of the Company
with or into any Person or of any Restricted Subsidiary with or to any other
Subsidiary, any Restricted Property of the Company or of any Restricted
Subsidiary or any shares of stock or indebtedness of any Restricted Subsidiary
would thereupon become subject to any Mortgage (other than a Mortgage permitted
under the limitation on liens described above, without the Company's having to
secure the Senior Debt Securities equally and ratably), the Company will secure
the Senior Debt Securities (together with, if the Company shall so determine,
other securities ranking on a parity with the Senior Debt Securities) prior to
all liens other than any theretofore existing.
8
<PAGE> 17
Events of Default, Waiver, and Notice
As to each series of Senior Debt Securities, an Event of Default is defined
in the Senior Debt Indenture as being: default for 30 days in payment of any
interest on the Senior Debt Securities of that series; default in payment of
principal and premium, if any, on the Senior Debt Securities of that series when
due either at maturity, upon redemption, by declaration or otherwise; default by
the Company in the performance of any other of the covenants or agreements in
the Senior Debt Indenture which shall not have been remedied for a period of 90
days after notice; and certain events of bankruptcy, insolvency, and
reorganization of the Company. The Senior Debt Indenture provides that the
Trustee may withhold notice to the Securityholders of any default (except in
payment of principal or of interest or premium on the Senior Debt Securities) if
the Trustee considers it in the interest of Securityholders to do so.
The Senior Debt Indenture provides that, (a) if an Event of Default due to
the default in the payment of principal, interest or premium, if any, on any
series of Senior Debt Securities shall have occurred and be continuing, either
the Trustee or the holders of 25 percent in principal amount of the Senior Debt
Securities of all series affected thereby then outstanding may declare the
principal of all such Senior Debt Securities to be due and payable immediately,
and (b) if an Event of Default resulting from default in the performance of any
other of the covenants or agreements in the Senior Debt Indenture or certain
events of bankruptcy, insolvency and reorganization of the Company, either the
Trustee or the holders of 25 percent in principal amount of all Senior Debt
Securities then outstanding (treated as one class) may declare the principal of
all Senior Debt Securities to be due and payable immediately, but upon certain
conditions such declarations may be annulled and past defaults may be waived
(except defaults in payment of principal of or interest or premium on the Senior
Debt Securities) by the holders of a majority in principal amount of the Senior
Debt Securities of such series (or of all series, as the case may be) then
outstanding.
The holders of a majority in principal amount of the Senior Debt Securities
of any and all series affected and then outstanding shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee under the Senior Debt Indenture, provided that the
Senior Debt Securityholders shall have offered to the Trustee reasonable
indemnity against expenses and liabilities. The Senior Debt Indenture requires
the annual filing by the Company with the Trustee of a certificate as to the
absence of certain defaults under the Senior Debt Indenture.
Modifications of the Indenture
The Senior Debt Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than 66 2/3 percent in
principal amount of the Senior Debt Securities of all series affected by such
modification at the time outstanding, to modify the Senior Debt Indenture or any
supplemental indenture or the rights of the holders of the Senior Debt
Securities; provided that no such modification shall (i) extend the fixed
maturity of any Senior Debt Security, or reduce the principal amount thereof
(including in the case of a discounted Security the amount payable thereon in
the event of acceleration or the amount provable in bankruptcy) or any
redemption premium thereon, or reduce the rate or extend the time of payment of
interest thereon, or make the principal of, or interest or premium on, the
Senior Debt Securities payable in any coin or currency other than that provided
in the Senior Debt Securities, or impair or affect the right of any Senior Debt
Securityholder to institute suit for the payment thereof or the right of
prepayment, if any, at the option of the holder, without the consent of the
holder of each Senior Debt Security so affected, or (ii) reduce the aforesaid
percentage of Senior Debt Securities the consent of the holders of which is
required for any such modification without the consent of the holders of each
Senior Debt Security affected.
Defeasance
The Senior Debt Indenture provides that the Company, at the Company's
option: (a) will be Discharged from any and all obligations in respect of the
Senior Debt Securities of a series (except for certain obligations to register
the transfer or exchange of Senior Debt Securities, replace stolen, lost or
mutilated Senior Debt Securities, maintain paying agencies and hold moneys for
payment in trust) or (b) need not comply with
9
<PAGE> 18
certain restrictive covenants of the Senior Debt Indenture (including those
described herein), in each case if the Company deposits, in trust with the
Trustee or the Defeasance Agent, money or U.S. Government Obligations which
through the payment of interest thereon and principal thereof in accordance with
their terms will provide money, in an amount sufficient to pay all the principal
(including any mandatory sinking fund payments) of, and interest and premium, if
any, on, the Senior Debt Securities of such series on the dates such payments
are due in accordance with the terms of such Senior Debt Securities. To exercise
any such option, the Company is required to deliver to the Trustee and the
Defeasance Agent, if any, an opinion of counsel to the effect that (i) the
deposit and related defeasance would not cause the holders of the Senior Debt
Securities of such series to recognize income, gain or loss for federal income
tax purposes and, in the case of a Discharge pursuant to clause (a), such
opinion shall be accompanied by a private letter ruling to the effect received
from the United States Internal Revenue Service or a revenue ruling pertaining
to a comparable form of transaction to the effect published by the United States
Internal Revenue Service, and (ii) if listed on any national securities
exchange, such Senior Debt Securities would not be delisted from such exchange
as a result of the exercise of such option.
Governing Law
The Senior Debt Indenture and the Senior Debt Securities will be governed
by, and construed in accordance with, the internal laws of the State of New
York.
The Trustee
The Company may have normal banking relationships with U.S. Bank Trust
National Association as successor to the Continental Bank National Association
in the ordinary course of business.
CERTAIN TERMS OF THE SUBORDINATED DEBT SECURITIES
Subordination
The Subordinated Debt Securities will be subordinated and junior in right
of payment to certain other indebtedness of the Company to the extent set forth
in the applicable Prospectus Supplement.
