<PAGE>
1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6841
SUN COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1743282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
TEN PENN CENTER 19103-1699
1801 MARKET STREET, PHILADELPHIA, PA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 977-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
------------------- ----------------------------
<S> <C>
Depositary Shares, each share representing One- New York Stock Exchange
Half of a Share of Series A Cumulative
Preference Stock, no par value
Common Stock, $1 par value New York Stock Exchange
Philadelphia Stock
Exchange
Convertible Subordinated Debentures 6 3/4%, Due New York Stock Exchange
June 15, 2012
Sinking Fund Debentures 9 3/8%, Due June 1, New York Stock Exchange
2016
Notes 7.95%, Due December 15, 2001 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments of this Form 10-K. [X]
At January 30, 1998, the aggregate market value of voting stock held by
nonaffiliates was $3,574 million.
At January 30, 1998, there were 70,753,859 shares of Common Stock, $1 par
value and 12,043,130 shares of Cumulative Preference Stock--Series A, no par
value, outstanding.
Selected portions of the Sun Company, Inc. Annual Report to Shareholders for
the Fiscal Year Ended December 31, 1997 are incorporated by reference in Parts
I, II and IV of this Form 10-K.
Selected portions of the Sun Company, Inc. definitive Proxy Statement, which
will be filed with the Securities and Exchange Commission within 120 days
after December 31, 1997, are incorporated by reference in Part III of this
Form 10-K.
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Those statements in the Business and Properties discussion that are not
historical in nature should be deemed forward-looking statements that are
inherently uncertain. See "Forward-Looking Statements" in Management's
Discussion and Analysis of Financial Condition and Results of Operations in
the Company's 1997 Annual Report to Shareholders for a discussion of the
factors which could cause actual results to differ materially from those
projected in such statements.
GENERAL
Sun Company, Inc.* was incorporated in Pennsylvania in 1971. It or its
predecessors have been active in the petroleum industry since 1886. Its
principal executive offices are located at 1801 Market Street, Philadelphia,
PA 19103-1699, and its telephone number is (215) 977-3000.
The Company, through its subsidiaries, is principally a petroleum refiner
and marketer with interests in cokemaking and coal mining. Sun's petroleum
refining and marketing operations include the manufacturing and marketing of a
full range of petroleum products, including fuels, lubricants and
petrochemicals, and the transportation of crude oil and refined products.
These operations are conducted principally in the eastern half of the United
States. Sun's cokemaking and coal mining operations are conducted in Virginia,
Indiana and Kentucky. Sun also has an investment in real estate operations in
the United States which is subject to a plan of disposition.
The Company's operations are organized into seven business units plus a
holding company and a shared services organization. The accompanying
discussion of the Company's business and properties reflects this
organizational structure. For additional information regarding these business
units, see Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's 1997 Annual Report to Shareholders.
Additional business segment information is presented in Note 18 to the
Consolidated Financial Statements in the Company's 1997 Annual Report to
Shareholders.
REFINING AND MARKETING
The Company's refining and marketing operations consist of the manufacturing
and marketing of fuels, lubricants and petrochemicals and the transportation
of crude oil and refined products. These operations are conducted principally
through Sun Company, Inc. (R&M), a wholly owned subsidiary of the Company, and
are classified into the following six business units: Sun Northeast Refining;
Sunoco Northeast Marketing; Sunoco Chemicals; Sun Lubricants; Sunoco
MidAmerica Marketing & Refining; and Sunoco Logistics.
Sun owns and operates five domestic refineries which are located in Marcus
Hook, PA, Philadelphia, PA, Toledo, OH, Tulsa, OK and Yabucoa, Puerto Rico.
The refineries in Marcus Hook, Philadelphia and Toledo produce principally
fuels and petrochemicals while the refineries in Tulsa and Puerto Rico
emphasize lubricants production with related fuels being sold in the wholesale
market.
- --------
*In this report, the terms "Company" and "Sun" are used interchangeably to mean
Sun Company, Inc. or collectively, Sun Company, Inc. and its subsidiaries. The
use of these terms is for convenience of discussion and is not intended to be a
precise description of corporate relationships. References in this Annual
Report on Form 10-K to material in the Company's 1997 Annual Report to
Shareholders and in the Company's definitive Proxy Statement, which will be
filed with the Securities and Exchange Commission within 120 days after
December 31, 1997, mean that such material is incorporated herein by reference;
other material in those documents is not deemed to be filed as part of this
Annual Report on Form 10-K.
1
<PAGE>
The following table sets forth certain consolidated information concerning
Sun's refining and marketing operations (in thousands of barrels daily).
Additional information is set forth on page 60 in the Company's 1997 Annual
Report to Shareholders.
Products Manufactured
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Crude Unit Capacity............................................. 692.0* 777.0
===== =====
Input to Crude Units............................................ 696.0* 721.0
===== =====
Products Manufactured:
Gasoline....................................................... 348.8 339.7
Middle Distillates............................................. 224.8 206.5
Residual Fuel.................................................. 67.9 67.3
Petrochemicals................................................. 34.8 29.7
Lubricants..................................................... 22.0 21.2
Asphalt**...................................................... -- 16.2
Other.......................................................... 67.4 70.4
----- -----
765.7 751.0
===== =====
</TABLE>
- --------
*Sun's crude unit capacity decreased 85 thousand barrels per day in the first
quarter of 1997 in connection with a project to reconfigure the Puerto Rico
refinery to process reduced crude oil instead of conventional crude oil.
Reduced crude oil, which amounted to approximately 30,000 barrels per day at
the Puerto Rico refinery, is excluded from the input to crude units in the
table above (see "Sun Lubricants" below). Effective January 1, 1998, Sun's
crude oil processing capacity increased 5 thousand barrels per day due to an
increase at the Toledo refinery.
**Sun ceased producing asphalt in December 1996.
Supply and Distribution
Sun's crude oil requirements during the 1995-97 period were met largely by
purchases from foreign national oil companies, independent exploration and
production companies, integrated oil companies, crude oil trading companies
and major international financial institutions. There is an ample supply of
crude oil available to meet worldwide refining needs, and Sun has been able to
supply its refineries with the proper mix and quality of crude oils without
disruption. Sun's refineries processed approximately 80 percent light sweet
crude oil during 1997. The Company believes that ample supplies of light sweet
crude oil will continue to be available. The following table sets forth the
net sources of crude oil for Sun's refineries (in percentages):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Africa............................................................. 53 41
United States...................................................... 20 20
North Sea.......................................................... 16 21
Canada............................................................. 7 7
South and Central America.......................................... 2 7
Arabian Gulf....................................................... 1 4
Russia............................................................. 1 --
--- ---
100 100
=== ===
</TABLE>
2
<PAGE>
The following table sets forth summary information concerning the supply and
distribution of crude oil and refined products at Sun's refineries (in
thousands of barrels daily):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Supply:
Crude oil purchases........................................... 701.7* 686.1
Crude oil inventory change.................................... .4 5.3
Refined product purchases (including feedstocks).............. 116.3 120.8
----- -----
818.4 812.2
===== =====
Distribution:
Refined product sales......................................... 809.6 794.8
Refined product inventory change.............................. (4.0) (2.8)
Internal consumption and other................................ 12.8 20.2
----- -----
818.4 812.2
===== =====
</TABLE>
- --------
*Includes purchases of reduced crude oil.
Refined Product Sales
Sun sells fuels through retail and wholesale channels principally in the
Northeast and upper Midwest and sells petrochemicals and lubricants on a
worldwide basis. The following table sets forth Sun's consolidated refined
product sales (in thousands of barrels daily):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Gasoline:
Wholesale....................................................... 170.2 167.0
Retail.......................................................... 201.8 205.7
Middle Distillates............................................... 248.8 219.9
Residual Fuel.................................................... 80.1 82.4
Petrochemicals................................................... 35.2 31.5
Lubricants....................................................... 25.1 23.9
Asphalt.......................................................... -- 18.3
Other............................................................ 48.4 46.1
----- -----
809.6 794.8
===== =====
</TABLE>
As of December 31, 1997 and 1996, branded fuels sales were made through
3,789 and 3,806 retail gasoline outlets, respectively. Of these outlets, 376
were Company operated at December 31, 1997.
The following is a discussion of the six business units which comprise Sun's
refining and marketing operations.
SUN NORTHEAST REFINING
The Sun Northeast Refining business consists of the manufacture of petroleum
products, including gasoline, middle distillates (including jet fuel, heating
oil and diesel fuel), residual fuel oil and petrochemical feedstocks at Sun's
Marcus Hook and Philadelphia refineries and the sale of these products to
other Sun business units and to wholesale and industrial customers. (See
"Sunoco MidAmerica Marketing & Refining" and "Sun Lubricants" below, for a
discussion of operations at Sun's Toledo, Tulsa and Puerto Rico refineries.)
3
<PAGE>
The following table sets forth information concerning operations at Sun's
Marcus Hook and Philadelphia refineries (in thousands of barrels daily):
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
TOTAL TOTAL
MARCUS PHILADELPHIA, NORTHEAST MARCUS PHILADELPHIA, NORTHEAST
HOOK, PA PA REFINERIES HOOK, PA PA REFINERIES
-------- ------------- ---------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Crude Unit Capacity..... 175.0 307.0 482.0 175.0 307.0 482.0
===== ===== ===== ===== ===== =====
Input to Crude Units.... 165.7 314.4 480.1 151.5 295.9 447.4
===== ===== ===== ===== ===== =====
Conversion Capacity*.... 86.0 105.0 191.0 86.0 105.0** 191.0
===== ===== ===== ===== ===== =====
Conversion Capacity Uti-
lized.................. 88.7 94.7 183.4 65.3 86.6** 151.9
===== ===== ===== ===== ===== =====
Products Manufactured:
Gasoline............... 88.4 154.1 242.5 83.6 147.6 231.2
Middle Distillates..... 65.3 103.6 168.9 54.3 85.0 139.3
Residual Fuel.......... 10.7 42.6 53.3 11.1 38.4 49.5
Petrochemical
Feedstocks***......... 18.7 5.4 24.1 11.9 7.0 18.9
Asphalt+............... -- -- -- -- 13.7 13.7
Other.................. 16.0 23.8 39.8 12.9 26.3 39.2
----- ----- ----- ----- ----- -----
199.1 329.5 528.6 173.8 318.0 491.8
===== ===== ===== ===== ===== =====
</TABLE>
- --------
*Represents Sun's capacity to upgrade low-value petroleum products into
higher-value products through catalytic cracking and hydrocracking
processes.
**In December 1996, Sun mothballed a 28 thousand barrels-per-day hydrocracker
unit as part of the Philadelphia refinery reconfiguration. This unit, which
was utilized at approximately 23 thousand barrels-per-day during 1996, has
been excluded from the conversion capacity and utilization amounts in the
above table.
***Petrochemical feedstocks are utilized by the Sunoco Chemicals business to
produce petrochemicals at these facilities. (See "Sunoco Chemicals" below.)
+Sun ceased producing asphalt in December 1996.
During the fourth quarter of 1996, Sun reconfigured the Philadelphia
refinery to process only sweet crude oil and to cease asphalt production. With
this change, Sun's Philadelphia and Marcus Hook refineries now process
predominantly light sweet crude oils, which have been supplied from foreign
sources. Previously, the Point Breeze facility processed a substantial
quantity of heavy sour crude oil and purchased gas oils. The reconfiguration
continues the integration of the Point Breeze and Girard Point facilities at
the Philadelphia refinery and resulted in the elimination of approximately 125
positions (both employees and independent contractors) and the shutdown or
mothballing of redundant and/or unprofitable processing units. These units
consisted of a reformer, a sulfur plant, a hydrocracker, a hydrogen plant and
asphalt and alkylation units. The reconfiguration to date has resulted in a
substantial improvement in the efficiency, flexibility and reliability of the
Philadelphia refinery and in a reduction in its overall cost structure. Sun
continues to implement other infrastructure consolidation opportunities at
this facility.
The reconfiguration and extensive refinery maintenance turnarounds completed
during the 1996-97 period resulted in higher overall production for Sun
Northeast Refining in 1997. Record levels of high-value gasoline, middle
distillates and petrochemical feedstock production more than offset the
elimination of low-value asphalt production.
4
<PAGE>
The following table sets forth information concerning the crude oil
purchased during 1997 for processing at the Marcus Hook and Philadelphia
refineries (in thousands of barrels daily):
<TABLE>
<CAPTION>
TOTAL
MARCUS PHILADELPHIA, NORTHEAST
HOOK, PA PA REFINERIES
-------- ------------- ----------
<S> <C> <C> <C>
Crude Type:
North Sea................................. 94.8 8.3 103.1
West African Light........................ 39.1 203.2 242.3
West African Heavy........................ 19.5 101.3 120.8
South American Light...................... 12.0 .9 12.9
----- ----- -----
165.4 313.7 479.1
===== ===== =====
</TABLE>
Sun's Philadelphia and Marcus Hook refineries are connected by pipeline,
barge, truck and rail. The inter-refinery pipeline allows transfer of
unfinished stocks, including butanes, naphtha, distillate blendstocks and
gasoline blendstocks. Finished products are delivered to customers via Sun's
pipeline and terminal network, third-party pipelines and barges.
Total fuels products sold to third parties at wholesale by Sun Northeast
Refining in 1997 were 358.4 thousand barrels daily compared to 322.2 thousand
barrels daily in 1996. Sales to other Sun business units by Sun Northeast
Refining (primarily gasoline, middle distillates and chemical feedstocks)
totalled 182.9 thousand barrels daily in 1997 versus 188.3 thousand barrels
daily in 1996.
Environmental laws require Sun to make significant expenditures at its
refineries of both a capital and expense nature. During the 1995-97 period,
approximately $59 million was spent for environmental capital projects and
compliance activities at Sun's northeast refineries. In addition, the Company
continues to comply with the reformulated gasoline regulations set forth in
the Clean Air Act of 1990, as amended (the "Clean Air Act") and expects to
implement the next phases of these regulations in 1998 and 2000 with modest
capital investment.
SUNOCO NORTHEAST MARKETING
The Sunoco Northeast Marketing business consists of the retail sale of
gasoline and middle distillates and the operation of convenience stores in the
New England and Mid-Atlantic states. These activities are conducted in a 12-
state region from Maine through northern Virginia, with the highest
concentration of outlets in Connecticut, Massachusetts, New Jersey, New York,
Pennsylvania and Rhode Island. (See "MidAmerica Marketing & Refining" below
for a discussion of similar operations conducted in the midwestern U.S.)
5
<PAGE>
The following table sets forth Sun's retail gasoline outlets in the New
England and Mid-Atlantic states at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996*
----- -----
<S> <C> <C>
Direct outlets:
Company owned or leased:
Company-operated:
Traditional.................................................. 124 128
APlus(R) convenience stores.................................. 154 168
----- -----
278 296
Dealer-operated:
Traditional.................................................. 351 344
APlus(R) convenience stores.................................. 250 240
Ultra(R) Service Centers..................................... 239 249
----- -----
840 833
Total Company owned or leased**................................ 1,118 1,129
Dealer owned***................................................ 373 397
----- -----
Total direct outlets............................................ 1,491 1,526
Distributor outlets............................................. 1,330 1,354
----- -----
2,821 2,880
===== =====
</TABLE>
- --------
*Reclassified to conform to the 1997 presentation.
**Gasoline throughput per Company owned or leased outlet averaged 98.7 and
103.1 thousands of gallons monthly during 1997 and 1996, respectively.
***Primarily traditional outlets.
Sunoco Northeast Marketing's portfolio of outlets is designed to provide
optimal profit potential in each of its marketing areas. These sites differ in
various ways including: product distribution to the outlets; site ownership
and operation; and types of products and services provided.
Direct outlets are sites at which fuel products are delivered directly to
the site. Investment in the property, through ownership or lease, may be held
by either the Company or an independent dealer. These sites may be traditional
locations that sell almost exclusively fuel products or may include APlus(R)
convenience stores or Ultra(R) Service Centers that provide state-of-the-art
automotive diagnosis and repair. Included among Sunoco Northeast Marketing's
outlets at December 31, 1997 were 55 outlets on limited access highways in
Pennsylvania, New Jersey, New York and Maryland. Of these outlets, 37 were
company-operated sites providing gasoline, diesel fuel and convenience store
merchandise.
Distributor outlets are sites in which the distributor takes delivery at a
terminal where Sunoco(R) products are available. Although these sites market
under the Sunoco(R) brand, Sun does not own or operate these retail locations.
Sun's APlus(R) convenience stores are located principally in Pennsylvania,
New York and Massachusetts. These stores supplement sales of fuel products
with a broad mix of high-margin merchandise such as groceries, health and
beauty aids, fast foods and beverages. Sunoco Northeast Marketing is also
adding to its one-stop shopping concept at selected sites by partnering with
various fast food chains. The following table sets forth information
concerning Sun's convenience store locations in the Northeast:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Number of stores (Company operated and dealer operated).......... 404 408
Merchandise sales (M$/store/month)............................... $47.8 $44.9
Merchandise margin (% of sales).................................. 29.3% 27.4%
</TABLE>
6
<PAGE>
Sunoco Northeast Marketing offers four grades of gasoline at its retail
locations, consisting of the highest octane premium gasoline commercially
available in the United States (Ultra(R) 94) and 93, 89 and 87 octanes.
Branded fuels sales by Sunoco Northeast Marketing averaged 169.6 thousand
barrels daily in 1997 compared to 175.2 thousand barrels daily in 1996.
Premium gasoline accounted for approximately 24 percent of Sun's retail
gasoline sales in the Northeast in 1997.
In 1997, excluding environmental outlays, capital expenditures for branded
marketing activities in the Northeast totalled $43 million. Most of these
outlays were to upgrade and modernize the retail service station network.
These efforts are designed to improve appearances and to create a uniform look
easily recognizable by customers. Exterior improvements generally include the
installation of new price signs, lighting and canopies over the gasoline
dispensing areas. Sunoco Northeast Marketing also continued the expansion of
its pay-at-the-pump program in 1997 with the installation of CardMatic(R), its
credit card activated gasoline dispensing system, at 131 additional high-
volume service stations. This brings the total number of outlets offering this
convenience to 1,226, or 43 percent of total retail marketing outlets in the
Northeast. Environmental capital spending totalled $3 million during 1997,
largely for the ongoing underground storage tank replacement program and for
tank top upgrades. At December 31, 1997, the tank replacement program was
substantially complete.
SUNOCO CHEMICALS
The Sunoco Chemicals business consists of the manufacturing, distribution
and marketing of base commodity and intermediate petrochemicals. These
chemicals are comprised principally of olefins and their derivatives
(ethylene, ethylene oxide and propylene) and aromatics (benzene, cumene,
cyclohexane, toluene and xylenes). As a partner in a joint venture, Sunoco
Chemicals also produces MTBE which is utilized by Sun Northeast Refining in
manufacturing reformulated gasolines. Petrochemicals are manufactured by
Sunoco Chemicals at Sun's Marcus Hook and Philadelphia refineries, at an
ethylene/ethylene oxide facility in Brandenburg, Kentucky and at the joint
venture MTBE facility in Mont Belvieu, Texas. (See "Sunoco MidAmerica
Marketing & Refining" for a discussion of the petrochemicals produced at the
Toledo refinery.)
The following table sets forth information concerning petrochemicals
production by Sunoco Chemicals (in thousands of barrels daily):
<TABLE>
<CAPTION>
PRODUCTION
CAPACITY AT -----------
DECEMBER 31, 1997* 1997 1996
----------------- ----- -----
<S> <C> <C> <C>
Benzene**.................................... 1.5 .9 .6
Toluene...................................... 2.0 1.5 1.0
Xylene....................................... .5 .5 .5
Cumene....................................... 4.5 5.2 4.3
Cyclohexane.................................. 2.5 2.1 1.4
---- ----- -----
Total Aromatics............................ 11.0 10.2 7.8
Ethylene..................................... 1.7 1.2 1.1
Ethylene oxide............................... 1.8 1.7 1.4
Propylene:
Polymer-grade***............................ 10.5 10.6 5.3
Refinery-grade.............................. .5 .4 1.8
---- ----- -----
Total Olefins.............................. 14.5 13.9 9.6
Other........................................ -- -- 1.5+
---- ----- -----
Total Petrochemicals....................... 25.5 24.1 18.9
==== ===== =====
</TABLE>
- --------
*Reflected on a calendar-day basis.
**Excludes benzene production utilized in the manufacture of cumene and
cyclohexane.
***Reflects an increase of 4,500 barrels daily in production capacity in the
fourth quarter of 1996 as a result of the expansion of the propylene unit at
the Marcus Hook refinery.
+Consists of refining by-products, principally carbon dioxide and sulfur. In
December 1996, Sun ceased producing these by-products in connection with the
reconfiguration of the Philadelphia refinery.
7
<PAGE>
Sun's petrochemical products are distributed and sold on a worldwide basis.
Sales of petrochemicals to third parties by Sunoco Chemicals totalled 24.4
thousand barrels daily in 1997 versus 20.2 thousand barrels daily in 1996, a
21 percent increase. The record levels of both sales and production volumes in
1997 were largely a result of successful refinery maintenance turnarounds
completed in the 1996-97 period at the Philadelphia and Marcus Hook refineries
and the expansion of polymer-grade propylene production capacity at the Marcus
Hook refinery (see below).
Sales volumes during 1997 were distributed through the following channels:
. Benzene and Benzene Derivatives (including Cyclohexane and Cumene)--
Customers for these products are large manufacturers of fibers and
polymers who buy a significant percentage of their requirements from
Sunoco Chemicals under long-term contracts;
. Bulk Toluene and Xylenes--Buyers generally procure large volumes for
fibers, film and urethane products. These sales are made in both the
contract and spot markets and tend to be international in scope;
. Solvents--Customers and distributors take individually small volumes for
paints, coatings, solvents and a variety of specialty applications;
. Propylene--Sales are primarily made pursuant to a long-term contract to a
large customer who manufactures polypropylene; and
. Specialty Ethylene and Ethylene Oxide--Sales are primarily to
intermediate-size specialty chemical companies that make diverse products
such as surfactants, co-polymer resins and emulsions, and additives.
During the fourth quarter of 1996, Sunoco Chemicals completed a project to
expand its polymer-grade propylene production capacity and delivery systems at
the Marcus Hook refinery from 400 to 700 million pounds per year (6,000 to
10,500 barrels per day). Most of Sunoco Chemicals' polymer-grade propylene
production is sold pursuant to a long-term supply agreement with Epsilon
Products Co., a polypropylene manufacturer, which also completed a major
expansion of its production facilities in late 1996.
At the end of 1994, Sunoco Chemicals completed a project (the "Northeast
Aromatics and Cyclohexane Project"), which included the expansion of benzene
extraction capacity by 60 million gallons per year and construction of a 34-
million-gallon-per-year cyclohexane plant at the Marcus Hook refinery. During
the fourth quarter of 1996, Sunoco Chemicals installed a new hydrogen
purification unit at the cyclohexane plant to provide a consistent source of
high-quality hydrogen. This enhancement has enabled the plant to increase
cyclohexane production levels.
Benzene, extracted at Sun's Marcus Hook and Girard Point facilities, is
combined with refinery-grade propylene to produce cumene at Girard Point. The
cumene is then sold primarily to AlliedSignal Inc. pursuant to a long-term
contract. In 1996, Sunoco Chemicals began a project to expand its cumene
production capacity at Girard Point from 500 to 850 million pounds per year
(4,500 to 7,700 barrels per day). The expanded facility, which will utilize
new catalyst technology, is expected to be operational in mid-1998. A
significant portion of the incremental production from this facility will also
be sold to AlliedSignal Inc. under a long-term contract.
SUN LUBRICANTS
The Sun Lubricants business is comprised of the manufacturing, blending,
packaging and marketing of a broad line of paraffinic and aromatic lubricating
and specialty oils produced at the Tulsa and Puerto Rico refineries as well as
the related manufacturing and wholesale marketing of the fuels produced at
these facilities.
8
<PAGE>
Base oils are sold to domestic and international customers who manufacture
their own finished transportation and industrial lubricants. Sun Lubricants
also upgrades a significant portion of its base oil production into specialty
oils at its blending and packaging facilities. Blending and packaging
operations are conducted principally at lube service centers located at the
Marcus Hook and Tulsa refineries.
Specialty oil production is comprised principally of transportation and
industrial lubricants. Sun Lubricants also produces other specialty lube
products such as horticultural and agricultural oils, aromatic and paraffinic
rubber oils, paper defoamer oils, asphalt recycling extracts, textile oils and
finished waxes. These finished products are marketed under the Sunoco(R),
Kendall(R) and Archer(R) brand labels directly by Sun or through distributors
to a wide variety of domestic and foreign customers.
The following table sets forth information concerning operations at Sun's
Tulsa and Puerto Rico refineries (in thousands of barrels daily):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
TULSA PUERTO TULSA PUERTO
OK RICO* TOTAL OK RICO TOTAL
----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Crude Unit Capacity................... 85.0 -- 85.0 85.0 85.0 170.0
==== ==== ===== ==== ==== =====
Input to Crude Units.................. 82.9 -- 82.9 85.0 63.1 148.1
==== ==== ===== ==== ==== =====
Base Oil Lubes Capacity............... 8.1 9.3 17.4 8.1 9.3 17.4
==== ==== ===== ==== ==== =====
Products Manufactured:
Lubricants:
Base Oils........................... 8.1 7.8 15.9 7.9 8.1 16.0
Waxes and Other Lubricants.......... 2.4 3.7 6.1 2.2 3.0 5.2
Gasoline............................. 17.0 .5 17.5 16.5 8.7 25.2
Middle Distillates................... 27.0 4.5 31.5 27.6 19.1 46.7
Residual Fuel........................ .1 11.0 11.1 -- 14.1 14.1
Other................................ 25.2** 5.4 30.6 28.5** 9.9 38.4
---- ---- ----- ---- ---- -----
79.8 32.9 112.7 82.7 62.9 145.6
==== ==== ===== ==== ==== =====
</TABLE>
- --------
*The crude unit at the Puerto Rico refinery was shut down on March 6, 1997 in
connection with the project to reconfigure this refinery to process reduced
crude oil instead of conventional crude oil. During the 65-day period in 1997
when the crude unit was operational, input to the unit totalled 50.8 thousand
barrels daily. The crude inputs prior to March 6, 1997 and the approximately
30,000 barrels per day of reduced crude oil processed at this facility after
the reconfiguration are excluded from the 1997 amounts in the table above
(see below).
**Includes 20.7 and 23.2 thousand barrels daily in 1997 and 1996,
respectively, of "lubes-extracted" feedstocks which are transported to the
Toledo refinery for further processing or are sold to third parties.
In the first quarter of 1997, Sun Lubricants initiated the reconfiguration
of the Puerto Rico refinery to eliminate the processing of conventional crude
oil and to process, instead, approximately 30,000 barrels per day of reduced
crude oil. This change significantly reduced the amount of unprofitable fuels
produced at this refinery while fully maintaining the volume and quality of
lubricants production. As a result, the atmospheric crude tower, the gas oil
desulfurizer and the gasoline reformer were shut down and approximately 100
positions were eliminated. The streamlining of the Puerto Rico refining
operation has improved operating efficiency, lowered fixed costs and reduced
ongoing capital spending and working capital requirements. In 1998, Sun will
continue to focus on enhancing productivity at this facility.
9
<PAGE>
In November 1996, Sun Lubricants acquired the Kendall lubricants blending,
packaging and marketing business. This acquisition has increased the amount of
base oil production upgraded into transportation lubricants at Sun facilities
and has enabled Sun Lubricants to increase its specialty oil lubricants sales.
Kendall sales, which totalled 2.9 thousand barrels per day in 1997, are made
primarily through supply contracts with more than 300 distributors in the
United States.
Sales of specialty oil lubricant products totalled 11.7 thousand barrels
daily in 1997 versus 9.3 thousand barrels daily in 1996 while sales of base
oils, waxes and other lubricants totalled 13.4 thousand barrels daily in 1997
versus 14.6 thousand barrels daily in 1996. The 26 percent increase in
specialty oil sales reflects the Kendall acquisition and an expansion in Sun
Lubricants' contract customer base and volumes. The 8 percent decrease in base
oil, waxes and other lubricant sales reflects planned reductions in contract
and spot base oil sales concurrent with the increased usage of produced base
oils in Sunoco(R) and Kendall(R) brand specialty oils. Fuels sold to third
parties from the Tulsa and Puerto Rico refineries totalled 93.2 thousand
barrels per day in 1997 compared to 124.3 thousand barrels per day in 1996.
The 25 percent decline in wholesale fuels sales reflects the Company's
strategy to significantly reduce fuels production at the Puerto Rico refinery.
The following table sets forth information concerning the feedstocks
purchased during 1997 for processing at the Tulsa and Puerto Rico refineries
(in thousands of barrels daily):
<TABLE>
<CAPTION>
TULSA PUERTO
OK RICO TOTAL
----- ------ -----
<S> <C> <C> <C>
Feedstock Type:
West Texas Intermediate.................................. 79.3 -- 79.3
Reduced Crude Oil........................................ -- 27.6 27.6
Other.................................................... -- 3.6 3.6
---- ---- -----
79.3 31.2 110.5
==== ==== =====
</TABLE>
The lubricants manufacturing facilities at the Tulsa and Puerto Rico
refineries, as well as Sun's lube blending and packaging facilities, are ISO
certified indicating they have passed the International Standards
Organization's standards for quality management and oversight.
SUNOCO MIDAMERICA MARKETING & REFINING
The Sunoco MidAmerica Marketing & Refining ("Sunoco MidAmerica") business
consists of the retail sale of gasoline and middle distillates and the
operation of convenience stores in the Midwest as well as the manufacturing,
distribution and wholesale marketing of fuels and petrochemicals produced at
Sun's Toledo refinery.
Retail Marketing
Sunoco MidAmerica markets, through direct and distributor channels, five
grades of retail gasoline products under the Sunoco(R) brand ranging from
Ultra(R) 94 to an 86 octane grade of gasoline. These outlets are located in
Indiana, Kentucky, Michigan, Ohio and West Virginia with the strongest market
presence in Michigan and Ohio. Sunoco MidAmerica is also the sole supplier to
all 16 gasoline outlets on the Ohio turnpike.
10
<PAGE>
The following table sets forth Sun's retail gasoline outlets in the Midwest
at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Direct outlets:
Company owned or leased:
Company-operated:
Traditional..................................................... 19 22
Sunoco Food Market(R) convenience stores........................ 79 88
--- ---
98 110
Dealer-operated:
Traditional..................................................... 77 57
Sunoco Food Market(R) convenience stores........................ 26 22
Ultra(R) Service Centers........................................ 15 48
--- ---
118 127
Total Company owned or leased..................................... 216 237
Dealer owned*..................................................... 126 138
--- ---
Total direct outlets............................................... 342 375
Distributor outlets................................................ 626 551
--- ---
968 926
=== ===
</TABLE>
- --------
*Primarily traditional outlets.
Branded fuels sales averaged 54.1 thousand barrels daily in 1997 compared to
51.0 thousand barrels daily in 1996. Premium gasoline accounted for
approximately 22 percent of Sun's retail gasoline sales in the Midwest in
1997. As part of the strategy to increase the overall level of branded
gasoline sales, primarily through the distributor channel, in 1996 and 1997,
Sunoco MidAmerica entered into numerous supply agreements. These supply
agreements contributed to the increase in retail gasoline volumes sold by
Sunoco MidAmerica in 1997. Sales under these agreements are expected to
increase further in 1998, in part due to an expected increase in the number of
outlets rebranding to Sunoco(R) pursuant to these agreements. Sunoco
MidAmerica also expects to increase branded sales in 1998 by increasing the
volumes sold through its current direct outlets and by obtaining new direct
locations.
The following table sets forth information concerning Sun's convenience
stores in the Midwest:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Number of stores (Company operated and dealer operated).......... 105 110
Merchandise sales (M$/store/month)............................... $43.0 $39.8
Merchandise margin (% of sales).................................. 30.6% 28.7%
</TABLE>
11
<PAGE>
Refining and Wholesale Marketing
The following table sets forth information concerning operations at Sun's
Toledo refinery (in thousands of barrels daily):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Crude Unit Capacity............................................. 125.0* 125.0
===== =====
Input to Crude Units............................................ 133.0 125.5
===== =====
Conversion Capacity............................................. 86.0 86.0
===== =====
Conversion Capacity Utilized.................................... 83.1 77.4
===== =====
Products Manufactured:
Gasoline....................................................... 88.8 83.3
Middle Distillates............................................. 24.4 20.5
Residual Fuel.................................................. 3.5 3.7
Petrochemicals................................................. 10.7 10.8
Other.......................................................... 17.7 18.5
----- -----
145.1 136.8
===== =====
</TABLE>
- --------
*Effective January 1, 1998, the rated capacity of the crude unit at the Toledo
refinery increased to 130 thousand barrels daily.
Fuels products sold at wholesale to third parties from Sun's Toledo refinery
in 1997 averaged 74.0 thousand barrels daily compared to 66.7 thousand barrels
daily in 1996. Sales of petrochemicals to third parties by Sunoco MidAmerica
totalled 10.8 thousand barrels daily in 1997 versus 11.3 thousand barrels
daily in 1996.
Sun's Toledo refinery is a relatively complex, high conversion refinery that
refines predominantly light, low-sulfur crude oil. The following table sets
forth information concerning the feedstocks purchased during 1997 for
processing at this facility (in thousands of barrels daily):
<TABLE>
<S> <C>
Crude Type:
West Texas Intermediate............................................... 59.1
Canadian.............................................................. 53.0
"Lubes-Extracted" Gasoil/Naphtha Intermediate Feedstock............... 20.3
-----
132.4
=====
</TABLE>
In April 1996, a 25-day turnaround of certain components of the hydrocracker
unit was completed. Subsequent to the turnaround, Sunoco MidAmerica increased
its input to crude units to over 100 percent of rated capacity. In March 1997,
planned maintenance turnarounds at the refinery's hydrogen unit (16 days) and
vacuum tower (10 days) necessitated a temporary reduction of refinery
throughput. The 5 thousand barrels-per-day increase in crude unit capacity
noted above resulted from the elimination of various refinery throughput
bottlenecks at a minimal cost. In addition, ethanol blending, which was
introduced at Sunoco MidAmerica's terminals in 1996, continues to be employed
in order to reduce octane costs, simplify the product slate and enhance the
storage and transportation of gasoline products.
Chemicals
Sunoco MidAmerica chemical operations consist of the manufacturing of base
commodity and intermediate petrochemicals. These chemicals are comprised of
aromatics (including benzene, toluene and xylene), spirits, nonene and
tetramer. All of these products are sold under a marketing agreement
12
<PAGE>
with Suncor Inc., through a joint venture partnership that is managed by
Sunoco Chemicals. Almost all of the nonene and tetramer production is sold
under a long-term contract and a significant portion of the aromatics and
spirits production is sold into the solvents channel and/or higher-end
derivative markets.
SUNOCO LOGISTICS
The Sunoco Logistics business consists of crude oil and refined product
pipeline operations; domestic lease crude oil acquisition and related trucking
operations; crude oil terminalling; and product terminalling and transport
operations. These operations are conducted primarily in the Northeast, Midwest
and South Central regions of the United States.
Pipeline operations are conducted through wholly-owned subsidiaries and
through other pipelines in which Sun has an ownership interest. The pipelines
are principally common carriers and, as such, are regulated by the Federal
Energy Regulatory Commission for interstate movements and by state regulatory
agencies for intrastate movements. The tariff rates charged, while regulated
by the governing agencies, are based upon competition from other pipelines or
alternate modes of transportation.
Sunoco Logistics crude oil pipeline operations, located primarily in the
South Central United States, transport crude oil produced in Oklahoma, Texas,
New Mexico and Louisiana to refiners (including Sun's Tulsa refinery) or to
local trade points. The refined product pipeline operations, located primarily
in the Northeast and Midwest, transport gasoline, jet fuel, diesel fuel, home
heating oil and other products for Sun's other businesses and for third-party
integrated petroleum companies, independent marketers and distributors.
At December 31, 1997, Sunoco Logistics had an equity interest in 5,120 miles
of crude oil pipelines and 4,552 miles of refined product pipelines. In 1997,
crude oil and refined product shipments, including Sun's share of shipments in
which it had an ownership interest, totalled 58.9 and 29.7 billion barrel
miles, respectively, as compared to 56.3 and 28.8 billion barrel miles in
1996.
Sunoco Logistics' crude oil pipeline operations in the South Central United
States are complemented by lease crude oil acquisition and related trucking
operations. Approximately 171 thousand barrels daily of crude oil were
purchased from third-party leases during 1997. This crude oil is delivered to
various pipelines either directly from the wellhead or utilizing Sunoco
Logistics' fleet of 85 trucks.
During 1997, Sun completed its withdrawal from marine shipping and tug/barge
operations with the sale of its remaining 2 ocean-going tankers and its fleet
of 15 coastal distribution tankers, tugs and barges. Third-party charters are
now utilized to satisfy the Company's marine transportation requirements. Sun
maintains an extensive vessel inspection review and evaluation program to
assure the vessels chartered into Sun service are of appropriate quality.
Product terminalling and transport operations include 39 terminals in the
Northeast and Midwest that support Sun's branded and wholesale marketing
operations, 120 trucks that transport gasoline and distillates and a railroad
fleet of 120 owned and 1,950 leased tank cars that primarily support the
Sunoco Chemicals and Sun Lubricants businesses.
Sun's Nederland, TX terminal provides approximately ten million barrels of
storage and provides terminalling throughput capacity exceeding one million
barrels per day. Its Gulf Coast location provides local and midwestern
refiners access to increasing volumes of foreign and offshore domestic crude
oil. The facility is also a key link in the distribution system for United
States Government purchases for and sales from the Strategic Petroleum Reserve
storage facilities.
13
<PAGE>
SUN COKE
Sun Coke's business consists of blast furnace coke manufacturing at the
Company's facilities in Vansant, VA and East Chicago, IN and coal production
from mines in Virginia and Kentucky. Such operations are conducted by Sun Coal
Company and its affiliates.
Sun Coke produces high-quality coke at its 685 thousand ton-per-year
Vansant, VA cokemaking facility using its proprietary heat-recovery cokemaking
technology. This technology, which is environmentally and economically
superior to the chemical by-product technology currently used by other coke
producers, is currently being marketed outside North America through an
exclusive license with Raytheon Engineers and Constructors, Inc.
In 1997, Sun Coke completed construction of 35 coke ovens as the final part
of a program to replace all existing coke ovens in Vansant, VA, with 142 new
ovens. This program has resulted in an improvement in overall cost
efficiencies and an enhancement in coke quality. In 1995, Sun Coke transferred
an interest in the Vansant, VA cokemaking operations to a third party in
exchange for $95 million in cash. The transferee is entitled to a preferential
return from the cash flows of the cokemaking operations until certain
cumulative return targets have been met.
In November 1996, Sun Coke entered into an agreement to construct, own and
operate a $195 million cokemaking facility in East Chicago, IN, which will
produce coke for Inland Steel Company ("Inland") for use at Inland's Indiana
Harbor Works steel plant located adjacent to the new cokemaking facility. The
agreement requires Inland to buy 1.2 million tons of coke annually on a take-
or-pay basis for a period of 15 years commencing after the cokemaking
facility's scheduled first quarter 1998 start-up date. Additional production
of up to 150,000 tons per year will be sold either to Inland or to other steel
producers. The plant will utilize Sun Coke's proprietary heat-recovery
cokemaking technology. In early 1998, Sun transferred an interest in this
operation to a third party in exchange for $200 million in cash. The
transferee is entitled to a preferential return from the cash flows of this
cokemaking operation until certain cumulative return targets have been met.
Sun Coke's principal market for both metallurgical coal and coke is the
domestic steel industry. In 1997, 68 percent of Sun Coke's metallurgical coal
production was converted into coke at its Vansant, VA, cokemaking facility and
32 percent was sold in spot market transactions. During 1997, 89 percent of
Sun Coke's coke sales were made under a long-term contract with a domestic
steel producer which provides for delivery of Sun Coke's entire coke
production from the Vansant, VA cokemaking facility. Coke production totalled
664 thousand tons in 1997, compared to 648 thousand tons in 1996. In 1997,
approximately 91 percent of Sun Coke's bituminous steam coal was sold under
long-term contracts, with the remainder sold in spot market transactions. Sun
Coke's total coal production in 1997 was 3.3 million tons, compared to 4.4
million tons in 1996. Sun Coke's long-term coal and coke sales contracts
generally provide for the periodic adjustment of prices to reflect the
changing costs of labor, equipment and services.
At December 31, 1997, Sun Coke had 124 million tons of estimated coal
reserves classified as proven and probable compared to 132 million tons at
December 31, 1996. Of the reserves at December 31, 1997, 92 percent were
metallurgical coal located in Virginia and 8 percent were bituminous steam
coal located in Kentucky.
Additional information concerning Sun Coke's operations is set forth on page
60 in the Company's 1997 Annual Report to Shareholders.
REAL ESTATE
Sun's real estate business is conducted through Radnor Corporation and its
subsidiaries (collectively, "Radnor"). As of December 31, 1997, Radnor's
remaining portfolio of real estate was located in 6 states and consisted
principally of single-family home, condominium, residential land and business
park developments.
14
<PAGE>
As a result of Sun's decision to sell its real estate business through a
program of controlled disposition, such operations have been classified as
operations held for sale in Sun's consolidated financial statements. Since
adoption of the disposition plan in October 1991, Radnor has divested 70
commercial properties, completed 28 housing and land developments and reduced
its total assets by $984 million. Proceeds from these divestments have enabled
Radnor to repay $852 million of related debt during this period, the final
$109 million of which was repaid in 1997. At December 31, 1997, Radnor's total
assets were $73 million. Divestment activities in 1997 included the sale of a
resort hotel located in Florida, a mixed-use development located in New
Jersey, two retail centers located in California and one in Arizona and four
commercial land parcels located in Arizona, Georgia, Pennsylvania and
Virginia. The disposition of Sun's real estate business is expected to be
substantially completed by the end of 1999.
For additional information regarding Sun's real estate operations held for
sale, see Note 2 to the Consolidated Financial Statements in the Company's
1997 Annual Report to Shareholders.
SUN INTERNATIONAL PRODUCTION
During 1996, Sun sold its international oil and gas production business.
Information concerning this sale is presented in Note 2 to the Consolidated
Financial Statements in the Company's 1997 Annual Report to Shareholders.
CANADA (SUNCOR)
During 1995, Sun completed the divestment of its remaining 55-percent
interest in Suncor Inc., a Canadian integrated oil company. Information
concerning this divestment is presented in Note 2 to the Consolidated
Financial Statements in the Company's 1997 Annual Report to Shareholders.
COMPETITION
The refining and marketing business is very competitive. Sun competes with
other domestic refiners and marketers in the northeastern United States and
U.S. Gulf coast, with foreign refiners who import products into the United
States and with producers and marketers in other industries supplying other
forms of energy and fuels to consumers. Several of Sun's principal competitors
are integrated multi-national oil companies that are larger and have
substantially greater resources than Sun. Because of their integrated
operations and larger capitalization, such major oil companies may have
greater flexibility than Sun in responding to volatile industry or market
conditions, such as shortages of feedstocks or intense price fluctuations.
Unlike certain of its competitors that have access to proprietary sources of
controlled crude oil production, Sun must obtain all of its feedstocks from
unaffiliated sources.
Most of the crude oils processed in Sun's refining system are light sweet
crude oils, which historically have been priced higher than alternative heavy
sour crude oils. However, management believes that any potential competitive
impact of Sun's inability to process significant quantities of less expensive
heavy sour crude oils will likely be mitigated by: the higher-value product
slate obtained from light sweet crude oils; the higher cost to process heavy
sour crude oils; and the continued availability of ample quantities of light
sweet crude oils. Sun believes that it is in a position to compete effectively
as a marketer of refined products because of its strong marketing presence in
its principal markets and its considerable distribution flexibility resulting
from the location of its northeast and midwest refineries and retail network
which are well integrated with its distribution system.
Coal mining and cokemaking operations are also highly competitive. Demand
for coke has fallen as domestic steelmaking capacity has declined and
steelmakers have switched to electric arc furnaces and coal injection
production methods. However, Sun anticipates that the supply of coke will
decrease at a faster rate than demand as the inability to meet increasingly
stringent environmental regulations
15
<PAGE>
will lead steelmakers and other coke producers to close plants. Sun believes
it is well-positioned to compete with other merchant coke producers since
Sun's proprietary technology allows Sun to construct coke ovens that, compared
to conventional coke ovens, are more environmentally benign, are generally
less costly to build, and can be operated with fewer workers.
Sun does not consider one or a small group of competitors to be dominant in
the refining and marketing and coal and cokemaking industries. The
availability of a ready market for Sun's refined products, as well as its coal
and coke production, depends on numerous external factors, including: the
level of consumer demand; the extent of industry production of refined
products and coal and coke; the import levels of refined products and coal and
coke; the cost and availability of alternative fuels; the cost and proximity
of refineries, pipelines and other transportation facilities that support the
retail gasoline marketing infrastructure; and regulations by federal, state,
local and foreign authorities including those imposed by or resulting from
compliance with applicable environmental laws.
RESEARCH AND DEVELOPMENT
In recent years, Sun's research and development activities have focused on
applied research, process and product development, and engineering and
technical services related to fuels, lubricants and chemicals. Sun spent $5,
$6 and $5 million on research and development activities in 1997, 1996 and
1995, respectively. As of December 31, 1997, approximately 110 scientists,
engineers, technicians and support personnel participated in these activities.
Sun owns or has made application for numerous patents in the U.S.
EMPLOYEES
As of December 31, 1997, Sun had approximately 10,900 employees compared to
approximately 12,150 employees as of December 31, 1996. The decrease in 1997
is primarily attributable to the implementation of an employee termination
program and a decline in the number of individuals employed in company-
operated convenience stores and service stations. The employee terminations
were throughout the organization and included senior management, support staff
and operations personnel. Approximately 40 percent of Sun's employees are
employed in company-operated convenience stores and service stations. The
above amounts exclude employees of real estate operations held for sale
totalling 39 in 1997 and 337 in 1996. Approximately 25 percent of Sun's
employees were covered by 42 collective bargaining agreements as of December
31, 1997. The collective bargaining agreements have various terms and dates of
expiration. In management's opinion, Sun's relationship with its employees is
generally satisfactory.
ENVIRONMENTAL MATTERS
Sun is subject to numerous federal, state and local laws which regulate the
discharge of materials into, or otherwise relate to the protection of, the
environment. These laws have required, and are expected to continue to
require, Sun to make significant expenditures of both a capital and expense
nature. The following table summarizes Sun's expenditures for environmental
projects and compliance activities (in millions of dollars):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pollution Abatement Capital*................................. $ 23 $ 29 $ 60
Remediation.................................................. 38 37 48
Operations, Maintenance and Administration................... 188 185 238
---- ---- ----
$249 $251 $346
==== ==== ====
</TABLE>
- --------
*Capital expenditures for pollution abatement are expected to approximate $35
and $34 million in 1998 and 1999, respectively.
16
<PAGE>
The Clean Air Act establishes stringent criteria for regulating air toxics
at operating facilities by mandating major reductions in allowable emissions
and establishing a more comprehensive list of substances deemed to be air
toxics. The Clean Air Act also requires refiners to market cleaner-burning
gasoline that reduces emissions of certain toxics and conventional pollutants.
The Company has implemented the first phase of the reformulated gasoline
regulations which requires an increase in the minimum quantity of oxygen for
certain non-attainment areas, a reduction in benzene content, and a reduction
in summertime Reid Vapor Pressure ("RVP"). Sun expects to implement the next
more stringent phases of these regulations in 1998 and 2000 with modest
capital investment.
The Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") and the Solid Waste Disposal Act as amended by the Resource
Conservation and Recovery Act ("RCRA"), and related federal and state laws
subject Sun to the potential obligation to remove or mitigate the
environmental effects of the disposal or release of certain pollutants at
Sun's facilities and at third-party or formerly-owned sites. Under CERCLA, Sun
is subject to potential joint and several liability for the costs of
remediation at sites at which it has been identified as a "potentially
responsible party" ("PRP"). As of December 31, 1997, Sun had been named as a
PRP at 44 sites identified or potentially identifiable as "Superfund" sites
under CERCLA. Sun has reviewed the nature and extent of its involvement at
each site and other relevant circumstances and, based upon the other parties
involved or Sun's negligible participation therein, believes that its
potential liability associated with such sites will not be significant.
Under various environmental laws, including RCRA, Sun has initiated
corrective remedial action at Sun's facilities, formerly-owned facilities and
third-party sites and could be required to undertake similar actions at
various other sites. The cost of such remedial actions could be significant
but is expected to be incurred over an extended period of time.
Sun establishes accruals related to environmental remediation activities for
work at identified sites where an assessment has indicated that cleanup costs
are probable and reasonably estimable. For a discussion of the accrued
liabilities and charges against income related to these activities, see Note
13 to the Consolidated Financial Statements in the Company's 1997 Annual
Report to Shareholders.
On October 4, 1996, Sun filed a complaint in Los Angeles County Superior
Court, Jalisco Corporation, Inc., et al. v. Argonaut Insurance Company, et al.
(Case No. BC 158441), naming more than 45 insurance companies as defendants
and seeking recovery under numerous insurance policies for certain
environmental expenditures of Sun, including its predecessor companies and
subsidiaries, arising from the ownership and operation of its business and
properties. The Company cannot quantify the ultimate outcome of this
litigation, which may be protracted.
Total future costs for environmental remediation activities will depend
upon, among other things, the identification of any additional sites, the
determination of the extent of the contamination of each site, the timing and
nature of required remedial actions, the technology available and needed to
meet the various existing legal requirements, the nature and extent of future
environmental laws, inflation rates and the determination of Sun's liability
at multi-party sites, if any, in light of the number, participation level and
financial viability of other parties.
Management believes that the overall expenditures for environmental
activities are likely to be significant but are expected to be incurred over
an extended period of time and to be funded from Sun's net cash provided by
operating activities. Although potentially significant with respect to results
of operations or cash flows for any one year, management believes that such
costs will not have a material impact on Sun's consolidated financial position
or, over an extended period of time, on Sun's cash flows or liquidity.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In December 1997, Sun Company, Inc. (R&M) agreed to make combined payments
of $500,000 to the City of Philadelphia and certain community environmental
projects, pursuant to a Consent Decree lodged in the United States District
Court for the Eastern District of Pennsylvania. This Consent Decree settles
allegations, made by the Community/Labor Refinery Tracking Committee under the
citizen suit provisions of the Clean Air Act, of violations of various
federal, state, and local clean air regulations.
In December 1997, Sun Company, Inc. (R&M) agreed to pay $100,000 in civil
fines and to undertake certain corrective actions pursuant to a Consent Order
entered by the United States District Court for the Northern District of
Oklahoma. This agreement between Sun Company, Inc. (R&M) and the United States
Environmental Protection Agency (acting through the United States Department
of Justice) stems from alleged violations of the Clean Air Act and the
Oklahoma State Implementation Program.
Many other legal and administrative proceedings are pending against Sun.
Although the ultimate outcome of these proceedings cannot be ascertained at
this time, it is reasonably possible that some of them could be resolved
unfavorably to Sun. Management of Sun believes that any liabilities which may
arise from such proceedings would not be material in relation to the
consolidated financial position of Sun at December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF SUN COMPANY, INC.
<TABLE>
<CAPTION>
NAME, AGE AND
PRESENT POSITION
WITH SUN COMPANY,
INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- ----------------- ------------------------------------------
<S> <C>
Robert M. Aiken, Jr., 55 Mr. Aiken was elected to his present position in November
Executive Vice 1996. From May 1992 until November 1996, he was Senior Vice
President and Chief President and Chief Financial Officer.
Financial Officer
Robert H. Campbell, 60 Mr. Campbell was elected Chairman of the Board in May 1992
Chairman of the Board and Chief Executive Officer in September 1991. He also held
and Chief Executive the additional positions of President and Chief Operating
Officer Officer from February 1991 until November 1996. He has been
a Director since November 1988.
John G. Drosdick, 54 Mr. Drosdick was elected a Director and President and Chief
President and Chief Operating Officer in December 1996. He was President and
Operating Officer Chief Operating Officer of Ultramar Corporation (prior to
its merger with Diamond Shamrock, Inc. to become Ultramar
Diamond Shamrock Corporation) from June 1992 to August 1996.
Jack L. Foltz, 62 Mr. Foltz was elected to his present position in October
Vice President and 1992.
General Counsel
Deborah M. Fretz, 49 Ms. Fretz was elected Senior Vice President, Logistics in
Senior Vice President, August 1994. She assumed the additional position of Senior
Lubricants and Vice President, Lubricants in January 1997. In addition, she
Logistics has been President of Sun Pipe Line Company, a subsidiary,
since October 1991.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND
PRESENT POSITION
WITH SUN COMPANY,
INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- ----------------- ------------------------------------------
<S> <C>
Thomas W. Hofmann, 46 Mr. Hofmann was elected to his present position in July
Comptroller 1995. From September 1994 to July 1995, he served as Direc-
tor, Performance Analysis, and from October 1991 to Septem-
ber 1994, Director, Tax Administration.
David E. Knoll, 54 Mr. Knoll was elected to his present position in August
Senior Vice President, 1994. He was Senior Vice President, Marketing and Logistics
Northeast Refining and from October 1992 to August 1994.
Chemicals
Robert W. Owens, 44 Mr. Owens was elected to his present position in February
Vice President and 1997. He was Vice President, Marketing and Services of
General Manager, Ultramar Diamond Shamrock Corporation from 1996 to 1997 and
Sunoco Northeast of Ultramar Corporation from 1994 to 1996. From 1989 to
Marketing 1994, he was Manager, East Coast Branded Marketing of
Amerada Hess Corporation.
Malcolm I. Ruddock, 55 Mr. Ruddock was elected to his present position in 1989.
Treasurer
David C. Shanks, 58 Mr. Shanks was elected to his present position in February
Vice President, Human 1997. Previously, he was a Corporate Vice President of Ar-
Resources, Public thur D. Little, Inc.
Affairs & Strategic
Planning
Sheldon L. Thompson, 59 Mr. Thompson was elected to his present position in October
Senior Vice President 1992.
and Chief
Administrative Officer
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to
the Quarterly Financial and Stock Market Information on page 61 of the
Company's 1997 Annual Report to Shareholders. The market exchanges on which
the Company's stock is traded are listed on the cover page of this Annual
Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to
the Selected Financial Data on page 27 of the Company's 1997 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by reference to
pages 28-40 in the Company's 1997 Annual Report to Shareholders.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information in the Company's 1997 Annual Report to
Shareholders is incorporated herein by reference: the Consolidated Financial
Statements on pages 41-44; the Notes to Consolidated Financial Statements on
pages 45-58; the Report of Independent Auditors on page 59; the Coal and
Cokemaking Data on page 60; and the Quarterly Financial and Stock Market
Information on page 61.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors required by Items 401 and 405 of Regulation S-K
is incorporated herein by reference to the Company's definitive Proxy
Statement ("Proxy Statement") which will be filed with the Securities and
Exchange Commission ("SEC") within 120 days after December 31, 1997.
Information concerning the Company's executive officers appears in Part I of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated
herein by reference to the Company's Proxy Statement which will be filed with
the SEC within 120 days after December 31, 1997, except that the Report of the
Compensation Committee and the Stock Performance Graph contained in the Proxy
Statement are specifically excluded from incorporation by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is incorporated
herein by reference to the Company's Proxy Statement which will be filed with
the SEC within 120 days after December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is incorporated
herein by reference to the Company's Proxy Statement which will be filed with
the SEC within 120 days after December 31, 1997.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements:
The information appearing in the Company's 1997 Annual Report to
Shareholders as described in Item 8 is incorporated herein by
reference.
2. Financial Statement Schedules:
Schedule II--Valuation Accounts is included on page 26 of this Form
10-K. Other schedules are omitted because the required information is
shown elsewhere in this report, is not required or is not applicable.
3. Exhibits:
<TABLE>
<C> <S>
3.(i) --Articles of Incorporation of Sun Company, Inc., as amended and
restated effective as of February 1, 1996 (incorporated by
reference to Exhibit 3.(i) of the Company's 1995 Form 10-K
filed March 7, 1996, File No. 1-6841).
