<PAGE>
1998
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, 1998
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
SUNOCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1743282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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>
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, 2016 New York Stock Exchange
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 29, 1999, the aggregate market value of voting stock held by
nonaffiliates was $3,163 million.
At January 29, 1999, there were 90,420,468 shares of Common Stock, $1 par
value, outstanding.
Selected portions of the Sunoco, Inc. Annual Report to Shareholders for the
Fiscal Year Ended December 31, 1998 are incorporated by reference in Parts I,
II and IV of this Form 10-K.
Selected portions of the Sunoco, Inc. definitive Proxy Statement, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1998, 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 1998 Annual Report to Shareholders for a discussion of the
factors which could cause actual results to differ materially from those
projected.
GENERAL
Sun Company, Inc. changed its name to Sunoco, Inc.* effective November 6,
1998. Sunoco, 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. Its telephone number is (215) 977-3000 and its Internet website
address is www.SunocoInc.com.
The Company, through its subsidiaries, is principally a petroleum refiner
and marketer with interests in cokemaking and coal mining. Sunoco'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. Sunoco's cokemaking and coal mining operations are conducted in
Virginia and Indiana.
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 1998 Annual Report to Shareholders.
Business segment information is also presented in Note 19 to the Consolidated
Financial Statements in the Company's 1998 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 Sunoco, Inc. (R&M), a wholly owned subsidiary of the Company. Prior to
November 6, 1998, Sunoco, Inc. (R&M) was named Sun Company, Inc. (R&M). The
Company's refining and marketing operations 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.
Sunoco 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,
- --------
*In this report, the terms "Company" and "Sunoco" are used interchangeably to
mean Sunoco, Inc. or collectively, Sunoco, 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 1998 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, 1998, 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>
Philadelphia and Toledo produce principally fuels and petrochemicals while the
refineries in Tulsa and Puerto Rico emphasize lubricants production with
related fuels production being sold in the wholesale market. Sunoco also owns
and operates a petrochemical facility in Philadelphia, PA, which produces
phenol and acetone, and a facility in Brandenburg, KY, which produces ethylene
and ethylene oxide, and is a joint venture partner in a facility in Mont
Belvieu, TX, which produces MTBE.
The following table sets forth certain consolidated information concerning
Sunoco's refining and marketing operations (in thousands of barrels daily).
Additional information is set forth on page 46 in the Company's 1998 Annual
Report to Shareholders.
<TABLE>
<CAPTION>
Products Manufactured
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Crude Unit Capacity..................................... 697.0* 692.0* 777.0
===== ===== =====
Input to Crude Units.................................... 658.8* 696.0* 721.0
===== ===== =====
Products Manufactured:
Gasoline............................................... 334.9 348.8 339.7
Middle Distillates..................................... 221.6 224.8 206.5
Residual Fuel.......................................... 67.0 67.9 67.3
Petrochemicals......................................... 37.8 34.8 29.7
Lubricants**........................................... 15.1 15.9 16.0
Asphalt***............................................. -- -- 16.2
Other**................................................ 84.5 73.5 75.6
----- ----- -----
760.9 765.7 751.0
===== ===== =====
</TABLE>
- --------
*Effective January 1, 1999, Sunoco's crude oil processing capacity increased
an additional 33 thousand barrels per day. The 85 thousand barrels-per-day
decrease in crude unit capacity in 1997 occurred in the first quarter in
connection with a project to reconfigure the Puerto Rico refinery to process
reduced crude oil instead of conventional crude oil. Reduced crude oil
inputs, which amounted to approximately 30-35 thousand barrels per day at the
Puerto Rico refinery subsequent to the reconfiguration, are excluded from the
input to crude units in the table above (see "Sun Lubricants" below).
**Reclassified to conform to the 1998 presentation.
***Sunoco ceased producing asphalt in December 1996.
Supply and Distribution
Sunoco meets all of its crude oil requirements through purchases from third
parties. There is an ample supply of crude oil available to meet worldwide
refining needs, and Sunoco has been able to supply its refineries with the
proper mix and quality of crude oils without disruption. Sunoco's refineries
processed approximately 80 percent light sweet crude oil during 1998. The
Company
2
<PAGE>
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
Sunoco's refineries (in percentages):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Africa....................................................... 59 53 41
United States................................................ 21 20 20
Canada....................................................... 7 7 7
North Sea.................................................... 6 16 21
South and Central America.................................... 5 2 7
Russia....................................................... 2 1 --
Arabian Gulf................................................. -- 1 4
--- --- ---
100 100 100
=== === ===
</TABLE>
The following table sets forth summary information concerning the supply and
distribution of crude oil and refined products at Sunoco's refineries (in
thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Supply:
Crude Oil Purchases................................... 702.2* 701.7* 686.1
Crude Oil Inventory Change............................ (7.4) .4 5.3
Refined Product Purchases (including Feedstocks)...... 119.8 116.3 120.8
----- ----- -----
814.6 818.4 812.2
===== ===== =====
Distribution:
Refined Product Sales................................. 798.9 809.6 794.8
Refined Product Inventory Change...................... 1.1 (4.0) (2.8)
Internal Consumption and Other........................ 14.6 12.8 20.2
----- ----- -----
814.6 818.4 812.2
===== ===== =====
</TABLE>
- --------
*Includes purchases of reduced crude oil.
Refined Product Sales
Sunoco 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 Sunoco's consolidated refined
product sales (in thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Gasoline:
Wholesale................................................ 164.6 170.2 167.0
Retail................................................... 208.6 201.8 205.7
Middle Distillates........................................ 241.3 248.8 219.9
Residual Fuel............................................. 70.8 80.1 82.4
Petrochemicals............................................ 37.8 35.2 31.5
Lubricants*............................................... 17.9 18.8 18.0
Asphalt................................................... -- -- 18.3
Other*.................................................... 57.9 54.7 52.0
----- ----- -----
798.9 809.6 794.8
===== ===== =====
</TABLE>
- --------
*Reclassified to conform to the 1998 presentation.
As of December 31, 1998, 1997 and 1996, branded fuels sales were made
through 3,721, 3,789 and 3,806 retail gasoline outlets, respectively. Of these
outlets, 1,842 were direct outlets (Company/dealer owned or leased) and 1,879
were distributor outlets at December 31, 1998.
3
<PAGE>
The following is a discussion of the seven business units which comprise
Sunoco's refining and marketing and cokemaking and coal 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
Sunoco's Marcus Hook and Philadelphia refineries and the sale of these
products to other Sunoco business units and to wholesale and industrial
customers. (See "Sunoco MidAmerica Marketing & Refining" and "Sun Lubricants"
below, for a discussion of operations at Sunoco's Toledo, Tulsa and Puerto
Rico refineries.)
The following table sets forth information concerning operations at Sunoco's
Marcus Hook and Philadelphia refineries (in thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ------------------------
MARCUS PHILA., MARCUS PHILA., MARCUS PHILA.,
HOOK, PA PA TOTAL HOOK, PA PA TOTAL HOOK, PA PA TOTAL
-------- ------- ----- -------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Crude Unit Capacity..... 175.0 307.0 482.0* 175.0 307.0 482.0 175.0 307.0 482.0
===== ===== ===== ===== ===== ===== ===== ===== =====
Input to Crude Units.... 166.7 304.3 471.0 165.7 314.4 480.1 151.5 295.9 447.4
===== ===== ===== ===== ===== ===== ===== ===== =====
Conversion Capacity**... 86.0 105.0 191.0 86.0 105.0 191.0 86.0 105.0*** 191.0
===== ===== ===== ===== ===== ===== ===== ===== =====
Conversion Capacity
Utilized............... 91.6 89.9 181.5 88.7 94.7 183.4 65.3 86.6*** 151.9
===== ===== ===== ===== ===== ===== ===== ===== =====
Products Manufactured:
Gasoline............... 88.0 143.6 231.6 88.4 154.1 242.5 83.6 147.6 231.2
Middle Distillates..... 68.6 99.4 168.0 65.3 103.6 168.9 54.3 85.0 139.3
Residual Fuel.......... 11.1 42.0 53.1 10.7 42.6 53.3 11.1 38.4 49.5
Petrochemical
Feedstocks+........... 17.6 5.2 22.8 18.7 5.4 24.1 11.9 7.0 18.9
Asphalt++.............. -- -- -- -- -- -- -- 13.7 13.7
Other.................. 16.8 23.5 40.3 16.0 23.8 39.8 12.9 26.3 39.2
----- ----- ----- ----- ----- ----- ----- ----- -----
202.1 313.7 515.8 199.1 329.5 528.6 173.8 318.0 491.8
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- --------
*Effective January 1, 1999, total crude unit capacity increased to 505
thousand barrels daily.
**Represents Sunoco's capacity to upgrade low-value petroleum products into
higher-value products through catalytic cracking. Effective January 1, 1999,
total conversion capacity increased to 210 thousand barrels daily.
***In December 1996, Sunoco 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.)
++Sunoco ceased producing asphalt in December 1996.
During the fourth quarter of 1996, Sunoco reconfigured the Philadelphia
refinery to process only sweet crude oil and to cease asphalt production. With
this change, Sunoco'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 at the Philadelphia refinery
processed a substantial quantity of heavy sour crude oil and purchased gas
oils. The reconfiguration was part of a
4
<PAGE>
process to integrate the Point Breeze and Girard Point segments of the
Philadelphia refinery and resulted in the shutdown or mothballing of redundant
and/or unprofitable processing units. The reconfiguration contributed to a
substantial improvement in the efficiency, flexibility and reliability of the
refinery and to a reduction in its overall cost structure. Sunoco continues to
implement additional infrastructure consolidation opportunities at this
facility.
The reconfiguration and extensive refinery maintenance turnarounds completed
during 1996 resulted in higher overall production for Sun Northeast Refining
in 1997. In particular, production of high-value gasoline, middle distillates
and petrochemical feedstocks increased significantly during this period.
However, production of these products declined during 1998 as a result of a
substantial increase in the amount of scheduled and unscheduled refinery
downtime. The most significant downtime was at a 72 thousand barrels-per-day
catalytic cracking unit at the Philadelphia refinery. It included a 29-day
shutdown due to an emergency power interruption by the local utility and
related start-up problems and a subsequent scheduled six-week turnaround and
modernization of the unit. With the completion of this work in July 1998, all
three of Sunoco's catalytic cracking units in the Northeast have been
modernized during the past two years. The combined output of these units
during the fourth quarter of 1998 was a record 203 thousand barrels daily.
Scheduled maintenance activity during 1998 also included a 23-day turnaround
of a 200 thousand barrels-per-day crude unit at the Philadelphia refinery.
The following table sets forth information concerning the crude oil
purchased for processing at the Marcus Hook and Philadelphia refineries (in
thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
MARCUS PHILA., MARCUS PHILA.,
HOOK, PA PA TOTAL HOOK, PA PA TOTAL
-------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Crude Type:
West African Light.......... 71.4 197.5 268.9 39.1 203.2 242.3
West African Heavy.......... 30.2 97.8 128.0 19.5 101.3 120.8
North Sea................... 33.4 4.9 38.3 94.8 8.3 103.1
South and Central American
Light...................... 29.3 5.5 34.8 12.0 .9 12.9
Canadian Light.............. 4.0 .7 4.7 -- -- --
----- ----- ----- ----- ----- -----
168.3 306.4 474.7 165.4 313.7 479.1
===== ===== ===== ===== ===== =====
</TABLE>
Sunoco's Philadelphia and Marcus Hook refineries are connected by pipeline,
barge, truck and rail. An inter-refinery pipeline enables the transfer of
unfinished stocks, including butanes, naphtha, distillate blendstocks and
gasoline blendstocks. Finished products are delivered to customers via
Sunoco's pipeline and terminal network, third-party pipelines and barges.
Total fuels products sold to third parties at wholesale by Sun Northeast
Refining in 1998 were 353.8 thousand barrels daily compared to 358.4 thousand
barrels daily in 1997 and 322.2 thousand barrels daily in 1996. Sales to other
Sunoco business units by Sun Northeast Refining (primarily gasoline, middle
distillates and chemical feedstocks) totalled 186.1, 182.9 and 188.3 thousand
barrels daily in 1998, 1997 and 1996, respectively.
Environmental laws require Sunoco to make significant expenditures at its
refineries of both a capital and expense nature. During the 1996-98 period,
approximately $40 million was spent for environmental capital projects and
compliance activities at Sunoco'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 final phase of these regulations in 2000 with modest
capital investment.
5
<PAGE>
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.)
The following table sets forth Sunoco's retail gasoline outlets in the New
England and Mid-Atlantic states at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Direct Outlets:
Company Owned or Leased:
Company-Operated:
Traditional............................................. 127 124 128
APlus(R) Convenience Stores............................. 164 154 168
----- ----- -----
291 278 296
----- ----- -----
Dealer-Operated:
Traditional............................................. 352 351 344
APlus(R) Convenience Stores............................. 241 250 240
Ultra(R) Service Centers................................ 234 239 249
----- ----- -----
827 840 833
----- ----- -----
Total Company Owned or Leased*............................ 1,118 1,118 1,129
Dealer Owned**............................................ 386 373 397
----- ----- -----
Total Direct Outlets....................................... 1,504 1,491 1,526
Distributor Outlets........................................ 1,287 1,330 1,354
----- ----- -----
2,791 2,821 2,880
===== ===== =====
</TABLE>
- --------
*Gasoline throughput per Company owned or leased outlet averaged 103.8, 99.8
and 103.4 thousands of gallons monthly during 1998, 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. 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 Sunoco fuel products are delivered
directly to the site by Sunoco or its contract carriers. 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, 1998 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, Sunoco does not own, lease or operate the
locations.
6
<PAGE>
Sunoco'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,
fast foods and beverages. The following table sets forth information
concerning Sunoco's convenience store locations in the Northeast:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Number of Stores........................................... 411 417 421
Merchandise Sales (M$/Store/Month)......................... $52.5 $47.8 $44.9
Merchandise Margin (Company Operated) (% of Sales)......... 28.7% 29.3% 27.4%
</TABLE>
Sunoco Northeast Marketing offers four grades of gasoline at its retail
locations, consisting of Ultra(R) 94, the highest octane premium gasoline
commercially available in the United States, and 93, 89 and 87 octanes.
Branded fuels sales (including middle distillates) by Sunoco Northeast
Marketing averaged 174.0 thousand barrels daily in 1998 compared to 169.6
thousand barrels daily in 1997 and 175.2 thousand barrels daily in 1996.
Ultra(R) 94 sales (including Ultra(R) 94 used as an octane enhancer in
Sunoco's mid-grade gasolines) accounted for approximately 24 percent of
Sunoco's retail gasoline sales in the Northeast in 1998.
In 1998, capital expenditures for branded marketing activities in the
Northeast totalled $74 million. The majority of these outlays were to upgrade
and modernize retail gasoline outlets. Sunoco Northeast Marketing also
continued the expansion of its pay-at-the-pump program in 1998 with the
installation of CardMatic(R), its credit card activated gasoline dispensing
system.
In the fourth quarter of 1998, Sunoco announced a Company-wide reimaging
program of its retail service station network. As part of this program, the
Company's Sunoco(R) logo has been updated and its retail outlet image has been
redesigned to provide a more contemporary appearance to Sunoco's outlets. The
roll-out of this program commenced in late 1998 and is expected to be
substantially completed by 2001.
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 and their derivatives
(benzene, cumene, cyclohexane, toluene, xylene, phenol and acetone). As a
partner in a joint venture, Sunoco Chemicals also produces MTBE which is
utilized by Sun Northeast Refining in manufacturing reformulated gasoline.
Petrochemicals are manufactured by Sunoco Chemicals at Sunoco's Marcus Hook
and Philadelphia refineries, at a phenol facility in Philadelphia,
Pennsylvania, 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.)
On June 30, 1998, Sunoco acquired the Philadelphia phenol facility of
AlliedSignal Inc. ("Allied") for $157 million. This acquisition was made
pursuant to the Company's strategy to expand its chemicals business by
manufacturing intermediate products further down the value chain. As of the
acquisition date, this facility had the capacity to produce annually more than
one billion pounds of phenol and 620 million pounds of acetone. In connection
with the acquisition, Sunoco Chemicals entered into a long-term contract to
supply Allied with approximately 735 million pounds of phenol annually at a
price based on the market value of cumene feedstock plus an amount
approximating other phenol production costs.
7
<PAGE>
The following table sets forth information concerning petrochemicals
production by Sunoco Chemicals (in thousands of barrels daily):
<TABLE>
<CAPTION>
PRODUCTION
CAPACITY AT -----------------
DECEMBER 31, 1998* 1998 1997 1996
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Benzene............................... 5.0 4.4 4.2 3.4
Toluene............................... 2.0 1.2 1.5 1.0
Xylene................................ .5 .3 .5 .5
Cumene**.............................. 9.5 6.0 5.2 4.3
Cyclohexane........................... 2.5 1.9 2.1 1.4
Phenol................................ 7.6 3.8*** -- --
Acetone............................... 6.4 3.4*** -- --
---- ---- ---- ----
Total Aromatics..................... 33.5 21.0 13.5 10.6
Ethylene.............................. 1.7 1.3 1.2 1.1
Ethylene Oxide........................ 1.8 1.7 1.7 1.4
Propylene:
Polymer-grade+....................... 10.5 10.3 10.6 5.3
Refinery-grade....................... 9.0 6.7 6.4 5.5
---- ---- ---- ----
Total Olefins....................... 23.0 20.0 19.9 13.3
Other................................. -- -- -- 1.5
---- ---- ---- ----
Total Petrochemicals................ 56.5 41.0 33.4 25.4
====
Less: Production Used as
Feedstocks++......................... 13.6 9.3 6.5
---- ---- ----
Total Production Available for Sale. 27.4 24.1 18.9
==== ==== ====
</TABLE>
- --------
*Calendar-day basis.
**Reflects an increase of 5.0 thousand barrels daily in production capacity
in the third quarter of 1998 as a result of an expansion project at Girard
Point (see below).
***Total production divided by 365 days. During the 184-day period after the
June 30, 1998 acquisition of the phenol plant, phenol and acetone production
totalled 7.6 and 6.7 thousand barrels daily, respectively.
+Reflects an increase of 4.5 thousand 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 benzene and refinery-grade propylene, which are used in the
manufacture of cumene and cyclohexane, and cumene (after June 30, 1998),
which is used in the manufacture of phenol and acetone.
Sunoco's petrochemical products are distributed and sold on a worldwide
basis with most of the sales made to customers in the United States. Sales of
petrochemicals to third parties by Sunoco Chemicals totalled 27.7 thousand
barrels daily in 1998 versus 24.4 thousand barrels daily in 1997 and 20.2
thousand barrels daily in 1996. The increased levels of both sales and
production volumes in 1998 were due to the acquisition of the phenol facility.
In 1997, the volume improvements were due to successful refinery maintenance
turnarounds at the Philadelphia and Marcus Hook refineries and expansion of
polymer-grade propylene production capacity at Marcus Hook.
Sales volumes during 1998 were distributed through the following channels:
. Benzene and Benzene Derivatives (including Cyclohexane)--Customers are
large manufacturers of fibers, detergents and specialty products 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;
8
<PAGE>
. Phenol and Acetone--Long-term phenol contract sales to AlliedSignal are
used in nylon production. Other phenol contract sales are to large
manufacturers of resins and adhesives primarily for use in building
products. Large contract sales of acetone are to major customers who
manufacture polymers. Other sales of acetone are made to individually
smaller customers for use in inks, paints, varnishes and adhesives;
. Solvents--Customers and distributors take individually small volumes of
toluene and xylenes for paints, coatings, solvents and a variety of
specialty applications;
. Propylene--Sales are primarily made pursuant to a long-term contract to
Epsilon Products Co., a polypropylene manufacturer; 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.
Benzene, extracted at Sunoco's Marcus Hook and Girard Point facilities and
purchased from third parties, and refinery-grade propylene are used to produce
cumene at Girard Point and cyclohexane at Marcus Hook. The cumene is then used
to produce phenol and acetone at the recently acquired phenol facility in
Philadelphia. In the third quarter of 1998, Sunoco Chemicals completed a
project to expand its cumene production capacity at Girard Point from 500 to
1,050 million pounds per year (4.5 to 9.5 thousand barrels per day). The
expanded facility, which utilizes a new catalyst technology, produced cumene
at an annualized rate of 1,050 million pounds during the fourth quarter of
1998.
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 (6.0 to 10.5
thousand barrels per day).
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.
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 quality improvement extracts,
textile oils and finished waxes. These finished products are marketed under
the Sunoco(R), Kendall(R) and Archer(R) brand labels directly by Sunoco or
through distributors to a wide variety of domestic and foreign customers.
9
<PAGE>
The following table sets forth information concerning operations at Sunoco's
Tulsa and Puerto Rico refineries (in thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
TULSA PUERTO TULSA PUERTO TULSA PUERTO
OK RICO TOTAL OK RICO TOTAL OK RICO TOTAL
----- ------ ----- ----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Crude Unit Capacity*.... 85.0 -- 85.0 85.0 -- 85.0 85.0 85.0 170.0
==== ==== ===== ==== ==== ===== ==== ==== =====
Input to Crude Units*... 82.4 -- 82.4 82.9 -- 82.9 85.0 63.1 148.1
==== ==== ===== ==== ==== ===== ==== ==== =====
Base Oil Lubes
Capacity............... 8.5 9.1 17.6 8.1 9.3 17.4 8.1 9.3 17.4
==== ==== ===== ==== ==== ===== ==== ==== =====
Products Manufactured:**
Base Oil Lubricants.... 8.5 6.6 15.1 8.1 7.8 15.9 7.9 8.1 16.0
Gasoline............... 16.8 -- 16.8 17.0 .5 17.5 16.5 8.7 25.2
Middle Distillates..... 26.0 2.1 28.1 27.0 4.5 31.5 27.6 19.1 46.7
Residual Fuel.......... -- 9.6 9.6 .1 11.0 11.1 -- 14.1 14.1
Lubes Extracted
Feedstocks............ 18.8 -- 18.8 20.7 -- 20.7 23.2 -- 23.2
Waxes and Other........ 9.8 8.4 18.2 6.9 9.1 16.0 7.5 12.9 20.4
---- ---- ----- ---- ---- ----- ---- ---- -----
79.9 26.7 106.6 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 oil inputs prior to March 6, 1997 and the
approximately 30-35 thousand barrels per day of reduced crude oil processed
at this facility after the reconfiguration are excluded from the 1998 and
1997 amounts in the table above (see below).
**Reclassified to conform to the 1998 presentation.
Production volumes during 1998 were limited by a 59-day maintenance
turnaround at the Puerto Rico refinery as well as by a two-week shutdown of
this facility due to Hurricane Georges. After completion of the maintenance
turnaround in mid-April, lubricants production at the refinery increased from
approximately 8 thousand to more than 9 thousand barrels per day.
In 1997, Sun Lubricants reconfigured the Puerto Rico refinery to eliminate
the processing of conventional crude oil and to process, instead,
approximately 30-35 thousand barrels per day of reduced crude oil. This
change, which resulted in the shutdown of several processing units,
significantly reduced the amount of unprofitable fuels produced at the
facility while fully maintaining the volume and quality of lubricants
production. 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 November 1996, Sun Lubricants acquired the Kendall lubricants blending,
packaging and marketing business. This acquisition resulted in an increase in
the amount of base oil production upgraded into transportation lubricants at
Sunoco facilities and has enabled Sun Lubricants to increase its specialty oil
lubricants sales. Kendall sales are made primarily through supply contracts
with more than 300 distributors in the United States.
Sales of specialty oil lubricant products totalled 11.0 thousand barrels
daily in 1998 versus 11.7 thousand barrels daily in 1997 and 9.3 thousand
barrels daily in 1996 while sales of base oils totalled 6.9 thousand barrels
daily in 1998 versus 7.1 thousand barrels daily in 1997 and 8.7 thousand
barrels daily in 1996. The higher level of specialty oil sales in the 1997-98
period primarily reflects the Kendall acquisition. The lower level of base oil
sales in this period reflects planned reductions in contract and spot sales
concurrent with the increased usage of produced base oils in Sunoco(R) and
Kendall(R) brand specialty oils. Fuels and waxes sold to third parties from
the Tulsa and Puerto Rico refineries totalled
10
<PAGE>
82.9 thousand barrels per day in 1998 compared to 99.5 thousand barrels per
day in 1997 and 130.2 thousand barrels per day in 1996. The significant
decline in 1998 and 1997 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 for processing at the Tulsa and Puerto Rico refineries (in thousands
of barrels daily):
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
TULSA PUERTO TULSA PUERTO
OK RICO TOTAL OK RICO TOTAL
----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Feedstock Type:
Oklahoma Sweet and West
Texas Intermediate.................. 78.7 -- 78.7 79.3 -- 79.3
Reduced Crude Oil.................... -- 26.2 26.2 -- 27.6 27.6
Other................................ -- -- -- -- 3.6 3.6
---- ---- ----- ---- ---- -----
78.7 26.2 104.9 79.3 31.2 110.5
==== ==== ===== ==== ==== =====
</TABLE>
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
Sunoco'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.
The following table sets forth Sunoco's retail gasoline outlets in the
Midwest at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Direct Outlets:
Company Owned or Leased:
Company-Operated:
Traditional............................................... 17 19 22
Sunoco Food Market(R) Convenience Stores.................. 76 79 88
--- --- ---
93 98 110
--- --- ---
Dealer-Operated:
Traditional............................................... 75 77 57
Sunoco Food Market(R) Convenience Stores.................. 23 26 22
Ultra(R) Service Centers.................................. 14 15 48
--- --- ---
112 118 127
--- --- ---
Total Company Owned or Leased............................... 205 216 237
Dealer Owned*............................................... 133 126 138
--- --- ---
Total Direct Outlets......................................... 338 342 375
Distributor Outlets.......................................... 592 626 551
--- --- ---
930 968 926
=== === ===
</TABLE>
- --------
*Primarily traditional outlets.
11
<PAGE>
Branded fuels sales averaged 57.4 thousand barrels daily in 1998 compared to
54.1 thousand barrels daily in 1997 and 51.0 thousand barrels daily in 1996.
Ultra(R) 94 sales (including the Ultra(R) 94 used as an octane enhancer in
Sunoco's mid-grade gasolines) accounted for approximately 20 percent of
Sunoco's retail gasoline sales in the Midwest in 1998. The increases in
branded fuels sales during 1998 and 1997 are largely a result of new supply
agreements in the distributor channel. Sunoco MidAmerica expects sales under
the supply agreements to increase further in 1999, in part due to an expected
increase in the number of outlets rebranding to Sunoco(R) pursuant to these
agreements.
The following table sets forth information concerning Sunoco's convenience
stores in the Midwest:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Number of Stores........................................... 101 108 112
Merchandise Sales (M$/Store/Month)......................... $45.1 $43.0 $39.8
Merchandise Margin (Company Operated) (% of Sales)......... 27.7% 30.6% 28.7%
</TABLE>
In late 1998, Sunoco MidAmerica began reimaging its service stations in
connection with Sunoco's company-wide reimaging program. The program is
expected to be substantially completed by 2001. (See "Sunoco Northeast
Marketing" above for a further discussion of this program.)
Refining and Wholesale Marketing
The following table sets forth information concerning operations at Sunoco's
Toledo refinery (in thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Crude Unit Capacity...................................... 130.0* 125.0 125.0
===== ===== =====
Input to Crude Units..................................... 132.4 133.0 125.5
===== ===== =====
Conversion Capacity...................................... 88.0 86.0 86.0
===== ===== =====
Conversion Capacity Utilized............................. 81.0 83.1 77.4
===== ===== =====
Products Manufactured:
Gasoline................................................ 86.5 88.8 83.3
Middle Distillates...................................... 25.5 24.4 20.5
Residual Fuel........................................... 4.3 3.5 3.7
Petrochemicals.......................................... 10.4 10.7 10.8
Other................................................... 18.6 17.7 18.5
----- ----- -----
145.3 145.1 136.8
===== ===== =====
</TABLE>
- --------
*Effective January 1, 1999, the crude unit capacity at the Toledo refinery
increased to 140 thousand barrels daily.
Production volumes during 1998 were impacted by a one-month scheduled
turnaround and debottlenecking of one of the Toledo refinery's crude units and
a one-week shutdown of the refinery caused by a regional electricity
emergency. Subsequent to completion of the expansion work in the fourth
quarter, the Toledo refinery's crude unit capacity increased to 140 thousand
barrels daily.
Fuels products sold at wholesale to third parties from Sunoco's Toledo
refinery in 1998 averaged 75.1 thousand barrels daily compared to 74.0
thousand barrels daily in 1997 and 66.7 thousand barrels daily in 1996.
12
<PAGE>
Sunoco'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 for processing at
this facility (in thousands of barrels daily):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Crude Type:
West Texas Intermediate......................................... 65.1 59.1
Canadian........................................................ 50.9 53.0
African......................................................... 3.6 --
South American.................................................. 3.1 --
"Lubes-Extracted" Gasoil/Naphtha Intermediate Feedstock......... 11.3 20.3
----- -----
134.0 132.4
===== =====
</TABLE>
Ethanol blending is employed by Sunoco MidAmerica at its terminals 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 with
Suncor Energy 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. Sales of petrochemicals to third parties by Sunoco
MidAmerica totalled 10.1 thousand barrels daily in 1998 versus 10.8 thousand
barrels daily in 1997 and 11.3 thousand barrels daily in 1996.
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 Sunoco 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 Sunoco'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 Sunoco's other businesses and for third-
party integrated petroleum companies, independent marketers and distributors.
At December 31, 1998, Sunoco Logistics had an equity interest in 5,171 miles
of crude oil pipelines and 4,542 miles of refined product pipelines. In 1998,
crude oil and refined product shipments, including
13
<PAGE>
Sunoco's proportionate share of shipments in pipelines in which it had an
ownership interest, totalled 53.8 and 30.6 billion barrel miles, respectively,
as compared to 58.9 and 29.7 billion barrel miles in 1997.
Sunoco Logistics' crude oil pipeline operations in the South Central United
States are complemented by lease crude oil acquisition and related trucking
operations. Approximately 161 thousand barrels daily of crude oil were
purchased from third-party leases during 1998. This crude oil is delivered to
various pipelines either directly from the wellhead or utilizing Sunoco
Logistics' fleet of 90 trucks. Product terminalling and transport operations
include 39 terminals in the Northeast and Midwest that support Sunoco's
branded and wholesale marketing operations, 120 trucks that transport gasoline
and distillates and a railroad fleet of 150 owned and 2,300 leased tank cars
that primarily supports the Sunoco Chemicals and Sun Lubricants businesses.
The Company's marine transportation requirements are satisfied through the use
of third-party charters. Sunoco maintains an extensive vessel inspection
review and evaluation program to assure the vessels chartered into Sunoco
service are of appropriate quality.
Sunoco'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.
In 1998, Sunoco entered into an agreement to charter two new innovative
VLCCs (Very Large Crude Carriers) to transport crude oil to its Philadelphia
and Marcus Hook refineries. Construction of the two two-million-barrel-
capacity tankers is expected to be completed in 2001. The tankers will be put
on three-year charter to Sunoco at that time. The new VLCCs will provide
transportation cost savings compared to existing VLCCs and the smaller, one-
million-barrel-capacity tankers typically used to supply the Company's
Northeast refineries.
SUN COKE
Sun Coke's business consists of blast furnace coke manufacturing at the
Company's facilities in East Chicago, IN, and Vansant, VA, and coal production
from mines in Virginia. Such operations are conducted by Sun Coke Company and
its affiliates.
Sun Coke produces high-quality coke at its 1.3 million ton-per-year Indiana
Harbor cokemaking operation in East Chicago, IN, and at its 700 thousand ton-
per-year Jewell cokemaking operation in Vansant, VA. These facilities use Sun
Coke's proprietary heat-recovery cokemaking technology, which is
environmentally and economically superior to the chemical by-product recovery
technology currently used by other coke producers.
Start-up of the Indiana Harbor cokemaking operation commenced in the first
quarter of 1998 and all four batteries at this facility, totalling 268 ovens,
produced at full rated capacity during the second half of the year. Virtually
all of the production from this facility is sold to Ispat Inland Inc.
("Inland") for use at Inland's Indiana Harbor Works steel plant located
adjacent to Sun Coke's facility. A supply agreement requires Sun Coke to
provide to Inland 1.2 million tons of coke annually on a take-or-pay basis
through 2013. Additional production of up to 150,000 tons per year will be
sold either to Inland or to other steel producers. Sun Coke is also required
to supply all of the flue gas by-product produced at the cokemaking facility
to a third-party utility for the generation of steam and electricity. In
return, the utility reduces the sulfur and particulate content of the flue gas
to acceptable emission levels.
Sunoco intends to continue to grow its cokemaking business so that it can
capitalize on its proprietary cokemaking technology and provide the Company
with additional earnings diversification and growth.
14
<PAGE>
In 1997, Sun Coke completed a 9-year program to replace the existing coke
ovens at its Jewell cokemaking facility with 142 new ovens. This program has
resulted in an improvement in overall cost efficiencies and an enhancement in
coke quality.
In 1998, Sun Coke transferred an interest in its Indiana Harbor cokemaking
operation to a third party for $200 million in cash. In 1995, Sun Coke
transferred an interest in its Jewell cokemaking operation to another third
party for $95 million in cash. The investors are entitled to preferential
returns from the cash flows and tax benefits from the respective cokemaking
operations until certain cumulative return targets have been met. After these
preferential return periods, which are expected to end in 2002 and 2000,
respectively, the third parties will be entitled to variable minority
interests in the cash flows and tax benefits from the respective operations
ranging from 5 to 25 percent.
The following table sets forth information concerning Sun Coke's cokemaking
and coal mining operations:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Production (Thousands of Tons):
Coke:
Indiana Harbor........................................... 779 -- --
Jewell................................................... 694 664 648
----- ----- -----
1,473 664 648
===== ===== =====
Coal:
Metallurgical (Jewell)................................... 1,063 1,460 1,490
Steam (Shamrock)*........................................ 1,896 1,827 2,926
----- ----- -----
2,959 3,287 4,416
===== ===== =====
Proven and Probable Coal Reserves at
December 31 (Millions of Tons):
Metallurgical (Jewell)................................... 113 114 115
Steam (Shamrock)*........................................ 8 10 17
----- ----- -----
121 124 132
===== ===== =====
</TABLE>
- --------
*In early 1999, Sun Coke divested its Shamrock steam coal mining operation
located in Kentucky. With this divestment, Sun Coke ceased steam coal mining
activities.
In 1998, 72 percent of Sun Coke's metallurgical coal production was
converted into coke at the Jewell cokemaking facility and 28 percent was sold
in spot market transactions. Effective in the fourth quarter of 1998, the
Company adopted a strategy of using its metallurgical coal production
predominantly in its Jewell cokemaking operation. All of the metallurgical
coal used to produce coke at Indiana Harbor was purchased under short-term
contracts.
During 1998, all of Indiana Harbor's coke production was sold to Inland (see
above) while 98 percent of Jewell's coke production was sold to National Steel
Corporation under a long-term contract which provides for delivery of
virtually all of this facility's coke production to National Steel through
2005. Sun Coke's long-term sales contracts contain cost pass through or
escalating fixed price provisions. In 1998, approximately 60 percent of Sun
Coke's bituminous steam coal from its Shamrock operation was sold under a
long-term contract, with the remainder sold in spot market transactions.
Additional information concerning Sun Coke's operations is set forth on page
46 in the Company's 1998 Annual Report to Shareholders.
15
<PAGE>
REAL ESTATE
Sunoco's real estate business is conducted through Radnor Corporation and
its subsidiaries (collectively, "Radnor"). As of December 31, 1998, Radnor's
remaining portfolio of real estate was located in five states and consisted
principally of single-family home, residential land and business park
developments.
Since the adoption in October 1991 of the Company's plan to sell its real
estate business through a program of controlled disposition, Radnor has
divested 72 commercial properties, completed 30 housing and land developments
and reduced its total assets by over $1 billion. Proceeds from these
divestments enabled Radnor to pay off all $852 million of its related debt
during this period. At December 31, 1998, Radnor's total assets were $34
million. The disposition of Sunoco's real estate business is expected to be
completed by the end of 2001.
SUN INTERNATIONAL PRODUCTION
During 1996, Sunoco 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 1998 Annual Report to Shareholders.
COMPETITION
The refining and marketing business is very competitive. Sunoco 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 Sunoco's principal
competitors are integrated multi-national oil companies that are larger and
have substantially greater resources than Sunoco. Because of their integrated
operations and larger capitalization, such major oil companies may have
greater flexibility than Sunoco 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, Sunoco must obtain all of its feedstocks from
unaffiliated sources.
Most of the crude oils processed in Sunoco'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 Sunoco'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. Sunoco 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.
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, Sunoco anticipates that coke manufacturing capacity will decrease at
a faster rate than the demand for coke as the inability to meet increasingly
stringent environmental regulations leads steelmakers and other coke producers
to close coke plants. Sunoco believes it is well-positioned to compete with
other merchant coke producers since Sunoco's proprietary technology allows
Sunoco 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.