Issuance of Subordinated Debt Securities to a Phillips Capital Trust
In the event Subordinated Debt Securities are issued to a Phillips Capital
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such Phillips Capital Trust, such Subordinated Debt Securities
subsequently may be distributed pro rata to the holders of such Trust Securities
in connection with the dissolution of such Phillips Capital Trust upon the
occurrence of certain events described in the Prospectus Supplement relating to
such Trust Securities. Only one series of Subordinated Debt Securities will be
issued to a Phillips Capital Trust or a trustee of such trust in connection with
the issuance of Trust Securities by such Phillips Capital Trust.
Certain Covenants of the Company
If Subordinated Debt Securities are issued to a Phillips Capital Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
such Phillips Capital Trust and (i) there shall have occurred any event that
would constitute an Event of Default (as defined herein) or (ii) the Company
shall be in default with respect to its payment of any obligations under the
related Preferred Securities Guarantee or Common Securities Guarantee, then (a)
the Company shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase or make a liquidation payment with respect
to, any of its capital stock (other than (i) purchases or acquisitions of shares
of Phillips Common Stock in connection with the satisfaction by Phillips of its
obligations under any employee benefit plans, (ii) as a result of a
reclassification of Phillips capital stock or the exchange or conversion of one
class or series of Phillips capital stock for another class or series of
Phillips capital stock or (iii) the purchase of fractional interests in shares
of Phillips capital stock pursuant to the conversion or exchange provisions of
such Phillips capital stock or the security being converted or exchanged) or
make any guarantee payments with respect to the foregoing, and
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(b) the Company shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company which rank pari passu with or junior to such
Subordinated Debt Securities.
If Subordinated Debt Securities are issued to a Phillips Capital Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
such Phillips Capital Trust and the Company shall have given notice of its
election to defer payments of interest on such Subordinated Debt Securities by
extending the interest payment period as provided in the Indenture and such
period, or any extension thereof, shall be continuing, then (a) the Company
shall not declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to, any of
its capital stock, and (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company which rank pari passu
with or junior to such Subordinated Debt Securities.
In the event Subordinated Debt Securities are issued to a Phillips Capital
Trust or a trustee of such trust in connection with the issuance of Trust
Securities of such Phillips Capital Trust, for so long as such Trust Securities
remain outstanding, the Company will covenant (i) to directly or indirectly
maintain 100 percent ownership of the Common Securities of such Phillips Capital
Trust; provided, however, that any permitted successor of the Company under the
Indenture may succeed to the Company's ownership of such Common Securities, (ii)
to use its reasonable efforts to cause such Phillips Capital Trust (a) to remain
a statutory business trust, except in connection with the distribution of
Subordinated Debt Securities to the holders of Trust Securities in liquidation
of such Phillips Capital Trust, the redemption of all of the Trust Securities of
such Phillips Capital Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration of such Phillips Capital
Trust, and (b) to otherwise continue not to be classified as an association
taxable as a corporation or partnership for United States federal income tax
purposes and (iii) to use its reasonable efforts to cause each holder of Trust
Securities to be treated as owning an undivided beneficial interest in the
Subordinated Debt Securities.
Limitation on Mergers and Sales of Assets
The Company shall not consolidate with, or merge into, any corporation or
convey or transfer its properties and assets substantially as an entirety to any
Person unless the successor entity shall be a corporation organized under the
laws of the United States or any State or the District of Columbia and shall
expressly assume the obligations of the Company under the Subordinated Debt
Indenture.
Events of Default, Waiver and Notice
The Subordinated Debt Indenture provides that any one or more of the
following described events which has occurred and is continuing constitutes an
"Event of Default" with respect to each series of Subordinated Debt Securities:
(a) default for 30 days in payment of any interest on the Subordinated
Debt Securities of that series, including any Additional Interest in
respect thereof, when due; provided, however, that a valid extension of the
interest payment period by the Company shall not constitute a default in
the payment of interest for this purpose; or
(b) default in payment of principal and premium, if any, on the
Subordinated Debt Securities of that series when due either at maturity,
upon redemption, by declaration or otherwise; provided, however, that a
valid extension of the maturity of such Subordinated Debt Securities shall
not constitute a default for this purpose; or
(c) default by the Company in the performance of any other of the
covenants or agreements in the Indenture which shall not have been remedied
for a period of 90 days after notice; or
(d) certain events of bankruptcy, insolvency or reorganization of the
Company; or
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(e) in the event Subordinated Debt Securities are issued to a Phillips
Capital Trust or a trustee of such trust in connection with the issuance of
Trust Securities by such Phillips Capital Trust, the voluntary or
involuntary dissolution, winding-up or termination of such Phillips Capital
Trust, except in connection with the distribution of Subordinated Debt
Securities to the holders of Trust Securities in liquidation of such
Phillips Capital Trust, the redemption of all of the Trust Securities of
such Phillips Capital Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration of such Phillips
Capital Trust.
The Subordinated Debt Indenture provides that the Trustee may withhold notice to
the holders of a series of Subordinated Debt Securities (except in payment of
principal or of interest or premium on the Subordinated Debt Securities) if the
Trustee considers it in the interest of such holders to do so.
The Subordinated Debt Indenture provides that, (a) if an Event of Default
due to the default in the payment of principal, interest or premium, if any, on
any series of Subordinated Debt Securities shall have occurred and be
continuing, either the Trustee or the holders of 25 percent in principal amount
of the Subordinated Debt Securities of all series affected thereby then
outstanding may declare the principal of all such Subordinated Debt Securities
to be due and payable immediately, and (b) if an Event of Default resulting from
default in the performance of any other of the covenants or agreements in the
Subordinated Debt Indenture or certain events of bankruptcy, insolvency and
reorganization of the Company shall have occurred and be continuing, either the
Trustee or the holders of 25 percent in principal amount of all Subordinated
Debt Securities then outstanding (treated as one class) may declare the
principal of all Subordinated Debt Securities to be due and payable immediately,
but upon certain conditions such declarations may be annulled and past defaults
may be waived (except defaults in payment of principal of or interest or premium
on the Subordinated Debt Securities) by the holders of a majority in principal
amount of the Subordinated Debt Securities of such series (or of all series, as
the case may be) then outstanding.