3.(ii) --Sun Company, Inc. Bylaws, as amended and restated effective as
of February 1, 1996 (incorporated by reference to Exhibit
3.(ii) of the Company's 1995 Form 10-K filed March 7, 1996,
File No. 1-6841).
4.1 --Instruments defining the rights of security holders of long-
term debt of the Company and its subsidiaries are not being
filed since the total amount of securities authorized under
each such instrument does not exceed 10 percent of the total
assets of the Company and its subsidiaries on a consolidated
basis. The Company will provide the SEC a copy of any
instruments defining the rights of holders of long-term debt of
the Company and its subsidiaries upon request.
4.2 --Amendment to Rights Agreement dated as of July 3, 1997 between
Sun Company, Inc. and First Chicago Trust Company of New York
(incorporated by reference to Exhibit 4 of the Company's
Current Report on Form 8-K dated July 8, 1997, File No. 1-
6841).
4.3 --Rights Agreement between Sun Company, Inc. and First Chicago
Trust Company of New York dated as of February 1, 1996
(incorporated by reference to Exhibit 99(b) of the Company's
Current Report on Form 8-K dated February 2, 1996, File No. 1-
6841).
10.1* --Sun Company, Inc. Long-Term Performance Enhancement Plan, as
amended and restated effective as of December 3, 1997.
10.2* --Sun Company, Inc. Executive Long-Term Stock Investment Plan,
as amended and restated effective as of December 3, 1997.
10.3* --Sun Company, Inc. Long-Term Incentive Plan, as amended and
restated effective as of December 3, 1997.
10.4* --Sun Company, Inc. Directors' Deferred Compensation Plan, as
amended and restated effective as of October 2, 1997.
10.5* --Sun Company, Inc. Deferred Compensation Plan, as amended and
restated effective as of March 4, 1998.
</TABLE>
21
<PAGE>
<TABLE>
<C> <S>
10.6* --Amendment No. 1997-1 to the Sun Company, Inc. Pension
Restoration Plan, effective September 1, 1997. The Sun Company,
Inc. Pension Restoration Plan (prior to Amendment No. 1997-1) is
incorporated by reference to Exhibit 10.5 of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841.
10.7* --Amendment No. 1997-1 to the Sun Company, Inc. Savings
Restoration Plan, effective September 1, 1997. The Sun Company
Inc. Savings Restoration Plan (prior to Amendment No. 1997-1) is
incorporated by reference to Exhibit 10.7 of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841.
10.8* --Sun Company, Inc. Executive Incentive Plan, as amended and
restated effective March 4, 1998.
10.9* --Amendment No. 1997-1 to the Sun Company, Inc. Executive
Retirement Plan, effective September 1, 1997. The Sun Company,
Inc. Executive Retirement Plan (prior to Amendment No. 1997-1)
is incorporated by reference to Exhibit 10(d) of the Company's
Form SE filed March 13, 1992, File No. 1-6841.
10.10* --Sun Company, Inc. Special Executive Severance Plan, effective
as of September 4, 1997.
10.11* --Sun Company, Inc. Executive Involuntary Severance Plan, as
amended and restated effective as of September 4, 1997.
10.12* --Sun Company, Inc. Retainer Stock Plan for Outside Directors
(incorporated by reference to Exhibit 10.9 of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841).
10.13* --Amended Schedule to the Form of Indemnification Agreement,
individually entered into between Sun Company, Inc. and certain
officers and directors of the Company. The Form of
Indemnification Agreement is incorporated by reference to
Exhibit 10.15 of the Company's 1995 Form 10-K filed March 7,
1996, File No. 1-6841).
10.14* --Deposit Agreement for Series A Cumulative Preference Stock
(incorporated by reference to Exhibit 99(g)(4) of the Sun
Company, Inc. Schedule 13E-4 filed June 13, 1995, File No. 1-
6841).
10.15* --Trust Under Sun Company, Inc. Directors' Deferred Compensation
Plan dated as of February 1, 1996 (incorporated by reference to
Exhibit 10.12 of the Company's 1996 Form 10-K filed March 7,
1997, File No. 1-6841).
10.16* --Sun Company, Inc. Deferred Compensation and Benefits Trust
dated as of February 1, 1996 (incorporated by reference to
Exhibit 10.13 of the Company's Form 10-K filed March 7, 1997,
File No. 1-6841).
10.17* --Agreement of employment entered November 15, 1996 by and
between Sun Company, Inc. and John G. Drosdick (incorporated by
reference to Exhibit 10.14 of the Company's 1996 Form 10-K filed
March 7, 1997, File No. 1-6841).
10.18* --Amendment No. 1998-1 to the Sun Company, Inc. Executive
Retirement Plan, effective January 1, 1998.
10.19* --Amendment No. 1998-2 to the Sun Company, Inc. Executive
Retirement Plan, effective March 1, 1998.
12 --Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Year Ended December
31, 1997.
13 --Sun Company, Inc. 1997 Annual Report to Shareholders Financial
Section.
21 --Subsidiaries of Sun Company, Inc.
23.1 --Consent of Ernst & Young LLP.
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
23.2 --Consent of Coopers & Lybrand L.L.P.
23.3 --Report of Coopers & Lybrand L.L.P.
24.1 --Power of Attorney executed by certain officers and directors of
Sun Company, Inc.
24.2 --Certified copy of the resolution authorizing certain officers to
sign on behalf of Sun Company, Inc.
27 --Article 5 of Regulation S-X, Financial Data Schedule.
</TABLE>
- --------
*These exhibits constitute the Executive Compensation Plans and Arrangements
of the Company.
(b) Reports on Form 8-K:
On October 15, 1997, a report on Form 8-K was filed to disclose under Item
5--"Other Events" and Item 7--"Financial Statements and Exhibits," a press
release issued by the Company on October 14, 1997 projecting an increase in
third quarter 1997 operating income and reporting the results of a previously
announced share repurchase program.
Note: Copies of each Exhibit to this Form 10-K are available upon request, at
$2 per copy.
23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Sun Company, Inc.
By /s/ Robert M. Aiken, Jr.
Robert M. Aiken, Jr.
Executive Vice President and Chief Financial Officer
Date March 6, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY OR ON BEHALF OF THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 6, 1998:
SIGNATURES TITLES
Robert M. Aiken, Jr.* Executive Vice President and
--------------------- Chief Financial Officer
Robert M. Aiken, Jr. (Principal Financial
Officer)
Robert H. Campbell* Chairman of the Board, Chief
------------------- Executive Officer and Director
Robert H. Campbell (Principal Executive Officer)
Raymond E. Cartledge* Director
---------------------
Raymond E. Cartledge
Robert E. Cawthorn* Director
-------------------
Robert E. Cawthorn
John G. Drosdick* President, Chief Operating
----------------- Officer and Director
John G. Drosdick
Mary J. Evans* Director
--------------
Mary J. Evans
Thomas P. Gerrity* Director
------------------
Thomas P. Gerrity
Thomas W. Hofmann* Comptroller
------------------ (Principal Accounting
Thomas W. Hofmann Officer)
James G. Kaiser* Director
----------------
James G. Kaiser
24
<PAGE>
SIGNATURES TITLES
Robert D. Kennedy* Director
------------------
Robert D. Kennedy
R. Anderson Pew* Director
----------------
R. Anderson Pew
William F. Pounds* Director
------------------
William F. Pounds
Alexander B. Trowbridge* Director
------------------------
Alexander B. Trowbridge
*By /s/Robert M. Aiken, Jr. Individually and as Attorney-in-Fact
-----------------------
Robert M. Aiken, Jr.
25
<PAGE>
SUN COMPANY, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997:
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $ 8 $ 6 $-- $ 8 $ 6
=== === === === ===
For the year ended
December 31, 1996:
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $18 $ 8 $-- $18 $ 8
=== === === === ===
For the year ended
December 31, 1995:
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $10 $ 8 $11(A) $11(B) $18
=== === === === ===
</TABLE>
- --------
Notes:
(A) Represents the account balance, at June 30, 1995, of Sun's coal and
cokemaking operations which previously had been accounted for as an
investment held for sale. Effective June 30, 1995, this business became
one of Sun's ongoing business units and is no longer held for sale. (See
Note 2 to the Consolidated Financial Statements in the Company's 1997
Annual Report to Shareholders.)
(B) Includes a $4 million deduction attributable to the refining and marketing
operations of Suncor Inc., a Canadian integrated oil company, reflecting
the divestment of Suncor on June 8, 1995. (See Note 2 to the Consolidated
Financial Statements in the Company's 1997 Annual Report to Shareholders.)
26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- -------
3.(i) - Articles of Incorporation of Sun Company, Inc., as amended and
restated effective as of February 1, 1996 (incorporated by
reference to Exhibit 3.(i) of the Company's 1995 Form 10-K filed
March 7, 1996, File No. 1-6841).
3.(ii) - Sun Company, Inc. Bylaws, as amended and restated effective as of
February 1, 1996 (incorporated by reference to Exhibit 3.(ii) of
the Company's 1995 Form 10-K filed March 7, 1996, File No. 1-
6841).
4.1 - Instruments defining the rights of security holders of long-term
debt of the Company and its subsidiaries are not being filed
since the total amount of securities authorized under each such
instrument does not exceed 10 percent of the total assets of the
Company and its subsidiaries on a consolidated basis. The
Company will provide the SEC a copy of any instruments defining
the rights of holders of long-term debt of the Company and its
subsidiaries upon request.
4.2 - Amendment to Rights Agreement dated as of July 3, 1997 between
Sun Company, Inc and First Chicago Trust Company of New York
(incorporated by reference to Exhibit 4 of the Company's Current
Report on Form 8-K dated July 8, 1997, File No. 1-6841).
4.3 - Rights Agreement between Sun Company, Inc. and First Chicago
Trust Company of New York dated as of February 1, 1996
(incorporated by reference to Exhibit 99(b) of the Company's
Current Report on Form 8-K dated February 2, 1996, File No. 1-
6841).
10.1* - Sun Company, Inc. Long-Term Performance Enhancement Plan, as
amended and restated effective as of December 3, 1997.
10.2* - Sun Company, Inc. Executive Long-Term Stock Investment Plan, as
amended and restated effective as of December 3, 1997.
10.3* - Sun Company, Inc. Long-Term Incentive Plan, as amended and
restated effective as of December 3, 1997.
10.4* - Sun Company, Inc. Directors' Deferred Compensation Plan, as
amended and restated effective as of October 2, 1997.
10.5* - Sun Company, Inc. Deferred Compensation Plan, as amended and
restated effective as of March 4, 1998.
<PAGE>
2
Exhibit
Number Exhibit
- ------- -------
10.6* - Amendment No. 1997-1 to the Sun Company, Inc. Pension Restoration
Plan, effective September 1, 1997. The Sun Company, Inc. Pension
Restoration Plan (prior to Amendment No. 1997-1) is incorporated
by reference to Exhibit 10.5 of the Company's 1995 Form 10-K
filed March 7, 1996, File No. 1-6841.
10.7* - Amendment No. 1997-1 to the Sun Company, Inc. Savings Restoration
Plan, effective September 1, 1997. The Sun Company Inc. Savings
Restoration Plan (prior to Amendment No. 1997-1) is incorporated
by reference to Exhibit 10.7 of the Company's 1995 Form 10-K
filed March 7, 1996, File No. 1-6841.
10.8* - Sun Company, Inc. Executive Incentive Plan, as amended and
restated effective March 4, 1998.
10.9* - Amendment No. 1997-1 to the Sun Company, Inc. Executive
Retirement Plan, effective September 1, 1997. The Sun
Company, Inc. Executive Retirement Plan (prior to Amendment
No. 1997-1) is incorporated by reference to Exhibit 10(d) of
the Company's Form SE filed March 13, 1992, File No. 1-6841.
10.10* - Sun Company, Inc. Special Executive Severance Plan, effective as
of September 4, 1997.
10.11* - Sun Company, Inc. Executive Involuntary Severance Plan, as
amended and restated effective as of September 4, 1997.
10.12* - Sun Company, Inc. Retainer Stock Plan for Outside Directors
(incorporated by reference to Exhibit 10.9 of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841).
10.13* - Amended Schedule to the Form of Indemnification Agreement,
individually entered into between Sun Company, Inc. and certain
officers and directors of the Company. The Form of
Indemnification Agreement is incorporated by reference to Exhibit
10.15 of the Company's 1995 Form 10-K filed March 7, 1996, File
No. 1-6841).
10.14* - Deposit Agreement for Series A Cumulative Preference Stock
(incorporated by reference to Exhibit 99(g)(4) of the Sun
Company, Inc. Schedule 13E-4 filed June 13, 1995, File No. 1-
6841).
<PAGE>
3
Exhibit
Number Exhibit
- ------- -------
10.15* - Trust Under Sun Company, Inc. Directors' Deferred Compensation
Plan dated as of February 1, 1996 (incorporated by reference to
Exhibit 10.12 of the Company's 1996 Form 10-K filed March 7,
1997, File No. 1-6841).
10.16* - Sun Company, Inc. Deferred Compensation and Benefits Trust dated
as of February 1, 1996 (incorporated by reference to Exhibit
10.13 of the Company's Form 10-K filed March 7, 1997, File No. 1-
6841).
10.17* - Agreement of employment entered November 15, 1996 by and between
Sun Company, Inc. and John G. Drosdick (incorporated by reference
to Exhibit 10.14 of the Company's 1996 Form 10-K filed March 7,
1997, File No. 1-6841).
10.18* - Amendment No. 1998-1 to the Sun Company, Inc. Executive
Retirement Plan, effective January 1, 1998.
10.19* - Amendment No. 1998-2 to the Sun Company, Inc. Executive
Retirement Plan, effective March 1, 1998.
12 - Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Year Ended December
31, 1997.
13 - Sun Company, Inc. 1997 Annual Report to Shareholders Financial
Section.
21 - Subsidiaries of Sun Company, Inc.
23.1 - Consent of Ernst & Young LLP.
23.2 - Consent of Coopers & Lybrand L.L.P.
23.3 - Report of Coopers & Lybrand L.L.P.
24.1 - Power of Attorney executed by certain officers and directors of
Sun Company, Inc.
24.2 - Certified copy of the resolution authorizing certain officers to
sign on behalf of Sun Company, Inc.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
- ------------
*These exhibits constitute the Executive Compensation Plans and
Arrangements of the Company.
<PAGE>
Exhibit 10.1
================================================================================
SUN COMPANY, INC.
LONG-TERM PERFORMANCE ENHANCEMENT PLAN
================================================================================
<PAGE>
2
ARTICLE I
Definitions
As used in this Plan, the following terms shall have the meanings herein
specified:
1.1 Affiliate - shall mean any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with Sun Company, Inc.
1.2 Board of Directors - shall mean the Board of Directors of Sun Company,
Inc.
1.3 Change in Control - shall mean the occurrence of any of the following
events or transactions:
(a) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of Sun
Company, Inc. (or of the Board of Directors of any successor to Sun
Company, Inc. or to all or substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that result in such entity,
person or Group directly or indirectly owning beneficially more than twenty
percent (20%) of the outstanding voting shares.
1.4 Code - shall mean the Internal Revenue Code of 1986, as amended.
1.5 Committee - shall mean the committee appointed to administer this Plan
by the Board of Directors of the Company, as constituted from time to time. The
Committee shall consist of at least two (2) members of the Board of Directors,
each of whom shall meet applicable requirements set forth in the pertinent
regulations under Section 16 of the Securities Exchange Act of 1934, as amended,
and Section 162(m) of the Code.
1.6 Common Stock - shall mean the authorized and unissued or treasury
shares of common stock of Sun Company, Inc.
1.7 Common Stock Units - shall have the meaning provided herein at Section
6.1.
1.8 Company - shall mean Sun Company, Inc., a Pennsylvania corporation.
The term "Company" shall include any successor to Sun Company, Inc., any
Subsidiary or Affiliate which has adopted the Plan, or a corporation succeeding
to the business of Sun Company, Inc., or any Subsidiary or Affiliate by merger,
consolidation, liquidation or purchase of assets or stock or similar
transaction.
1.9 Continuing Director - shall mean a Director who was a member of the
Board of Directors immediately prior to a Control Transaction which results in a
Change in Control.
1.10 Control Transaction - shall mean any of the following transactions or
any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun
Company, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of
the assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or a Group of shareholders
in a proxy solicitation or otherwise.
<PAGE>
3
1.11 CSU Payout Date - shall have the meaning provided herein at Section
6.9
1.12 Disability - shall mean any illness, injury or incapacity of such
duration and type as to render a Participant eligible to receive long-term
disability benefits under the applicable broad-based long-term disability
program of the Company.
1.13 Dividend Equivalents - shall have the meaning provided herein at
Section 6.3.
1.14 Dividend Equivalent Account - shall have the meaning provided herein
at Section 6.3.
1.15 Employment Termination Date - shall mean the date on which the
employment relationship between the Participant and the Company is terminated.
1.16 Exercise Period - shall have the meaning provided herein at Section
5.3.
1.17 Fair Market Value - shall mean, as of any date and in respect of any
share of Common Stock, the opening price on such date of a share of Common Stock
(which price shall be the closing price on the previous trading day of a share
of Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape, and as reflected in the consolidated trading tables of the
Wall Street Journal or any other publication selected by the Committee). If
there is no sale of shares of Common Stock on the New York Stock Exchange for
more than ten (10) days immediately preceding such date, or if deemed
appropriate by the Committee for any other reason, the fair market value of the
shares of Common Stock shall be as determined by the Committee in such other
manner as it may deem appropriate. In no event shall the fair market value of
any share of Common Stock be less than its par value.
1.18 Group - shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
1.19 Incentive Stock Options - shall have the meaning provided herein at
Article IV.
1.20 Just Cause - shall mean:
(a) a judicial determination that the Participant has committed fraud,
misappropriation, or embezzlement against the Company; or
(b) a non-appealable conviction of, or entry of a plea of nolo
contendere for, an act by the Participant constituting a felony which, as
determined by the Company in good faith, constitutes a crime involving
moral turpitude and has resulted in material harm to the Company, its
subsidiaries and affiliates taken as a whole.
<PAGE>
4
No termination of employment shall be deemed an effective termination
for Just Cause unless accompanied by a copy of a resolution duly adopted by
the affirmative vote of not less a majority of the Continuing Directors at
a meeting of the Board of Directors which was called and held for the
purpose of considering such termination, or if there are no Continuing
Directors, then by at least three quarters (3/4) of the entire Board of
Directors (after reasonable notice to the Participant and an opportunity
for the Participant, together with the Participant's counsel, to be heard
before the Board of Directors) finding that, in the good faith opinion of
the Board of Directors, the Participant was guilty of conduct set forth in
the preceding sentence, and specifying the particulars thereof in detail.
In any deliberations or votes by the Board of Directors concerning a
determination under this Section, the Participant shall recuse himself from
such deliberations and votes.
1.21 Limited Rights - shall have the meaning provided herein at Article V.
1.22 Option - shall mean Stock Option and/or Incentive Stock Option.
1.23 Option Price - shall mean the purchase price per share of Common Stock
deliverable upon the exercise of an Option.
1.24 Optionee - shall mean the holder of an Option.
1.25 Participant - shall have the meaning provided herein at Section
2.4(a).
1.26 Performance Factors - shall mean the various payout percentages
related to the attainment levels of one or more Performance Goals, as determined
by the Committee.
1.27 Performance Goals - shall mean the specific targeted amounts of, or
changes in, financial or operating goals including: revenues; expenses; net
income; operating income; equity; return on equity, assets or capital employed;
working capital; shareholder return; operating capacity utilized; production or
sales volumes; or throughput. Other financial or operating goals may also be
used as determined by the Committee. Such goals may be applicable to the
Company as a whole or one or more of its business units and may be applied in
total or on a per share, per barrel or percentage basis and on an absolute basis
or relative to other companies, industries or indices or any combination
thereof, as determined by the Committee.
1.28 Performance Period - shall have the meaning provided herein at Section
6.4.
1.29 Potential Change in Control - shall mean the occurrence of any of the
following events or transactions:
(a) any person (other than Sun Company, Inc., or any affiliate or
subsidiary thereof) makes a tender offer for capital stock of Sun Company,
Inc.;
(b) any person becomes the beneficial owner, directly or indirectly,
of capital stock of Sun Company, Inc. in an amount which requires the
filing of Schedule 13D or its equivalent form pursuant to the Rules and
Regulations under the Securities Exchange Act of 1934 as from time to time
amended;
<PAGE>
5
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or Group of shareholders in
a proxy solicitation or otherwise which, in its judgment, the Board of
Directors determines by adoption of a resolution within thirty (30) days of
such submission, might result in a Change in Control of Sun Company, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sun Company, Inc. pursuant to the Hart-Scott-Rodino Act;
or
(e) the Board of Directors in its judgment determines by adoption of a
resolution that a Potential Change in Control of Sun Company, Inc. for
purposes of this Plan has occurred.
1.30 Qualifying Termination - shall mean, with respect to the employment of
any Participant, the following:
(a) a termination of employment by the Company within seven (7) months
after a Change in Control, other than for Just Cause, death or Disability;
(b) a termination of employment by the Participant within seven (7)
months after a Change in Control for one or more of the following reasons:
(1) the assignment to such Participant of any duties inconsistent
in a way adverse to such Participant, with such Participant's
positions, duties, responsibilities and status with the Company
immediately prior to the Change in Control, or a reduction in the
duties and responsibilities held by the Participant immediately prior
to the Change in Control; a change in the Participant's reporting
responsibilities, title or offices as in effect immediately prior to
the Change in Control that is adverse to the Participant; or any
removal of the Participant from or any failure to re-elect the
Participant to any position with the Company that such Participant
held immediately prior to the Change in Control except in connection
with such Participant's:
(i) assignment to a new position at a higher combined annual
base salary and guideline (target) bonus; or
(ii) termination of employment by the Company for Just
Cause; or
(2) with respect to any Participant who is a member of the Board
of Directors immediately prior to the Change in Control, any failure
of the shareholders of the Company to elect or reelect, or of the
Company to appoint or reappoint, the Participant as a member of the
Board of Directors;
<PAGE>
6
(3) a reduction by the Company in either of the Participant's
annual base salary or guideline (target) bonus as in effect
immediately prior to the Change in Control; the failure by the Company
to continue in effect, or the taking of any action by the Company that
would adversely affect such Participant's participation in or
significantly reduce such Participant's benefits under, any employee
benefit plan or compensation plan in which such Participant was
participating immediately prior to the Change in Control, provided,
however, that in the aggregate such actions by the Company
significantly reduce the Participant's total compensation (i.e., the
sum of Participant's annual base salary, guideline (target) bonus, and
the aggregate value to the Participant of all employee benefit and
compensation plans); or the failure by the Company, without the
Participant's consent, to pay to the Participant any portion of the
Participant's current compensation, or to pay to the Participant any
portion of an installment of deferred compensation under any deferred
compensation program of the Company; or
(4) The Company requires the Participant to be based anywhere
other than the Participant's present work location or a location
within thirty-five (35) miles from the present location; or the
Company requires the Participant to travel on Company business to an
extent substantially more burdensome than such Participant's travel
obligations during the period of twelve (12) consecutive months
immediately preceding the Change in Control;
provided, however, that in the case of any such termination of employment
by the Participant under this subparagraph (b), such termination shall not
be deemed to be a Qualifying Termination unless the termination occurs
within 120 days after the occurrence of the event or events constituting
the reason for the termination; or
(c) a termination of employment by the Company other than a
termination for Just Cause, or a termination of employment by the
Participant for one of the reasons set forth in (b) above, following a
Potential Change in Control, if the Participant can demonstrate that such
termination or circumstance in (b) above leading to termination:
(1) was at the request of a third party with which the Company
had entered into negotiations or an agreement with regard to a Change
in Control; or
(2) otherwise occurred in connection with, or in anticipation of,
a Change in Control;
provided, however, that in either such case, such Change in Control
actually occurs within one (1) year following the Employment Termination
Date.
1.31 Stock Options - shall have the meaning provided herein at Section 3.1.
1.32 Subsidiary - shall mean any corporation of which, at the time more
than fifty percent (50%) of the shares entitled to vote generally in an election
of directors are owned directly or indirectly by Sun Company, Inc. or any
subsidiary thereof.
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7
ARTICLE II
Background, Purpose and Term of Plan; Participation & Eligibility for Benefits
2.1 Background. Effective on December 31, 1996, no further awards shall
be made under the Sun Company, Inc. Executive Long-Term Stock Investment Plan
adopted in May, 1991 provided, however, that any rights theretofore granted
under that plan shall not be affected.
2.2 Purpose of the Plan. The purposes of this Sun Company, Inc. Long-Term
Performance Enhancement Plan (the "Plan") are to:
(a) better align the interests of shareholders and management of the
Company by creating a direct linkage between Participants' rewards and
shareholders' gains;
(b) provide management with the ability to increase equity ownership
in Sun Company, Inc.;
(c) provide competitive compensation opportunities which can be
realized through attainment of performance goals; and
(d) provide an incentive to management for continuous employment with
the Company.
It is intended that most awards made under the Plan will qualify as
performance-based compensation under Section 162(m) of the Code.
2.3 Term of the Plan. This Plan shall become effective upon approval by
the holders of a majority of the votes present, in person or represented by
proxy, at the 1997 Annual Meeting of Shareholders of Sun Company, Inc. No
awards will be made under the Plan after December 31, 2001, unless the Board of
Directors extends this date to a date no later than December 31, 2006. The Plan
and all awards made under the Plan prior to such date (or extended date) shall
remain in effect until such awards have been satisfied or terminated in
accordance with the Plan and the terms of such awards.
2.4 Administration. The Plan shall be administered by the Committee which
shall have the authority, in its sole discretion and from time to time to:
(a) designate the employees or classes of employees eligible to
participate in the Plan (each such employee being, a "Participant");
(b) grant awards provided in the Plan in such form and amount as the
Committee shall determine;
(c) impose such limitations, restrictions and conditions upon any such
award as the Committee shall deem appropriate; and
(d) interpret the Plan, adopt, amend and rescind rules and regulations
relating to the Plan, and make all other determinations and take all other
action necessary or advisable for the implementation and administration of
the Plan.
The decisions and determinations of the Committee on all matters relating
to the Plan shall be in its sole discretion and shall be conclusive. No member
of the Committee shall be liable for any action taken or not taken or decision
made or not made in good faith relating to the Plan or any award thereunder.
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8
2.5 Eligibility for Participation. Participants in the Plan shall be the
officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making a
substantial contribution to the success of the Company. In making this
selection and in determining the amount of awards, the Committee shall consider
any factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company and past and potential
contributions to its profitability and sound growth.
2.6 Types of Awards Under the Plan. Awards under the Plan may be in the
form of any one or more of the following:
(a) Stock Options, as described in Article III;
(b) Incentive Stock Options, as described in Article IV;
(c) Limited Rights, as described in Article V; and/or
(d) Common Stock Units, as described in Article VI.
2.7 Aggregate Limitation on Awards. Shares of stock which may be issued
under the Plan shall be Common Stock. The maximum number of shares of Common
Stock which may be issued under the Plan shall be four million (4,000,000). For
purposes of calculating the maximum number of shares of Common Stock which may
be issued under the Plan:
(a) all the shares issued (including the shares, if any, withheld for
tax withholding requirements) shall be counted when cash is used as full
payment for shares issued upon exercise of an Option;
(b) only the shares issued (including the shares, if any, withheld for
tax withholding requirements) net of shares of Common Stock used as full or
partial payment for such shares upon exercise of an Option;
(c) only the shares issued (including the shares, if any, withheld for
tax withholding) upon vesting and payment of the Common Stock Units, shall
be counted.
In addition to shares of Common Stock actually issued pursuant to the
exercise of Options, there shall be deemed to have been issued a number of
shares equal to the number of shares of Common Stock in respect of which Limited
Rights (as described in Article V) shall have been exercised. Shares tendered
by a Participant as payment for shares issued upon exercise of an Option, shall
be available for issuance under the Plan. Any shares of Common Stock subject to
an Option, which for any reason is terminated unexercised or expires shall again
be available for issuance under the Plan, but shares subject to an Option which
are not issued as a result of the exercise of Limited Rights shall not be
available for issuance under the Plan.
(d) The maximum number of Options that shall be granted with respect
to each calendar year to a Participant shall be two-hundred thousand.
(e) The maximum number of Common Stock Units granted with respect to
each calendar year to a Participant shall be fifty thousand.
(f) The maximum number of Common Stock Units granted under the Plan
will be one million.
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9
The share limits set forth in this Section 2.7 shall be adjusted to reflect
any capitalization changes as discussed in Section 7.8.
ARTICLE III
Stock Options
3.1 Award of Stock Options. The Committee, from time to time, and subject
to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, may grant to any Participant in the Plan one or more
options to purchase for cash or shares the number of shares of Common Stock
("Stock Options") allotted by the Committee. The date a Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of options to a Participant pursuant to the Plan.
3.2 Stock Option Agreements. The grant of a Stock Option shall be
evidenced by a written Stock Option Agreement, executed by the Company and the
holder of a Stock Option, stating the number of shares of Common Stock subject
to the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.
3.3 Stock Option Price. The Option Price per share of Common Stock
deliverable upon the exercise of a Stock Option shall be not less than 100% of
the Fair Market Value of a share of Common Stock on the date the Stock Option is
granted.
3.4 Term and Exercise. The term and the vesting schedule of the Stock
Options shall be determined by the Committee. However, no Stock Option may be
exercisable before the second anniversary of the date of grant or after the
tenth anniversary of such date. No Stock Option shall be exercisable after the
expiration of its term.
3.5 Manner of Payment. Each Stock Option Agreement shall set forth the
procedure governing the exercise of the Stock Option granted thereunder, and
shall provide that, upon such exercise in respect of any shares of Common Stock
subject thereto, the Optionee shall pay to the Company, in full, the Option
Price for such shares with cash or with Common Stock. All shares of Common
Stock issued under the Sun Company, Inc. Long-Term Incentive Plan, the Sun
Company, Inc. Executive Long-Term Stock Investment Plan or this Plan must be
held at least six months before they may be used as payment of the Option Price.
3.6 Issuance and Delivery of Shares. As soon as practicable after receipt
of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
shareholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a shareholder.
3.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of retirement or permanent disability (as each is
determined by the Committee), the Optionee may, within sixty (60) months from
the date of termination, exercise any Stock Options to the extent such options
are exercisable during such 60-month period.
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10
3.8 Termination for Other Reasons. Except as provided in Sections 3.7 and
3.9, or except as otherwise determined by the Committee, all Stock Options shall
terminate upon the termination of the Optionee's employment; provided, however,
that the Limited Rights awarded in tandem with such Stock Options shall not
terminate and such Limited Rights shall remain exercisable during the Exercise
Period for any Optionee whose employment relationship with the Company has been
terminated as a result of any Qualifying Termination.
3.9 Death of Optionee. Any rights in respect of Stock Options to the
extent exercisable on the date of the Optionee's death may be exercised by the
Optionee's estate or by any person that acquires the legal right to exercise
such Stock Option by bequest, inheritance, or otherwise by reason of the death
of the Optionee. Any such exercise to be valid must occur within the remaining
option term of the Stock Option. The foregoing provisions of this Section 3.9
shall apply to an Optionee who dies while employed by the Company and to an
Optionee whose employment may have terminated prior to death; provided, however,
that:
(a) an Optionee who dies while employed by the Company will be treated
as if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such Stock
Option by bequest or inheritance will have the right to exercise the Stock
Option in accordance with Section 3.7; or
(b) the estate or a person who acquires the right to exercise a stock
option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Sections 3.7 and 3.8.
3.10 Acceleration of Options. Notwithstanding any provisions to the
contrary in agreements evidencing Options granted thereunder, each outstanding
Option shall become immediately and fully exercisable upon the occurrence of any
Change in Control of Sun Company, Inc.
3.11 Effect of Exercise. The exercise of any Stock Options shall cancel
that number of related Limited Rights, if any, which is equal to the number of
shares of Common Stock purchased pursuant to said options.
ARTICLE IV
Incentive Stock Options
4.1 Award of Incentive Stock Options. The Committee, from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any Participant in the Plan one or more
"incentive Stock Options" (intended to qualify as such under the provisions of
Section 422 of the Internal Revenue Code of 1986, (the "Code") as amended
("Incentive Stock Options")) to purchase for cash or shares the number of shares
of Common Stock allotted by the Committee. The date an Incentive Stock Option
is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of options to a Participant pursuant to the
Plan. Notwithstanding the foregoing, Incentive Stock Options shall not be
granted to any owner of ten percent (10%) or more of the total combined voting
power of the Company and its subsidiaries.
4.2 Incentive Stock Option Agreements. The grant of an Incentive Stock
Option shall be evidenced by a written Incentive Stock Option Agreement,
executed by the Company and the holder of an Incentive Stock Option stating the
number of shares of Common Stock subject to the Incentive Stock Option evidenced
thereby, and in such form as the Committee may from time to time determine.
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11
4.3 Incentive Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of an Incentive Stock Option shall not be
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Incentive Stock Option is granted.
4.4 Term and Exercise. The term and the vesting schedule of the Incentive
Stock Option shall be determined by the Committee. However, no Incentive Stock
Option may be exercisable before the second anniversary of the date of grant or
after the tenth anniversary of such date. No Incentive Stock Option shall be
exercisable after the expiration of its term.
4.5 Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of
grant with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year, under this Plan or any other
stock option plan of the Company exceeds One Hundred Thousand Dollars
($100,00.00), then the option, as to the excess shall be treated as a non-
qualified stock option. An incentive Stock Option shall not be granted to any
person who is not an "employee" of the Company (within the meaning of Section
424(f) of the Code).
4.6 Retirement or Disability. Upon the termination of the Optionee's
employment by reason of retirement or permanent disability (as each is
determined by the Committee), the Optionee may, within sixty (60) months from
the date of such termination of employment, exercise any Incentive Stock Options
to the extent such Incentive Stock Options are exercisable during such 60-month
period. Notwithstanding the foregoing, the tax treatment available pursuant to
Section 422 of the Internal Revenue Code of 1986 upon the exercise of an
Incentive Stock Option will not be available to an Optionee who exercises any
Incentive Stock Option more than:
(a) twelve (12) months after the date of termination of employment due
to permanent disability; or
(b) three (3) months after the date of termination of employment due
to retirement.
4.7 Termination for Other Reasons. Except as provided in Sections 4.6 and
4.8 or except as otherwise determined by the Committee, all Incentive Stock
Options shall terminate upon the termination of the Optionee's employment;
provided, however, that the Limited Rights awarded in tandem with such Incentive
Stock Options shall not terminate and such Limited Rights shall remain
exercisable during the Exercise Period for any Optionee whose employment
relationship with the Company has been terminated as a result of any Qualifying
Termination.
4.8 Death of Optionee. Any rights in respect of Incentive Stock Options
to the extent exercisable on the date of the Optionee's death may be exercised
by the Optionee's estate or by any person that acquires the legal right to
exercise such Stock Option by bequest, inheritance, or otherwise by reason of
the death of the Optionee. Any such exercise to be valid must occur within the
remaining option term of the Incentive Stock Option. The foregoing provisions
of this Section 4.8 shall apply to an Optionee who dies while employed by the
Company and to an Optionee whose employment may have terminated prior to death;
provided, however, that:
(a) an Optionee who dies while employed by the Company will be treated
as if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such
Incentive Stock Option by bequest or inheritance will have the right to
exercise the Incentive Stock Option in accordance with Section 4.6; or
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12
(b) the estate or a person who acquires the right to exercise a stock
option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Section 4.6 and 4.7.
4.9 Applicability of Stock Options Selections. Section 3.5, Manner of
Payment, Section 3.6, Issuance and Delivery of Shares, Section 3.10,
Acceleration of Options and Section 3.11, Effect of Exercise, applicable to
Stock Options, shall apply equally to Incentive Stock Options. Said Sections
are incorporated by reference in this Article IV as though fully set forth
herein.
ARTICLE V
Limited Rights
5.1 Award of Limited Rights. Concurrently with or subsequent to the award
of any Option, the Committee may, subject to the provisions of the Plan and such
other terms and conditions as the Committee may prescribe, award to the Optionee
with respect to each Option, a related limited right permitting the Optionee,
during a specified limited time period, to be paid the appreciation on the
Option in lieu of exercising the Option ("Limited Right").
5.2 Limited Rights Agreement. Limited Rights granted under the Plan shall
be evidenced by written agreements in such form as the Committee may from time
to time determine.
5.3 Exercise Period. Limited Rights are immediately exercisable in full
upon grant for a period of up to seven (7) months following the date of a Change
in Control (the "Exercise Period").
5.4 Amount of Payment. The amount of payment to which an Optionee shall
be entitled upon the exercise of each Limited Right shall be equal to 100% of
the amount, if any, which is equal to the difference between the Option Price of
the related Option and the Market Price of a share of such Common Stock. Market
Price is defined to be the greater of:
(a) the highest price per share of Common Stock paid in connection
with any Change in Control; and
(b) the highest price per share of Common Stock reflected in the
consolidated trading tables of The Wall Street Journal (presently the New
York Stock Exchange Composite Transactions quotations) during the 60-day
period prior to the Change in Control.
5.5 Form of Payment. Payment of the amount to which an Optionee is
entitled upon the exercise of Limited Rights, as determined pursuant to Section
5.4, shall be made solely in cash.
5.6 Effect of Exercise. If Limited Rights are exercised, the Stock
Options, if any, related to such Limited Rights cease to be exercisable to the
extent of the number of shares with respect to which the Limited Rights were
exercised. Upon the exercise or termination of the Options, if any, related to
such Limited Rights, the Limited Rights granted with respect thereto terminate
to the extent of the number of shares as to which the related Options were
exercised or terminated; provided, however, that with respect to Options that
are terminated as a result of the termination of the Optionee's employment
status, the Limited Rights awarded in tandem therewith shall not terminate and
such Limited Rights shall remain exercisable during the Exercise Period for any
Optionee whose employment relationship with the Company has been terminated as a
result of any Qualifying Termination.
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13
5.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of permanent disability or retirement (as each is
determined by the Committee), the Optionee may, within six (6) months from the
date of termination, exercise any Limited Rights to the extent such Limited
Right is exercisable during such six-month period.
5.8 Death of Optionee or Termination for Other Reasons. Except as provided
in Sections 5.7 and 5.9 or except as otherwise determined by the Committee, all
Limited Rights granted under the Plan shall terminate upon the termination of
the Optionee's employment or upon the death of the Optionee.
5.9 Termination Related to a Change in Control. The requirement that an
Optionee be terminated by reason of retirement or permanent disability or be
employed by the Company at the time of exercise pursuant to Sections 5.7 and 5.8
respectively, is waived during the Exercise Period as to any Optionee whose
employment relationship with the Company has been terminated as a result of any
Qualifying Termination.
ARTICLE VI
Common Stock Units
6.1 Award of Common Stock Units. The Committee, from time to time, and
subject to the provisions of the Plan, may grant to any Participant in the Plan
rights to receive shares of Common Stock which are subject to a risk of
forfeiture by the Participant ("Common Stock Units"). At the time it grants any
Common Stock Units, the Committee shall determine whether the payment of such
Common Stock Units shall be conditioned upon either:
(a) the Participant's continued employment with the Company throughout
a stated period (Section 6.4); or
(b) the attainment of certain predetermined performance objectives
during a stated period (Section 6.5).
The date Common Stock Units are granted shall mean the date selected by the
Committee as of which the Committee allots a specific number of Common Stock
Units to a Participant pursuant to the Plan.
6.2 Common Stock Unit Agreements. Common Stock Units granted under the
Plan shall be evidenced by written agreements stating the number of Common Stock
Units evidenced thereby or in such form and as the Committee may from time to
time determine.
6.3 Dividend Equivalents. A holder of Common Stock Units will be entitled
to receive payment from the Company in an amount equal to each cash dividend
("Dividend Equivalent") the Company would have paid to such holder had he, on
the record date for payment of such dividend, been the holder of record of
shares of Common Stock equal to the number of Common Stock Units which had been
awarded to such holder as of the close of business on such record date. The
Company shall establish a bookkeeping account on behalf of each Participant in
which the Dividend Equivalents that would have been paid to the holder of Common
Stock Units ("Dividend Equivalent Account") shall be credited. The Dividend
Equivalent Account will not bear interest.
6.4 Performance Period. Upon making an award, the Committee shall
determine (and the Common Stock Unit Agreement shall state) the length of the
applicable period during which employment must be maintained or certain
performance targets must be attained (the "Performance Period"). Performance
Periods will normally be from three (3) to five (5) years; however, the
Committee at its sole discretion may establish other time periods.
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14
6.5 Performance Goals. Common Stock Units and the related Dividend
Equivalent Account earned may be based upon the attainment of Performance Goals
established by the Committee in accordance with Section 162(m). Within the
first ninety (90) days of the Performance Period, the Committee shall establish,
in writing, the weighted Performance Goals and related Performance Factors for
various goal achievement levels for the Company. In establishing the weighted
Performance Goals, the Committee shall take the necessary steps to insure that
the Company's ability to achieve the preestablished goals is uncertain at the
time the goals are set. The established written Performance Goals, assigned
weights, and Performance Factors shall be written in terms of an objective
formula, whereby any third party having knowledge of the relevant Company
performance results could calculate the amount to be paid. Such Performance
Goals may vary by Participant and by grant.
The number of Common Stock Units and Dividend Equivalents earned will be
equal to the amounts awarded multiplied by the Performance Factor. However, the
Committee shall have the discretion, by Participant and by grant, to reduce (but
not to increase) some or all of the amount that would otherwise be payable by
reason of the satisfaction of the Performance Goals. In making any such
determination, the Committee is authorized to take into account any such factor
or factors it determines are appropriate, including but not limited to Company,
business unit and individual performance.
6.6 Payment of Common Stock Units and Dividend Equivalent Account. Payment
in respect of Common Stock Units earned (as determined under Sections 6.4 and
6.5) shall be made to the holder thereof within ninety (90) days after the
Performance Period for such units has ended, but only to the extent the
Committee determines that the continuing employment and/or any applicable
performance targets have been met.
Payment for Common Stock Units earned shall be made in shares of Common
Stock, except as provided in Section 6.9. The number of shares paid shall be
equal to the number of Common Stock Units earned. The holder may elect to
reduce this amount by the number of shares of Common Stock which have, on the
date the Common Stock Units are paid, a fair market value equal to the
applicable federal, state and local withholding tax due on the receipt of Common
Stock, in lieu of making a cash payment equal to the amount of such withholding
tax due.
A holder of Common Stock Units will be entitled to receive payment from the
Company at the end of the Performance Period an amount in cash equal to the
Dividend Equivalent Account earned (as determined under Sections 6.4 and 6.5) by
the holder minus applicable federal, state and local withholding tax due.
6.7 Death, Disability or Retirement. A portion of the Common Stock and the
Dividend Equivalent Account shall be forfeited upon the death of a Participant
or the termination of a Participant's employment by reason of retirement or
permanent disability (as each is determined by the Committee) prior to the end
of the Performance Period.
The number of Common Stock Units forfeited will be equal to the remaining
number of months in the Performance Period divided by the total number of months
in the Performance Period times the number of Common Stock Units outstanding and
will be rounded down to the next lowest whole amount. The Dividend Equivalent
account will be reduced in a similar fashion. The Common Stock Units and the
Dividend Equivalent Account retained will remain subject to adjustment for any
Performance Factors in accordance with Section 6.5.
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15
6.8 Termination of Employment. Except as provided in Sections 6.7 and 6.9,
or as determined by the Committee, 100% of all Common Stock Units of a
Participant under the Plan shall be forfeited and the Dividend Equivalent
Account shall be forfeited upon termination of the Participant's employment with
the Company prior to the end of the Performance Period, and in such event the
Participant shall not be entitled to receive any Common Stock or any payment of
the Dividend Equivalent Account regardless of the level of Performance Goals
achieved for the respective Performance Periods.
6.9 Change in Control. In the event of a Change in Control, all the
Participant's outstanding Common Stock Units shall be payable to the Participant
in cash or stock, as follows:
(a) if pooling of interests accounting treatment is to be used with
respect to such Change in Control, the Participant will receive shares of
Common Stock equal in number to the total number of Common Stock Units
granted to such Participant; or
(b) if pooling of interests accounting treatment is not to be used
with respect to such Change in Control, the Participant will be paid an
amount in cash equal to the number of Common Stock Units outstanding
multiplied by the Market Price as defined in Section 5.4. Such amount will
be reduced by the applicable federal, state and local withholding taxes
due.
The cash or stock, as the case may be, shall be paid out to the Participant
no later than ninety (90) days following the date of occurrence of such Change
in Control (the "CSU Payout Date"), regardless of whether the applicable
Performance Period has expired or whether performance targets have been met.
There will be no adjustment for any Performance Factors described in Section
6.5.
On or before the CSU Payout Date, and regardless of whether pooling of
interests accounting treatment is to be used with respect to such Change in
Control, the Participant will be paid an amount in cash equal to the value of
the amounts accrued in the Participant's Dividend Equivalent Account immediately
preceding the Change in Control. Payout of Common Stock Units and the Dividend
Equivalent Account shall be made to each Participant:
(c) who is employed by the Company on the CSU Payout Date; or
(d) whose employment relationship with the Company is terminated:
(1) as a result of any Qualifying Termination prior to the CSU
Payout Date; or
(2) as a result of death or Disability following the occurrence
of any Change in Control but prior to the CSU Payout Date.
The Committee may establish, at the time of the grant of Common Stock
Units, other conditions which must be met for payout to occur. These conditions
shall be set forth in the Committee's resolution granting the Common Stock Units
and in the Agreement with the holder.
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16
ARTICLE VII
Miscellaneous
7.1 General Restriction. Each award under the Plan shall be subject to the
requirement that if, at any time, the Committee shall determine that:
(a) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any
state or Federal law; or,
(b) the consent or approval of any government regulatory body; or
(c) an agreement by the recipient of an award with respect to the
disposition of shares of Common Stock,
is necessary or desirable as a condition of, or in connection with, the granting
of such award or the issue or purchase of shares of Common Stock thereunder,
then such award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee.
7.2 Accounting and Tax Treatment for Change in Control. Notwithstanding
anything in this Plan to the contrary, in the event of a Change in Control, the
Committee shall not have the right to take any actions described in the Plan
that would make the Change in Control ineligible for pooling of interests
accounting treatment or that would make the Change in Control ineligible for
desired tax treatment if, in the absence of such right, the Change in Control
would qualify for such treatment and the Company intends to use such treatment
with respect to the Change in Control.
7.3 Non-Assignability. Awards under the Plan shall not be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution except as otherwise determined by the Committee. Accordingly,
during the life of the recipient, such award shall be exercisable only by such
person or by such person's guardian or legal representative, unless the
Committee determines otherwise.
7.4 Right to Terminate Employment. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any Participant the right to
continue in the employment of the Company or effect any right which the Company
may have to terminate the employment of such Participant.
7.5 Non-Uniform Determinations. The Committee's determinations under the
Plan (including without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards, and the agreements evidencing same) need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan, whether or not such persons are similarly situated.
7.6 Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued on behalf of such recipient.
7.7 Leaves of Absence. The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in respect
of any leave of absence taken by the recipient of any
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17
award. Without limiting the generality of the foregoing, the Committee shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on awards under the Plan
theretofore made to any recipient who takes such leaves of absence.
7.8 Newly Eligible Employees. The Committee shall be entitled to make such
rules, regulations, determinations and awards as it deems appropriate in respect
of any employee who becomes eligible to participate in the Plan or any portion
thereof after the commencement of an award or incentive period.
7.9 Adjustments. In any event of any change in the outstanding Common
Stock by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, the Option Price of Options
theretofore granted under the Plan, the number of Common Stock Units theretofore
awarded under the Plan and any and all other matters deemed appropriate by the
Committee.
7.10 Amendment of the Plan.
(a) The Committee may, without further action by the shareholders and
without receiving further consideration from the Participants, amend this
Plan or condition or modify awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time, and from time to time, modify or
amend the Plan in any respect, except that without shareholder approval the
Committee may not:
(1) increase the maximum award levels established in Section 2.7,
including the maximum number of shares of Common Stock which may be
issued under the Plan (other than increases pursuant to Section 7.9);
(2) extend the term during which an Option may be exercised
beyond ten years from the date of grant; or
(3) extend the term of the Plan, except that the Board may extend
the period during which awards may be made in accordance with Section
2.3.
The termination or any modification or amendment of the Plan, except as
provided in Section 7.10(a) above, shall not without the consent of a
Participant, affect the Participant's rights under an award previously granted.
<PAGE>
Exhibit 10.2
========================================================================
SUN COMPANY, INC.
EXECUTIVE LONG-TERM STOCK INVESTMENT PLAN
(Amended and Restated as of December 3, 1997)
========================================================================
<PAGE>
2
ARTICLE I
Definitions
As used in this Plan, the following terms shall have the meanings herein
specified:
1.1 Affiliate - shall mean any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with Sun Company, Inc.
1.2 Alternate Appreciation Rights - shall have the meaning provided herein
at Section 6.1.
1.3 Board of Directors - shall mean the Board of Directors of Sun Company,
Inc.
1.4 Change in Control - shall mean the occurrence of any of the following
events or transactions:
(a) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of Sun
Company, Inc. (or of the Board of Directors of any successor to Sun
Company, Inc. or to all or substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that result in such entity,
person or Group directly or indirectly owning beneficially more than twenty
percent (20%) of the outstanding voting shares.
1.5 Code - shall mean the Internal Revenue Code of 1986, as amended.
1.6 Committee - shall mean the committee appointed to administer this Plan
by the Board of Directors of the Company, as constituted from time to time. The
Committee shall consist of at least two (2) members of the Board of Directors,
each of whom shall meet applicable requirements set forth in the pertinent
regulations under Section 16 of the Securities Exchange Act of 1934, as amended,
and Section 162(m) of the Code.
1.7 Common Stock - shall mean the authorized and unissued or treasury
shares of common stock of Sun Company, Inc.
1.8 Common Stock Units - shall have the meaning provided herein at Section
8.1.
1.9 Company - shall mean Sun Company, Inc., a Pennsylvania corporation.
The term "Company" shall include any successor to Sun Company, Inc., any
Subsidiary or Affiliate which has adopted the Plan, or a corporation succeeding
to the business of Sun Company, Inc., or any Subsidiary or Affiliate by merger,
consolidation, liquidation or purchase of assets or stock or similar
transaction.
1.10 Continuing Director - shall mean a Director who was a member of the
Board of Directors immediately prior to a Control Transaction which results in a
Change in Control.
1.11 Control Transaction - shall mean any of the following transactions or
any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun
Company, Inc.;
<PAGE>
3
(b) any merger, consolidation, or sale of all or substantially all of
the assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or a Group of shareholders
in a proxy solicitation or otherwise.
1.12 CSU Payout Date - shall have the meaning provided herein at Section
8.9.
1.13 Disability - shall mean any illness, injury or incapacity of such
duration and type as to render a Participant eligible to receive long-term
disability benefits under the applicable broad-based long-term disability
program of the Company.
1.14 Dividend Equivalents - shall have the meaning provided herein at
Section 8.3.
1.15 Dividend Equivalent Account - shall have the meaning provided herein
at Section 8.3.
1.16 Employment Termination Date - shall mean the date on which the
employment relationship between the Participant and the Company is terminated.
1.17 Exercise Period - shall have the meaning provided herein at Section
7.3.
1.18 Fair Market Value - shall mean, as of any date and in respect of any
share of Common Stock, the opening price on such date of a share of Common Stock
(which price shall be the closing price on the previous trading day of a share
of Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape, and as reflected in the consolidated trading tables of the
Wall Street Journal or any other publication selected by the Committee). If
there is no sale of shares of Common Stock on the New York Stock Exchange for
more than ten (10) days immediately preceding such date, or if deemed
appropriate by the Committee for any other reason, the fair market value of the
shares of Common Stock shall be as determined by the Committee in such other
manner as it may deem appropriate. In no event shall the fair market value of
any share of Common Stock be less than its par value.
1.19 Group - shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
1.20 Incentive Stock Options - shall have the meaning provided herein at
Article IV.
1.21 Just Cause - shall mean:
(a) a judicial determination that the Participant has committed fraud,
misappropriation, or embezzlement against the Company; or
(b) a non-appealable conviction of, or entry of a plea of nolo
contendere for, an act by the Participant constituting a felony which, as
determined by the Company in good faith, constitutes a crime involving
moral turpitude and has resulted in material harm to the Company, its
subsidiaries and affiliates taken as a whole.
<PAGE>
4
No termination of employment shall be deemed an effective termination
for Just Cause unless accompanied by a copy of a resolution duly adopted by
the affirmative vote of not less a majority of the Continuing Directors at
a meeting of the Board of Directors which was called and held for the
purpose of considering such termination, or if there are no Continuing
Directors, then by at least three quarters (3/4) of the entire Board of
Directors (after reasonable notice to the Participant and an opportunity
for the Participant, together with the Participant's counsel, to be heard
before the Board of Directors) finding that, in the good faith opinion of
the Board of Directors, the Participant was guilty of conduct set forth in
the preceding sentence, and specifying the particulars thereof in detail.
In any deliberations or votes by the Board of Directors concerning a
determination under this Section, the Participant shall recuse himself from
such deliberations and votes.
1.22 Limited Rights - shall have the meaning provided herein at Article
VII.
1.23 Market Price - shall have the meaning provided herein at Section 7.4.
1.24 Option - shall mean Stock Option, Incentive Stock Option and/or Reload
Option.
1.25 Option Price - shall mean the purchase price per share of Common Stock
deliverable upon the exercise of an Option.
1.26 Optionee - shall mean the holder of an Option.
1.27 Participant - shall have the meaning provided herein at Section
2.4(a).
1.28 Performance Factors - shall mean the various payout percentages
related to the attainment levels of one or more Performance Goals, as determined
by the Committee.
1.29 Performance Goals - shall mean the specific targeted amounts of, or
changes in, financial or operating goals including: revenues; expenses; net
income; operating income; equity; return on equity, assets or capital employed;
working capital; shareholder return; operating capacity utilized; production or
sales volumes; or throughput. Other financial or operating goals may also be
used as determined by the Committee. Such goals may be applicable to the
Company as a whole or one or more of its business units and may be applied in
total or on a per share, per barrel or percentage basis and on an absolute basis
or relative to other companies, industries or indices or any combination
thereof, as determined by the Committee.
1.30 Performance Period - shall have the meaning provided herein at Section
8.4.
1.31 Potential Change in Control - shall mean the occurrence of any of the
following events or transactions:
(a) any person (other than Sun Company, Inc., or any affiliate or
subsidiary thereof) makes a tender offer for capital stock of Sun Company,
Inc.;
<PAGE>
5
(b) any person becomes the beneficial owner, directly or indirectly,
of capital stock of Sun Company, Inc. in an amount which requires the
filing of Schedule 13D or its equivalent form pursuant to the Rules and
Regulations under the Securities Exchange Act of 1934 as from time to time
amended;
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or Group of shareholders in
a proxy solicitation or otherwise which, in its judgment, the Board of
Directors determines by adoption of a resolution within thirty (30) days of
such submission, might result in a Change in Control of Sun Company, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sun Company, Inc. pursuant to the Hart-Scott-Rodino Act;
or
(e) the Board of Directors in its judgment determines by adoption of a
resolution that a Potential Change in Control of Sun Company, Inc. for
purposes of this Plan has occurred.