16
<PAGE>
Sunoco does not consider one or a small group of competitors to be dominant
in the refining and marketing or cokemaking industries. The availability of a
ready market for Sunoco's refined products, as well as its coke production,
depends on numerous external factors including: the level of consumer demand;
the extent of industry production of refined products and coke; the import
levels of refined products 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, Sunoco'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. Sunoco spent
$4, $5 and $6 million on research and development activities in 1998, 1997 and
1996, respectively. As of December 31, 1998, approximately 90 scientists,
engineers, technicians and support personnel participated in these activities.
Sunoco owns or has made application for numerous patents in the U.S.
EMPLOYEES
As of December 31, 1998, Sunoco had approximately 11,100 employees compared
to approximately 10,900 employees as of December 31, 1997. The increase in
1998 is primarily attributable to the acquisition of the Philadelphia phenol
facility. Approximately 40 percent of Sunoco's employees are employed in
company-operated convenience stores and service stations. Approximately 25
percent of Sunoco's employees were covered by 45 collective bargaining
agreements as of December 31, 1998. The collective bargaining agreements have
various terms and dates of expiration. In management's opinion, Sunoco's
relationship with its employees is generally satisfactory.
ENVIRONMENTAL MATTERS
Sunoco is subject to numerous federal, state and local laws which regulate
the discharge of materials into the environment or that otherwise relate to
the protection of the environment. These laws have required, and are expected
to continue to require, Sunoco to make significant expenditures of both a
capital and expense nature. The following table summarizes Sunoco's
expenditures for environmental projects and compliance activities (in millions
of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pollution Abatement Capital*................................ $ 35 $ 23 $ 29
Remediation................................................. 34 38 37
Operations, Maintenance and Administration.................. 173 188 185
---- ---- ----
$242 $249 $251
==== ==== ====
</TABLE>
- --------
*Capital expenditures for pollution abatement are expected to approximate $41
and $25 million in 1999 and 2000, 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 toxics and conventional pollutants.
The Company has implemented the first two phases of the reformulated gasoline
regulations which require 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"). Sunoco expects to implement the
final more stringent phase of these regulations in 2000 with modest capital
investment.
17
<PAGE>
Pursuant to the Clean Air Act, the U.S. Environmental Protection Agency
("EPA") has under review whether it is appropriate to require more stringent
emissions standards ("Tier 2 Standards") for new passenger cars and light duty
trucks, effective no earlier than the 2004 model year. In connection with
these potential Tier 2 Standards, the EPA is considering mandated reductions
in the sulfur levels in reformulated and conventional gasoline. It is
anticipated that the EPA will issue final regulations by the end of 1999.
While it is likely that the EPA will require gasoline sulfur reductions, there
are a number of uncertainties about the final rule and how it would be
implemented, including the allowable sulfur levels, the timing of any
requirements, the areas of the country that would be subject to any such
requirements and the technology available to meet the requirements. While some
of the alternatives would be potentially significant to Sunoco and its
operations, the ultimate impact of the Tier 2 Standards cannot be determined
until the EPA issues the finalized rule.
The EPA has convened an advisory Panel on Oxygenate Use in Gasoline (the
"Panel"). The purpose of the Panel is to review public health and
environmental issues that have been raised by the use of MTBE in gasoline, and
specifically the discovery of MTBE in water supplies. The Panel is expected to
make recommendations to the EPA in mid-1999. Several states have also
commenced reviews of the use of MTBE in gasoline. MTBE is the primary
oxygenate used by Sunoco and throughout the industry to meet the reformulated
gasoline requirements under the Clean Air Act. While restrictions on the use
of MTBE could have a significant impact on Sunoco and its operations, it is
not possible to reach any conclusions until federal or state actions, if any,
are taken.
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 Sunoco to the potential obligation to remove or mitigate the
environmental effects of the disposal or release of certain pollutants at
Sunoco's facilities and at third-party or formerly-owned sites. Under CERCLA,
Sunoco 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, 1998, Sunoco had been named as
a PRP at 55 sites identified or potentially identifiable as "Superfund" sites
under CERCLA. Sunoco has reviewed the nature and extent of its involvement at
each site and other relevant circumstances and, based upon the other parties
involved or Sunoco's negligible participation therein, believes that its
potential liability associated with such sites will not be significant.
Under various environmental laws, including RCRA, Sunoco has initiated
corrective remedial action at Sunoco'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.
Sunoco 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
14 to the Consolidated Financial Statements in the Company's 1998 Annual
Report to Shareholders.
On October 4, 1996, Sunoco 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 matters of Sunoco, including its predecessor companies and
subsidiaries, arising from the ownership and operation of its businesses. In
1998, the Company entered into several settlements which resolved a portion of
these claims. As a result, the Company received net cash proceeds totalling $4
million in 1998 and $40 million in early 1999 and will receive an additional
$14 million primarily during the remainder of 1999. A $58 million pretax gain
($38 million after tax) was recognized in 1998 in connection with these
settlements. While negotiations are currently ongoing with certain of the
other insurance companies to resolve the remaining litigation, the Company
cannot quantify the ultimate outcome of this matter.
18
<PAGE>
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 Sunoco'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 Sunoco'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 Sunoco's consolidated financial
position or, over an extended period of time, on Sunoco's cash flows or
liquidity.
YEAR 2000 READINESS DISCLOSURE
A comprehensive project 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. For a discussion of the Company's
state of readiness concerning the Year 2000 Issue, the costs associated with
this project, the potential consequences of failure to correct a material Year
2000 problem and the status of the Company's Year 2000 contingency plans, see
"Year 2000 Readiness Disclosure" in Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's 1998 Annual
Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
In November 1998, Sunoco, Inc. (R&M) paid $150,000 in civil fines and agreed
to undertake certain corrective actions pursuant to a Consent Order executed
with the New York Department of Environmental Conservation. This agreement
stems from alleged violations of certain provisions of the Environmental
Conservation Law and Navigation Law of New York State, in connection with
cracked asphalt dike liners at Sunoco's former Rensselaer, NY, terminal.
Sunoco believes the cracked liners were defective and is seeking recovery from
the manufacturer and the contractor who installed them.
Many other legal and administrative proceedings are pending against Sunoco.
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 Sunoco. Management of Sunoco believes that any liabilities
which may arise from such proceedings would not be material in relation to the
consolidated financial position of Sunoco at December 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF SUNOCO, INC.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH
SUNOCO, INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------- ------------------------------------------
<S> <C>
Robert H. Campbell, 61 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 December 1996. He has been
a Director since November 1988.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH
SUNOCO, INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------- ------------------------------------------
<S> <C>
Michael H.R. Dingus, 50 Mr. Dingus was elected to his present position in June 1996.
President, Sun Coke From September 1995 to June 1996, he was Vice President of
Company Sunoco responsible for special projects and from September
1993 to September 1995, he served as Sunoco's Vice
President, Materials Management & Administration. In
addition, from January 1994 to February 1995, he served as
Chief Executive Officer of Radnor Corporation, a Company
subsidiary, and from January 1991 to January 1994 served as
Radnor Corporation's President.
John G. Drosdick, 55 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.
Bruce G. Fischer, 43 Mr. Fischer was elected to his present position in January
Vice President and 1999. From June 1995 to January 1999, he was General
General Manager, Sunoco Manager, Sunoco MidAmerica Marketing & Refining and from
MidAmerica Marketing December 1991 to June 1995, served as Manager, Chemicals and
and Refining Lubes Operations & Central Transportation.
Jack L. Foltz, 63 Mr. Foltz was elected to his present position in October
Vice President and 1992.
General Counsel
Deborah M. Fretz, 50 Ms. Fretz was elected Senior Vice President, Logistics in
Senior Vice President, August 1994. She assumed the additional position of Senior
Lubricants and Logistics Vice President, Lubricants in January 1997. In addition, she
has been President of Sun Pipe Line Company, a subsidiary,
since October 1991.
Thomas W. Hofmann, 47 Mr. Hofmann was elected to his present position in July
Vice President and 1998. From July 1995 to July 1998, he served as Comptroller;
Chief Financial Officer from September 1994 to July 1995, as Director, Performance
Analysis; and from October 1991 to September 1994, as Direc-
tor, Tax Administration.
David E. Knoll, 55 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
Joseph P. Krott, 35 Mr. Krott was elected to his present position in July 1998.
Comptroller From September 1997 to July 1998, he served as Director,
Compensation, Benefits & HR Systems; from July 1996 to
September 1997 as Manager, Compensation & HR Systems; and
from February 1996 to July 1996, Manager, Compensation
Special Projects. He was Manager, Consolidation Accounting
and Special Projects from September 1995 to February 1996
and Manager, Accounting Special Projects from January 1993
to September 1995.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH
SUNOCO, INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------- ------------------------------------------
<S> <C>
Robert W. Owens, 45 Mr. Owens was elected to his present position in February
Vice President and General 1997. He was Vice President, Marketing and Services of
Manager, Sunoco Northeast Ultramar Diamond Shamrock Corporation from 1996 to 1997 and
Marketing of Ultramar Corporation from 1994 to 1996. From 1989 to
1994, he was Manager, East Coast Branded Marketing of
Amerada Hess Corporation.
Malcolm I. Ruddock, 56 Mr. Ruddock was elected to his present position in 1989.
Treasurer
David C. Shanks, 59 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 Affairs thur D. Little, Inc.
& Strategic Planning
Sheldon L. Thompson, 60 Mr. Thompson was elected to his present position in October
Senior Vice President 1992.
and Chief Administrative
Officer
Charles K. Valutas, 48 Mr. Valutas was elected to his present position in August
Vice President, 1994. From August 1991 to August 1994, he was General Manag-
Sunoco Chemicals er, Chemicals.
</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 47 of the
Company's 1998 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to
the Selected Financial Data on page 9 of the Company's 1998 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 10-25 in the Company's 1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information in the Company's 1998 Annual Report to
Shareholders is incorporated herein by reference: the Consolidated Financial
Statements on pages 26-29; the Notes to Consolidated Financial Statements on
pages 30-44; the Report of Independent Auditors on page 45; the Cokemaking and
Coal Data on page 46; and the Quarterly Financial and Stock Market Information
on page 47.
21
<PAGE>
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, 1998.
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, 1998, 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, 1998.
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, 1998.
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 1998 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 28 of this Form
10-K. Other schedules are omitted because the required information is
shown elsewhere in this report, is not necessary or is not applicable.
22
<PAGE>
3.Exhibits:
<TABLE>
<C> <S>
3.(i) --Articles of Incorporation of Sunoco, Inc., as amended and
restated effective as of November 6, 1998.
3.(ii) --Sunoco, Inc. Bylaws, as amended and restated effective as of
November 6, 1998.
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
Sunoco, 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 Sunoco, 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* --Sunoco, Inc. Long-Term Performance Enhancement Plan, as
amended and restated effective as of January 1, 1999.
10.2* --Sunoco, Inc. Executive Long-Term Stock Investment Plan, as
amended and restated effective as of January 1, 1999.
10.3* --Sunoco, Inc. Long-Term Incentive Plan, as amended and restated
effective as of January 1, 1999.
10.4* --Sunoco, Inc. Directors' Deferred Compensation Plan, as amended
and restated effective as of February 4, 1999.
10.5* --Amendment No. 1999-1 to the Sunoco, Inc. Deferred Compensation
Plan, effective January 1, 1999. The Sunoco, Inc. Deferred
Compensation Plan, as amended and restated effective as of
March 4, 1998, is incorporated by reference to Exhibit 10.5 of
the Company's 1997 Form 10-K filed March 6, 1998, File No. 1-
6841.
10.6* --Sunoco, Inc. Pension Restoration Plan, as amended and restated
effective February 1, 1996 (incorporated by reference to
Exhibit 10.5 of the Company's 1995 Form 10-K filed March 7,
1996, File No. 1-6841) and as amended effective September 1,
1997 (incorporated by reference to Exhibit 10.6 of the
Company's 1997 Form 10-K filed March 6, 1998, File No. 1-6841).
10.7* --Sunoco, Inc. Savings Restoration Plan, as amended and restated
effective December 31, 1995 (incorporated by reference to
Exhibit 10.7 of the Company's 1995 Form 10-K filed March 7,
1996, File No. 1-6841), as amended effective April 1, 1996
(incorporated by reference to Exhibit 10.7 of the Company's
1996 Form 10-K filed March 7, 1997, File No. 1-6841) and as
amended effective September 1, 1997 (incorporated by reference
to Exhibit 10.7 of the Company's 1997 Form 10-K filed March 6,
1998, File No. 1-6841).
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
10.8* --Sunoco, Inc. Executive Incentive Plan, as amended and restated
effective March 4, 1998 (incorporated by reference to Exhibit
10.8 of the Company's 1997 Form 10-K filed March 6, 1998, File
No. 1-6841) and as amended effective July 1, 1998 (incorporated
by reference to Exhibit 10.2 of the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1998 filed
August 7, 1998, File No. 1-6841).
10.9* --Sunoco, Inc. Executive Retirement Plan, restated as of December
31, 1998.
10.10* --Sunoco, Inc. Special Executive Severance Plan, effective as of
September 4, 1997 (incorporated by reference to Exhibit 10.10 of
the Company's 1997 Form 10-K filed March 6, 1998, File No. 1-
6841).
10.11* --Sunoco, Inc. Executive Involuntary Severance Plan, as amended
and restated effective as of September 4, 1997 (incorporated by
reference to Exhibit 10.11 of the Company's 1997 Form 10-K filed
March 6, 1998, File No. 1-6841).
10.12* --Sunoco, 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 Sunoco, 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* --Sunoco, Inc. Directors' Deferred Compensation and Benefits
Trust Agreement dated as of January 11, 1999 by and among
Sunoco, Inc., Bankers Trust Company and Towers, Perrin, Forster
& Crosby, Inc.
10.15* --Sunoco, Inc. Deferred Compensation and Benefits Trust Agreement
dated as of January 11, 1999 by and among Sunoco, Inc., Bankers
Trust Company and Towers, Perrin, Forster & Crosby, Inc.
10.16* --Agreement of employment entered November 15, 1996 by and
between Sunoco, 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).
12 --Statement re Sunoco, Inc. and Subsidiaries Computation of Ratio
of Earnings to Fixed Charges for the Year Ended December 31,
1998.
13 --Sunoco, Inc. 1998 Annual Report to Shareholders Financial
Section.
21 --Subsidiaries of Sunoco, Inc.
23 --Consent of Ernst & Young LLP.
24.1 --Power of Attorney executed by certain officers and directors of
Sunoco, Inc.
24.2 --Certified copy of the resolution authorizing certain officers
to sign on behalf of Sunoco, Inc.
27.1 --Article 5 of Regulation S-X, Financial Data Schedule.
27.2 --Restatement of Article 5 of Regulation S-X, Financial Data
Schedule for the Years Ended December 31, 1997 and 1996.
</TABLE>
- --------
*These exhibits constitute the Executive Compensation Plans and Arrangements of
the Company.
24
<PAGE>
(b) Reports on Form 8-K:
On November 5, 1998, 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 announcing that it has changed its corporate
name, and is conducting its business as "Sunoco, Inc." The press release also
announced that the Company is updating its logo and service station design and
has established an internet website.
Note: Copies of each Exhibit to this Form 10-K are available upon request.
25
<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.
Sunoco, Inc.
By s/Thomas W. Hofmann
Thomas W. Hofmann
Vice President and Chief Financial Officer
Date March 5, 1999
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 5, 1999:
SIGNATURES TITLES
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 Johnston Evans* Director
--------------------
Mary Johnston Evans
Thomas P. Gerrity* Director
------------------
Thomas P. Gerrity
Rosemarie B. Greco* Director
-------------------
Rosemarie B. Greco
Thomas W. Hofmann* Vice President and Chief
------------------ Financial Officer
Thomas W. Hofmann (Principal Financial
Officer)
James G. Kaiser* Director
----------------
James G. Kaiser
26
<PAGE>
SIGNATURES TITLES
Robert D. Kennedy* Director
------------------
Robert D. Kennedy
Joseph P. Krott* Comptroller
---------------- (Principal Accounting Officer)
Joseph P. Krott
R. Anderson Pew* Director
----------------
R. Anderson Pew
William F. Pounds* Director
------------------
William F. Pounds
G. Jackson Ratcliffe* Director
---------------------
G. Jackson Ratcliffe
Alexander B. Trowbridge* Director
------------------------
Alexander B. Trowbridge
*By s/Thomas W. Hofmann Individually and as Attorney-in-Fact
-------------------
Thomas W. Hofmann
27
<PAGE>
SUNOCO, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(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, 1998:
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $ 6 $ 7 $-- $ 4 $ 9
=== === === === ===
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
=== === === === ===
</TABLE>
28
<PAGE>
Exhibit 3(i)
Articles of Incorporation
of Sunoco, Inc.
(Restated as of November 6, 1998)
<PAGE>
Articles of Incorporation of Sunoco, Inc.
First: The name of the Corporation is "Sunoco, Inc."
Second: The location and post office address of its registered office in this
Commonwealth is 1801 Market Street, Philadelphia, Pennsylvania 19103.
Third: The Corporation shall have unlimited power to engage in and to do any
lawful act concerning any or all lawful business for which corporations may be
incorporated under the provisions of the Act of May 5, 1933 (P.L. 364, as
amended). The Corporation is incorporated under the provisions of said Act.
Fourth: The total number of shares of capital stock which this Corporation
shall have authority to issue is Two Hundred Fifteen Million (215,000,000) to be
divided into two classes consisting of Fifteen Million (15,000,000) shares
designated as "Cumulative Preference Stock" (hereinafter called "Preference
Stock"), without par value, and Two Hundred Million (200,000,000) shares
designated as "Common Stock," (hereinafter called "Common Stock"), $1 par value.
The following is a description of each class of capital stock and a statement
of the preferences, qualifications, privileges, limitations, restrictions, and
other special or relative rights granted to or imposed upon the shares of each
class:
Preference Stock
1. Authority of Board of Directors. Authority is hereby vested in the Board
of Directors, by resolution, to divide any or all of the authorized shares of
Preference Stock into series and, within the limitations provided by law and
this Article Fourth, to fix and determine the designations, preferences,
qualifications, privileges, limitations, options, conversion rights, and other
special rights of each such series, including but not limited to the right to
fix and determine:
(a) the designation of and the number of shares issuable in each such series;
(b) the annual dividend rate, expressed in a dollar amount per share, for each
such series;
(c) the right, if any, of the Corporation to redeem shares of any such series,
and the terms and conditions on which shares of each such series may be
redeemed;
(d) the amounts payable upon shares of each such series in the event of the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(e) the sinking fund provisions, if any, for the redemption or purchase of
shares of each such series;
(f) the voting rights, if any, for the shares of each such series; provided,
however, that the number of votes per share of Preference Stock shall in no
event exceed one (1);
(g) the terms and conditions, if any, on which shares of each such series may
be converted into shares of stock of this Corporation; provided, however,
that shares of Preference Stock shall not be convertible into shares of any
class of stock of the Corporation other than Common Stock and shall not be
convertible into more than one share of Common Stock, or such greater or
lesser number as will reflect the effect of stock dividends, stock splits
or stock combinations affecting Common Stock and occurring after May 9,
1980, subject to such terms and conditions, including provision for
fractional shares, as the Board of Directors shall authorize;
(h) the stated value per share for each such series; and
<PAGE>
(i) any and all such other provisions as may be fixed or determined by the
Board of Directors of the Corporation pursuant to Pennsylvania law.
2. Parity of Series of Preference Stock and Shares Within Series; Priority of
Preference Stock. All shares of the same series of Preference Stock shall be
identical with each other share of such series in all respects, except that
shares of any one series issued at different times may differ as to the dates
from which dividends thereon shall be cumulative. Except as determined by the
Board of Directors as permitted by the provisions of paragraph 1 hereof, all
series of Preference Stock shall rank equally with and be identical in all
respects to each other series.
Preference Stock shall rank, as to dividends and upon liquidation, dissolution
or winding up, prior to Common Stock and to any other capital stock of the
Corporation hereafter authorized, other than capital stock which shall by its
terms rank prior to or on a parity with Preference Stock and which shall be
authorized pursuant to subparagraph 9(a) hereof.
3. Dividends. Before any dividends (other than dividends payable in stock
ranking junior to Preference Stock) on any class or classes of stock of the
Corporation ranking junior to Preference Stock as to dividends or upon
liquidation shall be declared and set apart for payment or paid, the holders of
shares of Preference Stock of each series shall be entitled to receive cash
dividends, when and as declared by the Board of Directors at the annual rate,
and no more, fixed in the resolution adopted by the Board of Directors providing
for the issue of such series. Such dividends shall be payable in cash
quarterly, each such quarterly payment to be in respect of the quarterly period
ending with the day next preceding the date of such payment (except in the case
of the first dividend which shall be in respect of the period beginning with the
initial date of issue of such shares and ending with the day next preceding the
date of such payment), to holders of Preference Stock of record on the
respective dates, not exceeding forty (40) days preceding such quarterly
dividend payment dates, fixed for that purpose by the Board of Directors. With
respect to each series of Preference Stock, such dividends shall be cumulative
from the date or dates of issue of such series, which date or dates may be set
by the Board of Directors pursuant to the provisions of paragraph 1 hereof. No
dividends shall be declared or paid or set apart for payment on any series of
Preference Stock in respect of any quarterly dividend period unless there shall
likewise be or have been declared and paid or set apart for payment on all
shares of Preference Stock of each other series at the time outstanding like
dividends in proportion to the respective annual dividend rates fixed therefor
as hereinbefore provided for all quarterly dividend periods coinciding with or
ending before such quarterly dividend period. Accruals of dividends shall not
bear interest.
4. Redemption. The Corporation, at the option of the Board of Directors,
may, at any time permitted by the resolution adopted by the Board of Directors
providing for the issue of any series of Preference Stock and at the redemption
price or prices stated in said resolution, redeem the whole or any part of the
shares of such series at the time outstanding. If at any time less than all of
the shares of Preference Stock then outstanding are to be called for redemption,
the shares to be redeemed may be selected by lot or by such other equitable
method as the Board of Directors in its discretion may determine. Notice of
every redemption, stating the redemption date, the redemption price, and the
placement of payment thereof, shall be given by mailing a copy of such notice at
least thirty (30) days and not more than sixty (60) days prior to the date fixed
for redemption to the holders of record of the shares of Preference Stock to be
redeemed at their addresses as the same shall appear on the books of the
Corporation. The Corporation, upon mailing notice of redemption as aforesaid or
upon irrevocably authorizing the bank or trust company hereinafter mentioned to
mail such notice, may deposit or cause to be deposited in trust with a bank or
trust company in the City of Philadelphia, Commonwealth of Pennsylvania, or in
the Borough of Manhattan, City and State of New York, an amount equal to the
redemption price of the shares to be redeemed plus any accrued and unpaid
dividends thereon, which amount shall be payable to the holders of the shares to
be redeemed upon surrender of
<PAGE>
certificates therefor on or after the date fixed for redemption or prior thereto
if so directed by the Board of Directors. Upon such deposit, or if no such
deposit is made, then from and after the date fixed for redemption unless the
Board of Directors shall default in making payment of the redemption price plus
accrued and unpaid dividends upon surrender of certificates as aforesaid, the
shares called for redemption shall cease to be outstanding and the holders
thereof shall cease to be stockholders with respect to such shares and shall
have no interest in or claim against the Corporation with respect to such shares
other than the right to receive the redemption price plus accrued and unpaid
dividends from such bank or trust company or from the Corporation, as the case
may be, without interest thereon, upon surrender of certificates as aforesaid;
provided, that conversion rights, if any, of shares called for redemption shall
terminate at the close of business on the business day prior to the date fixed
for redemption. Any funds so deposited which shall not be required for such
redemption because of the exercise of conversion rights subsequent to the date
of such deposit shall be returned to the Corporation. In case any holder of
shares of Preference Stock which have been called for redemption shall not,
within six (6) years after the date of such deposit, have claimed the amount
deposited with respect to the redemption thereof, such bank or trust company,
upon demand, shall pay over to the Corporation such unclaimed amount and shall
thereupon be relieved of all responsibility in respect thereof to such holder,
and thereafter such holder shall look only to the Corporation for payment
thereof. Any interest which may accrue on funds so deposited shall be paid to
the Corporation from time to time.
5. Status of Shares of Preference Stock Redeemed or Acquired. Unless
otherwise specifically provided in the resolutions of the Board of Directors
authorizing the issue of any series of Preference Stock, shares of any series of
Preference Stock which have been redeemed, purchased or acquired by the
Corporation by means other than conversion (whether through the operation of a
sinking fund or otherwise) shall have the status of authorized and unissued
shares of Preference Stock and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part of a new
series of Preference Stock to be created by resolution of the Board of Directors
or as part of any other series of Preference Stock. Shares of any series of
Preference Stock converted shall not be reissued and the Board of Directors
shall take appropriate actions to reflect the conversion of Preference Stock
from time to time by effecting reductions in the number of shares of Preference
Stock which the Corporation is authorized to issue.
6. Redemption or Acquisition of Preference Stock During Default in Payment of
Dividends. If at any time the Corporation shall have failed to pay dividends in
full on Preference Stock, thereafter and until dividends in full including all
accrued and unpaid dividends on shares of all series of Preference Stock at the
time outstanding, shall have been declared and set apart for payment or paid,
(i) the Corporation, without the affirmative vote or consent of the holders of
at least a majority of the shares of Preference Stock at the time outstanding,
voting or consenting separately as a class without regard to series, given in
person or by proxy, either in writing or by resolution adopted at a meeting,
shall not redeem less than all the shares of Preference Stock at such time
outstanding, regardless of series, other than in accordance with paragraph 8
hereof and (ii) neither the Corporation nor any subsidiary shall purchase any
shares of Preference Stock except in accordance with a purchase offer made in
writing or by publication, as determined by the Board of Directors, in their
sole discretion after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series, shall determine
(which determination shall be final and conclusive) will result in fair and
equitable treatment among the respective series; provided, however, that (iii)
unless prohibited by the provisions applicable to any series, the Corporation,
to meet the requirements of any sinking fund provision with respect to any
series, may use shares of such series acquired by it prior to such failure and
then held by it as treasury stock, and (iv) nothing shall prevent the
Corporation from completing the purchase or redemption of shares of Preference
Stock for which a purchase contract was entered into for any sinking fund
purposes or the notice of redemption of which was mailed to the holders thereof,
prior to such default.
7. Dividends and Distributions on and Redemption and Acquisition of Junior
Classes of Stock. So long as any shares of Preference Stock are outstanding,
the Corporation shall not declare or set apart for
<PAGE>
payment or pay any dividends (other than stock dividends payable on shares of
stock ranking junior to Preference Stock) or make any distribution on any other
class or classes of stock of the Corporation ranking junior to Preference Stock
as to dividends or upon liquidation and shall not redeem, purchase or otherwise
acquire, or permit any subsidiary to purchase or otherwise acquire, any shares
of any such junior class if at the time of making such declaration, payment,
distribution, redemption, purchase or acquisition the Corporation shall be in
default with respect to any dividend payable on, or any obligation to purchase,
shares of any series of Preference Stock; provided, however, that,
notwithstanding the foregoing, the Corporation may at any time redeem, purchase
or otherwise acquire shares of stock of any such junior class in exchange for,
or out of the net cash proceeds from the sale of, other shares of stock of any
junior class.
8. Retirement of Shares. If in any case the amounts payable with respect to
any obligations to retire shares of Preference Stock are not paid in full in the
case of all series with respect to which such obligations exist, the number of
shares of the various series to be retired shall be in proportion to the
respective amounts which would be payable on account of such obligations if all
amounts payable were discharged in full.
9. Action by Corporation Requiring Approval of Preference Stock. The
Corporation shall not, without the affirmative vote or consent of the holders of
at least 66 2/3% of the number of shares of Preference Stock at the time
outstanding, voting or consenting (as the case may be) separately as a class
without regard to series, given in person or by proxy, either in writing or by
resolution adopted at a meeting:
(a) create any class of stock ranking prior to or on a parity with Preference
Stock as to dividends or upon liquidation or increase the authorized number
of shares of any such previously authorized class of stock;
(b) alter or change any of the provisions hereof so as adversely to affect the
preferences, special rights or powers given to the Preference Stock;
(c) increase the number of shares of Preference Stock which the Corporation is
authorized to issue; or
(d) alter or change any of the provisions hereof or of the resolution adopted
by the Board of Directors providing for the issue of such series so as adversely
to affect the preferences, special rights or powers given to such series.
10. Special Voting Rights. If the Corporation shall have failed to pay, or
declare and set apart for payment, dividends on Preference Stock in an aggregate
amount equivalent to six (6) full quarterly dividends on all shares of
Preference Stock at the time outstanding, the number of Directors of the
Corporation shall be increased by two (2) at the first annual meeting of the
shareholders of the Corporation held thereafter, and at such meeting and at each
subsequent annual meeting until dividends payable for all past quarterly
dividend periods on all outstanding shares of Preference Stock shall have been
paid, or declared and set apart for payment, in full, the holders of the shares
of Preference Stock shall have, in addition to any other voting rights which
they otherwise may have, the exclusive and special right, voting separately as a
class without regard to series, each share of Preference Stock entitling the
holder thereof to one (1) vote per share, to elect two (2) additional members of
the Board of Directors to hold office for a term of one (1) year; provided, that
the right to vote as a class upon the election of such two (2) additional
Directors shall not limit the right of holders of any series of Preference Stock
to vote upon the election of all other Directors and upon other matters if and
to the extent that such holders are entitled to vote pursuant to the resolution
adopted by the Board of Directors pursuant to paragraph 1 hereof, providing for
the issue of such series. Upon such payment, or declaration and setting apart
for payment, in full, the terms of the two (2) additional Directors so elected
shall forthwith terminate, and the number of Directors of the Corporation shall
be reduced by two (2) and such voting right of
<PAGE>
the holders of shares of Preference Stock shall cease, subject to increase in
the number of Directors as aforesaid and to revesting of such voting right in
the event of each and every additional failure in the payment of dividends in an
aggregate amount equivalent to six (6) full quarterly dividends as aforesaid.
11. Liquidation of the Corporation. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, Preference Stock
shall be preferred as to assets over Common Stock and any other class or classes
of stock ranking junior to Preference Stock so that the holders of shares of
Preference Stock of each series shall be entitled to be paid or to have set
apart for payment, before any distribution is made to the holders of Common
Stock and any other class or classes of stock ranking junior to Preference
Stock, the amount fixed in accordance with paragraph 1 hereof plus an amount
equal to all dividends accrued and unpaid up to and including the date fixed for
such payment and the holders of Preference Stock shall not be entitled to any
other payment.
If upon any such liquidation, dissolution or winding up of the Corporation,
its net assets shall be insufficient to permit the payment in full of the
respective amounts to which the holders of all outstanding shares of Preference
Stock are entitled as above provided, the entire remaining net assets of the
Corporation shall be distributed among the holders of Preference Stock in
amounts proportionate to the full preferential amounts to which they are
respectively entitled.
For the purposes of this paragraph 11, the voluntary sale, lease, exchange or
transfer for cash, shares of stock (securities or other consideration) of all or
substantially all the Corporation's property or assets to, or its consolidation
or merger with, one or more corporations shall not be deemed to be a voluntary
or involuntary liquidation, dissolution or winding up of the Corporation.
12. Voting Rights. Except as otherwise provided by the provisions of this
Article Fourth or by statute or when fixed in accordance with the provisions of
paragraph 1 hereof, the holders of shares of Preference Stock shall not be
entitled to any voting rights.
13. Definitions. For the purposes of this Article Fourth and of any
resolution of the Board of Directors providing for the issue of any series of
Preference Stock or of any statement filed with the Secretary of State of the
Commonwealth of Pennsylvania (unless otherwise provided in any such resolution
or statement):
(a) The term "outstanding," when used in reference to shares of stock, shall
mean issued shares excluding:
(i) shares held by the Corporation or a subsidiary; and
(ii) shares called for redemption if funds for the redemption thereof have
been deposited in trust.
(b) Any class or classes of stock of the Corporation shall be deemed to rank:
(i) prior to Preference Stock, either as to dividends or upon liquidation,
if the holders of such class or classes shall be entitled to the receipt of
dividends or amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in preference or priority to the holders of Preference
Stock;
(ii) on a parity with Preference Stock, either as to dividends or upon
liquidation, whether or not the dividend rates or dividend payment dates or the
redemption or liquidation prices per share thereof be different from those of
Preference Stock, if the holders of such class or classes shall be entitled to
the receipt
<PAGE>
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in proportion to their respective dividend rates
or liquidation prices, without preference or priority one (1) over the other as
between the holders of such class or classes and the holders of Preference
Stock; and
(iii) junior to Preference Stock, either as to dividends or upon
liquidation, if the rights of the holders of such class or classes shall be
subject or subordinate to the rights of the holders of Preference Stock in
respect of the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
(c) The term "subsidiary" as used herein shall mean any corporation 51% or
more of the outstanding stock having voting rights of which is at the time owned
or controlled directly or indirectly by the Corporation.
SERIES A CUMULATIVE PREFERENCE STOCK
1. Designation. The designation of the series of Preference Stock authorized
by this resolution shall be Series A Cumulative Preference Stock (the "Series A
Preference Stock") consisting of 12,500,000 shares.
2. Rank. The Series A Preference Stock shall rank, as to dividends and upon
liquidation, dissolution or winding up, prior to the Common Stock and to any
other capital stock of the Corporation hereafter authorized, other than capital
stock which shall by its terms rank prior to or on a parity with the Series A
Preference Stock and which shall be authorized pursuant to paragraph 6(d)
hereof. Any class or classes of stock of the Corporation shall be deemed to
rank:
(i) prior to Series A Preference Stock, either as to dividends or upon
liquidation, if the holders of such class or classes shall be entitled to
the receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority
to the holders of Series A Preference Stock;
(ii) on a parity with Series A Preference Stock, either as to dividends or
upon liquidation, whether or not the dividend rates or dividend payment
dates or the redemption or liquidation prices per share thereof be
different from those of Series A Preference Stock, if the holders of such
class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in proportion to their respective dividend rates or
liquidation prices, without preference or priority one (1) over the other
as between the holder of such class or classes and the holders of Series
A Preference Stock ("Parity Stock"); and
(iii) junior to Series A Preference Stock, either as to dividends or upon
liquidation, if the rights of the holders of such class or classes shall
be subject or subordinate to the rights of the holders of Series A
Preference Stock in respect of the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case
may be ("Junior Stock").
3. Dividends.
(a) The holders of outstanding shares of the Series A Preference Stock shall be
entitled to receive, when and as declared by the Board of Directors, cash
dividends accruing at the per share rate of $3.60 per annum (the "Dividend
Rate") and no more, payable in cash quarterly, each such quarterly payment
to be in respect of the quarterly period ending with the day next preceding
the date of such payment (except in
<PAGE>
the case of the first dividend which shall be in respect of the period beginning
with June 12, 1995 and ending with the day next preceding the date of such
payment), to holders of Series A Preference Stock of record on the respective
dates, not exceeding forty (40) days preceding such quarterly dividend payment
dates, fixed for that purpose by the Board of Directors. Such dividends shall be
cumulative from June 12, 1995 and shall accrue daily. Accruals of dividends
shall not bear interest. Dividends will be payable on or before each March 13,
June 13, September 13 and December 13 (or, if any such day is not a business
day, on the next succeeding business day).
(b) Before any dividends (other than dividends payable in Junior Stock) on any
class or classes of stock of the Corporation ranking junior to Series A
Preference Stock as to dividends or upon liquidation shall be declared and set
apart for payments or paid, the holders of shares of Series A Preference Stock
shall be entitled to receive cash dividends, when and as declared by the Board
of Directors at the Dividend Rate, and no more. No dividends shall be declared
or paid or set apart for payment on the Series A Preference Stock in respect of
any quarterly dividend period unless there shall likewise be or have been
declared and paid or set apart for payment on all shares of Preference Stock of
each other series at the time outstanding like dividends in proportion to the
respective annual dividend rates fixed therefor for all quarterly dividend
periods coinciding with or ending before such quarterly dividend period.
(c) So long as any shares of Series A Preference Stock are outstanding, the
Corporation shall not declare or set apart for payment or pay any dividends
(other than stock dividends payable on shares of Junior Stock) or make any
distribution on any other class or classes of stock of the Corporation ranking
junior to Series A Preference Stock as to dividends or upon liquidation and
shall not redeem, purchase or otherwise acquire, or permit any subsidiary to
purchase or otherwise acquire, any shares of any such Junior Stock if at the
time of making such declaration, payment, distribution, redemption, purchase or
acquisition the Corporation shall be in default with respect to any dividend
payable on, or any obligation to purchase, shares of Series A Preference Stock;
provided, however, that, notwithstanding the foregoing, the Corporation may at
any time redeem, purchase or otherwise acquire shares of stock of any such
Junior Stock in exchange for, or out of the net cash proceeds from the sale of,
other shares of stock of any Junior Stock.