The holders of a majority in principal amount of the Subordinated Debt
Securities of any and all series affected and then outstanding shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee under the Subordinated Debt Indenture, provided
that the holders of the Subordinated Debt Securities shall have offered to the
Debt Trustee reasonable indemnity against expenses and liabilities. The
Subordinated Debt Indenture requires the annual filing by the Company with the
Trustee of a certificate as to the absence of certain defaults under the
Subordinated Debt Indenture.
Modification of the Indenture
The Subordinated Debt Indenture contains provisions permitting the Company
and the Trustee, with the consent of the holders of not less than a majority in
principal amount of the Subordinated Debt Securities of all series affected by
such modification at the time outstanding, to modify the Subordinated Debt
Indenture or any supplemental indenture or the rights of the holders of the
Subordinated Debt Securities; provided that no such modification shall (i)
extend the fixed maturity of any Subordinated Debt Security, or reduce the
principal amount thereof (including in the case of a discounted Subordinated
Debt Security the amount payable thereon in the event of acceleration or the
amount provable in bankruptcy) or any redemption premium thereon, or reduce the
rate or extend the time of payment of interest thereon, or make the principal
of, or interest or premium on, the Subordinated Debt Securities payable in any
coin or currency other than that provided in the Subordinated Debt Securities,
or impair or affect the right of any holder of Subordinated Debt Securities to
institute suit for the payment thereof or the right of prepayment, if any, at
the option of the holder, without the consent of the holder of each Subordinated
Debt Security so affected, or (ii) reduce the aforesaid percentage of
Subordinated Debt Securities the consent of the holders of which is required for
any such modification without the consent of the holders of each Subordinated
Debt Security affected.
Defeasance and Discharge
The Subordinated Debt Indenture provides that the Company, at the Company's
option: (a) will be Discharged from any and all obligations in respect of the
Subordinated Debt Securities of a series (except for certain obligations to
register the transfer or exchange of Subordinated Debt Securities, replace
stolen, lost or
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mutilated Subordinated Debt Securities, maintain paying agencies and hold moneys
for payment in trust) or (b) need not comply with certain restrictive covenants
of the Subordinated Debt Indenture (including those described herein), in each
case if the Company deposits, in trust with the Trustee or the Defeasance Agent,
money or U.S. Government Obligations which through the payment of interest
thereon and principal thereof in accordance with their terms will provide money,
in an amount sufficient to pay all the principal (including any mandatory
sinking fund payments) of, and interest and premium, if any, on, the
Subordinated Debt Securities of such series on the dates such payments are due
in accordance with the terms of such Subordinated Debt Securities. To exercise
any such option, the Company is required to deliver to the Trustee and the
Defeasance Agent, if any, an opinion of counsel to the effect that (i) the
deposit and related defeasance would not cause the holders of the Subordinated
Debt Securities of such series to recognize income, gain or loss for federal
income tax purposes and, in the case of a Discharge pursuant to clause (a), such
opinion shall be accompanied by a private letter ruling to the effect received
from the United States Internal Revenue Service or a revenue ruling pertaining
to a comparable form of transaction to the effect published by the United States
Internal Revenue Service, and (ii) if listed on any national securities
exchange, such Subordinated Debt Securities would not be delisted from such
exchange as a result of the exercise of such option.
Governing Law
The Subordinated Debt Indenture and the Subordinated Debt Securities will
be governed by, and construed in accordance with, the internal laws of the State
of New York.
The Trustee
The Company may have normal banking relationships with The Bank of New York
in the ordinary course of business.
DESCRIPTION OF THE PREFERRED SECURITIES
Each Phillips Capital Trust may issue, from time to time, only one series
of Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Phillips Capital Trust authorizes the
Regular Trustees of such Phillips Capital Trust to issue on behalf of such
Phillips Capital Trust one series of Preferred Securities. The Declaration will
be qualified as an indenture under the Trust Indenture Act. The Preferred
Securities will have such terms, including distributions, redemption, voting,
liquidation rights and such other preferred, deferred or other special rights or
such restrictions as shall be set forth in the Declaration or made part of the
Declaration by the Trust Indenture Act and which will mirror the terms of the
Subordinated Debt Securities held by the Phillips Capital Trust and described in
the Prospectus Supplement relating thereto. Reference is made to the Prospectus
Supplement relating to the Preferred Securities of the Phillips Capital Trust
for specific terms, including (i) the distinctive designation of such Preferred
Securities; (ii) the number of Preferred Securities issued by such Phillips
Capital Trust; (iii) the annual distribution rate (or method of determining such
rate) for Preferred Securities issued by such Phillips Capital Trust and the
date or dates upon which such distributions shall be payable; provided, however,
that distributions on such Preferred Securities shall be payable on a periodic
basis to holders of such Preferred Securities as of a record date in each period
during which such Preferred Securities are outstanding; (iv) whether
distributions on Preferred Securities issued by such Phillips Capital Trust
shall be cumulative, and, in the case of Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining the
date or dates from which distributions on Preferred Securities issued by such
Phillips Capital Trust shall be cumulative; (v) the amount or amounts which
shall be paid out of the assets of such Phillips Capital Trust to the holders of
Preferred Securities of such Phillips Capital Trust upon voluntary or
involuntary dissolution, winding-up or termination of such Phillips Capital
Trust; (vi) the obligation, if any, of such Phillips Capital Trust to purchase
or redeem Preferred Securities issued by such Phillips Capital Trust and the
price or prices at which, the period or periods within which, and the terms and
conditions upon which, Preferred Securities issued by such Phillips Capital
Trust shall be purchased or redeemed, in whole or in part, pursuant to such
obligation; (vii) the voting rights, if any, of Preferred Securities issued by
such Phillips Capital Trust in
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addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities, or of Preferred Securities issued by one or more Phillips Capital