1.32 Qualifying Termination - shall mean, with respect to the employment of
any Participant, the following:
(a) a termination of employment by the Company within seven (7) months
after a Change in Control, other than for Just Cause, death or Disability;
(b) a termination of employment by the Participant within seven (7)
months after a Change in Control for one or more of the following reasons:
(1) the assignment to such Participant of any duties inconsistent
in a way adverse to such Participant, with such Participant's
positions, duties, responsibilities and status with the Company
immediately prior to the Change in Control, or a reduction in the
duties and responsibilities held by the Participant immediately prior
to the Change in Control; a change in the Participant's reporting
responsibilities, title or offices as in effect immediately prior to
the Change in Control that is adverse to the Participant; or any
removal of the Participant from or any failure to re-elect the
Participant to any position with the Company that such Participant
held immediately prior to the Change in Control except in connection
with such Participant's:
(i) assignment to a new position at a higher combined annual
base salary and guideline (target) bonus; or
(ii) termination of employment by the Company for Just
Cause; or
(2) with respect to any Participant who is a member of the Board
of Directors immediately prior to the Change in Control, any failure
of the shareholders of the Company to elect or reelect, or of the
Company to appoint or reappoint, the Participant as a member of the
Board of Directors;
<PAGE>
6
(3) a reduction by the Company in either of the Participant's
annual base salary or guideline (target) bonus as in effect
immediately prior to the Change in Control; the failure by the Company
to continue in effect, or the taking of any action by the Company that
would adversely affect such Participant's participation in or
significantly reduce such Participant's benefits under, any employee
benefit plan or compensation plan in which such Participant was
participating immediately prior to the Change in Control, provided,
however, that in the aggregate such actions by the Company
significantly reduce the Participant's total compensation (i.e., the
sum of Participant's annual base salary, guideline (target) bonus, and
the aggregate value to the Participant of all employee benefit and
compensation plans); or the failure by the Company, without the
Participant's consent, to pay to the Participant any portion of the
Participant's current compensation, or to pay to the Participant any
portion of an installment of deferred compensation under any deferred
compensation program of the Company; or
(4) The Company requires the Participant to be based anywhere
other than the Participant's present work location or a location
within thirty-five (35) miles from the present location; or the
Company requires the Participant to travel on Company business to an
extent substantially more burdensome than such Participant's travel
obligations during the period of twelve (12) consecutive months
immediately preceding the Change in Control;
provided, however, that in the case of any such termination of employment
by the Participant under this subparagraph (b), such termination shall not
be deemed to be a Qualifying Termination unless the termination occurs
within 120 days after the occurrence of the event or events constituting
the reason for the termination; or
(c) a termination of employment by the Company other than a
termination for Just Cause, or a termination of employment by the
Participant for one of the reasons set forth in (b) above, following a
Potential Change in Control, if the Participant can demonstrate that such
termination or circumstance in (b) above leading to termination:
(1) was at the request of a third party with which the Company
had entered into negotiations or an agreement with regard to a Change
in Control; or
(2) otherwise occurred in connection with, or in anticipation of,
a Change in Control;
provided, however, that in either such case, such Change in Control
actually occurs within one (1) year following the Employment Termination
Date.
1.33 Reload Options - shall have the meaning provided herein at Section
5.1.
1.34 Stock Options - shall have the meaning provided herein at Section 3.1.
<PAGE>
7
1.35 Subsidiary - shall mean any corporation of which, at the time more
than fifty percent (50%) of the shares entitled to vote generally in an election
of directors are owned directly or indirectly by Sun Company, Inc. or any
subsidiary thereof.
ARTICLE II
Background, Purpose and Term of Plan; Participation
& Eligibility for Benefits
2.1 Background. Effective on December 31, 1991, no further awards shall be
made under the Sun Company, Inc. Long-Term Incentive Plan adopted in June, 1986;
provided, however, that any rights theretofore granted under that plan shall not
be affected.
2.2 Purpose of the Plan. The purposes of this Sun Company, Inc. Long-Term
Performance Enhancement Plan (the "Plan") are to:
(a) better align the interests of shareholders and management of the
Company by creating a direct linkage between Participants' rewards and
shareholders' gains;
(b) provide management with an equity ownership in Sun Company, Inc.
commensurate with Company performance, as reflected in increased
shareholder value;
(c) maintain competitive compensation levels; and
(d) provide an incentive to management for continuous employment with
the Company.
It is intended that most awards made under the Plan will qualify as
performance-based compensation under Section 162(m) of the Code.
2.3 Term of the Plan. This Plan became effective upon approval by the
holders of a majority of the votes present, in person or represented by proxy,
at the 1991 Annual Meeting of Shareholders of Sun Company, Inc. No awards will
be made under the Plan after December 31, 1996. The Plan and all awards made
under the Plan prior to such date shall remain in effect until such awards have
been satisfied or terminated in accordance with the Plan and the terms of such
awards.
2.4 Administration. The Plan shall be administered by the Committee which
shall have the authority, in its sole discretion and from time to time to:
(a) designate the employees or classes of employees eligible to
participate in the Plan (each such employee being, a "Participant");
(b) grant awards provided in the Plan in such form and amount as the
Committee shall determine;
(c) impose such limitations, restrictions and conditions upon any such
award as the Committee shall deem appropriate; and
(d) interpret the Plan, adopt, amend and rescind rules and regulations
relating to the Plan, and make all other determinations and take all other
action necessary or advisable for the implementation and administration of
the Plan.
<PAGE>
8
The decisions and determinations of the Committee on all matters relating
to the Plan shall be in its sole discretion and shall be conclusive. No member
of the Committee shall be liable for any action taken or not taken or decision
made or not made in good faith relating to the Plan or any award thereunder.
2.5 Eligibility for Participation. Participants in the Plan shall be the
officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making a
substantial contribution to the success of the Company. In making this
selection and in determining the amount of awards, the Committee shall consider
any factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company and past and potential
contributions to its profitability and sound growth.
2.6 Types of Awards Under the Plan. Awards under the Plan may be in the
form of any one or more of the following:
(a) Stock Options, as described in Article III;
(b) Incentive Stock Options, as described in Article IV;
(c) Reload Options, as described in Article V;
(d) Alternate Appreciation Rights, as described in Article VI;
(e) Limited Rights, as described in Article VII; and/or
(f) Common Stock Units, as described in Article VIII.
2.7 Aggregate Limitation on Awards. Shares of stock which may be issued
under the Plan shall be Common Stock. The maximum number of shares of Common
Stock which may be issued under the Plan shall be 5.8 million. For purposes of
calculating the maximum number of shares of Common Stock which may be issued
under the Plan:
(a) all the shares issued (including the shares, if any, withheld for
tax withholding requirements) shall be counted when cash is used as full
payment for shares issued upon exercise of an Option;
(b) only the shares issued (including the shares, if any, withheld for
tax withholding requirements) as a result of an exercise of Alternate
Appreciation Rights shall be counted;
(c) only the shares issued (including the shares, if any, withheld for
tax withholding requirements) net of shares of Common Stock used as full or
partial payment for such shares upon exercise of an Option; and
(d) only the shares issued (including the shares, if any, withheld for
tax withholding) upon vesting and payment of the Common Stock Units, shall
be counted.
<PAGE>
9
In addition to shares of Common Stock actually issued pursuant to the
exercise of Options, there shall be deemed to have been issued a number of
shares equal to the number of shares of Common Stock in respect of which Limited
Rights (as described in Article VII) shall have been exercised. Shares tendered
by a Participant as payment for shares issued upon exercise of an Option, shall
be available for issuance under the Plan. Any shares of Common Stock subject to
an Option, which for any reason is terminated unexercised or expires shall again
be available for issuance under the Plan, but shares subject to an Option which
are not issued as a result of the exercise of Limited Rights shall not be
available for issuance under the Plan.
ARTICLE III
Stock Options
3.1 Award of Stock Options. The Committee, from time to time, and subject
to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, may grant to any Participant in the Plan one or more
options to purchase for cash or shares the number of shares of Common Stock
("Stock Options") allotted by the Committee. The date a Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of options to a Participant pursuant to the Plan.
3.2 Stock Option Agreements. The grant of a Stock Option shall be
evidenced by a written Stock Option Agreement, executed by the Company and the
holder of a Stock Option, stating the number of shares of Common Stock subject
to the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.
3.3 Stock Option Price. The Option Price per share of Common Stock
deliverable upon the exercise of a Stock Option shall be not less than 100% of
the Fair Market Value of a share of Common Stock on the date the Stock Option is
granted.
3.4 Term and Exercise. Each Stock Option shall be fully exercisable six
(6) months from the date of its grant or such longer period as the Committee
shall determine in its discretion and, unless a shorter period is provided by
the Committee or by another Section of this Plan, may be exercised during a
period of ten (10) years from the date of grant thereof. No Stock Option shall
be exercisable after the tenth anniversary of the date of its grant.
3.5 Manner of Payment. Each Stock Option Agreement shall set forth the
procedure governing the exercise of the Stock Option granted thereunder, and
shall provide that, upon such exercise in respect of any shares of Common Stock
subject thereto, the Optionee shall pay to the Company, in full, the Option
Price for such shares with cash or with Common Stock. All shares of Common
Stock issued under the Sun Company, Inc. Long-Term Incentive Plan, this Plan, or
any similar executive stock option plan must be held at least six (6) months
before they may be used as payment of the Option Price.
3.6 Issuance and Delivery of Shares. As soon as practicable after receipt
of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
shareholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a shareholder.
<PAGE>
10
3.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of retirement or Disability (as each is determined by the
Committee), the Optionee may, within sixty (60) months from the date of
termination, exercise any Stock Options to the extent such options are
exercisable during such 60-month period.
3.8 Termination for Other Reasons. Except as provided in Sections 3.7 and
3.9, or except as otherwise determined by the Committee, all Stock Options shall
terminate upon the termination of the Optionee's employment; provided, however,
that the Limited Rights awarded in tandem with such Stock Options shall not
terminate and such Limited Rights shall remain exercisable during the Exercise
Period for any Optionee whose employment relationship with the Company has been
terminated as a result of any Qualifying Termination.
3.9 Death of Optionee. Any rights in respect of Stock Options to the
extent exercisable on the date of the Optionee's death may be exercised by the
Optionee's estate or by any person that acquires the legal right to exercise
such Stock Option by bequest, inheritance, or otherwise by reason of the death
of the Optionee. Any such exercise to be valid must occur within the remaining
option term of the Stock Option. The foregoing provisions of this Section 3.9
shall apply to an Optionee who dies while employed by the Company and to an
Optionee whose employment may have terminated prior to death; provided, however,
that:
(a) an Optionee who dies while employed by the Company will be treated
as if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such Stock
Option by bequest or inheritance will have the right to exercise the Stock
Option in accordance with Section 3.7; or
(b) the estate or a person who acquires the right to exercise a Stock
Option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Sections 3.7 and 3.8.
3.10 Acceleration of Options. Notwithstanding any provisions to the
contrary in agreements evidencing Options granted thereunder, each outstanding
Option shall become immediately and fully exercisable upon the occurrence of any
Change in Control of Sun Company, Inc.
3.11 Effect of Exercise. The exercise of any Stock Options shall cancel
that number of related Limited Rights, if any, which is equal to the number of
shares of Common Stock purchased pursuant to said options.
ARTICLE IV
Incentive Stock Options
4.1 Award of Incentive Stock Options. The Committee, from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any Participant in the Plan one or more
incentive stock options ("Incentive Stock Options") (intended to qualify as such
under the provisions of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")) to purchase for cash or shares the number of shares of
Common Stock allotted by the Committee. The date an Incentive Stock Option is
granted shall mean the date selected by the Committee as of which the Committee
allots a specific number of options to a Participant pursuant to the Plan.
Notwithstanding the foregoing, Incentive Stock Options shall not be granted to
any owner of ten percent (10%) or more of the total combined voting power of the
Company and its subsidiaries.
<PAGE>
11
4.2 Incentive Stock Option Agreements. The grant of an Incentive Stock
Option shall be evidenced by a written Incentive Stock Option Agreement,
executed by the Company and the holder of an Incentive Stock Option stating the
number of shares of Common Stock subject to the Incentive Stock Option evidenced
thereby, and in such form as the Committee may from time to time determine.
4.3 Incentive Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of an Incentive Stock Option shall not be
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Incentive Stock Option is granted.
4.4 Term and Exercise. Each Incentive Stock Option shall be fully
exercisable six (6) months from the date of its grant and unless a shorter
period is provided by the Committee or another Section of this Plan, may be
exercised during a period of ten (10) years from the date of grant thereof. No
Incentive Stock Option shall be exercisable after the tenth anniversary of the
date of its grant.
4.5 Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, if the aggregate Fair Market Value of the stock on the date of
grant with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year, under this Plan or any other
stock option plan of the Company exceeds One Hundred Thousand Dollars
($100,00.00), then the option, as to the excess shall be treated as a non-
qualified stock option. An Incentive Stock Option shall not be granted to any
person who is not an "employee" of the Company (within the meaning of Section
424(f) of the Code).
4.6 Retirement or Disability. Upon the termination of the Optionee's
employment by reason of retirement or Disability (as each is determined by the
Committee), the Optionee may, within sixty (60) months from the date of such
termination of employment, exercise any Incentive Stock Options to the extent
such Incentive Stock Options are exercisable during such 60-month period.
Notwithstanding the foregoing, the tax treatment available pursuant to Section
422 of the Internal Revenue Code of 1986 upon the exercise of an Incentive Stock
Option will not be available to an Optionee who exercises any Incentive Stock
Option more than:
(a) twelve (12) months after the date of termination of employment due
to Disability; or
(b) three (3) months after the date of termination of employment due
to retirement.
4.7 Termination for Other Reasons. Except as provided in Sections 4.6 and
4.8 or except as otherwise determined by the Committee, all Incentive Stock
Options shall terminate upon the termination of the Optionee's employment;
provided, however, that the Limited Rights awarded in tandem with such Incentive
Stock Options shall not terminate and such Limited Rights shall remain
exercisable during the Exercise Period for any Optionee whose employment
relationship with the Company has been terminated as a result of any Qualifying
Termination.
<PAGE>
12
4.8 Death of Optionee. Any rights in respect of Incentive Stock Options
to the extent exercisable on the date of the Optionee's death may be exercised
by the Optionee's estate or by any person that acquires the legal right to
exercise such Stock Option by bequest, inheritance, or otherwise by reason of
the death of the Optionee. Any such exercise to be valid must occur within the
remaining option term of the Incentive Stock Option. The foregoing provisions
of this Section 4.8 shall apply to an Optionee who dies while employed by the
Company and to an Optionee whose employment may have terminated prior to death;
provided, however, that:
(a) an Optionee who dies while employed by the Company will be treated
as if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such
Incentive Stock Option by bequest or inheritance will have the right to
exercise the Incentive Stock Option in accordance with Section 4.6; or
(b) the estate or a person who acquires the right to exercise a Stock
Option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Section 4.6 and 4.7.
4.9 Applicability of Stock Options Selections. The following Sections
of this Plan that apply to Stock Options shall apply equally to Incentive Stock
Options:
(a) Section 3.5 (Manner of Payment);
(b) Section 3.6 (Issuance and Delivery of Shares);
(c) Section 3.10 (Acceleration of Options); and
(d) Section 3.11 (Effect of Exercise).
Said Sections are incorporated by reference in this Article IV as though
fully set forth herein.
ARTICLE V
Reload Options
5.1 Authorization of Reload Options. Concurrently with the award of Stock
Options and/or the award of Incentive Stock Options to any Participant in the
Plan, the Committee may authorize reload options ("Reload Options") to purchase
for cash or shares a number of shares of Common Stock. The number of Reload
Options shall equal:
(a) the number of shares of Common Stock used to exercise the
underlying Stock Options or Incentive Stock Options; and
(b) to the extent authorized by the Committee, the number of shares of
Common Stock used to satisfy any tax withholding requirement incident to
the exercise of the underlying Stock Options or Incentive Stock Options.
The grant of a Reload Option will be effected upon the exercise of
underlying Stock Options, Incentive Stock Options or Reload Options through the
use of shares of Common Stock held by the Optionee for at least twelve (12)
months. Notwithstanding the fact that the underlying Option may be an Incentive
Stock Option, a Reload Option is not intended to qualify as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986.
<PAGE>
13
5.2 Reload Option Amendment. Each Stock Option Agreement and Incentive
Stock Option Agreement shall state whether the Committee has authorized Reload
Options with respect to the underlying Stock Options and/or Incentive Stock
Options. Upon the exercise of an underlying Stock Option, Incentive Stock
Option or other Reload Option, the Reload Option will be evidenced by an
amendment to the underlying Stock Option Agreement or Incentive Stock Option
Agreement.
5.3 Reload Option Price. The Option Price per share of Common Stock
deliverable upon the exercise of a Reload Option shall be the Fair Market Value
of a share of Common Stock on the date of grant of the Reload Option.
5.4 Term and Exercise. Each Reload Option is fully exercisable six (6)
months from the effective date of grant. The term of each Reload Option shall
be equal to the remaining option term of the underlying Stock Option and/or
Incentive Stock Option. No additional Reload Options may be authorized in
connection with the award of Stock Options or Incentive Stock Options on or
after October 1, 1996.
5.5 Termination of Employment. No additional Reload Options shall be
granted to an Optionee when Stock Options, Incentive Stock Options and/or Reload
Options are exercised pursuant to the terms of this Plan following termination
of such Optionee's employment.
5.6 Applicability of Stock Options Sections. The following Sections of
this Plan that apply to Stock Options shall apply equally to Reload Options :
(a) Section 3.5 (Manner of Payment);
(b) Section 3.6 (Issuance and Delivery of Shares);
(c) Section 3.7 (Retirement or Disability);
(d) Section 3.8 (Termination for Other Reasons);
(e) Section 3.9 (Death of Optionee); and
(f) Section 3.11 (Effect of Exercise).
Said Sections are incorporated by reference in this Article V as though
fully set forth herein.
ARTICLE VI
Alternate Appreciation Rights
6.1 Award of Alternate Appreciation Rights. Concurrently with or
subsequent to the award of any Stock Option, Incentive Stock Option or Reload
Option to purchase one or more shares of Common Stock, the Committee may,
subject to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each share of
Common Stock, a related stock appreciation right ("Alternate Appreciation
Right"), permitting the Optionee to be paid the appreciation on the Option in
lieu of exercising the Option.
6.2 Alternate Appreciation Rights Agreement. Alternate Appreciation
Rights shall be evidenced by written agreements in such form as the Committee
may from time to time determine.
<PAGE>
14
6.3 Exercise. An Optionee who has been granted Alternate Appreciation
Rights may, from time to time, in lieu of the exercise of an equal number of
Options, elect to exercise one or more Alternate Appreciation Rights and thereby
become entitled to receive from the Company payment in Common Stock the number
of shares determined pursuant to Sections 6.4 and 6.5 hereof. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Options related thereto are exercisable, as provided
in this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
6.4 Amount of Payment. The amount of payment to which an Optionee shall
be entitled upon the exercise of each Alternate Appreciation Right shall be
equal to 100% of the amount, if any, by which the Fair Market Value of a share
of Common Stock on the exercise date exceeds the Fair Market Value of a share of
Common Stock on the date the Option related to said Alternate Appreciation Right
was granted.
6.5 Form of Payment. The number of shares to be paid shall be determined
by dividing the amount of payment determined pursuant to Section 6.4 by the Fair
Market Value of a share of Common Stock on the exercise date of such Alternate
Appreciation Rights. As soon as practicable after exercise, the Company shall
deliver to the Optionee a certificate or certificates for such shares of Common
Stock. All such shares shall be issued with the rights and restrictions
specified in Section 3.6 of this Plan.
6.6 Effect of Exercise. The exercise of any Alternate Appreciation Rights
shall cancel an equal number of Stock Options, Incentive Stock Options, Reload
Options and Limited Rights, if any, related to said Alternate Appreciation
Rights.
6.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of retirement or Disability (as each is determined by the
Committee), the Optionee may, within six (6) months from the date of such
termination, exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such six-month period.
6.8 Death of Optionee or Termination for Other Reasons. Except as
provided in Section 6.7, or except as otherwise determined by the Committee, all
Alternate Appreciation Rights shall terminate upon the termination of the
Optionee's employment or upon the death of the Optionee.
ARTICLE VII
Limited Rights
7.1 Award of Limited Rights. Concurrently with or subsequent to the award
of any Option, the Committee may, subject to the provisions of the Plan and such
other terms and conditions as the Committee may prescribe, award to the Optionee
with respect to each Option, a related limited right permitting the Optionee,
during a specified limited time period, to be paid the appreciation on the
Option in lieu of exercising the Option ("Limited Right").
7.2 Limited Rights Agreement. Limited Rights granted under the Plan shall
be evidenced by written agreements in such form as the Committee may from time
to time determine.
<PAGE>
15
7.3 Exercise Period. Limited Rights are immediately exercisable in full
upon grant for a period of up to seven (7) months following the date of a Change
in Control (the "Exercise Period").
7.4 Amount of Payment. The amount of payment to which an Optionee shall
be entitled upon the exercise of each Limited Right shall be equal to 100% of
the amount, if any, which is equal to the difference between the Option Price of
the related Option and the Market Price of a share of such Common Stock. Market
Price is defined to be the greater of:
(a) the highest price per share of Common Stock paid in connection
with any Change in Control; and
(b) the highest price per share of Common Stock reflected in the
consolidated trading tables of The Wall Street Journal (presently the New
York Stock Exchange Composite Transactions quotations) during the 60-day
period prior to the Change in Control.
7.5 Form of Payment. Payment of the amount to which an Optionee is
entitled upon the exercise of Limited Rights, as determined pursuant to Section
7.4, shall be made solely in cash.
7.6 Effect of Exercise. If Limited Rights are exercised, the Options and
Alternate Appreciation Rights, if any, related to such Limited Rights cease to
be exercisable to the extent of the number of shares with respect to which the
Limited Rights were exercised. Upon the exercise or termination of the Options
and Alternate Appreciation Rights, if any, related to such Limited Rights, the
Limited Rights granted with respect thereto terminate to the extent of the
number of shares as to which the related Options and/or Alternate Appreciation
Rights were exercised or terminated; provided, however, that with respect to
Options and/or Alternate Appreciation Rights that are terminated as a result of
the termination of the Optionee's employment status, the Limited Rights awarded
in tandem therewith shall not terminate and such Limited Rights shall remain
exercisable during the Exercise Period for any Optionee whose employment
relationship with the Company has been terminated as a result of any Qualifying
Termination.
7.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of Disability or retirement (as each is determined by the
Committee), the Optionee may, within six (6) months from the date of
termination, exercise any Limited Rights to the extent such Limited Right is
exercisable during such six-month period.
7.8 Death of Optionee or Termination for Other Reasons. Except as
provided in Sections 7.7 and 7.9 or except as otherwise determined by the
Committee, all Limited Rights granted under the Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the Optionee.
7.9 Termination Related to a Change in Control. The requirement that an
Optionee be terminated by reason of retirement or Disability or be employed by
the Company at the time of exercise pursuant to Sections 7.7 and 7.8
respectively, is waived during the Exercise Period as to any Optionee whose
employment relationship with the Company has been terminated as a result of any
Qualifying Termination.
<PAGE>
16
ARTICLE VIII
Common Stock Units
8.1 Award of Common Stock Units. The Committee, from time to time, and
subject to the provisions of the Plan, may grant to any Participant in the Plan
rights to receive shares of Common Stock which are subject to a risk of
forfeiture by the Participant ("Common Stock Units"). At the time it grants any
Common Stock Units, the Committee shall determine whether the payment of such
Common Stock Units shall be conditioned upon either:
(a) the Participant's continued employment with the Company throughout
a stated period (Section 8.4); or
(b) the attainment of certain predetermined performance objectives
during a stated period (Section 8.5).
The date Common Stock Units are granted shall mean the date selected by the
Committee as of which the Committee allots a specific number of Common Stock
Units to a Participant pursuant to the Plan.
8.2 Common Stock Unit Agreements. Common Stock Units granted under the
Plan shall be evidenced by written agreements stating the number of Common Stock
Units evidenced thereby or in such form and as the Committee may from time to
time determine.
8.3 Dividend Equivalents. A holder of Common Stock Units will be entitled
to receive payment from the Company in an amount equal to each cash dividend
("Dividend Equivalent") the Company would have paid to such holder had he, on
the record date for payment of such dividend, been the holder of record of
shares of Common Stock equal to the number of Common Stock Units which had been
awarded to such holder as of the close of business on such record date. The
Company shall establish a bookkeeping account on behalf of each Participant in
which the Dividend Equivalents that would have been paid to the holder of Common
Stock Units ("Dividend Equivalent Account") shall be credited. The Dividend
Equivalent Account will not bear interest.
8.4 Performance Period. Upon making an award, the Committee shall
determine (and the Common Stock Unit Agreement shall state) the length of the
applicable period during which employment must be maintained or certain
performance targets must be attained (the "Performance Period"). Performance
Periods will normally be from three to five years; provided, however, the
Committee at its sole discretion may establish other time periods.
8.5 Performance Goals. Common Stock Units and the related Dividend
Equivalent Account earned may be based upon the attainment of Performance Goals
established by the Committee in accordance with Section 162(m). Within the
first ninety (90) days of the Performance Period, the Committee shall establish,
in writing, the weighted Performance Goals and related Performance Factors for
various goal achievement levels for the Company. In establishing the weighted
Performance Goals, the Committee shall take the necessary steps to insure that
the Company's ability to achieve the pre-established goals is uncertain at the
time the goals are set. The established written Performance Goals, assigned
weights, and Performance Factors shall be written in terms of an objective
formula, whereby any third party having knowledge of the relevant Company
performance results could calculate the amount to be paid. Such Performance
Goals may vary by Participant and by grant.
<PAGE>
17
The number of Common Stock Units and Dividend Equivalents earned will be
equal to the amounts awarded multiplied by the Performance Factor. However, the
Committee shall have the discretion, by Participant and by grant, to reduce (but
not to increase) some or all of the amount that would otherwise be payable by
reason of the satisfaction of the Performance Goals. In making any such
determination, the Committee is authorized to take into account any such factor
or factors it determines are appropriate, including but not limited to Company,
business unit and individual performance.
8.6 Payment of Common Stock Units and Dividend Equivalent Account. Payment
in respect of Common Stock Units earned (as determined under Sections 8.4 and
8.5) shall be made to the holder thereof within ninety (90) days after the
Performance Period for such units has ended, but only to the extent the
Committee determines that the continuing employment and/or any applicable
performance targets have been met.
Payment for Common Stock Units earned shall be made in shares of Common
Stock, except as provided in Section 8.9. The number of shares paid shall be
equal to the number of Common Stock Units earned. The holder may elect to
reduce this amount by the number of shares of Common Stock which have, on the
date the Common Stock Units are paid, a fair market value equal to the
applicable federal, state and local withholding tax due on the receipt of Common
Stock, in lieu of making a cash payment equal to the amount of such withholding
tax due. A holder of Common Stock Units will be entitled to receive payment
from the Company at the end of the Performance Period an amount in cash equal to
the Dividend Equivalent Account earned (as determined under Sections 8.4 and
8.5) by the holder minus applicable federal, state and local withholding tax
due.
8.7 Death, Disability or Retirement. A portion of the Common Stock and
the Dividend Equivalent Account shall be forfeited upon the death of a
Participant or the termination of a Participant's employment by reason of
retirement or Disability (as each is determined by the Committee) prior to the
end of the Performance Period.
The number of Common Stock Units forfeited will be equal to the remaining
number of months in the Performance Period divided by the total number of months
in the Performance Period times the number of Common Stock Units outstanding and
will be rounded down to the next lowest whole amount. The Dividend Equivalent
account will be reduced in a similar fashion. The Common Stock Units and the
Dividend Equivalent Account retained will remain subject to adjustment for any
Performance Factors in accordance with Section 8.5.
8.8 Termination of Employment. Except as provided in Sections 8.7 and
8.9, or as determined by the Committee, 100% of all Common Stock Units of a
Participant under the Plan shall be forfeited and the Dividend Equivalent
Account shall be forfeited upon termination of the Participant's employment with
the Company prior to the end of the Performance Period, and in such event the
Participant shall not be entitled to receive any Common Stock or any payment of
the Dividend Equivalent Account regardless of the level of Performance Goals
achieved for the respective Performance Periods.
8.9 Change in Control. The number of Common Stock Units earned by the
Participant shall be determined by multiplying:
(a) the total number of all the Participant's granted and outstanding
Common Stock Units; by
<PAGE>
18
(b) a percentage equal to:
(1) the number of full and partial calendar months which the
Common Stock Units have been outstanding as of the date of the Change
in Control; divided by
(2) the number of full and partial calendar months in the
applicable Performance Period.
In the event of a Change in Control, the Common Stock Units earned by the
Participant shall be payable to the Participant in cash or stock, as follows:
(c) if pooling of interests accounting treatment is to be used with
respect to such Change in Control, the Participant will receive shares of
Common Stock equal in number to the number of Common Stock Units earned by
such Employee; or
(d) if pooling of interests accounting treatment is not to be used
with respect to such Change in Control, the Participant will be paid an
amount in cash equal to the number of Common Stock Units earned by such
Participant outstanding multiplied by the Market Price as defined in
Section 7.4. Such amount will be reduced by the applicable federal, state
and local withholding taxes due.
The cash or stock, as the case may be, shall be paid out to the Participant
no later than ninety (90) days following the date of occurrence of such Change
in Control (the "CSU Payout Date"), regardless of whether the applicable
Performance Period has expired or whether performance targets have been met.
There will be no adjustment for any Performance Factors described in Section
8.5.
On or before the CSU Payout Date, and regardless of whether pooling of
interests accounting treatment is to be used with respect to such Change in
Control, the Participant will be paid an amount in cash equal to the value of
the amounts accrued in the Participant's Dividend Equivalent Account immediately
preceding the Change in Control. Payout of Common Stock Units and the Dividend
Equivalent Account shall be made to each Participant:
(e) who is employed by the Company on the CSU Payout Date; or
(f) whose employment relationship with the Company is terminated:
(1) as a result of any Qualifying Termination prior to the CSU
Payout Date; or
(2) as a result of death or Disability following the occurrence
of any Change in Control but prior to the CSU Payout Date.
The Committee may establish, at the time of the grant of Common Stock
Units, other conditions which must be met for payout to occur. These conditions
shall be set forth in the Committee's resolution granting the Common Stock Units
and in the Agreement with the holder.
<PAGE>
19
ARTICLE IX
Miscellaneous
9.1 General Restriction. Each award under the Plan shall be subject to
the requirement that, if at any time the Committee shall determine that:
(a) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any
state or Federal law; or
(b) the consent or approval of any government regulatory body; or
(c) an agreement by the recipient of an award with respect to the
disposition of shares of Common Stock,
is necessary or desirable as a condition of, or in connection with, the granting
of such award or the issue or purchase of shares of Common Stock thereunder,
then such award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have been
effected or obtained free of any conditions not acceptable to the Committee.
9.2 Accounting and Tax Treatment for Change in Control. Notwithstanding
anything in this Plan to the contrary, in the event of a Change in Control, the
Committee shall not have the right to take any actions described in the Plan
that would make the Change in Control ineligible for pooling of interests
accounting treatment or that would make the Change in Control ineligible for
desired tax treatment if, in the absence of such right, the Change in Control
would qualify for such treatment and the Company intends to use such treatment
with respect to the Change in Control.
9.3 Non-Assignability. Awards under the Plan shall not be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution except as otherwise determined by the Committee. Accordingly,
during the life of the recipient, such award shall be exercisable only by such
person or by such person's guardian or legal representative, unless the
Committee determines otherwise.
9.4 Right to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any Participant
the right to continue in the employment of the Company or effect any right which
the Company may have to terminate the employment of such Participant.
9.5 Non-Uniform Determinations. The Committee's determinations under the
Plan (including without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards, and the agreements evidencing same) need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan, whether or not such persons are similarly situated.
9.6 Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued on behalf of such recipient.
<PAGE>
20
9.7 Leaves of Absence. The Committee shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any award. Without
limiting the generality of the foregoing, the Committee shall be entitled to
determine:
(a) whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan; and
(b) the impact, if any, of any such leave of absence on awards under
the Plan theretofore made to any recipient who takes such leaves of
absence.
9.8 Newly Eligible Employees. The Committee shall be entitled to make
such rules, regulations, determinations and awards as it deems appropriate in
respect of any employee who becomes eligible to participate in the Plan or any
portion thereof after the commencement of an award or incentive period.
9.9 Adjustments. In any event of any change in the outstanding Common
Stock by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, the Option Price of Options
theretofore granted under the Plan, the number of Common Stock Units theretofore
awarded under the Plan and any and all other matters deemed appropriate by the
Committee.
9.10 Amendment of the Plan.
(a) The Committee may, without further action by the shareholders and
without receiving further consideration from the Participants, amend this
Plan or condition or modify awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements;
(b) The Committee may at any time, and from time to time, modify or
amend the Plan in any respect, except that without shareholder approval the
Committee may not:
(1) increase the maximum number of shares of Common Stock which
may be issued under the Plan (other than increases pursuant to Section
9.9);
(2) extend the term during which any award may be granted or
exercised; or
(3) extend the term of the Plan.
The termination or any modification or amendment of the Plan, except as
provided in Section 9.10(a) above, shall not without the consent of a
Participant, affect the Participant's rights under an award previously granted.
<PAGE>
Exhibit 10.3
========================================================================
SUN COMPANY, INC.
LONG-TERM INCENTIVE PLAN
(Amended and Restated as of December 3, 1997)
========================================================================
<PAGE>
2
ARTICLE I
Definitions
As used in this Plan, the following terms shall have the meanings herein
specified:
1.1 Affiliate - shall mean any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with Sun Company, Inc.
1.2 Alternate Appreciation Rights - shall have the meaning provided herein
at Section 4.1.
1.3 Board of Directors - shall mean the Board of Directors of Sun Company,
Inc.
1.4 Change in Control - shall mean the occurrence of any of the following
events or transactions:
(a) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of Sun
Company, Inc. (or of the Board of Directors of any successor to Sun
Company, Inc. or to all or substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that result in such entity,
person or Group directly or indirectly owning beneficially more than 20% of
the outstanding voting shares.
1.5 Code - shall mean the Internal Revenue Code of 1986, as amended.
1.6 Committee - shall mean the committee appointed to administer this Plan
by the Board of Directors of the Company, as constituted from time to time. The
Committee shall consist of at least two (2) members of the Board of Directors,
each of whom shall meet applicable requirements set forth in the pertinent
regulations under Section 16 of the Securities Exchange Act of 1934, as amended,
and Section 162(m) of the Code.
1.7 Common Stock - shall mean the authorized and unissued or treasury
shares of common stock of Sun Company, Inc.
1.8 Company - shall mean Sun Company, Inc., a Pennsylvania corporation.
The term "Company" shall include any successor to Sun Company, Inc., any
Subsidiary or Affiliate which has adopted the Plan, or a corporation succeeding
to the business of Sun Company, Inc., or any Subsidiary or Affiliate by merger,
consolidation, liquidation or purchase of assets or stock or similar
transaction.
1.9 Continuing Director - shall mean a Director who was a member of the
Board of Directors immediately prior to a Control Transaction which results in a
Change in Control.
1.10 Control Transaction - shall mean any of the following transactions or
any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun
Company, Inc.;
<PAGE>
3
(b) any merger, consolidation, or sale of all or substantially all of
the assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or a Group of shareholders
in a proxy solicitation or otherwise.
1.11 Disability - shall mean any illness, injury or incapacity of such
duration and type as to render a Participant eligible to receive long-term
disability benefits under the applicable broad-based long-term disability
program of the Company.
1.12 Dividend Equivalents - shall have the meaning provided herein at
Section 6.5.
1.13 Employment Termination Date - shall mean the date on which the
employment relationship between the Participant and the Company is terminated.
1.14 Exercise Period - shall have the meaning provided herein at Section
5.3.
1.15 Fair Market Value - shall mean, as of any date and in respect of any
share of Common Stock, the opening price on such date of a share of Common Stock
(which price shall be the closing price on the previous trading day of a share
of Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape, and as reflected in the consolidated trading tables of the
Wall Street Journal or any other publication selected by the Committee). If
there is no sale of shares of Common Stock on the New York Stock Exchange for
more than ten (10) days immediately preceding such date, or if deemed
appropriate by the Committee for any other reason, the fair market value of the
shares of Common Stock shall be as determined by the Committee in such other
manner as it may deem appropriate. In no event shall the fair market value of
any share of Common Stock be less than its par value.
1.16 Group - shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
1.17 Just Cause - shall mean:
(a) a judicial determination that the Participant has committed fraud,
misappropriation, or embezzlement against the Company; or
(b) a non-appealable conviction of, or entry of a plea of nolo
contendere for, an act by the Participant constituting a felony which, as
determined by the Company in good faith, constitutes a crime involving
moral turpitude and has resulted in material harm to the Company, its
subsidiaries and affiliates taken as a whole.
<PAGE>
4
No termination of employment shall be deemed an effective termination
for Just Cause unless accompanied by a copy of a resolution duly adopted by
the affirmative vote of not less a majority of the Continuing Directors at
a meeting of the Board of Directors which was called and held for the
purpose of considering such termination, or if there are no Continuing
Directors, then by at least three quarters (3/4) of the entire Board of
Directors (after reasonable notice to the Participant and an opportunity
for the Participant, together with the Participant's counsel, to be heard
before the Board of Directors) finding that, in the good faith opinion of
the Board of Directors, the Participant was guilty of conduct set forth in
the preceding sentence, and specifying the particulars thereof in detail.
In any deliberations or votes by the Board of Directors concerning a
determination under this Section, the Participant shall recuse himself from
such deliberations and votes.
1.18 Limited Rights - shall have the meaning provided herein at Article V.
1.19 Option Price - shall mean the purchase price per share of Common Stock
deliverable upon the exercise of an Option.
1.20 Optionee - shall mean the holder of an Option.
1.21 Participant - shall have the meaning provided herein at Section
2.4(a).
1.22 Plan - shall have the meaning provided herein at Section 2.2.
1.23 Potential Change in Control - shall mean the occurrence of any of the
following events or transactions:
(a) any person (other than Sun Company, Inc., or any affiliate or
subsidiary thereof) makes a tender offer for capital stock of Sun Company,
Inc.;
(b) any person becomes the beneficial owner, directly or indirectly,
of capital stock of Sun Company, Inc. in an amount which requires the
filing of Schedule 13D or its equivalent form pursuant to the Rules and
Regulations under the Securities Exchange Act of 1934 as from time to time
amended;
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or Group of shareholders in
a proxy solicitation or otherwise which, in its judgment, the Board of
Directors determines by adoption of a resolution within thirty (30) days of
such submission, might result in a Change in Control of Sun Company, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sun Company, Inc. pursuant to the Hart-Scott-Rodino Act;
or
(e) the Board of Directors in its judgment determines by adoption of a
resolution that a Potential Change in Control of Sun Company, Inc. for
purposes of this Plan has occurred.
<PAGE>
5
1.24 Qualifying Termination - shall mean, with respect to the employment of
any Participant, the following:
(a) a termination of employment by the Company within seven (7) months
after a Change in Control, other than for Just Cause, death or Disability;
provided, however, that any Participant who also is eligible to receive
benefits under the Sun Company, Inc. Executive Involuntary Severance Plan
shall not receive benefits thereunder, but shall instead receive the
Benefits provided under this Plan;
(b) a termination of employment by the Participant within two (2)
years after a Change in Control for one or more of the following reasons:
(1) the assignment to such Participant of any duties inconsistent
in a way adverse to such Participant, with such Participant's
positions, duties, responsibilities and status with the Company
immediately prior to the Change in Control, or a reduction in the
duties and responsibilities held by the Participant immediately prior
to the Change in Control; a change in the Participant's reporting
responsibilities, title or offices as in effect immediately prior to
the Change in Control that is adverse to the Participant; or any
removal of the Participant from or any failure to re-elect the
Participant to any position with the Company that such Participant
held immediately prior to the Change in Control except in connection
with such Participant's:
(i) assignment to a new position at a higher combined annual
base salary and guideline (target) bonus; or
(ii) termination of employment by the Company for Just
Cause; or
(2) with respect to any Participant who is a member of the Board
of Directors immediately prior to the Change in Control, any failure
of the shareholders of the Company to elect or reelect, or of the
Company to appoint or reappoint, the Participant as a member of the
Board of Directors;
(3) a reduction by the Company in either of the Participant's
annual base salary or guideline (target) bonus as in effect
immediately prior to the Change in Control; the failure by the Company
to continue in effect, or the taking of any action by the Company that
would adversely affect such Participant's participation in or
significantly reduce such Participant's benefits under, any employee
benefit plan or compensation plan in which such Participant was
participating immediately prior to the Change in Control, provided,
however, that in the aggregate such actions by the Company
significantly reduce the Participant's total compensation (i.e., the
sum of Participant's annual base salary, guideline (target) bonus, and
the aggregate value to the Participant of all employee benefit and
compensation plans); or the failure by the Company, without the
Participant's consent, to pay to the Participant any portion of the
Participant's current compensation, or to pay to the Participant any
portion of an installment of deferred compensation under any deferred
compensation program of the Company; or
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6
(4) The Company requires the Participant to be based anywhere
other than the Participant's present work location or a location
within thirty-five (35) miles from the present location; or the
Company requires the Participant to travel on Company business to an
extent substantially more burdensome than such Participant's travel
obligations during the period of twelve (12) consecutive months
immediately preceding the Change in Control;
provided, however, that in the case of any such termination of employment
by the Participant under this subparagraph (b), such termination shall not
be deemed to be a Qualifying Termination unless the termination occurs
within 120 days after the occurrence of the event or events constituting
the reason for the termination; or
(c) a termination of employment by the Company other than a
termination for Just Cause, or a termination of employment by the
Participant for one of the reasons set forth in (b) above, following a
Potential Change in Control, if the Participant can demonstrate that such
termination or circumstance in (b) above leading to termination:
(1) was at the request of a third party with which the Company
had entered into negotiations or an agreement with regard to a Change
in Control; or
(2) otherwise occurred in connection with, or in anticipation of,
a Change in Control;
provided, however, that in either such case, such Change in Control
actually occurs within one (1) year following the Employment Termination
Date.
1.25 Restricted Stock Unit - shall have the meaning provided herein at
Section 6.1.
1.26 Restriction Period - shall have the meaning provided herein at Section
6.4.
1.27 RSU Payout Date - shall have the meaning provided herein at Section
6.11.
1.28 Stock Option - shall have the meaning provided herein at Section 3.1.
1.29 Subsidiary - shall mean any corporation of which, at the time more
than fifty percent (50%) of the shares entitled to vote generally in an election
of directors are owned directly or indirectly by Sun Company, Inc. or any
subsidiary thereof.
ARTICLE II
Background, Purpose and Term of Plan; Participation
& Eligibility for Benefits
2.1 Background. Effective on December 31, 1986, no further awards shall
be made under the Sun Company, Inc. Executive Long-Term Incentive Plan adopted
in June, 1978 provided, however, that any rights theretofore granted under that
plan shall not be affected.
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7
2.2 Purpose of the Plan. The purposes of this Sun Company, Inc. Long-Term
Incentive Plan (the "Plan") are to:
(a) more closely associate the interests of the Company with the
shareholders by relating capital accumulation with increases in shareholder
value;
(b) encourage management success by providing capital accumulation as
an incentive;
(c) maintain competitive compensation levels; and
(d) provide an incentive to management for continuous employment with
the Company.
It is intended that most awards made under the Plan qualify as performance-
based compensation under Section 162(m) of the Code.
2.3 Term of the Plan. This Plan became effective upon approval by the
holders of a majority of the votes present, in person or represented by proxy,
at the 1986 Annual Meeting of Shareholders of Sun Company, Inc. No awards will
be made under the Plan after December 31, 1991. The Plan and all awards made
under the Plan prior to such date shall remain in effect until such awards have
been satisfied or terminated in accordance with the Plan and the terms of such
awards.
2.4 Administration. The Plan shall be administered by the Committee which
shall have the authority, in its sole discretion and from time to time to:
(a) designate the employees or classes of employees eligible to
participate in the Plan (each such employee being, a "Participant");
(b) grant awards provided in the Plan in such form and amount as the
Committee shall determine;
(c) impose such limitations, restrictions and conditions upon any such
award as the Committee shall deem appropriate; and
(d) interpret the Plan, adopt, amend and rescind rules and regulations
relating to the Plan, and make all other determinations and take all other
action necessary or advisable for the implementation and administration of
the Plan.
The decisions and determinations of the Committee on all matters relating
to the Plan shall be in its sole discretion and shall be conclusive. No member
of the Committee shall be liable for any action taken or not taken or decision
made or not made in good faith relating to the Plan or any award thereunder.
2.5 Eligibility for Participation. Participants in the Plan shall be the
officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making a
substantial contribution to the success of the Company. In making this
selection and in determining the amount of awards, the Committee shall consider
any factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company and past and potential
contributions to its profitability and sound growth.
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8
2.6 Types of Awards Under the Plan. Awards under the Plan may be in the
form of any one or more of the following:
(a) Stock Options, as described in Article III;
(b) Alternate Appreciation Rights, as described in Article IV;
(c) Limited Rights, as described in Article V; and/or
(d) Restricted Stock Units, as described in Article VI.
2.7 Aggregate Limitation on Awards. Shares of stock which may be issued
under the Plan shall be Common Stock. The maximum number of shares of Common
Stock which may be issued under the Plan shall be three million (3,000,000).
For purposes of calculating the maximum number of shares of Common Stock which
may be issued under the Plan:
(a) all the shares issued (including the shares, if any, withheld for
tax withholding requirements) shall be counted when cash is used as full
payment for shares issued upon exercise of a Stock Option;
(b) only the shares issued (including the shares, if any, withheld for
tax withholding requirements) net of shares of Common Stock used as full or
partial payment for such shares upon exercise of a Stock Option, shall be
counted; and
(c) only the shares issued (including the shares, if any, withheld for
tax withholding) upon vesting and payment of the Restricted Stock Units,
shall be counted.
In addition to shares of Common Stock actually issued pursuant to the
exercise of Stock Options, there shall be deemed to have been issued a number of
shares equal to the number of shares of Common Stock in respect of which
Alternate Appreciation Rights and Limited Rights shall have been exercised.
Shares tendered by a Participant as payment for shares issued upon exercise of a
Stock Option, shall be available for issuance under the Plan. Any shares of
Common Stock subject to a Stock Option, which for any reason is terminated
unexercised or expires shall again be available for issuance under the Plan, but
shares subject to a Stock Option which are not issued as a result of the
exercise of Alternate Appreciation Rights or Limited Rights shall not be
available for issuance under the Plan.
ARTICLE III
Stock Options
3.1 Award of Stock Options. The Committee, from time to time, and subject
to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, may grant to any Participant in the Plan one or more
options to purchase for cash or shares the number of shares of Common Stock
("Stock Options") allotted by the Committee. The date a Stock Option is granted
shall mean the date selected by the Committee as of which the Committee allots a
specific number of options to a Participant pursuant to the Plan.
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9
3.2 Stock Option Agreements. The grant of a Stock Option shall be
evidenced by a written Stock Option Agreement, executed by the Company and the
holder of a Stock Option, stating the number of shares of Common Stock subject
to the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.
3.3 Stock Option Price. The Option Price per share of Common Stock
deliverable upon the exercise of a Stock Option shall be not less than 100% of
the Fair Market Value of a share of Common Stock on the date the Stock Option is
granted.
3.4 Term and Exercise. Except as provided in Section 3.10 hereof, and
unless otherwise determined by the Committee, each Stock Option granted under
the Plan shall become exercisable with respect to twenty-five percent (25%) of
the shares subject thereto on the first anniversary of the date of grant
thereof, and with respect to an additional twenty-five percent (25%) of such
shares on each of the second, third and fourth anniversaries of such date of
grant. Stock Options may be partially exercised from time to time within such
percentage limitations. Stock Options granted under the Plan shall be
exercisable during such period or periods as the Committee shall determine;
provided, however, that no Stock Option shall be exercisable more than ten (10)
years after the date of grant thereof.
3.5 Manner of Payment. Each Stock Option Agreement shall set forth the
procedure governing the exercise of the Stock Option granted thereunder, and
shall provide that, upon such exercise in respect of any shares of Common Stock
subject thereto, the Optionee shall pay to the Company, in full, the Option
Price for such shares with cash or with previously owned Common Stock.
Notwithstanding the foregoing, if previously owned Common Stock is used in
payment of the Option Price, the Optionee may not use the shares received upon
such exercise to immediately satisfy the exercise price of additional Stock
Options.
3.6 Issuance and Delivery of Shares. As soon as practicable after receipt
of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
shareholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a shareholder.
3.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of retirement or Disability (as each is determined by the
Committee), the Optionee may, within sixty (60) months from the date of
termination, exercise any Stock Options to the extent such options are
exercisable during such 60-month period.
3.8 Termination for Other Reasons. Except as provided in Sections 3.7 and
3.9, or except as otherwise determined by the Committee, all Stock Options shall
terminate upon the termination of the Optionee's employment; provided, however,
that the Limited Rights awarded in tandem therewith, shall not terminate and
such Limited Rights shall remain exercisable during the Exercise Period for any
Optionee whose employment relationship with the Company has been terminated as a
result of any Qualifying Termination.
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10
3.9 Death of Optionee. Any rights in respect of Stock Options to the
extent exercisable on the date of the Optionee's death may be exercised by the
Optionee's estate or by any person that acquires the legal right to exercise
such Stock Option by bequest, inheritance, or otherwise by reason of the death
of the Optionee. Any such exercise to be valid must occur within the remaining
option term of the Stock Option. The foregoing provisions of this Section 3.9
shall apply to an Optionee who dies while employed by the Company and to an
Optionee whose employment may have terminated prior to death; provided, however,
that:
(a) an Optionee who dies while employed by the Company will be treated
as if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such Stock
Option by bequest or inheritance will have the right to exercise the Stock
Option in accordance with Section 3.7; or
(b) the estate or a person who acquires the right to exercise a stock
option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Sections 3.7 and 3.8.
3.10 Acceleration of Options. Notwithstanding any provisions to the
contrary in agreements evidencing Options granted thereunder, each outstanding
Option shall become immediately and fully exercisable upon the occurrence of any
Change in Control of Sun Company, Inc.
3.11 Effect of Exercise. The exercise of any Stock Options shall cancel
that number of related Alternate Appreciation Rights, if any, and Limited
Rights, if any, which is equal to the number of shares of Common Stock purchased
pursuant to said options.
ARTICLE IV
Alternate Appreciation Rights
4.1 Award of Alternate Appreciation Rights. Concurrently with or
subsequent to the award of any Stock Option to purchase one or more shares of
Common Stock, the Committee may, subject to the provisions of the Plan and such
other terms and conditions as the Committee may prescribe, award to the Optionee
with respect to each share of Common Stock, a related stock appreciation right
("Alternate Appreciation Right"), permitting the Optionee to be paid the
appreciation on the Stock Option in lieu of exercising the Stock Option.
4.2 Alternate Appreciation Rights Agreement. Alternate Appreciation
Rights shall be evidenced by written agreements in such form as the Committee
may from time to time determine.
4.3 Exercise. An Optionee who has been granted Alternate Appreciation
Rights may, from time to time, in lieu of the exercise of an equal number of
Stock Options, elect to exercise one or more Alternate Appreciation Rights and
thereby become entitled to receive from the Company payment in Common Stock the
number of shares determined pursuant to Sections 4.4 and 4.5 hereof. Alternate
Appreciation Rights shall be exercisable only to the same extent and subject to
the same conditions as the Stock Options related thereto are exercisable, as
provided in this Plan. The Committee may, in its discretion, prescribe
additional conditions to the exercise of any Alternate Appreciation Rights.
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11
4.4 Amount of Payment. The amount of payment to which an Optionee shall
be entitled upon the exercise of each Alternate Appreciation Right shall be
equal to 100% of the amount, if any, by which the Fair Market Value of a share
of Common Stock on the exercise date exceeds the Fair Market Value of a share of
Common Stock on the date the Stock Option related to said Alternate Appreciation
Right was granted.
4.5 Form of Payment. The number of shares to be paid shall be determined
by dividing the amount of payment determined pursuant to Section 4.4 by the Fair
Market Value of a share of Common Stock on the exercise date of such Alternate
Appreciation Rights. As soon as practicable after exercise, the Company shall
deliver to the Optionee a certificate or certificates for such shares of Common
Stock. All such shares shall be issued with the rights and restrictions
specified in Section 3.6 of this Plan.
4.6 Effect of Exercise. The exercise of any Alternate Appreciation Rights
shall cancel an equal number of Stock Options and Limited Rights, if any,
related to said Alternate Appreciation Rights.
4.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of retirement or Disability (as each is determined by the
Committee), the Optionee may, within six (6) months from the date of such
termination, exercise any Alternate Appreciation Rights to the extent such
Alternate Appreciation Rights are exercisable during such six-month period.
4.8 Death of Optionee or Termination for Other Reasons. Except as
provided in Section 4.7, or except as otherwise determined by the Committee, all
Alternate Appreciation Rights shall terminate upon the termination of the
Optionee's employment or upon the death of the Optionee.
ARTICLE V
Limited Rights
5.1 Award of Limited Rights. Concurrently with or subsequent to the award
of any Stock Option and Alternate Appreciation Rights, the Committee may,
subject to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each Stock
Option, a related limited right permitting the Optionee, during a specified
limited time period, to be paid the appreciation on the Stock Option in lieu of
exercising the Stock Option ("Limited Right").
5.2 Limited Rights Agreement. Limited Rights granted under the Plan shall
be evidenced by written agreements in such form as the Committee may from time
to time determine.
5.3 Exercise Period. Limited Rights are immediately exercisable in full
upon grant for a period of up to seven (7) months following the date of a Change
in Control (the "Exercise Period").
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12
5.4 Amount of Payment. The amount of payment to which an Optionee shall
be entitled upon the exercise of each Limited Right shall be equal to 100% of
the amount, if any, which is equal to the difference between the Option Price of
the related Stock Option and the Market Price of a share of such Common Stock.
Market Price is defined to be the greater of:
(a) the highest price per share of Common Stock paid in connection
with any Change in Control; and
(b) the highest price per share of Common Stock reflected in the
consolidated trading tables of The Wall Street Journal (presently the New
York Stock Exchange Composite Transactions quotations) during the 60-day
period prior to the Change in Control.
5.5 Form of Payment. Payment of the amount to which an Optionee is
entitled upon the exercise of Limited Rights, as determined pursuant to Section
5.4, shall be made solely in cash.
5.6 Effect of Exercise. If Limited Rights are exercised, the Stock
Options, if any, related to such Limited Rights cease to be exercisable to the
extent of the number of shares with respect to which the Limited Rights were
exercised. Upon the exercise or termination of the Stock Options, if any,
related to such Limited Rights, the Limited Rights granted with respect thereto
terminate to the extent of the number of shares as to which the related Stock
Options were exercised or terminated; provided, however, that with respect to
Stock Options that are terminated as a result of the termination of the
Optionee's employment status, the Limited Rights awarded in tandem therewith
shall not terminate and such Limited Rights shall remain exercisable during the
Exercise Period for any Optionee whose employment relationship with the Company
has been terminated as a result of any Qualifying Termination.
5.7 Retirement or Disability. Upon termination of the Optionee's
employment by reason of Disability or retirement (as each is determined by the
Committee), the Optionee may, within six (6) months from the date of
termination, exercise any Limited Rights to the extent such Limited Right is
exercisable during such six-month period.
5.8 Death of Optionee or Termination for Other Reasons. Except as
provided in Sections 5.7 and 5.9 or except as otherwise determined by the
Committee, all Limited Rights granted under the Plan shall terminate upon the
termination of the Optionee's employment or upon the death of the Optionee.
5.9 Termination Related to a Change in Control. The requirement that an
Optionee be terminated by reason of retirement or permanent disability or be
employed by the Company at the time of exercise pursuant to Sections 5.7 and 5.8
respectively, is waived during the Exercise Period as to any Optionee whose
employment relationship with the Company has been terminated as a result of any
Qualifying Termination.
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13
ARTICLE VI
Restricted Stock Units
6.1 Award of Restricted Stock Units. The Committee may from time to time,
and subject to the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any Participant in the Plan rights to
receive shares of Common Stock which are subject to a risk of forfeiture by the
Participant ("Restricted Stock Units"). At the time it grants any Restricted
Stock Units, the Committee shall determine whether the payment of such
Restricted Stock Units shall be conditioned solely upon the Participant's
continued employment with the Company throughout the Restriction Period or upon
the attainment of certain performance targets.
6.2 Restricted Stock Unit Agreements. Restricted Stock Units granted
under the Plan shall be evidenced by written agreements in such form as the
Committee may from time to time determine.