4. Redemptions.
(a) Right to Call for Redemption. At any time and from time to time, the
Corporation shall have the right to call, in whole or in part, the
outstanding shares of the Series A Preference Stock for redemption, subject
to the notice provisions set forth in paragraph (4)(h). On the redemption
date (the "Redemption Date") with respect to any such redemption, the
Corporation shall deliver to the holders thereof, in exchange for each such
share called for redemption, the following consideration:
(1) in the event such Redemption Date is prior to June 12, 1998 (the
"Specified Date"),
(i) a number of shares of Common Stock equal to the Call Price (as
defined in paragraph (4)(g)(ii)) in effect on the Redemption Date
divided by the Current Market Price of the Common Stock
determined as of the second Trading Date immediately preceding
the Notice Date, plus
(ii) an amount in cash equal to all accrued and unpaid dividends on
such share of Series A Preference Stock to and including the
Redemption Date, whether or not declared, out of funds legally
available therefor (and dividends shall cease to accrue on such
share as of such Redemption Date); and
<PAGE>
(2) in the event such Redemption Date is on or after the Specified Date,
(i) shares of Common Stock at the Common Equivalent Rate (determined
as provided in this paragraph (4)) in effect on the Redemption
Date; plus
(ii) an amount in cash equal to all accrued and unpaid dividends on
such share of Series A Preference Stock to and including the
Redemption Date, whether or not declared, out of funds legally
available for the payment of dividends (and dividends shall cease
to accrue on such share as of such Redemption Date).
If at any time less than all of the shares of Series A Preference Stock then
outstanding are to be called for redemption, the shares to be redeemed may be
selected by lot or such other equitable method as the Board of Directors of the
Corporation in its discretion may determine.
(b) Redemption or Acquisition of Series A Preference Stock During Default in
Payment of Dividends. If at any time the Corporation shall have failed to pay
dividends in full on Preference Stock, thereafter and until dividends in full
including all accrued and unpaid dividends on shares of all series of Preference
Stock at the time outstanding, shall have been declared and set apart for
payment or paid, (i) the Corporation, without the affirmative vote or consent of
the holders of at least a majority of the shares of Preference Stock at the time
outstanding, voting or consenting separately as a class without regard to
series, given in person or by proxy, either in writing or by resolution adopted
at a meeting, shall not redeem less than all the shares of Preference Stock at
such time outstanding, regardless of series, other than in accordance with
paragraph 4(f) hereof and (ii) neither the Corporation nor any subsidiary shall
purchase any shares of Preference Stock except in accordance with a purchase
offer made in writing or by publication, as determined by the Board of
Directors, in their sole discretion after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series, shall determine (which determination shall be final and conclusive) will
result in fair and equitable treatment among the respective series; provided,
however, that (iii) unless prohibited by the provisions applicable to any
series, the Corporation, to meet the requirements of any sinking fund provision
with respect to any series, may use shares of such series acquired by it prior
to such failure and then held by it as treasury stock, and (iv) nothing shall
prevent the Corporation from completing the purchase or redemption of shares of
Preference Stock for which a purchase contract was entered into for any sinking
fund purposes or the notice of redemption of which was mailed to the holders
thereof, prior to such default.
(c) Common Equivalent Rate; Adjustments. The Common Equivalent Rate to be used
to determine the number of shares of Common Stock to be delivered on the
redemption of the Series A Preference Stock in exchange for shares of Common
Stock pursuant to paragraph (4)(a)(2) (a "Specified Redemption") shall be
initially two shares of Common Stock for each share of Series A Preference
Stock; provided, however, that such Common Equivalent Rate shall be subject to
adjustment from time to time as provided below in this paragraph (4)(c). All
adjustments to the Common Equivalent Rate shall be calculated to the nearest
1/100th of a share of Common Stock. Such rate as adjusted and in effect at any
time is herein called the "Common Equivalent Rate."
(i) If the Corporation shall do any of the following (an "Adjustment Event"):
(A) pay a dividend or make a distribution with respect to Common Stock in
shares of Common Stock,
(B) subdivide, reclassify or split its outstanding shares of Common Stock
into a greater number of shares,
<PAGE>
(C) combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, or
(D) issue by reclassification of its shares of Common Stock any shares of
Common Stock other than in a Fundamental Transaction (as defined in
paragraph 4(g)(iv)),
then the Common Equivalent Rate in effect immediately prior to such Adjustment
Event shall be adjusted so that the holder of a share of the Series A Preference
Stock shall be entitled to receive on the redemption of such share of the Series
A Preference Stock, the number of shares of Common Stock that such holder would
have owned or been entitled to receive after the happening of the Adjustment
Event had such share of the Series A Preference Stock been redeemed pursuant to
paragraph 4(a) immediately prior to the record date for such Adjustment Event,
if any, or such Adjustment Event. Where the Adjustment Event is a dividend or
distribution, the adjustment to the Common Equivalent Rate shall become
effective as of the close of business on the record date for determination of
stockholders entitled to receive such dividend or distribution; where the
Adjustment Event is a subdivision, split, combination or reclassification, the
adjustment to the Common Equivalent Rate shall become effective immediately
after the effective date of such subdivision, split, combination or
reclassification; and any shares of Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the close of
business on the record date for such dividend for purposes of calculating the
number of outstanding shares of Common Stock under clauses (ii) and (iii) below.
Such adjustment shall be made successively.
(ii) If the Corporation shall, after the date hereof, issue rights or warrants
to all holders of its Common Stock entitling them (for a period not exceeding
45 days from the date of such issuance) to subscribe for or purchase shares of
Common Stock at a price per share less than the Current Market Price of the
Common Stock (determined pursuant to paragraph (4)(c)(v)), on the record date
for the determination of stockholders entitled to receive such rights or
warrants, then in each case the Common Equivalent Rate shall be adjusted by
multiplying the Common Equivalent Rate in effect immediately prior to the date
of issuance of such rights or warrants by a fraction (A) the numerator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to such issuance, plus
the number of additional shares of Common Stock offered for subscription or
purchase pursuant to such rights or warrants, and (B) the denominator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants, immediately prior to such issuance, plus
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at such Current Market Price
(determined by multiplying such total number of shares by the exercise price of
such rights or warrants and dividing the product so obtained by such Current
Market Price). Such adjustment shall become effective as of the close of
business on the record date for the determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common Stock are
not delivered after the expiration of such rights or warrants, the Common
Equivalent Rate shall be readjusted to the Common Equivalent Rate which would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock actually delivered. Such adjustment shall be made successively.
(iii) If the Corporation shall pay a dividend or make a distribution to all
holders of its Common Stock of evidences of its indebtedness or other assets
(including shares of capital stock of the Corporation (other than Common Stock)
but excluding any distributions and dividends referred to in clause (i) above or
any cash dividends), or shall issue to all holders of its Common Stock rights or
<PAGE>
warrants to subscribe for or purchase any of its securities (other than those
referred to in clause (ii) above), then in each such case, the Common Equivalent
Rate shall be adjusted by multiplying the Common Equivalent Rate in effect on
the record date mentioned below by a fraction (A) the numerator of which shall
be the Current Market Price of the Common Stock (determined pursuant to
paragraph (4)(c)(v)) on the record date for the determination of stockholders
entitled to receive such dividend or distribution, and (B) the denominator of
which shall be such Current Market Price per share of Common Stock less the fair
market value (as determined by the Board of Directors of the Corporation, whose
determination shall be conclusive) as of such record date of the portion of the
assets or evidences of indebtedness so distributed, or of such subscription
rights or warrants, applicable to one share of Common Stock. Such adjustment
shall become effective on the opening of business on the business day next
following the record date for the determination of stockholders entitled to
receive such dividend or distribution.
(iv) Anything in this paragraph (4) notwithstanding, the Corporation shall be
entitled to make such upward adjustment in the Common Equivalent Rate, in
addition to those required by this paragraph (4), as the Corporation in its sole
discretion may determine to be advisable, in order that any stock dividends,
subdivision of shares, distribution of rights to purchase stock or securities,
or a distribution of securities convertible into or exchangeable for stock (or
any transaction that could be treated as any of the foregoing transactions
pursuant to Section 305 of the Internal Revenue Code of 1986, as amended)
hereafter made by the Corporation to its stockholders shall not be taxable. If
the Corporation determines that an adjustment to the Common Equivalent Rate
should be made pursuant to this paragraph (4)(c)(iv), such adjustment shall be
made effective as of such date as the Board of Directors of the Corporation
determines. The determination of the Board of Directors of the Corporation as to
whether an adjustment to the Common Equivalent Rate should be made pursuant to
the foregoing provisions of this paragraph (4)(c)(iv), and, if so, as to what
adjustment should be made and when, shall be conclusive, final and binding on
the Corporation and all stockholders of the Corporation.
(v) As used in this paragraph (4), the "Current Market Price" of a share of
Common Stock on any date shall be, except as otherwise specifically provided,
the average of the daily Closing Prices (as defined in paragraph (4)(g)(iii))
for the five consecutive Trading Dates ending on and including the date of
determination of the Current Market Price; provided that if the Closing Price of
the Common Stock on the Trading Date next following such five-day period (the
"next-day closing price") is less than 95% of such average Closing Price, then
the Current Market Price per share of Common Stock on such date of determination
will be the next-day closing price; provided, further, that, with respect to any
redemption or antidilution adjustment, if any event that results in an
adjustment of the Common Equivalent Rate occurs during the period beginning on
the first day of the applicable determination period and ending on the
applicable redemption date, the Current Market Price as determined pursuant to
the foregoing will be appropriately adjusted to reflect the occurrence of such
event.
(vi) In any case in which paragraph (4)(c) shall require that an adjustment as
a result of any event become effective as of the close of business on the record
date and the date fixed for Specified Redemption pursuant to paragraph (4)(a)(2)
occurs after such record date, but before the occurrence of such event, the
Corporation may in its sole discretion elect to defer the following until after
the occurrence of such event: (A) issuing to the holder of any redeemed shares
of the Series A Preference Stock the additional shares of Common Stock issuable
upon such redemption as a result of such adjustment and (B) paying to such
holder any amount in cash in lieu of a fractional share of Common Stock pursuant
to paragraph (4)(e).
<PAGE>
(vii) Before taking any action which would cause an adjustment to the Common
Equivalent Rate that would cause the Corporation to issue shares of Common Stock
for consideration below the then par value (if any) of the Common Stock upon
redemption of the Series A Preference Stock, the Corporation will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and nonassessable
shares of such Common Stock at such adjusted Common Equivalent Rate.
(d) Notice of Adjustments. Whenever the Common Equivalent Rate is adjusted
as herein provided, the Corporation shall:
(i) forthwith compute the adjusted Common Equivalent Rate in accordance
with this paragraph (4) and prepare a certificate signed by the Chief
Executive Officer, the Chief Financial Officer, any Vice President, or
the Treasurer of the Corporation setting forth the adjusted Common
Equivalent Rate, the method of calculation thereof in reasonable detail
and the facts requiring such adjustment and upon which such adjustment
is based, which certificate shall be conclusive, final and binding
evidence of the correctness of the adjustment, and file such
certificate forthwith with the transfer agent or agents for the Series
A Preference Stock and the Common Stock; and
(ii) mail a notice stating that the Common Equivalent Rate has been
adjusted, the facts requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted Common Equivalent
Rate to the holders of record of the outstanding shares of the Series A
Preference Stock at or prior to the time the Corporation mails an
interim statement to its stockholders covering the fiscal quarter
during which the facts requiring such adjustment occurred, but in any
event within 45 days of the end of such fiscal quarter.
(e) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the redemption of any
shares of Series A Preference Stock. Instead of any fractional interest in a
share of Common Stock which would otherwise be deliverable upon the redemption
of a share of Series A Preference Stock, the Corporation shall pay to the holder
of such share an amount in cash (computed to the nearest cent) equal to the same
fraction of the Current Market Price of the Common Stock determined as of the
second Trading Date immediately preceding the relevant Notice Date. If more than
one share shall be surrendered for redemption at one time by the same holder,
the number of full shares of Common Stock issuable upon redemption thereof shall
be computed on the basis of the aggregate number of shares of Series A
Preference Stock so surrendered.
(f) Retirement. Shares of Series A Preference Stock which have been redeemed,
purchased or acquired by the Corporation (whether through the operation of a
sinking fund or otherwise) shall have the status of authorized and unissued
shares of Preference Stock and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part of a new
series of Preference Stock to be created by resolution of the Board of Directors
or as part of any other series of Preference Stock. If in any case the amounts
payable with respect to any obligations to retire shares of Series A Preference
Stock and any other series of Preference Stock are not paid in full in the case
of all series with respect to which such obligations exist, the number of shares
of the various series to be retired shall be in proportion to the respective
amounts which would be payable on account of such obligations if all amounts
payable were discharged in full.
(g) Definitions. As used in this paragraph 4 or elsewhere herein:
(i) the term "Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New
York or the Commonwealth of Pennsylvania are
<PAGE>
authorized or obligated by law or executive order to close or are
closed because of a banking moratorium or otherwise;
(ii) the term "Call Price" shall mean the per share price (payable in
shares of Common Stock) at which the Corporation may redeem shares of
Series A Preference Stock pursuant to paragraph 4(a)(1)), which shall
be initially equal to $84.79952, declining by $.004444 on each day
following June 12, 1995 (computed on the basis of a 360-day year of
twelve 30-day months) to $80.26664 on April 12, 1998 and equal to $80
thereafter through June 11, 1998, if not sooner redeemed;
(iii) the term "Closing Price" on any day shall mean the closing sale price
regular way (with any relevant due bills attached) on such day, or in
case no such sale takes place on such day, the average of the reported
closing bid and asked prices regular way (with any relevant due bills
attached), in each case on the New York Stock Exchange Consolidated
Tape (or any successor composite tape reporting transactions on
national securities exchanges), or, if the Common Stock is not listed
or admitted to trading on such Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading (which shall be the national securities exchange on which the
greatest number of shares of Common Stock has been traded during the
five consecutive Trading Dates ending on and including the date of
determination of the Current Market Price), or, if not listed or
admitted to trading on any national securities exchange, the average
of the closing bid and asked prices regular way (with any relevant due
bills attached) of the Common Stock on the over-the-counter market on
the day in question as reported by the National Association of
Securities Dealers Automated Quotation System, or a similarly
generally accepted reporting service, or if not so available, as
determined in good faith by the Board of Directors on the basis of
such relevant factors as the Board of Directors in good faith
considers appropriate;
(iv) the term "Fundamental Transaction" shall mean a merger or
consolidation of the Corporation, a share exchange, division or
conversion of the Corporation's capital stock or an amendment of the
Corporation's Articles of Incorporation that results in the conversion
or exchange of Common Stock into, or the right of the holders thereof
to receive, in lieu of or in addition to their shares of Common Stock,
other securities or other property (whether of the Corporation or any
other entity);
(v) the term "Notice Date" with respect to any notice given by the
Corporation in connection with a redemption of any of the Series A
Preference Stock shall be the commencement of the mailing of such
notice to the holders of the Series A Preference Stock in accordance
with paragraph (4)(h);
(vi) the term "Outstanding," when used in reference to shares of stock,
shall mean issued shares excluding:
(A) shares held by the Corporation or a subsidiary; and
(B) shares called for redemption if funds for the redemption
thereof have been deposited in trust;
(vii) the term "Subsidiary" as used herein shall mean any corporation 51% or
more of the outstanding stock having voting rights of which is at the
time owned or controlled directly or indirectly by the Corporation;
and
<PAGE>
(viii) the term "Trading Date" shall mean a date on which the New York Stock
Exchange (or any successor to such Exchange) is open for the
transaction of business.
(h) Method of Redemption. Notice of every redemption, stating the redemption
date, the redemption price, and the placement of payment thereof, shall be given
by mailing a copy of such notice at least thirty (30) days and not more than
sixty (60) days prior to the date fixed for redemption to the holders of record
of the shares of Series A Preference Stock to be redeemed at their addresses as
the same shall appear on the books of the Corporation. The Corporation, upon
mailing notice of redemption as aforesaid or upon irrevocably authorizing the
bank or trust company hereinafter mentioned to mail such notice, may deposit or
cause to be deposited in trust with a bank or trust company in the City of
Philadelphia, Commonwealth of Pennsylvania, or in the Borough of Manhattan, City
and State of New York, an amount equal to the redemption price of the shares to
be redeemed plus any accrued and unpaid dividends thereon, which amount shall be
payable to the holders of the shares to be redeemed upon surrender of
certificates therefor on or after the date fixed for redemption or prior thereto
if so directed by the Board of Directors. Upon such deposit, or if no such
deposit is made, then from and after the date fixed for redemption unless the
Board of Directors shall default in making payment of the redemption price plus
accrued and unpaid dividends upon surrender of certificates as aforesaid, the
shares called for redemption shall cease to be outstanding and the holders
thereof shall cease to be stockholders with respect to such shares and shall
have no interest in or claim against the Corporation with respect to such shares
other than the right to receive the redemption price plus accrued and unpaid
dividends from such bank or trust company or from the Corporation, as the case
may be, without interest thereon, upon surrender of certificates as aforesaid.
In case any holder of shares of Series A Preference Stock which have been called
for redemption shall not, within six (6) years after the date of such deposit,
have claimed the amount deposited with respect to the redemption thereof, such
bank or trust company, upon demand, shall pay over to the Corporation such
unclaimed amount and shall thereupon be relieved of all responsibility in
respect thereof to such holder, and thereafter such holder shall look only to
the Corporation for payment thereof. Any interest which may accrue on funds so
deposited shall be paid to the Corporation from time to time.
(i) Surrender of Certificates; Status. Each holder of shares of Series A
Preference Stock to be redeemed shall surrender the certificates evidencing such
shares (properly endorsed or assigned for transfer, if the Board of Directors of
the Corporation shall so require and the notice shall so state) to the
Corporation at the place designated in the notice of such redemption and shall
thereupon be entitled to receive certificates evidencing shares of Common Stock
and to receive any other funds payable pursuant to this paragraph (4) following
such surrender and following the date of such redemption. In case fewer than all
the shares represented by any such surrendered certificate are called for
redemption, a new certificate shall be issued at the expense of the Corporation
representing the unredeemed shares. If such notice of redemption shall have been
given, and if on the date fixed for redemption shares of Common Stock and other
funds necessary for the redemption shall have been either set aside by the
Corporation separate and apart from its other funds or assets in trust for the
account of the holders of the shares to be redeemed (and so as to be and
continue to be available therefor) or deposited with a bank or trust company as
provided in paragraph (4)(h), then, notwithstanding that the certificates
evidencing any shares of Series A Preference Stock so called for redemption
shall not have been surrendered, the shares represented thereby so called for
redemption shall be deemed no longer outstanding, dividends with respect to the
shares so called for redemption shall cease to accrue after the date fixed for
redemption, and all rights with respect to the shares so called for redemption
shall forthwith after such date cease and terminate, except for the right of the
holders to receive the shares of Common Stock and other funds, if any, payable
pursuant to this paragraph (4) without interest upon surrender of their
certificates therefor.
(j) Dividend Payments. The holders of shares of Series A Preference Stock at
the close of business on a dividend payment record date shall be entitled to
receive the dividend payable on such shares
<PAGE>
on the corresponding dividend payment date notwithstanding the call for
redemption thereof (except that holders of shares called for redemption on a
date occurring between such record date and the dividend payment date or on such
dividend payment date shall not be entitled to receive such dividend on such
dividend payment date but instead will receive accrued and unpaid dividends to
such redemption date.)
(k) Payment of Taxes. The Corporation will pay any and all documentary, stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock on the redemption of shares of Series A Preference
Stock pursuant to this paragraph (4); provided, however, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the registered holder of Series A Preference
Stock redeemed or to be redeemed, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
5. Liquidation Preference.
(a) Upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the Series A Preference Stock shall be preferred as to
assets over Common Stock and any other Junior Stock so that the holder of each
share of the Series A Preference Stock shall be entitled to be paid or to have
set apart for payment in respect of each such share, before any distribution is
made to the holders of Common Stock and any other Junior Stock, a liquidation
preference equal to twice the fair market value (as determined by the Board of
Directors of the Corporation based on advice of tax counsel in accordance with
United States federal income tax principles, which determination shall be
conclusive) of a Series A Depositary Share (as defined in the Deposit Agreement
dated as of June 13, 1995 between the Corporation and First Chicago Trust
Company of New York, as Depositary) on the date of issuance thereof, plus an
amount equal to all dividends accrued and unpaid up to and including the date
fixed for such payment, and such holder of a share of the Series A Preference
Stock shall not be entitled to any other payment. If upon any such liquidation,
dissolution or winding up of the Corporation, its net assets shall be
insufficient to permit the payment in full of the respective amounts to which
the holders of all outstanding shares of the Series A Preference Stock and any
outstanding Preference Stock that is Parity Stock are entitled, the entire
remaining net assets of the Corporation shall be distributed among the holders
of the Series A Preference Stock and any outstanding Preference Stock that is
Parity Stock, in amounts proportionate to the full preferential amounts to which
they are respectively entitled.
(b) The voluntary sale, lease, exchange or transfer for cash, shares of stock
(securities or other consideration) of all or substantially all the
Corporation's property or assets to, or its consolidation or merger with, one or
more corporations shall not be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
6. Voting Rights.
(a) The holders of record of shares of Series A Preference Stock shall not be
entitled to any voting rights except as hereinafter provided in this paragraph
(6) or as otherwise provided in the Articles of Incorporation or by statute.
(b) The holders of shares of Series A Preference Stock shall be entitled to
vote on all matters submitted to a vote of the holders of the Common Stock,
voting together with the holders of the Common Stock (and any other class or
series of capital stock of the Corporation entitled to vote together with the
Common Stock) as one class. Each share of the Series A Preference Stock shall be
entitled to one vote.
<PAGE>
(c) (i) If the Corporation shall have failed to pay, or declare and set
apart for payment, dividends on Preference Stock in an aggregate amount
equivalent to six (6) full quarterly dividends on all shares of Preference Stock
at the time outstanding, the number of Directors of the Corporation shall be
increased by two (2) at the first annual meeting of the shareholders of the
Corporation held thereafter, and at such meeting and at each subsequent annual
meeting until dividends payable for all past quarterly dividend periods on all
outstanding shares of Preference Stock shall have been paid, or declared and set
apart for payment, in full, the holders of the shares of Preference Stock shall
have, in addition to any other voting rights which they otherwise may have, the
exclusive and special right, voting separately as a class without regard to
series, each share of Preference Stock entitling the holder thereof to one (1)
vote per share, to elect two (2) additional members of the Board of Directors to
hold office for a term of one (1) year; provided, that the right to vote as a
class upon the election of such two (2) additional Directors shall not limit the
right of holders of the Series A Preference Stock to vote upon the election of
all other Directors and upon other matters set forth in paragraph 6(b) above.
(ii) Upon such payment, or declaration and setting apart for payment, in
full, the terms of the two (2) additional Directors so elected shall forthwith
terminate, and the number of Directors of the Corporation shall be reduced by
two (2) and such voting right of the holders of shares of Preference Stock shall
cease, subject to increase in the number of Directors as aforesaid and to
revesting of such voting right in the event of each and every additional failure
in the payment of dividends in an aggregate amount equivalent to six (6) full
quarterly dividends as aforesaid.
(d) The Corporation shall not, without the affirmative vote or consent of the
holders of at least 66 2/3% of the number of shares of Preference Stock at
the time outstanding, voting or consenting (as the case may be) separately
as a class without regard to series, given in person or by proxy, either in
writing or by resolution adopted at a meeting:
(i) create any class of stock ranking prior to or on a parity with Preference
Stock as to dividends or upon liquidation or increase the authorized
number of shares of any such previously authorized class of stock;
(ii) alter or change any of the provisions of the Articles of Incorporation so
as to adversely affect the preferences, special rights or powers given to
the Preference Stock;
(iii) increase the number of shares of Preference Stock which the Corporation is
authorized to issue; or
(iv) alter or change any of the provisions of the Articles of Incorporation or
hereof so as to adversely affect the preferences, special rights or powers
given to the Series A Preference Stock.
7. Conversion. The Series A Preference Stock shall not have any conversion
rights to convert into Common Stock.
8. Fundamental Transactions. Upon the effectiveness of a Fundamental
Transaction at any time, each share of Series A Preference Stock shall be
entitled to receive consideration per share (i) of the same type as is offered
to or to be received by holders of Common Stock pursuant to or in connection
with such Fundamental Transaction and (ii) having a fair value equal to the fair
value of the Common Stock that each share of Series A Preference Stock would
receive if such share of Series A Preference Stock were redeemed by the Company
immediately prior to such time in accordance with paragraph 4 hereof.
<PAGE>
SERIES B PARTICIPATING CUMULATIVE PREFERENCE STOCK
Section 1. Designation and Number of Shares. The shares of such series shall
be designated as "Series B Participating Cumulative Preference Stock" (the
"Series B Preference Stock"), and the number of shares constituting such series
shall be 1,743,019. Such number of shares of the Series B Preference Stock may
be increased or decreased by resolution of the Board of Directors; provided that
no decrease shall reduce the number of shares of Series B Preference Stock to a
number less than the number of shares then outstanding plus the number of shares
issuable upon exercise or conversion of outstanding rights, options or other
securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) The holders of shares of Series B Preference Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable on or before March 13,
June 13, September 13 and December 13 (or, if any such day is not a business
day, on the next succeeding business day) of each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of any share or
fraction of a share of Series B Preference Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 and (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends or other distributions and 100 times the
aggregate per share amount of all non-cash dividends or other distributions
(other than (i) a dividend payable in shares of Common Stock, par value $1.00
per share, of the Corporation (the "Common Stock")) or (ii) a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series B Preference
Stock. If the Corporation shall at any time after February 1, 1996 (the "Rights
Declaration Date") pay any dividend on Common Stock payable in shares of Common
Stock or effect a subdivision or combination of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders of
shares of Series B Preference Stock were entitled immediately prior to such
event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series B
Preference Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than as described
in clauses (i) and (ii) of the first sentence of paragraph (A)); provided that
if no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date (or, with respect to the first
Quarterly Dividend Payment Date, the period between the first issuance of any
share or fraction of a share of Series B Preference Stock and such first
Quarterly Dividend Payment Date), a dividend of $1.00 per share on the Series B
Preference Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series B Preference Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series B Preference Stock, unless
the date of issue of such shares is on or before the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue and be cumulative from the date of issue of such shares, or
unless the date of issue is a date after the record date for the determination
of holders of shares of Series B Preference Stock entitled to receive a
quarterly dividend and on
<PAGE>
or before such Quarterly Dividend Payment Date, in which case dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on shares
of Series B Preference Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series B Preference Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall not be more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. Except as otherwise provided by Article FOURTH of
the Articles of Incorporation of the Corporation or by statute, holders of
Series B Preference Stock shall have no voting rights, and their consent shall
not be required for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions payable
on the Series B Preference Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on outstanding shares of Series B Preference Stock shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any other distributions on, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preference Stock;
(ii) declare or pay dividends on, or make any other distributions on, any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preference
Stock, except dividends paid ratably on the Series B Preference Stock and
all such other parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem, purchase or otherwise acquire for value any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preference Stock; provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of stock of the
Corporation ranking junior (as to dividends and upon dissolution,
liquidation or winding up) to the Series B Preference Stock; or
(iv) redeem, purchase or otherwise acquire for value any shares of Series B
Preference Stock, or any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
B Preference Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of Series B Preference Stock and all such other parity stock upon
such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for value any shares of stock of the Corporation
unless the Corporation could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
<PAGE>
Section 5. Reacquired Shares. Any shares of Series B Preference Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Series B Preference Stock without designation as to series and may be
reissued as part of a new series of Series B Preference Stock to be created by
resolution or resolutions of the Board of Directors as permitted by the Articles
of Incorporation or as otherwise permitted under Pennsylvania Law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preference Stock unless,
prior thereto, the holders of shares of Series B Preference Stock shall have
received $1.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment;
provided that the holders of shares of Series B Preference Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, or (2) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preference Stock, except distributions made
ratably on the Series B Preference Stock and all such other parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. If the Corporation
shall at any time after the Rights Declaration Date pay any dividend on Common
Stock payable in shares of Common Stock or effect a subdivision or combination
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each such
case the aggregate amount to which holders of shares of Series B Preference
Stock were entitled immediately prior to such event under the provision clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. If the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash or any other property, then in any such case the shares of Series B
Preference Stock shall at the same time be similarly exchanged for or changed
into an amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount of stock, securities, cash or
any other property, as the case may be, into which or for which each share of
Common Stock is changed or exchanged. If the Corporation shall at any time
after the Rights Declaration Date pay any dividend on Common Stock payable in
shares of Common Stock or effect a subdivision or combination of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Series B Preference Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The Series B Preference Stock shall not be
redeemable.
Section 9. Rank. The Series B Preference Stock shall rank junior (as to
dividends and upon liquidation, dissolution and winding up) to all other series
of the Corporation's preference stock except any series that specifically
provides that such series shall rank junior to the Series B Preference Stock.
Section 10. Fractional Shares. Series B Preference Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive
<PAGE>
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series B Preference Stock.
Common Stock
Each holder of record of Common Stock shall have the right to one (1) vote for
each share of Common Stock standing in his name on the books of the Corporation.
Except as required by law or as otherwise specifically provided in this Article
Fourth, the holders of Preference Stock having voting rights and holders of
Common Stock shall vote together as one class.
Preemptive Rights
Neither the holders of Preference Stock nor the holders of Common Stock shall
have any preemptive rights, and the Corporation shall have the right to issue
and to sell to any person or persons any shares of its capital stock or any
option rights or any securities having conversion or option rights, without
first offering such shares, rights or securities to any holders of Preference
Stock or Common Stock.
Fifth:
1. The affirmative vote of the holders of not less than 75% of the
outstanding shares of "Voting Stock" held by shareholders other than a "Related
Person" shall be required for the approval or authorization of any "Business
Combination" of the Corporation with any Related Person; provided, however, that
the 75% voting requirement shall not be applicable if:
(i) The "Continuing Directors" of the Corporation by at least a two-thirds
vote of such Continuing Directors have expressly approved such Business
Combination either in advance of or subsequent to such Related Person's having
become a Related Person; or
(ii) The cash or fair market value (as determined by at least two-thirds of
the Continuing Directors) of the property, securities or other consideration to
be received per share by holders of Voting Stock of the Corporation in the
Business Combination is not less than the "Highest Per Share Price" or the
"Highest Equivalent Price" paid by the Related Person in acquiring any of its
holdings of the Corporation's Voting Stock.
2. For purposes of this Article FIFTH:
(i) The term "Business Combination" shall mean (a) any merger or consolidation
of the Corporation or a subsidiary of the Corporation with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition, including
without limitation a mortgage or any other security device, of all or any
"Substantial Part" of the assets either of the Corporation (including without
limitation any voting securities of a subsidiary) or of a subsidiary of the
Corporation to a Related Person, (c) any merger or consolidation of a Related
Person with or into the Corporation or a subsidiary of the Corporation, (d) any
sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or other security device, of all or any Substantial Part
of the assets of a Related Person to the Corporation or a subsidiary of the
Corporation, (e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person other than the issuance on a
pro rata basis to all holders of shares of the same class pursuant to a stock
split or stock dividend, or a distribution of warrants or rights, (f) any
recapitalization that would have the effect of increasing the voting power of a
Related Person, and (g) any agreement, contract or other arrangement providing
for any of the transactions described in this definition of Business
Combination.
(ii) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"Affiliates" and "Associates" becomes the "Beneficial Owner" of an
aggregate of 10% or more of the outstanding Voting Stock of the
Corporation, and
<PAGE>
any Affiliate or Associate of any such individual, corporation, partnership or
other person or entity; provided, however, that the term "Related Person" shall
not include (1) a person or entity whose acquisition of such aggregate
percentage of Voting Stock was approved in advance by two-thirds of the
Continuing Directors or (2) any trustee or fiduciary when acting in such
capacity with respect to any employee benefit plan of the Corporation or a
wholly owned subsidiary of the Corporation. No person who became a Related
Person prior to December 31, 1983 shall be treated as a Related Person for the
purpose of voting on any amendment, alteration, change or repeal of this Article
FIFTH or voting on any Business Combination to which such Related Person is not
a party.
(iii) The term "Substantial Part" shall mean an amount equal to 10% or more
of the fair market value as determined by two-thirds of the Continuing Directors
of the total consolidated assets of the Corporation and its subsidiaries taken
as a whole as of the end of its most recent fiscal year ended prior to the time
the determination is being made.
(iv) The term "Beneficial Owner" shall mean any person (1) who beneficially
owns shares of Voting Stock within the meaning ascribed in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on the date of adoption of this Article FIFTH by the shareholders of the
Corporation, or (2) who has the right to acquire Voting Shares (whether or not
such right is exercisable immediately) pursuant to any agreement, contract,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise.
(v) For purposes of subparagraph l(ii) of this Article FIFTH, the term "other
consideration to be received" shall include, without limitation, the value per
share of Common Stock or other capital stock of the Corporation retained by its
existing shareholders as adjusted to give effect to the proposed Business
Combination in the event of any Business Combination in which the Corporation is
a surviving corporation.
(vi) The term "Voting Stock" shall mean all of the outstanding shares of
Common Stock entitled to vote on each matter on which the holders of record of
Common Stock shall be entitled to vote, and each reference to a proportion of
shares of Voting Stock shall refer to such proportion of the votes entitled to
be cast by such shares.
(vii) The term "Continuing Director" shall mean a Director who was a member
of the Board of Directors of the Corporation immediately prior to the time that
the Related Person involved in a Business Combination became a Related Person.
As to any person who became a Related Person prior to December 31, 1983, a
Continuing Director shall mean a Director who was a member of the Board of
Directors on December 31, 1983.
(viii) A Related Person shall be deemed to have acquired a share of the
Voting Stock of the Corporation at the time when such Related Person became the
Beneficial Owner thereof. With respect to the shares owned by Affiliates,
Associates or other persons whose ownership is attributed to a Related Person
under the foregoing definition of Related Person, if the price paid by such
Related Person for such shares is not determinable by two-thirds of the
Continuing Directors, the price so paid shall be deemed to be the higher of (a)
the price paid upon the acquisition thereof by the Affiliate, Associate or other
person or (b) the market price of the shares in question at the time when the
Related Person became the Beneficial Owner thereof.
(ix) The terms "Highest Per Share Price" and "Highest Equivalent Price" as
used in this Article FIFTH shall mean the following: If there is only one (1)
class of capital stock of the Corporation issued and outstanding, the Highest
Per Share Price shall mean the highest price that can be determined to have been
paid at any time by the Related Person for any share or shares of that class of
capital stock. If there is more than one class of capital stock of the
Corporation issued and outstanding, the Highest Equivalent Price
<PAGE>
shall mean, with respect to each class and series of capital stock of the
Corporation, the amount determined by two-thirds of the Continuing Directors, on
whatever basis they believe is appropriate, to be the highest per share price
equivalent of the highest price that can be determined to have been paid at any
time by the Related Person for any share or shares of any class of series of
capital stock of the Corporation. In determining the Highest Per Share Price and
Highest Equivalent Price, all purchases by the Related Person shall be taken
into account regardless of whether the shares were purchased before or after the
Related Person became a Related Person. Also, the Highest Per Share Price and
the Highest Equivalent Price shall include any brokerage commissions, transfer
taxes and soliciting dealers' fees or other value paid by the Related Person
with respect to the shares of capital stock of the Corporation acquired by the
Related Person.
(x) The terms "Affiliate" and "Associate" shall have the same meaning as in
Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as on the date of the adoption of this Article FIFTH
by the shareholders of the Corporation.
3. The provisions set forth in this Article FIFTH may not be amended,
altered, changed or repealed in any respect unless such action is approved by
the affirmative vote of the holders of not less than 75% of the outstanding
shares of Voting Stock of the Corporation at a meeting of the shareholders duly
called for the consideration of such amendment, alteration, change or repeal;
provided, however, that if there is a Related Person, such action must also be
approved by the affirmative vote of the holders of not less than 75% of the
outstanding shares of Voting Stock not held by any Related Person.
Sixth: The duration of the Corporation shall be perpetual.
Seventh: The business and affairs of the Corporation shall be managed by a
Board of Directors. The number of Directors of the Corporation shall be fixed
from time to time by the Bylaws but shall not be fixed at less than five (5).
The number of the Directors may be increased or diminished (but not to less than
five (5)), as may from time to time be provided in the Bylaws. In case of any
increase in the number of Directors the additional Directors shall be elected as
may be provided in the Bylaws, either by the Directors or by the shareholders.
The shareholders of the Corporation shall not be entitled to cumulative voting
rights in the election of Directors.
Any officer elected or appointed by the Board of Directors may be removed at
any time by affirmative vote of a majority of the whole Board of Directors.
The Board of Directors, by the affirmative vote of a majority of the whole
Board, may appoint from the Directors an Executive Committee, of which a
majority shall constitute a quorum, and to such extent as shall be provided in
the Bylaws such Committee shall have and may exercise all or any of the powers
of the Board of Directors, including the power to cause the seal of the
Corporation to be affixed to all papers that may require it.