Trusts, or of both, as a condition to specified action or amendments to the
Declaration of such Phillips Capital Trust; (viii) the terms and conditions, if
any, upon which the Subordinated Debt Securities may be distributed to holders
of Preferred Securities; (ix) if applicable, any securities exchange upon which
the Preferred Securities shall be listed; and (x) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
issued by such Phillips Capital Trust not inconsistent with the Declaration of
such Phillips Capital Trust or with applicable law. All Preferred Securities
offered hereby will be guaranteed by the Company to the extent set forth below
under "Description of the Preferred Securities Guarantees." Certain United
States federal income tax considerations applicable to any offering of Preferred
Securities will be described in the Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each Phillips
Capital Trust will issue one series of Common Securities. The Declaration of
each Phillips Capital Trust authorizes the Regular Trustees of such trust to
issue on behalf of such Phillips Capital Trust one series of Common Securities
having such terms including distributions, redemption, voting, liquidation
rights or such restrictions as shall be set forth therein. The terms of the
Common Securities issued by a Phillips Capital Trust will be substantially
identical to the terms of the Preferred Securities issued by such trust and the
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Preferred Securities except that, upon an event of default under
the Declaration, the rights of the holders of the Common Securities to payment
in respect of distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. Except in certain limited circumstances, the Common Securities will
also carry the right to vote to appoint, remove or replace any of the Phillips
Capital Trustees of a Phillips Capital Trust. All of the Common Securities of
each Phillips Capital Trust will be directly or indirectly owned by the Company.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an Event of Default under the Declaration of a Phillips Capital Trust
occurs and is continuing, then the holders of Preferred Securities of such
Phillips Capital Trust would rely on the enforcement by the Institutional
Trustee of its rights as a holder of the applicable series of Subordinated Debt
Securities against the Company. In addition, the holders of a majority in
liquidation amount of the Preferred Securities of such Phillips Capital Trust
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Institutional Trustee or to direct
the exercise of any trust or power conferred upon the Institutional Trustee
under the applicable Declaration, including the right to direct the
Institutional Trustee to exercise the remedies available to it as a holder of
the Subordinated Debt Securities. If the Institutional Trustee fails to enforce
its rights under the applicable series of Subordinated Debt Securities, a holder
of Preferred Securities of such Phillips Capital Trust may institute a legal
proceeding directly against the Company to enforce the Institutional Trustee's
rights under the applicable series of Subordinated Debt Securities without first
instituting any legal proceeding against the Institutional Trustee or any other
person or entity. Notwithstanding the foregoing, if an Event of Default under
the applicable Declaration has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
applicable series of Subordinated Debt Securities on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then a holder of Preferred Securities of such Phillips Capital Trust may
directly institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the applicable series of Subordinated Debt
Securities having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder (a "Direct Action") on or after the
respective due date specified in the applicable series of Subordinated Debt
Securities. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
applicable Declaration to the extent of any payment made by the Company to such
holder of Preferred Securities in such Direct Action.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by Phillips for the
benefit of the holders from time to time of Preferred Securities. Each Preferred
Securities Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Bank of New York will act as indenture trustee under each Preferred
Securities Guarantee for purposes of the Trust Indenture Act (the "Preferred
Guarantee Trustee"). The terms of each Preferred Securities Guarantee will be
those set forth in such Preferred Securities Guarantee and those made part of
such Preferred Securities Guarantee by the Trust Indenture Act. The summary of
the material terms of the Preferred Securities Guarantees does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the form of Preferred Securities Guarantee,
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and the Trust Indenture Act. Each Preferred Securities
Guarantee will be held by the Preferred Guarantee Trustee for the benefit of the
holders of the Preferred Securities of the applicable Phillips Capital Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee, the Company will
irrevocably and unconditionally agree, to the extent set forth therein, to pay
in full, to the holders of the Preferred Securities issued by a Phillips Capital
Trust, the Guarantee Payments (as defined herein) (except to the extent paid by
such Phillips Capital Trust), as and when due, regardless of any defense, right
of set-off or counterclaim which such Phillips Capital Trust may have or assert.
The following payments with respect to Preferred Securities issued by a Phillips
Capital Trust to the extent not paid by such Phillips Capital Trust (the
"Guarantee Payments"), will be subject to the Preferred Securities Guarantee
thereon (without duplication): (i) any accrued and unpaid distributions which
are required to be paid on such Preferred Securities, to the extent such
Phillips Capital Trust shall have funds available therefor; (ii) the redemption
price, including all accrued and unpaid distributions (the "Redemption Price"),
to the extent such Phillips Capital Trust has funds available therefor with
respect to any Preferred Securities called for redemption by such Phillips
Capital Trust and (iii) upon a voluntary or involuntary dissolution, winding-up
or termination of such Phillips Capital Trust (other than in connection with the
distribution of Subordinated Debt Securities to the holders of Preferred
Securities or the redemption of all of the Preferred Securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on such Preferred Securities to the date of payment, to the extent
such Phillips Capital Trust has funds available therefor and (b) the amount of
assets of such Phillips Capital Trust remaining available for distribution to
holders of such Preferred Securities in liquidation of such Phillips Capital
Trust. The redemption price and liquidation amount will be fixed at the time the
Preferred Securities are issued. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Preferred Securities or by causing the applicable
Phillips Capital Trust to pay such amounts to such holders.