6.3 Number of Restricted Stock Units. Upon making an award, the Committee
shall determine (and the Restricted Stock Unit Agreement shall state) the number
of Restricted Stock Units granted to the grantee. The initial number of
Restricted Stock Units granted may be adjusted by a performance factor, in
accordance with Section 6.8, to be applied at the conclusion of the Restriction
Period to determine the final number of Restricted Stock Units to be paid.
6.4 Length of Restriction Period. Upon making an award, the Committee
shall determine (and the Restricted Stock Unit Agreement shall state) the length
of the Restriction Period. Restriction Periods will normally be from three (3)
to five (5) years; however, the Committee may establish other time periods in
its sole discretion.
6.5 Dividend Equivalents. At the Committee's discretion, each holder of
Restricted Stock Units will be entitled to receive payment from the Company in
an amount equal to each cash dividend ("Dividend Equivalent") the Company would
have paid to such holder had he or she, on the record date for payment of such
dividend, been the holder of record of shares of Common Stock equal to the
number of Restricted Stock Units which had been awarded to such holder as of the
close of business on such record date. Payment of Dividend Equivalents is
expressly conditioned on continued employment with the Company at the time of
payment. Each such payment shall be made by the Company on the payment date of
the cash dividend in respect of which it is to be made, or as soon as
practicable thereafter.
6.6 Payment of Restricted Stock Units.
(a) Payment in respect of Restricted Stock Units conditioned solely
upon the Participant's continued employment with the Company throughout the
Restriction Period shall be made within ninety (90) days after the
Restriction Period for such Restricted Stock Units has ended;
(b) Payment in respect of Restricted Stock Units conditioned upon the
attainment of performance targets shall be made to the grantee thereof
within ninety (90) days after the Restriction Period for such Restricted
Stock Units has ended, but only to the extent the Committee determines that
the applicable performance targets have been met and subject to any
adjustment made to the number of Restricted Stock Units which shall be
paid, pursuant to Section 6.8(b) hereof.
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14
6.7 Form of Payment. Payment for Restricted Stock Units shall be made in
shares of Common Stock, except as provided in Section 6.11 hereof. The number
of shares paid shall be equal to the number of Restricted Stock Units earned.
The holder may elect to reduce this amount by the number of shares of Common
Stock which have, on the date the Restricted Stock Units are paid, a fair market
value equal to the applicable federal, state and local withholding tax due on
the receipt of Common Stock, in lieu of making a cash payment equal to the
amount of such withholding tax due.
6.8 Performance Targets.
(a) Upon the award of Restricted Stock Units, the Committee may
establish (and the Restricted Stock Unit Agreement shall state) the
performance targets to be attained within the Restriction Period as a
condition of such Restricted Stock Units being earned out. Performance
targets may be based entirely on each participant's business unit goals, or
partially on business unit goals and partially on corporate goals, or
entirely on corporate goals. Goals may include qualitative as well as
quantitative measures. Performance targets may be adjusted during the
Restriction Period, at the Committee's sole discretion, to reflect
extraordinary events beyond management's control;
(b) Attainment by the participant of performance targets in respect of
a Restriction Period will result in 100% of the Restricted Stock Units
being earned out. Attainment of performance below the performance targets
in respect of a Restriction Period shall result in a proportionate amount
of the value of the Restricted Stock Units (on a scale from 0 to 100%)
being earned out, as determined by the Committee.
6.9 Termination of Employment. Except as provided in Sections 6.10 and
6.11, or except as otherwise determined by the Committee, all Restricted Stock
Units granted to a Participant under the Plan shall terminate upon termination
of the Participant's employment with the Company prior to the end of the
Restriction Period applicable to such Restricted Stock Units, and in such event
the Participant shall not be entitled to receive any payment in respect thereof.
6.10 Death, Disability or Retirement. In the event that the employment of
a Participant who has been granted Restricted Stock Units under the Plan shall
terminate during a Restriction Period by reason of death, Disability (as
determined by the Committee), or retirement, such Participant shall be entitled,
in the sole discretion of the Committee, to receive upon the expiration of the
Restriction Period payment in respect of said Restricted Stock Units; provided,
however, that such Restricted Stock Units shall be adjusted by multiplying the
amount thereof by a fraction, the numerator of which shall be the number of full
and partial calendar months between the date of award of the Restricted Stock
Units and the date that employment terminated, and the denominator of which
shall be the number of full and partial calendar months from the date of award
to the end of the Restriction Period.
6.11 Change in Control. In the event of a Change in Control, all the
Participant's outstanding Restricted Stock Units shall be payable to the
Participant in cash or stock, as follows:
(a) if pooling of interests accounting treatment is to be used with
respect to such Change in Control, the Participant will receive shares of
Common Stock equal in number to the total number of Restricted Stock Units
granted to such Participant; or
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15
(b) if pooling of interests accounting treatment is not to be used
with respect to such Change in Control, the Participant will be paid an
amount in cash equal to the number of Restricted Stock Units outstanding
multiplied by the Market Price as defined in Section 5.4. Such amount will
be reduced by the applicable federal, state and local withholding taxes
due.
The cash or stock, as the case may be, shall be paid out to the Participant
no later than ninety (90) days following the date of occurrence of such Change
in Control (the "RSU Payout Date"), regardless of whether the applicable
Restriction Period has expired or whether performance targets have been met.
There will be no adjustment for any performance factors described in Section
6.8.
On or before the RSU Payout Date, and regardless of whether pooling of
interests accounting treatment is to be used with respect to such Change in
Control, the Participant will be paid an amount in cash equal to the value of
the related accrued Dividend Equivalents immediately preceding the Change in
Control. Payout of Restricted Stock Units and the related Dividend Equivalents
shall be made to each Participant:
(c) who is employed by the Company on the RSU Payout Date; or
(d) whose employment relationship with the Company is terminated:
(1) as a result of any Qualifying Termination prior to the RSU
Payout Date; or
(2) as a result of death or Disability following the occurrence
of any Change in Control but prior to the RSU Payout Date.
The Committee may establish, at the time of the grant of Common Stock
Units, other conditions which must be met for payout to occur. These conditions
shall be set forth in the Committee's resolution granting the Common Stock Units
and in the Agreement with the holder.
ARTICLE VII
Miscellaneous
7.1 General Restriction. Each award under the Plan shall be subject to
the requirement that, if at any time the Committee shall determine that:
(a) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any
state or Federal law; or
(b) the consent or approval of any government regulatory body, or
(c) an agreement by the recipient of an award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such award or the
issue or purchase of shares of Common Stock thereunder, such award may not
be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
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16
7.2 Accounting and Tax Treatment for Change in Control. Notwithstanding
anything in this Plan to the contrary, in the event of a Change in Control, the
Committee shall not have the right to take any actions described in described in
the Plan that would make the Change in Control ineligible for pooling of
interests accounting treatment or that would make the Change in Control
ineligible for desired tax treatment if, in the absence of such right, the
Change in Control would qualify for such treatment and the Company intends to
use such treatment with respect to the Change in Control.
7.3 Non-Assignability. Awards under the Plan shall not be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution. During the life of the recipient, such award shall be
exercisable only by such person or by such person's guardian or legal
representative.
7.4 Right to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any Participant
the right to continue in the employment of the Company or effect any right which
the Company may have to terminate the employment of such Participant.
7.5 Non-Uniform Determinations. The Committee's determinations under the
Plan (including without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards, and the agreements evidencing same) need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan, whether or not such persons are similarly situated.
7.6 Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect thereto unless and until
certificates for shares of Common Stock are issued on behalf of such recipient.
7.7 Leaves of Absence. The Committee shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any award. Without
limiting the generality of the foregoing, the Committee shall be entitled to
determine (i) whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan and (ii) the impact, if
any, of any such leave of absence on awards under the Plan theretofore made to
any recipient who takes such leaves of absence.
7.8 Newly Eligible Employees. The Committee shall be entitled to make
such rules, regulations, determinations and awards as it deems appropriate in
respect of any employee who becomes eligible to participate in the Plan or any
portion thereof after the commencement of an award or incentive period.
7.9 Adjustments. In any event of any change in the outstanding Common
Stock by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Stock Options theretofore granted under the Plan, the Option Price of Options
theretofore granted under the Plan, the number of Restricted Stock Units
theretofore awarded under the Plan and any and all other matters deemed
appropriate by the Committee.
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7.10 Amendment of the Plan.
(a) The Committee may, without further action by the shareholders and
without receiving further consideration from the Participants, amend this
Plan or condition or modify awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time, and from time to time, modify or
amend the Plan in any respect, except that without shareholder approval the
Committee may not:
(1) increase the maximum award levels established in Section 2.7,
including the maximum number of shares of Common Stock which may be
issued under the Plan (other than increases pursuant to Section 7.9);
(2) extend the term during which any Stock Option may be
exercised beyond ten (10) years from the date of grant; or
(3) extend the term of the Plan, except that the Board may extend
the period during which awards may be made in accordance with Section
2.3.
The termination or any modification or amendment of the Plan, except as
provided in Section 7.10(a) above, shall not without the consent of a
Participant, affect the Participant's rights under an award previously granted.
7.11 Withholding Taxes. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Company shall have
the right to require the grantee to remit to the Company an amount sufficient to
satisfy any Federal, state and/or local withholding tax requirements prior to
the delivery of any certificate or certificates for such shares. Whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any Federal, state and/or local withholding tax
requirements.
<PAGE>
Exhibit 10.4
========================================================================
DIRECTORS' DEFERRED COMPENSATION PLAN
Amended and restated as of October 2, 1997
========================================================================
<PAGE>
2
ARTICLE I
Definitions
As used in this Plan, the following terms shall have the meanings herein
specified:
1.1 Cash Unit - shall mean the entry in a Deferred Compensation Account of
a credit equal to One Dollar ($1.00).
1.2 Change in Control - shall mean the occurrence of any of the following
events or transactions:
(a) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of Sun
Company, Inc. (or of the Board of Directors of any successor to Sun
Company, Inc. or to all or substantially all of its assets); or
(b) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that results in such entity,
person or Group directly or indirectly owning beneficially more than twenty
percent (20%) of the outstanding voting shares of Sun Company, Inc.
1.3 Committee - shall mean the Governance Committee of the Board of
Directors of Sun Company, Inc.
1.4 Company - shall mean Sun Company, Inc., a Pennsylvania corporation.
The term "Company" shall include any successor to Sun Company, Inc., any
subsidiary or affiliate which has adopted the Plan, or a corporation succeeding
to the business of Sun Company, Inc., or any subsidiary or affiliate by merger,
consolidation, liquidation or purchase of assets or stock or similar
transaction.
1.5 Compensation - shall mean those fees and retainers payable by the
Company to a Director in consideration for his or her service as a Director.
1.6 Continuing Director - shall mean a director who was a member of the
Board of Directors immediately prior to a Control Transaction which results in a
Change in Control.
1.7 Control Transaction - shall mean any of the following transactions or
any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun
Company, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of
the assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or a Group of shareholders
in a proxy solicitation or otherwise.
1.8 Deferred Compensation Account - shall mean, with respect to any
Participant, the total amount of the Company's liability for payment of
voluntary deferred compensation to the Participant under this Plan, including
any accumulated interest and/or Dividend Equivalents.
1.9 Director - shall mean a member of the Board of Directors of Sun
Company, Inc.
<PAGE>
3
1.10 Dividend Equivalent - shall mean the entry in a Deferred Compensation
Account or a Restricted Deferred Compensation Account of a dividend credit with
respect to a Share Unit, each Dividend Equivalent being equal to the dividend
paid from time to time on a Share.
1.11 Group - shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
1.12 Interest Equivalent - shall mean the entry in a Deferred Compensation
Account of an interest credit with respect to a Cash Unit, the interest factor
being equal to the interest rate for ten-year U.S. Treasury Notes as of December
31 of the preceding year, to be compounded on the basis of the balance in the
Participant's Deferred Compensation Account.
1.13 Participant - shall mean a Director who has elected to defer the
receipt of compensation or a Director who is required to defer the receipt of
the Restricted Share Units in accordance with the terms of this Plan.
1.14 Plan - shall mean this Directors' Deferred Compensation Plan, as it
may be amended from time to time.
1.15 Restricted Deferred Compensation Account - shall mean, with respect to
any Participant, the total amount of the Company's liability for payment of
Restricted Share Units to the Participant under this Plan.
1.16 Restricted Share Unit - shall mean the entry in a Restricted Deferred
Compensation Account of a credit equal to one Share that will be restricted
until death, retirement or termination of Board service.
1.17 Share - shall mean a share of the Company's authorized voting Common
Stock ($1.00 par value per share) and any share or shares of stock of the
Company hereafter issued or issuable in substitution or exchange for each such
share, except for the Company's Series A Preference Stock.
1.18 Share Unit - shall mean the entry in a Deferred Compensation Account
of a credit equal to one Share.
ARTICLE II
Voluntary Deferral of Directors' Compensation
2.1 Election to Defer. A Director may elect to defer all or a portion of
his or her Compensation by filing a written election with the Committee on forms
prescribed by the Committee. Such election must include the following:
(a) percentage of Compensation to be deferred;
(b) the form of deferral, being either Cash Units, Share Units, or a
combination of the two and the percentage allocations of such;
(c) a designation of beneficiary as set forth in Article V; and
(d) an irrevocable election of a method of payment as set forth in
Article III.
<PAGE>
4
Except as otherwise determined by the Committee in its sole discretion, any
such election shall apply only to Compensation to be earned on or after the
first day of the quarter following the calendar quarter in which the election is
received by the Committee. Such election shall continue, and be effective,
until revoked.
2.2 Amount of Deferral. The amount of Compensation to be deferred shall be
designated by the Participant as a percentage of the Director's Compensation in
multiples of five percent (5%) but shall not be less than ten percent (10%).
Effective with the first quarter 1992, from time to time, but not more than once
in any one quarter, a Participant may designate the portion of fees to be
deferred and the fractions of such Compensation to be allocated to Share Units
and Cash Units. Such a designation shall not apply to any previously credited
balance in the Participant's Deferred Compensation Account, but is only
applicable to Compensation to be earned on or after the first day of the quarter
following the calendar quarter in which the designation request is received by
the Committee.
2.3 Time of Election. Except as otherwise determined by the Committee in
its sole discretion, an election to defer must be filed and received by the
Committee by the end of the quarter preceding the quarter in which the
Compensation is to be earned. A new Director may also elect to defer
Compensation prior to the commencement of his or her term in office. Any
election by a Participant with respect to Compensation to be earned in a given
quarter will not preclude a different action with respect to Compensation to be
earned in subsequent quarters, consistent with the provisions of this Article II
with respect to the giving of notice of deferral election.
ARTICLE III
Voluntary Deferred Compensation Accounts
3.1 Creation of Voluntary Deferred Compensation Accounts. Compensation
deferred hereunder shall be credited to a Deferred Compensation Account
established by the Company for each Participant. The Participant must elect to
convert the deferred compensation to either Cash Units or Share Units, which
shall be credited to a Participant's Deferred Compensation Account as set forth
in the Plan.
3.2 Crediting Share Units. Share Units shall be credited to a
Participant's Deferred Compensation Account at the time the Compensation would
otherwise have been paid had no election to defer been made. The number of
Share Units to be credited to the Deferred Compensation Account shall be
determined by dividing the Compensation by the average closing price for Shares
as reported on the New York Stock Exchange-Composite Transactions for the ten
(10) day period prior to the day on which the Compensation would otherwise have
been paid. Any fractional Share Units shall also be credited to a Participant's
Deferred Compensation Account. The number of Share Units in a Deferred
Compensation Account shall be appropriately adjusted by the Committee in the
event of changes in the Company's outstanding common stock by reason of a stock
dividend or distribution, recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, and such adjustments shall be
conclusive. Share Units shall not entitle any person to the rights of a
stockholder.
3.3 Crediting Cash Units. Cash Units shall be credited to a Participant's
Deferred Compensation Account at the time Compensation would otherwise have been
paid had no election to defer been made.
<PAGE>
5
3.4 Crediting Dividend Equivalents. For Share Units, the Company shall
credit the Participant's Deferred Compensation Account with Dividend Equivalents
being equal to the dividends declared on the Company's Shares. The crediting
shall occur as of the date on which said dividends are paid. The number of
Share Units to be credited to the Deferred Compensation Account shall be
calculated by dividing the Dividend Equivalents by the average closing price for
Shares as reported on the New York Stock Exchange-Composite Transactions for the
period of ten (10) trading days prior to the day on which the dividends are paid
on the Company's Shares. Any fractional Share Units shall also be credited to a
Participant's Deferred Compensation Account.
3.5 Crediting Interest Equivalents. For Cash Units credited to their
Deferred Compensation Accounts, the Company shall credit the Participant's
Deferred Compensation Account on a quarterly basis with an Interest Equivalent.
3.6 Share Unit Conversion. Immediately upon termination of Board service,
and so prior to the commencement of any payout or distribution of any amounts
hereunder, a Participant may make a one-time election to convert to Cash Units
all or a portion of the balance of Share Units in such Participant's Deferred
Compensation Account. Any Share Units so converted to Cash Units as a result of
this one-time conversion election shall be valued at the average closing price
for Shares as reported on the New York Stock Exchange - Composite Transactions
for the ten (10) day period immediately prior to such one-time conversion
election.
3.7 Time of Payment. Except as provided in Article VII hereof, all
payments of a Participant's Deferred Compensation Account shall be made at, or
shall commence on, the date selected by the Participant in accordance with the
terms of this Article III. The date of payment or distribution must be
irrevocably specified by the Participant in his or her written notice of
election. The Participant may elect to defer the receipt of his or her
Compensation to:
(a) the first day of any calendar year, provided such date is at least
six (6) months after the end of the quarter in which the Compensation is
earned; or
(b) the first day of the year following the date of:
(1) retirement as a Director;
(2) termination of Board membership; or
(3) death. Upon the death of a Director or former Director,
prior to the final payment of all amounts credited to his or her
Deferred Compensation Account, the balance of the Deferred
Compensation Account shall be paid in accordance with Article V,
commencing on the first day of the calendar year following the year of
death.
Notwithstanding the foregoing provisions of this Section 3.7, and except as
provided in Article VII, in no event shall any payment or distribution be made
within six (6) months of the Compensation being earned or awarded. The benefit
commencement date may not be later than the third calendar year following the
attainment of mandatory retirement age for Directors.
<PAGE>
6
3.8 Method of Payment. A Participant in this portion of the Deferred
Compensation Plan shall have the option of:
(a) selecting a lump-sum payment;
(b) selecting a series of approximately equivalent annual installments
(adjusted as necessary to reflect Dividend Equivalents and/or Interest
Equivalents accrued during the installment payout period) in such number of
installments as the Participant shall specify (not exceeding ten (10)
installments); or
(c) not selecting a method of payment at the time the Form for
Deferred Payment Election/Designation of Beneficiary is prepared. If the
Participant does not select a method of payment, he or she must, at least
twelve months prior to the time the deferral amount is scheduled to be
paid, notify the Corporate Secretary as to the specific method of payment
which will be either in a lump sum or in approximately equivalent annual
installments, and such election shall be subject to the consent of the
Committee. Failure to provide appropriate notification to the Corporate
Secretary will result in a lump sum payment on the deferral payment date.
Participant shall receive in cash all deferred compensation credited to
such Participant's Deferred Compensation Account. Share Units credited to the
Participant's Deferred Compensation Account shall be valued at the average
closing price for Shares as reported on the New York Stock Exchange-Composite
Transactions for the ten (10) day period prior to each new calendar year.
ARTICLE IV
Restricted Deferred Compensation Accounts
4.1 Creation of Restricted Deferred Compensation Accounts. Compensation
deferred under this Article IV shall be credited to a Restricted Deferred
Compensation Account established by the Company for each Participant. The
Restricted Deferred Compensation Accounts will be initialized as of February 15,
1996 by transferring to the Plan the present value of the accrued benefits of
each Participant in the Non-Employee Directors' Retirement Plan. The present
value of these accrued benefits will then be converted into Restricted Share
Units. The number of Restricted Share Units to be credited to the Restricted
Deferred Compensation Account of each Participant will be determined by using
the average closing price for Shares as reported on the New York Stock Exchange-
Composite Transactions for the ten (10) business days prior to February 15,
1996. Payout of these Restricted Share Units shall not commence until death,
retirement or the termination of Board service.
4.2 Crediting Share Units. If the Committee elects to do so, each year in
conjunction with either the Participant's election or re-election to the Board,
a yearly dollar amount ("Yearly Credit") will be credited to a Participant's
Restricted Deferred Compensation Account in the form of Restricted Share Units.
The number of Restricted Share Units credited to a Participant's Restricted
Deferred Compensation Account shall be determined by dividing the Yearly Credit
by the average closing price for Shares as reported on the New York Stock
Exchange-Composite Transactions for the ten (10) day period prior to the
<PAGE>
7
Company's annual meeting. Any fractional Restricted Share Units shall also be
credited to a Participant's Restricted Deferred Compensation Account. The
number of Restricted Share Units in a Restricted Deferred Compensation Account
shall be appropriately adjusted by the Committee in the event of changes in the
Company's outstanding common stock by reason of a stock dividend or
distribution, recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like, and such adjustments shall be conclusive.
Restricted Share Units shall not entitle any person to the rights of a
stockholder.
4.3 Crediting Dividend Equivalents. The Company shall credit the
Participant's Restricted Deferred Compensation Account with Dividend Equivalents
being equal to the dividends declared on the Company's Shares. The crediting
shall occur as of the date on which said dividends are paid. The number of
Restricted Share Units to be credited to the Restricted Deferred Compensation
Account shall be calculated by dividing the Dividend Equivalents by the average
closing price for Shares as reported on the New York Stock Exchange-Composite
Transactions for the period of ten (10) trading days prior to the day on which
the dividends are paid on the Company's Shares. Any fractional Restricted Share
Units shall also be credited to a Participant's Restricted Deferred Compensation
Account.
4.4 Restricted Share Unit Conversion. Immediately upon termination of
Board service, and so prior to the commencement of any payout or distribution of
any amounts hereunder, a Participant may make a one-time election to convert to
Cash Units all or a portion of the balance of Restricted Share Units in such
Participant's Restricted Deferred Compensation Account. Any Restricted Share
Units so converted to Cash Units as a result of this one-time conversion
election shall be valued at the average closing price for Shares as reported on
the New York Stock Exchange - Composite Transactions for the ten (10) day period
immediately prior to such one-time conversion election.
4.5 Time of Payment. All payments of a Participant's Restricted Deferred
Compensation Account shall be made at, or shall commence on, the date selected
by the Participant in accordance with the terms of this Article IV. The date of
payment or distribution must be specified by the Director in his or her written
Form of Continuing Deferral unless such election is revoked. A Participant's
revocation must be submitted to the Corporate Secretary in writing. If the
Participant selects a new election with regard to the date of payment or
distribution, such election will apply only prospectively to any additional
Restricted Share Units to be credited to a Director's Restricted Deferred
Compensation Account. If the Participant fails to designate a time of payment,
payment shall commence on the first day of the calendar year following
termination of Board service. The Participant may elect to defer the receipt of
his or her Compensation to the first day of the year following the date of:
(a) retirement as a Director;
(b) termination of Board service; or
(c) death. Upon the death of a Director or former Director, prior to
the final payment of all amounts credited to his or her Account, the
balance of the Restricted Deferred Compensation Account shall be paid in
accordance with Article V, commencing on the first day of the calendar year
following the year of death.
<PAGE>
8
Notwithstanding the foregoing provisions of this Section 4.4, in no event,
however, shall any payment or distribution be made within the six (6) months of
the Compensation being earned. The benefit commencement date may not be later
than the third calendar year following the attainment of mandatory retirement
age for Participants.
4.6 Method of Payment. Participant shall have the option of:
(a) selecting a lump sum payment;
(b) selecting a series of approximately equivalent annual installments
(adjusted as necessary to reflect Dividend Equivalents and/or Interest
Equivalents accrued during the installment payout period) in such number of
installments as the Participant shall specify (not exceeding ten (10)
installments); or
(c) not selecting a method of payment at the time the Form for
Continuing Deferral is prepared. If the Participant does not select a
method of payment, he or she must, at least twelve months prior to the time
the deferral amount is scheduled to be paid, notify the Corporate Secretary
as to the specific method of payment which will be either in a lump sum or
in approximately equivalent annual installments, and such election shall be
subject to the consent of the Committee. Failure to provide appropriate
notification to the Corporate Secretary will result in a lump sum payment
on the deferral payment date.
Share Units credited to the Participant's Restricted Deferred Compensation
Account shall be valued at the average closing price for Shares as reported on
the New York Stock Exchange-Composite Transactions for the ten (10) day period
prior to each new calendar year.
ARTICLE V
Designation of Beneficiaries
The Participant shall name a beneficiary and a contingent beneficiary to
receive any payments due him or her at the time of his or her death, with the
right to change such beneficiary at any time. In case of a failure of
designation or the death of the designated beneficiary with a designated
successor, distribution shall be made to the estate of the Participant. No
designation of beneficiaries shall be valid unless in writing signed by the
Participant, dated and filed with the Committee. Upon the Participant's death,
any balance in the Participant's Deferred Compensation Account and Restricted
Deferred Compensation Account is payable under the method and form elected by
the Participant.
ARTICLE VI
Source of Payments
All payments of deferred compensation shall be paid in cash from the
general funds of the Company and the Company shall be under no obligation to
segregate any assets in connection with the maintenance of a Deferred
Compensation Account or Restricted Deferred Compensation Account, nor shall
anything contained in this Plan nor any action taken pursuant to the Plan create
or be construed to create a trust of any kind, or a fiduciary relationship
between the Company and Participant. Title to the beneficial ownership of any
assets, whether cash or investments, which the Company may designate to pay the
amount credited to the Deferred Compensation Account or a Restricted Deferred
<PAGE>
9
Compensation Account shall at all times remain in the Company and Participant
shall not have any property interest whatsoever in any specific assets of the
Company. Participant's interest in the Deferred Compensation Account or a
Restricted Deferred Compensation Account shall be limited to the right to
receive payments pursuant to the terms of this Plan and such rights to receive
shall be no greater than the right of any other unsecured general creditor of
the Company.
ARTICLE VII
Change in Control
7.1 Acceleration of Payment Upon Change in Control. The terms of this
Section 7.1 shall immediately become operative, without further action or
consent by any person or entity, upon a Change in Control, and once operative
shall supersede and control over any other provisions of this Plan. Upon the
occurrence of a Change in Control, and for twelve (12) months thereafter, each
Participant, whether or not he or she is still a Director, shall have the right
to withdraw, in a single lump-sum cash payment, an amount equal to ninety-five
percent (95%) of the balance of each of his or her Deferred Compensation Account
and Restricted Deferred Compensation Account, as of the valuation date
immediately preceding the date of withdrawal; provided, however, that if this
option is exercised, such Participant will forfeit to the Company the remaining
five percent (5%) of the balance of each such account (as of the valuation date
immediately preceding the date of withdrawal) from which the funds are withdrawn
as a penalty. Payments under this Section 7.1 shall be made as soon as
practicable, but no later than thirty (30) days after the Participant notifies
the Committee in writing that he/she is exercising his/her right to withdraw
pursuant to this Section 7.1.
7.2 Amendment on or after Change in Control. On or after a Change in
Control, no action, including by way of example and not of limitation, the
amendment, suspension or termination of the Plan, shall be taken which would
affect the rights of any Participant or the operation of this Plan with respect
to the balance in the Participant's Accounts.
7.3 Attorney's Fees. The Company shall pay all legal fees and related
expenses incurred by a Participant in seeking to obtain or enforce any payment,
benefit or right such Participant may be entitled to under the plan after a
Change in Control. The Participant shall reimburse the Company for such fees
and expenses at such time as a court of competent jurisdiction, or another
independent third party having similar authority, determines that the
Participant's claim was frivolously brought without reasonable expectation of
success on the merits thereof.
ARTICLE VIII
Nonalienation of Benefits
Participant shall not have the right to sell, assign, transfer or otherwise
convey or encumber in whole or in part the right to receive any payment under
this Plan except in accordance with Article V.
ARTICLE IX
Acceptance of Terms
The terms and conditions of this Plan shall be binding upon the heirs,
beneficiaries and other successors in interest of Participant to the same extent
that said terms and conditions are binding upon the Participant.
<PAGE>
10
ARTICLE X
Administration of the Plan
The Plan shall be administered by the Committee which may make such rules
and regulations and establish such procedures for the administration of this
Plan as it deems appropriate. In the event of any dispute or disagreements as
to the interpretation of this Plan or of any rule, regulation or procedure or as
to any questioned right or obligation arising from or related to this Plan, the
decision of the Committee shall be final and binding upon all persons.
ARTICLE XI
Termination and Amendment
The Plan may be terminated at any time by the Board of Directors of Sun
Company, Inc. and may be amended at any time by the Committee provided, however,
that no such amendment or termination shall adversely affect the rights of
Participants or their beneficiaries with respect to amounts credited to Deferred
Compensation Accounts or Restricted Deferred Compensation Accounts prior to such
amendment or termination, without the written consent of the Participant.
ARTICLE XII
Construction
In the case any one or more of the provisions contained in this Plan shall
be invalid, illegal or unenforceable in any respect the remaining provisions
shall be construed in order to effectuate the purposes hereof and the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
ARTICLE XIII
Governing Law
This Plan shall be construed in accordance with and governed by the laws of
the Commonwealth of Pennsylvania.
<PAGE>
Exhibit 10.5
==============================================================================
SUN COMPANY, INC.
DEFERRED COMPENSATION PLAN
(Amended and Restated as of March 4, 1998)
==============================================================================
<PAGE>
2
ARTICLE I
Definitions
1.1 Cash Unit - shall mean the entry in a Deferred Compensation Account of a
credit equal to One Dollar ($1.00).
1.2 Change in Control - shall mean the occurrence of any of the following
events or transactions:
(a) Continuing Directors cease, within one year of a Control Transaction,
to constitute a majority of the Board of Directors of Sun Company, Inc. (or
of the Board of Directors of any successor to Sun Company, Inc. or to all or
substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sun Company, Inc. in a
transaction or series of transactions that result in such entity, person or
Group directly or indirectly owning beneficially more than 20% of the
outstanding voting shares.
1.3 Committee - shall mean the Compensation Committee of the Board of
Directors of Sun Company, Inc.
1.4 Company - shall mean Sun Company, Inc., a Pennsylvania corporation. The
term "Company" shall include any successor to Sun Company, Inc., any subsidiary
or affiliate which has adopted the Plan, or a corporation succeeding to the
business of Sun Company, Inc., or any subsidiary or affiliate by merger,
consolidation, liquidation or purchase of assets or stock or similar
transaction.
1.5 Continuing Director - shall mean a Director who was a member of the Board
of Directors immediately prior to a Control Transaction which results in a
Change in Control.
1.6 Control Transaction - shall mean any of the following transactions or any
combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun Company,
Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of director
of Sun Company, Inc. by a shareholder or a group of shareholders in a proxy
solicitation or otherwise.
1.7 Deferred Bonus Account - shall mean, with respect to any Participant, the
total amount of the Company's liability for payment of deferred compensation to
the Participant under this Plan, including any accumulated Interest Equivalents
and/or Dividend Equivalents.
1.8 Dividend Equivalent - shall mean the entry in a Participant's Deferred
Bonus Account of a dividend credit with respect to a Share Unit, each Dividend
Equivalent being equal to the dividend paid from time to time on a Share.
1.9 Executive Resource Employee - shall mean any individual employed by the
Company who has been designated by the Company as a member of the Company's
executive resources group. Generally such group shall include employees in
Grades 14-20 and all employees subject to Section 16 of the Securities Exchange
Act of 1934, as amended.
<PAGE>
3
1.10 Group - shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
1.11 Incentive Plan - shall mean the Sun Company, Inc. Executive Incentive
Plan. The Incentive Plan provides that the Board of Directors may pay bonuses
annually, as additional compensation to such employees as the Board determines
have principally contributed to the profitability of the Company.
1.12 Interest Equivalent - shall mean the entry in a Participant's Deferred
Bonus Account of an interest credit with respect to a Cash Unit, the interest
factor being equal to the interest rate for ten-year U.S. Treasury Notes as of
December 31 of the preceding year, to be compounded on the basis of the balance
in the Participant's Deferred Bonus Account.
1.13 Non-Cash Bonus - shall have the meaning set forth herein at Section 4.1.
1.14 Participant - shall mean any Executive Resource Employee who meets the
eligibility requirements of the Incentive Plan and who is participating in this
Plan.
1.15 Permanent and Total Disability - shall mean, with respect to any
Participant, that such Participant is eligible to receive benefits under the
applicable long-term disability plan of such Participant's employer.
1.16 Plan - shall mean the Deferred Compensation Plan set forth herein and as
it may be amended from time to time.
1.17 Retirement - shall mean the date on which a Participant is retired in
accordance with the applicable retirement plan, program, or policy of such
Participant's employer.
1.18 Share - shall mean a share of the Company's authorized voting Common
Stock ($1.00 par value per share) and any share or shares of stock of the
Company hereafter issued or issuable in substitution or exchange for each such
share, except for the Company's Series A Preference Stock.
1.19 Share Unit - shall mean the entry in a Participant's Deferred Bonus
Account of a credit equal to one Share.
1.20 Subsidiaries - shall mean corporations in which the Company, directly or
indirectly owns fifty percent (50%) or more of the outstanding voting stock.
ARTICLE II
Background and Purpose of Plan
2.1 Purpose. The Company has established this Deferred Compensation Plan to
provide Executive Resource Employees who are participants in the Incentive Plan
with the option to irrevocably defer the receipt of all or a portion of the
bonus to which such participants would otherwise be entitled, subject to the
terms and conditions hereinafter set forth.
<PAGE>
4
2.2 Creation of Deferred Bonus Account. Each of the following shall be
credited to a Deferred Bonus Account established by the Company for each
Participant:
(a) any bonus amounts voluntarily deferred by the Participant pursuant to
Article III (Deferral of Bonuses by Participant) hereof; and/or
(b) any Non-Cash Bonus amounts deferred in the discretion of the Committee
pursuant to Article IV (Deferral of Bonuses by Committee) hereof.
Any bonus amounts voluntarily deferred by the Participant will be credited to
a Participant's Deferred Bonus Account in the form of Cash Units or Share Units,
in the discretion of the Participant, as set forth in the Plan. The deferral of
any Non-Cash Bonus amounts caused by action of the Committee will be credited to
a Participant's Deferred Bonus Account in the form of Cash Units or Share Units
as the Committee, in its sole discretion, may decide in accordance with the
Plan.
ARTICLE III
Deferral of Bonuses by Participant
3.1 Participant's Election to Defer. A Participant voluntarily may elect to
defer, in the form of Cash Units or Share Units, all or a portion of his or her
bonus to be awarded under the Incentive Plan by filing a written election with
the Committee on forms prescribed by the Committee. Such election must include
the following:
(a) percentage of bonus to be deferred;
(b) the form of deferral, being either Cash Units, Share Units or a
combination of the two and the percentage allocations of such;
(c) a designation of beneficiary as set forth in Article VI (Designation
of Beneficiaries); and
(d) an irrevocable election of a method of payment as set forth in Section
3.10 hereof.
Any such voluntary election by the Participant shall apply only to bonuses
for the year specified in the election.
3.2 Amount of Deferral. The amount of bonus to be deferred in any year shall
be designated by the Participant as a percentage of such Participant's bonus in
multiples of five percent (5%) but shall not be less than ten percent (10%).
3.3 Time of Election. A separate election to defer must be filed for each
year and must be received by the Company no later than forty-five (45) days
before the end of the year in which the bonus is earned. Any election by a
Participant with respect to a bonus in a given year will not preclude a
different action with respect to bonuses in subsequent years, consistent with
the provisions of this Article III with respect to the giving of notice of
deferral election.
3.4 Crediting Share Units. Share Units shall be credited to a Participant's
Deferred Bonus Account at the time the bonus otherwise would have been paid had
no election to defer been made. The number of Share Units to be credited to the
Deferred Bonus Account shall be determined by dividing the portion of the bonus
to be deferred by the average closing price for Shares as reported on the New
York Stock Exchange-Composite Transactions for the ten (10) day period prior to
the day on which the bonus otherwise would have been paid. Any fractional Share
Units shall also be credited to a Participant's Deferred Bonus Account. Share
Units shall not entitle any person to the rights of a shareholder.
<PAGE>
5
3.5 Crediting Dividend Equivalents. For Share Units, the Company shall
credit the Participant's Deferred Bonus Account with Dividend Equivalents being
equal to the dividends declared on the Company's Shares. The crediting shall
occur as of the date on which said dividends are paid. The number of Share
Units to be credited to the Deferred Bonus Account shall be calculated by
dividing the Dividend Equivalents by the average closing price for Shares as
reported on the New York Stock Exchange-Composite Transactions for the period of
ten (10) trading days prior to the day on which the dividends are paid on the
Company's Shares. Any fractional Share Units shall also be credited to a
Participant's Deferred Bonus Account.
3.6 Crediting Cash Units. Cash Units shall be credited to a Participant's
Deferred Bonus Account at the time the bonus would otherwise have been paid had
no election to defer been made.
3.7 Crediting Interest Equivalents. For Cash Units credited to a
Participant's Deferred Bonus Account, the Company shall credit such
Participant's Deferred Bonus Account on a quarterly basis with an Interest
Equivalent.
3.8 Share Unit Conversion. Immediately upon termination of the Participant's
employment with the Company, and so prior to the commencement of any payout or
distribution of any amounts hereunder, the Participant may make a one-time
election to convert to Cash Units all or a portion of the balance of Share Units
in such Participant's Deferred Bonus Account. Any Share Units so converted to
Cash Units as a result of this one-time conversion election shall be valued at
the average closing price for Shares as reported on the New York Stock Exchange
- -Composite Transactions for the ten (10) day period immediately prior to such
one-time conversion election.
3.9 Time of Payment. Except as provided in Article V (Change in Control)
hereof, all payments of a Participant's Deferred Bonus Account shall be made at,
or shall commence on, the date selected by the Participant in accordance with
the terms of this Article III. The date of payment or distribution must be
irrevocably specified by the Participant in his or her written notice of
election. The Participant may elect to defer the receipt of all or a specified
portion of such Participant's bonus to:
(a) the first day of any calendar year, provided such date is at least six
(6) months after the end of the quarter in which the bonus is earned; or
(b) the first day of the year following the date of:
(1) the Participant's retirement;
(2) final determination that the Participant has a Permanent and Total
Disability;
(3) termination of the Participant's employment with the Company; or
(4) death of the Participant. Upon the death of a Participant prior to
the final payment of all amounts credited to his or her Deferred Bonus
Account, the balance of the Deferred Bonus Account shall be paid in
accordance with Article VI (Designation of Beneficiaries) hereof,
commencing on the first day of the calendar year following the year of
death.
<PAGE>
6
Notwithstanding the foregoing provisions of this Section 3.9, and except as
provided in Article V (Change in Control) hereof, in no event shall any payment
or distribution be made within six (6) months of the bonus being earned or
awarded. The benefit commencement date may not be later than the third calendar
year following the date of: (i) Participant's retirement, or (ii) termination of
Participant's employment.
3.10 Method of Payment. A Participant in this portion of the Deferred
Compensation Plan shall have the option of:
(a) selecting a lump-sum payment;
(b) selecting a series of approximately equivalent annual installments
(adjusted as necessary to reflect Dividend Equivalents and/or Interest
Equivalents accrued during the installment payout period) in such number of
installments as the Participant shall specify (not exceeding ten (10)
installments); or
(c) not selecting a method of payment at the time the Form for Deferred
Payment Election/Designation of Beneficiary is prepared. If the Participant
does not select a method of payment, he or she must, at least twelve (12)
months prior to the time the deferral amount is scheduled to be paid, notify
the Company as to the specific method of payment which will be either in a
lump sum or in approximately equivalent annual installments. Failure to
provide appropriate notification to the Company will result in a lump sum
payment on the deferral payment date.
Participant shall receive in cash all deferred compensation credited to such
Participant's Deferred Compensation Account. Share Units credited to the
Participant's Deferred Compensation Account shall be valued at the average
closing price for Shares as reported on the New York Stock Exchange-Composite
Transactions for the ten (10) day period prior to each new calendar year.
3.11 Hardship Distribution. Participant may request a modification in the
payment terms hereunder only in the event of severe financial hardship and only
to the extent reasonably necessary to eliminate the hardship. Such request
shall specify in detail the grounds for the requested modification and shall be
referred to the Committee. A qualifying severe financial hardship must be
caused by accident, illness, or event beyond the control of the Participant.
The decision of the Committee with respect to the requested modification shall
be solely at the discretion of the Committee and in accordance with its
evaluation of the exigencies of the situation. Such decision shall be binding
on the Company and Participant.
ARTICLE IV
Deferral of Bonuses by Committee
4.1 Committee's Election to Defer. Each year in conjunction with the award
of any bonus to the Participant, the Committee, in its sole discretion, may
cause to be credited to a Participant's Deferred Bonus Account in the form of
either Cash Units or Share Units, a specified dollar amount representing all or
a portion of such Participant's bonus for that year (the "Non-Cash Bonus").
<PAGE>
7
4.2 Crediting Share Units. Share Units shall be credited to a Participant's
Deferred Bonus Account at the time the bonus would otherwise have been paid had
no Committee action to defer been taken. The number of Share Units credited to
the Participant's Deferred Bonus Account shall be determined by dividing the
Non-Cash Bonus by the average closing price for Shares as reported on the New
York Stock Exchange-Composite Transactions for the ten (10) day period prior to
the date such bonus otherwise would have been paid had no Committee action been
taken. Any fractional Share Units shall also be credited to such Participant's
Deferred Bonus Account. Share Units shall not entitle any person to the rights
of a stockholder.
4.3 Crediting Dividend Equivalents. The Company shall credit the
Participant's Deferred Bonus Account with Dividend Equivalents being equal to
the dividends declared on the Company's Shares. The crediting shall occur as of
the date on which said dividends are paid. The number of Share Units to be
credited to the Deferred Bonus Account shall be calculated by dividing the
Dividend Equivalents by the average closing price for Shares as reported on the
New York Stock Exchange-Composite Transactions for the period of ten (10)
trading days prior to the day on which the dividends are paid on the Company's
Shares. Any fractional Share Units shall also be credited to a Participant's
Deferred Bonus Account.
4.4 Crediting Cash Units. Cash Units shall be credited to a Participant's
Deferred Bonus Account at the time the bonus otherwise would have been paid had
no Committee action to defer been taken.
4.5 Crediting Interest Equivalents. For Cash Units credited to a
Participant's Deferred Bonus Account, the Company shall credit such
Participant's Deferred Bonus Account on a quarterly basis with an Interest
Equivalent.
4.6 Share Unit Conversion. Immediately upon termination of the Participant's
employment with the Company, and so prior to the commencement of any payout or
distribution of any amounts hereunder, the Participant may make a one-time
election to convert to Cash Units all or a portion of the balance of Share Units
in such Participant's Deferred Bonus Account. Any Share Units so converted to
Cash Units as a result of this one-time conversion election shall be valued at
the average closing price for Shares as reported on the New York Stock Exchange
- -Composite Transactions for the ten (10) day period immediately prior to such
one-time conversion election.
4.7 Time of Payment. The Committee will specify in writing its election of
the earliest date of payment or distribution, and such election shall remain
effective until revoked in writing by the Committee. If the Committee elects a
new date with regard to payment or distribution, such election will apply only
prospectively to any additional Share Units and/or Cash Units to be credited to
such Participant's Deferred Bonus Account by Committee action in accordance with
this Article IV. If the Committee fails to designate a time of payment, payment
shall commence on the first day of the calendar year following the termination
of such Participant's employment. Notwithstanding the foregoing provisions of
this Section 4.7, in no event, however, shall the payment date be later than the
third calendar year following the date of: (i) Participant's retirement, or (ii)
termination of Participant's employment.
<PAGE>
8
4.8 Method of Payment. The Participant must select a method of payment at
least twelve (12) months prior to the time the deferral amount is scheduled to
be paid, by notifying the Company as to whether the method of payment will be
either:
(a) a lump sum payment; or
(b) a series of approximately equivalent annual installments (adjusted as
necessary to reflect Dividend Equivalents accrued during the installment
payout period), in such number of installments as the Participant shall
specify (not exceeding ten (10) installments).
If no election is made, payment or distribution of any amounts deferred by
Committee action pursuant to this Article IV (together with the Dividend
Equivalents and/or Interest Equivalents, as the case may be, accrued thereon)
shall be made in a single lump sum on the earliest payment date permitted by the
Committee as provided under Section 4.7 hereof. Share Units credited to the
Participant's Deferred Bonus Account shall be valued at the average closing
price for Shares as reported on the New York Stock Exchange-Composite
Transactions for the ten (10) day period prior to each new calendar year.
ARTICLE V
Change in Control
5.1 Acceleration of Payment Upon Change in Control. The terms of this Section
5.1 shall immediately become operative, without further action or consent by any
person or entity, upon a Change in Control, and once operative shall supersede
and control over any other provisions of this Plan. Upon the occurrence of a
Change in Control, and for twelve (12) months thereafter, each Participant,
whether or not he or she is still an employee of the Company, shall have the
right to withdraw, in a single lump-sum cash payment, an amount equal to ninety-
five percent (95%) of the balance of such Participant's Deferred Bonus Account,
as of the valuation date immediately preceding the date of withdrawal; provided,
however, that if this option is exercised, such Participant will forfeit to the
Company the remaining five percent (5%) of the balance of each such account (as
of the valuation date immediately preceding the date of withdrawal) from which
the funds are withdrawn as a penalty. Payments under this Section 5.1 shall be
made as soon as practicable, but no later than thirty (30) days after the
Participant notifies the Company in writing that he/she is exercising his/her
right to withdraw pursuant to this Section 5.1.
5.2 Amendment on or after Change in Control. On or after a Change in
Control, no action, including by way of example and not of limitation, the
amendment, suspension or termination of the Plan, shall be taken which would
affect the rights of any Participant or the operation of this Plan with respect
to the balance in the Participant's Accounts.
5.3 Attorney's Fees. The Company shall pay all legal fees and related
expenses incurred by a Participant in seeking to obtain or enforce any payment,
benefit or right such Participant may be entitled to under the plan after a
Change in Control. The Participant shall reimburse the Company for such fees
and expenses at such time as a court of competent jurisdiction, or another
independent third party having similar authority, determines that the
Participant's claim was frivolously brought without reasonable expectation of
success on the merits thereof.
<PAGE>
9
ARTICLE VI
Designation of Beneficiaries
The Participant shall name a beneficiary to receive any payments due such
Participant at the time of death, with the right to change such beneficiary at
any time. In case of a failure of designation or the death of the designated
beneficiary without a designated successor, distribution shall be made to the
person or persons designated as beneficiary in the designation most recently
filed under the Sun Company, Inc. Capital Accumulation Plan, or if no such
designation has been made or the Participant is not participating in such plan,
the surviving spouse of a deceased Participant, or, if there is no surviving
spouse, the children of the Participant in equal shares (the share of any child
who predeceases the Participant to go in equal shares to the issue of such
deceased child), or if there is no surviving spouse, child, or issue of such
children, the estate of the Participant. No designation of beneficiaries shall
be valid unless in writing signed by the Participant, dated and filed with the
Company. Upon the Participant's death, any balance in the Participant's
Deferred Bonus Account is payable under the method elected by the Participant or
in such other manner as the Committee may determine in its sole discretion.
ARTICLE VII
Miscellaneous
7.1 Source of Payments. All payments of deferred bonuses shall be paid in
cash from the general funds of the Company and the Company shall be under no
obligation to segregate any assets in connection with the maintenance of the
Deferred Bonus Account, nor shall anything contained in this Plan nor any action
taken pursuant to the Plan create or be construed to create a trust of any kind,
or a fiduciary relationship between the Company and Participant. Title to the
beneficial ownership of any assets, whether cash or investments, which the
Company may designate to pay the amount credited to the Deferred Bonus Account
shall at all times remain in the Company and Participant shall not have any
property interest whatsoever in any specific assets of the Company.
Participant's interest in the Deferred Bonus Account shall be limited to the
right to receive payments pursuant to the terms of this Plan and such rights to
receive shall be no greater than the right of any other unsecured general
creditor of the Company.
7.2 Nonalienation of Benefits. Participant shall not have the right to sell,
assign, transfer or otherwise convey or encumber in whole or in part the right
to receive any payment under this Plan except in accordance with Article VI
(Designation of Beneficiaries) hereof.
7.3 Acceptance of Terms. The terms and conditions of this Plan shall be
binding upon the heirs, beneficiaries, and other successors in interest of
Participant to the same extent that said terms and conditions are binding upon
the Participant. This Plan shall not be construed in any way as an employment
contract requiring the Company or Participant to continue the employment
relation.
7.4 Administration of the Plan. The Plan shall be administered by the
Committee which may make such rules and regulations and establish such
procedures for the administration of this Plan as it deems appropriate. In the
event of any dispute or disagreements as to the interpretation of this Plan or
of any rules, regulation, or procedure or as to any questioned right or
obligation arising from or related to this Plan, the decision of the Committee
shall be final and binding upon all persons.
<PAGE>
10
7.5 Adjustments for Changes in Capitalization. The number of Share Units in
the Participant's Deferred Bonus Account shall be appropriately adjusted by the
Committee in the event of changes in the Company's outstanding common stock by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, and such
adjustments shall be conclusive.
7.6 Termination and Amendment. The Plan may be terminated at any time by the
Board of Directors of Sun Company, Inc., and may be amended at any time by the
Committee provided, however, that no such amendment or termination shall
adversely affect the rights of Participants or their beneficiaries with respect
to amounts credited to Deferred Bonus Accounts prior to such amendment or
termination, without the written consent of the Participant.
7.7 Notices. To be effective, all notices, requests and demands to or upon
the Company or the Participant, as the case may be, shall be in writing, by
facsimile, by overnight courier or by registered or certified mail, postage
prepaid and return receipt requested, and shall be deemed to have been duly
given or made upon:
(a) delivery by hand;
(b) one business day after being sent by overnight courier;
(c) four business days after being deposited in the United States mail,
postage prepaid; or
(d) in the case of transmission by facsimile, when confirmation of receipt
is obtained.
Such communications shall be addressed and directed as listed below (or to
such other address or recipient for a party as may be hereafter notified by such
party hereunder), to the Company or the Participant, respectively:
If to the Company, to:
SUN COMPANY, INC.
Human Resources Department
Ten Penn Center - 20th Floor
1801 Market Street
Philadelphia, PA 19103-1699
Attn: Director, Compensation & Benefits
FAX : (215) 246-8498
Confirm: (215) 246-8392
If to Participant, to:
The most recent address for Participant appearing in the books and records
of the Company.
7.8 Construction. The captions and headings used for the various Articles
and Sections of this Plan are for convenience of reference only and are not to
affect the construction hereof or be taken into consideration in the
interpretation hereof.
7.9 Severability. In the case of any one or more of the provisions contained
in this Plan shall be invalid, illegal, or unenforceable in any respect the
remaining provisions shall be construed in order to effectuate the purposes
hereof and the validity, legality, and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
7.10 Governing Law. This Plan shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
<PAGE>
Exhibit 10.6
SUN COMPANY, INC.
PENSION RESTORATION PLAN
Amendment No. 1997-1
1. Sections 1.06A, 1.08A, 1.08B and 3.01A are deleted effective September 1,
1997.
<PAGE>
Exhibit 10.7
SUN COMPANY, INC.
SAVINGS RESTORATION PLAN
Amendment No. 1997-1
There is added a new Section 3 to Article V of the Plan as follows:
"3. Acceleration of Payment upon Change in Control.
A. Right to Withdraw.
The terms of this Section 3 of Article V shall immediately become
operative, without further action or consent by any person or entity,
upon a Change in Control, and once operative shall supersede and
control over any other provisions of this Plan. Upon a Change in
Control, and for twelve (12) months thereafter, each participant,
whether or not he is still an employee of the Company, shall have the
right to withdraw, in a single lump-sum cash payment, an amount equal
to ninety-five percent (95%) of the value of his book accounts under
the Plan; provided, however, that if this option is exercised, such
participant will forfeit to the Company the remaining five percent (5%)
of the value of his book accounts as of the time of the withdrawal.
Payments under this Section 3 shall be made as soon as practicable, but
no later than 30 days after the participant notifies the Plan that he
is exercising his right to withdraw.
(i) On or after a Change in Control, no action, including by way of
example and not of limitation, the amendment, suspension or
termination of the Plan, shall be taken which would affect the
rights of any participant or the operation of the Plan with
respect to all amounts credited to book accounts on behalf of
participants on the date of the Change in Control.
(ii) The Company shall pay all reasonable legal fees and related
expenses incurred by a participant in seeking to obtain or
enforce any payment, benefit or other right such participant may
be entitled to under the Plan after a Change in Control;
provided, however, that the participant shall be required to
repay any such amounts to the Company to the extent a court of
competent jurisdiction issues a final and non-appealable order
setting forth the determination that the position taken by the
participant was frivolous or advanced in bad faith.
B. Definitions.
'Change in Control' shall be deemed to have occurred if:
(i) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors
of Sun Company, Inc. (or of the Board of Directors of any
successor to Sun Company, Inc. or to all or substantially all of
its assets) or
(ii) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning
beneficially more than twenty percent (20%) of the outstanding
voting shares.
<PAGE>
2
As used herein, 'Control Transaction' shall mean any of the
following transactions or any combination thereof: (1) any tender
offer for or acquisition of capital stock of Sun Company, Inc., (2)
any merger, consolidation, or sale of all or substantially all of
the assets of Sun Company, Inc., or (3) the submission of a nominee
or nominees for the position of director of the Company by a
shareholder or a Group of shareholders in a proxy solicitation or
otherwise. As used herein, 'Continuing Director' shall mean a
Director who was a member of the Board of Directors of Sun Company,
Inc. immediately prior to a Control Transaction which results in a
Change in Control. As used herein, 'Group' shall mean persons who
act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of
the Securities Exchange Act of 1934, as amended."
<PAGE>
Exhibit 10.8
================================================================================
SUN COMPANY, INC.
EXECUTIVE INCENTIVE PLAN
(As Amended and Restated Effective March 4, 1998)
================================================================================
<PAGE>
2
ARTICLE I
Definitions
As used in this Plan, the following terms shall have the meanings herein
specified:
1.1 Board of Directors - shall mean the Board of Directors of the Company.
1.2 Business Unit/Team Performance Factor - shall mean the factor (expressed
as a percentage) determined for the respective business unit and/or team of
which the Participant is a member, pursuant to Section 4.2(b).
1.3 CEO - shall mean the Chief Executive Officer of the Company.
1.4 Change in Control - shall mean the occurrence of any of the following
events or transactions:
(a) Continuing Directors cease, within one year of a Control Transaction,
to constitute a majority of the Board of Directors of Sun Company, Inc. (or
of the Board of Directors of any successor to Sun Company, Inc. or to all or
substantially all of its assets), or
(b) Any entity, person or Group acquires shares of Sun Company, Inc. in a
transaction or series of transactions that results in such entity, person or
Group directly or indirectly owning beneficially more than twenty percent
(20%) of the outstanding voting shares of Sun Company, Inc.
1.5 CIC Incentive Award - shall mean the incentive award payable in cash
following a Change in Control, as such award is described herein at Article VII.