The Board of Directors, by the affirmative vote of a majority of the whole
Board, may appoint any other standing committees, and such standing committees
shall have and may exercise such powers as shall be conferred or authorized by
the Bylaws.
<PAGE>
The Board of Directors shall have power from time to time to fix and to
determine and to vary the amount of the working capital of the Corporation and
to direct and determine the use and disposition of any surplus or net profits
over and above the capital stock paid in.
Subject always to alteration and repeal by the shareholders, and to Bylaws
made by the shareholders, the Board of Directors may make Bylaws and from time
to time may alter, amend or repeal any Bylaws; and any Bylaws made by the Board
of Directors may be so altered or repealed by the shareholders at any annual
meeting or at any special meeting, provided notice of such proposed alteration
or repeal be included in the notice of the special meeting.
Eighth:
1. Any direct or indirect purchase or other acquisition by the Corporation of
any "Equity Security" of any class or series from any "Five Percent Holder", if
such Five Percent Holder has been the "Beneficial Owner" of such security for
less than two years prior to the earlier of the date of such purchase or any
agreement in respect thereof at a price in excess of the "Fair Market Value"
thereof, shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of the "Voting Stock"
excluding Voting Stock of which such Five Percent Holder is the Beneficial
Owner; provided, however, that the foregoing majority voting requirement shall
not be applicable with respect to (i) any purchase or other acquisition of an
Equity Security made as part of a tender or exchange offer by the Corporation to
purchase Equity Securities of the same class made on the same terms to all
holders of such security, or (ii) a purchase program effected on the open market
and not the result of a privately-negotiated transaction, or (iii) any optional
or required redemption of an Equity Security pursuant to the terms of such
security.
2. For purposes of this Article EIGHTH:
(i) The term "Equity Security" means an equity security of the Corporation
within the meaning ascribed to such term in Section 3(a)(11) of the
Securities Exchange Act of 1934, as in effect on January 1, 1985.
(ii) The term "Fair Market Value" means, in the case of any Equity Security,
the closing sale price on the trading day immediately preceding the earlier of
the date of any purchase subject to Paragraph 1 of this Article EIGHTH, or the
date of any agreement in respect thereof (such earlier date, the "Valuation
Date"), of a share of such Equity Security on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such security is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such security is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such security is
listed, or, if such security is not listed on any such Exchange, the closing bid
quotation with respect to such security on the trading day immediately preceding
the Valuation Date on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no such quotations
are available, the Fair Market Value on the Valuation Date of such security as
determined by the Board of Directors in good faith.
(iii) The term "Person" shall mean any individual, corporation, partnership
or other entity and shall include any group comprised of any Person and any
other Person with whom such Person or any Affiliate or Associate of such Person
has any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Voting Stock, and any
member of such group.
<PAGE>
(iv) The term "Five Percent Holder" shall mean and include any Person which,
together with its "Affiliates" and "Associates" becomes the Beneficial Owner of
an aggregate of five percent (5%) or more of any class of Voting Stock of the
Corporation, and any Affiliate or Associate of any such Person; provided,
however, that for purposes of this Article EIGHTH, including, without
limitation, Paragraphs 1 and 4 hereof, the term Five Percent Holder shall not
include (1) any trustee or fiduciary when acting in such capacity with respect
to any employee benefit plan of the Corporation or a wholly owned subsidiary of
the Corporation or (2) any Person that would have been a Five Percent Holder on
December 31, 1984 if this Article EIGHTH were then in effect.
(v) The terms "Affiliate" and "Associate" shall have the meanings ascribed to
them in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on May 3, 1984.
(vi) The term "Beneficial Owner" shall mean any person (1) who beneficially
owns shares of Voting Stock within the meaning ascribed in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on May 3, 1984, or (2) who has the right to acquire Voting Stock (whether
or not such right is exercisable immediately) pursuant to any agreement,
contract, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise.
(vii) The term "Voting Stock" shall mean all of the outstanding shares of
Common Stock, and the outstanding shares of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation entitled
to vote on each matter on which the holders of Common Stock shall be entitled to
vote, and each reference to a vote of a proportion of shares of Voting Stock
shall refer to such proportion of the votes entitled to be cast by such shares.
(viii) In any determination whether a Person is a Five Percent Holder for
purposes of this Article EIGHTH, the relevant class of securities outstanding
shall be deemed to comprise all such securities deemed owned by such Person and
its Affiliates and Associates through application of Paragraph 2(vi)(2) of this
Article EIGHTH, but shall not include any other securities of such class which
may be issuable pursuant to any agreement, contract, arrangement or
understanding, or upon exercise of conversion rights, exchange rights, warrants
or options, or otherwise.
3. The Board of Directors shall have the power to interpret all the
provisions of this Article EIGHTH and their application to a particular
transaction, including, without limitation, the power to determine (a) whether a
Person is a Five Percent Holder, (b) the number of shares of Voting Stock or
other Equity Securities of which any Person and its Affiliates and Associates
are the Beneficial Owners, (c) whether a Person is an Affiliate or Associate of
another, and (d) what is Fair Market Value and whether a price is above Fair
Market Value as of a given date. Any such determination made by the Board of
Directors shall be conclusive and binding to the fullest extent permitted by
law.
4. The provisions set forth in this Article EIGHTH may not be amended,
altered, changed or repealed in any respect and no provision inconsistent
herewith shall be adopted unless such action is approved by the affirmative vote
of the holders of at least 75% of the Voting Stock of the Corporation at any
annual meeting of shareholders or at any special meeting duly called for that
purpose, provided notice of such amendment, alteration, change or repeal or
adoption be included in the notice of the special meeting; provided, however,
that if there is a Five Percent Holder such action must also be approved by the
affirmative vote of the holders of at least 75% of the Voting Stock excluding
Voting Stock of which any Five Percent Holder is the Beneficial Owner.
<PAGE>
Ninth:
1. Directors and Officers as Fiduciaries. A Director or Officer of the
Corporation shall stand in a fiduciary relation to the Corporation and shall
perform his duties as a Director or Officer, including his duties as a member of
any committee of the Board upon which he may serve, in good faith, in a manner
he reasonably believes to be in the best interests of the Corporation, and with
such care, including reasonable inquiry, skill and diligence, as a person of
ordinary prudence would use under similar circumstances. In performing his
duties, a Director or Officer shall be entitled to rely in good faith on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by one or more Officers
or employees of the Corporation whom the Director or Officer reasonably believes
to be reliable and competent with respect to the matters presented, counsel,
public accountants or other persons as to matters that the Director or Officer
reasonably believes to be within the professional or expert competence of such
person, or a committee of the Board of Directors upon which the Director or
Officer does not serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the Director or Officer
reasonably believes to merit confidence. A Director or Officer shall not be
considered to be acting in good faith if he has knowledge concerning the matter
in question that would cause his reliance to be unwarranted. Absent breach of
fiduciary duty, lack of good faith or self-dealing, actions taken as a Director
or Officer of the Corporation or any failure to take any action shall be
presumed to be in the best interests of the Corporation.
2. Personal Liability of Directors. A Director of the Corporation shall not
be personally liable, as such, for monetary damages (including without
limitation, any judgment, amount paid in settlement, penalty, punitive damages
or expense of any nature (including, without limitation, attorneys' fees and
disbursements)) for any action taken, or any failure to take any action, unless
(1) the Director has breached the duties of his office or has failed to perform
his duties as a Director in good faith, in a manner he reasonably believed to be
in the best interests of the Corporation and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary prudence would
use under similar circumstances; and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
3. Personal Liability of Officers. An Officer of the Corporation shall not
be personally liable, as such, to the Corporation or its shareholders for
monetary damages (including without limitation, any judgment, amount paid in
settlement, penalty, punitive damages or expense of any nature (including,
without limitation, attorneys' fees and disbursements)) for any action taken, or
any failure to take any action, unless (1) the Officer has breached the duties
of his office or has failed to perform his duties as an Officer in good faith,
in a manner he reasonably believed to be in the best interests of the
Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances; and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
Tenth: Any record holder of at least ten percent (10%) of the outstanding
shares of the Corporation's Voting Stock shall have the rights to:
(a) call a special meeting of the shareholders; and
(b) to propose an amendment to the Articles by a petition setting forth the
proposed amendment, which petition shall be directed to, and filed with, the
Board of Directors; subject, however, to all limitations and restrictions which
are, or may hereafter be, imposed on, or with respect to, the Corporation's
Voting Stock and/or record holders of the Corporation's Voting Stock by
Pennsylvania statutory law (other than the provisions of Section 2521(a) of the
Pennsylvania Business Corporation Law of 1988), these Articles, or the
<PAGE>
Corporation's Bylaws. For purposes of this Article TENTH, the term "Voting
Stock" shall mean all of the outstanding shares of Common Stock, and the
outstanding shares of any class or series of stock having preference over the
Common Stock as to dividends or as to liquidation entitled to vote on each
matter on which the holders of Common Stock shall be entitled to vote, and
reference to a percentage of shares of Voting Stock shall refer to the
percentage of votes entitled to be cast by such shares.
Approved and Filed: August 4, 1971
Amended and Restated: March 30, 1990
Amended: December 23, 1992
Amended: May 4, 1995
Amended: June 13, 1995
Amended: February 1, 1996
Amended: November 6, 1998
Articles of Incorporation
Footnote: all references to gender are denoted as "he."
<PAGE>
Exhibit 3(ii)
Sunoco, Inc.
Bylaws
(Amended and Restated as of November 6, 1998)
<PAGE>
Table of Contents
Article I Page
Directors
Section 1 - Membership 1
Section 2 - Vacancies 1
Section 3 - Emergency Board 1
Section 4 - Liability of Directors 2
Section 5 - Nomination of Directors 2
Article II
Meetings of the Board of Directors
Section 1 - Place 3
Section 2 - Annual & Regular Meetings 3
Section 3 - Special Meetings 3
Section 4 - Notice 3
Section 5 - Waiver of Notice 3
Section 6 - Notice of Adjourned Meeting 3
Section 7 - Quorum 4
Section 8 - Consent Action 4
Article III
Committees
Section 1 - Executive Committee 4
Section 2 - Notice 4
Section 3 - Special Committees 4
Section 4 - Relationship to Board 4
Section 5 - Quorum 5
Section 6 - Vacancies 5
Article IV
Officers
Section 1 - Designation 5
Section 2 - Authority 5
Section 3 - Chairman of the Board 6
Section 4 - Vice Chairman of the Board 6
Section 5 - President 6
Section 6 - Executive Vice Presidents 6
Section 7 - Vice Presidents 6
Section 8 - Secretary 6
Section 9 - Treasurer 6
Section 10 - Comptroller 7
Section 11 - General Auditor 7
Section 12 - Assistant Officers 7
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Article V
Meetings of Shareholders
Section 1 - Annual Meetings 7
Section 2 - Special Meetings 7
Section 3 - Notice 8
Section 4.a - Quorum 8
Section 4.b - Quorum at Shareholder-
called Special Meeting 8
Section 4.c - No Waiver of Quorum 8
Section 5 - Voting 9
Section 6 - Adjournment 9
Section 7 - Proxies 9
Section 8 - Shareholders List 9
Section 9 - Record Date 9
Section 10 - Certification by Nominee 10
Section 11 - Judge of Election 10
Section 12 - Prior Notice of Shareholder Proposals 10
Article VI
Stock Certificates
Section 1 - Description 11
Section 2 - Transfers 11
Section 3 - Registered Shareholders 11
Section 4 - Lost Certificates 12
Section 5 - Dividends 12
Section 6 Uncertificated Stock 12
Article VII
Indemnification
Section 1 - General 12
Section 2 - Agreements for Indemnification and Funding 13
Section 3 - Expenses 13
Section 4 - Disputes 13
Article VIII
General Provisions
Section 1 - Voting Shares of Other Corporations 13
Section 2 - Seal 13
Section 3 - Inapplicability of Certain Sections of
the Pennsylvania Business Corporation Law 13
Section 4 - Amendments 13
ii
<PAGE>
Sunoco, Inc.
Bylaws
Article I: Directors
Membership
Section 1. The business and affairs of the Corporation shall be managed by
a Board of Directors consisting of the number of Directors equal to those
elected at the annual meeting of shareholders or as may from time to time be
determined by the Board, except that it shall not consist of less than five
members. Except as hereinafter provided in the case of vacancies, Directors
shall be elected by ballot at the annual meeting of shareholders and shall hold
office for one year and until successors are duly elected and qualified, or
until earlier resignation or removal. Directors need not be residents of the
state of the Commonwealth of Pennsylvania.
Vacancies
Section 2. Vacancies in the Board of Directors may be filled by a majority
of the incumbent members of the Board, though such majority be less than a
quorum. If the number of Directors is at any time increased, the incumbent
Directors may by majority vote elect any additional Director. Such newly
elected Director shall hold office until the next annual meeting of the
shareholders and until a successor is elected and qualified, or until earlier
resignation or removal.
Emergency Board
Section 3. In the event of any emergency by reason of nuclear attack or
other attacks by enemy forces upon the North American Continent, there shall be
constituted without further action or authority an Emergency Board of Directors.
In the event of an emergency by reason of physical disasters of national or
greater scope, an attack upon the United States outside the North American
Continent, or an imminent threat of an attack or physical disaster of national
or greater scope upon the North American Continent, there shall be constituted
an Emergency Board of Directors by declaration of the Chairman of the Board of
Directors. The Emergency Board shall consist of at least three members from the
regular Board of Directors or from officers of the Corporation or its
subsidiaries who are not members of the regular Board of Directors but who have
been designated as alternate members of the Emergency Board. The Emergency
Board may exercise all of the powers of the regular Board of Directors in the
management of the business, affairs and property of the Corporation during the
emergency and until such time as the regular Board of Directors shall resume the
exercise of its powers.
The original members of the Emergency Board shall be the Chairman, the
President and the Executive Vice Presidents who are members of the Board of
Directors, provided however, that any vacancy existing because of the
unavailability of any two of the foregoing persons shall be filled by the
alternate members. The Chairman of the Board shall serve as Chairman of any
meeting of the Emergency Board or, in the event of his unavailability for any
reason, the President or an Executive Vice President, in order designated by the
Chairman of the Board, shall serve in this capacity. In the event of the
unavailability for any reason of all of the foregoing persons, an alternate
member shall serve as Chairman at any meeting of the Emergency Board in the
order previously designated for membership by resolution of the regular Board of
Directors.
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Meetings may be called by any member of the Emergency Board. Two members
shall constitute a quorum for the transaction of business and the act of any two
members present at a meeting shall be the act of the Emergency Board. Meetings
may be held by any means of communication and Directors shall be deemed present
if they are in communication with other directors by any means. Notice of
meetings may be given at any time and in any manner, provided that a reasonable
effort shall be made to give actual notice to each member of the Emergency
Board.
To the extent not inconsistent with this Section 3 of Article I, the Bylaws
in their entirety shall remain in effect during any such emergency. No officer,
Director or employee acting in good faith in accordance with this Section 3 of
Article I or any resolutions made pursuant hereto, shall be liable for his
conduct unless it is willful misconduct.
Liability of Directors
Section 4. A Director of the Corporation shall not be personally liable
for monetary damages, as such, for any action taken or any failure to take any
action, unless (1) he has breached the duties of his office or has failed to
perform his duties as a Director in good faith, in a manner he reasonably
believed to be in the best interest of the Corporation and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances; and (2) the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness.
Nomination of Directors
Section 5. Nominations for election to the Board of Directors may be made
by shareholders entitled to vote for the election of Directors only in the
manner specified in this Section. Shareholders may submit nominations for
consideration by a committee appointed by the Board of Directors for that
purpose. A nomination proposed to be made at an annual meeting shall be
submitted in writing to the Secretary of the Corporation no later than the
December 31 prior to the annual meeting at which such nomination is intended to
be considered. Nominations may be made at any meeting of shareholders called
for the purpose of election of Directors other than an annual meeting only upon
written notice of the shareholder's intent to make such nominations at the
meeting delivered to the Secretary of the Corporation at least sixty (60) days
prior to the date of such meeting; provided, however, that if the date of such
meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than seventy (70) days prior to the date of such meeting, such
prior notice shall be given not more than ten (10) days after such date is first
so announced or disclosed. Such nominations and written notice of any
nominations by shareholders under this section shall contain the following
information:
(a) name, residence and business address of the nominating shareholder;
(b) a representation that the shareholder is a record holder or beneficial
owner of the Corporation's voting shares and a statement of the number of such
shares;
(c) a representation that the shareholder intends to appear in person or by
proxy at the meeting to nominate the individuals specified in the notice, if the
nominations are to be made at a meeting of shareholders;
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<PAGE>
(d) information regarding each nominee such as would be required to be
included in a proxy statement;
(e) a description of all arrangements or understandings between and among
the shareholder and each and every nominee; and
(f) the written consent of each nominee to serve as a Director, if elected.
The judge of election or the person presiding at the meeting, in the absence of
the judge of election, shall determine whether any nomination is made according
to these procedures and should be accepted. Such decision shall be deemed
conclusive and binding on all shareholders of the Corporation.
Article II: Meetings of the Board of Directors
Place
Section 1. Meetings of the Board of Directors, regular or special may be
held either within or without the Commonwealth of Pennsylvania.
Annual & Regular Meetings
Section 2. As soon as practicable following their election at the annual
meeting of the shareholders, the Directors shall meet for the purpose of
organization. Regular meetings of the Board of Directors thereafter may be held
at such times and at such places as the Board may by resolution determine.
Special Meetings
Section 3. Special meetings of the Board of Directors may be called at any
time by the Chairman of the Board of Directors, the Vice Chairman, the
President, an Executive Vice President who is a member of the Board of
Directors, or upon the written request of a majority of the Directors.
Notice
Section 4. No notice shall be required of the meeting of the Board of
Directors for the purpose of organization or for the regular meetings fixed as
aforesaid, but at least forty-eight hours notice shall be given by mail or
telegram of all special meetings of the Directors specifying the place, day and
hour of the meeting. Neither the business to be transacted nor the purpose of
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting. This notice may be waived by a
Director in writing either before or after the meeting.
Waiver of Notice
Section 5. The attendance of a Director at any meeting shall constitute a
waiver of notice of such meeting except where a Director attends for the express
purpose of objecting to the transaction of any business because the meeting has
not been lawfully called or convened.
Notice of Adjourned Meeting
Section 6. Notice of an adjourned meeting of the Board of Directors need
not be given if the time and place are fixed at the meeting adjourning.
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<PAGE>
Quorum
Section 7. At all meetings of the Board of Directors, a majority of the
Directors in office shall constitute a quorum for the transaction of business.
The act of a majority of the Directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors, unless the act of a
greater or lesser number is required by statute or the Articles of
Incorporation. The majority of Directors present, though less than a quorum,
may adjourn any meeting from time to time.
Consent Action
Section 8. Any action required to be taken at a meeting of the Board or
any committee thereof shall be deemed the action of the Board of Directors or of
a committee thereof if all the Directors or committee members, as the case may
be, execute, either before or after the action is taken, a written consent
thereto, and the consent is filed with the records of the Corporation.
Article III: Committees
Executive Committee
Section 1. The Board of Directors shall designate an Executive Committee
consisting of such number of members as may be determined from time to time to
serve at the pleasure of the Board who shall be elected from the members of the
Board by a majority of the whole Board. The Committee shall elect a Chairman
from among its members. To the extent permitted by Pennsylvania law, the
Executive Committee may exercise all or any of the powers of the Board of
Directors in the management of the business, affairs and property of the
Corporation during the interval between meetings of the Board; provided however,
that no action shall be taken by the Executive Committee if any member of such
Committee has voted in opposition thereto.
Notice
Section 2. The Executive Committee need not hold its meetings at any
particular time or place, but such meetings shall be held upon reasonable notice
to members of the Committee.
Special Committees
Section 3. The Board of Directors may appoint such other standing or
special committees, and officers therefor, as it may deem proper, and, to the
extent permitted by Pennsylvania law, may delegate to such committees any of the
powers possessed by the Board which may be required by such committees in
carrying out the purposes for which they are appointed. Each of such committees
shall have at least three members. Membership on the Board of Directors shall
not be prerequisite to membership on such committees.
Relationship to Board
Section 4. Committees shall be responsible to the full Board of Directors
and shall report upon the exercise of their powers and duties at each regular
meeting of the Board of Directors, or when called upon by the Board.
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<PAGE>
Quorum
Section 5. A majority of any committee shall constitute a quorum for the
transaction of business, and shall be required to constitute the act of the
committee.
Vacancies
Section 6. The Board of Directors may fill vacancies in any committee, and
may appoint one or more alternate members of a committee who shall have the
power to act in the absence or disability of a member of such committee. The
Board of Directors may abolish any committee at its pleasure, and may remove a
committee member from membership on a committee at any time, with or without
cause.
Article IV: Officers
Designation
Section 1. The officers of the Corporation shall be chosen by the Board of
Directors at its organization meeting and shall include a Chairman of the Board
of Directors, a President, one or more Executive Vice Presidents, one or more
Vice Presidents, any of whom at the pleasure of the Board may be designated
Senior Vice President or Group Vice President, a Secretary, a Treasurer, a
Comptroller, and a General Auditor, all of who shall be the principal officers
of the Corporation and may include one or more Vice Chairmen of the Board who
would be principal officers, and such other officers and assistant officers as
the Board of Directors may from time to time determine. Any number of offices
may be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such instrument is required
by law to be executed, acknowledged or verified by two or more officers. Of the
officers so chosen by the Board of Directors, the Chairman of the Board of
Directors, the Vice Chairmen of the Board of Directors, and the President shall
be chosen from among the Directors. All officers of the Corporation shall hold
their offices at the pleasure of the Board of Directors.
Authority
Section 2. Notwithstanding the legal authority conferred by these Bylaws
upon the officers named herein, the Board of Directors may by resolution
establish such positions of authority, supervision and responsibility as in the
judgment of the Board may be necessary or appropriate for the internal
administration of the affairs of the Corporation. The performance of any duty
by any officer shall be conclusive evidence of his authority to act, including
the delegation of any of his powers to other officers or employees under his
direction. The Board of Directors may designate either the Chairman of the
Board or the President as the Chief Executive Officer or the Chief Operating
Officer of the Corporation.
The Chief Executive Officer shall have general supervision of the affairs
of the Corporation, subject to the policies and direction of the Board of
Directors, and shall supervise and direct all officers and employees of the
Corporation, but may delegate in his discretion any of his powers to any officer
or such other executives as he may designate.
The Chief Operating Officer shall have general supervision and direction of
all operating officers and employees of the Corporation but may delegate in his
discretion any of his powers to any Vice President or such other executives as
he may designate.
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Chairman of the Board
Section 3. The Chairman of the Board of Directors shall preside at all
meetings of the shareholders and of the Board of Directors. He shall ex-officio
be a member of all committees of the Board of Directors except as otherwise
determined by the Board. He shall also perform such other duties as the Board
of Directors may from time to time assign to him.
Vice Chairman of the Board
Section 4. The Vice Chairman of the Board of Directors shall perform such
duties as the Board of Directors or the Chairman may from time to time assign to
them.
President
Section 5. The President shall perform such duties as the Board of
Directors or the Chairman may from time to time assign to him.
Executive Vice Presidents
Section 6. The Executive Vice Presidents shall perform such duties as
shall, from time to time, be imposed upon them by the Chairman or the President.
Vice Presidents
Section 7. The Vice Presidents shall perform such duties and shall be
responsible to such officers of the Corporation as the Chairman, President or an
Executive Vice President may direct.
Secretary
Section 8. The Secretary shall keep the minutes of all meetings of the
shareholders, the Board of Directors, all committees of the Board except as
otherwise designated by the Board and shall give all notices of meetings of the
shareholders, the Board of Directors, and any committees of the Board for which
he serves as Secretary. He shall have control of the custody of all deeds,
contracts, agreements, and other corporate records, except as otherwise provided
in these Bylaws or by the Board of Directors, and shall attend to such
correspondence of the Corporation as the Chairman shall direct. He shall be the
custodian of the seal of the Corporation and shall affix it to any instrument
requiring the same, except as otherwise provided herein or by the Board of
Directors. He shall be responsible to such officer or officers of the
Corporation as the Chairman may designate.
Treasurer
Section 9. The Treasurer shall be responsible for all receipts and
disbursements of the Corporation and the custodianship of the Corporation's
funds. He shall have full authority, directly or by his delegation to selected
officers or other employees, to receive and give receipts for all moneys due and
payable to the Corporation from any source whatever, and to endorse checks,
drafts, and warrants in its name and on its behalf. He shall be responsible for
depositing the funds of the Corporation in its name in such depositories as may
be designated by him; shall sign or delegate the signing of all checks, notes
and drafts and shall be charged with the general establishment of the
Corporation's policies and procedures relating to short-term financing, cash
management, credits and collections and insurance.
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Comptroller
Section 10. The Comptroller shall be the chief accounting officer of the
Corporation and shall arrange for the keeping of adequate records of all assets,
liabilities and transactions of the Corporation.
General Auditor
Section 11. The General Auditor shall be chief control officer of the
Corporation and shall be responsible for the establishment of internal controls.
He shall see that adequate audits are currently and regularly made.
Assistant Officers
Section 12. Assistant officers shall perform such duties as their
immediate principal officers may from time to time direct or delegate, and,
during the absence of said principal officers, shall perform all the duties of
said principal officers.
Article V: Meetings of Shareholders
Annual Meetings
Section 1. The annual meeting of the shareholders for the election of
Directors for the ensuing year and for the transaction of such other business as
may be properly brought before the meeting shall be held each year on such day
and at such time and place, either within or without Pennsylvania, as shall be
determined in advance by the Board of Directors.
Special Meetings
Section 2. Special meetings of the shareholders may be called at any time
by the Chairman of the Board of Directors or by the order of the Board of
Directors. Special meetings of the shareholders may also be called by any
shareholder entitled to call such a meeting pursuant to, and in compliance with,
the provisions of Article TENTH of the Articles of Incorporation of the
Corporation. A shareholder wishing to call a special meeting of the
shareholders of the Corporation shall give written notice to the Secretary of
the Corporation which shall (a) certify that such shareholder is the record
owner of at least ten percent (10%) of the outstanding shares of the
Corporation's Voting Stock, (b) contain such shareholder's undertaking to
continue to hold, at all times from the date of such notice until the final
adjournment of such special meeting, at least ten percent of the outstanding
shares of the Corporation's Voting Stock, (c) specify the proposal or proposals
such shareholder desires to have submitted for shareholder action at such
special meeting, and (d) include all other material and information required to
be submitted or provided pursuant to law, the Corporation's Articles of
Incorporation and these Bylaws, including, without limitation, Article I,
Section 5 hereof, if applicable, given the nature of such shareholder's proposal
or proposals.
The Secretary of the Corporation promptly shall transmit such notice to the
Board of Directors which shall, within sixty days following the date on which
such notice is received by the Secretary, determine the sufficiency of the
notice and whether any one or more of the shareholder's proposals constitutes a
"Proper Matter for Shareholder Consideration" as set forth herein. A
shareholder's proposal shall be deemed a "Proper Matter for Shareholder
Consideration" unless, pursuant to Rule 14a-8(c) promulgated under the
Securities Exchange Act of 1934, as amended (or any similar or successor rule or
regulation), the Corporation would be entitled to omit such proposal from its
proxy statement for an annual meeting of shareholders had such proposal been
timely submitted to the Corporation for consideration at
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<PAGE>
such annual meeting of shareholders in accordance with Rule 14a-8. No special
meeting of shareholders shall be held at the call of a shareholder unless there
has been a determination by the Board of Directors that (i) the notice submitted
by the shareholder complies with the requirements of this Section, and (ii) at
least one of the proposals of such shareholder is a Proper Matter for
Shareholder Consideration; provided, however, that only proposals submitted by
the calling shareholder which are determined to be Proper Matters for
Shareholder Consideration shall be considered at such special meeting of
shareholders. Notwithstanding the foregoing, nothing herein shall prohibit the
Board of Directors from submitting matters to the shareholders at any special
meeting of shareholders including, without limitation, a special meeting of
shareholders called by a shareholder.
A shareholder calling a special meeting of shareholders shall reimburse the
Corporation for all costs incurred by it in connection with such special meeting
of shareholders including, without limitation, the costs of preparing and
disseminating a proxy statement or information statement in connection with, and
soliciting proxies to be voted at, such special meeting of shareholders. A
special meeting of shareholders of the Corporation called by a shareholder in
accordance with Article Tenth of the Articles of Incorporation shall be held at
such date, time and place as is determined by the Board of Directors of the
Corporation, which date shall be not later than ninety days after the date on
which the Board of Directors shall have determined that the shareholder has duly
called such meeting by giving proper written notice to the Secretary of the
Corporation and has otherwise complied with applicable law and the Articles of
Incorporation and Bylaws of the Corporation.
Notice
Section 3. Unless waived, written notice of the time, place and purpose of
every meeting of the shareholders shall be given by the Secretary not less than
five nor more than ninety days before the date of the meeting either personally
or by mail, to each shareholder of record entitled to vote at such meeting.
Quorum
Section 4.a. Unless otherwise provided in the Articles of Incorporation,
by statute or these Bylaws, at all meetings of shareholders, the presence in
person or by proxy, of shareholders entitled to cast a majority of the votes
which all shareholders are entitled to cast at the meeting shall constitute a
quorum for the transaction of business.
Quorum at Shareholder-called Special Meeting
Section 4.b. At any special meeting of shareholders called by a
shareholder pursuant to Article Tenth of the Corporation's Articles of
Incorporation, the presence, in person or by proxy, of shareholders entitled to
cast at least sixty-six and two thirds percent (66 2/3%) of the votes which all
shareholders are entitled to cast shall constitute a quorum for the transaction
of business.
No Waiver of Quorum
Section 4.c. Section 1756(b) of the BCL (and any successor provision of
similar import) shall not be applicable with respect to any special meeting of
shareholders called by a shareholder pursuant to Article Tenth of the
Corporation's Articles of Incorporation, or to any adjournment thereof. If a
special meeting of shareholders called by a shareholder pursuant to Article
Tenth of the Corporation's Articles of Incorporation cannot be organized for
lack of a
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<PAGE>
quorum under Section 4.b of these Bylaws, such special meeting shall
be deemed finally adjourned without the taking of any shareholder action.
Voting
Section 5. When a quorum is present at any meeting of the shareholders,
the shareholders entitled to vote and casting a majority of the votes at the
meeting shall decide any question brought before such meeting, unless the
question is one which, by express provision of law, the Articles of
Incorporation, or these Bylaws, requires a different vote, in which case such
express provision shall govern and control the decision of such question. The
shareholders present in person or by proxy at any duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Adjournment
Section 6. The holders of shares entitled to cast a majority of the votes
present or represented at any meeting may adjourn the meeting from time to time,
though such majority constitutes less than a quorum. When a meeting is
adjourned to another time or place, it shall not be necessary to give notice of
the adjourned meeting if the time and place to which the meeting is adjourned
are announced at the meeting adjourning and at the adjourned meeting only such
business is transacted as might have been transacted at the original meeting.
Proxies
Section 7. Every shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent without a meeting may authorize another person
or persons to act for him by proxy. Every proxy shall be executed in writing by
the shareholder or his agent. No proxy shall be valid after eleven months from
the date of its execution, unless a longer time is expressly provided therein.
Unless it is coupled with an interest, a proxy shall be revocable at will. A
proxy shall not be revoked by the death or incapacity of the shareholder but
shall continue in force until revoked by the personal representative or guardian
of the shareholder. The presence at any meeting of a shareholder who has given
a proxy shall not revoke such proxy unless the shareholder shall file written
notice of such revocation with the Secretary of the meeting prior to the voting
of such proxy.
Shareholders List
Section 8. The officer or agent having charge of the stock transfer books
for shares of the Corporation shall make and certify a complete list of the
shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof. Such list shall be arranged alphabetically within class and series,
with the address of and the number of shares held by each shareholder. The
information contained in such list shall be made available to the shareholders
by appropriate means at the time and place of the meeting of shareholders.
Record Date
Section 9. For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or to express consent to or dissent from any proposal without a meeting, or for
the purpose of determining shareholders entitled to receive payment of any
dividend or allotment of any right, or for the purpose of any other action, the
Board of Directors may fix, in advance, a record date for any such determination
of shareholders. Such date shall not be more than ninety days before the date
of such meeting nor more than ninety days prior to any other action. In such
case only such
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shareholders as shall be shareholders of record on the date so fixed shall be
entitled to notice of, and to vote at such meeting, or to receive payment of
such dividend, or to receive such allotments of rights or to exercise such
rights, as the case may be, notwithstanding transfer of any shares on the books
of the Corporation after any record date so fixed. When the determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board fixes a new record date under
this section for the adjourned meeting.
Certification by Nominee
Section 10. The nominee shareholder of record of a shareholder dividend
reinvestment plan or of an employee benefit plan may certify in writing to the
Corporation that all or a portion of the shares of the Corporation registered in
the name of such nominee are held for the account of a specified person or
persons. Such certification shall be received by the Corporation no later than
15 days after the record date for each special or annual meeting of
shareholders. The certification shall be in the form specified by the
Corporation and shall include such information as the name, address and number
of shares of the beneficial owners, taxpayer identification number, and any
other information that the Corporation may deem necessary. Upon receipt by the
Corporation of such certification, the person or persons specified in the
certification shall be deemed, for the purposes of notice of and voting at the
meeting of shareholders, to be the holders of record of the number of shares
specified, in place of the nominee shareholder of record.
Judge of Election
Section 11. In advance of any meeting of shareholders the Board may
appoint one or three judges of election to act at the meeting or any adjournment
thereof. If such judges are not so provided by the Board or shall fail to
qualify, the person presiding at a shareholder meeting may, and on the request
of any shareholder entitled to vote thereat shall, make such appointment. In
case any person appointed as judge of election fails to appear or act, the
vacancy may be filled by appointment made by the Board in advance of the meeting
or at the meeting by the person presiding thereat. Each judge of election,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of judge of election at such meeting with
strict impartiality and according to the best of his ability. No person shall
be elected a Director at a meeting at which he has served as a judge of
election.
Prior Notice of Shareholder Proposals
Section 12. At any annual or special meeting of shareholders, proposals by
shareholders (other than proposals of a shareholder calling a special meeting of
shareholders pursuant to Article Tenth of the Corporation's Articles of
Incorporation) shall be considered only if (a) such proposal is a "Proper Matter
for Shareholder Consideration" as set forth herein, and (b) prior notice thereof
has been timely given as provided herein. A shareholder's proposal shall be
deemed a "Proper Matter for Shareholder Consideration" unless, pursuant to Rule
14a-8(c) promulgated under the Securities Exchange Act of 1934, as amended (or
any similar or successor rule or regulation), the Corporation would be entitled
to omit such proposal from its proxy statement for an annual meeting of
shareholders had such proposal been timely submitted to the Corporation for
consideration at such annual meeting of shareholders in accordance with Rule
14a-8.
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Notice of any proposal to be presented by any shareholder (outside the
solicitation of proxies pursuant to the rules and regulations of the Securities
and Exchange Commission) at an annual meeting of shareholders shall be delivered
in writing to the Secretary of the Corporation not later than December 31 prior
to the annual meeting of shareholders at which such proposal is to be presented.
Notice of any proposal to be presented by any shareholder at any special meeting
of shareholders shall be delivered in writing to the Secretary of the
Corporation not less than sixty (60) days prior to the date of such special
meeting; provided, however, that if the date of such special meeting is first
publicly announced or disclosed (in a public filing or otherwise) less than
seventy (70) days prior to the date of such special meeting, such prior notice
shall be given not more than ten (10) days after such date is first so announced
or disclosed. Notice of any such proposal to be presented at any shareholders
meeting shall include: the text of the proposal to be presented, a brief written
statement of the reasons for such shareholder's support of the proposal, the
name and address of record of the proposing shareholder, the number and class of
all shares of each class of stock of the Corporation beneficially owned by such
shareholder, a representation that the shareholder is the holder of Voting Stock
of the Corporation, is entitled to vote at such meeting and intends to appear in
person or by proxy to present the proposal at such meeting. It shall also
describe, in detail, any material interest of such shareholder in the proposal.
If the Board of Directors, after affording the shareholder a reasonable
opportunity to cure any deficiency which the Board of Directors identifies in
the original notice, determines that notice of a proposal was not effected in
accordance with the foregoing procedure, then such proposal shall not be
eligible for consideration at the meeting and such determination shall be
conclusive and binding upon the Corporation and its shareholders.
Article VI: Stock Certificates
Description
Section 1. Certificates evidencing the ownership of the shares of stock of
the Corporation of any class shall be issued to those entitled to them by
transfer or otherwise. Each certificate shall bear a distinguishing number, the
actual or facsimile signatures of the Chairman of the Board and of the
Secretary, the actual or facsimile seal of the Corporation, and such recitals as
may be required by law. The stock certificates in any class or classes shall be
issued in numerical order, and a full record of the issuance of each such
certificate shall be made in the books usually kept for that purpose or required
by law. The certificates shall be of such form and design as the Board of
Directors may adopt and the form and design thereof may from time to time be
changed by the Board.