Each Preferred Securities Guarantee will not apply to any payment of
distributions except to the extent such Phillips Capital Trust shall have funds
available therefor. If the Company does not make interest payments on the
Subordinated Debt Securities purchased by a Phillips Capital Trust, such
Phillips Capital Trust will not pay distributions on the Preferred Securities
issued by such Phillips Capital Trust and will not have funds available
therefor. See "Description of the Subordinated Debt Securities -- Certain
Covenants of the Company." The Preferred Securities Guarantee, when taken
together with the Company's obligations under the Subordinated Debt Securities,
the Indenture and the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of such Phillips Capital Trust (other than with
respect to the Trust Securities), will provide a full and unconditional
guarantee on a subordinated basis by the Company of payments due on the
Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Phillips Capital Trusts with respect to the
Common Securities (the "Common Securities Guarantees") to the same extent as the
Preferred Securities Guarantees, except that upon an event of default under the
Indenture, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
In each Preferred Securities Guarantee, the Company will covenant that, so
long as any Preferred Securities issued by the applicable Phillips Capital Trust
remain outstanding, if there shall have occurred any event that would constitute
an event of default under such Preferred Securities Guarantee or the Declaration
of such Phillips Capital Trust, then (a) the Company shall not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase or
make liquidation payment with respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of Phillips Common Stock in connection
with the satisfaction by Phillips of its obligations under any employee benefit
plans or the satisfaction by Phillips of its obligations pursuant to any
contract or security requiring Phillips to purchase shares of Phillips Common
Stock, (ii) as a result of a reclassification of Phillips capital stock or the
exchange or conversion of one class or series of Phillips capital stock for
another class or series of Phillips capital stock or, (iii) the purchase of
fractional interests in shares of Phillips capital stock pursuant to the
conversion or exchange provisions of such Phillips capital stock or the security
being converted or exchanged) or make any guarantee payments with respect to the
foregoing and (b) the Company shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company which rank pari passu with or
junior to such Subordinated Debt Securities.
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities issued by the applicable Phillips Capital
Trust. The manner of obtaining any such approval of holders of such Preferred
Securities will be as set forth in an accompanying Prospectus Supplement. All
guarantees and agreements contained in a Preferred Securities Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities of the applicable Phillips Capital Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable Phillips Capital Trust (a) upon full payment
of the Redemption Price of all Preferred Securities of such Phillips Capital
Trust, (b) upon distribution of the Subordinated Debt Securities held by such
Phillips Capital Trust to the holders of the Preferred Securities of such
Phillips Capital Trust or (c) upon full payment of the amounts payable in
accordance with the Declaration of such Phillips Capital Trust upon liquidation
of such Phillips Capital Trust. Each Preferred Securities Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of Preferred Securities issued by the applicable Phillips
Capital Trust must restore payment of any sums paid under such Preferred
Securities or such Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
relating to such Preferred Securities Guarantee have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of the Preferred Securities Guarantee
or to direct the exercise of any trust or power conferred upon the Preferred
Guarantee Trustee under such Preferred Securities. If the Preferred Guarantee
Trustee fails to enforce such Preferred Securities Guarantee, any holder of
Preferred Securities relating to such Preferred Securities Guarantee may
institute a legal proceeding directly against the Company to enforce the
Preferred Guarantee Trustee's rights under such Preferred Securities Guarantee,
without first instituting a legal proceeding against the relevant Phillips
Capital Trust, the Preferred Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if the Company
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<PAGE> 25
has failed to make a guarantee payment, a holder of Preferred Securities may
directly institute a proceeding against the Company for enforcement of the
Preferred Securities Guarantee for such payment. The Company waives any right or
remedy to require that any action be brought first against such Phillips Capital
Trust or any other person or entity before proceeding directly against the
Company.
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by a Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations
of the Company and will rank (i) subordinate and junior in right of payment to
all other liabilities of the Company, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered into by Phillips in respect of any
preferred or preference stock of any affiliate of the Company, and (iii) senior
to the Company's common stock. The terms of the Preferred Securities provide
that each holder of Preferred Securities issued by the applicable Phillips
Capital Trust by acceptance thereof agrees to the subordination provisions and
other terms of the Preferred Securities Guarantee relating thereto.
The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
Preferred Securities Guarantee without instituting a legal proceeding against
any other person or entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Company and certain of its affiliates maintain a banking relationship
with the Preferred Guarantee Trustee.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBT SECURITIES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of each of the Phillips
Capital Trusts is to issue the Trust Securities evidencing undivided beneficial
interests in the assets of each of the Phillips Capital Trusts, and to invest
the proceeds from such issuance and sale in the Subordinated Debt Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Subordinated Debt Securities will
be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Subordinated Debt Securities will match the distribution rate and
distribution and other payment dates for the Preferred Securities; (iii)
Phillips shall pay all, and the applicable Phillips Capital Trust shall not be
obligated to pay, directly or indirectly, all costs, expenses, debt, and
obligations of the applicable Phillips Capital Trust (other than with respect to
the Trust Securities); and (iv) the Declaration further provides that the
Phillips Trustees shall not take or cause or permit the applicable Phillips
Capital Trust to, among other things, engage in any activity that is not
consistent with the purposes of the applicable Phillips Capital Trust.
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Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by Phillips as and to the extent set forth under
"Description of the Preferred Securities Guarantees." If Phillips does not make
interest payments on the Subordinated Debt Securities purchased by the
applicable Phillips Capital Trust, it is expected that the applicable Phillips
Capital Trust will not have sufficient funds to pay distributions on the
Preferred Securities. The Guarantee does not apply to any payment of
distributions unless and until the applicable Phillips Capital Trust has
sufficient funds for the payment of such distributions. The Guarantee covers the
payment of distributions and other payments on the Preferred Securities only if
and to the extent that Phillips has made a payment of interest or principal on
the Subordinated Debt Securities held by the applicable Phillips Capital Trust
as its sole asset. The Guarantee, when taken together with Phillips' obligations
under the Subordinated Debt Securities and the Indenture and its obligations
under the Declaration, including its obligations to pay costs, expenses, debts
and liabilities of the applicable Phillips Capital Trust (other than with
respect to the Trust Securities), provide a full and unconditional guarantee of
amounts on the Preferred Securities.