1.6 CIC Participant - shall mean any Participant who:
(a) was employed by the Company on the date of the Change in Control;
(b) was eligible for a prorated award under the provisions of Section 5.2;
or
(c) following a Potential Change in Control, ceased to be an employee of
the Company as a result of either a termination of employment by the Company
other than for Just Cause or a termination of employment by the Participant
for one of the following reasons:
(1) The assignment to such Participant of any duties inconsistent in a
way adverse to such Participant, with such Participant's positions,
duties, responsibilities and status with the Company immediately prior to
the Change in Control, or a reduction in the duties and responsibilities
held by the Participant immediately prior to the Change in Control; a
change in the Participant's reporting responsibilities, title or offices
as in effect immediately prior to the Change in Control that is adverse to
the Participant; or any removal of the Participant from or any failure to
re-elect the Participant to any position with the Company that such
Participant held immediately prior to the Change in Control except in
connection with such Participant's:
(i) assignment to a new position at a higher combined annual base
salary and Guideline Incentive Award; or
<PAGE>
3
(ii) termination of employment by the Company for Just Cause; or
(2) With respect to any Participant who is a member of the Board of
Directors immediately prior to the Change in Control, any failure of the
shareholders of the Company to elect or reelect, or of the Company to
appoint or reappoint, the Participant as a member of the Board of
Directors;
(3) A reduction by the Company in the Participant's annual base salary
or Guideline Incentive Award as in effect immediately prior to the Change
in Control; the failure by the Company to continue in effect, or the
taking of any action by the Company that would adversely affect such
Participant's participation in or materially reduce such Participant's
benefits under any employee benefit plan or compensation plan in which
such Participant was participating immediately prior to the Change in
Control; provided, however, that in the aggregate such actions by the
Company significantly reduce the Participant's total compensation (i.e.,
the sum of Participant's annual base salary, Guideline Incentive Award and
the aggregate value to the Participant of all employee benefit and
compensation plans); or the failure by the Company, without the
Participant's consent, to pay to the Participant any portion of the
Participant's current compensation, or to pay to the Participant any
portion of an installment of deferred compensation under any deferred
compensation program of the Company; or
(4) The Company requires the Participant to be based anywhere other
than the Participant's present work location or a location within thirty-
five (35) miles from the present location; or the Company requires the
Participant to travel on Company business to an extent substantially more
burdensome than such Participant's travel obligations during the period of
twelve (12) consecutive months immediately preceding the Change in
Control; provided, however, that the Participant can demonstrate that
such termination or circumstance in subsections (1) through (4) herein
leading to termination was at the request of a third party with which the
Company had entered into negotiations or an agreement with regard to a
Change in Control or otherwise occurred in connection with, or in
anticipation of, a Change in Control, and also provided that in either
such case, such Change in Control actually occurs within one (1) year
following the date of termination.
1.7 CIC Short Period - shall mean the portion of the Plan Year from January
1 to the date of the occurrence of a Change in Control.
1.8 Common Stock Unit - shall mean a right to receive a share of Sun Stock
subject to risk of forfeiture as provided under the LTPEP or any successor plan.
1.9 Company - shall mean Sun Company, Inc., a Pennsylvania corporation. The
term "Company" shall include any successor to Sun Company, Inc., any subsidiary
or affiliate which has adopted the Plan, or a corporation succeeding to the
business of Sun Company, Inc., or any subsidiary or affiliate, by merger,
consolidation or liquidation or purchase of assets or stock or similar
transaction.
1.10 Company Performance Factor - shall mean the factor (expressed as a
percentage) which the Compensation Committee determines is indicative of the
Company's attainment of certain predetermined annual performance goals, as
determined under Section 4.1.
<PAGE>
4
1.11 Compensation Committee - shall mean the Compensation Committee of the
Board of Directors.
1.12 Continuing Director - shall mean a director who was a member of the
Board of Directors immediately prior to a Control Transaction which results in a
Change in Control.
1.13 Control Transaction - shall mean any of the following transactions or
any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun Company,
Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of director
of Sun Company, Inc. by a shareholder or a Group of shareholders in a proxy
solicitation or otherwise.
1.14 Executive Resources Employee - shall mean any individual who has been
designated by the Company as a member of the Company's Executive Resources
group. Generally, such group shall include employees in Grades 14 through 20
and all other employees subject to Section 16 of the Securities and Exchange Act
of 1934, as amended.
1.15 Executive Team - shall mean the senior executives who have significant
operating and/or strategic responsibilities for the Company as designated by the
CEO.
1.16 Group - shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
1.17 Guideline Incentive Award - shall mean the result of the individual
Participant's salary range midpoint multiplied by the guideline percentage, as
determined under Article III.
1.18 Incentive Award - shall mean the award granted to a Participant.
1.19 Individual Performance Factor - shall mean factor (expressed as a
percentage) as determined pursuant to Section 4.3.
1.20 Just Cause - shall mean:
(a) a judicial determination that the Participant has committed fraud,
misappropriation, or embezzlement against the Company; or
(b) a non-appealable conviction of, or entry of a plea of nolo contendere
for, an act by the Participant constituting a felony which, as determined by
the Company in good faith, constitutes a crime involving moral turpitude and
has resulted in material harm to the Company, its subsidiaries and affiliates
taken as a whole.
<PAGE>
5
A termination of employment pursuant to Just Cause shall not be effective
unless accompanied by a copy of a resolution duly adopted by the affirmative
vote of not less a majority of the Continuing Directors at a meeting of the
Board of Directors which was called and held for the purpose of considering such
termination, or if there are no Continuing Directors, when by at least three
quarters (3/4) of the entire Board of Directors (after reasonable notice to the
Participant and an opportunity for the Participant, together with the
Participant's counsel, to be heard before the Board of Directors) finding that,
in the good faith opinion of the Board of Directors, the Participant was guilty
of conduct set forth in the preceding sentence, and specifying the particulars
thereof in detail. In any Board deliberations or votes concerning a
determination under this Section 1.20, the Participant shall recuse himself from
such deliberations and votes.
1.21 LTPEP - shall mean the Sun Company, Inc. Long-Term Performance
Enhancement Plan, as amended and in effect.
1.22 Participant - shall mean all persons participating or eligible to
participate in the Plan, as determined under Section 2.4.
1.23 Plan - shall mean the Sun Company, Inc. Executive Incentive Plan as
amended and restated effective as of March 4, 1998.
1.24 Plan Year - shall mean the performance (calendar) year.
1.25 Potential Change in Control - shall mean the occurrence of any of the
following events or transactions:
(a) any person (other than Sun Company, Inc., or any affiliate or
subsidiary thereof) makes a tender offer for capital stock of Sun Company,
Inc.;
(b) any person becomes the beneficial owner, directly or indirectly, of
capital stock of Sun Company, Inc. in an amount which requires the filing of
Schedule 13D or its equivalent form pursuant to the Rules and Regulations
under the Securities Exchange Act of 1934 as from time to time amended;
(c) the submission of a nominee or nominees for the position of director
of Sun Company, Inc. by a shareholder or Group of shareholders in a proxy
solicitation or otherwise which, in its judgment, the Board of Directors
determines by adoption of a resolution within thirty (30) days of such
submission, might result in a Change in Control of Sun Company, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sun Company, Inc. pursuant to the Hart-Scott-Rodino Act; or
(e) the Board of Directors in its judgment determines by adoption of a
resolution that a Potential Change in Control of Sun Company, Inc. for
purposes of this Plan has occurred.
1.26 Prior Plan - shall mean the Sun Company, Inc. Executive Incentive Plan
as amended and restated effective January 1, 1992.
1.27 Sun Stock - shall mean the common stock of Sun Company, Inc.
<PAGE>
6
ARTICLE II
Background and Purpose
2.1 Purpose. The purpose of the Executive Incentive Plan is to promote the
achievement of the Company's short-term, targeted business objectives by
providing competitive incentive reward opportunities to those employees who can
significantly impact the Company's performance. The Plan enhances the Company's
ability to attract, develop and motivate individuals as members of a talented
management team while aligning their interest with those of the shareholders.
The awards made under the Plan will be made on the basis of Company performance.
The award may also recognize business unit, team and individual performance.
Effective March 4, 1998, the terms of the Plan replace those in effect under the
Prior Plan.
2.2 Effective Date. The amendment and restatement of the Plan is effective
March 4, 1998.
2.3 Administration. The Compensation Committee shall have full power and
authority to construe, interpret and administer the Plan and to make rules and
regulations subject to the provisions of the Plan. All decisions, actions,
determinations or interpretations of the Compensation Committee shall be made in
its sole discretion and shall be final, conclusive and binding on all parties.
2.4 Eligibility and Participation. Participation in the Plan is limited to
Executive Resource Employees and other employees evaluated in positions with
Grades 11, 12 and 13 at any time during the Plan Year.
Article III
Determination of Guideline Incentive Awards
3.1 Guideline Incentive Award - The Guideline Incentive Award is calculated
for each Participant by multiplying the individual Participant salary range
midpoint by the applicable guideline percentage, as determined below. Actual
incentive awards to individual Participants may be greater or lesser than this
guideline depending on Company and, as necessary, business unit, team and/or
individual Participant performance.
3.2 Guideline Percentages. Incentive guideline percentages have been
established for each eligible position to provide Participants with a
competitive incentive reward opportunity.
<PAGE>
7
Below are the guideline incentive opportunities as a percentage of salary
range midpoints for Plan Years beginning on or after January 1, 1998:
Guideline Incentive as a
Percentage of
Position Salary Range Midpoint*
- ------------ -------------------------
CEO 75%
COO 60%
EVP 50%
CFO 50%
SVP 45%
Grades 19 and 20 40%
Grades 17 and 18 35%
Grades 14, 15 and 16 30%
Grade 13 25%
Grade 12 20%
Grade 11 15%
- -------------------------------
*In all cases, the salary range midpoint used in determination of the
individual Guideline Incentive Award is the midpoint of the Participant's
Hay point/grade under the salary administration program in effect on the
last day of the final pay period of the current Plan Year.
ARTICLE IV
Determination of Incentive Award
For each Plan Year, the CEO, and if so delegated, other members of the
Executive Team will determine the appropriate methodology for including Company,
business unit, team and individual performance in the Incentive Award
computations for such year. While Company Performance shall always be included
in the computation, the other factors may or may not be included as deemed
appropriate by the Executive Team. With respect to the CEO, the methodology to
be used will be determined by the Compensation Committee. The Company and, as
necessary, the Business Unit, Team and Individual Performance Factors shall be
determined as follows:
4.1 Determination of Company Performance Factor.
(a) Assessment Process. For each Plan Year, the Compensation Committee
shall determine the annual performance goal(s) for the Company based on one
or more factors, which the Compensation Committee, in its sole discretion,
shall determine are applicable.
(b) Determination of Performance Factor. After the end of each calendar
year, the Compensation Committee shall determine the extent to which the
performance goals have been met and the appropriate Company Performance
Factor, from 0% to 200%, that is appropriate with the varying levels of
performance for each goal.
4.2 Determination of Business Unit and Team Performance Factors.
(a) Assessment Process. The CEO, and if so delegated, other members of
the Executive Team shall determine the annual business unit performance
goal(s) and the applicable levels of performance based on one or more
factors. Business unit leaders will establish annual performance goal(s) for
any teams within their respective business units.
<PAGE>
8
(b) Determination of Performance Factors. After the end of each calendar
year, the CEO, and if so delegated, other members of the Executive Team shall
determine the extent to which the business unit performance goals have been
met and the appropriate Business Unit Performance Factor, from 0% to 200%,
that is appropriate with the varying levels of performance for each goal.
Business unit leaders will similarly evaluate the performance of any teams to
determine the appropriate Team Performance Factor.
4.3 Determination of Individual Performance Factors.
(a) Recommended Assessment Process. The recommended individual
performance assessment process is briefly outlined as follows:
(1) Prior to the beginning of each calendar year or other appropriate
time, each Participant and his/her manager will agree on major performance
targets, goals or objectives to be attained during the calendar year. The
targets, goals or objectives may also be related to an individual's
participation on a work team.
(2) Progress toward attainment of the targets, goals or objectives will
be formally reviewed on a periodic basis.
(3) At the end of the year, the manager will assess the degree to which
the stated performance objectives have been achieved, keeping in mind
environmental or circumstantial changes that may have affected the
original targets, goals or objectives. Specifically consideration should
be given to:
(i) Level of contributions relative to peers.
(ii) Degree of difficulty of performance targets.
(iii) Reaction to unanticipated changes in the business environment.
(iv) Unplanned contributions.
(v) Team performance, as appropriate.
(4) While the level of performance for the Plan should be based
primarily on annual goals and objectives, the performance factors utilized
for this program should be consistent with appraisals used for the
purposes of salary administration as updated to reflect performance since
the last appraisal.
(5) The performance appraisal should be documented. The documentation
should identify the performance targets, the assessment of individual
performance against the targets, and any other significant information to
support the recommendation.
<PAGE>
9
(b) Determination of Performance Factor. Each Participant's Individual
Performance Factor should be determined based upon the individual performance
assessment as outlined below:
Individual Performance Adjustment to Individual
Assessments Performance Components
---------------------- ------------------------
Exceed all performance targets 150% to 200%
Exceed most performance targets 115% to 145%
Met most performance targets 90% to 110%
Met some/few performance targets 50% to 85%*
Completely unacceptable performance 0%
------------------------------------
*All assessments should be multiples of 5%.
(c) Approval of Performance. Approval of Participant's individual
performance shall be as follows:
(1) The individual performance assessment of the CEO will be determined
by the Compensation Committee and approved by the Board of Directors.
(2) The individual performance assessment of each Executive Team member
other than the CEO will be determined by his or her manager. Such
assessments will be approved by the CEO and, where appropriate, the Chief
Operating Officer of the Company.
(3) The individual performance assessment of all other Participants
will be determined by their manager and approved by the appropriate member
of the Executive Team.
ARTICLE V
Forfeiture and/or Proration of Incentive Award
5.1 Forfeiture. If a Participant terminates employment with the Company
before March 1 after the performance year for any reason other than retirement
he or she will not receive an award for the preceding Plan Year.
5.2 Proration. An Incentive Award will be prorated to reflect participation
for a portion of the Plan Year for a Participant whose employment status changed
during the year due to retirement or an approved leave of absence. New hires
and part-time employees also receive a prorated award.
ARTICLE VI
Timing, Form of Payment, and Deferral of Awards
6.1 Timing and Form of Payment. Upon approval of the individual Incentive
Awards for the CEO and each other member of the Executive Team and the aggregate
amount of all Incentive Awards for the Plan Year by the Board of Directors or,
if so delegated, the Compensation Committee, and subject to Section 6.3 hereof,
payment of the individual awards will be made in cash less the withholding of
appropriate taxes. Payment will be made not later than March 15th of the
calendar year following each Plan Year.
<PAGE>
10
6.2 Deferral of Awards.
(a) Deferral by Participant. Certain executives may elect to defer their
Incentive Award under the terms of the Sun Company, Inc. Deferred
Compensation Plan.
(b) Deferral by Committee. Each year in conjunction with the granting of
an Annual Incentive Award to a Participant in this Plan, the Compensation
Committee, in its sole discretion, may cause all or a portion of such Annual
Incentive Award to be deferred under the terms of the Sun Company, Inc.
Deferred Compensation Plan. Any portion of the Annual Incentive Award which
is deferred, shall be credited to a Participant's account under the Deferred
Compensation Plan at the time the bonus would otherwise have been paid had no
Compensation Committee action to defer been taken.
6.3 Awards of Common Stock Units.
(a) At the direction of the Compensation Committee, a component of each
Participant's Incentive Award may be paid in Common Stock Units. The number
of Common Stock Units to be issued pursuant to this Section 6.3 shall be
determined by dividing:
(1) the amount of the Incentive Award to be paid in Sun Stock or Common
Stock Units; by
(2) the average closing price for Sun Stock as reported on the New York
Stock Exchange - Composite Transactions for the ten (10) day period prior
to the date the bonus is to be paid.
(b) All tax withholding will be satisfied from the remaining portion of
the Incentive Award which is paid in cash.
ARTICLE VII
Change in Control
7.1 Effect of Change in Control. The terms of this Article VII shall
immediately become operative, without further action or consent by any person or
entity, upon a Change in Control, and once operative shall supersede and control
over any other provisions of this Plan.
7.2 Acceleration. Upon the occurrence of a Change in Control, the CIC
Incentive Award shall be payable in cash within thirty (30) days of the
occurrence of a Change in Control (or as soon as it is practicable to determine
the appropriate performance factors under Subsection (a) below) to all CIC
Participants. Such award shall be calculated according to the terms of the
Plan, except as follows:
(a) The Company and, as necessary, the Business Unit and Team Performance
Factors shall be determined based upon the performance from January 1 through
the end of the most recent quarter (prior to the Change in Control) for which
the Company has reported its earnings to the public. Notwithstanding the
methodology established by the CEO or the Compensation Committee for the Plan
Year, there shall be no adjustment for Individual Performance Factors in the
determination of the CIC Incentive Award. If a specified percentage of the
Guideline Award was to be based upon individual performance, such percentage
will be adjusted using the weighted average of the Company and, as necessary,
Business Unit and Team Performance Factors which were used to determine the
non-individual performance components of the CIC Participant's award.
<PAGE>
11
(b) The amount of the CIC Incentive Award shall be equal to the respective
annual Guideline Incentive Award adjusted to reflect Company and, as
necessary, Business Unit and Team Performance Factors (calculated in
accordance with subsection (a) herein), multiplied by the number of full and
partial months in the CIC Short Period divided by twelve (12). Such result
shall be further adjusted to reflect participation for only a portion of the
CIC Short Period in accordance with Section 5.2.
(c) Notwithstanding the provisions of Section 8.3 hereof, effective upon a
Change in Control, no action by the Compensation Committee or the Board of
Directors may terminate or reduce the benefits or prospective benefits of any
CIC Participant on the date of reference without the express written consent
of such CIC Participant.
7.3 Attorney's Fees. The Company shall pay all reasonable legal fees and
related expenses incurred by a participant in seeking to obtain or enforce any
payment, benefit or other right such participant may be entitled to under the
Plan after a Change in Control; provided, however, that the participant shall be
required to repay any such amounts to the Company to the extent a court of
competent jurisdiction issues a final and non-appealable order setting forth the
determination that the position taken by the participant was frivolous or
advanced in bad faith.
ARTICLE VIII
Miscellaneous
8.1 Funding of Plan. In a meeting to be held not later than December 31st
of each Plan Year, the Compensation Committee may determine, by appropriate
resolution, an estimate of the amount of monies, if any, that should be set
aside for the current Plan Year for payment to Participants in the following
calendar year.
8.2 Construction. Nothing in this Plan or in any agreement or other
instrument executed pursuant thereto shall be construed as conferring upon any
Participant the right to receive executive incentive compensation or to be
continued in the employ of the Company and any rights conferred by this Plan may
not be transferred, sold, assigned, pledged, anticipated or otherwise disposed
of other than by will or intestate laws.
8.3 Amendment. This Plan may be amended at any time by the Compensation
Committee and may be terminated in whole or in part at any time by the Board of
Directors (except as set forth in Section 7.2(c)).
<PAGE>
Exhibit 10.9
SUN COMPANY, INC.
EXECUTIVE RETIREMENT PLAN
Amendment No. 1997-1
1. The second sentence of Section 1.01 is deleted.
2. There is added a new Section 1.07A as follows:
"1.07A 'Cause' shall mean termination of a Participant's employment by
the Company, due to:
(a) the Participant's indictment for a criminal offense (other
than a traffic offense) including, without limitation, a crime
involving moral turpitude or common law fraud;
(b) excessive absenteeism by the Participant, unrelated to any
illness; or
(c) the Company's reasonable determination that the Participant
has either:
(1) committed an act of fraud, embezzlement, theft, or
misappropriation of funds in connection with such
Participant's duties in the course of his employment with
the Company; or
(2) engaged in mismanagement, negligence, or misconduct in the
course of his employment with the Company."
3. There is added a new Section 1.07B as follows:
"1.07B 'Change in Control' shall be deemed to have occurred if:
(a) Continuing Directors cease, within one year of such Control
Transaction, to constitute a majority of the Board of
Directors of Sun Company, Inc. (or of the Board of Directors
of any successor to Sun Company, Inc. or to all or
substantially all of its assets) or
(b) any entity, person or Group acquires shares of Sun Company,
Inc. in a transaction or series of transactions that result in
such entity, person or Group directly or indirectly owning
beneficially more than twenty percent (20%) of the outstanding
voting shares."
4. There is added a new Section 1.09A as follows:
"1.09A 'Continuing Director' shall mean a Director who was a member of
the Board of Directors of Sun Company, Inc. immediately prior to a
Control Transaction which results in a Change in Control."
<PAGE>
2
5. There is added a new Section 1.09B as follows:
"1.09B 'Control Transaction' shall mean any of the following transactions
or any combination thereof: (i) any tender offer for or acquisition
of capital stock of Sun Company, Inc., (ii) any merger,
consolidation, or sale of all or substantially all of the assets of
Sun Company, Inc., or (iii) the submission of a nominee or nominees
for the position of director of the Company by a shareholder or a
Group of shareholders in a proxy solicitation or otherwise."
6. Section 1.11 is restated as follows:
"1.11 'Earnings' means:
(a) For periods beginning on or after September 1, 1997, the sum
of (i) base salary paid or payable to a Participant by the
Company or an Affiliated Company and (ii) the Participant's
unadjusted annual guideline bonus in effect for the
Participant under the Sun Company, Inc. Executive Incentive
Plan or successor plans ("EIP") pro rated over the applicable
period (e.g., for computation of Earnings for a one-month
period, the unadjusted annual guideline bonus would be divided
by 12); or
(b) For periods ending prior to September 1, 1997, the sum of (i)
base salary paid or payable to a Participant by the Company
or an Affiliated Company (including an amount equal to the
value on the date of grant of any restricted stock units
("RSUs") designated as base salary, and not as short-term or
long-term incentives, under the Sun Company, Inc. Long-Term
Incentive Plan or the Sun Company, Inc. Executive Long-Term
Stock Investment Plan, provided that such RSUs become vested
and payable) and (ii) the dollars represented by (I) the
Participant's unadjusted guideline incentive percentage in
effect under the EIP during such period, multiplied by (II)
the Participant's base salary paid or payable (as defined in
subsection (b)(i) herein)."
7. Section 1.16 is restated as follows:
"1.16 'Final Average Earnings' means the arithmetic average of the
Participant's aggregate Earnings during the 36 consecutive calendar
months of the last 120-consecutive calendar month period of Service
immediately preceding the earlier of actual retirement, Termination
Date or the Participant's 62nd birthday (or the actual number of
such months if less than 36) which produce the highest average."
<PAGE>
3
8. There is added a new Section 1.16A as follows:
"1.16A 'Group' shall mean persons who act in concert as described in
Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of
1934, as amended."
9. Section 1.19 is restated as follows:
"1.19 'Participant' means any Employee who is a Participant in the Sun
Company, Inc. Retirement Plan, who has not waived his rights to
participate in this Plan, and who is either (a) an Executive or (b)
designated as a Participant by the Board Committee. Except as
provided in Sections 6.01, 6.02 or 6.04, if any Participant ceases
to be an Executive, he will thereupon cease to be a Participant
(unless otherwise designated by the Board Committee), and will
forfeit all rights to benefits under this Plan."
10. There is added a new Section 1.22A as follows:
"1.22A 'Potential Change in Control' shall mean the occurrence of any of
the following events or transactions:
(1) any person (other than Sun Company, Inc., or any affiliate or
subsidiary thereof) makes a tender offer for capital stock of
Sun Company, Inc.;
(2) any person becomes the beneficial owner, directly or
indirectly, of capital stock of Sun Company, Inc. in an amount
which requires the filing of Schedule 13D or its equivalent
form pursuant to the Rules and Regulations under the
Securities Exchange Act of 1934 as from time to time amended;
(3) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or Group of
shareholders in a proxy solicitation or otherwise which, in
its judgment, the Board of Directors determines by adoption of
a resolution within thirty (30) days of such submission, might
result in a Change in Control of Sun Company, Inc.;
(4) any person files a pre-merger notification for the acquisition
of capital stock of Sun Company, Inc. pursuant to the Hart-
Scott-Rodino Act; or
(5) The Board of Directors in its judgment determines by adoption
of a resolution that a Potential Change in Control of Sun
Company, Inc. for purposes of this Plan has occurred."
11. There is added a new Section 1.23A as follows:
"1.23A 'Qualifying Termination' of the employment of a Participant shall
mean any of the following:
(a) a termination of employment by the Company within two (2)
years after a Change in Control, other than for Just Cause,
death or disability;
<PAGE>
4
(b) a termination of employment by the Participant within two (2)
years after a Change in Control for one or more of the
following reasons:
(1) the assignment to such Participant of any duties
inconsistent in a way adverse to such Participant, with
such Participant's positions, duties, responsibilities and
status with the Company immediately prior to the Change in
Control, or a reduction in the duties and responsibilities
held by the Participant immediately prior to the Change in
Control; a change in the Participant's reporting
responsibilities, title or offices as in effect immediately
prior to the Change in Control that is adverse to the
Participant; or any removal of the Participant from or any
failure to re-elect the Participant to any position with
the Company that such Participant held immediately prior to
the Change in Control except in connection with such
Participant's: (i) assignment to a new position at a higher
annual base salary and guideline bonus; or (ii) termination
of employment by the Company for Just Cause; or
(2) With respect to any Participant who is a member of the
Board of Directors immediately prior to the Change in
Control, any failure of the shareholders of the Company to
elect or reelect, or of the Company to appoint or
reappoint, the Participant as a member of the Board of
Directors;
(3) A reduction by the Company in the Participant's base annual
salary or guideline (target) bonus as in effect immediately
prior to the Change in Control; the failure by the Company
to continue in effect, or the taking of any action by the
Company that would adversely affect such Participant's
participation in or materially reduce such Participant's
benefits under, any employee benefit plan or compensation
plan in which such Participant was participating
immediately prior to the Change in Control; provided,
however, that in the aggregate such actions by the Company
significantly reduce the Participant's total compensation
(i.e., the sum of Participant's annual base salary,
guideline (target) bonus, and the aggregate value to the
Participant of all employee benefit or compensation plans);
or the failure by the Company, without the Participant's
consent, to pay to the Participant any portion of the
Participant's current compensation, or to pay to the
Participant any portion of an installment of deferred
compensation under any deferred compensation program of the
Company; or
(4) The Company requires the Participant to be based anywhere
other than the Participant's present work location or a
location within thirty-five (35) miles from the present
location; or the Company requires the Participant to travel
on Company business to an extent substantially more
burdensome than such Participant's travel obligations
during the period of twelve (12) consecutive months
immediately preceding the Change in Control;
<PAGE>
5
provided, however, that in the case of any such termination of
employment by the Participant under this subparagraph (b), such
termination shall not be deemed to be a Qualifying Termination
unless the termination occurs within 120 days after the
occurrence of the event or events constituting the reason for the
termination; or
(c) a termination of employment by the Company other than a
termination for Just Cause, or a termination of employment by
the Participant for one of the reasons set forth in (b) above,
following a Potential Change in Control, if the Participant
can demonstrate that such termination or circumstance in (b)
above leading to termination (i) was at the request of a third
party with which the Company had entered into negotiations or
an agreement with regard to a Change in Control or (ii)
otherwise occurred in connection with, or in anticipation of,
a Change in Control, provided that, in either such case, such
Change in Control actually occurs within one (1) year
following the Employment Termination Date.
(d) As used herein, 'Just Cause' shall mean:
(i) a judicial determination that the Participant has committed
fraud, misappropriation, or embezzlement against the
Company; or
(ii) a non-appealable conviction of, or entry of a plea of nolo
contendere for, an act by the Participant constituting a
felony which, as determined by the Company in good faith,
constitutes a crime involving moral turpitude and has
resulted in material harm to the Company, its subsidiaries
and affiliates taken as a whole.
A termination of employment pursuant to Just Cause shall not be
considered to be effective unless accompanied by a copy of a
resolution duly adopted by the affirmative vote of not less than a
majority of the Continuing Directors at a meeting of the Board of
Directors which was called and held for the purpose of considering
such termination, or if there are no Continuing Directors, then by
at least three quarters of the entire Board of Directors (after
reasonable notice to the Participant and an opportunity for the
Participant, together with the Participant's counsel, to be heard
before the Board of Directors) finding that, in the good faith
opinion of the Board of Directors, the Participant was guilty of
conduct set forth in the preceding sentence, and specifying the
particulars thereof in detail. In any Board deliberations or votes
concerning a determination under this Section, the Participant shall
recuse himself from such deliberations and votes."
12. Section 6.01 is restated as follows:
"6.01 Termination of Employment.
(a) Voluntary Termination.
A Participant whose employment is terminated for any reason other
than death or retirement, including early retirement, will not be
entitled to benefits under this Plan, except as provided in
Subsection (b) and Section 6.04 hereof.
<PAGE>
6
(b) Involuntary Termination.
Notwithstanding any other provision of the Plan (and except as
discussed herein), a Participant whose employment is involuntarily
terminated prior to his Early Retirement Date, other than for Just
Cause, and who executes a release and discharge of the Company from
any and all claims, demands or causes of action other than as to
amounts or benefits due to the Participant under any plan, program
or contract provided by, or entered into with, the Company will be
entitled to benefits in accordance with this Subsection (b). Such
release and discharge shall be in such form as is prescribed by the
Committee and shall be executed prior to the payment of any benefits
due hereunder. In addition, no benefits due hereunder shall be paid
to a Participant who is required by Company guidelines to execute an
agreement governing the assignment of patents or the disclosure of
confidential information unless an executed copy of such agreement
is on file with the Company. The benefits under this Subsection (b)
shall consist of a nonforfeitable percentage in the benefits
calculated under Section 3.06 (including the minimum benefit defined
under Section 3.04) equal to 1-2/3% times the number of completed
months of Executive Service. Such benefits shall commence
coincident with or next following the first day of the calendar
month in which the Participant attains age 55, or if the Participant
elects, the benefit will be paid no later than 30 days after the
Termination Date, in a lump sum payment of the Actuarial Equivalent
of the age 55 retirement income determined under Section 3.06, with
an additional reduction of such benefit by discounting it to the
date of payment using the interest rate used in Section 1.01. Any
participant who also is eligible to receive benefits under Section
6.04 shall not receive benefits hereunder but shall instead receive
the benefits under Section 6.04."
13. Section 6.04 is restated as follows:
"6.04 Change in Control.
(a) Notwithstanding any other provisions in the Plan, any
Participant who terminates employment as a result of a
Qualifying Termination shall become fully vested upon a Change
in Control of the Company and shall be entitled to benefits
calculated as follows:
(1) Except for purposes of Section 1.10(b), Service and
Credited Service shall be increased by 36 months, with the
number of months credited under this Section 6.04(a)(1)
reduced by one month for each completed month of Service of
the Participant after the date of the Change in Control,
but not below zero.
(2) If at the Termination Date, the Participant has attained
his Normal Retirement Date, he shall be entitled to a
benefit calculated in accordance with Section 3.02.
(3) If at the Termination Date, the Participant has not
attained his Normal Retirement Date, or has not attained
his Early Retirement Date, he shall be entitled to benefits
calculated under Section 3.06 (including the minimum
benefit defined under Section 3.04).
<PAGE>
7
(4) Final Average Earnings shall be determined using the
greater of: (i) the amount determined under Section 1.16
without reference to this Section 6.04(a)(4); (ii) Earnings
for the first full calendar month preceding the Termination
Date; or (iii) Earnings for the first full calendar month
preceding the date of a Change in Control.
(5) In the case of a Participant who has not attained his Early
Retirement Date at the Termination Date, such benefits
shall commence coincident with or next following the first
day of the calendar month in which the Participant attains
age 55, or if the Participant elects, the benefit will be
paid no later than 30 days after the Termination Date, in a
lump sum payment of the Actuarial Equivalent of the age 55
retirement income determined under Section 3.06 with
additional reduction of such benefit by discounting it to
the date of payment using the interest rate used in Section
1.01.
(b) Notwithstanding any other provisions in the Plan, upon a
Change in Control and for a period of twelve (12) months
thereafter, any retired Participant or Beneficiary who is
receiving an optional form of retirement income pursuant to
Article IV hereof, shall have the right to elect to receive in
a single lump-sum cash payment an amount equal to ninety-five
percent (95%) of the Actuarial Equivalent of the payments of
such retirement income to which the Participant or Beneficiary
is entitled for all future periods under the Plan; provided,
however, that if this option is exercised, such retired
Participant or Beneficiary will forfeit to the Company the
remaining five percent 5% of the Actuarial Equivalent of such
payments. Payments under this Section 6.04(b) shall be made
as soon as practicable, but no later than 30 days after the
retired Participant or Beneficiary notifies the Plan that he
is exercising his right to withdraw.
(c) The Company shall pay all reasonable legal fees and related
expenses incurred by a Participant in seeking to obtain or
enforce any payment, benefit or other right such Participant
may be entitled to under the Plan after a Change in Control;
provided, however, that the Participant shall be required to
repay any such amounts to the Company to the extent a court of
competent jurisdiction issues a final and non-appealable order
setting forth the determination that the position taken by the
Participant was frivolous or advanced in bad faith."
14. This amendment is effective September 1, 1997.
<PAGE>
Exhibit 10.10
================================================================================
SUN COMPANY, INC.
SPECIAL EXECUTIVE SEVERANCE PLAN
--------------------------------
================================================================================
<PAGE>
2
ARTICLE I.
DEFINITIONS
Section 1.1 "Annual Compensation" shall mean a Participant's annual base
salary and applicable guideline (target) annual bonus amount in effect on his or
her Employment Termination Date, or, if greater, the annual base salary and
applicable guideline (target) annual bonus amount on the date of the Change in
Control.
Section 1.2 "Auditor" shall have the meaning provided herein at Section
4.7(b).
Section 1.3 "Benefit" or "Benefits" shall mean any or all of the benefits
that a Participant is entitled to receive pursuant to Article IV of the Plan.
Section 1.4 "Benefit Extension Period" shall mean:
(a) for the Company's Chief Executive Officer, Chief Operating
Officer, and Chief Financial Officer, three years;
(b) for an Executive Resource Employee in Grade 17 or above, two
years; and
(c) for each other Executive Resource Employee, one year and six
months.
Section 1.5 "Board of Directors" shall mean the Board of Directors of Sun
Company, Inc. or any successor thereto.
Section 1.6 "Change in Control" shall mean the occurrence of any of the
following events or transactions:
(a) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of Sun
Company, Inc. (or of the Board of Directors of any successor to Sun
Company, Inc. or to all or substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that results in such entity,
person or Group directly or indirectly owning beneficially more than twenty
percent (20%) of the outstanding voting shares of Sun Company, Inc.
Section 1.7 "Chief Executive Officer" shall mean the individual serving as
the Chief Executive Officer of Sun Company, Inc. as of the date of reference.
Section 1.8 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.9 "Committee" shall mean the administrative committee designated
pursuant to Article VI of the Plan to administer the Plan in accordance with its
terms.
Section 1.10 "Company" shall mean Sun Company, Inc., a Pennsylvania
corporation. The term "Company" shall include any successor to Sun Company,
Inc., any subsidiary or affiliate which has adopted the Plan, or a corporation
succeeding to the business of Sun Company, Inc., or any subsidiary or affiliate
by merger, consolidation, liquidation or purchase of assets or stock or similar
transaction.
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3
Section 1.11 "Company Service" shall mean, for purposes of determining
Benefits available to any Participant in this Plan, the total aggregate recorded
length of such Participant's service with: Sun Company, Inc.; any subsidiary or
affiliate of Sun Company, Inc. (whether by merger, consolidation or liquidation
or purchase of assets or stock or similar transaction) which has adopted the
Plan; and/or any corporation succeeding to the business of Sun Company, Inc.
Company Service shall commence with the Participant's initial date of
employment with the Company, and shall end with such Participant's death,
retirement, or termination for any reason. Company Service also shall include:
(a) all periods of approved leave of absence (civil, family, medical,
military, or Olympic); provided, however, that the Participant returns to
work within the prescribed time following the leave;
(b) any break in service of thirty (30) days or less; and
(c) any service credited under applicable Company policies with
respect to the length of a Participant's employment by any non-affiliated
entity that is subsequently acquired by, and becomes a part of, the
Company's operations.
Section 1.12 "Continuing Director" shall mean a director who was a member
of the Board of Directors immediately prior to a Control Transaction which
results in a Change in Control.
Section 1.13 "Control Transaction" shall mean any of the following
transactions or any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sun
Company, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of
the assets of Sun Company, Inc.; or
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or a Group of shareholders
in a proxy solicitation or otherwise.
Section 1.14 "Disability" shall mean any illness, injury or incapacity of
such duration and type as to render a Participant eligible to receive long-term
disability benefits under the applicable broad-based long-term disability
program of the Company.
Section 1.15 "Employment Termination Date" shall mean the date on which the
employment relationship between the Participant and the Company is terminated.
Section 1.16 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
Section 1.17 "Excise Tax" shall have the meaning provided herein at Section
4.7(a).
Section 1.18 "Executive Resource Employee" shall mean any individual
employed by the Company who has been designated by the Company as a member of
the Company's executive resources group. Generally, such group shall include
employees in Grades 14-20 and all other employees subject to Section 16 of the
Securities Exchange Act of 1934, as amended.
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4
Section 1.19 "Gross-Up Payment" shall have the meaning provided herein at
Section 4.7(a).
Section 1.20 "Group" shall mean persons who act in concert as described in
Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as
amended.
Section 1.21 "Just Cause" shall mean:
(a) a judicial determination that the Participant has committed fraud,
misappropriation, or embezzlement against the Company; or
(b) a non-appealable conviction of, or entry of a plea of nolo
contendere for, an act by the Participant constituting a felony which, as
determined by the Company in good faith, constitutes a crime involving
moral turpitude and has resulted in material harm to the Company, its
subsidiaries and affiliates taken as a whole.
No termination of employment shall be deemed an effective termination for
Just Cause unless accompanied by a copy of a resolution duly adopted by the
affirmative vote of not less a majority of the Continuing Directors at a meeting
of the Board of Directors which was called and held for the purpose of
considering such termination, or if there are no Continuing Directors, then by
at least three quarters (3/4) of the entire Board of Directors (after reasonable
notice to the Participant and an opportunity for the Participant, together with
the Participant's counsel, to be heard before the Board of Directors) finding
that, in the good faith opinion of the Board of Directors, the Participant was
guilty of conduct set forth in the preceding sentence, and specifying the
particulars thereof in detail. In any deliberations or votes by the Board of
Directors concerning a determination under this Section, the Participant shall
recuse himself from such deliberations and votes.
Section 1.22 "Participant" shall mean any Executive Resource Employee who
is employed by the Company on or before the occurrence of any Change in Control.
In addition, for purposes of Sections 4.6 and 4.7 of this Plan, each former
Executive Resource Employee shall be a Participant.
Section 1.23 "Payment Date" shall have the meaning provided herein at
Section 4.7(a).
Section 1.24 "Plan" shall mean the Sun Company, Inc. Special Executive
Severance Plan, as set forth herein, and as the same may from time to time be
amended.
Section 1.25 "Potential Change in Control" shall mean the occurrence of any
of the following events or transactions:
(a) any person (other than Sun Company, Inc., or any affiliate or
subsidiary thereof) makes a tender offer for capital stock of Sun Company,
Inc.;
(b) any person becomes the beneficial owner, directly or indirectly,
of capital stock of Sun Company, Inc. in an amount which requires the
filing of Schedule 13D or its equivalent form pursuant to the Rules and
Regulations under the Securities Exchange Act of 1934 as from time to time
amended;
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5
(c) the submission of a nominee or nominees for the position of
director of Sun Company, Inc. by a shareholder or Group of shareholders in
a proxy solicitation or otherwise which, in its judgment, the Board of
Directors determines by adoption of a resolution within thirty (30) days of
such submission, might result in a Change in Control of Sun Company, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sun Company, Inc. pursuant to the Hart-Scott-Rodino Act;
or
(e) the Board of Directors in its judgment determines by adoption of a
resolution that a Potential Change in Control of Sun Company, Inc. for
purposes of this Plan has occurred.
Section 1.26 "Qualifying Termination" of the employment of a Participant
shall mean any of the following:
(a) a termination of employment by the Company within two (2) years
after a Change in Control, other than for Just Cause, death or Disability;
provided, however, that any Participant who also is eligible to receive
benefits under the Sun Company, Inc. Executive Involuntary Severance Plan
shall not receive benefits thereunder, but shall instead receive the
Benefits provided under this Plan;
(b) a termination of employment by the Participant within two (2)
years after a Change in Control for one or more of the following reasons:
(1) the assignment to such Participant of any duties inconsistent
in a way adverse to such Participant, with such Participant's
positions, duties, responsibilities and status with the Company
immediately prior to the Change in Control, or a reduction in the
duties and responsibilities held by the Participant immediately prior
to the Change in Control; a change in the Participant's reporting
responsibilities, title or offices as in effect immediately prior to
the Change in Control that is adverse to the Participant; or any
removal of the Participant from or any failure to re-elect the
Participant to any position with the Company that such Participant
held immediately prior to the Change in Control except in connection
with such Participant's:
(i) assignment to a new position at a higher combined annual
base salary and guideline (target) bonus; or
(ii) termination of employment by the Company for Just
Cause; or
(2) with respect to any Participant who is a member of the Board
of Directors immediately prior to the Change in Control, any failure
of the shareholders of the Company to elect or reelect, or of the
Company to appoint or reappoint, the Participant as a member of the
Board of Directors;
<PAGE>
6
(3) a reduction by the Company in either of the Participant's
annual base salary or guideline (target) bonus as in effect
immediately prior to the Change in Control; the failure by the Company
to continue in effect, or the taking of any action by the Company that
would adversely affect such Participant's participation in or
significantly reduce such Participant's benefits under, any employee
benefit plan or compensation plan in which such Participant was
participating immediately prior to the Change in Control, provided,
however, that in the aggregate such actions by the Company
significantly reduce the Participant's total compensation (i.e., the
sum of Participant's annual base salary, guideline (target) bonus, and
the aggregate value to the Participant of all employee benefit and
compensation plans); or the failure by the Company, without the
Participant's consent, to pay to the Participant any portion of the
Participant's current compensation, or to pay to the Participant any
portion of an installment of deferred compensation under any deferred
compensation program of the Company; or
(4) The Company requires the Participant to be based anywhere
other than the Participant's present work location or a location
within thirty-five (35) miles from the present location; or the
Company requires the Participant to travel on Company business to an
extent substantially more burdensome than such Participant's travel
obligations during the period of twelve (12) consecutive months
immediately preceding the Change in Control;
provided, however, that in the case of any such termination of
employment by the Participant under this subparagraph (b), such termination
shall not be deemed to be a Qualifying Termination unless the termination
occurs within 120 days after the occurrence of the event or events
constituting the reason for the termination; or
(c) a termination of employment by the Company other than a
termination for Just Cause, or a termination of employment by the
Participant for one of the reasons set forth in (b) above, following a
Potential Change in Control, if the Participant can demonstrate that such
termination or circumstance in (b) above leading to termination:
(1) was at the request of a third party with which the Company
had entered into negotiations or an agreement with regard to a Change
in Control; or
(2) otherwise occurred in connection with, or in anticipation of,
a Change in Control;
provided, however, that in either such case, such Change in Control
actually occurs within one (1) year following the Employment Termination
Date.
Section 1.27 "Tax Counsel" shall have the meaning provided herein at
Section 4.7(b).
Section 1.28 "Total Payments" shall have the meaning provided herein at
Section 4.7(a).
<PAGE>
7
ARTICLE II.
BACKGROUND, PURPOSE AND TERM OF PLAN
Section 2.1 Background. Sun Company, Inc. maintains this Plan for the
purpose of providing severance allowances to Executive Resource Employees whose
employment is terminated in connection with or following a Change in Control.
The Plan shall be effective as of September 4, 1997.
Section 2.2 Purpose of the Plan. The Plan, as set forth herein, has been
adopted by the Board of Directors of the Company, or a committee thereof,
delegated such responsibility, acting in its sole discretion, in recognition
that the possibility of a major transaction or a change in control of the
Company exists and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of key management personnel to the detriment of the Company. The Board of
Directors has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of Participants, as key members
of Company's management, to their assigned duties without distraction. The Plan
is not intended to be included in the definitions of "employee pension benefit
plan" and "pension plan" set forth under Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Rather, this Plan is
intended to meet the descriptive requirements of a plan constituting a
"severance pay plan" within the meaning of regulations published by the
Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-
2(b). Accordingly, the benefits paid by the Plan are not deferred compensation.
Section 2.3 Term of the Plan. The Plan will continue until such time as
the Board of Directors, or a committee thereof, delegated such responsibility,
acting in its sole discretion, elects to modify, supersede or terminate it;
provided, however, that effective upon a Change in Control, no such action may
terminate or reduce the benefits or prospective benefits of any Participant on
the date of reference without the express written consent of the Participant.
ARTICLE III.
PARTICIPATION AND ELIGIBILITY FOR BENEFITS
Section 3.1 General Requirements. Each Executive Resource Employee shall
become a Participant upon confirmation of his/her official title or employment
grade by election by the Board of Directors or appointment by the Company.
Except with respect to the benefits and payments under Sections 4.7 and 4.8, in
order to receive a Benefit under this Plan, a Participant's employment must have
been terminated as a result of a Qualifying Termination.
Section 3.2 Qualifying Termination. The Committee shall determine whether
any termination of a Participant is a Qualifying Termination. The Participant
shall follow the procedures described in Article IX for presenting his or her
claim for Benefits under this Plan.
ARTICLE IV.
BENEFITS
Section 4.1 Amount of Immediate Cash Benefit; Qualifying Termination.
In the event of a termination of employment that would qualify the Participant
for Benefits that is a Qualifying Termination, the cash amount to be paid to a
Participant eligible to receive Benefits under Section 3.1 hereof shall be paid
in a lump sum as provided in Section 5.1 hereof and shall equal the sum of the
following:
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8
(a) An amount equal to the Participant's earned vacation (as
determined under the Company's applicable vacation policy as in effect at
the time of the Change in Control) through his or her Employment
Termination Date;
(b) (1) for the Chief Executive Officer, Chief Operating Officer, and
Chief Financial Officer, Annual Compensation multiplied by three (3);
(2) for an Executive Resources Employee in Grade 17 or above,
Annual Compensation multiplied by two (2);
(3) for each other Executive Resources Employee, Annual
Compensation multiplied by one and one-half (1-1/2).
Section 4.2 Executive Severance Benefits. In the event that Benefits are
paid under Section 4.1, the Participant shall continue to be entitled, through
the end of his/her Benefit Extension Period, to those employee benefits, based
upon the amount of coverage or benefits provided at the Change in Control,
listed below:
(a) death benefits as follows:
(1) for Participants who became Executive Resource Employees on
or after January 1, 1985, an amount equal to one (1) times annual base
salary at the Employment Termination Date; and
(2) for Participants who became Executive Resource Employees
before January 1, 1985, an amount equal to two (2) times the sum of
annual base salary and guideline bonus at the Employment Termination
Date;
Any supplemental coverages elected under the Sun Company, Inc. Death
Benefits Plan (or any similar plan of any of the following: a subsidiary
or affiliate which has adopted this Plan; a corporation succeeding to the
business of Sun Company, Inc.; and/or any subsidiary or affiliate, by
merger, consolidation, liquidation, purchase of assets or stock, or similar
transaction) will be discontinued under the terms of such plan or plans;
and
(b) medical plan benefits (excluding dental coverage), including
COBRA continuation coverage following the Benefit Extension Period (i.e.,
COBRA continuation eligibility will begin as of the end of the Benefit
Extension Period).
In each case, when contributions are required of all Executive Resource
Employees at the time of the Participant's Employment Termination Date, or
thereafter, if required of all other active Executive Resource Employees, the
Participant shall continue to be responsible for making the required
contributions during the Benefit Extension Period in order to be eligible for
the coverage. In lieu of the coverages provided under clauses (a) and (b)
above, the Company may pay, at the time payment is otherwise to be made of cash
Benefits pursuant to Section 5.1 hereof, the Participant an amount (as adjusted
for taxes) equal to the then present value of the Company's cost of such
coverages, or the Company may provide the Participant with comparable coverage
under a policy of insurance. The Participant also shall be entitled to
outplacement services during the Benefit Extension Period, at no cost to the
Participant, from an experienced third-party vendor selected by the Committee
and consistent with vendors used in connection with the Sun Company, Inc.
Involuntary Termination Plan at the Change in Control.
<PAGE>
9
Section 4.3 Special Medical Benefit. In the event that Benefits are paid
to the Participant under Section 4.1, Participants who are fifty (50) or more
years of age on the Employment Termination date, with a minimum of ten (10)
years of Company Service shall have medical (but not dental) benefits available
under the same terms and conditions as other employees not yet eligible for
Medicare coverage who retire under the terms of a Company retirement plan. Such
benefits may continue until such time as the Participant becomes first eligible
for Medicare, or the Participant voluntarily cancels coverage, whichever is
earliest.
Section 4.4 Retirement Plans. This Plan shall not govern and shall in no
way affect the Participant's interest in, or entitlement to benefits under, any
of the Company's "qualified" or supplemental retirement plans and any payments
received under any such plans shall not affect a Participant's right to any
Benefit hereunder.
Section 4.5 Minimum Benefit. Notwithstanding the provisions of Sections
4.1, 4.2 and 4.3 hereof, the Benefits available under this Plan shall not be
less than those determined in accordance with the provisions of the Sun Company,
Inc. Special Employee Severance Plan. If the Participant determines that the
benefits under the Sun Company, Inc. Special Employee Severance Plan are more
valuable to the Participant than the comparable Benefits set forth in this Plan,
then the provisions used to calculate the Benefits available to the Participant
under this Plan shall not apply, and the Benefits available to the Participant
under this Plan shall be calculated using only the applicable provisions of the
Sun Company, Inc. Special Employee Severance Plan.
Section 4.6 Effect on Other Benefits. There shall not be drawn from the
continued provision by the Company of any of the aforementioned Benefits any
implication of continued employment or of continued right to accrual of
retirement benefits under the Company's qualified or supplemental retirement
plans, nor shall a terminated employee, except as otherwise provided under the
terms of the Plan, accrue vacation days, paid holidays, paid sick days or other
similar benefits normally associated with employment for any part of the Benefit
Extension Period during which benefits are payable under this Plan. A
Participant shall have no duty to mitigate with respect to Benefits under this
Plan by seeking or accepting alternative employment. Further, the amount of any
payment or benefit provided for in this Plan shall not be reduced by any
compensation earned by the Participant as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Participant to the Company, or otherwise.
Section 4.7 Parachute Payments.
(a) Whether or not the Participant becomes entitled to Benefits under
Section 4.1, if any payment or benefit received or to be received by the
Participant in connection with a Change in Control or the termination of
the Participant's employment (all such payments and benefits, including the
Benefits under Sections 4.1, 4.2 and 4.3, being hereinafter the "Total
Payments"), whether pursuant to the terms of:
(1) this Plan; or
(2) any other plan, arrangement or agreement with:
(i) the Company;
(ii) any person whose actions result in a Change in Control;
or
<PAGE>
10
(iii) any person affiliated with the Company or with any
person whose actions result in a Change in Control;
will be subject (in whole or part) to the excise tax under section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to the Participant
an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Participant, after deduction of any Excise Tax on the Total
Payments and any federal, state and local income and employment tax and
Excise Tax upon the Gross-Up-Payment, shall be equal to the Total Payments.
For purposes of determining the amount of the Gross-Up Payment, the
Participant shall be deemed to pay federal income and employment taxes at
the highest marginal rate of federal income and employment taxation in the
calendar year in which the Gross-Up Payment is to be made (the "Payment
Date") and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Participant's residence on the
Payment Date, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
(b) For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(1) all of the Total Payments shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, unless
in the opinion of tax counsel (the "Tax Counsel") reasonably
acceptable to the Participant and selected by the accounting firm (the
"Auditor") which was, immediately prior to the Change in Control, the
Company's independent auditor, such other payments or benefits (in
whole or in part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code;
(2) all "excess parachute payments" within the meaning of section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax
unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or part) represent reasonable compensation for services
actually rendered, within the meaning of section 280G(b)(4)(B) of the
Code, in excess of the "base amount" within the meaning set forth in
section 280G(b)(3) of the Code allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax; and
(3) the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Auditor in accordance with the
principles of section 280G(d)(3) and (4) of the Code.
Prior to the payment date set forth in Section 4.7(d) hereof, the
Company shall provide the Participant with its calculation of the amounts
referred to in this Section 4.7(b) and such supporting materials as are
reasonably necessary for the Participant to evaluate the Company's
calculations. If the Participant disputes the Company's calculations (in
whole or in part), the reasonable opinion of Tax Counsel with respect to
the matter in dispute shall prevail.
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11
(c) In the event that:
(1) amounts are paid to the Participant pursuant to Section
4.7(a) above; and
(2) the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Participant's employment,
the Participant shall repay to the Company, at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction plus interest on the amount
of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the Payment Date (including by reason of
any payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional Gross-
Up Payment to the Participant in respect of such excess (plus any interest,
penalties or additions payable by the Participant with respect to such
excess and such portion) at the time that the amount of such excess is
finally determined.
(d) The payments provided for in subsections (a) and, if applicable,
(c) of this Section 4.7 shall be made not later than the ninetieth (90th)
day following the Change in Control if payments are due at that time, or
the Employment Termination Date, if payments are then due; provided,
however, that if the amounts of such payments, or, if applicable, the
Excise Tax, cannot be finally determined on or before such day, the Company
shall pay to the Participant on such day an estimate, as determined in good
faith by the Participant, of the minimum amount of such payments to which
the Participant is clearly entitled and shall pay the remainder of such
payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth (30th) day after the date payment
is due. In the event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to the Participant, payable on the fifth
(5th) business day after demand by the Company (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code). At the time that
payments are made under this Section, the Company shall provide the
Participant with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has received
from outside counsel, auditors or consultants (and any such opinions or
advice which are in writing shall be attached to the statement).
(e) All of the fees and expenses of the Tax Counsel and Auditor in
performing the determinations referred to in subsections (b) and (c) above
shall be borne solely by the Company. The Company agrees to indemnify and
hold harmless the Tax Counsel and Auditor of and from any and all claims,
damages and expenses resulting from or relating to its determinations
pursuant to subsections (b) and (c) above, except for claims, damages or
expenses resulting from the gross negligence or willful misconduct of the
Tax Counsel or Auditor.
<PAGE>
12
Section 4.8 Legal Fees and Expenses. The Company also shall pay to the
Participant all legal fees and expenses incurred by the Participant:
(a) in disputing in good faith any issue relating to the termination
of the Participant's employment following a Change in Control as a result
of a Qualifying Termination entitling the Participant to Benefits under
this Plan (including a termination of employment following a Potential
Change in Control if the Participant alleges in good faith that such
termination will be or is a Qualifying Termination pursuant to Section 1.18
hereof, and the Change in Control actually occurs within one (1) year
following the Employment Termination Date); or
(b) in seeking in good faith to obtain or enforce any benefit or right
provided by this Plan (or the payment of any Benefits through any trust
established to fund Benefits under this Plan) or in connection with any tax
audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder.
Such payments shall be made as such fees and expenses are incurred by the
Participant, but in no event later than five (5) business days after delivery of
the Participant's written requests for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require. The
Participant shall reimburse the Company for such fees and expenses at such time
as a court of competent jurisdiction, or another independent third party having
similar authority, determines that the Participant's claim was frivolously
brought without reasonable expectation of success on the merits thereof.
ARTICLE V.
METHOD AND DURATION OF BENEFIT PAYMENTS
Section 5.1 Method of Payment. The cash Benefits to which a
Participant is entitled, as determined pursuant to Article IV hereof, shall be
paid in a lump sum. Payment shall be made by mailing to the last address
provided by the Participant to the Company. In general, payment shall be made
within fifteen (15) days after the Participant's Employment Termination Date but
in no event later than thirty (30) days thereafter. In the event the Company
should fail to pay when due the amounts described in Article IV, the Participant
shall also be entitled to receive from the Company an amount representing
interest on any unpaid or untimely paid amounts from the due date, as determined
under Section 4.7(d), to the date of payment at a rate equal to the prime rate
of Citibank, N.A. as in effect from time to time after such due date.
Section 5.2 Payments to Beneficiary(ies). Each Executive Resource
Employee shall designate a beneficiary(ies) to receive any Benefits due
hereunder in the event of the Participant's death prior to the receipt of all
such Benefits. Such beneficiary designation shall be made in the manner, and at
the time, prescribed by the Company in its sole discretion. In the absence of
an effective beneficiary designation hereunder, the Participant's estate shall
be deemed to be his or her designated beneficiary.
<PAGE>
13
ARTICLE VI.
ADMINISTRATION
Section 6.1 Appointment of the Committee. The Committee shall consist of
three (3) or more persons appointed by the Chief Executive Officer. Committee
members may be, but need not be, employees of Sun Company, Inc.