Transfers
Section 2. All shares of stock may be transferred on the books of the
Corporation by the registered holders thereof or by their attorneys legally
constituted or their legal representatives by surrender of the certificates
therefor for cancellation and a written assignment of the shares evidenced
thereby. The Board of Directors may from time to time appoint such transfer
Agents and Registrars of stock as it may deem advisable and may define their
powers and duties.
Registered Shareholders
Section 3. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold such person liable for calls
and assessments and shall not be bound to recognize
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any equitable or other claim to or interest in such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Pennsylvania.
Lost Certificates
Section 4. Any person or persons applying for a certificate of stock to be
issued in lieu of one alleged to be lost or destroyed shall, pursuant to the
laws of Pennsylvania relating to lost or destroyed certificates of stock,
furnish to the Corporation such information as the Board of Directors may
require to ascertain whether a certificate of stock has been lost or destroyed.
Dividends
Section 5. If any date appointed for the payment of any dividend, or fixed
for determining the shareholders of record to whom the same is payable, shall in
any year fall upon a Sunday or legal holiday, then such dividend shall be
payable or such shareholders of record shall be determined on the next
succeeding day not a Sunday or legal holiday.
Uncertificated Stock
Section 6. Notwithstanding anything herein to the contrary, any or all
classes and series of shares, or any part thereof, may be represented by
uncertificated shares, except that shares represented by a certificate that is
issued and outstanding shall continue to be represented thereby until the
certificate is surrendered to the Corporation. Within a reasonable time after
the issuance or transfer of uncertificated shares, the Corporation shall send to
the registered owner thereof, a written notice containing the information
required to be set forth or stated on certificates. The rights and obligations
of the holders of uncertificated shares of the same class and series shall be
identical. Notwithstanding anything herein to the contrary, the first sentence
of Section 2 of this Article VI shall be inapplicable to uncertificated shares
and in lieu thereof, the Corporation shall adopt alternative procedures for
registration of transfers.
Article VII: Indemnification
General
Section 1. The Corporation shall pay on behalf of any individual who is or
was a Director, officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as Director, officer, trustee,
fiduciary, employee or agent of any other domestic or foreign corporation or
partnership, joint venture, sole proprietorship, trust or other enterprise, or
who is or was serving as a fiduciary with respect to any employee benefit plan
as a result of his employment by, or service as a Director of, the Corporation
("Indemnified Person") all expenses, including attorneys' fees and
disbursements, incurred by such person in the defense or settlement of any
civil, criminal, administrative or arbitrative proceeding pending, threatened or
completed against such person by reason of his being or having been such
Indemnified Person, and shall indemnify such person against amounts paid or
incurred by him in satisfaction of settlements, judgments, fines, and penalties
in connection with any such proceeding, including any proceeding by or in the
right of the Corporation, except where such indemnification is expressly
prohibited by applicable law or where the acts or failures to act of the
Indemnified Person constitute willful misconduct, self-dealing or recklessness.
The foregoing right to payment and to indemnification shall not be exclusive of
other rights to which such person may be entitled as a matter of law or
otherwise.
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Agreements for Indemnification and Funding
Section 2. The Corporation is authorized, but not required, to enter into
agreements for indemnification with any Indemnified Person, however, failure to
enter into such agreements shall not in any way limit the rights of such
Indemnified Persons hereunder. The Corporation may, in addition to the
foregoing, create a fund of any nature, which may, but need not be, under the
control of a trustee, or otherwise secure or insure in any manner its
indemnification obligations.
Expenses
Section 3. Expenses incurred by a Director, officer, employee or agent in
defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation.
Disputes
Section 4. Any dispute related to the right to indemnification of or
advancement of expenses to Indemnified Persons as provided under this Article,
except with respect to indemnification for liabilities arising under the
Securities Act of 1933 which the Corporation has undertaken to submit to a court
for adjudication, shall be decided only by arbitration in accordance with the
commercial arbitration rules then in effect of the American Arbitration
Association.
Article VIII: General Provisions
Voting Shares of Other Corporations
Section 1. The Chairman or the Vice Chairmen of the Board of Directors,
the President, any Executive Vice President, any Vice President, or the
Secretary of the Corporation may vote, or appoint a proxy to vote, the shares of
any other business corporation or nonprofit corporation which are registered in
the name of the Corporation.
Seal
Section 2. The seal of the Corporation shall be circular in form, and
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal Pennsylvania."
Inapplicability of Certain Sections of the Pennsylvania Business Corporation Law
Section 3. 15 Pa.C.S. SS 2541-2548 (formerly Section 910),15 Pa.C.S. SS
2551-2556 (formerly Section 911) and 15 Pa.C.S. SS 2571-2575 as adopted December
23, 1983, March 23, 1988 and April 27, 1990, respectively, shall not be
applicable to this Corporation.
Amendments
Section 4. These Bylaws, including Article I, Section 4 entitled
"Liability of Directors" and Article VII entitled "Indemnification," may be
altered or amended at any annual meeting of shareholders, or at any special
meeting called for that purpose, by the shareholders entitled to vote and
casting a majority of the votes at the meeting, or at any duly constituted
meeting of the Board of Directors, by a majority of the Directors then in
office. Any alteration or amendment of Article 1, Section 4 and Article VII
shall be prospective only and shall not affect any rights or obligations then
existing.
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Exhibit 10.1
================================================================================
SUNOCO, INC.
LONG-TERM PERFORMANCE ENHANCEMENT PLAN
(Amended and Restated as of January 1, 1999)
================================================================================
<PAGE>
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 Sunoco, Inc.
1.2 Board of Directors - shall mean the Board of Directors of Sunoco, 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 Sunoco, Inc. (or of the
Board of Directors of any successor to Sunoco, Inc. or to all or
substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sunoco, 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 Sunoco, Inc.
1.7 Common Stock Units - shall have the meaning provided herein at Section
6.1.
1.8 Company - shall mean Sunoco, Inc., a Pennsylvania corporation. The term
"Company" shall include any successor to Sunoco, Inc., any Subsidiary or
Affiliate which has adopted the Plan, or a corporation succeeding to the
business of Sunoco, 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
<PAGE>
combination thereof:
(a) any tender offer for or acquisition of capital stock of Sunoco, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the position of director of
Sunoco, Inc. by a shareholder or a Group of shareholders in a proxy
solicitation or otherwise.
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
<PAGE>
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.
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:
<PAGE>
(a) any person (other than Sunoco, Inc., or any affiliate or subsidiary thereof)
makes a tender offer for capital stock of Sunoco, Inc.;
(b) any person becomes the beneficial owner, directly or indirectly, of capital
stock of Sunoco, 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
Sunoco, 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 Sunoco, Inc.;
(d) any person files a pre-merger notification for the acquisition of capital
stock of Sunoco, 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 Sunoco, 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
<PAGE>
(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
(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
<PAGE>
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 Sunoco, Inc. or any subsidiary
thereof.
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 Sunoco, 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 Sunoco, 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
Sunoco, 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 the Company. 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
<PAGE>
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.
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
<PAGE>
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.
The share limits set forth in this Section 2.7 shall be adjusted to reflect
any capitalization changes as discussed in Section 7.9.
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
<PAGE>
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 Sunoco, Inc. Long-Term Incentive Plan, the Sunoco, 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.
3.8 Termination for Other Reasons. Except as provided in Sections 3.7
and 3.9, or except as otherwise determined by the Committee, upon termination of
an Optionee's employment, all unvested Stock Options shall terminate
immediately, and all vested Stock Options shall terminate:
(a) immediately, in the case of an Optionee terminated by the Company for Just
Cause; or
(b) upon the expiration of ninety (90) calendar days following the date of
termination of
<PAGE>
an Optionee's employment, other than for Just Cause;
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 Sunoco, 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
<PAGE>
"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.
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
<PAGE>
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, upon termination of an
Optionee's employment, all unvested Incentive Stock Options shall terminate
immediately, and all vested Incentive Stock Options shall terminate:
(a) immediately, in the case of an Optionee terminated by the Company for Just
Cause; or
(b) upon the expiration of ninety (90) calendar days following the date of
termination of an Optionee's employment other than for Just Cause;
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
(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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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) Upon the termination of a Participant's employment by reason of
death, or permanent disability or retirement (as each is determined by the
Committee) prior to the end of the Performance Period:
(1) in the case of an award of Common Stock Units made pursuant
to Section 6.1(a) hereof and conditioned upon the Participant's continued
employment, the conditions to payout, if any, shall be determined by the
Committee and shall be as set forth in the agreement granting the Common
Stock Units.
(2) in the case of an award of Common Stock Units made pursuant
to Section 6.1(b) hereof and conditioned upon the attainment of certain
predetermined performance objectives, no portion of the Participant's
Common Stock Unit and the Dividend Equivalent Account related to such
award shall be forfeited, and the Common Stock Units, together with
related Dividend Equivalents, shall be paid out as though such
Participant continued in the employment of the Company through any
applicable Performance Period, and as, if, and when the applicable
Performance Goals have been met.
<PAGE>
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 permanent disability or retirement
(as each is determined by the Committee), that has occurred prior to the
<PAGE>
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.
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
<PAGE>
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
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:
<PAGE>
(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
================================================================================
SUNOCO, INC.
EXECUTIVE LONG-TERM STOCK INVESTMENT PLAN
(Amended and Restated as of January 1, 1999)
================================================================================
<PAGE>
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 Sunoco, 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 Sunoco, 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 Sunoco, Inc. (or of the
Board of Directors of any successor to Sunoco, Inc. or to all or
substantially all of its assets), or
(b) any entity, person or Group acquires shares of Sunoco, 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 Sunoco, Inc.
1.8 Common Stock Units - shall have the meaning provided herein at Section
8.1.
1.9 Company - shall mean Sunoco, Inc., a Pennsylvania corporation. The term
"Company" shall include any successor to Sunoco, Inc., any Subsidiary or
Affiliate which has adopted the Plan, or a corporation succeeding to the
business of Sunoco, 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
<PAGE>
combination thereof:
(a) any tender offer for or acquisition of capital stock of Sunoco, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the position of director of
Sunoco, 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
<PAGE>
(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.
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.
<PAGE>
1.31 Potential Change in Control - shall mean the occurrence of any of the
following events or transactions:
(a) any person (other than Sunoco, Inc., or any affiliate or subsidiary thereof)
makes a tender offer for capital stock of Sunoco, Inc.;
(b) any person becomes the beneficial owner, directly or indirectly, of capital
stock of Sunoco, 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
Sunoco, 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 Sunoco, Inc.;
(d) any person files a pre-merger notification for the acquisition of capital
stock of Sunoco, 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 Sunoco, 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
<PAGE>
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
(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
<PAGE>
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.
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 Sunoco, 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 Sunoco, 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 Sunoco, Inc. Executive Long-
term Stock Investment 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 Sunoco, 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 the Company. 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
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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 Sunoco, 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.
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, upon termination of an
Optionee's employment, all Stock Options shall terminate:
(a) immediately, in the case of an Optionee terminated by the Company for Just
Cause; or
(b) upon the expiration of ninety (90) calendar days following the date of
termination of an Optionee's employment other than for Just Cause;
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
<PAGE>
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 Sunoco, 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
<PAGE>
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.
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.
<PAGE>
4.7 Termination for Other Reasons. Except as provided in Sections 4.6 and
4.8, or except as otherwise determined by the Committee, upon termination of an
Optionee's employment, all Incentive Stock Options shall terminate:
(a) immediately, in the case of an Optionee terminated by the Company for Just
Cause; and
(b) upon the expiration of ninety (90) calendar days following the date of
termination of an Optionee's employment other than for Just Cause;
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.
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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) Upon the termination of Participant's employment by reason of death, or
permanent disability or retirement (as each is determined by the Committee)
prior to the end of the Performance Period:
(1) in the case of an award of Common Stock Units made pursuant to Section
8.1(a) hereof and conditioned upon the Participant's continued
employment, the conditions to payout, if any, shall be determined by
the Committee and shall be as set forth in the agreement granting the
Common Stock Units.
(2) in the case of an award of Common Stock Units made pursuant to Section
8.1(b) hereof and conditioned upon the attainment of certain
predetermined performance objectives, no portion of the Participant's
Common Stock Unit and the Dividend Equivalent Account related to such
award shall be forfeited, and the Common Stock Units, together with
related Dividend Equivalents, shall be paid out as though such
Participant continued in the employment of the Company through any
applicable Performance Period, and as, if, and when the applicable
Performance Goals have been met.
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
(b) a percentage equal to:
(1) the number of full and partial calendar months which the Common
<PAGE>
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 permanent disability or retirement (as each is
determined by the Committee), that has occurred 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>
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
<PAGE>
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.
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:
<PAGE>
(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
================================================================================
SUNOCO, INC.
LONG-TERM INCENTIVE PLAN
(Amended and Restated as of January 1, 1999)
================================================================================
<PAGE>
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 Sunoco, 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 Sunoco, 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 Sunoco, Inc. (or of the
Board of Directors of any successor to Sunoco, Inc. or to all or substantially
all of its assets), or
(b) any entity, person or Group acquires shares of Sunoco, 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 Sunoco, Inc.
1.8 Company - shall mean Sunoco, Inc., a Pennsylvania corporation. The term
"Company" shall include any successor to Sunoco, Inc., any Subsidiary or
Affiliate which has adopted the Plan, or a corporation succeeding to the
business of Sunoco, 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:
<PAGE>
(a) any tender offer for or acquisition of capital stock of Sunoco, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the position of director
of Sunoco, 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.
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
<PAGE>
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 Sunoco, Inc., or any affiliate or subsidiary
thereof) makes a tender offer for capital stock of Sunoco, Inc.;
(b) any person becomes the beneficial owner, directly or indirectly, of
capital stock of Sunoco, 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 Sunoco, 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 Sunoco, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sunoco, 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 Sunoco, Inc. for purposes of
this Plan has occurred.
1.24 Qualifying Termination - shall mean, with respect to the employment of
any Participant, the following:
<PAGE>
(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 Sunoco, 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
<PAGE>
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.
1.25 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 Sunoco, Inc. or any subsidiary
thereof.
<PAGE>
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 Sunoco, Inc. Executive Long-Term Incentive Plan adopted in June,
1978 provided, however, that any rights theretofore granted under that plan
shall not be affected.
2.2 Purpose of the Plan. The purposes of this Sunoco, 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 the Company. 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.
<PAGE>
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) 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
<PAGE>
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.
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
<PAGE>
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, upon termination of an
Optionee's employment; all Stock Options shall terminate:
(a) immediately, in the case of an Optionee terminated by the Company for
Just Cause; and
(b) upon the expiration of ninety (90) calendar days following the date
of termination of an Optionee's employment other than for Just Cause;
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
<PAGE>
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 Sunoco, 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.
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
<PAGE>
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.
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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
(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:
<PAGE>
(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.
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. During the life of the recipient, such award shall be
exercisable only by such person or by such person's guardian or legal
representative.
<PAGE>
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.
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
<PAGE>
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
February 4, 1999
================================================================================
<PAGE>
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 Sunoco, Inc. (or of the
Board of Directors of any successor to Sunoco, Inc. or to all or substantially
all of its assets); or
(b) any entity, person or Group acquires shares of Sunoco, 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 Sunoco, Inc.
1.3 Committee - shall mean the Governance Committee of the Board of
Directors of Sunoco, Inc.
1.4 Company - shall mean Sunoco, Inc., a Pennsylvania corporation. The term
"Company" shall include any successor to Sunoco, Inc., any subsidiary or
affiliate which has adopted the Plan, or a corporation succeeding to the
business of Sunoco, 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 Participant 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 Sunoco, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the position of director of
Sunoco, Inc. by a shareholder or a Group of shareholders in a proxy
solicitation or otherwise.
<PAGE>
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 Deferred Payment Election Form - shall mean and refer to the written
election by a Participant, in the form prescribed by the Committee, to
voluntarily defer the payment of all or a portion of such Participant's
Compensation under this Plan pursuant to Article II hereof.
1.10 Director - shall mean a member of the Board of Directors of Sunoco,
Inc.
1.11 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.
1.12 Form of Continuing Deferral - shall mean and refer to the written
commitment by a Participant, in the form prescribed by the Committee, to
mandatorily defer the payment of all of the Yearly Credit awarded to such
Participant under this Plan pursuant to Article IV hereof.
1.13 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.
1.14 Interest Equivalent - shall mean the entry in a Deferred Compensation
Account of an interest credit with respect to a Cash Unit, compounded on the
basis of the balance in the Participant's Deferred Compensation Account,
applying the interest factor approved by the Committee each year for such
purpose.
1.15 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.
1.16 Plan - shall mean this Directors' Deferred Compensation Plan, as it may
be amended from time to time.
1.17 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.
1.18 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.
1.19 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.
<PAGE>
1.20 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. Prior to the beginning of any calendar quarter, a
Participant may elect to defer all or a portion of the Compensation that would
otherwise be paid to the Participant in the next succeeding calendar quarter,
by filing a written notice of election with the Committee on the form(s)
prescribed by the Committee. Any such deferral election shall apply only to
Compensation to be earned on or after the first day of the calendar quarter
following the calendar quarter in which the election is received by the
Committee. An election to defer, made in accordance with this Article II shall
be irrevocable. The deferral election form(s) also will permit the Participant
to specify:
(a) the 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) the selection of a method of payment as set forth in Article III; and
(d) the designation of a beneficiary as set forth in Article V.
Without any further action by Participant, the choices specified in the
Participant's Deferred Payment Election Form regarding the percentage of
Compensation deferred, the form of deferral, the designation of a beneficiary,
and the method of payment shall each continue and be applied from calendar
quarter to calendar quarter to amounts yet to be deferred. Until further
express written notification, on a form prescribed by the Committee, to the
contrary, these choices shall continue to be applied to amounts to be credited
to such Deferred Compensation Account balance prospectively.
2.2 Subsequent Change in Method of Payment Election.
(a) Change in Method of Payment Prior to Commencement of Distribution or
Payment. With the approval of the Committee, and at any time not later than
twelve (12) months prior to the commencement of any payment or distribution of
the amounts credited to the Participant's Deferred Compensation Account, a
Participant in this portion of the Plan may file a written request with regard
to the method of payment (i.e., a series of
<PAGE>
installments versus lump-sum payout), on a form prescribed by the Committee,
which will revoke all such earlier or prior elections with regard to the
method of payment (i.e., a series of installments versus lump-sum payout), and
such new choice as to method of payment will be applied both to amounts
previously credited to the Participant's current Deferred Compensation Account
balance, as well as to amounts to be credited to such Deferred Compensation
Account balance prospectively. Any such new or subsequent election that is
made less than twelve (12) months prior to the commencement of any payment or
distribution of the amounts credited to the Participant's Deferred
Compensation Account, will be null and void, and the Participant's next
preceding timely election will be reinstated.
(b) Change in Method of Payment Following Commencement of Distribution or
Payment. After payment or distribution of amounts credited to the
Participant's Deferred Compensation Account has commenced, the Participant may
not change the period of time for which such amounts are payable. However the
Participant may convert installment payments to a lump sum distribution
subject to a penalty equal to a five percent (5%) reduction in the balance of
the Participant's Deferred Compensation Account, which shall be forfeited to
the Company.
2.3 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%).
2.4 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 calendar quarter preceding the calendar 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.
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
<PAGE>
Compensation Account shall be determined by dividing the Compensation by the
average closing price for Shares as published in the Wall Street Journal under
the caption "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.
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
published in the Wall Street Journal under the caption "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 published in the Wall Street Journal under the caption "New York
Stock Exchange Composite Transactions" for the ten (10) day period immediately
prior to such one-time conversion election.
<PAGE>
3.7 Time of Payment. Except as provided in Section 2.2 hereinabove, and 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 Section 3.7. The date of
payment or distribution must be irrevocably specified by the Director in his or
her most recently filed written Deferred Payment Election Form. 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 membership. The
Participant may elect to defer the receipt of his or her Compensation to:
(a) the first day of any calendar quarter, provided such date is at least
six (6) months after the end of the calendar quarter in which the Compensation
is earned; or
(b) the first day of the calendar 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.
3.8 Method of Payment. A Participant in this portion of the 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 Deferred Payment
Election Form 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 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
<PAGE>
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 published in the Wall Street Journal under the
caption "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 published in the Wall Street Journal
under the caption "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 published in the Wall Street Journal
under the caption "New York Stock Exchange Composite Transactions" ten (10) day
period prior to the 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
<PAGE>
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 published in the Wall Street Journal under the
caption "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 published in
the Wall Street Journal under the caption "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
<PAGE>
(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.
Notwithstanding the foregoing provisions of this Section 4.5, 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 published in the Wall Street Journal under the caption "New York Stock
Exchange Composite Transactions" for the ten (10) day period prior to each new
calendar year.
4.7 Subsequent Change in Method of Payment Election.
(a) Change in Method of Payment Prior to Commencement of Distribution or
Payment. With the approval of the Committee, and at any time not later than
twelve (12) months prior to the commencement of any payment or distribution of
the amounts credited to the Participant's Restricted Deferred Compensation
Account, a Participant in this portion of the Plan may file a written request
with regard to the method of payment (i.e., a series of installments versus
lump-sum payout), on a form prescribed by the Committee, which will revoke all
such earlier or prior elections with regard to the method of payment (i.e., a
<PAGE>
series of installments versus lump-sum payout), and such new choice as to
method of payment will be applied both to amounts previously credited to the
Participant's current Restricted Deferred Compensation Account balance, as
well as to amounts to be credited to such Restricted Deferred Compensation
Account balance prospectively. Any such new or subsequent election that is
made less than twelve (12) months prior to the commencement of any payment or
distribution of the amounts credited to the Participant's Restricted Deferred
Compensation Account, will be null and void, and the Participant's next
preceding timely election will be reinstated.
(b) Change in Method of Payment Following Commencement of Distribution or
Payment. After payment or distribution of amounts credited to the
Participant's Restricted Deferred Compensation Account has commenced, the
Participant may not change the period of time for which such amounts are
payable. However the Participant may convert installment payments to a lump
sum distribution subject to a penalty equal to a ten percent (10%) reduction
in the balance of the Participant's Restricted Deferred Compensation Account,
which shall be forfeited to the Company.
ARTICLE V
Designation of Beneficiaries
5.1 Designation of Beneficiary. The Participant shall name one or more
beneficiaries and contingent beneficiaries to receive any payments due
Participant at the time of death. No designation of beneficiaries shall be valid
unless in writing signed by the Participant, dated and filed with the Committee
during the lifetime of such Participant. A subsequent beneficiary designation
will cancel all beneficiary designations signed and filed earlier under this
Plan, and such new beneficiary designation shall be applied to all amounts
previously credited to the Participant's Deferred Compensation Account (or
Restricted Deferred Compensation Account, as the case may be), as well as to any
amounts to be credited to such Participant's Deferred Compensation Account (or
Restricted Deferred Compensation Account, as the case may be), prospectively.
In case of a failure of designation, or the death of the designated beneficiary
without a designated successor, distribution shall be paid in one lump sum to
the estate of the Participant.
5.2 Spouse's Interest. The interest in any amounts hereunder of a spouse who
has predeceased the Participant shall automatically pass to the Participant and
shall not be
<PAGE>
transferable by such spouse in any manner, including but not limited to such
spouse's will, nor shall such interest pass under the laws of intestate
succession.
5.3 Survivor Benefits. Upon the Participant's death, any balances in the
Participant's Deferred Compensation Account and Restricted Deferred Compensation
Account shall be paid in accordance with the method and form elected by the
Participant; provided, however, that the balance of the Participant's Deferred
Compensation Account and Restricted Deferred Compensation Account may be paid
out as a lump sum at the request of the designated beneficiary, and with the
consent of the Committee.
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 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,
<PAGE>
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.
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,
<PAGE>
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 Sunoco,
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
Amendment No. 1999-1 to the
Sunoco, Inc. Deferred Compensation Plan
Effective January 1, 1999
RESOLVED, That, effective as of January 1, 1999, the Sunoco, Inc. Deferred
Compensation Plan (the "Plan") be, and hereby is, amended by deleting the
current Section 1.12 of the Plan in its entirety and replacing it with the
following text:
1.12 Interest Equivalent shall mean entry in a Participant's Deferred
Bonus Account of an interest credit with respect to a Cash Unit, compounded on
the basis of the balance in the Participant's Deferred Compensation Account,
applying the interest factor approved by the Committee each year for such
purpose; and
<PAGE>
Exhibit 10.9
================================================================================
SUNOCO, INC.
EXECUTIVE RETIREMENT PLAN
(Restated as of December 31, 1998)
================================================================================
<PAGE>
ARTICLE I
Definitions
1.01 Actuarial Equivalent - shall mean, except as otherwise provided in this
Section, a benefit of equivalent current value to the benefit which would
otherwise have been provided to the Participant, determined on the same basis as
determined under the Sunoco, Inc. Retirement Plan. For purposes of determining
the lump-sum Actuarially Equivalent value of retirement income pursuant to
Section 3.02, 3.04 or 3.06, the value of early retirement and survivor benefits
subsidies otherwise included in the determination of benefits under the Plan
shall be reflected in such lump-sum amounts.
1.02 Affiliated Company - shall mean the Company and:
(a) Any other corporation which is included within a "controlled group of
corporations" within which Sunoco, Inc., is also included as determined under
Section 1563 of the 1954 Internal Revenue Code without regard to subsections
(a)(4) and (e)(3)(C) of said Section 1563;
(b) Any other trades or businesses (whether or not incorporated) which,
based on principles similar to those defining a "controlled group of
corporations" for purposes of (a) above, are under common control; and
(c) Any other organization so designated by the Board Committee.
1.03 Affiliated Company Benefit - shall mean the monthly amount of Benefit (or
the Actuarial Equivalent of such Benefit) to which a Participant and/or Spouse
is or was entitled under any qualified or nonqualified defined contribution or
defined benefit plan that is or was maintained by an Affiliated Company as the
primary source of employer-provided retirement income for participants of such
plan, including the Base Plan; provided, however, that in the case of a defined
contribution plan, the value of such Benefit will be determined based on the
aggregate contributions made on behalf of the Participant (whether or not
subsequently withdrawn by the Participant), accumulated at a rate or rates of
interest as determined by the Plan Administrator, which determination will be
made in a uniform and consistent manner.
1.04 Base Plan - shall mean the Sunoco, Inc. Retirement Plan.
1.05 Beneficiary - shall mean the person or persons, other than a contingent
annuitant, designated by a Participant or retired Participant pursuant to
Article IV.
1.06 Board of Directors - shall mean the Board of Directors of Sunoco, Inc.
1.07 Board Committee - shall mean those individual Directors who have been
appointed by the Board of Directors with the powers and responsibilities
specified in Article VIII and to which has been delegated any fiduciary
responsibilities of the Board of Directors with respect to the Plan.
1.08 Cause - shall mean termination of a Participant's employment by the
Company, due to:
<PAGE>
(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.
1.09 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 Sunoco, Inc. (or of the
Board of Directors of any successor to Sunoco, Inc. or to all or substantially
all of its assets) or
(b) any entity, person or Group acquires shares of Sunoco, 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.
1.10 Company - shall mean Sunoco, Inc. or any corporation which succeeds to
the position of Sunoco, Inc. as common parent of the Sunoco Affiliated Group,
within the meaning of regulations issued under the Internal Revenue Code.
1.11 Credited Service - subject to the limitations hereinafter described,
shall mean the sum of the following:
(a) the actual amount, in completed years and months, of the Participant's
Service; and
(b) an additional one month for each full year of such Service completed at
the time the determination is being made; provided, however, that:
(1) the maximum number of months credited under this provision will be
thirty-six (36);
(2) when the Participant attains his 62nd birthday, the number of months
credited under this provision will automatically become thirty-six (36),
regardless of the length of the Participant's Service; and
(3) after the Participant's 62nd birthday, the number of months credited
under this provision will be reduced from month to month so that at any
time a determination is being made, the maximum number of months credited
under this provision will not exceed the number of months remaining until
the Participant's 65th birthday.
<PAGE>
Credited Service will not include any Service after a Participant's Normal
Retirement Date, nor will it include periods of employment with an Affiliated
Company before or after it becomes or ceases to be an Affiliated Company.
1.12 Continuing Director - shall mean a Director who was a member of the Board
of Directors of Sunoco, Inc. 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 Sunoco, Inc.;
(b) any merger, consolidation, or sale of all or substantially all of the
assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the position of director of
the Company by a shareholder of a Group of shareholders in a proxy
solicitation or otherwise.
1.14 Earnings - shall mean:
(a) For periods beginning after December 31, 1997, the sum of:
(1) base salary paid or payable to a Participant by the Company or an
Affiliated Company; and
(2) the actual incentive awards granted to a Participant pursuant to the
Sunoco, Inc. Executive Incentive Plan (the "EIP") or the equivalent thereof
pursuant to an incentive plan sponsored by the Company or an Affiliated
Company; or
(b) For periods beginning prior to January 1, 1998, the sum of:
(1) base salary paid or payable to a Participant by the Company or an
Affiliated Company, and
(2) the actual incentive awards granted to a Participant pursuant to the
EIP, 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 the Company or an Affiliated Company.
1.15 Effective Date - shall mean January 1, 1980, and as to any amendment, the
effective date specified by the Board of Directors.
1.16 Employee - shall mean any individual who is employed by the Company or an
Affiliated Company.
1.17 Executive - shall mean any Employee who is employed by the Company as a
principal officer, or in a job which, in accordance with the Company's job
evaluation program, has been assigned 1400 or more Hay points, and any other
Employee who is designated by the Board Committee as being an Executive for
purposes of this Plan.
1.18 Executive Service - shall mean that part of a Participant's Service which
was rendered while he was an Executive.
<PAGE>
1.19 Final Average Earnings - shall mean the greater of:
(a) the arithmetic average of the Participant's aggregate Earnings during
the thirty-six (36) 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 thirty-six (36)) which produces the highest average;
or
(b) the Transition Final Average Earnings.
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.
1.21 Nonaffiliated Employer Benefit - shall mean the monthly amount of
Benefit, (or the Actuarial Equivalent of such Benefit) to which a Participant
and/or Spouse is or was entitled as a result of prior employment with any
employer other than the Company or an Affiliated Company under any qualified or
nonqualified defined contribution or defined benefit retirement plan that is or
was maintained by such employer as the primary source of employer-provided
retirement income for participants of such plan; provided, however, that in the
case of a defined contribution plan, the value of such Benefit will be
determined based on the aggregate contributions made on behalf of the
Participant (whether or not subsequently withdrawn by the Participant),
accumulated at a rate or rates of interest as determined by the Plan
Administrator, which determination will be made in a uniform and consistent
manner.
1.22 Normal Retirement Date - shall mean the first day of the calendar month
coincident with or next following the Participant's 65th birthday.
1.23 Participant - shall mean any Employee who is a Participant in the Sunoco,
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
benefit sunder this Plan.
1.24 Plan - shall mean the Sunoco, Inc. Executive Retirement Plan as set forth
in this document and as it may from time to time be amended.
1.25 Plan Administrator - shall mean the individual or entity designated as
such by the Board Committee pursuant to Article VIII.
1.26 Plan Year - shall mean the annual period beginning on January 1 of any
year and ending on the following December 31.
1.27 Potential Change in Control shall mean the occurrence of any of the
following events or transactions:
<PAGE>
(a) any person (other than Sunoco, Inc. or any affiliate or subsidiary
thereof) makes a tender offer for capital stock of Sunoco, Inc.
(b) any person becomes the beneficial owner, directly or indirectly, of
capital stock of Sunoco, 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
Sunoco, 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 Sunoco, Inc.
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sunoco, 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 Sunoco, Inc. for purposes of
this Plan has occurred.
1.28 Preretirement Spouse's Death Benefit - shall mean the benefit payable
upon the Participant's death to the Spouse of a Participant pursuant to Section
5.01.
1.29 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;
(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,
responsibility 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
<PAGE>
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;
provided, however, that in the case of any such termination of employment
by the Participant under this subsection 1.29(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 termination for
Just Cause, or a termination of employment by the Participant for one of the
reasons set forth in subsection 1.29(b) above, following a Potential Change in
Control, if the Participant can demonstrate that such termination or
circumstance in subsection 1.29(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 that, in either such case, such Change in
Control actually occurs within one (1) year following the Termination Date.
<PAGE>
1.30 Service - shall mean the completed years and months of an Employee's
employment by the Company or an Affiliated Company, whether or not continuous.
1.31 Social Security Benefit - shall mean the Primary Insurance Amount to
which a Participant becomes entitled at age sixty-five (65) under Social
Security legislation in effect on the earliest of his Normal Retirement Date,
early retirement date or Termination Date.
1.32 Spouse - shall mean the individual who is the legally married husband or
wife of a Participant.
1.33 Statutory Benefit - shall mean the monthly amount of any benefit (or the
Actuarial Equivalent of such benefit) from any country other than the United
States to which a Participant, upon proper application, is or would be entitled.
1.34 Termination Date - shall mean the date on which a Participant ceases to
be an Employee.
1.35 Transition Earnings - shall mean:
(a) For periods beginning on or after September 1, 1997, and ending on or
before December 31, 1998, the sum of:
(1) base salary paid or payable to a Participant by the Company or an
Affiliated Company; and
(2) the Participant's unadjusted annual guideline bonus in effect for the
Participant under the EIP or successor plans 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 twelve (12)); or
(b) For periods ending prior to September 1, 1997, the sum of:
(1) 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 Sunoco, Inc. Long-Term
Incentive Plan or the Sunoco, Inc. Executive Long-Term Stock Investment
Plan; provided, however, that such RSUs become vested and payable); and
(2) 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 1.35(b)(1) herein).
1.36 Transition Final Average Earnings - shall mean the arithmetic average of
the Participant's aggregate Transition Earnings during the thirty-six (36)
calendar months of the 120-consecutive calendar month period of Service ending
on the earlier of December 31, 1998, actual
<PAGE>
retirement or Termination Date (or the actual number of such months if less than
thirty-six (36)) which produces the highest average.
ARTICLE II
Contributions
2.01 Employer Contributions. All benefits payable under this Plan will be
paid by the Company. A Participant will have no right, title, or interest
whatsoever in or to any investments which the Company may make to aid in meeting
such obligations as may arise under the Plan. Nothing contained in the Plan,
nor any action taken pursuant to its provisions, will create or be construed to
create a trust or a fiduciary relationship between the Company and any
Participant or any other person. To the extent that any person acquires a right
to benefits under this Plan, such right will be no greater than the right of an
unsecured general creditor of the Company. All payments to be made under the
Plan will be paid from the general funds of the Company and no special or
separate fund will be established and no segregation of assets will be made to
assure payment of such amounts.
2.02 Participant Contributions. No contributions by Participant will be
required or permitted under this Plan.
2.03 Expenses of Administration. All expenses of administering this Plan will
be paid by the Company.
ARTICLE III
Retirement Benefits
3.01 Normal Retirement. Except as provided in Section 3.05, each Participant
will be retired on his Normal Retirement Date.
3.02 Normal Retirement Income. Subject to the provisions of Sections 3.03 and
3.04, a Participant who retires on or after his Normal Retirement Date and after
the completion of five years of Executive Service will be entitled to a monthly
normal retirement income, payable in the normal form of payment pursuant to
Section 3.07, equal to the excess of (a) over (b), where:
(a) equals the sum of:
(1) 1-2/3% of his Final Average Earnings multiplied by his Credited
Service up to a maximum of 30 years, plus
(2) 3/4% of his Final Average Earnings multiplied by his Credited Service
in excess of 30 years, and
(b) equals the sum of:
(1) 1-2/3% of his Social Security Benefit multiplied by his Service up to
a maximum of 30 years,
<PAGE>
(2) 100% of his Affiliated Company Benefit, plus
(3) 100% of his Statutory Benefit;
provided, however, that the requirement that the Participant have completed at
least five years of Executive Service will be waived in the case of any
Participant who is an Executive on January 1, 1980 and who has then attained his
55th birthday.
3.03 Maximum Normal Retirement Income.
(a) The monthly normal retirement income which a Participant would
otherwise be entitled to receive under Section 3.02 will not exceed fifty
percent (50%) of his Final Average Earnings less 100% of his Affiliated Company
and Statutory Benefits.
(b) Section 3.03(a) shall not apply to limit that part of the benefit
attributable to incentive compensation under subsection 1.19(b) to the extent
that the Participant made an election to defer incentive compensation pursuant
to the Sunoco, Inc. Deferred Compensation Plan.
3.04 Minimum Normal Retirement Income. Notwithstanding the foregoing, the
monthly normal retirement income which a Participant would otherwise be entitled
to receive under Section 3.02 will not be less than the excess of (a) over (b),
where
(a) equals 3-1/3% of his Final Average Earnings multiplied by the number of
complete years of his Service up to a maximum of twelve (12) such years, and
(b) equals the sum of:
(1) 100% of his Affiliated Company Benefit,
(2) 100% of his Nonaffiliated Employer Benefit, plus
(3) 100% of his Statutory Benefit.