If Phillips fails to make interest or other payments on the Subordinated
Debt Securities when due (taking account of any Extension Period), the
Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and
"-- Voting Rights" in any accompanying Prospectus Supplement, may direct the
Institutional Trustee to enforce its rights under the Subordinated Debt
Securities. If the Institutional Trustee fails to enforce its rights under the
Subordinated Debt Securities, a holder of Preferred Securities may institute a
legal proceeding against Phillips to enforce the Institutional Trustee's rights
under the Subordinated Debt Securities without first instituting any legal
proceeding against the Institutional Trustee or any other person or entity.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of Phillips to
pay interest or principal on the Subordinated Debt Securities on the date such
interest or principal is otherwise payable (or in the case of redemption on the
redemption date), then a holder of Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified in the
Subordinated Debt Securities. In connection with such Direct Action, Phillips
will be subrogated to the rights of such holder of Preferred Securities under
the Declaration to the extent of any payment made by Phillips to such holder of
Preferred Securities in such Direct Action. Phillips, under the Guarantee,
acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of
the holders of the Preferred Securities. If Phillips fails to make payments
under the Guarantee, the Guarantee provides a mechanism whereby the holders of
the Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. Any holder of Preferred Securities may institute a legal proceeding
directly against Phillips to enforce the Guarantee Trustee's rights under the
Guarantee without first instituting a legal proceeding against the applicable
Phillips Capital Trust, the Guarantee Trustee, or any other person or entity.
Phillips and each of the Phillips Capital Trusts believe that the above
mechanisms and obligations, taken together, provide a full and unconditional
guarantee by Phillips of payments due on the Preferred Securities. See
"Description of the Preferred Securities Guarantees -- General."
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DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain terms of any series of the Preferred
Stock offered by any Prospectus Supplement will be described in the Prospectus
Supplement relating to such series of the Preferred Stock. If so indicated in
the Prospectus Supplement, the terms of any such series may differ from the
terms set forth below. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Certificate of Designations relating to such series of the Preferred Stock,
which will be filed with the Commission promptly after the offering of such
series of Preferred Stock.
GENERAL
Under the Company's Restated Certificate of Incorporation (the "Charter"),
the Board of Directors of the Company (the "Board of Directors") is authorized,
without further stockholder action, to provide for the issuance of up to
300,000,000 shares of preferred stock, with or without par value, in one or more
series, with such voting powers and with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions, as shall be set forth in resolutions providing for
the issue thereof adopted by the Board of Directors or a duly authorized
committee thereof. The Company may amend from time to time the Charter to
increase the number of authorized shares of preferred stock in the manner
provided in the Charter and the Delaware General Corporation Law ("DGCL").
The Preferred Stock shall have the dividend, liquidation, redemption,
voting and conversion rights set forth in the Prospectus Supplement relating to
a particular series of the Preferred Stock. Reference is made to the Prospectus
Supplement relating to the particular series of the Preferred Stock offered
thereby for specific terms, including: (i) the title and liquidation preference
per share of such Preferred Stock and the number of shares offered; (ii) the
price at which such Preferred Stock will be issued; (iii) the dividend rate (or
method of calculation), the dates on which dividends shall be payable, whether
such dividends shall be cumulative or noncumulative and, if cumulative, the
dates from which dividends shall commence to accumulate; (iv) any redemption or
sinking fund provisions of such Preferred Stock; (v) any conversion provisions
of such Preferred Stock; (vi) whether the Company has elected to offer
Depositary Shares with respect to such Preferred Stock as described below under
"Description of Depositary Shares" (vii) the voting rights, if any, of such
Preferred Stock; and (viii) any additional dividend, liquidation, redemption,
sinking fund and other rights, preferences, privileges, limitations and
restrictions of such Preferred Stock.
The Preferred Stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the Prospectus Supplement relating to a particular
series of the Preferred Stock, each series of the Preferred Stock will rank on a
parity as to dividends and distributions in the event of a liquidation with any
outstanding preferred stock of the Company and each other series of the
Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts summarizes the material terms of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts, and is qualified
in its entirety by reference to, the form of Deposit Agreement and form of
Depositary Receipts relating to each series of the Preferred Stock.
GENERAL
The Company may, at its option, elect to have shares of Preferred Stock be
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") between the Company and a bank or
trust company selected by the Company (the "Preferred Stock Depositary"). The
Prospectus Supplement relating to a series of Depositary Shares will set forth
the name and address of the Preferred Stock Depositary. Subject
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to the terms of the Deposit Agreement, each owner of a Depositary Share will be
entitled, proportionately, to all the rights, preferences and privileges of the
Preferred Stock represented thereby (including dividend, voting, redemption,
conversion, exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the applicable
interest in a number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
A holder of Depositary Shares will be entitled to receive the shares of
Preferred Stock (but only in whole shares of Preferred Stock) underlying such
Depositary Shares. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the whole number of shares of Preferred
Stock to be withdrawn, the Depositary will deliver to such holder at the same
time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect to the Preferred Stock to the record holders of
Depositary Receipts in proportion, insofar as possible, to the number of
Depositary Shares owned by such holders.
In the event of a distribution other than in cash in respect to the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines that it is not feasible to make
such distribution, in which case the Preferred Stock Depositary may, with the
approval of the Company, adopt such method as it deems equitable and practicable
for the purpose of effecting such distribution, including sale (at public or
private sale) of such property and distribution of the net proceeds from such
sale to such holders.