Section 6.2 Tenure of the Committee. Committee members shall serve at the
pleasure of the Chief Executive Officer. Committee members may resign at any
time on ten (10) days' written notice, and Committee members may be discharged,
with or without cause, at any time by the Chief Executive Officer.
Section 6.3 Authority and Duties. It shall be the duty of the Committee,
on the basis of information supplied to it by the Company, to determine the
eligibility of each Participant for Benefits under the Plan, to determine the
amount of Benefit to which each such Participant may be entitled, and to
determine the manner and time of payment of the Benefit consistent with the
provisions hereof. In addition, the exercise of discretion by the Committee
need not be uniformly applied to similarly situated Participants. The Company
shall make such payments as are certified to it by the Committee to be due to
Participants. The Committee shall have the full power and authority to
construe, interpret and administer the Plan, to correct deficiencies therein,
and to supply omissions. Except as provided in Section 9.2, all decisions,
actions and interpretations of the Committee shall be final, binding and
conclusive upon the parties.
Section 6.4 Action by the Committee. A majority of the members of the
Committee shall constitute a quorum for the transaction of business at a meeting
of the Committee. Any action of the Committee may be taken upon the affirmative
vote of a majority of the members of the Committee at a meeting, or at the
direction of the chairperson, without a meeting by mail, telegraph, telephone or
electronic communication device; provided that all of the members of the
Committee are informed of their right to vote on the matter before the Committee
and of the outcome of the vote thereon.
Section 6.5 Officers of the Committee. The Chief Executive Officer shall
designate one of the members of the Committee to serve as chairperson thereof.
The Chief Executive Officer shall also designate a person to serve as Secretary
of the Committee, which person may be, but need not be, a member of the
Committee.
Section 6.6 Compensation of the Committee. Members of the Committee shall
receive no compensation for their services as such. However, all reasonable
expenses of the Committee shall be paid or reimbursed by the Company upon proper
documentation. The Company shall indemnify members of the Committee against
personal liability for actions taken in good faith in the discharge of their
respective duties as members of the Committee and shall provide coverage to them
under the Company's Liability Insurance program(s).
Section 6.7 Records, Reporting and Disclosure. The Committee shall keep
all individual and group records relating to Participants and former
Participants and all other records necessary for the proper operation of the
Plan. Such records shall be made available to the Company and to each
Participant for examination during business hours
<PAGE>
14
except that a Participant shall examine only such records as pertain exclusively
to the examining Participant and to the Plan. The Committee shall prepare and
shall file as required by law or regulation all reports, forms, documents and
other items required by ERISA, the Internal Revenue Code, and every other
relevant statute, each as amended, and all regulations thereunder (except that
the Company, as payor of the Benefits, shall prepare and distribute to the
proper recipients all forms relating to withholding of income or wage taxes,
Social Security taxes, and other amounts which may be similarly reportable).
Section 6.8 Actions of the Chief Executive Officer. Whenever a
determination is required of the Chief Executive Officer under the Plan, such
determination shall be made solely at the discretion of the Chief Executive
Officer. In addition, the exercise of discretion by the Chief Executive Officer
need not be uniformly applied to similarly situated Participants and shall be
final and binding on each Participant or beneficiary(ies) to whom the
determination is directed.
Section 6.9 Benefits of the Chief Executive Officer. The Board of
Directors (or any committee thereof delegated such responsibility) shall make
all determinations with respect to the amounts, timing and eligibility for any
Benefits provided hereunder to the Chief Executive Officer. In addition, if the
Chief Executive Officer is serving on the Committee, the Chief Executive Officer
shall not participate on any matter that directly pertains to, or affects, the
Chief Executive Officer. Whenever a determination is required of the Chief
Executive Officer as to any matter that directly pertains to, or affects, the
Chief Executive Officer under the Plan, such determination with respect to the
Chief Executive Officer shall be made and approved by a majority of the
Continuing Directors, or, if there are no Continuing Directors, then by at least
three quarters (3/4) of the entire Board of Directors.
Section 6.10 Bonding. The Committee shall arrange any bonding that may be
required by law, but no amount in excess of the amount required by law (if any)
shall be required by the Plan.
ARTICLE VII.
AMENDMENT AND TERMINATION
Section 7.1 Amendment, Suspension and Termination. The Company, acting
through the Board of Directors, retains the right, at any time and from time to
time, to amend, suspend or terminate the Plan in whole or in part, for any
reason, and without either the consent of or the prior notification to any
Participant. Notwithstanding the foregoing, effective upon a Change in Control,
no such action may terminate or reduce the benefits or prospective benefits of
any Participant on the date of reference without the express written consent of
the Participant. No such amendment, suspension or termination shall give the
Company the right to recover any amount paid to a Participant prior to the date
of such amendment or to cause the cessation and discontinuance of payments of
Benefits to any person or persons under the Plan already receiving Benefits.
The Board of Directors shall have the right to delegate its authority and powers
hereunder, or any portion thereof, to any committee of the Board of Directors,
and shall have the right to rescind any such delegation in whole or in part.
<PAGE>
15
ARTICLE VIII.
DUTIES OF THE COMPANY
Section 8.1 Records. The Company shall supply to the Committee all records
and information necessary to the performance of the Committee's duties.
Section 8.2 Payment. The Company shall make payments from its general
assets to Participants and shall provide the Benefits described in Article IV
hereof in accordance with the terms of the Plan, as directed by the Committee.
ARTICLE IX.
CLAIMS PROCEDURES
Section 9.1 Application for Benefits. Benefits shall be paid by the
Company following an event that qualifies the Participant for Benefits. In the
event a Participant believes himself/herself eligible for Benefits under this
Plan and Benefit payments have not been initiated by the Company, the
Participant may apply for such Benefits by requesting payment of Benefits in
writing from the Committee.
Section 9.2 Appeals of Denied Claims for Benefits. In the event that any
claim for benefits is denied in whole or in part, the Participant (or
beneficiary, if applicable) whose claim has been so denied shall be notified of
such denial in writing by the Committee, within thirty (30) days following
submission by the Participant (or beneficiary, if applicable) of such claim to
the Committee. The notice advising of the denial shall specify the reason or
reasons for denial, make specific reference to pertinent Plan provisions,
describe any additional material or information necessary for the claimant to
perfect the claim (explaining why such material or information is needed), and
shall advise the Participant of the procedure for the appeal of such denial.
All appeals shall be made by the following procedure:
(a) The Participant whose claim has been denied shall file with the
Committee a notice of desire to appeal the denial. Such notice shall be
filed within sixty (60) days of notification by the Committee of the claim
denial, shall be made in writing, and shall set forth all of the facts upon
which the appeal is based. Appeals not timely filed shall be barred.
(b) The Committee shall, within thirty (30) days of receipt of the
Participant's notice of appeal, establish a hearing date on which the
Participant may make an oral presentation to the Committee in support of
his/her appeal. The Participant shall be given not less than ten (10)
days' notice of the date set for the hearing.
(c) The Committee shall consider the merits of the claimant's written
and oral presentations, the merits of any facts or evidence in support of
the denial of benefits, and such other facts and circumstances as the
Committee shall deem relevant. If the claimant elects not to make an oral
presentation, such election shall not be deemed adverse to his/her
interest, and the Committee shall proceed as set forth below as though an
oral presentation of the contents of the claimant's written presentation
had been made.
(d) The Committee shall render a determination upon the appealed
claim, within sixty (60) days of the hearing date, which determination
shall be accompanied by a written statement as to the reasons therefor.
<PAGE>
16
ARTICLE X.
MISCELLANEOUS
Section 10.1 Nonalienation of Benefits. None of the payments, benefits or
rights of any Participant shall be subject to any claim of any creditor, and, in
particular, to the fullest extent permitted by law, all such payments, benefits
and rights shall be free from attachment, garnishment, trustee's process, or any
other legal or equitable process available to any creditor of such Participant.
No Participant shall have the right to alienate, anticipate, commute, pledge,
encumber or assign any of the benefits or payments which he/she may expect to
receive, contingently or otherwise, under this Plan.
Section 10.2 No Contract of Employment. Neither the establishment of the
Plan, nor any modification thereof, nor the creation of any fund, trust or
account, nor the payment of any benefits shall be construed as giving any
Participant, or any person whosoever, the right to be retained in the service of
the Company, and all Participants shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
Section 10.3 Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provisions had not been included.
Section 10.4 Successors, Heirs, Assigns, and Personal Representatives.
This Plan shall be binding upon the heirs, executors, administrators, successors
and assigns of the parties, including each Participant, present and future.
Section 10.5 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
Section 10.6 Gender and Number. Except where otherwise clearly indicated
by context, the masculine and the neuter shall include the feminine and the
neuter, the singular shall include the plural, and vice-versa.
Section 10.7 Unfunded Plan. The Plan shall not be funded. A Participant's
right to receive payment of Benefits hereunder shall be no greater than the
right of any unsecured creditor of the Company. The Company may, but shall not
be required to, set aside or earmark an amount necessary to provide the Benefits
specified herein (including the establishment of trusts). In any event, no
Participant shall have any right to, or interest in, any assets of the Company
which may be applied by the Company to the payment of Benefits except as may be
provided pursuant to the terms of any trust established by the Company to
provide Benefits.
Section 10.8 Payments to Incompetent Persons, Etc. Any Benefit payable to
or for the benefit of a minor, an incompetent person or other person incapable
of receipting therefor shall be deemed paid when paid to such person's guardian
or to the party providing or reasonably appearing to provide for the care of
such person, and such payment shall fully discharge the Company, the Committee
and all other parties with respect thereto.
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17
Section 10.9 Lost Payees. A Benefit shall be deemed forfeited if the
Committee is unable to locate a Participant to whom a Benefit is due. Such
Benefit shall be reinstated if application is made by the Participant for the
forfeited Benefit while this Plan is in operation.
Section 10.10 Controlling Law. This Plan shall be construed and enforced
according to the laws of the Commonwealth of Pennsylvania to the extent not
preempted by federal law.
Section 10.11 Successor Employer. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Plan, in the same manner and to the same extent that the
Company would be required to perform if no such succession or assignment had
taken place. In such event, the term "Company" shall mean the Company and any
successor or assignee to the business or assets which by reason hereof becomes
bound by the terms and provisions of this Plan.
<PAGE>
Exhibit 10.11
========================================================================
SUN COMPANY, INC.
EXECUTIVE INVOLUNTARY SEVERANCE PLAN
========================================================================
<PAGE>
2
ARTICLE I
DEFINITIONS
Section 1.1 "Benefit" or "Benefits" shall mean any or all of the benefits
that a Participant is entitled to receive pursuant to Article IV of the Plan.
Section 1.2 "Board of Directors" shall mean the Board of Directors of Sun
Company, Inc. or any successor thereto.
Section 1.3 "Chief Executive Officer" shall mean the individual serving as
`the Chief Executive Officer of Sun Company, Inc. as of the date of reference.
Section 1.4 "Committee" shall mean the administrative committee designated
pursuant to Article VI of the Plan to administer the Plan in accordance with its
terms.
Section 1.5 "Company" shall mean Sun Company, Inc., a Pennsylvania
corporation. The term "Company" shall include any successor to Sun Company,
Inc., any subsidiary or affiliate which has adopted the Plan, or a corporation
succeeding to the business of Sun Company, Inc., or any subsidiary or affiliate,
by merger, consolidation or liquidation or purchase of assets or stock or
similar transaction.
Section 1.6 "Company Service" shall mean, for purposes of determining
Benefits available to any Participant in this Plan, the total aggregate recorded
length of such Participant's service with: Sun Company, Inc.; any subsidiary or
affiliate of Sun Company, Inc. (whether by merger, consolidation or liquidation
or purchase of assets or stock or similar transaction) which has adopted the
Plan; and/or any corporation succeeding to the business of Sun Company, Inc.
Company Service shall commence with the Participant's initial date of
employment with the Company, and shall end with such Participant's death,
retirement, or termination for any reason. Company Service also shall include:
(a) all periods of approved leave of absence (civil, family, medical,
military, or Olympic; provided, however, that the Participant returns to
work within the prescribed time following the leave;
(b) any break in service of thirty (30) days or less; and
(c) any service credited under applicable Company policies with
respect to the length of a Participant's employment by any non-affiliated
entity that is subsequently acquired by, and becomes a part of, the
Company's operations.
Section 1.7 "Disability" shall mean any illness, injury or incapacity of
such duration and type as to render a Participant eligible to receive long-Term
disability benefits under the applicable broad-based long-term disability
program of the Company.
Section 1.8 "Employment Termination Date" shall mean the date on which the
employment relationship between the Participant and the Company is terminated.
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3
Section 1.9 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
Section 1.10 "Executive Resource Employee" shall mean any individual
employed by the Company who has been designated by the Company as a member of
the Company's executive resources group. Generally, such group shall include
employees in Grades 14-20 and all employees subject to Section 16 of the
Securities Exchange Act of 1934, as amended.
Section 1.11 "Just Cause" shall mean:
(a) the Participant's conviction for a criminal offense (other than a
traffic offense) including, without limitation, a crime involving moral
turpitude or common law fraud; or
(b) the Company's reasonable determination that the Participant has
either:
(1) committed an act of fraud, embezzlement, theft, or
misappropriation of funds in connection with such Participant's duties
in the course of his employment with the Company; or
(2) engaged in gross mismanagement, willful misconduct, or gross
negligence in the course of his/her employment with the Company.
Disputes with respect to whether "Just Cause" exists shall be resolved in
accordance with Article IX.
Section 1.12 "Participant" shall mean any Executive Resource Employee;
provided, however, that any Executive Resource Employee who has an employment
contract with the Company that provides severance benefits shall not be eligible
to participate in the Plan while such contract is in effect except to the extent
specifically provided in the contract.
Section 1.13 "Plan" shall mean the Sun Company, Inc. Executive Involuntary
Severance Plan, as set forth herein, and as the same may from time to time be
amended.
Section 1.14 "Plan Year" shall mean each fiscal year of the Company during
which this Plan is in effect.
Section 1.15 "Salary Continuation Period" shall mean:
(a) six (6) weeks, in the case of a Participant who either has not
executed the release described in Section 3.3 hereof, or who has revoked
such a previously executed release; or
(b) in the case of a Participant that has executed and not revoked the
release described in Section 3.3 hereof:
(1) one-hundred-four (104) weeks for the Company's Chief
Executive Officer, Chief Operating Officer, and Chief Financial
Officer;
<PAGE>
4
(2) seventy-eight (78) weeks for each other Executive Resource
Employee in Grade 17 or above; and
(3) fifty-two (52) weeks for each other Executive Resource
Employee.
Section 1.16 "Weekly Compensation" shall mean the sum of each of the
following items divided by 52:
(a) a Participant's annual base salary; and
(b) the applicable guideline (target) annual bonus amount in effect on
his or her Employment Termination Date.
ARTICLE II
BACKGROUND, PURPOSE AND TERM OF PLAN
Section 2.1 Background. The Company maintains this Plan for the purpose of
providing severance allowances to all Executive Resource Employees, whose
employment is terminated for reasons other than fault of their own. The Plan
shall be effective as of September 4, 1997.
Section 2.2 Purpose of the Plan. In recognition of their past service to
the Company, this Plan is intended to alleviate, in part or in full, financial
hardships which may be experienced by certain of those employees of the Company
whose employment is terminated. In essence, benefits under the Plan are
intended to be additional compensation for past services or the continuation of
the specified fringe benefits for a transitional period. The amount or kind of
benefit to be provided is to be based on the position of the Executive Resource
Employee, the Executive Resource Employee's compensation and the fringe benefit
programs applicable to him or her, at his or her Employment Termination Date.
The Plan is not intended to be included in the definitions of "employee pension
benefit plan" and "pension plan" as set forth under Section 3(2) of ERISA.
Rather, this Plan is intended to meet the descriptive requirements of a plan
constituting a "severance pay plan" within the meaning regulations published by
the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-
2(b).
Section 2.3 Term of the Plan. The Plan will continue until such time as
the Board of Directors, or a committee thereof, delegated such responsibility,
acting in its sole discretion, elects to modify, supersede or terminate it in
accordance with the further provisions hereof.
ARTICLE III
PARTICIPATION AND ELIGIBILITY FOR BENEFITS
Section 3.1 General Eligibility Requirement. In order to receive a Benefit
under this Plan, a Participant's employment must have been terminated by the
Company other than for Just Cause, death or Disability; provided, however, that
any Participant who is receiving benefits under the Sun Company, Inc. Special
Executive Severance Plan shall not also be eligible to receive any Benefit under
this Plan.
<PAGE>
5
Section 3.2 Employment by Successor. Notwithstanding anything herein to
the contrary, no Benefits shall be due hereunder in connection with the sale or
other disposition by the Company of the capital stock or assets of any business
unit, division, subsidiary, or other affiliate, if the Participant receives an
offer of employment from the purchaser or other acquiror at a combined annual
salary and guideline bonus at least equal to the annual salary and guideline
bonus for his or her position with the Company immediately prior to such sale or
other disposition.
Section 3.3 Release. Unless the Participant executes a full waiver and
release of claims in a form satisfactory to the Company, and notwithstanding
anything herein to the contrary as provided in Section 5.2, the Benefits
provided hereunder in connection with a termination of employment shall be
provided only for the Salary Continuation Period set forth in Section 1.15(a) of
this Plan, and the special medical benefit described in Section 4.4 of this Plan
shall not be provided.
ARTICLE IV
BENEFIT
Section 4.1 Amount of Immediate Cash Benefit. The immediate cash amount to
be paid to a Participant eligible to receive Benefits under Section 3.1 hereof
shall be paid in a lump sum and shall equal the Participant's earned vacation
(as determined under the Company's applicable vacation policy as in effect on
the Employment Termination Date) through the end of his or her Employment
Termination Date.
Section 4.2 Salary Continuation. A Participant who is eligible to receive
Benefits under Section 3.1 shall continue to be entitled, through the end of
his/her Salary Continuation Period to his/her Weekly Compensation as in effect
on the Employment Termination Date.
Section 4.3 Executive Benefits. A Participant who is eligible to receive
Benefits under Section 3.1 shall continue to be entitled, through the end of
his/her Salary Continuation Period to those employee benefits listed below :
(a) death benefits as follows:
(1) for Participants who became Executive Resource Employees on
or after January 1, 1985, an amount equal to one (1) times annual base
salary at the Employment Termination Date; and
(2) for Participants who became Executive Resource Employees
before January 1, 1985, an amount equal to two (2) times the sum of
annual base salary and guideline bonus at the Employment Termination
Date;
Any supplemental coverages elected under the Sun Company, Inc. Death
Benefits Plan (or any similar plan of any of the following: a subsidiary
or affiliate which has adopted this Plan; a corporation succeeding to the
business of Sun Company, Inc.; and/or any subsidiary or affiliate, by
merger, consolidation or liquidation or purchase of assets or stock or
similar transaction) will be discontinued under the terms of such plan or
plans; and
<PAGE>
6
(b) medical plan benefits (excluding dental coverage), including COBRA
continuation coverage beginning as of the start of the Salary Continuation
Period and running concurrently therewith.
In each case, when contributions are required of all other active Executive
Resource Employees at the time of the Participant's Employment Termination Date,
or thereafter, if required of other Executive Resource Employees, the
Participant shall continue to be responsible for making the required
contributions during the Salary Continuation Period in order to be eligible for
the coverage. In lieu of the coverages provided under clauses (a) and (b)
above, the Company may pay, at the time payment is otherwise to be made of cash
Benefits pursuant to Section 5.1 hereof, the Participant an amount equal to the
then present value of the Company's cost of such coverages (as adjusted for
taxes), or the Company may provide the Participant with comparable coverage
under a policy of insurance. The Participant also shall be entitled to such
outplacement services as deemed appropriate by the Committee.
Section 4.4 Special Medical Benefit. Participants who have executed and
not revoked the release described in Section 3.3 hereof, and who are fifty (50)
or more years of age on the Employment Termination date, with a minimum of ten
(10) years of Company Service shall have medical (but not dental) benefits
available under the same terms and conditions as other employees not yet
eligible for Medicare coverage who retire under the terms of a Company
retirement plan. Such benefits may continue until such time as the Participant
becomes first eligible for Medicare, or the Participant voluntarily cancels
coverage, whichever is earliest.
Section 4.5 Retirement Plans. This Plan shall not govern and shall in no
way affect the Participant's interest in, or entitlement to benefits under, any
of the Company's qualified or supplemental retirement plans and any payments
received under any such plan shall not affect a Participant's right to any
Benefit hereunder.
Section 4.6 Minimum Benefit. Notwithstanding the provisions of Sections
4.2, 4.3 and 4.4 hereof, the Benefits available under this Plan shall not be
less than those determined in accordance with the provisions of the Sun Company,
Inc. Involuntary Termination Plan. If the Participant determines that the
benefits under the Sun Company, Inc. Involuntary Termination Plan are more
valuable to the Participant than the comparable Benefits set forth in this Plan,
then the provisions used to calculate the Benefits available to the Participant
under this Plan shall not apply, and the Benefits available to the Participant
under this Plan shall be calculated using only the applicable provisions of the
Sun Company, Inc. Involuntary Termination Plan.
Section 4.7 Effect on Other Benefits. There shall not be drawn from the
continued provision by the Company of any of the aforementioned Benefits any
implication of continued employment or of continued right to accrual of
retirement benefits under the Company's qualified or supplemental retirement
plans, nor shall a Participant accrue vacation days, paid holidays, paid sick
days or other similar benefits normally associated with employment for any part
of the Salary Continuation Period during which benefits are payable under this
Plan.
<PAGE>
7
ARTICLE V
METHOD AND DURATION OF BENEFIT PAYMENTS
Section 5.1 Method of Payment. The cash Benefits to which a Participant is
entitled, as determined pursuant to Article IV hereof, generally shall be paid
monthly. Payment shall be made by mailing to the last address provided by the
Participant to the Company, or by direct deposit into a bank account designated
by the Participant in writing to the Company. Alternatively, with the prior
written consent of the Committee, the Participant may elect to receive such
benefits as a single lump sum payment, determined on the same basis as lump sum
payments are determined under the Sun Company, Inc. Retirement Plan.
Section 5.2 Conditions to Entitlement to Benefit. In order to be eligible
to receive full Benefits hereunder, a Participant shall make himself/herself
available to the Company and cooperate in any reasonable manner (so as not to
unreasonably interfere with subsequent employment) in providing assistance to
the Company after his or her Employment Termination Date in conducting any
matters which are pending at such time, and, as provided in Section 3.3, shall
execute a release and discharge of the Company from any and all claims, demands
or causes of action other than as to amounts or benefits due to the Participant
under any plan, program or contract provided by, or entered into with, the
Company. Such release and discharge shall be in such form as is prescribed by
the Committee and shall be executed prior to the payment of any Benefits due
hereunder. In addition, no Benefits due hereunder shall be paid to a
Participant who is required by Company guidelines to execute an agreement
governing the assignment of patents or the disclosure of confidential
information unless an executed copy of such agreement is on file with the
Company.
Section 5.3 Payments to Beneficiary(ies). Each Executive Resource Employee
shall designate a beneficiary(ies) to receive any Benefits due hereunder in the
event of the Participant's death prior to the receipt of all such Benefits.
Such beneficiary designation shall be made in the manner, and at the time,
prescribed by the Committee in its sole discretion. In the absence of an
effective beneficiary designation hereunder, the Participant's estate shall be
deemed to be his or her designated beneficiary.
ARTICLE VI
ADMINISTRATION
Section 6.1 Appointment of the Committee. The Committee shall consist of
three (3) or more persons appointed by the Chief Executive Officer. Committee
members may be, but need not be, employees of the Company.
Section 6.2 Tenure of the Committee. Committee members shall serve at the
pleasure of the Chief Executive Officer. Committee members may resign at any
time on ten (10) days' written notice, and Committee members may be discharged,
with or without cause, at any time by the Chief Executive Officer.
<PAGE>
8
Section 6.3 Authority and Duties. It shall be the duty of the Committee, on
the basis of information supplied to it by the Company, to determine the
eligibility of each Participant for Benefits under the Plan, to determine the
amount of Benefit to which each such Participant may be entitled, and to
determine the manner and time of payment of the Benefit consistent with the
provisions hereof. In addition, the exercise of discretion by the Committee need
not be uniformly applied to similarly situated Participants. The Company shall
make such payments as are certified to it by the Committee to be due to
Participants. The Committee shall have the full power and authority to construe,
interpret and administer the Plan, to correct deficiencies therein, to supply
omissions and to make factual determinations. All decisions, actions and
interpretations of the Committee shall be final, binding and conclusive upon the
parties.
Section 6.4 Action by the Committee. A majority of the members of the
Committee shall constitute a quorum for the transaction of business at a meeting
of the Committee. Any action of the Committee may be taken upon the affirmative
vote of a majority of the members of the Committee at a meeting, or at the
direction of the Chairperson, without a meeting by mail, telegraph, telephone or
electronic communication device; provided that all of the members of the
Committee are informed of their right to vote on the matter before the Committee
and of the outcome of the vote thereon.
Section 6.5 Officers of the Committee. The Chief Executive Officer shall
designate one of the members of the Committee to serve as Chairperson thereof.
The Chief Executive Officer shall also designate a person to serve as Secretary
of the Committee, which person may be, but need not be, a member of the
Committee.
Section 6.6 Compensation of the Committee. Members of the Committee
shall receive no compensation for their services as such. However, all
reasonable expenses of the Committee shall be paid or reimbursed by the Company
upon proper documentation. The Company shall indemnify members of the Committee
against personal liability for actions taken in good faith in the discharge of
their respective duties as members of the Committee and shall provide coverage
to them under the Company's liability insurance program(s).
Section 6.7 Records, Reporting and Disclosure. The Committee shall keep all
individual and group records relating to Participants and former Participants
and all other records necessary for the proper operation of the Plan. Such
records shall be made available to the Company and to each Participant for
examination during business hours except that a Participant shall examine only
such records as pertain exclusively to the examining Participant and to the
Plan. The Committee shall prepare and shall file as required by law or
regulation all reports, forms, documents and other items required by ERISA, the
Internal Revenue Code, and every other relevant statute, each as amended, and
all regulations thereunder (except that the Company, as payor of the Benefits,
shall prepare and distribute to the proper recipients all forms relating to
withholding of income or wage taxes, Social Security taxes, and other amounts
which may be similarly reportable).
<PAGE>
9
Section 6.8 Actions of the Chief Executive Officer. Whenever a
determination is required of the Chief Executive Officer under the Plan, such
determination shall be made solely at the discretion of the Chief Executive
Officer. In addition, the exercise of discretion by the Chief Executive Officer
need not be uniformly applied to similarly situated Participants and shall be
final and binding on each Participant or beneficiary(ies) to whom the
determination is directed.
Section 6.9 Benefits of the Chief Executive Officer. The Board of Directors
(or any committee thereof delegated such responsibility) shall make all
determinations with respect to the amounts, timing and eligibility for any
Benefits provided hereunder to the Chief Executive Officer. In addition, if the
Chief Executive Officer is serving on the Committee, the Chief Executive Officer
shall not participate on any matter that directly pertains to, or affects, the
Chief Executive Officer. Whenever a determination is required of the Chief
Executive Officer as to any matter that directly pertains to, or affects, the
Chief Executive Officer under the Plan, such determination with respect to the
Chief Executive Officer shall be made and approved by a majority of the
Continuing Directors, or, if there are no Continuing Directors, then by at least
three quarters (3/4) of the entire Board of Directors.
Section 6.10 Bonding. The Committee shall arrange any bonding that
may be required by law, but no amount in excess of the amount required by law
(if any) shall be required by the Plan.
ARTICLE VII
AMENDMENT AND TERMINATION
Section 7.1 Amendment, Suspension and Termination. The Company, acting by
or pursuant to a resolution of the Board of Directors, or a committee thereof
delegated such responsibility, retains the right, at any time and from time to
time, to amend, suspend or terminate the Plan in whole or in part, for any
reason, and without either the consent of or the prior notification to any
Participant. No such amendment shall give the Company the right to recover any
amount paid to a Participant prior to the date of such amendment or to cause the
cessation and discontinuance of payments of Benefits to any person or persons
under the Plan already receiving Benefits.
ARTICLE VIII
DUTIES OF THE COMPANY
Section 8.1 Records. The Company shall supply to the Committee all records
and information necessary to the performance of the Committee's duties.
Section 8.2 Payment. The Company shall make payments from its general
assets to Participants, and shall provide the Benefits described in Article IV
hereof in accordance with the terms of this Plan, as directed by the Committee.
<PAGE>
10
ARTICLE IX
CLAIMS PROCEDURES
Section 9.1 Application for Benefits. Benefits shall be paid by the Company
following a termination of employment that qualifies the Participant for
Benefits. In the event a Participant believes himself/herself eligible for
Benefits under this Plan and Benefit payments have not been initiated by the
Company, the Participant may apply for such Benefits by requesting payment of
Benefits in writing from the Company.
Section 9.2 Appeals of Denied Claims for Benefits. In the event that
any claim for benefits is denied in whole or in part, the Participant (or
beneficiary, if applicable) whose claim has been so denied shall be notified of
such denial in writing by the Committee, within thirty (30) days following
submission by the Participant (or beneficiary, if applicable) of such claim to
the Committee. The notice advising of the denial shall specify the reason or
reasons for denial, make specific reference to pertinent Plan provisions,
describe any additional material or information necessary for the claimant to
perfect the claim (explaining why such material or information is needed), and
shall advise the Participant of the procedure for the appeal of such denial.
All appeals shall be made by the following procedure:
(a) The Participant whose claim has been denied shall file with the
Committee a notice of desire to appeal the denial. Such notice shall be
filed within sixty (60) days of notification by the Committee of the claim
denial, shall be made in writing, and shall set forth all of the facts upon
which the appeal is based. Appeals not timely filed shall be barred.
(b) The Committee shall, within thirty (30) days of receipt of the
Participant's notice of appeal, establish a hearing date on which the
Participant may make an oral presentation to the Committee in support of
his/her appeal. The Participant shall be given not less than ten (10)
days' notice of the date set for the hearing.
(c) The Committee shall consider the merits of the claimant's written
and oral presentations, the merits of any facts or evidence in support of
the denial of benefits, and such other facts and circumstances as the
Committee shall deem relevant. If the claimant elects not to make an oral
presentation, such election shall not be deemed adverse to his/her
interest, and the Committee shall proceed as set forth below as though an
oral presentation of the contents of the claimant's written presentation
had been made.
(d) The Committee shall render a determination upon the appealed
claim, within sixty (60) days of the hearing date, which determination
shall be accompanied by a written statement as to the reasons therefor.
The determination so rendered shall be binding upon all parties.
ARTICLE X
MISCELLANEOUS
Section 10.1 Nonalienation of Benefits. None of the payments, benefits or
rights of any Participant shall be subject to any claim of any creditor, and, in
particular, to the fullest extent permitted by law, all such payments, benefits
and rights shall be free from attachment, garnishment, trustee's process, or any
other legal or
<PAGE>
11
equitable process available to any creditor of such Participant. No Participant
shall have the right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments which he/she may expect to receive,
contingently or otherwise, under this Plan.
Section 10.2 No Contract of Employment. Neither the establishment of the
Plan, nor any modification thereof, nor the creation of any fund, trust or
account, nor the payment of any benefits shall be construed as giving any
Participant, or any person whosoever, the right to be retained in the service of
the Company, and all Participants shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
Section 10.3 Severability of Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and this Plan shall be construed
and enforced as if such provisions had not been included.
Section 10.4 Successors, Heirs, Assigns, and Personal Representatives.
This Plan shall be binding upon the heirs, executors, administrators, successors
and assigns of the parties, including each Participant, present and future.
Unless the Chief Executive Officer directs otherwise, the Company shall require
any successor or successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, or a division thereof, to acknowledge expressly that this
Agreement is binding upon and enforceable against the Company in accordance with
the terms hereof, and to become jointly and severally obligated with the Company
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession or successions had
taken place.
Section 10.5 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
Section 10.6 Gender and Number. Except where otherwise clearly indicated
by context, the masculine and the neuter shall include the feminine and the
neuter, the singular shall include the plural, and vice-versa.
Section 10.7 Unfunded Plan. The Plan shall not be funded. The Company
may, but shall not be required to, set aside or earmark an amount necessary to
provide the Benefits specified herein (including the establishment of trusts).
In any event, no Participant shall have any right to, or interest in, any assets
of the Company which may be applied by the Company to the payment of Benefits.
Section 10.8 Payments to Incompetent Persons, Etc. Any benefit payable to
or for the benefit of a minor, an incompetent person or other person incapable
of receipting therefor shall be deemed paid when paid to such person's guardian
or to the party providing or reasonably appearing to provide for the care of
such person, and such payment shall fully discharge the Company, the Committee
and all other parties with respect thereto.
<PAGE>
12
Section 10.9 Lost Payees. A Benefit shall be deemed forfeited if the
Committee is unable to locate a Participant to whom a Benefit is due. Such
Benefit shall be reinstated if application is made by the Participant for the
forfeited Benefit while this Plan is in operation.
Section 10.10 Controlling Law. This Plan shall be construed and enforced
according to the laws of the Commonwealth of Pennsylvania to the extent not
preempted by Federal law.
<PAGE>
Exhibit 10.13
AMENDED SCHEDULE TO
INDEMNIFICATION AGREEMENT
The Indemnification Agreements between Sun Company, Inc. and the directors and
executive officers named below are identical in all material respects.
<TABLE>
<CAPTION>
Officer Date of Agreement
------- -----------------
<S> <C>
Robert M. Aiken, Jr. February 1, 1996
Robert H. Campbell February 1, 1996
John G. Drosdick February 1, 1997
Jack L. Foltz February 1, 1996
Deborah M. Fretz February 1, 1996
Thomas W. Hofmann February 1, 1996
David E. Knoll February 1, 1996
Robert W. Owens February 6, 1997
Malcolm I. Ruddock, Jr. February 1, 1996
David C. Shanks February 17, 1997
Sheldon L. Thompson February 1, 1996
Director Date of Agreement
-------- -----------------
Raymond E. Cartledge February 1, 1996
Robert E. Cawthorn February 1, 1996
Mary J. Evans February 1, 1996
Thomas P. Gerrity February 1, 1996
James G. Kaiser February 1, 1996
Robert D. Kennedy February 1, 1996
R. Anderson Pew February 1, 1996
William F. Pounds February 1, 1996
Alexander B. Trowbridge February 1, 1996
</TABLE>
<PAGE>
Exhibit 10.18
SUN COMPANY, INC.
EXECUTIVE RETIREMENT PLAN
Amendment No. 1998-1
--------------------
1. Section 1.16 is restated as follows:
"1.16 'Final Average Earnings' means the arithmetic average of the
Participant's aggregate Earnings during the 36 calendar months of the
last 120-consecutive calendar month period of Service immediately
preceding the earlier of actual retirement or Termination Date (or the
actual number of such months if less than 36) which produces the
highest average."
2. This amendment is effective January 1, 1998.
<PAGE>
Exhibit 10.19
SUN COMPANY, INC.
EXECUTIVE RETIREMENT PLAN
Amendment No. 1998-2
---------------------------
1. Section 1.11 is restated as follows:
"1.11 'Earnings' means:
(a) For periods beginning after December 31, 1997, the sum of (i) base
salary paid or payable to a Participant by the Company or an Affiliated
Company and (ii) the actual incentive awards granted to a Participant
pursuant to the Sun Company, Inc. Executive Incentive Plan, or the
equivalent thereof pursuant to an incentive plan sponsored by an
Employer, or
(b) For periods beginning prior to January 1, 1998, the sum of (i) base
salary paid or payable to a Participant by the Company or an Affiliated
Company and (ii) the actual incentive awards granted to a Participant
pursuant to the Sun Company, Inc. Executive Incentive Plan, up to the
Participant's unadjusted annual guideline bonus in effect for the
Participant under such plan, or the equivalent thereof pursuant to an
incentive plan sponsored by an Employer."
2. Section 1.16 is restated as follows:
"1.16 'Final Average Earnings' means the greater of (a) arithmetic average of
the Participant's aggregate Earnings during the 36 calendar months of
the last 120-consecutive calendar month period of Service immediately
preceding the earlier of actual retirement or Termination Date (or the
actual number of such months if less than 36) which produces the
highest average, or (b) the Transition Final Average Earnings."
3. There is added a new Section 1.29 as follows:
"1.29 'Transition Earnings' means:
(a) For periods beginning on or after September 1, 1997, and ending on or
before December 31, 1998, the sum of (i) base salary paid or payable to
a Participant by the Company or an Affiliated Company and (ii) the
Participant's unadjusted annual guideline bonus in effect for the
Participant under the Sun Company, Inc. Executive Incentive Plan or
successor plans ("EIP") pro rated over the applicable period (e.g., for
computation of Earnings for a one-month period, the unadjusted annual
guideline bonus would be divided by 12); or
<PAGE>
(b) For periods ending prior to September 1, 1997, the sum of (i) base
salary paid or payable to a Participant by the Company or an Affiliated
Company (including an amount equal to the value on the date of grant of
any restricted stock units ("RSUs") designated as base salary, and not
as short-term or long-term incentives, under the Sun Company, Inc.
Long-Term Incentive Plan or the Sun Company, Inc. Executive Long-Term
Stock Investment Plan, provided that such RSUs become vested and
payable) and (ii) the dollars represented by (1) the Participant's
unadjusted guideline incentive percentage in effect under the EIP
during such period, multiplied by (II) the Participant's base salary
paid or payable (as defined in subsection (b)(i) herein)."
4. There is added a new Section 1.30 as follows:
"1.30 'Transition Final Average Earnings' means the arithmetic average of the
Participant's aggregate Transition Earnings during the 36 calendar
months of the 120-consecutive calendar month period of Service ending
on the earlier of December 31, 1998, actual retirement or Termination
Date (or the actual number of such months if less than 36) which
produces the highest average."
5. This amendment is effective March 1, 1998.
<PAGE>
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
Sun Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of Dollars Except Ratio)
- -------------------------------------------------------------------------------------
For the Twelve Months
Ended December 31, 1997
-----------------------
(UNAUDITED)
<S> <C>
Fixed Charges:
Consolidated interest cost and debt expense $ 78
Interest cost and debt expense of real estate
operations held for sale 4
Interest allocable to rental expense(b) 36
-----
Total $ 118
=====
Earnings:
Consolidated income before income tax expense $ 385
Proportionate share of income tax expense
of 50 percent owned but not controlled
affiliated companies 6
Equity in income of less than 50 percent owned
affiliated companies (15)
Dividends received from less than 50 percent
owned affiliated companies 5
Fixed charges 118
Interest capitalized (7)
Amortization of previously capitalized interest 10
-----
Total $ 502
=====
Ratio of Earnings to Fixed Charges 4.25
=====
</TABLE>
- ----------------
(a) The consolidated financial statements of Sun Company, Inc. and subsidiaries
contain the accounts of all subsidiaries that are controlled (generally more
than 50 percent owned) except for Radnor Corporation, the Company's wholly
owned real estate development subsidiary, which is accounted for as an
investment held for sale. (See Note 2 to the Consolidated Financial
Statements in the Company's 1997 Annual Report to Shareholders.) Affiliated
companies over which the Company has the ability to exercise significant
influence but that are not controlled (generally 20 to 50 percent owned) are
accounted for by the equity method.
(b) Represents one-third of total operating lease rental expense which is that
portion deemed to be interest.
<PAGE>
Exhibit 13
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Millions of Dollars
Except Per Share Amounts) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales and other
operating revenue
(including consumer
excise taxes) $10,464 $11,233 $9,834 $9,513 $8,889
Income (loss) from
continuing operations
before cumulative
effect of change in
accounting principle* $263 $(281) $(8) $(19) $87
Income from discontinued
operations** $-- $166 $235 $116 $196
Cumulative effect of
change in accounting
principle*** $-- $-- $(87) $(7) $5
Net income (loss) $263 $(115) $140 $90 $288
- -----------------------------------------------------------------------------------------
PER SHARE DATA:
Income (loss) from
continuing operations
before cumulative effect
of change in accounting
principle:+
Basic $3.03 $(4.43) $(.33) $(.18) $.82
Diluted $2.70 $(4.43) $(.33) $(.18) $.82
Net income (loss):+
Basic $3.03 $(2.17) $1.29 $.84 $2.70
Diluted $2.70 $(2.17) $1.29 $.84 $2.70
Cash dividends on
preference stock++ $3.60 $3.60 $1.80 $-- $--
Cash dividends on common
stock++ $1.00 $1.00 $1.40 $1.80 $1.80
Shareholders' equity+++ $15.40 $14.69 $17.16 $17.42 $18.60
- -----------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $4,667 $5,025 $5,085 $5,646 $5,145
Long-term debt $824 $835 $888 $936 $582
Shareholders' equity $1,462 $1,438 $1,699 $1,863 $1,984
- -----------------------------------------------------------------------------------------
</TABLE>
*Includes after-tax provision for write-down of assets and other matters
totalling $21, $254, $61, $32 and $12 million for 1997, 1996, 1995, 1994 and
1993, respectively. (See Notes 2 and 13 to the consolidated financial
statements.)
**Includes after-tax gains on divestment of discontinued operations and dis-
posal of exploration and production properties totalling $125, $157, $28 and
$99 million for 1996, 1995, 1994 and 1993, respectively. (See Note 2 to the
consolidated financial statements.)
***Consists of impact of the cumulative effect of a change in the method of ac-
counting for impairment of long-lived assets in 1995, postemployment benefits
in 1994 and income taxes in 1993. (See Note 3 to the consolidated financial
statements.)
+All earnings per share amounts have been presented in accordance with State-
ment of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), which replaced primary and fully diluted earnings per share with
basic and diluted earnings per share. SFAS No. 128 had no impact on the
prior-period amounts in the above table. (See Note 6 to the consolidated
financial statements.)
++Effective in the third quarter of 1995, Sun began paying quarterly dividends
on preference stock at a rate of $.90 per share and reduced its quarterly
common stock dividend from $.45 to $.25 per share. (See Note 14 to the
consolidated financial statements.)
+++Assumes redemption of preference shares for common stock utilizing a ratio of
two shares of common stock for each outstanding preference share. (See Note
14 to the consolidated financial statements.)
27
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Those statements in the Management's Discussion and Analysis that are not his-
torical in nature should be deemed forward-looking statements that are inher-
ently uncertain. See "Forward-Looking Statements" on page 40 for a discussion
of the factors which could cause actual results to differ materially from those
projected in such statements.
OUTLOOK
The refining and marketing industry is a highly competitive global business
subject to significant volatility. Sun's planning assumptions, including antic-
ipated near-term market trends, are discussed below:
.Sun's operating results will continue to be sensitive to historically unpre-
dictable refining and marketing margins. Because margins will continue to be
driven by competitive pressures, Sun's business plan is focused on improving
operating results by increasing the production of high-value products, improv-
ing the reliability and efficiency of its facilities and reducing operating and
administrative costs per barrel. Sun's operating results improved dramatically
during 1997 as a result of the ongoing implementation of this plan. Overall
production levels increased 6 percent at the Company's mainland refineries with
a large portion of the increase attributable to high-value fuels and chemicals
products. Input to crude units averaged 101 percent of rated capacity. Overall
operating and administrative costs were reduced by approximately $160 million.
In 1998, Sun will continue to operate its refining units near full capacity and
focus on increasing productivity and retail sales volumes.
. Ample supplies of light sweet crude oil will continue to be available. Most
of the crude oil processed in Sun's refining system is light sweet crude oil.
Therefore, the availability of this type of crude oil and its price relative to
alternative heavy sour crude oil will continue to have a significant impact on
Sun's profitability and competitive position.
.Sun's retail gasoline marketing strategy in the Northeast is to improve prof-
itability and the return on capital employed by increasing the number of out-
lets, increasing gasoline throughput and merchandise sales per outlet and re-
ducing marketing and administrative costs per gallon. As a result of its
logistically advantaged refining and distribution assets and its strong branded
marketing presence in this region, Sun believes that it is well positioned to
compete effectively.
.Margins for base oil lubricant products declined in 1997 and will continue to
be under pressure in the near term as new lubricants supply is absorbed in the
marketplace. In order to reduce the impact of unfavorable base oil market con-
ditions, Sun has significantly increased the amount of base oil that it up-
grades into higher-value transportation lubricants. The reconfiguration of the
Puerto Rico refinery in 1997 significantly reduced lower-value fuels production
at this refinery while fully maintaining the volume and quality of lubricants
production. The streamlining of the Puerto Rico facility has improved operating
efficiency, lowered fixed costs and reduced ongoing capital spending and work-
ing capital requirements. Sun will reduce costs further in this business in
1998.
.Overall margins for petrochemicals, particularly for polymer-grade propylene
and cumene, will decline in 1998. Petrochemicals production will increase in
1998, reflecting higher production levels of benzene and ethylene/ethylene ox-
ide. Petrochemical production will also benefit when additional cumene produc-
tion capacity comes on stream at the Philadelphia refinery during the year.
.Operating income in Sun's logistics business in 1998 will approximate the
amount earned during 1997.
28
<PAGE>
.Operating income in Sun's cokemaking business will increase significantly af-
ter commencement of operations at the Company's new cokemaking facility in East
Chicago, IN, in the first quarter of 1998.
RESULTS OF OPERATIONS
EARNINGS PROFILE OF SUN BUSINESSES (after tax)
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Sun Northeast Refining $ 75 $ (60) $ (37)
Sunoco Northeast Marketing 73 1 45
Sunoco Chemicals 77 40 68
Sun Lubricants 1 (14) (15)
Sunoco MidAmerica Marketing &
Refining 40 (3) (8)
Sunoco Logistics 51 48 53
Sun Coke 38 31 25
Corporate expenses (23) (23) (24)
Net financing expenses (48) (47) (55)
Real estate operations held for sale -- -- (1)
Sun International Production* -- 41 57
Canada (Suncor)* -- -- 23
- ---------------------------------------------------------------------------
284 14 131
- ---------------------------------------------------------------------------
Special items:**
Gain on divestment of International
Production business* -- 125 --
Gain on divestment of Suncor common
stock* -- -- 157
Provision for write-down of assets
and other matters (21) (254) (61)
Cumulative effect of change in
accounting principle -- -- (87)
- ---------------------------------------------------------------------------
Consolidated net income (loss) $263 $(115) $140
- ---------------------------------------------------------------------------
</TABLE>
*Sun completed the sale of its International Production business on September
30, 1996 and divested its remaining 55-percent interest in Suncor on June 8,
1995. Sun's international oil and gas production business and Canadian up-
stream petroleum operations are classified as discontinued operations in the
consolidated financial statements.
**For a discussion of special items, see Notes 2, 3 and 13 to the consolidated
financial statements.
ANALYSIS OF EARNINGS PROFILE OF SUN BUSINESSES
In 1997, Sun Company, Inc. and its subsidiaries earned $263 million, or $2.70
per share of common stock on a diluted basis compared to a net loss of $115
million, or $2.17 per share in 1996 and net income of $140 million, or $1.29
per share in 1995. Excluding the special items shown separately in the Earnings
Profile of Sun Businesses, Sun earned $284 million in 1997, compared to $14
million in 1996 and $131 million in 1995.
The $270 million increase in earnings before special items in 1997 was primar-
ily due to record production levels, particularly of high-value fuels and chem-
icals products, and significantly lower operating and administrative expenses
throughout the Company. Also contributing to the improvement were higher aver-
age retail and wholesale gasoline margins and higher chemical margins. Par-
tially offsetting these positive factors were lower base oil margins and the
absence of earnings from Sun's International Production business which was di-
vested in 1996.
In 1996, the $117 million decrease in earnings before special items was primar-
ily due to the impact of significantly higher crude oil costs on gasoline, as-
phalt, petrochemical and base oil lubricant margins and on refinery fuel costs.
Also contributing to the decline were higher marketing expenses, increased
planned refinery maintenance activity and the absence of earnings from Suncor
and International Production following their divestments in June 1995 and Sep-
tember 1996, respectively. Partially offsetting these negative factors were
significantly improved middle distillate margins, higher lubricant sales vol-
umes and lower net financing expenses.
29
<PAGE>
Sun Northeast Refining
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) (millions of dollars) $75 $(60) $(37)
Wholesale margin* (per barrel) $3.25 $2.76 $2.73
Wholesale sales (thousands of barrels dai-
ly):
To unaffiliated customers:
Gasoline 101.4 93.8 98.2
Middle distillates 169.9 133.6 133.8
Residual fuel 53.9 47.7 50.6
Asphalt -- 15.8 24.1
Other 33.2 31.3 39.7
- ---------------------------------------------------------------------------
358.4 322.2 346.4
To affiliates (primarily gasoline) 182.9 188.3 184.3
- ---------------------------------------------------------------------------
541.3 510.5 530.7
- ---------------------------------------------------------------------------
Crude unit capacity (thousands of barrels
daily) at December 31 482.0 482.0 482.0
Crude unit capacity utilized 100% 93% 93%
- ---------------------------------------------------------------------------
</TABLE>
*Wholesale sales price less cost of crude oil,
other feedstocks and purchased refined products.
Sun Northeast Refining operating results increased $135 million in 1997 primar-
ily due to a $92 million pretax reduction in operating expenses and signifi-
cantly higher realized margins and sales volumes for wholesale fuels. The in-
crease in margins and sales volumes reflects a significant improvement in pro-
duction levels, particularly for high-value gasoline and distillate products,
in part due to the turnaround and modernization of the 86,000 barrels-per-day
fluid catalytic cracking unit at the Marcus Hook refinery completed in the lat-
ter part of 1996. In addition, wholesale gasoline margins were adversely im-
pacted in 1996 and 1995 by the Company's high cost of MTBE (a component of re-
formulated gasoline) due to a contractual purchase commitment (see Note 13 to
the consolidated financial statements).
During 1996, Sun reconfigured its Philadelphia refinery to process only sweet
crude oil and to cease asphalt production. The reconfiguration is part of a
continuing process to integrate the Point Breeze and Girard Point segments of
the refinery. This project has contributed to the substantial improvement in
the Northeast refining system's operating reliability and cost structure in
1997. In connection with the reconfiguration, a $53 million after-tax provision
was established in 1996 primarily to write-off redundant and/or unprofitable
units. This provision is reported as part of the Provision for Write-Down of
Assets and Other Matters shown separately in the Earnings Profile of Sun Busi-
nesses.
Sun Northeast Refining operating results decreased $23 million in 1996 primar-
ily due to an $18 million pretax increase in refinery operating expenses and
lower sales volumes, partially offset by higher average wholesale fuels product
margins. The higher operating expenses were due largely to higher refinery fuel
costs resulting from higher crude oil and natural gas prices. The lower sales
volumes were due largely to increased planned refinery maintenance activity.
The increase in wholesale fuels margins reflects significantly higher margins
for middle distillates, largely offset by the adverse impact of higher crude
oil prices on wholesale gasoline and asphalt margins. Wholesale gasoline mar-
gins were adversely impacted in both 1996 and 1995 by the Company's high cost
of making reformulated gasoline.
30
<PAGE>
Sunoco Northeast Marketing
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $73 $1 $45
Gasoline margin* (per barrel) $5.40 $4.02 $4.88
Sales (thousands of barrels daily):
Gasoline 152.3 159.5 158.0
Middle distillates 17.3 15.7 14.7
- ------------------------------------------------------------------------
169.6 175.2 172.7
- ------------------------------------------------------------------------
Retail gasoline outlets 2,821 2,880 2,944
- ------------------------------------------------------------------------
</TABLE>
*Retail sales price less wholesale sales price. The retail sales price is the
weighted average price received through the various branded marketing
distribution channels.
The $72 million increase in Sunoco Northeast Marketing operating results in
1997 was primarily due to significantly higher average retail gasoline margins
and a $47 million pretax decrease in marketing and administrative expenses.
Partially offsetting these positive factors were 5 percent lower retail gaso-
line sales volumes. Retail gasoline margins were adversely impacted in 1996 and
1995 by the Company's high cost of MTBE.
Sunoco Northeast Marketing operating results declined $44 million in 1996 pri-
marily due to lower retail gasoline margins and an $18 million pretax increase
in marketing and administrative expenses. The increase in expenses was due
largely to the impact of a major advertising campaign and higher expenses asso-
ciated with volume increases in company-operated outlets. Partially offsetting
these negative factors was a 2 percent increase in sales volumes.
Sunoco Chemicals
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $77 $40 $68
Petrochemicals margin* (per barrel) $25.01 $21.46 $25.58
Petrochemical sales (thousands of
barrels daily):
Aromatics 10.8 9.6 8.5
Propylene 10.8 6.4 8.1
Ethylene/ethylene oxide 2.8 2.4 2.3
Other -- 1.8 2.0
- ------------------------------------------------------------------------
24.4 20.2 20.9
- ------------------------------------------------------------------------
</TABLE>
*Wholesale sales price less the cost of feedstocks and product purchases.
Income from Sunoco Chemicals increased $37 million in 1997 largely due to
higher margins and sales volumes reflecting record production levels. Total
petrochemical production for 1997 was 8.8 million barrels (24,100 barrels per
day) versus 1996 production of 6.9 million barrels (18,900 barrels per day).
This 28 percent increase in production volumes was largely a result of refinery
maintenance turnarounds completed in the 1996-97 period at the Philadelphia and
Marcus Hook refineries and the expansion of polymer-grade propylene production
capacity at the Marcus Hook refinery in late 1996.
Sunoco Chemicals income decreased $28 million in 1996 primarily due to signifi-
cantly lower margins for most petrochemicals products compared to the strong
margins experienced during 1995. Production shortfalls due to maintenance ac-
tivities at the Company's operating facilities also negatively impacted Sunoco
Chemicals results in 1996.
31
<PAGE>
Sun Lubricants
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) (millions of dollars) $1 $(14) $(15)
Wholesale margin* (per barrel):
Lubricants $26.43 $20.90 $25.03
Fuels $.58 $1.52 $.87
Wholesale sales (thousands of
barrels daily):
To unaffiliated customers:
Specialty oils** 11.7 9.3 8.6
Base oils 7.1 8.7 6.9
Waxes and other lubricants 6.3 5.9 4.5
- --------------------------------------------------------------------------
25.1 23.9 20.0
Gasoline 26.2 36.4 25.9
Middle distillates 36.9 49.8 44.9
Residual fuel 22.8 30.8 19.5
Other 7.3 7.3 11.1
- --------------------------------------------------------------------------
118.3 148.2 121.4
To affiliates*** 17.8 21.1 27.0
- --------------------------------------------------------------------------
136.1 169.3 148.4
- --------------------------------------------------------------------------
</TABLE>
*Wholesale sales price of lubricants and fuels less cost of crude oil, other
feedstocks and purchased refined products.
**Comprised principally of transportation and industrial lubricants.
***Primarily "lubes-extracted" feedstocks which are transported to the Toledo
refinery for further processing.
Sun Lubricants results improved $15 million in 1997 due primarily to higher
specialty oil lubricant margins and a $16 million pretax decline in operating
expenses. Also contributing to the improvement were higher earnings attribut-
able to the Kendall lubricants business acquired by Sun in November 1996. This
acquisition has increased the amount of base oil production upgraded into
transportation lubricants and has enabled Sun Lubricants to increase its spe-
cialty oil lubricants sales. Partially offsetting these positive factors were
20 percent lower base oil margins.
The decline in operating expenses during 1997 was largely attributable to im-
proved operations at the Puerto Rico refinery resulting from the
reconfiguration initiated at this facility in the first quarter of the year.
The changes significantly reduced fuels production at this refinery while fully
maintaining lubricants manufacturing capabilities. The Puerto Rico refinery is
now processing approximately 30,000 barrels per day of reduced crude oil in
lieu of conventional crude oil. Prior to the reconfiguration, this facility had
a crude oil processing capacity of 85,000 barrels per day. Sun Lubricants oper-
ating results for 1996 exclude an $80 million after-tax provision related to
the reconfiguration. This provision is reported as part of the Provision for
Write-Down of Assets and Other Matters shown separately in the Earnings Profile
of Sun Businesses.
The $1 million improvement in Sun Lubricants operating results in 1996 was pri-
marily due to higher lubricants sales volumes and higher margins on wholesale
fuels products. These positive factors were essentially offset by lower lubri-
cant margins, principally for base oils, and higher operating and administra-
tive expenses. The increase in expenses was largely attributable to an increase
in refinery fuel costs and production levels.