3.05 Early Retirement Date. A Participant will be eligible to retire on an
early retirement date which will be the first day of any calendar month
coincident with or next following his 55th birthday if he has then completed at
least five (5) years of Executive Service.
3.06 Early Retirement Income. The monthly early retirement income payable to
the Participant commencing on his early retirement date will be equal to the
monthly normal retirement income that would otherwise be applicable under
Sections 3.02, 3.03 and 3.04, adjusted as follows:
(a) The Social Security Benefit referred to in Sections 3.02 and 3.04 will
be determined by projecting the Participant's Service to his Normal Retirement
Date and assuming constant Earnings, at his last rate in effect, to Normal
Retirement Date, and will then be multiplied by a fraction, the numerator of
which will be his Service to the date of actual retirement and the denominator
of which will be his projected Service to Normal Retirement Date.
(b) The amount calculated in subsection 3.02(a) will be reduced by 5/12%
for each full month by which actual retirement precedes Normal Retirement Date
by more than five (5) years, and the offset for Social Security Benefits
calculated in Sections 3.02(b) and 3.04 will
<PAGE>
be reduced by 7/12% for each full month that actual retirement precedes Normal
Retirement Date during the five-year period immediately preceding Normal
Retirement Date, and 7/24% for each full month that actual retirement precedes
Normal Retirement Date by more than five (5) years.
3.07 Normal Form of Benefit. Except as provided in Article IV, retirement
benefits under this Plan will be in the form of a lump sum payment of the
Actuarial Equivalent of the retirement income determined under Sections 3.02,
3.03, 3.04 and 3.06, whichever is applicable.
3.08 Time of Payment. The payment of a Participant's retirement benefits
shall be made or commence no later than the last day of the calendar month in
which the Participant retires.
3.09 Increase in Monthly Benefits. Effective July 1, 1998, the monthly
benefits of
(a) retirees who retired prior to January 1, 1981, as a result of normal
retirement under Section 3.01 or early retirement under Section 3.05,
(b) surviving Spouses, contingent annuitants or Beneficiaries of the
retirees described in subsection 3.09(a) who are receiving benefits on July 1,
1998, or
(c) surviving Spouses who began receiving surviving Spouse's benefits under
Section 5.04 or Section 5.05 prior to January 1, 1990,
shall be increased by the amount determined in the following sentence, subject,
however, to the limitation that the combined increases under the Base Plan and
the Plan effective July 1, 1998, shall not exceed $85.00.
The monthly benefit increase shall be the excess of the sum of twenty percent
(20%) of the combined monthly benefit under the Base Plan and the Plan up to
$250.00, ten percent (10%) of the combined monthly benefit under the Base Plan
and the Plan in excess of $250.00 up to $500.00, three percent (3%) of the
combined monthly benefit under the Base Plan and the Plan in excess of $500.00
up to $750.00, and one percent (1%) of the combined monthly benefit under the
Base Plan and the Plan in excess of $750.00 up to $1,000, over the monthly
benefit increase effective July 1, 1998 under the Base Plan. Benefits payable
on account of disability shall not be increased. Fifty percent (50%) of these
retiree benefit increases shall be continued to the surviving Spouse; provided,
however, that any such increases in retirement income shall not be subject to
adjustments in effect at the time of the election or retirement reflecting the
cost of benefit increases under this Section.
ARTICLE IV
Optional Forms of Retirement Income
4.01 Election of an Optional Form of Payment. Not later than thirty (30) days
prior to a Participant's retirement date, a Participant may elect, in lieu of
the normal form of retirement benefits, an optional form of retirement income.
A Participant may not change or revoke an elected
<PAGE>
option unless such change is made thirty (30) days prior to the Participant's
retirement date. Each election, designation and revocation of an option will be
made in writing and in conformity with such rules as may be prescribed by the
Plan Administrator. Notwithstanding the foregoing, a Spouse may not elect an
optional form of receiving any benefit payable under Article V.
4.02 Monthly Annuity Option. A Participant may elect to receive an annuity
which is equal to the monthly normal retirement income determined under Sections
3.02, 3.03, 3.04 and 3.06, whichever is applicable.
4.03 Contingent Annuity Option. A Participant may elect to receive a reduced
retirement income, the amount of which will be determined by application of
appropriate Actuarially Equivalent factors adopted by the Plan Administrator for
the age and sex of the Participant and the contingent annuitant. The contingent
annuity option provides:
(a) payments to the Participant for life; and
(b) continuation of such payments, or any part of them designated by the
Participant, to the contingent annuitant, if surviving, for life.
4.04 Ten-Year Certain Option. A Participant may elect to receive a retirement
income of Actuarially Equivalent value payable for life, provided that such
income will be paid to such Participant or to the Beneficiary of such
Participant for ten (10) years after the Participant's retirement regardless of
whether the Participant or Beneficiary survives such period. At the discretion
of the Plan Administrator, any benefit payable hereunder to a Beneficiary may be
commuted and paid in one sum.
4.05 Other Forms of Pension. A Participant may elect to receive a benefit
payable over a period not less than the remaining lifetime of such Participant
and, if the Participant so further elects, thereafter to the designated
Beneficiary for as long as such designated Beneficiary survives the Participant
in such other form having an Actuarially Equivalent value as may be approved by,
and be subject to such conditions as may be prescribed by, the Plan
Administrator.
4.06 Rules Applicable to Contingent Annuity Option.
(a) If the Participant should die before the effective date of the
contingent annuity option, no benefit will be payable to the contingent
annuitant.
(b) If the contingent annuitant should die before the effective date of the
contingent annuity option, the option will automatically be cancelled and the
normal monthly retirement income will be payable to the Participant as if the
option had not been elected.
(c) If the contingent annuitant should die before the Participant but after
the effective date of the contingent annuity option, benefits will be payable
or continue to be paid to the Participant on the reduced basis; provided,
however, that if the contingent annuitant should die during the first four
years following commencement of the retirement income payments to the
Participant, the amount of the reduced retirement income payable to the
surviving
<PAGE>
retired Participant will be increased by restoring a percentage of the
reduction amount as follows:
Death of Contingent Percentage of
Annuitant During Discount Restored
First Year 80%
Second Year 60%
Third Year 40%
Fourth Year 20%
Fifth and Subsequent Years 0%
(d) If the retirement date is earlier than the effective date of the
contingent annuity option, retirement benefits commencing at the actual
retirement date will be made on the normal form of retirement income. If the
Participant and the contingent annuitant are living on such effective date,
the retirement benefit will be adjusted to provide retirement income on and
after such date in the optional form.
4.07 Acceleration of Annuity Options. Notwithstanding the foregoing, if the
Internal Revenue Service makes a determination that the Participant must include
any amounts from the Plan in the taxable income of such Participant in a taxable
year prior to the year in which the Participant actually receives those amounts,
the Participant shall receive the Actuarial Equivalent of the remainder of the
benefit determined under Sections 3.02, 3.03, 3.04 and 3.06, whichever is
applicable. Such distribution shall be made no later than the last day of the
calendar year in which the Participant informs the Plan Administrator that the
Internal Revenue Service has made such a determination.
ARTICLE V
Death Benefits
5.01 Preretirement Spouse's Death Benefit. In the event of the death of a
Participant during active employment and after having become eligible to elect
an early retirement date, the Participant's Spouse will be entitled to a death
benefit payable in the normal form of payment pursuant to Section 5.02 in the
amount hereinafter set forth. The amount of such monthly income will be twenty-
five percent (25%) of the monthly early retirement income that would have been
payable to the Participant under Section 3.06 had he retired on the date of his
death; provided, however, that:
(a) the reduction specified in Section 3.02(b)(2) with respect to the
Participant's Affiliated Company Benefit will not be applicable;
(b) the early retirement reduction percentage described in subsection
3.06(b) will be applied only to the offset for Social Security Benefits;
<PAGE>
(c) the monthly income payments to the Spouse will be reduced by 1/2% for
each year that the Spouse is more than ten (10) years younger than the
Participant; and
(d) the amount payable to the Spouse will be reduced by any amount of
Affiliated Company Benefits that are attributable to Affiliated Company
contributions and that are payable to such Spouse.
5.02 Normal Form of Preretirement Spouse's Death Benefit. Except as otherwise
elected pursuant to Section 5.03, the Preretirement Spouse's Death Benefit will
be in the form of a lump sum payment of the Actuarial Equivalent of the
Preretirement Spouse's Death Benefit determined under Section 5.01 payable no
later than the last day of the calendar month following the month in which the
Participant died.
5.03 Election of Optional Form of Preretirement Spouse's Death Benefit. A
Participant who is eligible to elect an early retirement date may:
(a) elect to have the Preretirement Spouse's Death Benefit paid in an
annuity pursuant to Section 5.04;
(b) elect the optional preretirement spouse's death benefit annuity
pursuant to Section 5.05; or
(c) elect to have the optional Preretirement Spouse's Death Benefit annuity
pursuant to Section 5.05 in a lump sum payment pursuant to Section 5.06.
A Participant may change or revoke an elected option at any time prior to his
actual retirement. Each election, designation and revocation of an option will
be made in writing and in conformity with such rules as may be prescribed by the
Plan Administrator.
5.04 Preretirement Spouse's Death Benefit Annuity. If this form of payment is
elected by the Participant, the Participant's Spouse shall receive a
Preretirement Spouse's Death Benefit in the form of monthly payments commencing
no later than the last day of the calendar month following the month in which
the Participant died, payable over the lifetime of such Spouse.
5.05 Optional Preretirement Spouse's Death Benefit Annuity.
(a) Amount of Benefit. If this form of payment is elected by the
Participant, the Participant's Spouse shall receive a death benefit in the
form of monthly payments commencing no later than the last day of the calendar
month following the month in which the Participant died, payable over the
lifetime of such Spouse in the amount hereinafter set forth. The amount of
each such monthly income payment will be the sum of the monthly income payment
under Section 5.04 and twenty-five percent (25%) of the monthly early
retirement income that would have been payable to the Participant under
Section 3.06 had he retired on the date of his death; provided, however, that;
(1) the reduction specified in subsection 3.02(b)(2) with respect to the
Participant's Affiliated Company Benefit will not be applicable;
<PAGE>
(2) the early retirement reduction percentage described in subsection
3.06(b) will be applied only to the offset for Social Security Benefits;
(3) the monthly income payments to the Spouse will be reduced by 1/2% for
each year that the Spouse is more than ten years younger than the
Participant; and
(4) the amount payable to the Spouse will be reduced by any amount of
Affiliated Company Benefits that are attributable to Affiliated Company
contributions and that are payable to such Spouse.
(b) Reduction of Other Benefits. If this form of payment is elected by the
Participant, the monthly amount of retirement benefit that becomes payable to
either the Participant or Spouse under the plan will be reduced by an amount
equal to 1/4% of:
(1) 100% the monthly amount of early retirement income that would have
been payable to the Participant under Section 3.06, determined as of his
retirement date or, if earlier, as of his date of death on the assumption
he had retired on that date; provided, however, that:
(i) the reduction specified in subsection 3.02(b)(2) with respect to
the Participant's Affiliated Company Benefits will not be applicable;
(ii) the early retirement reduction percentage described in subsection
3.06(b) will be applied only to the offset for Social Security Benefits;
and
(iii) any amount of Affiliated Company Benefits that are or would
have been payable to the Spouse and that are attributable to Affiliated
Company contributions will be subtracted from the monthly amount of
income otherwise determined; multiplied by
(2) the number of full calendar years and any partial calendar year
during which the Participant and his Spouse were living and the optional
Preretirement Spouse's Death Benefit was in effect.
This reduction shall also be in effect if the Participant chooses an
optional preretirement lump sum death benefit pursuant to Section 5.06 of the
Plan.
(c) When Coverage Will Take Effect. Unless otherwise specified by the Plan
Administrator, the optional Preretirement Spouse's Death Benefit coverage will
not take effect until the later of the date on which the Participant has met
the age and Service requirements of Section 3.05 and the first day of the
calendar month coincident with or next following the date the Participant's
election was received by the Plan Administrator, provided that the Participant
is alive, employed by the Company or an Affiliated Company and has not
attained his Normal Retirement Date on the day such coverage would otherwise
become effective.
<PAGE>
(d) Revocation of Election. A Participant will have the right to revoke
his election at any time before his actual retirement. Such election will be
revoked automatically if the Participant ceases to have a Spouse; provided,
however, that if such Participant subsequently acquires another Spouse, the
coverage will automatically be reinstated unless revoked by the Participant.
(e) End of Coverage. The death benefit coverage provided for under this
Section 5.05 will end upon the Participant's Normal or early Retirement Date.
5.06 Optional Preretirement Lump Sum Death Benefit. If this form of payment
is elected by the Participant, the Participant's Spouse shall receive a death
benefit in the form of a lump sum payment of the Actuarial Equivalent of the
optional Preretirement Spouse's Death Benefit annuity determined under Section
5.05 payable no later than the last day of the calendar month following the
month in which the Participant died.
5.07 Postretirement Spouse's Death Benefit. In the event a Participant who
has elected to receive a retirement benefit in one of the optional forms
outlined in Article IV, dies after retiring or after attaining Normal Retirement
Date, the Spouse at the time of commencement of the distribution of such
retirement benefit will receive a monthly retirement income payable for the
lifetime of such Spouse in an amount equal to fifty percent (50%) of the
retirement income being paid or payable to the Participant (before giving effect
to any reduction in income required by the election of an optional form of
payment under Article IV); provided, however, that:
(a) the reduction specified in Section 3.02(b)(2) with respect to the
Participant's Affiliated Company Benefit will not be applicable;
(b) the monthly income payable to the Spouse will be reduced by 1/2% for
each year that the Spouse is more than ten years younger than the Participant;
and
(c) the amount payable to the Spouse will be reduced by any amount of
Affiliated Company Benefits that are attributable to Affiliated Company
contributions and that are payable to such Spouse.
The Spouse's death benefit payable under this Section 5.07 will be in addition
to any benefits otherwise payable under Article IV.
ARTICLE VI
Termination of Employment or Status as Executive; Re-employment
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 6.01(b) and Section 6.04 hereof.
<PAGE>
(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 6.01(b). Such release and discharge shall be
in such form as 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 6.01(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 fifty-five (55), or if the
Participant elects, the benefit will be paid no later than thirty (30) days
after the Termination Date, in a lump sum payment of the Actuarial Equivalent
of the age fifty-five (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.
6.02 Termination of Executive Status. If a Participant remains employed by
the Company or an Affiliated Company but ceases to be an Executive, he will
forfeit the right to all benefits under this Plan unless otherwise designated to
remain as a Participant by the Board Committee or unless he had attained his
55th birthday and completed at least five (5) years of Executive Service at the
time he ceased to be an Executive; provided, however, that the requirement that
the Participant have completed at least five years of Executive Service will be
waived in the case of any Participant who is an Executive on January 1, 1980 and
who has then attained his 55th birthday. If any such participant is designated
at the Board Committee as being eligible to remain a Participant even though no
longer an Executive, the Participant will continue as such for all purposes of
this Plan. If the Participant is not so designated by the Board Committee but
has attained his 55th birthday and, except for a Participant who was an
Executive on January 1, 1980 and who had then attained his 55th birthday, has
completed at least five years of Executive Service, he will remain a
Participant, but will be entitled to benefits based only upon his Service,
Credited Service and Final Average Earnings as of the date he ceased to be an
Executive.
<PAGE>
6.03 Reemployment. If a retired Participant is reemployed by the Company or
an Affiliated Company, his benefits will thereupon cease, and upon again
becoming such an Employee he will have his prior period of Service, Credited
Service and Executive Service restored to him. If he had made an election of an
optional form of payment, such election will continue on file with the Plan
Administrator, but no payment will be due under such option in the event of his
death before he again retires. Upon subsequent retirement his retirement income
will be based on his Service and Credited Service which was restored under this
Section 6.03 plus any Service and Credited Service rendered while employed as an
Executive after the time of his reemployment.
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 1.11(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).
(4) Final Average Earnings shall be determined using the greater of:
(i) the amount determined under Section 1.19 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 fifty-five (55), or if the Participant
elects, the benefit will be paid no later than thirty (30) days after the
Termination Date, in a lump sum payment of the Actuarial Equivalent of the
age fifty-five (55) retirement income determined under Section 3.06 with
<PAGE>
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
thirty (30) days after the retired Participant or Beneficiary notifies the
Plan that he is exercising this 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.
ARTICLE VII
Disability Benefits
7.01 Participants Receiving Disability Benefits. A Participant receiving
disability benefits under the Sunoco Executive Disability Income Program will
remain a Participant. Such a Participant will be entitled to a monthly normal
retirement income, to commence at his Normal Retirement Date, computed in
accordance with Sections 3.02, 3.03 or 3.04 as applicable, assuming constant
Earnings and guideline bonus to Normal Retirement Date, Social Security benefits
as calculated under the Social Security Act in effect on the Participant's date
of disability, and including as Service, Credited Service and Executive Service,
the period during which he qualifies for and receives disability benefits under
the Sun Executive Disability Income Program. Such determination will be made as
of Normal Retirement Date. The normal form for the payment of retirement income
to the Participant will be as set forth in Section 3.07.
7.02 Status During Disability. A Participant receiving Sunoco Executive
Disability Income Program benefits prior to his Normal Retirement Date will be
entitled to benefits under Section 5.01 and, if applicable, Section 5.02. After
his Normal Retirement Date, he will be deemed to have
<PAGE>
retired. Such a Participant, if otherwise eligible, may also elect to retire
early under the provisions of Section 3.05.
ARTICLE VIII
Administration of the Plan
8.01 Allocation and Delegation of Fiduciary Responsibilities. Fiduciary
responsibilities with respect to the Plan are to be allocated as set forth in
this Article VIII. A fiduciary will have only those specific powers, duties,
responsibilities and obligations as are specifically given him under this Plan.
It is intended that each fiduciary be responsible for the proper exercise of his
own powers, duties, responsibilities and obligations under this Plan, and
generally will not be responsible for any act or failure to act of another
fiduciary. A fiduciary may delegate to any person or entity, who may or may not
be a fiduciary, any of its powers or duties under the Plan.
8.02 Powers and Responsibilities of the Board of Directors. The Board of
Directors has the following powers and responsibilities;
(a) To authorize amendments to the Plan;
(b) To terminate the Plan; and
(c) To appoint and remove members of the Board Committee, as set forth in
Section 8.03, below.
8.03 Board Committee.
(a) The Board Committee will consist of at least three Directors who will
be appointed by and serve at the pleasure of the Board of Directors. The
Board of Directors will also appoint one member of the Board Committee to act
as Chairman of such Committee. Vacancies will be filled in the same manner as
appointments. Any member of the Board Committee may resign by delivering a
written resignation to the Board of Directors, to become effective upon
delivery or at any other date specified therein.
(b) The members of the Board Committee will appoint a Secretary who may,
but need not be, a member of the Board Committee. The Board Committee may, in
writing, delegate some or all of its powers and responsibilities as specified
in subsection 8.03(d) to any other person or entity, who may or may not be a
fiduciary.
(c) The Board Committee will hold meetings upon such notice, at such time
or times, and at such place or places as it may determine. The majority of
the members of the Board Committee at the time in office will constitute a
quorum for the transaction of business at all meetings and a majority vote of
those present at any meeting will be required for action. The Board Committee
will also act by written consent of a majority of its members.
(d) The Board Committee will have the following powers and
responsibilities:
(1) To prepare periodic administration reports to the Board of Directors
which will show, in reasonable detail, the administrative operations of the
Plan;
<PAGE>
(2) To appoint and remove the Plan Administrator; and
(3) To appoint and remove other fiduciaries.
8.04 Plan Administrator.
(a) The Plan Administrator will be appointed by and serve at the pleasure
of the Board Committee. The Plan Administrator may resign by delivering a
written resignation to the Board Committee, to be effective on delivery or at
any other date specified therein. Upon the resignation or removal of the Plan
Administrator, a successor Plan Administrator will be appointed by the Board
Committee.
(b) The Plan Administrator may, in writing, delegate some or all of his
powers and responsibilities as set forth in subsection 8.04(c) to any other
person or entity, who may or may not be a fiduciary.
(c) The Plan Administrator will adopt such rules for administration of the
Plan as he considers desirable, provided they do not conflict with the Plan.
Records of administration of the Plan will be kept, and Participants and their
Spouses, Beneficiaries and contingent annuitants may examine records
pertaining directly to themselves. The Plan Administrator will have the
following powers and responsibilities:
(1) To select and terminate an actuary for the Plan.
(2) To establish and maintain claims review procedures.
(3) To construe the Plan, correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to administer the Plan, with any
instructions or interpretation of the Plan made in good faith by the Plan
Administrator to be final and conclusive for all purposes.
(4) To comply with any requirements of the Employee Retirement Income
Security Act of 1974 with respect to filing reports with governmental
agencies.
(5) To provide Employees with any and all information required by the
Employee Retirement Income Security Act of 1974.
(6) To approve any actuarial assumptions.
(7) To coordinate any necessary audit process with respect to reports on
administration data.
(8) To conduct routine Plan administration.
8.05 Employment of Agents. The fiduciaries may retain such counsel,
actuarial, medical, accounting, clerical and other services as they may require
to carry out the provisions and purposes of the Plan.
8.06 Reliance on Reports and Certificates. Fiduciaries under the Plan and
the officers and managers and Employees of the Company and any Affiliated
Company will be entitled to rely upon all tables, valuations, certificates and
reports furnished by any duly appointed actuary, insurance
<PAGE>
company, or by any duly appointed accountant, and upon all opinions given by any
duly appointed legal counsel.
8.07 Compensation. Fiduciaries under the Plan will not receive any
compensation for their services as such.
8.08 Fiduciary's Own Participation. A fiduciary may not act, vote or
otherwise influence a decision specifically relating to his own participation
under the Plan.
8.09 Liability for Administration of the Plan. In the administration of the
Plan, neither a fiduciary, not any officers, directors or employees of the
Company or any Affiliated Company or their agents will be liable jointly or
severally for any loss due to his or its error or acts of omission or
commission, except for his or its own individual misconduct. The Company will
indemnify each fiduciary, officer, director or employee of the Company and any
Affiliated Company from any and all expenses arising out of his or its
responsibilities under the Plan, excepting such expenses and liabilities arising
out of his or its own individual willful misconduct.
ARTICLE IX
General Provisions
9.01 Right to Amend or Terminate. The Company expects and intends to continue
the Plan indefinitely, but necessarily reserves the right, by action of the
Board of Directors, to amend, alter, suspend or terminate the Plan in whole or
in part, and at any time.
9.02 Alienation of Benefits. No benefits payable under the Plan will be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any action by way of anticipating,
alienating, selling, transferring, assigning, pledging, encumbering or charging
the same will be void and of no effect nor will any such benefit be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the person entitled to such benefit.
9.03 Payment to Minors and Incompetents. If a Participant, Spouse, contingent
annuitant or Beneficiary entitled to receive any benefits hereunder is a minor,
or is deemed by the Plan Administrator or is adjudged to be legally incapable of
giving a valid receipt and discharge for such benefits, they will be paid to the
duly appointed guardian or committee of such minor or incompetent, or they may
be paid to such person or persons who the Plan Administrator believes is or are
caring for or supporting such minors or incompetents. Any such payments, to the
extent thereof, will be a complete discharge for the payment of such benefit.
9.04 Unclaimed Benefit. If any benefit under the Plan had been payable to and
unclaimed by any person for a period of four years since the whereabouts or
existence of such person was last known to the Plan Administrator, the Plan
Administrator may direct that all rights of such person to payments accrued and
to future payments be terminated absolutely, provided that if such person
<PAGE>
subsequently appears and identifies himself to the satisfaction of the Plan
Administrator, then the liability will be reinstated.
9.05 Plan Voluntary. The Plan is purely voluntary on the part of the Company
Neither the establishment of the Plan, nor any amendment thereto, nor the
creation of any fund or account, nor the payment of any benefit will be
construed as conferring upon any Employee or Participant the right to be
retained in the employ of the Company or any Affiliated Company, and all
Employees and Participants will remain subject to discharge, discipline or
termination to the same extent as if the Plan had never been established.
9.06 Gender. Whenever used herein, the masculine pronoun will include the
feminine and the singular the plural, unless a different meaning is plainly
required by the context.
9.07 Construction. The Plan will be construed, enforced and administered
according to the laws of the Commonwealth of Pennsylvania. In the event any
provision of the Plan is held illegal or invalid for any reason, it will not
affect the remaining provisions of the Plan, but the Plan will be construed and
enforced as if such illegal and invalid provision had not been included therein.
<PAGE>
EXHIBIT 10.13
AMENDED SCHEDULE TO
INDEMNIFICATION AGREEMENT
The Indemnification Agreements between Sunoco, Inc. and the directors and
executive officers named below are identical in all material respects.
Officer Date of Agreement
Robert H. Campbell February 1 1996
Michael H. R. Dingus January 11, 1999
John G. Drosdick February 1, 1997
Bruce G. Fischer January 11, 1999
Jack L. Foltz February 1, 1996
Deborah M. Fretz February 1, 1996
Thomas W. Hofmann February 1, 1996
David E. Knoll February 1, 1996
Joseph P. Krott July 1, 1998
Ann C. Mule' 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
Charles K. Valutas January 11, 1999
Director Date of Agreement
Raymond E. Cartledge February 1, 1996
Robert E. Cawthorn February 1, 1996
Mary Johnston Evans February 1, 1996
Thomas P. Gerrity February 1, 1996
Rosemarie B. Greco May 7, 1998
James G. Kaiser February 1, 1996
Robert D. Kennedy February 1, 1996
R. Anderson Pew February 1, 1996
William F. Pounds February 1, 1996
G. Jackson Ratcliffe May 7, 1998
Alexander B. Trowbridge February 1, 1996
<PAGE>
EXHIBIT 10.14
================================================================================
DIRECTORS'
DEFERRED COMPENSATION AND BENEFITS
TRUST AGREEMENT
Dated as of January 11, 1999
By and Among
SUNOCO, INC.
BANKERS TRUST COMPANY
and
TOWERS, PERRIN, FORSTER & CROSBY, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions................................................ 2
1.1 Account...................................................... 2
1.2 Board of Directors........................................... 2
1.3 Change in Control............................................ 2
1.4 Chief Executive Officer...................................... 2
1.5 Committee.................................................... 2
1.6 Company...................................................... 2
1.7 Continuing Director.......................................... 2
1.8 Control Transaction.......................................... 2
1.9 ERISA........................................................ 2
1.10 Group........................................................ 2
1.11 Insolvent.................................................... 2
1.12 Legal Defense Fund........................................... 3
1.13 Payment Schedule............................................. 3
1.14 Plan......................................................... 3
1.15 Plan Participant............................................. 3
1.16 Potential Change in Control.................................. 3
1.17 Recordkeeper................................................. 3
1.18 Required Funding Amount...................................... 3
1.19 Trust........................................................ 4
1.20 Trust Agreement.............................................. 4
1.21 Trust Corpus................................................. 4
1.22 Trustee...................................................... 4
ARTICLE II The Plans................................................. 4
2.1 Plans & Agreements Subject to Trust.......................... 4
2.2 Liability for Payments....................................... 4
ARTICLE III Establishment of Trust.................................... 4
3.1 Principal of Trust........................................... 4
3.2 Term and Revocability........................................ 4
3.3 Grantor Trust................................................ 5
3.4 Segregation of Funds; Rights of Creditors.................... 5
ARTICLE IV Administration............................................ 5
4.1 Authority and Duties of Committee........................... 5
4.2 Action by the Committee..................................... 5
4.3 Records, Reporting and Disclosure........................... 6
4.4 Bonding..................................................... 6
i
<PAGE>
ARTICLE V Potential Change in Control; Change in Control............. 6
5.1 Potential Change in Control.................................... 6
5.2 Change in Control.............................................. 6
5.3 Method of Funding.............................................. 7
5.4 Additional Contributions; Sufficiency of Funds................. 7
5.5 Additional Plans............................................... 7
5.6 Calculation of Required Funding Amount......................... 7
5.7 Payment of Required Funding Amount............................. 8
5.8 Legal Defense Fund............................................. 8
(a) Interest on Delinquent Payments............................ 8
(b) Discount Rate for Distributions Due Later.................. 8
(c) Schedule of Accounts....................................... 8
ARTICLE VI Investment Authority....................................... 9
6.1 Authority of Trustee........................................... 9
(a) Investments................................................ 9
(b) Sale of Property........................................... 10
(c) Settlement of Debts........................................ 10
(d) Exercising Rights as Holder of Securities.................. 10
(e) Use of Discretion With Respect to Company Securities....... 11
(f) Depositary Function........................................ 11
(g) Borrowing Powers; Encumbering Trust Assets................. 11
(h) Enforcement Authority...................................... 11
(i) Execution of Instruments................................... 11
(j) Registration and Transfer of Investments................... 11
(k) Uninvested Assets.......................................... 11
(l) General.................................................... 11
6.2 Investment Following Change in Control......................... 11
6.3 Investment of Trust Income..................................... 12
6.4 Losses Charged Against Trust Corpus............................ 12
ARTICLE VII Payments to Plan Participants and Their Benefi............ 12
7.1 Appointment of Recordkeeper.................................... 12
7.2 Maintenance of Records......................................... 13
7.3 Company Information............................................ 13
7.4 Payment Schedule............................................... 13
7.5 Entitlement to Benefits........................................ 14
7.6 Payment of Benefits............................................ 14
7.7 Notice of Benefits Payable..................................... 14
7.8 Source of Payments............................................. 14
7.9 Tax on Amounts Held in Trust Prior to Distribution............. 15
7.10 Indemnification of Recordkeeper by Company..................... 15
7.11 Resignation, Discharge & Replacement of Recordkeeper........... 15
ii
<PAGE>
ARTICLE VIII Payments to Trust Beneficiary When Company Is Insolvent. 16
8.1 Responsibilities of Trustee in Insolvency...................... 16
8.2 Resumption of Discontinued Payments............................ 17
ARTICLE IX Payments to the Company................................... 17
9.1 Reversion of Funds to Company.................................. 17
9.2 Limitation Upon Company's Ability to Direct Payments........... 17
ARTICLE X Powers, Duties & Responsibilities of Trustee............... 18
10.1 Limitation of Liability........................................ 18
10.2 Maintenance of Administrative Records.......................... 18
10.3 Reimbursement of Costs & Expenses.............................. 19
10.4 Indemnification of Trustee by Company.......................... 19
10.5 Institution of Litigation...................................... 19
10.6 Powers of Trustee.............................................. 19
ARTICLE XI Resignation and Removal of Trustee........................ 20
11.1 Resignation of Trustee......................................... 20
11.2 Removal and Substitution of Trustee............................ 20
11.3 Appointment of Successor Trustee............................... 20
11.4 Failure to Appoint Successor Trustee........................... 21
11.5 Statements of Account Upon Removal or Resignation.............. 21
11.6 Transfer of Trust Corpus to Successor Trustee.................. 21
ARTICLE XII Authorization............................................ 21
12.1 Actions by Board of Directors.................................. 21
12.2 Actions by Chief Executive Officer; Treasurer.................. 21
12.3 Other Actions of Company....................................... 22
12.4 Actions of the Committee....................................... 22
ARTICLE XIII.......................................................... 22
13.1 Notices........................................................ 22
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ARTICLE XIV Miscellaneous............................................ 23
14.1 No Contract of Employment..................................... 23
14.2 Rights of Plan Participants................................... 23
14.3 Amendment or Waiver........................................... 23
(a) Amendment Prior to Change in Control..................... 23
(b) Amendment Following Change in Control.................... 24
14.4 Severability of Provisions.................................... 24
14.5 Non-Alienability of Benefits.................................. 24
14.6 Further Assurances............................................ 25
14.7 Successors, Heirs, Assigns, and Personal Representatives...... 25
14.8 Headings and Captions......................................... 25
14.9 Gender and Number............................................. 25
14.10 Payments to Incompetent Persons, Etc.......................... 25
14.11 Governing Law; Situs of Trust................................. 25
14.12 Counterparts.................................................. 25
14.13 Acceptance by Trustee......................................... 25
14.14 Insurance Policies............................................ 25
14.15 Survival...................................................... 26
14.16 Entire Understanding.......................................... 26
Schedules:
Schedule 2.1 - Benefit Plans and Other Arrangements Subject to Trust
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DIRECTORS' DEFERRED COMPENSATION AND BENEFITS
TRUST AGREEMENT
This Directors' Deferred Compensation and Benefits Trust Agreement, dated as
of January 11, 1999, (the "Trust Agreement"), is by and among SUNOCO, INC., a
Pennsylvania corporation (the "Company"), BANKERS TRUST COMPANY, a New York
banking corporation (the "Trustee"), and TOWERS PERRIN, a Pennsylvania
corporation (the "Recordkeeper").
W I T N E S S E T H
WHEREAS, the Company is or may become obligated under the terms of certain
benefit plans, agreements, or other arrangements, to make payments to certain
persons who at any time prior to the occurrence of a change in control of the
Company were members of the Company's board of directors (the "Plan
Participants"), and their beneficiaries; and
WHEREAS, in order to: (1) provide an alternative source of funds to assist
the Company in meeting its liabilities under the applicable director benefit
plans, agreements, or other arrangements; and (2) assure that future payment
of such amounts would not be improperly withheld in the event of a change in
control of the Company, the Company desires to establish a Trust (the "Trust")
and, in its discretion, to contribute to the Trust assets that shall be held
therein, subject to the claims of the Company's creditors in the event of the
Company's insolvency until paid to Plan Participants and their beneficiaries
in the manner and at the times specified in the applicable director benefit
plans, agreements, or other arrangements; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
plans as unfunded plans maintained to provide deferred compensation for a
group of directors of the Company for purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"); and
WHEREAS, Bankers Trust Company is willing to act as Trustee of the Trust,
and Towers Perrin is willing to act as Recordkeeper of the Trust, upon all of
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual terms, covenants, and conditions
herein contained, the mutual benefits to be derived hereunder, and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:
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ARTICLE I
Definitions
As used in this Trust Agreement, the following terms shall have the meanings
herein specified:
1.1 Account - shall have the meaning provided herein at Section 5.7(c).
1.2 Board of Directors - shall mean the Board of Directors of Sunoco, Inc.,
or any successor thereto.
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 Sunoco,
Inc. (or of the Board of Directors of any successor to Sunoco, Inc. or to
all or substantially all of its assets); or
(b) any entity, person or Group acquires shares of Sunoco, 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 Sunoco, Inc.
1.4 Chief Executive Officer - shall mean the Chief Executive Officer of
Sunoco, Inc. as of the date of reference.
1.5 Committee - shall mean the Governance Committee (or any successor
thereof) of the Board of Directors of Sunoco, Inc.
1.6 Company - shall have the meaning set forth in the introduction to this
Trust Agreement.
1.7 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.
1.8 Control Transaction - shall mean any of the following transactions or
any combination thereof:
(a) any tender offer for or acquisition of capital stock of Sunoco,
Inc.;
(b) any merger, consolidation, or sale of all or substantially all of
the assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the position of director
of Sunoco, Inc. by a shareholder or a Group of shareholders in a proxy
solicitation or otherwise.
1.9 ERISA - shall have the meaning set forth in the introduction to this
Trust Agreement.
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 Insolvent or Insolvency - shall mean, with respect to the Company, that
either:
(a) the Company is unable to pay its debts as they become due; or
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(b) the Company is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.
1.12 Legal Defense Fund - shall have the meaning provided herein at
Section 5.8.
1.13 Payment Schedule - shall have the meaning provided herein at
Section 7.4.
1.14 Plan - shall have the meaning provided herein at Section 2.1.
1.15 Plan Participant - shall have the meaning set forth in the introduction
to this Trust Agreement.
1.16 Potential Change in Control - shall mean the occurrence of any of the
following events or transactions:
(a) any person (other than Sunoco, Inc., or any affiliate or subsidiary
thereof) makes a tender offer for capital stock of Sunoco, Inc.;
(b) any person:
(1) becomes the beneficial owner, directly or indirectly, of capital
stock of Sunoco, 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; and
(2) indicates in such Schedule 13D or equivalent filing that the
purpose of such capital stock acquisition is part of a plan or proposal
that reasonably could lead to a Change in Control of Sunoco, Inc.;
(c) the submission of a nominee or nominees for the position of director
of Sunoco, Inc. by a shareholder or Group of shareholders in a proxy
solicitation or otherwise which, in its judgment, the Board of Directors by
subsequent adoption of a resolution, determines might result in a Change in
Control of Sunoco, Inc.;
(d) any person files a pre-merger notification for the acquisition of
capital stock of Sunoco, 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 Sunoco, Inc. for purposes
of this Trust Agreement has occurred.
1.17 Recordkeeper - shall have the meaning set forth in the introduction to
this Trust Agreement.