The amount so distributed in any of the foregoing cases will be reduced by
any amount required to be withheld by the Company or the Preferred Stock
Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any Preferred Stock underlying the Depositary Shares is subject to
provisions relating to its conversion or exchange as set forth in the Prospectus
Supplement relating thereto, each record holder of Depositary Shares will have
the right or obligation to convert or exchange such Depositary Shares pursuant
to the terms thereof.
REDEMPTION OF DEPOSITARY SHARES
If Preferred Stock underlying the Depositary Shares is subject to
redemption, the Depositary Shares will be redeemed from the proceeds received by
the Preferred Stock Depositary resulting from the redemption, in whole or in
part, of the Preferred Stock held by the Preferred Stock Depositary. The
redemption price per Depositary Share will be equal to the aggregate redemption
price payable with respect to the number of shares of Preferred Stock underlying
the Depositary Shares. Whenever the Company redeems Preferred Stock from the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date a proportionate number of Depositary Shares representing
the shares of Preferred Stock that were redeemed. If less than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected by lot or pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
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VOTING
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice to
the record holders of the Depositary Receipts. Each record holder of such
Depositary Receipts on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
number of shares of Preferred Stock underlying such holder's Depositary Shares.
The Preferred Stock Depositary will endeavor, insofar as practicable, to vote
the number of shares of Preferred Stock underlying such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which nay he deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the Preferred Stock to the
extent it does not receive specific written instructions from holders of
Depositary Receipts representing such Preferred Stock.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of or any
election on the part of the Company to call for the redemption of any Preferred
Stock, the Preferred Stock Depositary shall in each such instance fix a record
date (which shall be the same as the record date for the Preferred Stock) for
the determination of the holders of Depositary Receipts (x) who shall be
entitled to receive such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof or (y) who shall be entitled
to give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting or of such redemption or conversion, subject to
the provisions of the Deposit Agreement.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt and any provision of the Deposit Agreement
may at any time be amended by agreement between the Company and the Preferred
Stock Depositary. However, any amendment which imposes or increases any fees,
taxes or other charges payable by the holders of Depositary Receipts (other than
taxes and other governmental charges, fees and other expenses payable by such
holders as slated under "Charges of Preferred Stock Depositary"), or which
otherwise prejudices any substantial existing right of holders of Depositary
Receipts, will not take effect as to outstanding Depositary Receipts until the
expiration of 90 days after notice of such amendment has been mailed to the
record holders of outstanding Depositary Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred Stock
Depositary may likewise terminate the Deposit Agreement if at any time 45 days
shall have expired after the Preferred Stock Depositary shall have delivered to
the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and accepted its appointment. If any
Depositary Receipts remain outstanding after the date of termination, the
Preferred Stock Depositary thereafter will discontinue the transfer of
Depositary Receipts, will suspend the distribution of dividends to the holders
thereof, and will not give any further notices (other than notice such
termination) or perform any further acts under the Deposit Agreement except as
provided below and except that the Preferred Stock Depositary will continue (i)
to collect dividends on the Preferred Stock and any other distributions with
respect thereto and (ii) to deliver the Preferred Stock together with such
dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges or other property, without liability for interest
thereon, in exchange for Depositary Receipts surrendered. At any time after the
expiration of two years from the date of termination, the Preferred Stock
Depositary may sell the Preferred Stock then held by it at public or private
sales, at such
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place or places and upon such terms as it deems proper and may thereafter hold
the net proceeds of any such sale, together with any money and other property
then held by it without liability for interest thereon, for the pro rata benefit
of the holders of Depositary Receipts which have not been surrendered.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
MISCELLANEOUS
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to performing
its duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder in good faith. Neither the Company nor the Preferred Stock Depositary
is obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary are entitled to rely upon advice
of or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock Depositary
has delivered a notice of election to resign to the Company, the Preferred Stock
Depositary may terminate the Deposit Agreement. See "Amendment and Termination
of Deposit Agreement" above.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts representing contracts
obligating holders to purchase from the Company and the Company to sell to the
holders a specified number of shares of Common Stock or Preferred Stock at a
future date or dates. The price per share of Common Stock or Preferred Stock may
be fixed at the time the Stock Purchase Contracts are issued or may be
determined by reference to a specific formula set forth in the Stock Purchase
Contracts. The Stock Purchase Contracts may be issued separately or as a part of
units ("Stock Purchase Units") consisting of a Stock Purchase Contract and
either (x) Senior Debt Securities, Subordinated Debt Securities (y) debt
obligations of third parties including U.S. Treasury securities, or (z)
Preferred Securities of a Phillips Capital Trust, securing the holder's
obligations to purchase the Common Stock or Preferred Stock under the Stock
Purchase Contracts. The Stock Purchase Contracts may require the Company to make
periodic payments to the holders of the Stock Purchase Units or vice versa, and
such payments may be unsecured or prefunded on some basis. The Stock Purchase
Contracts may require holders to secure their obligations thereunder in a
specified manner and in certain circumstances the Company may deliver newly
issued prepaid stock purchase contracts ("Prepaid Securities") upon release to a
holder of any collateral securing each holder's obligations under the original
Stock Purchase Contract.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units and, if applicable, Prepaid
Securities. The description in the Prospectus Supplement will not purport to be
complete and will be qualified in its entirety by reference to the Stock
Purchase Contracts, the collateral arrangements and depositary arrangements, if
applicable, relating to such Stock Purchase Contracts
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or Stock Purchase Units and, if applicable, the Prepaid Securities and the
document pursuant to which such Prepaid Securities will be issued.
DESCRIPTION OF COMMON STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the DGCL and the Charter.
General. The Company is authorized to issue up to 500,000,000 shares of
Common Stock. At December 31, 1997, the Company had outstanding 306,380,511
shares of Common Stock (including 14,000,882 shares held in its treasury) and
had reserved approximately 29,125,863 shares of Common Stock for issuance under
various employee or non-employee director incentive, compensation and option
plans and under the Company's Dividend Reinvestment Plan.