32
<PAGE>
Sunoco MidAmerica Marketing & Refining
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) (millions of dollars) $40 $(3) $(8)
- ---------------------------------------------------------------------------
Retail Marketing:
Gasoline margin* (per barrel) $3.28 $3.86 $3.86
Sales (thousands of barrels daily):
Gasoline 49.5 46.2 46.6
Middle distillates 4.6 4.8 4.2
- ---------------------------------------------------------------------------
54.1 51.0 50.8
- ---------------------------------------------------------------------------
Retail gasoline outlets 968 926 917
- ---------------------------------------------------------------------------
Refining and Wholesale Marketing:
Wholesale margin** (per barrel):
Fuels $4.18 $3.55 $2.98
Petrochemicals $7.53 $3.76 $9.06
Wholesale sales (thousands of
barrels daily):
To unaffiliated customers:
Gasoline 42.6 36.8 29.9
Middle distillates 20.1 16.0 13.3
Residual fuel 3.4 3.9 3.8
Petrochemicals 10.8 11.3 10.2
Other 7.9 10.0 8.4
- ---------------------------------------------------------------------------
84.8 78.0 65.6
To affiliates and Sunoco MidAmerica
Retail Marketing 55.2 52.6 54.8
- ---------------------------------------------------------------------------
140.0 130.6 120.4
- ---------------------------------------------------------------------------
Crude unit capacity*** (thousands of
barrels daily) at December 31 125.0 125.0 125.0
Crude unit capacity utilized 106% 100% 89%
- ---------------------------------------------------------------------------
</TABLE>
*Retail sales price less wholesale sales price.The retail sales price is the
weighted average price received through the various branded marketing
distribution channels.
**Wholesale sales price of fuels or petrochemicals less cost of crude oil,
other feedstocks and purchased refined products.
***Effective January 1, 1998, the rated capacity of the crude unit at the Toledo
refinery increased to 130 thousand barrels daily.
Sunoco MidAmerica Marketing & Refining results improved $43 million in 1997
largely due to an increase in wholesale fuel margins and higher wholesale fuel
sales volumes, reflecting record refinery production levels. Also contributing
to the improvement were higher chemical margins and a $12 million pretax de-
crease in operating expenses. Partially offsetting these positive factors were
lower retail gasoline margins.
Sunoco MidAmerica Marketing & Refining results improved $5 million in 1996 due
to higher wholesale fuel margins and sales volumes and a $9 million pretax de-
crease in retail marketing expenses. Partially offsetting these positive fac-
tors were a decline in margins on petrochemicals, largely xylene, and a $22
million pretax increase in refinery expenses resulting from higher refinery
fuel costs and production volumes.
Sunoco Logistics
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $51 $48 $53
Pipeline throughput (thousands of barrels
daily):
Unaffiliated customers 682 627 557
Affiliated customers 932 819 776
- ------------------------------------------------------------------------
1,614 1,446 1,333
- ------------------------------------------------------------------------
</TABLE>
Sunoco Logistics income increased $3 million in 1997 primarily due to higher
throughput at the Nederland, TX, crude oil terminal and in the eastern product
pipeline system. In 1996, Sunoco Logistics results decreased $5 million primar-
ily due to lower eastern product pipeline system throughput and a loss associ-
ated with a pipeline leak, partially offset by higher earnings from joint ven-
ture pipeline operations.
33
<PAGE>
Sun Coke
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $38 $31 $25
Average sales price of coal and coke (per
ton) $47.84 $40.03 $37.65
Proven and probable coal reserves
(millions of tons) 124 132 139
Production (thousands of tons):
Coal 3,287 4,416 5,121
Coke 664 648 638
- -------------------------------------------------------------------------
</TABLE>
Sun Coke income increased $7 million during 1997 after increasing $6 million in
1996. The increases in earnings during the 1995-97 period were primarily due to
higher margins for coke and improved results from steam coal operations in Ken-
tucky. Sun Coke results included gains from divestments and insurance recov-
eries totalling approximately $2 million after tax in both 1997 and 1996.
In November 1996, Sun Coke entered into an agreement to construct, own and op-
erate a $195 million cokemaking facility in East Chicago, IN, which will pro-
duce coke for Inland Steel Company's Indiana Harbor Works steel plant located
adjacent to the new facility. The agreement requires Inland to buy 1.2 million
tons of coke annually on a take-or-pay basis for a period of 15 years commenc-
ing after the cokemaking facility's scheduled first quarter 1998 start-up date.
Additional production of up to 150,000 tons per year will be sold either to In-
land or other steel producers. The plant's coke ovens will utilize Sun Coke's
proprietary heat-recovery cokemaking technology, which is environmentally and
economically superior to the chemical by-product technology currently used by
other coke producers.
Net Financing Expenses--Net financing expenses increased $1 million in 1997 af-
ter decreasing $8 million in 1996. The decline in 1996 was primarily due to
lower average total borrowings.
Real Estate Operations Held for Sale--For a discussion of Sun's real estate op-
erations held for sale, see Note 2 to the consolidated financial statements.
Sun International Production--On September 30, 1996, Sun completed the sale of
its International Production business for $278 million in cash which resulted
in a $125 million after-tax gain. This gain is shown separately in the Earnings
Profile of Sun Businesses. Prior to the divestment, operating results for this
business unit totalled $41 million in 1996 and $57 million in 1995.
Canada (Suncor)--On June 8, 1995, Sun divested its remaining 55-percent inter-
est in Suncor Inc., a Canadian integrated oil company, for $770 million, of
which $635 million was received in June 1995 and $135 million was received in
June 1996. This divestment resulted in a $157 million after-tax gain, which is
shown separately in the Earnings Profile of Sun Businesses. Suncor's operating
results totalled $23 million in 1995 prior to the divestment.
ANALYSIS OF CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues--Total revenues from continuing operations were $10.5 billion in 1997,
$11.3 billion in 1996 and $9.9 billion in 1995. The 7 percent decrease in 1997
was primarily due to lower revenues from resales of purchased crude oil, lower
refined product prices and lower consumer excise taxes, partially offset by
higher refined product sales volumes.
In 1996, the 14 percent increase reflects higher refined product sales prices
and volumes and higher revenues from resales of purchased crude oil, partially
offset by the absence of revenues from Canadian refining and marketing opera-
tions as a result of the divestment of Suncor on June 8, 1995.
34
<PAGE>
Costs and Expenses--Total pretax costs and expenses attributable to continuing
operations were $10.1 billion in 1997, $11.7 billion in 1996 and $9.9 billion
in 1995. The 14 percent decrease in 1997 was primarily due to lower resales of
purchased crude oil and lower crude oil and refined product acquisition costs.
Also contributing to the decrease were reduced operating and administrative ex-
penses reflecting cost containment efforts and a decline in the provisions for
asset write-downs, employee terminations and other matters.
The 18 percent increase in costs and expenses in 1996 was primarily due to
higher crude oil and refined product acquisition costs largely as a result of
an increase in crude oil prices, and higher resales of purchased crude oil.
Also contributing to the increase were higher domestic refinery operating ex-
penses attributable principally to higher refinery fuel costs, higher domestic
consumer excise taxes, higher costs related to Sun's cokemaking business and an
increase in the provisions for asset write-downs, employee terminations and
other matters. Partially offsetting these increases were lower costs and ex-
penses related to Canadian refining and marketing operations resulting from the
Suncor divestment and lower interest cost and debt expense due to lower average
borrowings.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash and Working Capital--At December 31, 1997, Sun had cash and cash equiva-
lents of $33 million compared to $67 million at December 31, 1996 and had a
working capital deficit of $216 million compared to a working capital deficit
of $282 million at December 31, 1996. Sun's working capital position is consid-
erably stronger than indicated because of the relatively low historical costs
assigned under the LIFO method of accounting for most of the inventories re-
flected in the consolidated balance sheet. The current replacement cost of all
such inventories exceeds their carrying value at December 31, 1997 by $492 mil-
lion. Inventories valued at LIFO, which consist of crude oil and refined prod-
ucts, are readily marketable at their current replacement values. Management
believes that the current levels of Sun's cash and working capital are adequate
to support Sun's ongoing operations.
Cash Flows and Financial Capacity--In 1997, Sun's net cash provided by operat-
ing activities ("cash generation") was $452 million compared to $332 million in
1996 and $352 million in 1995. The $120 million increase in cash generation in
1997 was primarily attributable to the significant increase in income before
special items, partially offset by an increase in working capital uses pertain-
ing to operating activities and a reduction in net cash provided by operating
activities of discontinued operations. The $20 million decrease in cash genera-
tion in 1996 was largely due to declines in income before special items and net
cash provided by operating activities of discontinued operations, essentially
offset by a reduction in working capital uses pertaining to operating activi-
ties.
Divestment activities have also been a source of cash and in the past have en-
hanced liquidity. During the 1995-97 period, proceeds from divestments totalled
$1,326 million, including $278 million received in 1996 from the sale of the
International Production business and $770 million received in the 1995-96 pe-
riod from the sale of Suncor common stock.
Management believes that future cash generation will be sufficient to satisfy
Sun's capital requirements and to pay the current level of cash dividends on
common and preference stock. However, from time to time, the Company's short-
term cash requirements may exceed its cash generation due to various factors
including volatility in crude oil and refined product markets and increases in
capital spending and working capital levels. During those periods, the Company
may supplement its cash generation with proceeds from financing activities.
35
<PAGE>
The Company has a $500 million revolving credit agreement ("Agreement") with
commercial banks that provides access to short-term financing through September
2002. The Company can borrow directly from the participating banks under this
Agreement or use it to support commercial paper issued by Sun. The Company also
has access to short-term financing under non-committed money market facilities.
At December 31, 1997 and 1996, there were no amounts outstanding related to the
above short-term borrowing arrangements.
The following table sets forth amounts outstanding related to Sun's other
borrowings:
<TABLE>
<CAPTION>
December 31
-----------
(Millions of Dollars) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Current portion of long-term debt $ 12 $ 54
Long-term debt 824 835
- ---------------------------------------------------
Total borrowings $836 $889
- ---------------------------------------------------
</TABLE>
Sun's debt-to-capital ratio was 36.4 percent at December 31, 1997 compared to
38.2 percent at December 31, 1996. Management believes there is sufficient bor-
rowing capacity available to pursue strategic investment opportunities as they
arise. In addition, the Company has the option of issuing additional common or
preference stock as a means of increasing its equity base; however, there are
no current plans to do so. No commitments have been made with respect to any
investment opportunity which would require the use of a significant portion of
Sun's unused financial capacity.
In early 1998, Sun transferred an interest in its cokemaking operations in East
Chicago, IN, to a third party in exchange for $200 million in cash. The trans-
feree is entitled to a preferential return from the cash flows of this
cokemaking operation until certain cumulative return targets have been met. Sun
did not recognize a gain or loss on this transaction.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 PLAN 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sun Northeast Refining $111 $ 81 $148 $103
Sunoco Northeast
Marketing 70 46 81 102
Sunoco Chemicals 49 37 57 55
Sun Lubricants 33 22 30* 52
Sunoco MidAmerica
Marketing & Refining 47 29 36 48
Sunoco Logistics 39 32 22 42
Sun Coke 68 133 34 7**
Canadian Refining and
Marketing -- -- -- 8
- --------------------------------------------------------------------------
Consolidated capital
expenditures $417 $380 $408 $417
- --------------------------------------------------------------------------
</TABLE>
*Excludes $74 million attributable to the purchase of the Kendall lubricants
business and related working capital.
**Excludes capital expenditures of Sun Coke prior to June 30, 1995 while such
operations were accounted for as an investment held for sale.
In 1997, major capital expenditures included: $118 million for the ongoing con-
struction of the $195 million cokemaking facility in East Chicago, IN, sched-
uled to commence operations in the first quarter of 1998; $25 million to begin
the expansion of the Philadelphia refinery's cumene production capacity; $17
million for the scheduled turnaround of various units at the Philadelphia re-
finery including a catcracker, a crude unit and a gasoline reformer; and $46
million largely for service station modernization activities in the Northeast.
In 1996, in addition to the $74 million spent to acquire the Kendall lubricants
business (of which $46 million related to working capital), major capital out-
lays included: $81 million for branded marketing activities in the Northeast
mainly for ongoing upgrades of service stations; $76 million for the six-week
scheduled turnaround and modernization of the 86,000 barrel-per-day catalytic
cracking unit, gas plant and ethylene complex at the Marcus Hook refinery; $37
million to complete the expansion of a propylene unit at the
36
<PAGE>
Marcus Hook refinery; and $19 million to begin construction of the East Chica-
go, IN, cokemaking facility.
In 1995, major capital expenditures included: $61 million related to service
station conversion and modernization activities; $26 million at the Marcus Hook
refinery to begin the expansion of the propylene unit and to complete expansion
of an ethylene oxide unit; $18 million to complete a cyclohexane plant and ex-
pand benzene extraction capacity at the Marcus Hook refinery and $13 million to
complete the construction of a pipeline connecting the Philadelphia and Marcus
Hook refineries.
The 1998 planned capital expenditures include $144 million for growth projects
with four projects comprising approximately 80 percent of the growth spending.
These outlays are: $58 million to complete the construction of the East Chica-
go, IN, cokemaking facility; $25 million to complete the expansion of the Phil-
adelphia refinery's cumene production facilities; $18 million to modernize the
68,000 barrel-per-day catalytic cracking unit at the Philadelphia refinery; and
$17 million to upgrade or acquire Sunoco(R) retail marketing locations in the
Northeast. An additional $273 million is designated for base infrastructure and
legally required spending in 1998, a significant portion of which relates to
projects that will enhance the reliability of the Company's operations. The
base infrastructure spending includes scheduled turnarounds at Sun's refining
facilities and projects that will maintain the high quality image of Sunoco(R)
retail outlets.
ENVIRONMENTAL MATTERS
Sun is subject to numerous federal, state and local laws which regulate the
discharge of materials into, or otherwise relate to the protection of, the en-
vironment. These laws have required, and are expected to continue to require,
Sun to make significant expenditures of both a capital and expense nature. The
following table summarizes Sun's expenditures for environmental projects and
compliance activities:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Pollution abatement capital* $ 23 $ 29 $ 60
Remediation 38 37 48
Operations, maintenance and administration 188 185 238
- ------------------------------------------------------------------------
$249 $251 $346
- ------------------------------------------------------------------------
</TABLE>
*Capital expenditures for pollution abatement are expected to approximate $35
and $34 million in 1998 and 1999, respectively.
The Clean Air Act establishes stringent criteria for regulating air toxics at
operating facilities by mandating major reductions in allowable emissions and
establishing a more comprehensive list of substances deemed to be air toxics.
The Clean Air Act also requires refiners to market cleaner-burning gasoline
that reduces emissions of certain toxic and conventional pollutants. The Com-
pany has implemented the first phase of the reformulated gasoline regulations
which requires an increase in the minimum quantity of oxygen for certain non-
attainment areas, a reduction in benzene content, and a reduction in summertime
Reid Vapor Pressure ("RVP"). Sun expects to implement the next more stringent
phases of these regulations in 1998 and 2000 with modest capital investment.
In order to obtain a secure supply of oxygenates, Sun entered into an off-take
agreement with Belvieu Environmental Fuels ("BEF"), a joint venture in which
Sun is a one-third partner, whereby Sun agreed to purchase all of the MTBE from
BEF's 14,000 barrel-per-day facility. At December 31, 1996, Sun established a
$130 million accrual ($85 million after tax) for estimated losses expected to
be realized with respect to the off-take agreement. During 1997, actual losses
attributable to this agreement totalling $65 million were charged against the
accrual. (See Note 13 to the consolidated financial statements.)
The Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") and the Solid Waste Disposal Act as amended by the Resource Conser-
vation and Recovery Act ("RCRA"), and related federal and state laws subject
Sun to the potential obligation to remove or mitigate the environmental effects
of the disposal or
37
<PAGE>
release of certain pollutants at Sun's facilities and at third-party or former-
ly-owned sites. Under CERCLA, Sun is subject to potential joint and several li-
ability for the costs of remediation at sites at which it has been identified
as a "potentially responsible party" ("PRP"). As of December 31, 1997, Sun had
been named as a PRP at 44 sites identified or potentially identifiable as
"Superfund" sites under CERCLA. Sun has reviewed the nature and extent of its
involvement at each site and other relevant circumstances and, based upon the
other parties involved or Sun's negligible participation therein, believes that
its potential liability associated with such sites will not be significant.
Under various environmental laws, including RCRA, Sun has initiated corrective
remedial action at Sun's facilities, formerly-owned facilities and third-party
sites and could be required to undertake similar actions at various other
sites. The cost of such remedial actions could be significant but is expected
to be incurred over an extended period of time.
Sun establishes accruals related to environmental remediation activities for
work at identified sites where an assessment has indicated that cleanup costs
are probable and reasonably estimable. For a discussion of the accrued liabili-
ties and charges against income related to these activities, see Note 13 to the
consolidated financial statements.
On October 4, 1996, Sun filed a complaint in Los Angeles County Superior Court,
Jalisco Corporation, Inc., et al. v. Argonaut Insurance Company, et al. (Case
No. BC 158441), naming more than 45 insurance companies as defendants and seek-
ing recovery under numerous insurance policies for certain environmental expen-
ditures of Sun, including its predecessor companies and subsidiaries, arising
from the ownership and operation of its business and properties. The Company
cannot quantify the ultimate outcome of this litigation which may be protract-
ed.
Total future costs for environmental remediation activities will depend upon,
among other things, the identification of any additional sites, the determina-
tion of the extent of the contamination at each site, the timing and nature of
required remedial actions, the technology available and needed to meet the var-
ious existing legal requirements, the nature and extent of future environmental
laws, inflation rates and the determination of Sun's liability at multi-party
sites, if any, in light of the number, participation level and financial via-
bility of other parties.
Management believes that the overall expenditures for the matters discussed
above are likely to be significant but are expected to be incurred over an ex-
tended period of time and to be funded from Sun's net cash provided by operat-
ing activities. Although potentially significant with respect to results of op-
erations or cash flows for any one year, management believes that such costs
will not have a material impact on Sun's consolidated financial position or,
over an extended period of time, on Sun's cash flows or liquidity.
YEAR 2000 INFORMATION PROCESSING
A comprehensive program is currently underway to evaluate and implement changes
that will be necessary for the Company to accurately process information at and
beyond the Year 2000. The program consists of an evaluation of and changes to
Sun's information technology environment, which includes all software, hardware
and network components, as well as an assessment of the ability of the
Company's major customers and suppliers to conduct business. Management expects
that all of Sun's systems critical to its ongoing business will be Year 2000
compliant by mid-1999. Management also believes that the costs associated with
this project will not be significant in relation to Sun's results of opera-
tions. Furthermore, the Company has not identified any material adverse Year
2000 consequences to date in connection with any of its third-party relation-
ships. However, if any governmental agencies, key customers or key suppliers
are unable to make the necessary computer system changes on a timely basis,
such inability could negatively impact the Company's results of operations.
38
<PAGE>
DERIVATIVE INSTRUMENTS
Sun uses swaps, options, futures, forwards and other similar derivative con-
tracts to hedge the impact of fluctuations in crude oil, natural gas, refined
product and electricity prices. At December 31, 1997, Sun had swaps and options
outstanding to hedge against significant increases in crude oil prices amount-
ing to approximately 4 million barrels (2 percent) of its expected 1998 crude
oil purchases and had locked in what it considers to be acceptable margins for
approximately 6 million barrels (2 percent) of its anticipated 1998 wholesale
fuel sales.
Sun is at risk for possible changes in the market value of all of its deriva-
tive contracts. However, it is anticipated that such risk would be mitigated by
price changes in the underlying hedged transactions. In addition, Sun is ex-
posed to credit risk in the event of nonperformance by counterparties. Manage-
ment believes this risk is negligible as its counterparties are either regu-
lated by exchanges or are major international financial institutions with high
credit ratings. Although most of these derivative contracts are intended to
limit the Company's exposure to rising crude oil prices and/or declining mar-
gins, they could limit the Company's participation in falling crude oil prices
and/or rising margins. For a further discussion of Sun's hedging activities,
see Note 16 to the consolidated financial statements.
CASH DIVIDENDS AND SHARE REDEMPTION AND REPURCHASES
The Company has paid cash dividends on a regular quarterly basis since 1904.
Effective with the third quarter of 1995, Sun reduced its quarterly common
stock dividend from $.45 per share to $.25 per share. As a result, the cash
dividends paid on common stock totalled $1.40 per share in 1995 and $1.00 per
share in 1996 and 1997. The Company expects to continue to sustain the quar-
terly common stock cash dividend at its current level.
During the third quarter of 1995, Sun exchanged 25 million "depositary shares"
for an equal number of shares of its common stock in a tax-free transaction.
Each depositary share represents ownership of one-half share of the Company's
Series A cumulative preference stock. The depositary shares accrue dividends
quarterly at a rate of $.45 per share, or one-half the rate paid on the prefer-
ence stock. Cash dividends paid on the depositary shares totalled $.90 per
share in 1995 and $1.80 per share in both 1996 and 1997. (See Note 14 to the
consolidated financial statements.)
The outstanding depositary shares are redeemable at any time by the Company, in
whole or in part, for common stock at a value which initially equaled $42.40
per depositary share at June 12, 1995 and declines ratably to $40.00 per depos-
itary share at June 11, 1998. As of February 12, 1998, this call price was
$40.27 per depositary share. After June 11, 1998, the Company can redeem the
depositary shares with common shares on a one-for-one basis, subject to adjust-
ment in certain events. If Sun were to do a partial redemption of depositary
shares, it would be done on a pro rata basis. The Company currently intends to
redeem all of the outstanding depositary shares no later than June 12, 1998.
The Company repurchased 6,400,000 shares of its common stock in mid-1995
through a tender offer for $192 million and an additional 6,774,500 shares of
common stock and 885,700 depositary shares during the 1995-97 period on the
open market for $250 million. At December 31, 1997, the Company had a remaining
authorization from its Board of Directors to purchase up to $150 million of
Company stock in the open market or through privately negotiated transactions
from time to time depending on prevailing market conditions.
39
<PAGE>
FORWARD-LOOKING STATEMENTS
Those statements in the Management's Discussion and Analysis that are not his-
torical in nature should be deemed forward-looking statements within the mean-
ing of Section 21E of the Securities Exchange Act of 1934. Such statements gen-
erally will be accompanied by words such as "anticipate," "believe," "esti-
mate," "expect," "forecast," "intend," "possible," "potential," "predict,"
"project," or other similar words that convey the uncertainty of future events
or outcomes. Although Sun believes these forward-looking statements are reason-
able, they are based upon a number of assumptions concerning future conditions,
any or all of which may ultimately prove to be inaccurate. Such forward-looking
statements involve risks and are inherently uncertain. Important factors that
could cause actual results to differ materially from those projected in such
statements are discussed below.
Sun's operating results are dependent upon the reliability and efficiency of
the Company's operating facilities, the level of operating expenses and hazards
common to operating facilities (including equipment malfunction, explosions,
fires, oil spills and the effects of severe weather conditions). Plans for the
construction, modernization or debottlenecking of refineries, chemical plants
and/or cokemaking facilities, and the utilization and timing of production from
these facilities are subject to many factors, including unplanned delays, and
the issuance of applicable building, environmental and other permits. Sun's in-
come and revenues are affected by market supply and demand for Sun's products
and actions taken by competitors (including both pricing and expansion and re-
tirement of refinery capacity in response to market conditions), as well as
changes in industry-wide refining margins, market forces affecting the avail-
ability and pricing of oxygenates such as MTBE, changes in crude oil and other
raw material costs, and world and regional events that could significantly in-
crease volatility in the marketplace.
The ability to meet liquidity requirements, including the funding of the
Company's capital program from operations, is subject to changes in commodity
prices and crude oil supply that could be affected by factors beyond Sun's con-
trol, such as embargoes, the continued discovery and production of light sweet
crude oil, or military conflicts involving (or internal instability in) one or
more oil-producing countries. Other factors that could affect Sun's business
include the continued availability of debt and equity financing, changes in la-
bor relations, general economic conditions (including recessionary trends, in-
flation and interest and currency exchange rates), and civil, criminal, regula-
tory or administrative actions, claims or proceedings. Sun's operations could
also be affected by domestic and international political, legislative, regula-
tory and legal actions, such as restrictions on production, restrictions on im-
ports and exports, price controls, tax increases and retroactive tax claims,
expropriation of property and cancellation of contract rights. Sun is impacted
by laws pertaining to workers' health and safety, and current or amended state
and federal environmental and other similar regulations (including, particular-
ly, regulations dealing with gasoline composition and characteristics) or the
judicial interpretation of such regulations.
The factors identified above are believed to be important factors (but not nec-
essarily all of the important factors) that could cause actual results to dif-
fer materially from those expressed in any forward-looking statement made by
Sun. Unpredictable or unknown factors not discussed herein could also have ma-
terial adverse effects on forward-looking statements. All forward-looking
statements included in this Annual Report on Form 10-K are expressly qualified
in their entirety by the foregoing cautionary statements. The Company under-
takes no obligation to update publicly any forward-looking statement (or its
associated cautionary language) whether as a result of new information or fu-
ture events.
40
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars and Shares Except Per Share Amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue
(including consumer excise taxes) $10,464 $11,233 $9,834
Interest income 7 15 13
Other income (Note 4) 60 52 30
- --------------------------------------------------------------------------------
10,531 11,300 9,877
COSTS AND EXPENSES
Cost of products sold and operating
expenses 7,610 8,718 7,011
Selling, general and administrative
expenses 533 589 616
Consumer excise taxes 1,563 1,612 1,751
Payroll, property and other taxes 78 89 94
Depreciation, depletion and amortization 259 267 263
Provision for write-down of assets and
other matters (Note 2) 32 356 93
Interest cost and debt expense 78 79 98
Interest capitalized (7) (2) (2)
- --------------------------------------------------------------------------------
10,146 11,708 9,924
Income (loss) from continuing operations
before income tax expense
(benefit) and cumulative effect of change
in accounting principle 385 (408) (47)
Income tax expense (benefit) (Note 5) 122 (127) (39)
- --------------------------------------------------------------------------------
Income (loss) from continuing operations
before cumulative effect of
change in accounting principle 263 (281) (8)
Income from discontinued operations (Note
2) -- 166 235
Cumulative effect of change in accounting
principle (Note 3) -- -- (87)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) 263 (115) 140
Dividends on preference stock (44) (45) (22)
- --------------------------------------------------------------------------------
Net income (loss) attributable to common
shareholders $ 219 $ (160) $ 118
- --------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK (Note
6):
Basic:
Income (loss) from continuing operations
before cumulative effect
of change in accounting principle $3.03 $(4.43) $(.33)
Income from discontinued operations -- 2.26 2.57
Cumulative effect of change in
accounting principle -- -- (.95)
- --------------------------------------------------------------------------------
Net income (loss) $3.03 $(2.17) $1.29
- --------------------------------------------------------------------------------
Diluted:
Income (loss) from continuing operations
before cumulative effect
of change in accounting principle $2.70 $(4.43) $(.33)
Income from discontinued operations -- 2.26 2.57
Cumulative effect of change in
accounting principle -- -- (.95)
- --------------------------------------------------------------------------------
Net income (loss) $2.70 $(2.17) $1.29
- --------------------------------------------------------------------------------
Weighted average number of shares
outstanding:
Basic 72.3 73.6 91.3
Diluted 97.4 73.6 91.3
- --------------------------------------------------------------------------------
CASH DIVIDENDS PAID PER SHARE:*
Preference stock $3.60 $3.60 $1.80
Common stock $1.00 $1.00 $1.40
- --------------------------------------------------------------------------------
</TABLE>
*Effective in the third quarter of 1995, Sun began paying quarterly dividends on
preference stock at a rate of $.90 per share and reduced its quarterly common
stock dividend from $.45 to $.25 per share. Each share of preference stock is
represented by two depositary shares. Each depositary share accrues dividends
quarterly at a rate of $.45 per share, or one-half the rate paid on preference
stock.
(See Accompanying Notes)
41
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
At December 31 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 33 $ 67
Accounts and notes receivable, net 671 864
Inventories (Note 7) 431 476
Deferred income taxes (Note 5) 113 128
- ----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,248 1,535
- ----------------------------------------------------------------------------
Investment in real estate operations held for sale
(Note 2) 43 79
Investments and long-term receivables (Note 8) 94 91
Properties, plants and equipment, net (Note 9) 3,064 3,044
Deferred charges and other assets 218 276
- ----------------------------------------------------------------------------
TOTAL ASSETS $4,667 $5,025
- ----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 830 $1,081
Accrued liabilities 534 573
Current portion of long-term debt (Note 11) 12 54
Taxes payable 88 109
- ----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,464 1,817
- ----------------------------------------------------------------------------
Long-term debt (Note 11) 824 835
Retirement benefit liabilities (Note 12) 477 489
Deferred income taxes (Note 5) 73 --
Other deferred credits and liabilities 367 446
Commitments and contingent liabilities (Note 13)
SHAREHOLDERS' EQUITY (Notes 14 and 15)
Cumulative preference stock--Series A, no par value
Authorized--12,500,000 shares;
Outstanding, 1997--12,057,150 shares;
Outstanding, 1996--12,460,550 shares 723 748
Common stock, par value $1 per share
Authorized--200,000,000 shares;
Issued, 1997--131,572,867 shares;
Issued, 1996--129,871,604 shares 132 130
Capital in excess of par value 1,361 1,316
Earnings employed in the business 1,430 1,284
- ----------------------------------------------------------------------------
3,646 3,478
Less common stock held in treasury, at cost
1997--60,744,258 shares; 1996--56,880,126 shares 2,184 2,040
- ----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,462 1,438
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,667 $5,025
- ----------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
42
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 263 $(115) $ 140
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Income from discontinued operations -- (166) (235)
Cumulative effect of change in
accounting principle -- -- 87
Provision for write-down of assets and
other matters 32 356 93
Depreciation, depletion and amortization 259 267 263
Deferred income tax expense (benefit) 131 (129) 11
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable 203 (198) (143)
Inventories 45 57 (28)
Accounts payable and accrued liabilities (383) 257 66
Taxes payable (51) 7 (101)
Other (47) (21) (13)
- ---------------------------------------------------------------------------------
Net cash provided by continuing operating
activities 452 315 140
Net cash provided by discontinued
operating activities -- 17 212
- ---------------------------------------------------------------------------------
Net cash provided by operating activities 452 332 352
- ---------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (380) (408) (417)
Acquisition of Kendall lubricants
business (Notes 2 and 17) -- (74) --
Proceeds from divestments:
International Production operations
(Note 2) -- 278 --
Suncor common stock (Note 2) -- 135 635
Other 182 32 64
Investing activities of discontinued
operations -- (13) (99)
Other 11 -- (18)
- ---------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (187) (50) 165
- ---------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of short-term borrowings -- (54) (167)
Repayments of long-term debt (53) (2) (142)
Cash dividend payments (117) (119) (156)
Purchases of preference stock for
retirement (27) (2) --
Purchases of common stock for treasury (144) (31) (238)
Proceeds from issuance of common stock
under management incentive and
employee option plans 48 4 6
Financing activities of discontinued
operations -- -- 15
Other (6) (22) 90
- ---------------------------------------------------------------------------------
Net cash used in financing activities (299) (226) (592)
- ---------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (34) 56 (75)
Cash and cash equivalents at beginning of
year 67 11 86
- ---------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 33 $ 67 $ 11
- ---------------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
43
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Sun Company, Inc. and Subsidiaries
(Dollars in Millions, Shares in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Cumulative
Preference Stock Common Stock Earnings Common Stock
---------------------- ------------------ Capital in Employed Held in Treasury
Number of Liquidation Number of Par Excess of Translation in the ------------------
Shares Value Shares Value Par Value Adjustment Business Shares Cost
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1994 -- $ -- 129,521 $130 $1,309 $(89) $1,534 22,584 $1,021
Net income -- -- -- -- -- -- 140 -- --
Cash dividend payments -- -- -- -- -- -- (156) -- --
Exchange of preference
stock for common stock
(Note 14) 12,500 750 -- -- -- -- -- 25,000 750
Purchases for treasury -- -- -- -- -- -- -- 8,125 238
Issued under management
incentive plans -- -- 56 -- 2 -- -- -- --
Issued under employee
option plan -- -- 132 -- 4 -- -- (4) --
Foreign currency
translation adjustment -- -- -- -- -- 89 -- -- --
Other -- -- -- -- (5) -- -- (6) --
- -----------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1995 12,500 $750 129,709 $130 $1,310 $ -- $1,518 55,699 $2,009
Net loss -- -- -- -- -- -- (115) -- --
Cash dividend payments -- -- -- -- -- -- (119) -- --
Purchases for retirement (39) (2) -- -- -- -- -- -- --
Purchases for treasury -- -- -- -- -- -- -- 1,185 31
Issued under management
incentive plans -- -- 74 -- 2 -- -- -- --
Issued under employee
option plan -- -- 88 -- 2 -- -- -- --
Other -- -- 1 -- 2 -- -- (4) --
- -----------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 12,461 $748 129,872 $130 $1,316 $ -- $1,284 56,880 $2,040
Net income -- -- -- -- -- -- 263 -- --
Cash dividend payments -- -- -- -- -- -- (117) -- --
Purchases for retirement (404) (25) -- -- (2) -- -- -- --
Purchases for treasury -- -- -- -- -- -- -- 3,864 144
Issued under management
incentive plans -- -- 1,051 1 29 -- -- -- --
Issued under employee
option plan -- -- 647 1 17 -- -- -- --
Other -- -- 3 -- 1 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1997 12,057 $723 131,573 $132 $1,361 $ -- $1,430 60,744 $2,184
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
44
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sun Company, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Sun Company, Inc. and all operations that are controlled (generally more than
50 percent owned) except those accounted for as investments in operations held
for sale and discontinued operations (collectively, "Sun" or the "Company") are
consolidated. Affiliated companies over which the Company has the ability to
exercise significant influence but that are not controlled (generally 20 to 50
percent owned) are accounted for by the equity method.
USE OF ESTIMATES
Certain amounts included in the accompanying consolidated financial statements
and related footnotes reflect the use of estimates based on assumptions made by
management. Actual amounts could differ from these estimates.
CASH EQUIVALENTS
Sun considers all highly liquid investments with a remaining maturity of three
months or less at the time of purchase to be cash equivalents. These cash
equivalents consist principally of time deposits and certificates of deposit.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of crude oil
and refined product inventories is determined using the last-in, first-out
method ("LIFO"). The cost of materials, supplies and other inventories is de-
termined using principally the average cost method.
DEPRECIATION AND RETIREMENTS
Plants and equipment are generally depreciated on a straight-line basis over
their estimated useful lives. Coal property acquisition costs and capitalized
development costs are depleted by the unit of production method based on proved
reserves. Gains and losses on the disposals of fixed assets are generally re-
flected in income.
ENVIRONMENTAL REMEDIATION
Sun accrues environmental remediation costs for work at identified sites where
an assessment has indicated that cleanup costs are probable and reasonably es-
timable. Such accruals are undiscounted and are based on currently available
information, estimated timing of remedial actions and related inflation assump-
tions, existing technology and presently enacted laws and regulations.
REFINERY MAINTENANCE SHUTDOWNS
Maintenance and repair costs in excess of $500 thousand incurred in connection
with major refinery maintenance shutdowns are capitalized when incurred and
then amortized over the period benefitted by the maintenance activities.
FOREIGN CURRENCY TRANSLATION
Prior to the divestment of Suncor Inc., the functional currency for Canadian
operations was the Canadian dollar. Foreign exchange gains and losses that re-
sulted from translating Suncor's balance sheet from Canadian dollars into U.S.
dollars were included as a separate component of shareholders' equity. The
functional currency for International Production operations was the U.S. dol-
lar.
DERIVATIVE INSTRUMENTS
Sun uses swaps, options, futures, forwards and other off-balance sheet commodi-
ty-based financial and nonfinancial derivative instruments to hedge its expo-
sure to crude oil, natural gas, refined product and electricity price volatili-
ty. Such contracts, which effectively meet the Company's risk reduction and
correlation criteria, are recorded using hedge accounting. Effectiveness is
measured based upon the high correlation between the gains and losses on the
derivative contracts and the corresponding offsetting changes in the market
value of the underlying items being hedged. Under hedge accounting, gains or
losses on derivative contracts (whether or not held until the underlying items
being hedged are recognized in income) are deferred and recognized in cost of
products sold and operating expenses in the same periods as the underlying
items being hedged. In the event a derivative contract were to become ineffec-
tive as a hedge or if an anticipated transaction being hedged were no longer
likely to occur, any related unrealized derivative gain or loss would be recog-
nized in income at such time. The cash flows from hedge contracts are included
in operating activities in the consolidated statements of cash flows. Sun does
not hold or issue derivative instruments for trading purposes.
STOCK-BASED COMPENSATION
The Company follows the method of accounting for employee stock compensation
plans prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") (Note 15).
45
<PAGE>
2. CHANGES IN BUSINESS
The following is a summary of Sun's significant changes in business during the
three-year period ended December 31, 1997:
DISCONTINUED OPERATIONS
On September 30, 1996, Sun completed the sale of its international oil and gas
production business for $278 million in cash. The sale of this business repre-
sents the completion of the Company's withdrawal from oil and gas exploration
and production activities. The Company withdrew from international exploration
activities in 1992 and divested its remaining 55-percent interest in Suncor
Inc., a Canadian integrated oil company, on June 8, 1995. Sun received $770
million from the sale of Suncor, after commissions and discounts, of which $635
million was received in June 1995 and $135 million was received in June 1996.
As a result of the sale of the international oil and gas production business,
it and the previously divested Canadian synthetic oil production and conven-
tional oil and gas exploration and production operations (collectively, "Cana-
dian Upstream Petroleum Operations") have been classified as discontinued oper-
ations in 1996 and 1995 up to their respective dates of divestment. The follow-
ing is a summary of income from discontinued operations:
<TABLE>
<CAPTION>
Canadian
International Upstream
Production Petroleum
(Millions of Dollars) Operations Operations Total
- --------------------------------------------------------
<S> <C> <C> <C>
1996
Income before
income tax
benefit $152 $-- $152
Income tax
benefit 14 -- 14
- --------------------------------------------------------
Income from
discontinued
operations $166 $-- $166
- --------------------------------------------------------
1995
Income before
income tax
expense $ 80 $286 $366
Income tax
expense 23 108 131
- --------------------------------------------------------
Income from
discontinued
operations $ 57 $178 $235
- --------------------------------------------------------
</TABLE>
Income from discontinued International Production Operations in 1996 includes a
$125 million gain on divestment of this business (comprised of a pretax gain of
$93 million and an income tax benefit of $32 million). Income from discontinued
Canadian Upstream Petroleum Operations in 1995 includes a $157 million gain on
divestment of Suncor (comprised of a pretax gain of $242 million and income tax
expense of $85 million).
Prior to their divestment, sales and other operating revenue from discontinued
International Production Operations totalled $187 and $236 million for 1996 and
1995, respectively, while sales and other operating revenue from discontinued
Canadian Upstream Petroleum Operations totalled $271 million for 1995.
INVESTMENTS IN OPERATIONS HELD FOR SALE
Real Estate Operations--Sun has been disposing of the assets of Radnor Corpora-
tion ("Radnor"), its wholly owned real estate development subsidiary, since Oc-
tober 1991 and subsequent to that date has divested approximately 95 percent of
Radnor's real estate portfolio. Radnor is accounted for as an investment held
for sale. Accordingly, pretax results from real estate operations have been in-
cluded as a single amount in other income in the accompanying consolidated
statements of operations (Note 4).
Radnor's assets and liabilities have been segregated in the consolidated bal-
ance sheets and separately reflected as an investment in operations held for
sale. Such amounts are detailed as follows:
<TABLE>
<CAPTION>
December 31
--------------
(Millions of Dollars) 1997 1996
- -----------------------------------------------
<S> <C> <C>
Inventories $ 49 $ 78
Properties, plants and
equipment 9 119
Other assets 15 18
Debt -- (109)
Other liabilities (30) (27)
- -----------------------------------------------
Investment in real estate
operations
held for sale $ 43 $ 79
- -----------------------------------------------
</TABLE>
Coal and Cokemaking Operations--In January 1993, Sun decided to sell its coal
and cokemaking operations. In connection with this decision, Sun sold its west-
ern U.S. coal operations during 1993 and certain of its eastern U.S. coal oper-
ations during 1994. Prior to June 30, 1995, Sun's coal and cokemaking opera-
tions had been accounted for as an investment held for sale. However, effective
June 30, 1995, the remaining coal and cokemaking business became one of the
Company's ongoing business units and is no longer held for sale. Accordingly,
the consolidated balance sheets as of December 31, 1997 and 1996 contain the
accounts of Sun's coal and cokemaking operations on a fully consolidated basis.
The accompanying consolidated statements of operations and cash flows reflect
coal and cokemaking operations on a fully consolidated basis after June 30,
1995 and as an operation held for sale prior to that date.
46
<PAGE>
WRITE-DOWNS OF ASSETS AND OTHER MATTERS
The following table sets forth summary information regarding the provisions for
write-down of assets and other matters:
<TABLE>
<CAPTION>
Pretax After-Tax
(Millions of Dollars) Provisions Provisions
- ---------------------------------------------
<S> <C> <C>
1997
Employee terminations
and related costs $ 32 $ 21
- ---------------------------------------------
1996
Reconfiguration
projects:
Philadelphia refinery $ 85 $ 53
Puerto Rico refinery 85 80
MTBE purchase
commitment 130 85
Other 56 36
- ---------------------------------------------
$356 $254
- ---------------------------------------------
1995
Refining and marketing
assets $ 43 $ 28
Employee terminations
and related costs 50 33
- ---------------------------------------------
$ 93 $ 61
- ---------------------------------------------
</TABLE>
During the first quarter of 1997, Sun established an accrual for approximately
320 involuntary employee terminations and related costs. The employee reduc-
tions are throughout the organization and include senior management, support
staff and operations personnel. As of December 31, 1997, the amount of actual
termination benefits paid and charged against the accrual totalled $22 million.
During the fourth quarter of 1996, Sun reconfigured the Philadelphia refinery
to process only sweet crude oil and to cease asphalt production. This
reconfiguration continues the integration of the Point Breeze and Girard Point
facilities at the Philadelphia, PA, refinery. In 1996, Sun also announced that
it would reconfigure the Puerto Rico refinery commencing in the first quarter
of 1997 to significantly reduce fuels production while fully maintaining the
volume and quality of lubricants production. In connection with these
reconfigurations, Sun recorded provisions to write off redundant and/or unprof-
itable processing units and established accruals for environmental remediation
activities, employee terminations and related costs. In addition, at December
31, 1996, Sun established accruals for estimated losses expected to be realized
with respect to an off-take agreement to purchase MTBE (Note 13) and for other
environmental remediation activities and recorded a provision to write down to
fair value certain assets in its refining and marketing business.
During 1995, Sun recorded a provision to write down to fair value certain as-
sets in the refining and marketing business and to establish accruals for em-
ployee terminations and related costs. The $50 million accrual for employee
terminations and related costs consisted of $38 million attributable to termi-
nation benefits and $12 million related to future rental payments for vacated
office space.
ACQUISITION OF KENDALL LUBRICANTS BUSINESS
On November 1, 1996, Sun acquired the Kendall lubricants blending, packaging
and marketing business for $74 million. The acquisition has been accounted for
as a purchase and, accordingly, the results of operations of this business have
been included in the consolidated statements of operations since the date of
acquisition. The purchase price has been allocated to the assets acquired based
on their relative fair market values (Note 17). The results of operations of
the Kendall lubricants business in 1996 and 1995 were not material in relation
to Sun's consolidated results of operations.
3. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1995, Sun adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived As-
sets and for Long-Lived Assets to be Disposed Of." This statement requires com-
panies to write down to estimated fair value long-lived assets that are im-
paired. Certain of the write-downs recognized in 1995 are reflected as a cumu-
lative effect of a change in accounting principle in the consolidated statement
of operations and related to properties to be disposed of in the Company's
coal, real estate and refining and marketing operations. The following table
sets forth summary information concerning these write-downs:
<TABLE>
<CAPTION>
Pretax After-tax
(Millions of Dollars) Provisions Provisions
- --------------------------------------------
<S> <C> <C>
Coal $ 45 $29
Real estate 33 15
Refining and
marketing* 67 43
- --------------------------------------------
$145 $87
============================================
</TABLE>
*Primarily service stations and terminals.
The impaired coal assets were sold during 1996. The disposal of the Company's
remaining real estate portfolio and the refining and marketing assets held for
sale is expected to be substantially completed by the end of 1999. Other than
the cumulative effect, the results of operations during the 1995-97 period for
the properties to be disposed of were not significant.
47
<PAGE>
4. OTHER INCOME
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------
<S> <C> <C> <C>
Equity in earnings
of affiliated
companies $25 $24 $17
Gain on
divestments 12 14 1
Pretax income from
investments in
operations held
for sale (Note 2) -- -- 5
Other 23 14 7
- ------------------------------------------------
$60 $52 $30
================================================
</TABLE>
5. INCOME TAXES
The components of the income (loss) from continuing operations before income
tax expense (benefit) and cumulative effect of the change in accounting princi-
ple are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ---------------------------------------------------
<S> <C> <C> <C>
U.S. $385 $(408) $(52)
Foreign* -- -- 5
- ---------------------------------------------------
$385 $(408) $(47)
- ---------------------------------------------------
</TABLE>
*Attributable to Canadian refining and marketing operations.
The components of the income tax expense (benefit) from continuing operations
before cumulative effect of the change in accounting principle are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ---------------------------------------------------
<S> <C> <C> <C>
Income taxes
currently
payable:
U.S. federal $ (9) $-- $(59)
Foreign -- -- 4
State and other -- 2 5
- ---------------------------------------------------
(9) 2 (50)
- ---------------------------------------------------
Deferred taxes:
U.S. federal 130 (118) 22
Foreign -- -- (1)
State and other 1 (11) (10)
- ---------------------------------------------------
131 (129) 11
- ---------------------------------------------------
$122 $(127) $(39)
===================================================
</TABLE>
The reconciliation of the income tax expense (benefit) at the U.S. statutory
rate to the income tax expense (benefit) from continuing operations before cu-
mulative effect of the change in accounting principle is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ---------------------------------------------------
<S> <C> <C> <C>
Income tax expense
(benefit) at U.S.
statutory rate of
35 percent $135 $(143) $(16)
Increase
(reduction) in
income taxes
resulting from:
Nonconventional
fuel credit -- -- (8)
Puerto Rico tax
exemption
(expires in
2007) -- 25 (5)
State income
taxes after
Federal income
tax effects -- (2) (4)
Dividend
exclusion for
affiliated
companies (4) (4) (3)
Other (9) (3) (3)
- ---------------------------------------------------
$122 $(127) $(39)
- ---------------------------------------------------
</TABLE>
The tax effects of temporary differences which comprise the net deferred income
tax asset are as follows:
<TABLE>
<CAPTION>
December 31
--------------
(Millions of Dollars) 1997 1996
- ------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Retirement benefit
liabilities $ 152 $ 157
Environmental remediation
liabilities 70 78
Other liabilities not yet
deductible 203 211
Federal net operating loss
carryforward* 50 74
Alternative minimum tax
credit carryforward** 60 68
Other 66 82
Valuation allowance*** (32) (32)
- ------------------------------------------------
569 638
- ------------------------------------------------
Deferred tax liabilities:
Properties, plants and
equipment (469) (438)
Other (60) (48)
- ------------------------------------------------
(529) (486)
- ------------------------------------------------
Net deferred income tax
asset $ 40 $ 152
================================================
</TABLE>
*The Federal net operating loss carryforward of $142 million at December 31,
1997 expires in 2011.
**Alternative minimum tax credit carryforwards may be carried forward
indefinitely.
***The valuation allowance reduces certain state net operating loss
carryforwards to the amount that will more likely than not be realized.
The net deferred income tax asset is classified in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
December 31
--------------
(Millions of Dollars) 1997 1996
- -----------------------------------------------
<S> <C> <C>
Current asset $113 $128
Noncurrent asset
(liability) (73) 24*
- -----------------------------------------------
$ 40 $152
===============================================
</TABLE>
*Included in deferred charges and other assets in the consolidated balance
sheet.
Management expects that Sun will generate sufficient future taxable income to
realize the benefit of its net deferred income tax asset.
6. EARNINGS PER SHARE
In 1997, Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128") was issued which replaced the disclosure of earnings
per share ("EPS") on a primary and fully diluted basis with basic and diluted
EPS. Unlike primary EPS, basic EPS excludes any dilutive effect of stock incen-
tive awards. Diluted EPS is very similar to fully diluted EPS. All EPS amounts
in the accompanying consolidated statements of operations have been presented
in accordance with SFAS No. 128. The new standard had no impact on previously
reported full year 1996 and 1995 EPS amounts.
Basic EPS is computed by dividing earnings (losses) after deducting dividends
on preference stock (Note 14) by the weighted average number of common shares
outstanding. Diluted EPS generally is determined by dividing
48
<PAGE>
earnings (losses) by the weighted average number of shares outstanding after
giving effect to the assumed issuance of common stock under stock incentive
awards and the assumed redemption of preference shares for common stock utiliz-
ing a ratio of two shares of common stock for each outstanding preference
share. However, in 1996 and 1995, since both the assumed issuance of common
stock under stock incentive awards and the assumed redemption of preference
shares would not have been dilutive, diluted per share amounts are equal to ba-
sic per share amounts.
The following table sets forth the computation of basic and diluted EPS from
continuing operations for 1997:
<TABLE>
<CAPTION>
(In Millions, Except Per Share Amounts)
- -------------------------------------------------
<S> <C>
Income from continuing operations
after dividends on preference stock
(basic EPS numerator) $219
Add: Dividends on preference stock 44
- -------------------------------------------------
Income from continuing operations
(diluted EPS numerator) $263
- -------------------------------------------------
Weighted average number of common
shares outstanding (basic EPS
denominator) 72.3
Add effect of dilutive securities:
Redeemable preference shares 24.6
Stock incentive awards .5
- -------------------------------------------------
Weighted average number of shares
(diluted EPS denominator) 97.4
- -------------------------------------------------
Basic EPS from continuing operations $3.03
Diluted EPS from continuing
operations $2.70
- -------------------------------------------------
</TABLE>
7. INVENTORIES
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1997 1996
- ---------------------------------------------
<S> <C> <C>
Crude oil $150 $157
Refined products 214 252
Materials, supplies and
other 67 67
- ---------------------------------------------
$431 $476
- ---------------------------------------------
</TABLE>
The current replacement cost of all inventories valued at LIFO exceeded their
carrying value by $492 and $780 million at December 31, 1997 and 1996, respec-
tively. During 1996, Sun reduced certain inventory quantities which were valued
at lower LIFO costs prevailing in prior years. The effect of this reduction was
to decrease the 1996 net loss by $8 million.
8. INVESTMENTS AND LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1997 1996
- ----------------------------------------------
<S> <C> <C>
Investments in and advances
to affiliated companies $77 $72
Accounts and notes
receivable 12 14
Other investments 5 5
- ----------------------------------------------
$94 $91
- ----------------------------------------------
</TABLE>
Dividends received from affiliated companies amounted to $13, $15 and $11 mil-
lion in 1997, 1996 and 1995, respectively. Earnings employed in the business at
December 31, 1997 include $42 million of undistributed earnings of affiliated
companies.
9. PROPERTIES, PLANTS AND EQUIPMENT
<TABLE>
<CAPTION>
Accumulated
Gross Depreciation,
(Millions of Dollars) Investment Depletion and Net
December 31 at Cost Amortization Investment
- ----------------------------------------------------------
<S> <C> <C> <C>
1997
Refining and
marketing* $5,424 $2,586 $2,838
Coal mining and
cokemaking 413 188 225
Corporate 1 -- 1
- ----------------------------------------------------------
$5,838 $2,774 $3,064
- ----------------------------------------------------------
1996
Refining and
marketing* $5,537 $2,599 $2,938
Coal mining and
cokemaking 291 186 105
Corporate 1 -- 1
- ----------------------------------------------------------
$5,829 $2,785 $3,044
- ----------------------------------------------------------
</TABLE>
*Includes gross amounts leased to third parties totalling $569 and $588 million
at December 31, 1997 and 1996, respectively. Related accumulated depreciation
totalled $224 and $206 million at December 31, 1997 and 1996, respectively.
Annual future minimum rentals due Sun, as lessor, on noncancelable operating
leases at December 31, 1997 are as follows (in millions of dollars):
<TABLE>
- ----------------------------------
Year ending December 31:
<S> <C>
1998 $44
1999 27
2000 12
2001 1
2002 1
Thereafter --
- ----------------------------------
$85
- ----------------------------------
</TABLE>
10. CREDIT FACILITIES
The Company has a $500 million revolving credit agreement ("Agreement") with
commercial banks that provides access to short-term financing through September
2002. The Company can borrow directly from the participating banks under this
Agreement or use it to support commercial paper issued by Sun. The Agreement is
subject to commitment fees, the amounts of which are not material. Under the
terms of the Agreement, Sun is required, among other things, to maintain con-
solidated net worth of at least $1.0 billion. At December 31, 1997, the
Company's consolidated net worth was $1.5 billion. Sun also has access to
short-term financing under non-committed money market facilities. At December
31, 1997 and 1996, there were no amounts outstanding related to the above
short-term borrowing arrangements.
49
<PAGE>
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
-------------
(Millions of Dollars) 1997 1996
- ---------------------------------------------
<S> <C> <C>
SUN COMPANY, INC.
9 3/8% debentures due 2016 $200 $200
9% debentures due 2024 100 100
8 1/8% notes due 1999 150 150
7.95% notes due 2001 150 150
7 1/8% notes due 2004 100 100
7.03%-7.10% notes, paid in
1997 -- 50
6 3/4% convertible
debentures due 2012
(Note 14) 10 10
- ---------------------------------------------
710 760
- ---------------------------------------------
SUBSIDIARIES OF SUN
COMPANY, INC.
7.60% environmental
industrial revenue bonds
due 2024 100 100
Other 30 33
- ---------------------------------------------
130 133
- ---------------------------------------------
840 893
Less:unamortized discount 4 4
current portion 12 54
- ---------------------------------------------
$824 $835
=============================================
</TABLE>
The aggregate amount of long-term debt maturing and sinking fund requirements
in the years 1998 through 2002 is as follows (in millions of dollars):
<TABLE>
- -------------------------------------------
<S> <C> <C> <C>
1998 $ 12 2001 $151
1999 $152 2002 $ 1
2000 $ 2
===========================================
</TABLE>
12. RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
Sun has noncontributory defined benefit pension plans which provide retirement
benefits for the majority of its employees. Plan benefits are generally based
on years of service, age at retirement and employees' compensation. For Sun's
principal defined benefit pension plan, the benefit for employees hired prior
to January 1, 1987 is determined based on either final or total career average
compensation, whichever produces the greater benefit. For employees hired on or
after January 1, 1987, the benefit is generally determined based on total ca-
reer average compensation. It is Sun's policy to fund defined benefit pension
contributions in accordance with the requirements of the Internal Revenue Code.
Pension expense consisted of the following components:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------------
<S> <C> <C> <C>
Service cost
(cost of
benefits earned
during the year) $ 26 $ 29 $ 26
Interest cost on
projected
benefit
obligation 92 91 97
Actual return on
plan assets* (197) (132) (241)
Net amortization
and deferral* 86 26 134
- ------------------------------------------------------
$ 7** $ 14 $ 16**
======================================================
</TABLE>
*Estimated returns on assets are used in determining net periodic pension cost.
Differences between estimated and actual returns are included in net
amortization and deferral. Net amortization and deferral also includes
amortization of the unrecognized net asset or obligation at January 1, 1986
and amortization of the unrecognized prior service cost and unrecognized net
gain or loss as of the beginning of each year.
**Excludes $(2) and $1 million curtailment gains (losses) recognized in
connection with the employee termination programs implemented during 1997 and
1995, respectively (Note 2).