1.18 Required Funding Amount - shall mean the aggregate of the amounts
described in the following subparagraphs (a) and (b) of this Section 1.18:
(a) an amount sufficient to provide all benefits accrued for each Plan
Participant (and any beneficiaries) under the Plans (including any interest
or earnings due on such
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accrual) through the date of the contribution, to the extent not previously
contributed; and
(b) an amount sufficient to pay all fees and expenses of administering
and enforcing the Trust Agreement and the Plans that are or thereafter may
become due, according to the respective terms and provisions of such Plans
as of the date of reference.
1.19 Trust - shall have the meaning set forth in the introduction to this
Trust Agreement.
1.20 Trust Agreement - shall have the meaning set forth in the introduction
to this Trust Agreement.
1.21 Trust Corpus - shall mean the amounts delivered to the Trustee pursuant
to the terms hereof, less amounts distributed from the Trust pursuant to the
terms hereof, plus all income earned by the Trust, in whatever form held or
invested as provided herein.
1.22 Trustee - shall have the meaning set forth in the introduction to this
Trust Agreement.
ARTICLE II
The Plans
2.1 Plans & Agreements Subject to Trust. The plans, agreements, and other
arrangements that are subject to this Trust (each a "Plan" and, collectively the
"Plans") are listed on Schedule 2.1 hereto. Prior to a Change in Control of the
Company, the Committee may from time to time designate additional such plans,
agreements, and other arrangements to be subject to this Trust, or delete any
Plan from this Trust. The Company shall immediately notify the Trustee and the
Recordkeeper in writing of any such changes.
2.2 Liability for Payments. The Company shall continue to be liable to the
Plan Participants to make all payments required under the terms of the Plans to
the extent such payments have not been made pursuant to this Trust Agreement.
Distributions made from the Trust to or for Plan Participants in respect of the
Plans pursuant to Article VII hereof, shall, to the extent of such
distributions, satisfy the Company's (or certain of its subsidiaries')
obligation to pay benefits to such Plan Participants under the Plans.
ARTICLE III
Establishment of Trust
3.1 Principal of Trust. The Company hereby deposits with the Trustee in
trust the sum of One Hundred Dollars ($100.00) in cash which shall become the
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement.
3.2 Term and Revocability. The Trust hereby established is revocable by the
Company; but shall become irrevocable upon the occurrence of a Change in
Control. At any time prior to a
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Change in Control of the Company, this Trust may be terminated by the Committee.
Upon or after a Change in Control of the Company, this Trust shall not terminate
until the date on which Plan Participants and their beneficiaries are no longer
entitled to benefits pursuant to the terms of the Plans. Upon termination of the
Trust any assets remaining in the Trust shall be returned to the Company.
3.3 Grantor Trust . The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly, and nothing herein shall be construed to subject
this Trust to ERISA.
3.4 Segregation of Funds; Rights of Creditors. The principal of the Trust,
and any earnings thereon shall be separate and apart from other funds of the
Company and shall be used exclusively for the uses and purposes of Plan
Participants and general creditors as herein set forth. Plan Participants and
their beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created under the
Plans and this Trust shall be mere unsecured contractual rights of Plan
Participants and their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's general creditors under
federal and state law in the event of Insolvency.
ARTICLE IV
Administration of Trust
4.1 Authority and Duties of the Committee. It shall be the duty of the
Committee, on the basis of information supplied to it by the Company, to
determine:
(a) the eligibility of each Plan Participant to receive payment of benefits
under this Trust with respect to each Plan; and
(b) the manner and time of payment of the benefits payable hereunder.
The Recordkeeper shall determine, on behalf of the Committee, the amount of
any benefit payable under this Trust to which each Plan Participant may be
entitled.
The Trustee, on behalf of the Company, shall make such payments as the
Committee instructs the Trustee to pay, to Plan Participants. The Committee
shall have the full power and authority to manage claims and appeals as set
forth in the respective Plan, and to construe, interpret and administer such
Plan in accordance with its terms and provisions.
4.2 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 without a meeting
by mail, telegraph, telephone or electronic communication
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device; provided, however, 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.
4.3 Records, Reporting and Disclosure. The Committee shall keep all
individual and group records relating to Plan Participants and former Plan
Participants and all other records necessary for the proper administration and
operation of the Trust. Such records shall be made available to the Company and
to each Plan Participant for examination during business hours except that a
Plan Participant shall examine only such records as pertain exclusively to the
examining Plan Participant and to the Plan, in general. The Committee shall
prepare and shall file as required by law or regulation all reports, forms,
documents and other items required by the Internal Revenue Code, and every other
applicable statute, each as amended, and all regulations thereunder (except that
the Company, as payer 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).
All income, deductions and credits attributable to the Trust belong to the
Company and will be included on the Company's income tax returns. The Company
shall pay any federal, state, local, or other taxes imposed or levied with
respect to the assets and/or income of the Trust or any part thereof under
existing or future laws. Upon furnishing the Trustee with evidence reasonably
required by the Trustee of any such tax payments made directly by the Company,
the Company shall be entitled to receive reimbursement from the assets of the
Trust for the full amount of such taxes paid by it.
4.4 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 Trust.
ARTICLE V
Potential Change in Control; Change in Control
5.1 Potential Change in Control. If a Potential Change in Control of the
Company occurs, the Company shall immediately notify the Trustee and
Recordkeeper and shall cause the Required Funding Amount to be remitted to the
Trustee as a contribution to the Trust. The Required Funding Amount shall be
paid to the Trust not later than thirty (30) days after the Potential Change in
Control.
5.2 Change in Control. If a Change in Control occurs, the Company shall
immediately notify the Trustee and Recordkeeper. The Company shall immediately
cause to be remitted to the Trustee, as an irrevocable contribution to the
Trust, an amount equal to the Required Funding Amount as of that date. The
Required Funding Amount shall be paid to the Trust not later than one (1) day
after the Change in Control.
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5.3 Method of Funding. The contribution of the Required Funding Amount shall
be made in cash or in property acceptable to the Trustee having a fair market
value equal to the Required Funding Amount, or in a combination of the two. The
Board of Directors may determine that all or a portion of the Required Funding
Amount may be represented by a standby, irrevocable (except as provided in
Section 9.1) letter of credit against which the Trustee may draw sufficient
funds that, with the amounts contributed in cash or other property, will enable
the Trustee to make the payments due under the Plans, together with the fees and
expenses described in Section 5.1 above.
5.4 Additional Contributions; Sufficiency of Funds. The Company shall be
obligated to continue to cause additional contributions (or increases to the
amount that may be drawn against the letter of credit) to be made as may be
necessary from time to time to insure that at all times following a Change in
Control the Trust contains sufficient funds, on a current basis, to pay all
benefits due to the Plan Participants (or their designated beneficiaries) under
the Plans, together with the fees and expenses described in Section 5.1. The
Trustee shall be under no duty to determine the sufficiency, or to enforce the
making, of such contributions by the Company.
5.5 Additional Plans. In the event the Committee designates additional Plans
that are subject to this Trust Agreement, or the Plans subject to this Trust
Agreement are amended after a Potential Change in Control or Change in Control
of the Company, the Treasurer of the Company shall, unless the Trust Corpus
shall theretofore have been released pursuant to Section 9.1 hereof, recalculate
the Required Funding Amount. If the amount so calculated exceeds the fair
market value of the assets then held in trust, the Company shall promptly (and
in no event later than thirty (30) days from the date of such recalculation):
(a) pay to the Trustee an amount of cash (or property acceptable to the
Trustee having a fair market value equal to such amount, or some combination
thereof) equal to such excess; or
(b) increase the amount that may be drawn against the letter of credit
described in Section 5.3, above, to cover such excess.
If the Required Funding Amount so calculated is less than the fair market
value of the assets held in trust, the Trustee shall retain such difference.
5.6 Calculation of Required Funding Amount. As soon as practicable, but in no
event later than fifteen (15) days following the occurrence of any Potential
Change in Control, the Treasurer of the Company shall compute the Required
Funding Amount. Immediately thereafter, the Recordkeeper shall review the
Treasurer's calculations of the Required Funding Amount (including without
limitation the calculations under Section 5.5 hereof). The Recordkeeper shall
complete its review prior to the thirtieth (30th) day following any Potential
Change in Control. If
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the Recordkeeper concludes that the amounts calculated by the Treasurer are not
sufficient to permit the Trustee to make all payments due or to become due under
the Plans, together with the fees and expenses described in Section 5.1 above,
the Treasurer shall increase the Required Funding Amount to the amount so
calculated by the Recordkeeper. The Company agrees not to challenge the
calculations of the Treasurer, and both the Company and the Treasurer agree not
to challenge the calculations of the Recordkeeper, and the Trustee shall have no
right or obligation to challenge or question such calculation with regard to the
Required Funding Amount (including, without limitation, the amount determined
under Section 5.5 hereof) upon and after a Potential Change in Control or Change
in Control of the Company. No Plan Participant shall have the right to challenge
the calculations of either the Treasurer or the Recordkeeper with respect to the
Required Funding Amount.
5.7 Payment of Required Funding Amount.
(a) Interest on Delinquent Payments. The Company agrees to pay interest on
any delinquent payment of the Required Funding Amount from the date on which
such payment is required to be made pursuant to this Article V, based upon the
daily average of the prime rate charged by Trustee during the period of such
deficiency.
(b) Discount Rate for Distributions Due Later. In determining the Required
Funding Amount with respect to any payment or series of payments expected to
be due more than one (1) year after the date as of which the Required Funding
Amount is to be determined, the present value of such payment or series of
payments shall be calculated by using a discount rate equal to one percentage
point less than the then lowest annual yield to maturity on United States
Treasury obligations having then remaining maturities approximately equal to
the maturity of the payment or payments being valued.
(c) Schedule of Accounts. Each payment by the Company pursuant to this
Article V shall be accompanied by a schedule delivered to the Recordkeeper (as
described in Section 7.4 hereof) of the individual Plans for whose accounts
such payment is being made, which schedule sets forth the amounts delivered in
respect of each of the Plans. The Recordkeeper shall maintain in an equitable
manner an account for each Plan (the "Account"). Each Account shall consist
of contributions to and payments from the Trust Corpus which are allocable to
the Plan, and earnings thereon, less disbursements therefrom attributable to
the interest of the Plan in the entire Trust Corpus. On a monthly basis, the
Trustee shall advise the Recordkeeper in writing regarding the actual amounts
received by the Trust from the Company, and paid out from the Trust, in
respect of each of the Plans.
5.8 Legal Defense Fund. The Trustee shall establish a separate account (the
"Legal Defense Fund") to provide for the payment of legal expenses and
liabilities incurred by the Trustee with
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respect to which it is entitled to reimbursement under Section 10.3 and 10.4 and
to protect Plan Participants' rights to benefits after a Potential Change in
Control or Change in Control of the Company. The Company shall contribute cash
to the Legal Defense Fund with the Required Funding Amount in an amount equal to
ten percent (10%) of the Required Funding Amount. The Legal Defense Fund shall
not be used to pay benefits due under any Plan.
Following a Potential Change in Control or Change in Control of the Company,
the Trustee shall pursue all claims for benefits by individual Plan Participants
against the Company, other than those which the Trustee reasonably believes to
be frivolous, and shall not compromise or settle any such claim, unless approved
by the affected Plan Participants.
ARTICLE VI
Investment Authority
6.1 Authority of Trustee. The Trustee and any successor thereto appointed
hereunder shall be a corporate professional trustee which is not an affiliate of
the Company but which has equity in excess of One Hundred Million Dollars
($100,000,000.00). Discretionary authority for the management and control of
the assets of the Trust shall be retained by the Trustee, and all rights
associated with assets of the Trust shall be exercised by the Trustee or the
person designated by the Trustee, and shall in no event be exercisable by, or
rest with, the Plan Participants.
The assets of the Trust shall be invested and re-invested, without distinction
between principal and income, at such time or times in such investments,
pursuant to such investment strategies or courses of action and in such shares
and proportions as the Trustee, in its sole discretion shall deem advisable,
subject to the applicable investment policies and related guidelines established
by the Committee. These investment policies and related guidelines shall be
communicated by the Committee to the Trustee. The Committee shall monitor
compliance with such investment policies and related guidelines.
Subject to the applicable investment policies and related guidelines, and
subject to the requirements of Section 6.2 hereof after a Change in Control, the
Trustee shall have the following powers and discretions in addition to those
conferred by law:
(a) Investments. To invest and reinvest the Trust Corpus in:
(1) stock or rights to acquire stock (of any classification, including
common and preferred stocks), or a registered investment fund, including a
fund for which the Trustee serves as investment manager and/or custodian;
(2) bonds and other obligations issued by such entities as the Trustee
deems appropriate (including, without limitation, securities or obligations
issued by the Company);
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(3) other property (real, personal or mixed); and/or
(4) interests in investment companies and investment trusts;
(b) Sale of Property. To sell, exchange, convey, transfer or dispose of,
and also to grant options with respect to, any property, whether real or
personal, at any time held by it by private contract or by public auction, for
cash or upon credit, or partly for cash and partly for credit, as the Trustee
may deem best, and no person dealing with the Trustee shall be bound to see to
the application of the purchase money or to inquire into the validity,
expediency or propriety of any such sale or other disposition;
(c) Settlement of Debts. To compromise, compound and settle any debt or
obligation (except claims by Plan Participants for benefits under any Plan)
due to or from the Trust and to reduce the rate of interest thereon, to extend
or otherwise modify, or to foreclose upon, default or otherwise enforce or act
with respect to any such obligation as the Trustee may deem advisable;
(d) Exercising Rights as Holder of Securities. With respect to stocks,
bonds or securities:
(1) to vote, in person or by general or limited proxy, any stocks or
other securities at any time held in the Trust Corpus, at any meeting of
stockholders or security holders, in respect to any business which may come
before the meeting;
(2) to exercise any options appurtenant to any stocks, bonds or other
securities for the conversion thereof into other stocks, bonds or
securities;
(3) to exercise or sell any conversion or subscription rights appurtenant
to any stocks, bonds or other securities at any time held in the Trust
Corpus, and to make any and all necessary payments therefor;
(4) to join in, and to approve, or to dissent from and to oppose, any
corporate act or proceeding, including any reorganization,
recapitalization, consolidation, merger, dissolution, liquidation, sale of
assets or other action by or plan in respect of corporations or properties,
the stocks or securities of which may at any time be held in the Trust
Corpus;
(5) to deposit with any committee or depository, pursuant to any plan or
agreement of protection, reorganization, consolidation, sale, merger, or
other readjustment, any property held in the Trust Corpus; and
(6) to make payment from the Trust Corpus of any charges or assessments
imposed by the terms of any such plan or agreement;
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(e) Use of Discretion With Respect to Company Securities. Without limiting
the foregoing, with respect to stocks, bonds or securities of the Company, the
Trustee shall exercise the powers under Section 6.1(d) at its discretion.
(f) Depositary Function. To accept and hold any securities or other
property received by it under any of the provisions of this Article VI,
whether or not the Trustee would be authorized hereunder then to invest
therein;
(g) Borrowing Powers; Encumbering Trust Assets. To borrow money upon such
terms and conditions as the Trustee shall deem advisable to carry out the
purposes of the Trust and to pledge securities or other property of the Trust
Corpus in repayment of any such loan;
(h) Enforcement Authority. To enforce any right, obligation or claim and
in general to protect in any way the interest of the Trust Corpus, either
before or after default, and in case the Trustee shall, in its discretion,
consider such action for the best interest of the Trust Corpus, to abstain
from the enforcement of any right, obligation or claim and to abandon any
property, whether real or personal which at any time may be held by the
Trustee;
(i) Execution of Instruments. To make, execute, acknowledge and deliver
any and all deeds, leases, assignments, transfers, conveyances and any and all
other instruments necessary or appropriate to carry out any powers herein
granted;
(j) Registration and Transfer of Investments. To cause any investments
from time to time held by it hereunder to be registered in, or transferred
into, its name as Trustee or the name of its nominee or nominees, and with or
without designation of fiduciary capacity, to retain securities at a qualified
central depository or Federal Reserve Bank or to retain any investments
unregistered or in form permitting transfer by delivery, but the books and
records of the Trustee shall at all times show that all such investments are
part of the Trust Corpus;
(k) Uninvested Assets. To hold any part or all of the Trust Corpus
uninvested; and
(l) General. To do all acts which may be necessary or proper and to
exercise any and all of the powers of the Trustee under this Trust Agreement
upon such terms and conditions as the Trustee may deem in the best interests
of the Trust Corpus.
6.2 Investment Following Change in Control. Upon and after a Change in
Control, the Trustee shall use its good faith efforts to invest or reinvest all
or such part of the Trust Corpus as the Trustee believes prudent under the
circumstances (taking into account, among other things, the anticipated cash
requirements for the payment of benefits under the Plans communicated to the
Trustee by the Recordkeeper) solely in:
(a) direct obligations of the United States of America or agencies thereof;
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(b) obligations unconditionally and fully guaranteed as to principal and
interest by the United States of America; or
(c) any registered investment fund, including a fund for which the Trustee
serves as investment manager and/or custodian, established and maintained as a
vehicle for short-term investment.
With respect to such investments, the Trustee shall have the powers and
discretion set forth in Section 6.1 hereof, in addition to those conferred by
law; provided, however, that the Trustee shall not be liable for:
(1) any losses to the Trust resulting from compliance with the investment
and diversification limitations imposed by this Section 6.2, or
(2) any loss of income due to liquidation of any investment which
liquidation is necessary to make payments or to reimburse expenses under
the terms of this Trust Agreement.
6.3 Investment of Trust Income. During the term of this Trust, income
received by the Trust, net of expenses and taxes, shall be accumulated and
reinvested.
6.4 Losses Charged Against Trust Corpus. All losses of income or principal
in respect of, and expenses (including without limitation taxes and, as provided
in Article XI hereof, any expenses of the Trustee) charged against, the Trust
Corpus shall be for the account of the Company and the Company shall be
obligated to reimburse the Trust Corpus following a Potential Change in Control
or a Change in Control of the Company for any loss in principal amount of, or
expense charged against, the Trust Corpus except to the extent that the fair
market value of the Trust Corpus as of that date equals or exceeds the Required
Funding Amount as of that date. The Trustee shall promptly notify the Company
in writing of the amount of such reimbursement. The Company agrees that, upon
receipt of such notice, it will deliver to the Trustee to be held in the Trust
an amount in cash equal to any reimbursement amount specified by the Trustee,
together with interest from the date of receipt of such notice based upon the
daily average of the prime rate charged by the Trustee.
ARTICLE VII
Payments to Plan Participants and Their Beneficiaries
7.1 Appointment of Recordkeeper. It is recognized that the Trustee shall have
no responsibility hereunder for the continued retention of the Recordkeeper
and/or any responsibility assigned to the Recordkeeper or its performance
thereof. The Company shall pay the Trustee for all fees and expenses of the
Recordkeeper.
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7.2 Maintenance of Records. Except for the records dealing solely with the
Trust Corpus and its investment, which shall be maintained by the Trustee, the
Recordkeeper shall maintain all the records contemplated by this Trust
Agreement, including the maintenance of the separate Accounts of each Plan under
this Trust Agreement and the maintenance of Plan Participants' Plan interests.
The Recordkeeper shall maintain individual records with respect to each Plan
Participant's interest under each Plan.
7.3 Company Information. As soon as practicable, but in no event later than
thirty (30) days following the establishment of this Trust, the Recordkeeper
shall identify to the Company in writing the information deemed necessary to
enable the Recordkeeper to determine the amount of benefits payable to or with
respect to each Plan Participant in each Plan, including any benefits payable
after the Plan Participant's death, and the recipient. The Company shall
furnish the information needed by the Recordkeeper in order to determine the
amount of any such benefit, and shall deliver to the Recordkeeper a letter of
instructions:
(a) describing the terms of each Plan;
(b) enclosing a copy of each Plan;
(c) listing the names, addresses, and Hay points or grade levels under the
salary administration program then in effect, for the Plan Participants (and
beneficiaries) covered by each Plan;
(d) setting forth the timing, form of distributions, and formula or other
methodology for determining the amounts to be paid to each Plan Participant
and beneficiary under each Plan; and
(e) instructing the Recordkeeper how and from whom to get any other
information needed to compute benefits under each Plan.
The Company shall regularly, at least annually, furnish revised up-dated
information to the Recordkeeper. In the event the Company refuses or neglects
to provide updated Plan Participant information, as contemplated herein, the
Recordkeeper shall be entitled to rely upon the most recent information
furnished to it by the Company.
7.4 Payment Schedule. Within forty-five (45) days following a Change in
Control or Potential Change in Control (or when the Company otherwise makes
contributions to the Trust), the Recordkeeper, on behalf of the Company, shall
deliver to the Trustee a schedule (the "Payment Schedule") that indicates in the
case of all Plans, the amounts payable (including the fees and expenses incurred
by the Plans) in respect of each Plan Participant (and his or her
beneficiaries). The Payment Schedule shall be updated by the Recordkeeper as
necessary, but on at least an annual basis, in order to reflect changes therein.
Except as otherwise provided herein, the Trustee shall make payments to the Plan
Participants and their beneficiaries in accordance with
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such Payment Schedule and shall pay such fees and expenses, unless paid by the
Company. The Trustee shall make provision for the reporting and withholding of
any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plans and shall
pay amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by the Company.
7.5 Entitlement to Benefits. The entitlement of a Plan Participant or his or
her beneficiaries to benefits under the Plans shall be determined promptly by
the Committee, and any claim for such benefits shall be considered and reviewed
by the Committee under the procedures set out in the Plans. As soon as is
reasonably practicable following any such review or determination by the
Committee, the Committee shall give notice of its findings to the Recordkeeper,
together with updated information as needed, in order to permit the Recordkeeper
to make a final determination of the benefits to be paid. Upon notice of such
findings by the Committee, the Recordkeeper promptly will make a final
determination of the amounts payable and will notify the Committee.
7.6 Payment of Benefits. The Company may make payment of benefits directly
to Plan Participants or their beneficiaries as they become due under the terms
of the Plans. The Company shall notify the Trustee and Recordkeeper of its
decision to make payment of benefits directly prior to the time amounts are
payable to Participants or their beneficiaries. Within thirty (30) days of
making any such direct payment, the Company shall provide the Trustee and the
Recordkeeper with a certification, in a form acceptable to each, indicating the
date and amount of such direct payment of benefits by the Company.
7.7 Notice of Benefits Payable. The Recordkeeper shall notify the Plan
Participant or the beneficiary of a deceased Plan Participant that the Plan
Participant's benefits under a Plan have become payable. Such notice shall
include the amount of such benefits, the manner of payment (or, where
appropriate, the various payment options available) and the name, address and
social security number of the Plan Participant. Neither the Trustee nor the
Recordkeeper shall have any responsibility for determining whether any Plan
Participant or beneficiary has become entitled to any benefit under any of the
Plans, or whether any Plan Participant or beneficiary has died, and each of the
Trustee and the Recordkeeper shall be entitled to rely solely upon information
furnished by the Committee.
7.8 Source of Payments. All benefits payable from the Trust Corpus to a Plan
Participant or his beneficiary under a Plan shall be paid solely from the
Account of such Plan. Upon the satisfaction of all liabilities under a Plan in
respect of Plan Participants under a Plan, the Recordkeeper shall prepare and
deliver to the Trustee a certification showing the balance, if any, remaining in
the Account for such Plan. Such balance shall thereupon be reallocated ratably
by the Recordkeeper to the Accounts of other Plans covered by this Trust
(including Accounts which
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may have previously been reduced to a zero balance) in the ratio that
liabilities in respect of each such Plan bear to the total liabilities of all
such Plans. Upon the satisfaction of all liabilities of the Company under all
Plans, the Recordkeeper shall prepare and deliver a certification to the Trustee
and the Trustee shall thereupon distribute the Trust Corpus to the Company.
7.9 Tax on Amounts Held in Trust Prior to Distribution. Except as otherwise
provided herein, in the event of any final determination by the Internal Revenue
Service or a court of competent jurisdiction, which determination is not
appealable or with respect to which the time for appeal has expired, or the
receipt by the Trustee of a substantially unqualified opinion of tax counsel
selected by the Trustee, which determination determines, or which opinion
opines, that the Plan Participants or any particular Plan Participant is subject
to federal income taxation on amounts held in trust hereunder prior to the
distribution to the Plan Participants or Plan Participant of such amounts, the
Trustee, on receipt by the Trustee of such opinion or notice of such
determination, shall pay to each Plan Participant the portion of the Trust
Corpus includable in such Plan Participant's federal gross income, less
applicable taxes. The Trustee shall not be required to obtain such opinion of
tax counsel unless the Internal Revenue Service, the Company, or the
Recordkeeper suggests to the Trustee that any of the Plan Participants may be
subject to income taxation on amounts held in the Trust prior to a distribution
hereunder and Trustee has doubts with respect thereto.
7.10 Indemnification of Recordkeeper by Company. The Company agrees to
indemnify and hold harmless the Recordkeeper from and against any and all
damages, losses, claims, fees or expenses as incurred (including expenses of
investigation and fees and disbursements of counsel to the Recordkeeper) arising
out of or in connection with the performance by the Recordkeeper of its duties
hereunder. In the event that payment is made to the Recordkeeper from the Trust
Corpus, as provided in Section 7.1 hereof, the Trustee shall promptly notify the
Company in writing of the amount of such payment. The Company agrees that, upon
receipt of such notice, it will deliver to the Trustee to be held in the Trust
an amount in cash equal to any payments made from the Trust Corpus to the
Trustee pursuant to this Section 7.10, together with interest from the date of
receipt of such notice based upon the daily average of the prime rate charged by
the Trustee. The failure of the Company to transfer any such amount shall not
in any way impair the Recordkeeper's right to indemnification, reimbursement and
payment pursuant to Section 7.1 hereof or this Section 7.10.
7.11 Resignation, Discharge & Replacement of Recordkeeper. The Recordkeeper
may resign and be discharged from its duties hereunder at any time by giving
notice in writing of such resignation to the Company, or if a Change in Control
shall previously have occurred, to the Company and the Trustee, specifying a
date (not less than sixty (60) days after the giving of such
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notice) when such resignation shall take effect. Promptly after such notice, the
Company, or if a Change in Control shall previously have occurred, the
Continuing Directors (or, if there are no Continuing Directors then by
affirmative vote of at least three fourths (3/4) of the current Board of
Directors) shall appoint a successor recordkeeper, such successor recordkeeper
to become Recordkeeper hereunder upon the resignation date specified in such
notice. If a successor recordkeeper is not appointed within sixty (60) days
after such notice, the Recordkeeper shall be entitled, at the expense of the
Company, to petition a United States District Court or any court of competent
jurisdiction in the state in which the Recordkeeper maintains its principal
place of business to appoint its successor. The Recordkeeper shall continue to
serve until its successor accepts the responsibility of recordkeeper. The
Company, or if a Change in Control shall previously have occurred, the
Continuing Directors (or, if there are no Continuing Directors then by
affirmative vote of at least three fourths (3/4) of the current Board of
Directors) may at any time substitute a new recordkeeper by giving fifteen (15)
days' notice thereof to the Recordkeeper then acting. In the event of such
removal or resignation, the Recordkeeper shall provide its successor with the
records and information in its possession relating to the performance of its
duties under this Trust Agreement.
On or after a Change in Control, any successor recordkeeper appointed under
this Section 7.11, shall be an actuarial firm (or other third party providing
such services) by reputation and experience comparable to, and at least as well-
recognized as, the former Recordkeeper.
ARTICLE VIII
Payments to Trust Beneficiary When Company Is Insolvent
8.1 Responsibilities of Trustee in Insolvency. At all times during the
continuance of this Trust as provided in Section 3.4 hereof, the principal and
income of the Trust shall be subject to claims of general creditors of Company
under federal and state law, as set forth below:
(a) The Board of Directors and the Chief Executive Officer of the Company
shall have the duty to immediately inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company has become Insolvent, the
Trustee shall determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment of benefits to Plan
Participants or their beneficiaries.
(b) Unless the Trustee has actual knowledge of the Company's Insolvency, or
has received notice from the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's
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solvency as may be furnished to the Trustee and that provides the Trustee with
a reasonable basis for making a determination concerning the Company's
solvency.
(c) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan Participants or
their beneficiaries and shall hold the assets of the Trust for the benefit of
the Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan Participants or their beneficiaries to pursue
their rights as general creditors of the Company with respect to benefits due
under the Plans or otherwise.
(d) The Trustee shall resume the payments of benefits to Plan Participants
or their beneficiaries in accordance with Article VII of this Trust Agreement
only after the Trustee has determined that the Company is not Insolvent (or is
no longer Insolvent).
8.2 Resumption of Discontinued Payments. Provided that there are sufficient
assets, if the Trustee discontinues the payment of benefits from the Trust
pursuant to Section 8.1 hereof and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate amount of all
payments due to Plan Participants or their beneficiaries under the terms of the
Plans for the period of such discontinuance, less the aggregate amount of any
payments made to Plan Participants or their beneficiaries by the Company in lieu
of the payments provided for hereunder during any such period of discontinuance.
ARTICLE IX
Payments to the Company
9.1 Reversion of Funds to Company. In the event the Company delivers the
Required Funding Amount to the Trustee because of a Potential Change in Control,
the Trust Corpus shall be returned to the Company one (1) year after delivery of
the Required Funding Amount to the Trustee (or earlier if this Trust is
terminated pursuant to Section 3.2 hereof, less than one (1) year following a
Potential Change in Control) if no Change in Control shall have occurred during
such one-year period, and the Board of Directors determines, and so certifies to
the Trustee, that a Change in Control is not imminent. Such one-year period
shall recommence in the event of and upon the date of any subsequent Potential
Change in Control. If another Potential Change in Control should occur after
the Trust Corpus has been returned to the Company as provided in this Section
9.1, the Company shall deliver a new Required Funding Amount to the Trustee
pursuant to Article V above. The Company shall notify the Trustee of the
occurrence of a Potential Change in Control and Change in Control and the
Trustee may rely on such notice.
9.2 Limitation Upon Company's Ability to Direct Payments. After the Trust has
become irrevocable, the Company shall have no right or power to direct the
Trustee to return to the
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Company or to divert to others any of the Trust assets before all payments of
benefits have been made to Plan Participants and their beneficiaries pursuant to
the terms of the Plans.
ARTICLE X
Powers, Duties & Responsibilities of Trustee
10.1 Limitation of Liability. The duties and responsibilities of the Trustee
shall be limited to those expressly set forth in this Trust Agreement, and no
implied covenants or obligations shall be read into this Trust Agreement against
the Trustee. The Trustee shall not be liable for any act taken or omitted to be
taken hereunder if taken or omitted to be taken by it in good faith. The
Trustee shall also be fully protected in relying upon any notice given hereunder
which it in good faith believes to be genuine and executed and delivered in
accordance with this Trust Agreement. The Trustee may consult with legal
counsel to be selected by it, and the Trustee shall not be liable for any action
taken or suffered by it in good faith in accordance with the advice of such
counsel.
10.2 Maintenance of Administrative Records. The Trustee shall maintain such
books, records and accounts as may be necessary for the proper administration of
the Trust Corpus and shall render to the Company on a monthly basis commencing
on the first day of the month following the date this Trust Agreement was
created until the termination of the Trust (and as of the date of such
termination), an accounting with respect to the Trust Corpus as of the end of
such month (and as of the date of such termination). After a Change in Control
or a Potential Change in Control has occurred, and once the Required Funding
Amount has been contributed to the Trust, the Recordkeeper shall receive a
monthly accounting, and the Plan Participants may request an annual accounting
with respect to the Trust Corpus. Unless the Company (or any Plan Participant
after a Change in Control of the Company has occurred) shall have filed with the
Trustee written exceptions or objections to any such statement and account
within one hundred eighty (180) days after receipt thereof, the Company and all
Plan Participants shall be deemed to have approved such statement and account,
and in such case the Trustee shall be forever released and discharged with
respect to all matters and things reported in such statement and account as
though it had been settled by a decree of a court of competent jurisdiction in
an action or proceeding to which the Company and all Plan Participants were
parties.
The Trustee shall have the right, at the expense of the Trust, to apply at any
time to a court of competent jurisdiction for judicial settlement of any account
of the Trustee not previously settled as herein provided or for the
determination of any question of construction or for instructions. In any such
action or proceeding it shall be necessary to join as parties only the Trustee
and the Company (although the Trustee may also join such Plan Participants as it
may deem appropriate), and any judgment or decree entered therein shall be
conclusive.
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10.3 Reimbursement of Costs & Expenses. The Trustee shall be reimbursed by
the Company for its reasonable expenses incurred in connection with the
performance of its duties hereunder (including, without limitation, legal fees
and expenses under Section 10.5 hereof) and shall be paid such fees for the
performance of such duties as may be agreed upon in writing from time to time
between the Company and the Trustee. After a Change in Control of the Company
has occurred, the fees of the Trustee shall be determined by the application of
the current rates then charged by the Trustee for the provision of the types of
investment and Trustee services contemplated in this Trust Agreement to Trusts
of a similar character. The Trustee's entitlement to reimbursement hereunder
shall not be affected by the resignation or removal of the Trustee or the
termination of the Trust.
10.4 Indemnification of Trustee by Company. The Company agrees to indemnify
and hold harmless the Trustee from and against any and all liabilities, damages,
losses, claims or expenses as incurred (including expenses of investigation and
fees and disbursements of counsel to the Trustee and any taxes imposed on the
Trust Corpus or income of the Trust) arising out of or in connection with the
performance by the Trustee of its duties hereunder. Any amount payable to the
Trustee under Section 10.3 hereof, or under this Section 10.4, and not
previously paid by the Company shall be paid by the Company promptly upon demand
therefor by the Trustee or, if the Trustee so chooses in its sole discretion,
from the Trust Corpus. In the event that payment is made hereunder to the
Trustee from the Trust Corpus, the Trustee shall promptly notify the Company in
writing of the amount of such payment. The Company agrees that, upon receipt of
such notice, it will deliver to the Trustee to be held in the Trust an amount in
cash equal to any payments made from the Trust Corpus to the Trustee pursuant to
Section 10.3 hereof, or pursuant to this Section 10.4, together with interest
from the date of receipt of such notice based upon the daily average of the
prime rate charged by the Trustee. The failure of the Company to transfer any
such amount shall not in any way impair the Trustee's right to indemnification,
reimbursement and payment pursuant to Section 10.3 hereof, or pursuant to this
Section 10.4.
10.5 Institution of Litigation. Following a Potential Change in Control or a
Change in Control of the Company, the Trustee is specifically authorized and
required to take such action as may be necessary or appropriate, including the
institution of litigation or other legal process, to enforce the Company's
obligations hereunder or under the Plans on behalf of either itself or the Plan
Participants (or their beneficiaries), and any expenses thus incurred by the
Trustee shall be paid or reimbursed by the Company pursuant to Section 10.3 and
10.4 hereof.
10.6 Powers of Trustee. The Trustee shall have, without exclusion, all
powers conferred on Trustees by applicable law, unless expressly provided
otherwise herein; provided, however, that if an insurance policy is held as an
asset of the Trust upon direction of the Company, the Trustee
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shall have no power to name a beneficiary of the policy other than the Trust, to
assign the policy (as distinct from conversion of the policy to a different
form) other than to a successor trustee, or to loan to any person the proceeds
of any borrowing against such policy. Notwithstanding any powers granted to the
Trustee pursuant to this Trust Agreement or applicable law, the Trustee shall
not have any power that could give this Trust the objective of carrying on a
business and dividing the gains therefrom, within the meaning of Section
301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant
to the Internal Revenue Code.
ARTICLE XI
Resignation and Removal of Trustee
11.1 Resignation of Trustee. The Trustee may resign at any time by written
notice to the Company, which shall be effective sixty (60) days after receipt of
such notice unless the Company and Trustee agree otherwise. If a Change in
Control shall previously have occurred, the Trustee shall give such resignation
notice, in writing, to the Company and the Continuing Directors, specifying a
date (not less than sixty (60) days after the giving of such notice) when such
resignation shall take effect.
11.2 Removal and Substitution of Trustee. The Company, or if a Change in
Control shall previously have occurred, the Continuing Directors (or, if there
are no Continuing Directors, then by affirmative vote of at least three-fourths
(3/4) of the then-current Board of Directors), may at any time substitute a new
Trustee by giving fifteen (15) days notice thereof to the Trustee then acting.
11.3 Appointment of Successor Trustee. Promptly after the giving of notice
of resignation by the Trustee under Section 11.1 hereof, the Company, or if a
Change in Control shall previously have occurred, the Continuing Directors (or,
if there are no Continuing Directors, then by affirmative vote of at least
three-fourths (3/4) of the then-current Board of Directors), shall appoint a
successor trustee, such successor trustee to become Trustee hereunder upon the
resignation date specified in such notice.
On or after a Change in Control, any successor trustee appointed or
otherwise designated under any provision of this Article XI, shall be a bank
trust department or other third party that, on the date of appointment:
(a) may be granted corporate trustee powers under the federal or state law
of the United States of America and is, in fact, duly qualified and authorized
to do trust business;
(b) has total assets of at least Ten Billion Dollars ($10,000,000,000); and
(c) has a credit rating of "A" or better from Moody's Investors Service (or
other comparable credit rating from another similarly well-recognized credit
rating service).