Dividends. Holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor, provided that, so long as any shares of preferred stock are
outstanding, no dividends (other than dividends payable in Common Stock) or
other distributions (including redemptions and purchases) may be made with
respect to the Common Stock unless full dividends on the shares of preferred
stock, including accumulations in the case of cumulative preferred stock, have
been paid.
Voting Rights. Subject to the rights, if any, of the holders of any series
of preferred stock, all voting rights are vested in the holders of shares of
Common Stock, each share being entitled to one vote on all matters presented for
a vote, including the election of directors. Holders of shares of Common Stock
have noncumulative voting rights, which means that the holders of more than 50
percent of the shares voting for the election of directors can elect 100 percent
of the directors, and, in such event, the holders of the remaining shares voting
for the election of directors will not be able to elect any directors.
Rights Upon Liquidation. In the event of the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, after there have
been paid to or set aside for the holders of all series of preferred stock the
full preferential amounts to which such holders are entitled, the holders of
Common Stock will be entitled to share equally and ratably in any assets
remaining after the payment of all debts and liabilities of the Company.
Preferred Share Purchase Rights. The Company has outstanding one Preferred
Share Purchase Right ("Right") for each outstanding share of the Company's
Common Stock. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series B Junior Participating Preferred
Stock, par value $1.00 per share (the "Series B Preferred Stock"), of the
Company at a price of $75 per one one-hundredth of a share of Series B Preferred
Stock, subject to adjustment or to purchase shares of Common Stock or the stock
of an acquiring company at a discount in the event that any person or group of
affiliated persons acquires beneficial ownership of 20% or more of the Company's
outstanding Common Stock (an "Acquiring Person").
Shares of Series B Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Series B Preferred Stock will be entitled,
when, as and if declared, to a minimum preferential quarterly dividend payment
of $1 per share but will be entitled to an aggregate dividend of 100 times the
dividend declared per share of Common Stock. In the event of liquidation, the
holders of the Series B Preferred Stock will be entitled to a minimum
preferential liquidation payment of $100 per share (plus any accrued but unpaid
dividends) but will be entitled to an aggregate payment of 100 times the payment
made per share of Common Stock. Each share of Series B Preferred Stock will have
100 votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of Common Stock are
converted or exchanged, each share of Series B Preferred Stock will be entitled
to receive 100 times the amount received per share of Common Stock. These rights
are protected by customary antidilution provisions.
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At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
For so long as the Rights are then redeemable, the Company may, except with
respect to the Redemption Price, amend the Rights in any manner. After the
Rights are no longer redeemable, the Company may, except with respect to the
Redemption Price, amend the Rights in any manner that does not adversely affect
the interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
Miscellaneous. The issued and outstanding shares of Common Stock are fully
paid and nonassessable. Holders of shares of Common Stock are not entitled to
preemptive rights. Shares of Common Stock are not convertible into shares of any
other class of capital stock. ChaseMellon Shareholder Services LLC is the
transfer agent, registrar and dividend disbursement agent for the Common Stock.
PLAN OF DISTRIBUTION
Phillips and/or a Phillips Capital Trust may sell the Offered Securities in
any of, or any combination of, the following ways: (i) directly to purchasers,
(ii) through agents, (iii) through underwriters, and (iv) through dealers.
Offers to purchase Offered Securities may be solicited directly by Phillips
and/or any Phillips Capital Trust, as the case may be, or by agents designated
by Phillips and/or any Phillips Capital Trust, as the case may be, from time to
time. Any such agent, who may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, involved in the offer or sale of the
Offered Securities in respect of which this Prospectus is delivered will be
named, and any commissions payable by Phillips to such agent will be set forth,
in the Prospectus Supplement. Unless otherwise indicated in the Prospectus
Supplement, any such agency will be acting in a best efforts basis for the
period of its appointment (ordinarily five business days or less). Agents,
dealers and underwriters may be customers of, engage in transactions with, or
perform services for the Company in the ordinary course of business.
If an underwriter or underwriters are utilized in the sale, Phillips will
execute an underwriting agreement with such underwriters at the time of sale to
them and the names of the underwriters and the terms of the transaction will be
set forth in the Prospectus Supplement, which will be used by the underwriters
to make releases of the Offered Securities in respect of which this Prospectus
is delivered to the public.
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, Phillips and/or any Phillips Capital Trust,
as the case may be, will sell such Offered Securities to the dealer, as
principal. The dealer may then resell such Offered Securities to the public at
varying prices to be determined by such dealer at the time of resale. The name
of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement.
Agents, underwriters, and dealers may be entitled under the relevant
agreements to indemnification by Phillips and/or any Phillips Capital Trust, as
the case may be, against certain liabilities, including liabilities under the
Securities Act of 1933.
The place and time of delivery for the Offered Securities in respect of
which this Prospectus is delivered are set forth in the accompanying Prospectus
Supplement.
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LEGAL MATTERS
The validity of the Offered Securities (other than the Preferred
Securities) and certain matters relating thereto will be passed upon for
Phillips by Dale J. Billam, Senior Counsel of Phillips, and for the underwriters
and certain purchasers by Davis Polk & Wardwell. Certain matters of Delaware law
relating to the validity of the Preferred Securities will be passed upon on
behalf of the Phillips Capital Trusts by Morris, Nichols, Arsht & Tunnell,
special Delaware counsel to the Phillips Capital Trusts. Certain United States
federal income taxation matters, as required, will be passed upon for Phillips
and the Phillips Capital Trusts by Simpson Thacher & Bartlett, special tax
counsel to Phillips and the Phillips Capital Trusts.
EXPERTS
The consolidated financial statements and schedule of Phillips Petroleum
Company appearing in its Annual Report on Form 10-K for the year ended December
31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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