The following table sets forth the funded status of the plans and amounts rec-
ognized in the balance sheets at:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 December 31, 1996
------------------------------ ------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(Millions of Dollars) Benefits Exceed Assets Benefits Exceed Assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligation:
Vested $ 872 $213 $ 861 $212
Nonvested 41 19 40 18
- -----------------------------------------------------------------------------------------
Accumulated benefit
obligation 913 232 901 230
Effect of projected
future salary increases 101 22 89 22
- -----------------------------------------------------------------------------------------
Projected benefit
obligation 1,014 254 990 252
Less plan assets at fair
value* 1,183 94 1,137 105
- -----------------------------------------------------------------------------------------
Projected benefit
obligation in excess of
(less than) plan assets (169) 160 (147) 147
Unrecognized net asset
(obligation) at January
1, 1986 30 (11) 43 (14)
Unrecognized prior
service cost (13) -- (15) --
Unrecognized net gain
(loss) 97 (37) 76 (27)
Additional minimum
liability** -- 43 -- 40
- -----------------------------------------------------------------------------------------
Pension liability
(asset) $ (55) $155 $ (43) $146
- -----------------------------------------------------------------------------------------
</TABLE>
*Plan assets consist principally of commingled trust funds, marketable equity
securities, corporate and government debt securities and real estate. Less
than 1 percent of plan assets was invested in Company common and preference
stock at both December 31, 1997 and 1996.
**An equivalent intangible asset is included in deferred charges and other as-
sets in the consolidated balance sheets.
50
<PAGE>
As of December 31, 1997 and 1996, the projected benefit obligations were deter-
mined using weighted average assumed discount rates of 7.0 and 7.5 percent, re-
spectively, and a rate of compensation increase of 4.0 percent. The weighted
average expected long-term rate of return on plan assets was 9.0 percent in
both 1997 and 1996. All of these rates are subject to change in the future as
economic conditions change.
DEFINED CONTRIBUTION PENSION PLANS
Sun has defined contribution pension plans which provide retirement benefits
for most of its employees. Sun's contributions, which are principally based on
a percentage of employees' annual base compensation and are charged against in-
come as incurred, amounted to $17, $18 and $18 million in 1997, 1996 and 1995,
respectively.
Sun's principal defined contribution plan is the Sun Company, Inc. Capital Ac-
cumulation Plan ("SunCAP"). Sun matches 100 percent of employee contributions
to the plan up to 5 percent of an employee's base compensation. SunCAP is a
combined profit sharing and employee stock ownership plan which contains a pro-
vision designed to permit SunCAP, only upon approval by the Company's Board of
Directors, to borrow in order to purchase shares of Company common stock. As of
December 31, 1997, no such borrowings had been approved.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Sun has plans which provide health care and life insurance benefits for sub-
stantially all retirees. The plans are unfunded and the costs are shared by Sun
and its retirees. Postretirement benefits expense consisted of the following
components:
<TABLE>
<CAPTION>
(Millions of Dollars) 1997 1996 1995
- ------------------------------------------------------
<S> <C> <C> <C>
Service cost
(cost of
benefits earned
during the year) $ 4 $ 5 $ 5
Interest cost on
accumulated
post-retirement
benefit
obligation 23 23 23
Net amortization* (8) (9) (10)
- ------------------------------------------------------
$19** $19 $18**
- ------------------------------------------------------
</TABLE>
*Consists of amortization of the unrecognized prior service benefit and the
unrecognized net loss.
**Excludes $5 and $4 million curtailment gains recognized in connection with the
employee termination programs implemented during 1997 and 1995, respectively
(Note 2).
The following table sets forth the funded status of the plans and amounts rec-
ognized in the balance sheets at:
<TABLE>
<CAPTION>
December 31
---------------
(Millions of Dollars) 1997 1996
- -----------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation
("apbo"):
Retirees $231 $223
Fully eligible active
participants 25 27
Other active participants 80 82
- -----------------------------------------------
336 332
Unrecognized prior service
benefit 51 63
Unrecognized net loss (10) (9)
- -----------------------------------------------
Accrued postretirement
benefit obligation $377 $386
- -----------------------------------------------
</TABLE>
As of December 31, 1997 and 1996, the APBO was determined using weighted aver-
age assumed discount rates of 7.0 and 7.5 percent, respectively. The health
care cost trend assumptions used at December 31, 1997 and 1996 were 7.0 and 7.3
percent, respectively, which are assumed to decline gradually to 5.5 percent in
2001 and to remain at that level thereafter. All of these rates are subject to
change in the future as economic conditions change. An increase in the assumed
health care cost trend rate by one percentage point in each year would have in-
creased the APBO by $8 million at December 31, 1997 and would have increased
the service and interest components of postretirement benefits expense in the
aggregate by $1 million for each of the three years in the period ended Decem-
ber 31, 1997.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Sun, as lessee, has noncancelable operating leases for marine transportation
time charters and for service stations, office space and other property and
equipment. Total rental expense for such leases for the years 1997, 1996 and
1995 amounted to $107, $97 and $102 million, respectively. Approximately 8 per-
cent of total rental expense was recovered through related sublease rental in-
come during 1997. Under contracts existing as of December 31, 1997, future min-
imum annual rentals applicable to noncancelable operating leases are as follows
(in millions of dollars):
<TABLE>
- ----------------------------------
<S> <C>
Year ending December 31:
1998 $ 76
1999 62
2000 47
2001 43
2002 40
Thereafter 234
- ----------------------------------
$502
- ----------------------------------
</TABLE>
A wholly owned subsidiary of the Company is a one-third partner in Belvieu En-
vironmental Fuels ("BEF"), a joint venture formed for the purpose of construct-
ing,
51
<PAGE>
owning and operating a $225 million methyl tertiary butyl ether ("MTBE") pro-
duction facility in Mont Belvieu, Texas. The facility was completed in 1995.
In order to obtain a secure supply of oxygenates for the manufacture of refor-
mulated gasoline, Sun entered into an off-take agreement with BEF whereby Sun
agreed to purchase all of the MTBE production from the plant. For the first
14,000 barrels daily of production, Sun agreed to pay BEF prices through May
1997 based on the market value of MTBE feedstocks (methanol and butane) plus a
fixed amount per gallon (the "formula price"), and thereafter through May 2000
based on the then-existing MTBE prices per gallon in the contract market (the
"contract market price"). However, the price to be paid by Sun for the first
12,600 barrels daily of MTBE production through May 2000, at a minimum, will
equal the sum of BEF's annual raw material and operating costs associated with
this production plus BEF's debt service payments (collectively, the "minimum
price") if the minimum price per gallon exceeds the applicable formula or con-
tract market price. After May 2000, Sun and BEF will negotiate a new price for
the last four years of the agreement based upon the market conditions existing
at that time.
Sun's total MTBE purchases under this agreement were $235, $214 and $150 mil-
lion during 1997, 1996 and 1995, respectively. Such amounts were based upon the
formula price through May 1997 and the minimum price for the remainder of 1997.
The formula prices paid by Sun during most of 1996 were believed to have ap-
proximated prices of other MTBE long-term sales agreements in the marketplace.
However, management believes that the contract market changed in the latter
part of 1996 as feedstock-plus-fixed-priced contracts expired and were replaced
by spot-market-price-based contracts, which have been more favorable to the
purchaser. Management also believes that the spot market for MTBE had developed
by the latter part of 1996. During the fourth quarter of 1996, spot market
prices for MTBE were less than the prices paid by Sun under the off-take agree-
ment with BEF. At that time, the Company expected this adverse relationship to
continue into the future. Accordingly, a $130 million accrual ($85 million af-
ter tax) was established at December 31, 1996 for the estimated losses expected
to be realized with respect to this agreement. During 1997, actual MTBE pur-
chase costs in excess of market prices totalling $65 million were charged
against the accrual.
Sun is contingently liable under various arrangements which guarantee debt of
affiliated companies and others aggregating approximately $27 million at
December 31, 1997 and maturing at various dates through 2014.
Sun is subject to numerous federal, state and local laws regulating the dis-
charge of materials into, or otherwise relating to the protection of, the envi-
ronment. These laws result in liabilities and loss contingencies for
remediation at Sun's facilities and at third-party or formerly-owned sites. The
accrued liability for environmental remediation is classified in the consoli-
dated balance sheets as follows:
<TABLE>
<CAPTION>
December 31
-------------
(Millions of Dollars) 1997 1996
- ---------------------------------------------
<S> <C> <C>
Accrued liabilities $ 59 $ 77
Other deferred credits and
liabilities 145 150
- ---------------------------------------------
$204 $227
- ---------------------------------------------
</TABLE>
Pretax charges against income for environmental remediation totalled $6, $56
and $12 million in 1997, 1996 and 1995, respectively. The high level of expense
in 1996 was largely attributable to accruals for remediation activities associ-
ated with the reconfigurations of the Philadelphia and Puerto Rico refineries
and to increased accruals at service station sites (Note 2). The 1996 service
station accruals were determined utilizing recent regulatory changes which in-
corporate a risk-based methodology and clarify previously uncertain remediation
requirements. Claims for recovery of environmental liabilities that are proba-
ble of realization totalled $3 million at December 31, 1997 and are included in
deferred charges and other assets in the consolidated balance sheets.
On October 4, 1996, Sun filed a complaint in Los Angeles County Superior Court,
Jalisco Corporation, Inc., et al. v. Argonaut Insurance Company, et al. (Case
No. BC 158441), naming more than 45 insurance companies as defendants and seek-
ing recovery under numerous insurance policies for certain environmental expen-
ditures of Sun, including its predecessor companies and subsidiaries, arising
from the ownership and operation of its business and properties. The Company
cannot quantify the ultimate outcome of this litigation, which may be protract-
ed.
Total future costs for environmental remediation activities will depend upon,
among other things, the identification of any additional sites, the determina-
tion of the extent of contamination at each site, the timing and nature of re-
quired remedial actions, the technology available and needed to meet the vari-
ous existing legal requirements, the nature and extent of future environmental
laws, inflation rates and the determination of Sun's liability at multi-party
sites, if any, in light of the number, participation levels and financial via-
bility of other parties.
Many other legal and administrative proceedings are pending against Sun. The
ultimate outcome of these proceedings and the matters discussed above cannot be
as-
52
<PAGE>
certained at this time; however, it is reasonably possible that some of them
could be resolved unfavorably to Sun. Management believes that any expenditures
attributable to these matters will be incurred over an extended period of time
and will be funded from Sun's net cash flows from operating activities. Al-
though the ultimate impact of these matters could have a significant impact on
results of operations for any one year, management of Sun believes that any ad-
ditional liabilities which may arise pertaining to such matters would not be
material in relation to the consolidated financial position of Sun at December
31, 1997.
14. SHAREHOLDERS' EQUITY
Each share of Company common stock is entitled to one full vote. The $10 mil-
lion of outstanding 6 3/4 percent debentures are convertible into shares of
common stock of the Company at any time prior to maturity at a conversion price
of $40.81 per share and are redeemable at the option of the Company. At Decem-
ber 31, 1997, there were 242,981 shares of common stock reserved for this po-
tential conversion (Note 11).
On August 3, 1995, the Company issued 25,000,000 "depositary shares" in ex-
change for an equal number of shares of Company common stock in a tax-free
transaction. Each depositary share represents ownership of one-half share of
the Company's Series A cumulative preference stock. The Company also reduced
the quarterly dividend paid on common stock from $.45 per share ($1.80 per
year) to $.25 per share ($1.00 per year). In addition, the Company repurchased
6,400,000 shares of its common stock on August 9, 1995 through a tender offer
for $192 million and an additional 6,774,500 shares of common stock and 885,700
depositary shares during the 1995-97 period on the open market for $250 mil-
lion. At December 31, 1997, the Company had a remaining authorization from its
Board of Directors ("Board") to purchase up to $150 million of stock in the
open market or through privately negotiated transactions from time to time de-
pending on prevailing market conditions.
Each owner of a depositary share is entitled, proportionately, to all the
rights, preferences and privileges of the preference stock represented thereby.
Dividends on the preference stock are cumulative and accrue at a rate of $3.60
per year. The preference stock ranks prior to common stock with respect to div-
idend rights and rights upon liquidation, dissolution and winding up of the
Company. Each share of preference stock has a liquidation preference equal to
$60.00, which is twice the fair market value of a depositary share at its date
of issuance, plus accrued and unpaid dividends. The holders of preference stock
vote together with the holders of common stock as a single class, and are enti-
tled to one full vote for each share of preference stock owned.
The outstanding shares of preference stock are redeemable at any time by the
Company, in whole or in part, for common stock at a value which initially
equaled $84.80 per share of preference stock at June 12, 1995 and is declining
ratably to $80.00 per share of preference stock at June 11, 1998. As of Febru-
ary 12, 1998, this call price was $80.53 per share of preference stock. After
June 11, 1998, the Company can redeem each outstanding share of preference
stock for two shares of common stock, subject to adjustment in certain events.
The redemption value also includes a cash amount equal to all proportionate ac-
crued but unpaid dividends. If Sun were to do a partial redemption of prefer-
ence stock, it would be done on a pro rata basis. The Company currently intends
to redeem all of the outstanding preference stock (and thereby the depositary
shares) no later than June 12, 1998.
The Company's Articles of Incorporation authorize the issuance of up to
2,500,000 shares of additional classes of preference stock without par value,
subject to approval by the Board. The Board also has authority to fix the num-
ber, designation, rights, preferences and limitations of these shares, subject
to applicable laws and the provisions of the Articles of Incorporation.
On February 1, 1996, the Company adopted a shareholder rights plan and desig-
nated 1,743,019 shares of the remaining 2,500,000 authorized cumulative prefer-
ence stock as Series B participating cumulative preference stock. Pursuant to
the plan, the Company declared a dividend of one stock purchase right ("Right")
for each share of common stock and two Rights for each share of Series A cumu-
lative preference stock outstanding on February 12, 1996. A Right will be
granted for each share of common stock issued after such date and prior to the
expiration date of the rights plan. Generally, the Rights become exercisable a
specified period after a party acquires 15 percent or more of the aggregate
outstanding common stock and Series A cumulative preference stock (collective-
ly, "Voting Stock") or announces a tender offer for 15 percent or more of the
Voting Stock. Each Right initially entitles a holder to purchase one one-
hundredth of a share of the Series B participating cumulative preference stock
for $100. After a party has acquired 15 percent or more of the Voting Stock,
each Right will entitle a holder to pay $100 for the number of shares of Com-
pany common stock (or in certain situations, common stock of the acquiring par-
ty) having a then current market value of $200. Alternatively, the Company has
the option to exchange one share of Company common stock for each Right at any
time after a party has acquired at least 15 percent but less than 50 percent of
the Voting Stock. The Company may redeem each Right for $.01 per Right at any
time until the end of a specified period after a party has acquired 15 percent
53
<PAGE>
or more of the Voting Stock. In general, none of the benefits of the Rights
will be available to a holder of 15 percent or more of the Voting Stock. The
Rights will expire on February 12, 2006, unless earlier exchanged or redeemed.
In December 1992, the Board approved the adoption of the Employee Option Plan
("EOP") which provides for the award of stock options to all employees (other
than executives) of the Company and certain subsidiaries. The awards have a
ten-year term, are not exercisable until two years after the date of grant and
permit optionees to purchase Company common stock at the fair market value on
the date of grant. Two million shares of Company common stock are authorized
for issuance under the EOP. In 1994 and 1993, stock option awards totalling
241,895 and 1,721,385, respectively, were made to eligible employees.
15. MANAGEMENT INCENTIVE PLANS
Sun's principal management incentive plans are the Executive Incentive Plan
("EIP") and the Long-Term Performance Enhancement Plan ("LTPEP"). The EIP pro-
vides for the payment of annual cash incentive awards while the LTPEP, which
succeeded the Executive Long-Term Stock Investment Plan in May 1997, provides
for the award of stock options, common stock units and related rights to offi-
cers and other key employees of Sun. The option awards under LTPEP have a ten-
year term, are not exercisable until two years after the date of grant and per-
mit optionees to purchase Company common stock at the fair market value on the
date of grant. No awards may be granted under LTPEP after December 31, 2001,
unless the Board extends this date to a date no later than December 31, 2006.
Aggregate charges against income for Sun's principal management incentive plans
for 1997 and 1995 were $17 and $4 million, respectively. There were no charges
against income for Sun's principal management incentive plans in 1996.
The following table summarizes information with respect to common stock option
awards under the EOP (Note 14) and Sun's management incentive plans:
<TABLE>
<CAPTION>
Employee Option Plan Management Incentive Plans
----------------------- --------------------------------
Weighted
Shares Option Shares Average
Under Price Under Option Price
Option Per Share Option Per Share
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, DECEMBER
31, 1994 1,874,980 $28.00 3,384,887 $30.52
Granted -- 687,990 $27.25
Exercised (135,920) $28.00 (53,770)* $28.43
Canceled (88,230) $28.00 (394,740) $31.31
- -----------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1995 1,650,830 $28.00 3,624,367 $29.84
Granted -- 646,140 $24.48
Exercised (88,485) $28.00 (72,435)* $28.15
Canceled (74,870) $28.00 (208,272) $30.59
- -----------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1996 1,487,475 $28.00 3,989,800 $28.96
Granted -- 557,840 $39.88
Exercised (647,127) $28.00 (1,109,732)* $28.64
Canceled (128,910) $28.00 (56,130) $28.99
- -----------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1997 711,438 $28.00 3,381,778 $30.87
- -----------------------------------------------------------------------------------
EXERCISABLE, DECEMBER 31
- -----------------------------------------------------------------------------------
1995 1,408,935 $28.00 2,941,577 $30.44
1996 1,487,475 $28.00 3,354,340 $29.83
1997 711,438 $28.00 2,723,938 $29.31
- -----------------------------------------------------------------------------------
AVAILABLE FOR GRANT,
DECEMBER 31
- -----------------------------------------------------------------------------------
1995 213,250 2,891,220
1996 288,120 --
1997 417,030 3,334,250
- -----------------------------------------------------------------------------------
</TABLE>
*Excludes 3,600, 1,600 and 1,970 shares which were issued for matured common
stock units during 1997, 1996 and 1995, respectively. Common stock units are
awards which entitle the holder to receive Company common stock upon completion
of a restriction period or upon attainment of predetermined performance tar-
gets. In addition, 1997 includes 144,116 options cancelled due to the exercise
of related alternate appreciation rights which resulted in the issuance of
81,735 shares. Alternate appreciation rights permit the optionee to receive in
cash or common stock an amount equal to the appreciation in value of Company
common stock from the date of grant.
54
<PAGE>
The following table provides additional information concerning the options out-
standing at December 31, 1997 under Sun's management incentive plans:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Shares Remaining Average Shares Average
Under Contractual Exercise Under Exercise
Range of Exercise Prices Option Life (Years) Price Option Price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$23.25 - $27.25 964,549 8 $25.83 864,549 $26.13
$27.38 - $30.19 894,171 6 $29.17 894,171 $29.17
$30.50 - $31.50 851,128 4 $31.09 851,128 $31.09
$39.88 - $41.13 671,930 9 $40.09 114,090 $41.13
- --------------------------------------------------------------------------------------
$23.25 - $41.13 3,381,778 7 $30.87 2,723,938 $29.31
- --------------------------------------------------------------------------------------
</TABLE>
The Company follows the method of accounting for employee stock compensation
plans prescribed by APB No. 25. In accordance with APB No. 25, the Company has
not recognized compensation expense for stock options because the exercise
price of the options equals the market price of the underlying stock on the
date of grant, which is the measurement date. Had the alternative method of ac-
counting for employee stock compensation plans prescribed by Statement of Fi-
nancial Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
been followed, the pro forma impact on Sun's net income (loss) and net income
(loss) per share of common stock on a diluted basis would have been as follows:
<TABLE>
<CAPTION>
(Millions of Dollars, Except Per Share Amounts) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $263 $(115) $140
Pro forma $262 $(118) $140
Net income (loss) per share:
As reported $2.70 $(2.17) $1.29
Pro forma $2.69 $(2.21) $1.29
- ----------------------------------------------------------------------------
</TABLE>
The fair values per options granted during 1997, 1996 and 1995 were estimated
to be $10.59, $5.41 and $6.74, respectively, using the Black-Scholes option
pricing model based on the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------
<S> <C> <C> <C>
Expected life
(years) 6 7 7
Risk-free
interest rate 5.8% 6.0% 6.5%
Dividend yield 2.5% 4.1% 3.7%
Expected
volatility 24.3% 24.4% 24.4%
- --------------------------------------------
</TABLE>
16. FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined based on
the Company's assessment of available market information and appropriate valua-
tion methodologies. However, these estimates may not necessarily be indicative
of the amounts that the Company could realize in a current market exchange.
Sun's current assets (other than inventories and deferred income taxes) and
current liabilities are financial instruments. The estimated fair value of
these financial instruments approximates their carrying amounts. At December
31, 1997 and 1996, the estimated fair value of Sun's long-term debt amounted to
$918 and $903 million, respectively, compared to carrying amounts of $824 and
$835 million, respectively. Long-term debt which is publicly traded was valued
based on quoted market prices while the fair value of other debt issues was es-
timated by management based upon current interest rates available to Sun at the
respective balance sheet dates for similar issues.
The Company guarantees the debt of affiliated companies and others (Note 13).
Due to the complexity of these guarantees and the absence of any market for
these financial instruments, the Company does not believe it is practicable to
estimate their fair value.
Sun uses a variety of off-balance sheet commodity-based financial and nonfinan-
cial derivative instruments for hedging purposes. Sun is at risk for possible
changes in the market value for these derivative instruments. However, it is
anticipated that such risk would be mitigated by price changes in the under-
lying hedged transactions. In addition, Sun is exposed to credit risk in the
event of nonperformance by counterparties. Management believes this risk is
negligible as its counterparties are either regulated by exchanges or are major
international financial institutions with high credit ratings. Market and
credit risks associated with all of Sun's derivative contracts are reviewed
regularly by management.
The significant derivative instruments outstanding are swaps, price collars and
other option contracts which are used to hedge the unfavorable impact of sig-
nificant increases in crude oil prices and to lock in what Sun considers to be
acceptable wholesale margins for various refined products. At December 31,
1997, these financial instruments were used to hedge approximately 4 million
barrels (2 percent) of Sun's expected 1998 crude oil purchases and to lock in
margins for approximately
55
<PAGE>
6 million barrels (2 percent) of its expected 1998 wholesale fuel sales. These
swap and option contracts vary in duration but do not extend beyond 1998. Al-
though these contracts are intended to limit the Company's exposure to rising
crude oil prices and/or declining margins, they could limit the Company's par-
ticipation in falling crude oil prices and/or rising margins. In addition,
among other derivative uses, Sun uses futures and forward contracts to achieve
ratable pricing of its crude oil purchases and refined product sales and swap
and option contracts to lock in a portion of its electricity and natural gas
refinery fuel costs.
The following table sets forth summary information concerning Sun's financial
and nonfinancial derivative instruments at December 31, 1997:
<TABLE>
<CAPTION>
Deferred
(Millions of Dollars) Gain (Loss) Fair Value*
- -----------------------------------------------
<S> <C> <C>
Swaps $(2) $(2)
Options (2) (2)
Futures and
forwards (1) (1)
- -----------------------------------------------
$(5) $(5)
- -----------------------------------------------
</TABLE>
*Based on various indices or dealer quotes.
17. SUPPLEMENTAL CASH FLOW INFORMATION
During 1996, Sun acquired the Kendall lubricants business (Note 2). The follow-
ing is a summary of the effects of this transaction on Sun's consolidated fi-
nancial position as of the acquisition date:
<TABLE>
<CAPTION>
(Millions of Dollars)
- ------------------------------------------
<S> <C>
Increase in:
Accounts and notes receivable $30
Inventories 16
Properties, plants and equipment 16
Deferred charges and other assets 12
- ------------------------------------------
Decrease in cash and cash equivalents $74
- ------------------------------------------
</TABLE>
In 1995, Sun transferred an interest in its cokemaking operations in exchange
for $95 million in cash. The transferee is entitled to a preferential return
from the cash flows of the cokemaking operation until certain cumulative return
targets have been met. Sun did not recognize a gain or loss on this transac-
tion. The transaction has not had a significant impact on Sun's results of
operations.
Cash payments for income taxes were $26, $7 and $41 million in 1997, 1996 and
1995, respectively. Cash payments for interest, net of amounts capitalized,
were $75, $74 and $95 million in 1997, 1996 and 1995, respectively.
18. BUSINESS SEGMENT INFORMATION
Sun is principally a petroleum refiner and marketer with interests in coal min-
ing and cokemaking. Sun also has an investment in real estate operations held
for sale.
Sun's petroleum refining and marketing operations include the refining of crude
oil and its derivatives; the marketing of a full range of petroleum products,
including fuels, lubricants and petrochemicals; and the transportation of crude
oil and refined products. Such operations are currently conducted principally
in the eastern half of the United States. Sun's coal mining and cokemaking op-
erations are conducted in Virginia, Indiana and Kentucky.
Sun completed the sale of its International Production business on September
30, 1996 and divested its remaining interest in Suncor, a Canadian integrated
oil company, on June 8, 1995. As a result, Sun's international oil and gas pro-
duction and Canadian upstream petroleum operations are presented as discontin-
ued operations in 1996 and 1995 up to their respective divestment dates.
56
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Refining Coal Mining
and and
(Millions of Dollars) Marketing Cokemaking Corporate Consolidated
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Sales to unaffiliated
customers and other
operating
revenue (including
consumer excise taxes) $10,313 $151 $ -- $10,464
- ------------------------------------------------------------------------------
Operating profit (loss) $ 431 $ 45 $ (6) $ 470
Equity income 25 -- -- 25
Related income tax
(expense) benefit (156) (7) 2 (161)
- ------------------------------------------------------------------------------
Profit contribution
(loss) before net
financing expenses
and after tax* $ 300 $ 38 $ (4) 334
- ---------------------------------------------------------------
Corporate expenses
(after taxes) (23)
Net financing expenses
(after taxes) (48)
--------
Net income $ 263
--------
Depreciation, depletion
and amortization $ 247 $ 12 $ -- $ 259
- ------------------------------------------------------------------------------
Capital expenditures $ 247 $133 $ -- $ 380
- ------------------------------------------------------------------------------
Identifiable assets $ 4,142 $262 $263** $ 4,667
- ------------------------------------------------------------------------------
</TABLE>
*Includes after-tax provision for employee terminations and related costs of
$17 million in refining and marketing and $4 million in corporate (Note 2).
**Includes investment in real estate operations held for sale of $43 million
(Note 2).
<TABLE>
<CAPTION>
Refining Coal Mining
and and
(Millions of Dollars) Marketing Cokemaking Corporate Consolidated
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated
customers and other
operating
revenue (including
consumer excise taxes) $11,068 $165 $ -- $11,233
- ------------------------------------------------------------------------------
Operating profit (loss) $(364) $ 39 $ -- $(325)
Equity income 24 -- -- 24
Related income tax
(expense) benefit 98 (8) -- 90
- ------------------------------------------------------------------------------
Profit contribution
(loss) before net
financing
expenses and after tax $(242)* $ 31 $ -- (211)
- ---------------------------------------------------------------
Corporate expenses
(after taxes) (23)
Net financing expenses
(after taxes) (47)
Income from discontinued
operations 166**
-------
Net loss (115)
-------
Depreciation, depletion
and amortization $ 250 $ 17 $ -- $ 267
- ------------------------------------------------------------------------------
Capital expenditures $ 374 $ 34 $ -- $ 408
- ------------------------------------------------------------------------------
Identifiable assets $ 4,526 $140 $359*** $ 5,025
- ------------------------------------------------------------------------------
</TABLE>
*Includes after-tax provision for write-down of assets and other matters of
$254 million (Notes 2 and 13).
**Consists of income from international production operations, including a $125
million after-tax gain resulting from the divestment of this business (Note
2).
***Includes investment in real estate operations held for sale of $79 million
(Note 2).
57
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Refining Coal Mining
and and
(Millions of Dollars) Marketing Cokemaking* Corporate Consolidated
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated
customers and other
operating
revenue (including
consumer excise taxes) $9,747 $ 87 $ -- $9,834
- --------------------------------------------------------------------------------
Operating profit (loss) $ 45 $ 22 $(8) $ 59
Equity income 17 -- -- 17
Related income tax
(expense) benefit (11) 3 3 (5)
- --------------------------------------------------------------------------------
Profit contribution
(loss) before net
financing expenses
and after tax** $ 51 $ 25 $(5) 71
- ---------------------------------------------------------------
Corporate expenses
(after taxes) (24)
Net financing expenses
(after taxes) (55)
Income from discontinued
operations 235***
Cumulative effect of
change in accounting
principle (87)+
------
Net income $ 140
------
Depreciation, depletion
and amortization $ 253 $ 10 $ -- $ 263
- --------------------------------------------------------------------------------
Capital expenditures $ 410 $ 7 $ -- $ 417
- --------------------------------------------------------------------------------
Identifiable assets $4,397 $143 $545++ $5,085
- --------------------------------------------------------------------------------
</TABLE>
*Reflects coal and cokemaking operations as an operation held for sale for the
first half of 1995 and on a fully consolidated basis thereafter. Accordingly,
the amounts presented for sales to unaffiliated customers and other operating
revenue, depreciation, depletion and amortization and capital expenditures
are for the second half of 1995 (Note 2).
**Includes after-tax provision for write-down of assets and other matters of
$57 million in refining and marketing and $4 million in corporate. In addi-
tion, corporate includes a $1 million loss from real estate operations held
for sale (Note 2).
***Consists of $57 million of income from international production operations
and $178 million of income from Canadian upstream petroleum operations. In-
cluded in the Canadian income is a $157 million after-tax gain resulting from
the completion of the divestment of Suncor (Note 2).
+Reflects the cumulative effect for years prior to 1995 of a change in the
method of accounting for the impairment of long-lived assets (Note 3).
++Includes investments in real estate operations held for sale of $87 million
and discontinued international production operations of $143 million (Note
2).
Prior to completion of the divestment of Suncor on June 8, 1995, Canadian re-
fining and marketing activities were reflected in continuing operations as part
of the refining and marketing segment. The following is a summary of the
amounts related to Canadian downstream operations included in the 1995 segment
information:
<TABLE>
<CAPTION>
(Millions of Dollars)
- -----------------------------------------------
<S> <C>
Sales to unaffiliated customers and
other operating revenue $558
- -----------------------------------------------
Operating profit $ 5
Related income tax expense (3)
- -----------------------------------------------
Profit contribution $ 2
- -----------------------------------------------
Depreciation, depletion and
amortization $ 11
- -----------------------------------------------
Capital expenditures $ 8
- -----------------------------------------------
</TABLE>
Income tax amounts give effect to tax credits in each of the designated indus-
try segments. Overhead expenses that can be identified with Sun's operations in
the designated industry segments have been included as deductions in determin-
ing operating profits and profit contributions. Net financing expenses consist
of interest cost, debt and other financing expenses less interest income and
interest capitalized. Identifiable assets are those assets that are utilized
within a specific segment.
19. SUBSEQUENT EVENT
In early 1998, Sun transferred an interest in its cokemaking operations in East
Chicago, IN, to a third party in exchange for $200 million in cash. The trans-
feree is entitled to a preferential return from the cash flows of this
cokemaking operation until certain cumulative return targets have been met. Sun
did not recognize a gain or loss on this transaction.
58
<PAGE>
- -----------------------------------------------------------------
REPORT OF MANAGEMENT
To the Shareholders of Sun Company, Inc.
The accompanying consolidated financial statements of Sun Company, Inc. and
its subsidiaries ("Sun") and the related information are the responsibility of
management. The financial statements, which include amounts based on informed
estimates and judgments, were prepared using generally accepted accounting
principles deemed appropriate in the circumstances. Management believes that
these financial statements present fairly, in all material respects, Sun's fi-
nancial position, results of operations and cash flows. Other financial infor-
mation presented in this Annual Report is consistent with that in the financial
statements.
To fulfill its responsibility for the financial statements, Sun maintains a
system of internal controls which in management's opinion provides reasonable
assurance of achieving the objectives of internal control. These objectives in-
clude safeguarding of assets from loss through unauthorized use or disposition
and maintaining reliable records permitting the preparation of financial state-
ments and accountability for assets. The system of internal controls is subject
to ongoing evaluation of its continuing effectiveness.
Sun's independent auditors, Ernst & Young LLP, have expressed an opinion on
the fairness of management's 1997 and 1996 financial statements by conducting
their audits in accordance with generally accepted auditing standards and issu-
ing the report presented on this page.
The Audit Committee of the Board of Directors is comprised of directors who
are not employees of Sun and meets a minimum of four times annually. It assists
the Board of Directors in discharging its duties relating to accounting and re-
porting practices and internal controls, and it assesses the performance and
recommends the appointment of independent auditors. Both the independent audi-
tors and Sun's internal auditors have unrestricted access to the Committee to
discuss audit findings and other financial matters.
/s/ R.H. Campbell
ROBERT H. CAMPBELL
Chairman & Chief Executive Officer
/s/ John G. Drosdick
JOHN G. DROSDICK
President & Chief Operating Officer
/s/ Robert M. Aiken, Jr.
ROBERT M. AIKEN, JR.
Executive Vice President & Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors, Sun Company, Inc.
We have audited the accompanying consolidated balance sheets of Sun Company,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consol-
idated statements of operations, changes in shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated statements of opera-
tions, changes in shareholders' equity and cash flows for the year ended Decem-
ber 31, 1995 were audited by other auditors whose report dated February 13,
1996 (except for the restatement for discontinued operations as described in
Note 2 for which the date is February 13, 1997) expressed an unqualified opin-
ion on those financial statements and included an explanatory paragraph that
disclosed the change in the Company's method of accounting for the impairment
of long-lived assets in 1995, discussed in Note 3 to these financial state-
ments.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the 1997 and 1996 financial statements referred to above pres-
ent fairly, in all material respects, the consolidated financial position of
Sun Company, Inc. and subsidiaries at December 31, 1997 and 1996 and the con-
solidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 12, 1998
59
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL FINANCIAL AND OPERATING INFORMATION (Unaudited)
DOMESTIC REFINING AND MARKETING DATA
<TABLE>
<CAPTION>
REFINERY
UTILIZATION* 1997 1996 1995
- ---------------------------------------------
<S> <C> <C> <C>
Refinery crude
unit capacity at
December 31 692.0 777.0 777.0
- ---------------------------------------------
Total input to
crude units:
Crude oil 670.5 691.4 673.9
Other feedstocks 25.5 29.6 26.5
- ---------------------------------------------
696.0 721.0 700.4
- ---------------------------------------------
Refinery crude
unit
capacity utilized 101% 93% 90%
- ---------------------------------------------
</TABLE>
*Thousands of barrels daily except percentages. Reflects the shutdown on March
6, 1997 of an 85.0 thousand barrels-per-day crude unit in connection with a
project to reconfigure the Puerto Rico refinery to process reduced crude oil
instead of conventional crude oil. This reconfiguration has resulted in a
significant reduction in fuels production while fully maintaining the
lubricants manufacturing capabilities of the facility. Effective January 1,
1998, Sun's crude processing capacity increased 5 thousand barrels per day due
to an increase in capacity at the Toledo refinery.
<TABLE>
<CAPTION>
REFINED PRODUCT SALES* 1997 1996 1995
- --------------------------------------------------
<S> <C> <C> <C>
Gasoline:
Wholesale 170.2 167.0 154.0
Retail 201.8 205.7 204.6
Middle
distillates 248.8 219.9 210.9
Residual fuel 80.1 82.4 73.9
Petrochemicals 35.2 31.5 31.1
Lubricants 25.1 23.9 20.0
Asphalt** -- 18.3 26.7
Other 48.4 46.1 56.6
- --------------------------------------------------
809.6 794.8 777.8
- --------------------------------------------------
</TABLE>
*Thousands of barrels daily to third parties.
**Sun withdrew from the asphalt business in December 1996.
<TABLE>
<CAPTION>
REFINED PRODUCT MARGIN INFORMATION* 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Average sales
price $28.10 $28.65 $25.26
Average cost
of
products sold** 22.09 23.59 19.95
- ---------------------------------------------------------------
$ 6.01 $ 5.06 $ 5.31
- ---------------------------------------------------------------
</TABLE>
*Dollars per barrel
**Consists of crude oil, other purchased feedstocks and refined products.
<TABLE>
<CAPTION>
RETAIL GASOLINE OUTLETS 1997 1996* 1995*
- -----------------------------------------------------
<S> <C> <C> <C>
Direct outlets:
Company owned or
leased 1,334 1,366 1,427
Dealer owned 499 535 585
- -----------------------------------------------------
Total direct
outlets 1,833 1,901 2,012
Distributor
outlets 1,956 1,905 1,849
- -----------------------------------------------------
3,789 3,806 3,861
- -----------------------------------------------------
</TABLE>
*Reclassified to conform to the 1997 presentation.
<TABLE>
<CAPTION>
THROUGHPUT PER DIRECT OUTLET* 1997 1996** 1995**
- -------------------------------------------------------------
<S> <C> <C> <C>
Company owned or
leased 97.4 101.1 96.0
Dealer owned 75.9 77.6 72.9
- -------------------------------------------------------------
Average-total
direct outlets 91.5 94.4 89.2
- -------------------------------------------------------------
</TABLE>
*Thousands of gallons of gasoline monthly.
**Reclassified to conform to the 1997 presentation.
<TABLE>
<CAPTION>
PIPELINE MILEAGE* 1997 1996 1995
- ---------------------------------------------
<S> <C> <C> <C>
Crude lines 5,120 5,119 5,264
Product lines 4,552 4,548 4,805
- ---------------------------------------------
</TABLE>
*Includes all pipelines in which Sun has an ownership interest.
COAL AND COKEMAKING DATA
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------
<S> <C> <C> <C>
Proven and
probable coal
reserves (millions
of tons) at
December 31:
Metallurgical 114 115 116
Steam 10 17 23
- ----------------------------------------------
124 132 139
- ----------------------------------------------
Proven coal
reserves
(million of
tons) at
December 31 58 63 70
- ----------------------------------------------
Production
(thousands of
tons):
Coal:
Metallurgical 1,460 1,490 1,627
Steam 1,827 2,926 3,494
- ----------------------------------------------
3,287 4,416 5,121
- ----------------------------------------------
Coke 664 648 638
- ----------------------------------------------
Sales (thousands
of tons):
Coal:
Metallurgical 746 592 674
Steam 1,694 2,921 3,556
- ----------------------------------------------
2,440 3,513 4,230
- ----------------------------------------------
Coke 701 621 660
- ----------------------------------------------
Average sales
price of coal
and coke (per
ton) $47.84 $40.03 $37.65
Net acreage (in
thousands) at
December 31:
Developed 24 22 35
Undeveloped 102 103 112
- ----------------------------------------------
</TABLE>
60
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL AND STOCK MARKET INFORMATION
(Millions of Dollars Except Per Share Amounts and Common Stock Prices)
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other
operating revenue
(including consumer
excise taxes) $2,733 $2,577 $2,634 $2,520 $2,460 $2,886 $2,874 $3,013
Gross profit* $205 $306 $302 $180 $112 $210 $148 $124
Income (loss) from
continuing operations $18** $105 $111 $29 $(24) $(22)*** $(11) $(224)+
Net income (loss) $18 $105 $111 $29 $(5) $(3) $117++ $(224)
Earnings per share of
common stock:+++
Basic:
Income (loss) from
continuing operations $.10 $1.29 $1.39 $.25 $(.47) $(.45) $(.30) $(3.22)
Net income (loss) $.10 $1.29 $1.39 $.25 $(.22) $(.19) $1.44 $(3.22)
Diluted:
Income (loss) from
continuing operations $.10 $1.07 $1.14 $.25 $(.47) $(.45) $(.30) $(3.22)
Net income (loss) $.10 $1.07 $1.14 $.25 $(.22) $(.19) $1.44 $(3.22)
Cash dividends per share
of preference stock $.90 $.90 $.90 $.90 $.90 $.90 $.90 $.90
Cash dividends per share
of common stock $.25 $.25 $.25 $.25 $.25 $.25 $.25 $.25
Common stock price#
--high $28.38 $31.94 $46.38 $44.38 $30.25 $32.63 $30.38 $25.63
--low $24.00 $24.00 $30.50 $35.56 $25.38 $27.75 $21.88 $21.88
--end of period $26.13 $31.00 $43.81 $42.06 $28.88 $30.38 $23.00 $24.38
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Gross profit equals sales and other operating revenue less cost of products
sold and operating expenses; depreciation, depletion and amortization; and
consumer excise, payroll and other applicable taxes.
**Includes a $21 million after-tax provision for employee terminations and re-
lated costs.
***Includes a $53 million after-tax provision for write-down of assets and
other matters.
+Includes a $201 million after-tax provision for write-down of assets and
other matters and an $8 million after-tax profit due to the reduction in
certain in-ventory quantities which were valued at lower LIFO costs
prevailing in prior years.
++Includes a $125 million after-tax gain on the sale of the International Pro-
duction business.
+++For the first and fourth quarters of 1997 and the four quarters of 1996, the
diluted per share amounts are equal to the basic per share amounts since both
the assumed issuance of common stock under stock incentive awards and the as-
sumed redemption of preference shares would not have been dilutive during
those periods. The basic income per share from continuing operations for the
third quarter of 1997 and the loss per share from continuing operations and
net income per share on a diluted basis for the third quarter of 1996 were
previously reported on Securities and Exchange Commission Form 10-Q as $1.38,
$(.11) and $1.19, respectively. The changes are due to the presentation of
earnings per share amounts in accordance with Statement of Financial Account-
ing Standards No. 128, "Earnings Per Share," which was adopted in the fourth
quarter of 1997.
#The Company's common stock is principally traded on the New York Stock Ex-
change, Inc. under the symbol "SUN." The Company had approximately 35,200
holders of record of common stock as of January 30, 1998.
61
<PAGE>
EXHIBIT 21
50.10% SUN COMPANY, INC. DECEMBER 31, 1997
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
COMPANY NAME: INC/REG
- ------------ -------
<S> <C>
COS Corporation IL
Elk River Resources, Inc. DE
- --Elk River Minerals Corporation DE
- --Indiana Harbor Coke Company DE
- ----Indiana Harbor Coke Company L.P. DE
- --Indiana Harbor Coke Corporation IN
- --Jewell Coke Company DE
- --Jewell Resources Corporation VA
- ----Dominion Coal Corporation VA
- ----Jewell Coal & Coke Company, Inc. VA
- ----Jewell Smokeless Coal Corporation VA
- ----Oakwood Red Ash Coal Corporation VA
- ----Vansant Coal Corporation VA
- --Shamrock Coal Company, Incorporated DE
Helios Capital Corporation DE
- --Beneco Leasing Two, Inc. OH
- --Sunoco Leasing, Inc. DE
- ----Heleasco Twenty, Inc. DE
- ----Heleasco Twenty-Three, Inc. DE
- ----Jalisco Corporation CA
- --Sun Leasing Company DE
Marine Investment Company of Delaware DE
- --Alaska Bulk Carriers, Inc. PA
- --Aston Shipping Company DE
- --Eastern Sun Barge Company DE
- --Florida Barge Company DE
- --New York Sun Shipping Co., Inc. DE
- --Philadelphia Sun Shipping Co., Inc. DE
- --Sun Barge Company DE
- --Sun Transport, Inc. DE
Mascot Petroleum Company, Inc. DE
Mohawk Valley Oil, Inc. NY
</TABLE>
<PAGE>
2
50.10% SUN COMPANY, INC. DECEMBER 31, 1997
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
COMPANY NAME: INC/REG
- ------------ -------
<S> <C>
Radnor Corporation PA
- --Morgan's Run Investment Company DE
- --Radnor Development Corporation DE
- --Radnor MidAtlantic Corporation PA
- --Radnor Suncoast Corporation DE
- --Radnor West, Inc. DE
- --Radnor/Aire Corporation PA
- --Radnor/Alexandria Corporation DE
- ----#1 Radnor/Alexandria Corporation DE
- --Radnor/Argyle Corporation DE
- --Radnor/Beachway Corporation DE
- --Radnor/Bowie Corporation DE
- --Radnor/California Corporation DE
- --Radnor/California Service Corporation DE
- --Radnor/Credit Corporation DE
- --Radnor/Delaware Avenue Corporation PA
- --Radnor/Dutton Mill Corporation PA
- --Radnor/Edgewater, Inc. DE
- --Radnor/Fulton County Corporation DE
- --Radnor/Fulton Industrial Corporation DE
- --Radnor/Grand Oaks Corporation DE
- --Radnor/Green Meadows Corporation DE
- --Radnor/Greenway Corporation DE
- --Radnor/Hampton Corporation DE
- --Radnor/Investment Corporation DE
- --Radnor/Island Corporation DE
- --Radnor/La Jolla Corporation DE
- --Radnor/Lakeside Corporation DE
- --Radnor/Lemon Grove Corporation DE
- --Radnor/Loudoun Corporation DE
- ----Radnor/Loudoun Day Care Corporation DE
- --Radnor/Main St. Corporation DE
- --Radnor/Marina Corporation PA
- --Radnor/Matsonford Corporation PA
- --Radnor/Murrieta Corporation DE
- --Radnor/North Corporation DE
- --Radnor/Orange Grove Corporation DE
- --Radnor/Pacific Corporate Center Corporation DE
- --Radnor/Painted Desert Corporation DE
- --Radnor/Parke East Corporation DE
- --Radnor/Peachtree Point Corporation DE
- --Radnor/Pier 5 Corporation PA
- --Radnor/Plantation Corporation DE
- ----Radnor Realty, Inc. DE
</TABLE>
<PAGE>
3
50.10% SUN COMPANY, INC. DECEMBER 31, 1997
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
COMPANY NAME: INC/REG
- ------------ -------
<S> <C>
- --Radnor/Plymouth Corporation PA
- --I Radnor/Plymouth Investment Company DE
- ----Plymouth Building I Business Trust PA
- --III Radnor/Plymouth Investment Company DE
- --Radnor/Rancho California Corporation DE
- --Radnor/Sarasota Corporation DE
- ----Laurel Oak Realty Corporation DE
- --Radnor/Service Corporation PA
- --Radnor/Spring Ridge Corporation DE
- ----Radnor/Frederick Corporation DE
- --Radnor/Spring Valley Corporation DE
- --Radnor/Sun Village Construction Corporation DE
- --Radnor/Sun Village Corporation DE
- --Radnor/Vail Ranch Corporation DE
- --Radnor/Vanguard Corporation DE
- --Radnor/Victorville Corporation DE
- --Radnor/Villa Trinidad Corporation DE
- --Radnor/Vista Mar Corporation DE
- --Radnor/Willoughby Corporation DE
- --Radnor/Yorba Linda-I Corporation DE
- --Striker Investment Company DE
Sun Alternate Energy Corporation DE
Sun Atlantic Refining and Marketing Company DE
- --Sun Atlantic Refining and Marketing B.V., Inc. DE
- --Sun Atlantic Refining and Marketing B.V. NL
- ------Atlantic Petroleum Corporation DE
- --------Atlantic Pipeline Corp. DE
- --------Atlantic Refining & Marketing Corp. DE
Sun Canada, Inc. DE
- --Helios Assurance Company Limited BA
- --Petrosun Limited EN
- --Sun International Limited BA
- --Sun Mexico One, Inc. DE
- ----Sunoco de Mexico, S.A. de C.V. MX
- --Sun Mexico Two, Inc. DE
- --Sunoco Limited EN
Sun Coal Company DE
Sun Company, Inc. (Name Saver) DE
</TABLE>
<PAGE>
4
50.10% SUN COMPANY, INC. DECEMBER 31, 1997
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
COMPANY NAME: INC/REG
- ------------ -------
<S> <C>
Sun Company, Inc. (R&M) PA
- --Mid-State Oil Company DE
- --Puerto Rico Sun Oil Company DE
- --Sun BEF, Inc. TX
- --Sun Far East Trading, Inc. DE
- --Sun Lubricants and Specialty Products Inc. QU
- --Sun Oil Far East, Inc. DE
- --Sun Petrochemicals, Inc. DE
- --Sunmarks, Inc. DE
- --Sunoco Caribbean, Inc. DE
- --Sunoco Power Marketing L.L.C. PA
Sun Executive Services Company PA
Sun Ocean Ventures, Inc. DE
Sun Oil Argentina Limited BA
Sun Oil Argentina Limited S.A. AT
Sun Oil Company (Name Saver) DE
Sun Oil Company (U.K.) Ltd. DE
Sun Oil Export Company DE
- --Sun Geologic and Seismic, Inc. DE
Sun Oil International, Inc. DE
Sun Oil Shabwa Yemen Limited BA
Sun Oil (Thailand) Limited TH
Sun Oil Trading Company DE
Sun Pipe Line Company of Delaware DE
- --Mid-Continent Pipe Line Company OK
- --Mid-Valley Pipeline Company OH
- --Sun Oil Line Company of Michigan MI
- --Sun Pipe Line Company PA
- --Sun Pipe Line Services Co. DE
Sun Refining and Marketing Company (Name Saver) DE
Sun Services Corporation PA
Sun Ship, Inc. PA
- --Lesley Corporation DE
</TABLE>
<PAGE>
5
50.10% SUN COMPANY, INC. DECEMBER 31, 1997
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
COMPANY NAME: INC/REG
- ------------ -------
<S> <C>
Sun-Del Services, Inc. DE
Suncrest Industries, Inc. PA
Sunoco Overseas, Inc. DE
- --Lugrasa, S.A. PN
Sunoco Science and Technological Services, Inc. NY
(Name Saver)
The Claymont Investment Company DE
- --Sunoco Credit Corporation DE
Triad Carriers, Inc. PA
- --BBQ, Inc. PA
- --Carrier Systems Motor Freight, Inc. DE
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Sun Company, Inc. of our report dated February 12, 1998, included in
the 1997 Annual Report to Shareholders of Sun Company, Inc.
Our audits also included the financial statement schedule of Sun Company,
Inc. for the years ended December 31, 1997 and 1996, listed in Item 14(a). The
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We also consent to the incorporation by reference of this report on the
financial statement schedule and our report dated February 12, 1998 with respect
to the consolidated financial statements of Sun Company, Inc. incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1997, in the following registration statements:
Sun Company, Inc. Capital Accumulation Plan Form S-8 Registration Statement
(Registration No. 33-9931);
Sun Company, Inc. Long-Term Performance Enhancement Plan Form S-8
Registration Statement (Registration No. 333-30941);
Sun Company, Inc. Long-Term Incentive Plan Form S-8 Registration Statement
(Registration No. 33-10055);
Sun Company, Inc. & Subsidiaries Stock Supplement Plan Form S-8
Registration Statement (Registration No. 2-53283);
Sun Company, Inc. Executive Long-Term Stock Investment Plan
Form S-8 Registration Statement (Registration No. 33-44059);
Sun Company, Inc. Employee Option Plan Form S-8 Registration Statement
(Registration No. 33-49275);
Sun Company, Inc. Form S-3 Registration Statement (Registration No. 33-
53717);
<PAGE>
2
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-39834); and
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-52615).
s/ERNST & YOUNG LLP
- ------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
March 6, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference of our report dated February
13, 1996 except for the restatement for discontinued operations as described in
Note 2 to the consolidated financial statements for which the date is February
13, 1997 (which includes an explanatory paragraph regarding the Company's change
in method of accounting for impairment of long-lived assets in 1995) on our
audit of the consolidated financial statements and financial statement schedule
of Sun Company, Inc. and subsidiaries as of December 31, 1995 and for the year
then ended, which report is included in this Annual Report on Form 10-K, in the
following registration statements:
Sun Company, Inc. Capital Accumulation Plan Form S-8 Registration Statement
(Registration No. 33-9931);
Sun Company, Inc. Long-Term Performance Enhancement Plan Form S-8
Registration Statement (Registration No. 333-30941);
Sun Company, Inc. Long-Term Incentive Plan Form S-8 Registration Statement
(Registration No. 33-10055);
Sun Company, Inc. & Subsidiaries Stock Supplement Plan Form S-8
Registration Statement (Registration No. 2-53283);
Sun Company, Inc. Executive Long-Term Stock Investment Plan Form S-8
Registration Statement (Registration No. 33-44059);
Sun Company, Inc. Employee Option Plan Form S-8 Registration Statement
(Registration No. 33-49275);
Sun Company, Inc. Form S-3 Registration Statement (Registration No. 33-
53717);
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-39834); and
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-52615).
s/COOPERS & LYBRAND L.L.P.
- --------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
March 6, 1998
<PAGE>
EXHIBIT 23.3
REPORT OF COOPERS & LYBRAND L.L.P.
To the Shareholders and Board of Directors of
Sun Company, Inc.:
We have audited the consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 1995
(included in Exhibit 13 to this Form 10-K)of Sun Company, Inc. and its
subsidiaries. In connection with our audit of such consolidated financial
statements, we have also audited the related financial statement schedule for
the year ended December 31, 1995 listed in Item 14(a) of this Form 10-K. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated results of operations and cash
flows of Sun Company, Inc. and its subsidiaries for the year ended December 31,
1995 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for the impairment of long-lived assets in
1995.
s/COOPERS & LYBRAND L.L.P.
- --------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 13, 1996 except for
the restatement for discontinued
operations as described in Note 2
to the consolidated financial
statements for which the date is
February 13, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned officers and/or
directors of Sun Company, Inc., a Pennsylvania corporation, do and each of them
does, hereby constitute and appoint Robert M. Aiken, Jr., Thomas W. Hofmann and
Jack L. Foltz, his or her true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, for him or her and in his or
her name, place and stead, to sign the Sun Company, Inc. Form 10-K for the year
ending December 31, 1997 and any and all future amendments thereto; and to file
said Form 10-K and any such amendments with all exhibits thereto, and any and
all other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
<PAGE>
2
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
this 5th day of March, 1998.
s/ROBERT M. AIKEN, JR. s/THOMAS W. HOFMANN
Robert M. Aiken, Jr. Thomas W. Hofmann
Executive Vice President & Comptroller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
s/ROBERT H. CAMPBELL s/JAMES G. KAISER
Robert H. Campbell James G. Kaiser
Chairman & Chief Executive Director
Officer
(Principal Executive Officer)
s/RAYMOND E. CARTLEDGE s/ROBERT D. KENNEDY
Raymond E. Cartledge Robert D. Kennedy
Director Director
s/ROBERT E. CAWTHORN s/R. ANDERSON PEW
Robert E. Cawthorn R. Anderson Pew
Director Director
s/JOHN G. DROSDICK s/WILLIAM F. POUNDS
John G. Drosdick William F. Pounds
President & Chief Director
Operating Officer
s/MARY J. EVANS s/ALEXANDER B. TROWBRIDGE
Mary J. Evans Alexander B. Trowbridge
Director Director
s/THOMAS P. GERRITY
Thomas P. Gerrity
Director
<PAGE>
EXHIBIT 24.2
I, Ann C. Mule', Secretary of Sun Company, Inc., a Pennsylvania
corporation, hereby certify that the following is a full, true and complete copy
of a resolution adopted at a meeting of the Board of Directors of Sun Company,
Inc., duly called and held on March 5, 1998, at which a quorum was present and
acting throughout and that no action has been taken to rescind or amend said
resolution and that the same is now in full force and effect:
RESOLVED, That the Sun Company, Inc. Annual Report to the Securities
and Exchange Commission on Form 10-K, for the year ended December 31, 1997,
is approved in the form presented to this meeting, subject to such changes
or amendments as may be approved (as so amended, the "Form 10-K") by any
one of the following officers of the Company: the Chief Executive Officer,
the Chief Operating Officer, the Executive Vice President and Chief
Financial Officer, the Senior Vice President and Chief Administrative
Officer or the Vice President and General Counsel;
FURTHER RESOLVED, That each of the above-named officers and the
Comptroller (collectively, the "Authorized Officers") is authorized to sign
and file, or cause to be filed, on behalf of the Corporation, the Form 10-
K, together with any such other certificates, documents, instruments or
notices as may be necessary or as any such officer may deem necessary or
desirable in order to effectuate or carry out the purposes and intent of
the foregoing resolutions, and that all such actions heretofore taken by
any one or more of the Authorized Officers in order to effectuate or carry
out the purposes and intent of the foregoing resolutions are hereby
ratified, adopted and approved.
(Corporate Seal) s/ANN C. MULE'
______________
Ann C. Mule'
Secretary
March 5, 1998
Philadelphia, Pennsylvania
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<PERIOD-START> JAN-01-1997
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0
723
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