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11.4 Failure to Appoint Successor Trustee. If a successor trustee is not
appointed:
(a) in the case of resignation of the Trustee, within sixty (60) days after
the giving of the Trustee's notice of resignation under Section 11.1 hereof;
or
(b) in the case of removal of the Trustee, within fifteen (15) days after
the giving of notice of such removal to the Trustee under Section 11.3 hereof,
then the Trustee shall be entitled to petition a United States District Court,
or any court of competent jurisdiction in the state in which the Trustee
maintains its principal place of business, to appoint a successor trustee or
provide instructions. All expenses incurred by the Trustee in connection with
such petition shall be allowed as administrative expenses of the Trust under
Section 10.5 hereof.
11.5 Statements of Account Upon Removal or Resignation. In the event of such
removal or resignation, the Trustee shall duly file with the Company and, on and
after a Change in Control, the Continuing Directors (or, if there are no
Continuing Directors then, the Board of Directors) a written statement or
statements of accounts and proceedings as provided in Section 10.2 hereof for
the period since the last previous annual accounting of the Trust, and if
written objections to such account are not filed as provided in Section 10.2
hereof, the Trustee shall to the maximum extent permitted by applicable law be
forever released and discharged from all liability and accountability with
respect to the propriety of its acts and transactions shown in such Account.
11.6 Transfer of Trust Corpus to Successor Trustee. Upon resignation or
removal of the Trustee and appointment of a successor trustee, all assets shall
subsequently be transferred to the successor trustee. The transfer shall be
completed within sixty (60) days after receipt of notice of resignation, removal
or transfer, unless the Company or the Continuing Directors (or, if there are no
Continuing Directors, then by affirmative vote of at least three fourths (3/4)
of the then-current Board of Directors) extends the time limit. The Trustee
shall continue to serve until the successor trustee accepts the Trust and
receives delivery of the Trust Corpus.
ARTICLE XII
Authorization
12.1 Actions by Board of Directors; Committee. Any action of the Board of
Directors or by the Committee pursuant to this Trust Agreement shall be
evidenced by a resolution adopted by the Board of Directors (or a duly
authorized committee thereof) or the Committee that is certified to the Trustee
by the Secretary or an Assistant Secretary of the Company under its corporate
seal and the Trustee shall be fully protected in acting in accordance with such
resolution.
12.2 Actions by Chief Executive Officer; Treasurer. Any action of the Chief
Executive Officer or Treasurer pursuant to this Trust Agreement shall be
evidenced by a written notice or direction
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to such effect over the signature of such officer, and the Trustee and the
Recordkeeper each shall be shall be fully protected in acting in accordance with
such notices or directions.
12.3 Other Actions of Company. Any action of the Company pursuant to this
Trust Agreement shall be evidenced by a written notice or direction to such
effect over the signature of any officer or other representative of the Company
who shall have been certified to the Trustee by the Chief Executive Officer,
President, Treasurer or Secretary (or any Assistant Secretary) of the Company as
having such authority. The Chief Executive Officer, President, Treasurer or
Secretary (or any Assistant Secretary) of the Company shall provide to the
Trustee in writing from time to time the names and specimen signatures of the
officers and other representatives authorized to act on behalf of the Company.
The Trustee and the Recordkeeper each shall be shall be fully protected in
acting in accordance with such notices or directions.
12.4 Actions by the Committee. Any action of the Committee pursuant to this
Trust Agreement shall be evidenced by:
(a) a resolution adopted by a majority vote of the members of such
Committee, that is certified to the Trustee by the Secretary (or any Assistant
Secretary) of the Committee; or
(b) a written notice or direction to such effect over the signatures of a
majority of the members of such Committee, who shall have been certified to
the Trustee by the Secretary (or any Assistant Secretary) of the Committee as
having such authority. The Secretary (or any Assistant Secretary) of the
Committee shall provide to the Trustee in writing the names and specimen
signatures of the members of the Committee as such may be constituted from
time to time.
The Trustee and the Recordkeeper each shall be shall be fully protected in
acting in accordance with such resolutions, notices or directions of the
Committee.
ARTICLE XIII
Notices
13.1 Notices. All notices, requests, reports, demands and waivers to or upon
the respective parties hereto to be effective shall be in writing, by messenger,
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; or
(b) upon receipt.
Such communications shall be addressed and directed to the parties listed
below (except where this Trust Agreement expressly provides that it be directed
to another) as follows, or to such other address or recipient for a party as may
be hereafter notified by such party hereunder:
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If to the Company (or any directors or officers thereof), or to the Committee:
SUNOCO, INC.
Ten Penn Center, 27th Floor
1801 Market Street
Philadelphia, PA 19103
Attention: General Counsel
If to the Trustee:
BANKERS TRUST COMPANY
Street Address: Mailing Address
130 Liberty Street P.O. Box 318, Mail Stop 2202
New York, New York 10006 Church Street Station
New York, NY 10008
Attention: Laura L. Vannatta
Vice President
If to the Recordkeeper:
TOWERS, PERRIN, FORSTER & CROSBY, INC.
Centre Square East
1500 Market Street
Philadelphia, PA 19102
Attention: Sunoco, Inc. Retirement Plan Actuary
c/o Philadelphia Consulting Office Manager
If to a Plan Participant, to the address of such Plan Participant provided by
the Recordkeeper.
ARTICLE XIV
Miscellaneous
14.1 No Contract of Employment. Neither the establishment of this Trust, nor
any modification thereof, nor the payment of any benefits in connection
herewith, shall be construed as giving any Plan Participant, or any person
whosoever, the right to be retained in the service of the Company, and all Plan
Participants shall remain subject to discharge to the same extent as if this
Trust had never been established.
14.2 Rights of Plan Participants. Nothing in this Trust Agreement shall in
any way diminish any rights of any Plan Participant to pursue his or her rights
as a general creditor of the Company (or certain of its subsidiaries) under the
Plans.
14.3 Amendment or Waiver.
(a) Amendment Prior to Change in Control. This Trust Agreement may be
amended only by a written instrument executed by the Trustee, the Recordkeeper
and the Company. In case of conflict between the terms of this Trust
Agreement and the terms of the Plans, the terms of the Trust Agreement shall
control; provided, however, that:
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(1) provisions that, in the determination of the Company, affect solely
the Trustee may, at the option of both the Trustee and the Company, be
amended by a writing executed only by the Company and the Trustee, with a
copy of such writing being provided to the Recordkeeper; and
(2) provisions that, in the determination of the Company, affect solely
the Recordkeeper may, at the option of both the Recordkeeper and the
Company, be amended by a writing executed only by the Company and the
Recordkeeper, with a copy of such writing being provided to the Trustee.
(b) Amendment Following Change in Control. Upon and after a Change in
Control, and unless otherwise required by applicable statute or regulation,
the following rules will govern amendments and waivers:
(1) this Trust Agreement may not be amended except by an instrument in
writing signed on behalf of the parties hereto together with the written
consent of at least eighty percent (80%) of the Plan Participants then
entitled to receive payments hereunder;
(2) the parties hereto, together with the consent of not less than eighty
percent (80%) of the Plan Participants then entitled to receive payments
hereunder, may at any time waive compliance with any of the agreements or
conditions contained herein; and
(3) any agreement on the part of a party hereto or an Plan Participant to
any such waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party or Plan Participant.
14.4 Severability of Provisions. If any provision of this Trust Agreement or
the application thereof to any person or circumstances shall be determined by a
court of proper jurisdiction to be invalid or unenforceable, such invalidity or
unenforceability shall not affect either:
(a) the application of such provision to persons or circumstances other
than those as to which it is held invalid or unenforceable; or
(b) any other provisions of this Trust Agreement (in which case, this Trust
Agreement shall be construed and enforced as if such invalid or unenforceable
provisions had not been included),
and this Trust Agreement shall be otherwise valid and enforced to the fullest
extent permitted by law.
14.5 Non-Alienability of Benefits. Except as otherwise required by law, the
interests of the Plan Participants and their beneficiaries under this Trust may
not be anticipated, assigned (either
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at law or in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
14.6 Further Assurances. The Company shall, at any time and from time to
time, upon the reasonable request of the Trustee and/or Recordkeeper, execute
and deliver such other instruments and do such further acts as may be necessary
or proper to effectuate the purposes of this Trust Agreement.
14.7 Successors, Heirs, Assigns, and Personal Representatives. This Trust
Agreement shall be binding upon the administrators, successors and permitted
assigns of the parties.
14.8 Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Trust
Agreement, and shall not be employed in the construction of the Trust Agreement.
14.9 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.
14.10 Payments to Incompetent Persons, Etc. Any benefit payable hereunder 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
Recordkeeper, the Trustee and all other parties with respect thereto.
14.11 Governing Law; Situs of Trust. TO THE EXTENT NOT PREEMPTED BY
APPLICABLE FEDERAL LAW, THIS TRUST SHALL BE CONSTRUED AND ENFORCED ACCORDING TO
THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ANY PROVISIONS OF SUCH
LAWS REGARDING CHOICE OF LAWS OR CONFLICTS OF LAWS). THE SITUS OF THIS TRUST
SHALL BE NEW YORK COUNTY, NEW YORK.
14.12 Counterparts. This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and such counterparts
shall constitute but one and the same instrument.
14.13 Acceptance by Trustee. The Trustee by joining in the execution of this
Trust Agreement hereby signifies its acceptance of the Trust hereby created.
14.14 Insurance Policies. Anything in this Trust Agreement to the contrary
notwithstanding, the Company may direct the Trustee to purchase one or more paid
up life insurance policies insuring the lives of one or more Plan Participants.
In such event, the Trustee will purchase such policies and shall not be
responsible under this Trust Agreement, or otherwise, in any way respecting the
acquisition, form, terms, payment provisions or issuer of such contract (other
than the execution of any documents incidental thereto, upon discretion of the
Company). The
25
<PAGE>
proceeds of any policy shall be credited to the applicable Plan upon death of
the insured Plan Participant.
14.15 Survival. The Company agrees that the provisions of Sections 10.3 and
10.4 hereof shall be binding on its successors and assigns and shall survive
termination, amendment or restatement of this Trust Agreement, or the
resignation or removal of the Trustee, and that this paragraph shall be
construed as a contract between the Company and the Trustee according to the
laws of the State of New York.
14.16 Entire Understanding. This Trust Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements and understandings
relating thereto. This Trust Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and legal
representatives.
[COUNTERPART SIGNATURE PAGES FOLLOW]
26
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Trust Agreement as of the
date first written above.
<TABLE>
<CAPTION>
ATTEST: SUNOCO, INC.
(the "Company")
<S> <C>
By: /s/ELRIC C. GERNER By: /s/MALCOLM I. RUDDOCK
------------------- ---------------------
Name: Elric C. Gerner Name: Malcolm I. Ruddock
Title: Assistant Secretary Title: Treasurer
ATTEST: BANKERS TRUST COMPANY
(the "Trustee")
By: /s/DAVID ABRAMSON By: /s/ALLEN MURRAY
----------------- ---------------
Name: David Abramson Name: Allen Murray
Title: Vice President and Counsel Title: Vice President
ATTEST: TOWERS, PERRIN, FORSTER & CROSBY, INC.
(the "Recordkeeper")
By: /s/JOSEPH S. SWETY By: /s/JOSEPH S. HESSENTHALER
------------------ -------------------------
Name: Joseph S. Swety Name: Joseph S. Hessenthaler
Title: Director of Actuarial Operations Title: Principal
</TABLE>
27
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss.
COUNTY OF PHILADELPHIA )
On the 12th day of January, in the year one thousand nine hundred and ninety-
nine (1999), before me personally came Malcolm I. Ruddock to me known, who being
by me duly sworn, did depose and say: that he/she resides in Philadelphia, PA;
that he/she is the Treasurer of SUNOCO, INC., the corporation described in and
which executed the above instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation,
and that he/she signed his/her name thereto by like order.
/s/JUDITH ANN FRITSCH
---------------------
Notary Public
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On the 27th day of January, in the year one thousand nine hundred and ninety-
nine (1999), before me personally came Allen Murray to me known, who being by me
duly sworn, did depose and say: that he/she resides in Syosset, New York; that
he/she is a Vice President of BANKERS TRUST COMPANY, the corporation described
in and which executed the above instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation,
and that he/she signed his/her name thereto by like order.
/s/DAVID ABRAMSON
-----------------
Notary Public
COMMONWEALTH OF PENNSYLVANIA )
) ss.
COUNTY OF PHILADELPHIA )
On the 15th day of January, in the year one thousand nine hundred and ninety-
nine (1999), before me personally came Joseph S. Hessenthaler to me known, who
being by me duly sworn, did depose and say: that he/she resides in New Jersey;
that he/she is the Principal of TOWERS, PERRIN, FORSTER & CROSBY, INC., the
corporation described in and which executed the above instrument; that he/she
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation, and that he/she signed his/her name thereto by like order.
/s/EILEEN T. LUTZ
-----------------
Notary Public
28
<PAGE>
Schedule 2.1
to the
Directors' Deferred Compensation and Benefits
Trust Agreement
Benefit Plans and Other Arrangements Subject to Trust
(1) Sunoco, Inc. Directors' Deferred Compensation Plan;
(2) The entire funding for all the Indemnification Agreements with the
directors set forth below shall be Five Million Dollars ($5,000,000.00) in the
aggregate upon a Potential Change in Control, and an amount upon a Change in
Control calculated on the basis of the Indemnification Agreements with the
following directors:
(a) Raymond E. Cartledge
(b) Robert E. Cawthorn
(c) Mary Johnston Evans
(d) Thomas P. Gerrity
(e) Rosemarie B. Greco
(f) James G. Kaiser
(g) Robert D. Kennedy
(h) R. Anderson Pew
(i) William F. Pounds
(j) G. Jackson Ratcliffe
(k) Alexander B. Trowbridge
(3) Benefits payable to former directors of the Company (or their
beneficiaries) in pay status as of the date of termination of the Sunoco, Inc.
Non-Employee Directors' Retirement Plan.
29
<PAGE>
Exhibit 10.15
================================================================================
DEFERRED COMPENSATION AND BENEFITS TRUST AGREEMENT
Dated as of January 11, 1999
By and Among
SUNOCO, INC.
BANKERS TRUST COMPANY
and
TOWERS, PERRIN, FORSTER & CROSBY, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Definitions...................................................................... 2
1.1 Account....................................................................... 2
1.2 Board of Directors............................................................ 2
1.3 Change in Control............................................................. 2
1.4 Chief Executive Officer....................................................... 2
1.5 Committee..................................................................... 2
1.6 Company....................................................................... 2
1.7 Compensation Committee........................................................ 2
1.8 Continuing Director........................................................... 2
1.9 Control Transaction........................................................... 2
1.10 ERISA......................................................................... 3
1.11 Group......................................................................... 3
1.12 Insolvent..................................................................... 3
1.13 Legal Defense Fund............................................................ 3
1.14 Payment Schedule.............................................................. 3
1.15 Plan.......................................................................... 3
1.16 Plan Participant.............................................................. 3
1.17 Potential Change in Control................................................... 3
1.18 Recordkeeper.................................................................. 4
1.19 Required Funding Amount....................................................... 4
1.20 Trust......................................................................... 4
1.21 Trust Agreement............................................................... 4
1.22 Trust Corpus.................................................................. 4
1.23 Trustee....................................................................... 4
ARTICLE II The Plans....................................................................... 4
2.1 Plans & Agreements Subject to Trust........................................... 4
2.2 Liability for Payments........................................................ 5
ARTICLE III Establishment of Trust.......................................................... 5
3.1 Principal of Trust............................................................ 5
3.2 Term and Revocability......................................................... 5
3.3 Grantor Trust................................................................. 5
3.4 Segregation of Funds; Rights of Creditors..................................... 5
ARTICLE IV Administration of Trust......................................................... 6
4.1 Authority and Duties of Committee............................................. 6
4.2 Action by the Committee....................................................... 6
4.3 Records, Reporting and Disclosure............................................. 6
4.4 Bonding....................................................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V Potential Change in Control; Change in Control................................... 7
5.1 Potential Change in Control................................................... 7
5.2 Change in Control............................................................. 7
5.3 Method of Funding............................................................. 7
5.4 Additional Contributions; Sufficiency of Funds................................ 8
5.5 Additional Plans.............................................................. 8
5.6 Calculation of Required Funding Amount........................................ 8
5.7 Payment of Required Funding Amount............................................ 9
(a) Interest on Delinquent Payments......................................... 9
(b) Discount Rate for Distributions Due Later............................... 9
(c) Schedule of Accounts.................................................... 9
5.8 Legal Defense Fund............................................................ 9
ARTICLE VI Investment Authority............................................................. 10
6.1 Authority of Trustee.......................................................... 10
(a) Investments............................................................. 10
(b) Sale of Property........................................................ 10
(c) Settlement of Debts..................................................... 11
(d) Exercising Rights as Holder of Securities............................... 11
(e) Use of Discretion With Respect to Company Securities.................... 11
(f) Depositary Function..................................................... 12
(g) Borrowing Powers; Encumbering Trust Assets.............................. 12
(h) Enforcement Authority................................................... 12
(i) Execution of Instruments................................................ 12
(j) Registration and Transfer of Investments................................ 12
(k) Uninvested Assets....................................................... 12
(l) General................................................................. 12
6.2 Investment Following Change in Control........................................ 12
6.3 Investment of Trust Income.................................................... 13
6.4 Losses Charged Against Trust Corpus........................................... 13
ARTICLE VII Payments to Plan Participants and Their Beneficiaries........................... 13
7.1 Appointment of Recordkeeper................................................... 13
7.2 Maintenance of Records........................................................ 13
7.3 Company Information........................................................... 14
7.4 Payment Schedule.............................................................. 14
7.5 Entitlement to Benefits....................................................... 15
7.6 Payment of Benefits........................................................... 15
7.7 Notice of Benefits Payable.................................................... 15
7.8 Source of Payments............................................................ 16
7.9 Tax on Amounts Held in Trust Prior to Distribution............................ 16
7.10 Indemnification of Recordkeeper by Company................................... 16
7.11 Resignation, Discharge & Replacement of Recordkeeper.......................... 17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII Payments to Trust Beneficiary When Company Is Insolvent....................... 17
8.1 Responsibilities of Trustee in Insolvency..................................... 17
8.2 Resumption of Discontinued Payments........................................... 18
ARTICLE IX Payments to the Company......................................................... 18
9.1 Reversion of Funds to Company................................................. 18
9.2 Limitation Upon Company's Ability to Direct Payments.......................... 19
ARTICLE X Powers, Duties & Responsibilities of Trustee..................................... 19
10.1 Limitation of Liability....................................................... 19
10.2 Maintenance of Administrative Records......................................... 19
10.3 Reimbursement of Costs & Expenses............................................. 20
10.4 Indemnification of Trustee by Company......................................... 20
10.5 Institution of Litigation..................................................... 21
10.6 Powers of Trustee............................................................. 21
ARTICLE XI Resignation and Removal of Trustee.............................................. 21
11.1 Resignation of Trustee........................................................ 21
11.2 Removal and Substitution of Trustee........................................... 21
11.3 Appointment of Successor Trustee ............................................. 22
11.4 Failure to Appoint Successor Trustee.......................................... 22
11.5 Statements of Account Upon Removal or Resignation............................. 22
11.6 Transfer of Trust Corpus to Successor Trustee................................. 22
ARTICLE XII Authorization................................................................... 23
12.1 Actions by Board of Directors; Compensation Committee......................... 23
12.2 Actions by Chief Executive Officer; Treasurer................................. 23
12.3 Other Actions of Company...................................................... 23
12.4 Actions by the Committee...................................................... 23
ARTICLE XIII Notices....................................................................... 23
13.1 Notices....................................................................... 23
ARTICLE XIV Miscellaneous.................................................................. 24
14.1 No Contract of Employment..................................................... 24
14.2 Rights of Plan Participants................................................... 24
14.3 Amendment or Waiver........................................................... 25
(a) Amendment Prior to Change in Control.................................... 25
(b) Amendment Following Change in Control................................... 25
14.4 Severability of Provisions.................................................... 25
14.5 Non-Alienability of Benefits.................................................. 26
14.6 Further Assurances............................................................ 26
14.7 Successors, Heirs, Assigns, and Personal Representatives...................... 26
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
14.8 Headings and Captions........................................................ 26
14.9 Gender and Number............................................................ 26
14.10 Payments to Incompetent Persons, Etc. ....................................... 26
14.11 Governing Law; Situs of Trust................................................ 26
14.12 Counterparts................................................................. 26
14.13 Acceptance by Trustee ....................................................... 26
14.14 Insurance Policies........................................................... 26
14.15 Survival..................................................................... 27
14.16 Entire Understanding......................................................... 27
</TABLE>
Schedules:
Schedule 2.1 - Benefit Plans and Other Arrangements Subject to Trust
iv
<PAGE>
DEFERRED COMPENSATION AND BENEFITS TRUST AGREEMENT
This Deferred Compensation and Benefits Trust Agreement, dated as of
January 11, 1999, (the "Trust Agreement"), is by and among SUNOCO, INC., a
Pennsylvania corporation (the "Company"), BANKERS TRUST COMPANY, a New York
banking corporation (the "Trustee"), and TOWERS, PERRIN, FORSTER & CROSBY, INC.,
a Pennsylvania corporation (the "Recordkeeper").
W I T N E S S E T H
WHEREAS, the Company (or certain of its subsidiaries) is or
may become obligated under certain employee benefit plans, agreements, or other
arrangements, to make payments to certain persons who at any time prior to the
occurrence of a change in control of the Company were employees of the Company
(or certain of its subsidiaries) (the "Plan Participants") and their
beneficiaries; and
WHEREAS, in order to: (1) provide an alternative source of
funds to assist the Company in meeting its liabilities under the applicable
employee benefit plans, agreements, or other arrangements; and (2) assure that
future payment of such amounts would not be improperly withheld in the event of
a change in control of the Company, the Company desires to establish a Trust
(the "Trust") and, in its discretion, to contribute to the Trust assets that
shall be held therein, subject to the claims of the Company's creditors in the
event of the Company's insolvency until paid to Plan Participants and their
beneficiaries in the manner and at the times specified in the applicable
employee benefit plans, agreements, or other arrangements; and
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect the status of the
plans as unfunded plans maintained to provide deferred compensation for a select
group of management or highly compensated employees for purposes of Title I of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and
WHEREAS, Bankers Trust Company is willing to act as Trustee of
the Trust, and Towers Perrin is willing to act as Recordkeeper of the Trust,
upon all of the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual terms,
covenants, and conditions herein contained, the mutual benefits to be derived
hereunder, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows:
1
<PAGE>
ARTICLE I
Definitions
As used in this Trust Agreement, the following terms shall have the
meanings herein specified:
1.1 Account - shall have the meaning provided herein at Section 5.7(c).
1.2 Board of Directors - shall mean the Board of Directors of Sunoco,
Inc., or any successor thereto.
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 Sunoco, Inc. (or of the Board of Directors of any
successor to Sunoco, Inc. or to all or substantially all of its
assets); or
(b) any entity, person or Group acquires shares of
Sunoco, 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 Sunoco, Inc.
1.4 Chief Executive Officer - shall mean the Chief Executive Officer of
Sunoco, Inc. as of the date of reference.
1.5 Committee - shall mean the administrative committee consisting of
three (3) or more persons, not necessarily employees of the Company, appointed
prior to a Change in Control by the Chief Executive Officer to administer the
Sunoco, Inc. Special Executive Severance Plan. Upon the occurrence of any Change
in Control, both the size and the membership of the Committee shall remain
unchanged and shall continue unchanged for a period of at least eighteen (18)
months following such Change in Control. In the event one or more members of the
Committee resigns or otherwise terminates his or her membership in the Committee
after a Change in Control, the remaining members of the Committee shall appoint
a replacement by simple majority vote.
1.6 Company - shall have the meaning set forth in the introduction to
this Trust Agreement.
1.7 Compensation Committee - shall have the meaning provided herein at
Section 2.1.
1.8 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.
1.9 Control Transaction - shall mean any of the following transactions
or any combination thereof:
(a) any tender offer for or acquisition of capital
stock of Sunoco, Inc.;
2
<PAGE>
(b) any merger, consolidation, or sale of all or
substantially all of the assets of Sunoco, Inc.; or
(c) the submission of a nominee or nominees for the
position of director of Sunoco, Inc. by a shareholder or a Group of
shareholders in a proxy solicitation or otherwise.
1.10 ERISA - shall have the meaning set forth in the introduction to
this Trust Agreement.
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 Insolvent or Insolvency - shall mean, with respect to the Company,
that either:
(a) the Company is unable to pay its debts as they
become due; or
(b) the Company is subject to a pending proceeding as
a debtor under the United States Bankruptcy Code.
1.13 Legal Defense Fund - shall have the meaning provided herein at
Section 5.8.
1.14 Payment Schedule - shall have the meaning provided herein at
Section 7.4.
1.15 Plan - shall have the meaning provided herein at Section 2.1.
1.16 Plan Participant - shall have the meaning set forth in the
introduction to this Trust Agreement.
1.17 Potential Change in Control - shall mean the occurrence of any of
the following events or transactions:
(a) any person (other than Sunoco, Inc., or any
affiliate or subsidiary thereof) makes a tender offer for capital
stock of Sunoco, Inc.;
(b) any person:
(1) becomes the beneficial owner, directly
or indirectly, of capital stock of Sunoco, 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; and
(2) indicates in such Schedule 13D or
equivalent filing that the purpose of such capital
stock acquisition is part of a plan or proposal that
reasonably could lead to a Change in Control of
Sunoco, Inc. ;
(c) the submission of a nominee or nominees for the
position of director of Sunoco, Inc. by a shareholder or Group of
shareholders in a proxy solicitation or otherwise which, in its
judgment, the Board of Directors by subsequent adoption of a
resolution, determines might result in a Change in Control of
Sunoco, Inc.;
3
<PAGE>
(d) any person files a pre-merger notification for
the acquisition of capital stock of Sunoco, 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
Sunoco, Inc. for purposes of this Trust Agreement has occurred.
1.18 Recordkeeper - shall have the meaning set forth in the
introduction to this Trust Agreement.
1.19 Required Funding Amount - shall mean the aggregate of the amounts
described in the following subparagraphs (a) and (b) of this Section 1.19:
(a) except as otherwise provided in Schedule 2.1
hereof, an amount sufficient to provide all benefits accrued for
each Plan Participant (and any beneficiaries) under the Plans
(including any interest or earnings due on such accrual) through
the date of the contribution, to the extent not previously
contributed; and
(b) an amount sufficient to pay all fees and expenses
of administering and enforcing the Trust Agreement and the Plans
that are or thereafter may become due, according to the respective
terms and provisions of such Plans as of the date of reference.
1.20 Trust - shall have the meaning set forth in the introduction to
this Trust Agreement.
1.21 Trust Agreement - shall have the meaning set forth in the
introduction to this Trust Agreement.
1.22 Trust Corpus - shall mean the amounts delivered to the Trustee
pursuant to the terms hereof, less amounts distributed from the Trust pursuant
to the terms hereof, plus all income earned by the Trust, in whatever form held
or invested as provided herein.
1.23 Trustee - shall have the meaning set forth in the introduction to
this Trust Agreement.
ARTICLE II
The Plans
2.1 Plans & Agreements Subject to Trust. The plans, agreements, and
other arrangements that are subject to this Trust (each a "Plan" and,
collectively the "Plans") are listed on Schedule 2.1 hereto. Prior to a Change
in Control of the Company, the Compensation Committee of the Board of Directors
of the Company (the "Compensation Committee") may from time to time designate
additional such plans, agreements, and other arrangements to be subject to this
Trust, or delete
4
<PAGE>
any Plan from this Trust. The Company shall immediately notify the Trustee and
the Recordkeeper in writing of any such changes.
2.2 Liability for Payments. The Company (or certain of its
subsidiaries) shall continue to be liable to the Plan Participants to make all
payments required under the terms of the Plans to the extent such payments have
not been made pursuant to this Trust Agreement. Distributions made from the
Trust to or for Plan Participants in respect of the Plans pursuant to Article
VII hereof, shall, to the extent of such distributions, satisfy the Company's
(or certain of its subsidiaries') obligation to pay benefits to such Plan
Participants under the Plans.
ARTICLE III
Establishment of Trust
3.1 Principal of Trust. The Company hereby deposits with the Trustee in
trust the sum of One Hundred Dollars ($100.00) in cash which shall become the
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement.
3.2 Term and Revocability. The Trust hereby established is revocable by
the Company, but shall become irrevocable upon the occurrence of a Change in
Control. At any time prior to a Change in Control of the Company, this Trust may
be terminated by the Compensation Committee. Upon or after a Change in Control
of the Company, this Trust shall not terminate until the date on which Plan
Participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plans. Upon termination of the Trust any assets remaining in
the Trust shall be returned to the Company.
3.3 Grantor Trust . The Trust is intended to be a grantor trust, of
which the Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly, and nothing herein shall be
construed to subject this Trust to ERISA.
3.4 Segregation of Funds; Rights of Creditors. The principal of the
Trust, and any earnings thereon shall be separate and apart from other funds of
the Company and shall be used exclusively for the uses and purposes of Plan
Participants and general creditors as herein set forth. Plan Participants and
their beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created under the
Plans and this Trust shall be mere unsecured contractual rights of Plan
Participants and their beneficiaries against the Company. Any assets held by the
Trust will be subject to the claims of the Company's general creditors under
federal and state law in the event of Insolvency.
5
<PAGE>
ARTICLE IV
Administration of Trust
4.1 Authority and Duties of the Committee. It shall be the duty of the
Committee, on the basis of information supplied to it by the Company, to
determine
(a) the eligibility of each Plan Participant to receive
payment of benefits under this Trust with respect to each Plan; and
(b) the manner and time of payment of the benefits payable
hereunder.
The Recordkeeper shall determine, on behalf of the Committee, the
amount of any benefit payable under this Trust to which each Plan Participant
may be entitled. The Trustee, on behalf of the Company, shall make such payments
as the Committee instructs the Trustee to pay, to Plan Participants. The
Committee shall have the full power and authority to manage claims and appeals
as set forth in the respective Plan, and to construe, interpret and administer
such Plan in accordance with its terms and provisions.
Prior to any Change in Control, the non-employee members of the
Committee (if any) shall be compensated by the Company at a rate to be
determined by the Chief Executive Officer. Following a Change in Control, all
members of the Committee shall continue to be compensated for services performed
under this Trust Agreement at the rate in effect for any non-employee members
immediately preceding a Change in Control. Following a Change in Control, such
compensation shall be paid from the Trust assets.
4.2 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 without a meeting by
mail, telegraph, telephone or electronic communication device; provided,
however, 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.
4.3 Records, Reporting and Disclosure. The Committee shall keep all
individual and group records relating to Plan Participants and former Plan
Participants and all other records necessary for the proper administration and
operation of the Trust. Such records shall be made available to the Company and
to each Plan Participant for examination during business hours except that a
Plan Participant shall examine only such records as pertain exclusively to the
examining Plan Participant and to the Plan, in general. The Committee shall
prepare and shall file as required by law or regulation all reports, forms,
documents and other items required by the Internal Revenue Code, and every other
applicable statute, each as amended, and all regulations thereunder (except
6
<PAGE>
that the Company, as payer 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).
All income, deductions and credits attributable to the Trust belong to
the Company and will be included on the Company's income tax returns. The
Company shall pay any federal, state, local, or other taxes imposed or levied
with respect to the assets and/or income of the Trust or any part thereof under
existing or future laws. Upon furnishing the Trustee with evidence reasonably
required by the Trustee of any such tax payments made directly by the Company,
the Company shall be entitled to receive reimbursement from the assets of the
Trust for the full amount of such taxes paid by it.
4.4 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 Trust.
ARTICLE V
Potential Change in Control; Change in Control
5.1 Potential Change in Control. If a Potential Change in Control of
the Company occurs, the Company shall immediately notify the Trustee and
Recordkeeper and shall cause the Required Funding Amount to be remitted to the
Trustee as a contribution to the Trust. The Required Funding Amount shall be
paid to the Trust not later than thirty (30) days after the Potential Change in
Control.
5.2 Change in Control. If a Change in Control occurs, the Company shall
immediately notify the Trustee and Recordkeeper. The Company shall immediately
cause to be remitted to the Trustee, as an irrevocable contribution to the
Trust, an amount equal to the Required Funding Amount as of that date. The
Required Funding Amount shall be paid to the Trust not later than one (1) day
after the Change in Control.
5.3 Method of Funding. The contribution of the Required Funding Amount
shall be made in cash or in property acceptable to the Trustee having a fair
market value equal to the Required Funding Amount, or in a combination of the
two. The Board of Directors may determine that all or a portion of the Required
Funding Amount may be represented by a standby, irrevocable (except as provided
in Section 9.1) letter of credit against which the Trustee may draw sufficient
funds that, with the amounts contributed in cash or other property, will enable
the Trustee to make the payments due under the Plans, together with the fees and
expenses described in Section 5.1 above.
7
<PAGE>
5.4 Additional Contributions; Sufficiency of Funds. The Company shall
be obligated to continue to cause additional contributions (or increases to the
amount that may be drawn against the letter of credit) to be made as may be
necessary from time to time to insure that at all times following a Change in
Control, the Trust contains sufficient funds, on a current basis, to pay all
benefits due to the Plan Participants (or their designated beneficiaries) under
the Plans, together with the fees and expenses described in Section 5.1. The
Trustee shall be under no duty to determine the sufficiency, or to enforce the
making, of such contributions by the Company.
5.5 Additional Plans. In the event the Compensation Committee
designates additional Plans that are subject to this Trust Agreement, or the
Plans subject to this Trust Agreement are amended after a Potential Change in
Control or Change in Control of the Company, the Treasurer of the Company shall,
unless the Trust Corpus shall theretofore have been released pursuant to Section
9.1 hereof, recalculate the Required Funding Amount. If the amount so calculated
exceeds the fair market value of the assets then held in trust, the Company
shall promptly (and in no event later than thirty (30) days from the date of
such recalculation):
(a) pay to the Trustee an amount of cash (or property
acceptable to the Trustee having a fair market value equal to such
amount, or some combination thereof) equal to such excess; or
(b) increase the amount that may be drawn against the letter
of credit described in Section 5.3, above, to cover such excess.
If the Required Funding Amount so calculated is less than the fair
market value of the assets held in trust, the Trustee shall retain such
difference.
5.6 Calculation of Required Funding Amount. As soon as practicable, but
in no event later than fifteen (15) days following the occurrence of any
Potential Change in Control, the Treasurer of the Company shall compute the
Required Funding Amount. Immediately thereafter, the Recordkeeper shall review
the Treasurer's calculations of the Required Funding Amount (including without
limitation the calculations under Section 5.5 hereof). The Recordkeeper shall
complete its review prior to the thirtieth (30th) day following any Potential
Change in Control. If the Recordkeeper concludes that the amounts calculated by
the Treasurer are not sufficient to permit the Trustee to make all payments due
or to become due under the Plans, together with the fees and expenses described
in Section 5.1 above, the Treasurer shall increase the Required Funding Amount
to the amount so calculated by the Recordkeeper. The Company agrees not to
challenge the calculations of the Treasurer, and both the Company and the
Treasurer agree not to challenge the calculations of the Recordkeeper, and the
Trustee shall have no right or obligation to challenge or question such
calculation with regard to the Required Funding Amount (including, without
limitation, the amount
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determined under Section 5.5 hereof) upon and after a Potential Change in
Control or Change in Control of the Company. No Plan Participant shall have the
right to challenge the calculations of either the Treasurer or the Recordkeeper
with respect to the Required Funding Amount.
5.7 Payment of Required Funding Amount.
(a) Interest on Delinquent Payments. The Company agrees to pay
interest on any delinquent payment of the Required Funding Amount from
the date on which such payment is required to be made pursuant to this
Article V, based upon the daily average of the prime rate charged by
Trustee during the period of such deficiency.
(b) Discount Rate for Distributions Due Later. In determining
the Required Funding Amount with respect to any payment or series of
payments expected to be due more than one (1) year after the date as of
which the Required Funding Amount is to be determined, the present
value of such payment or series of payments shall be calculated by
using a discount rate equal to one percentage point less than the then
lowest annual yield to maturity on United States Treasury obligations
having then remaining maturities approximately equal to the maturity of
the payment or payments being valued.
(c) Schedule of Accounts. Each payment by the Company pursuant
to this Article V shall be accompanied by a schedule delivered to the
Recordkeeper (as described in Section 7.4 hereof) of the individual
Plans for whose accounts such payment is being made, which schedule
sets forth the amounts delivered in respect of each of the Plans. The
Recordkeeper shall maintain in an equitable manner an account for each
Plan (the "Account"). Each Account shall consist of contributions to
and payments from the Trust Corpus which are allocable to the Plan, and
earnings thereon, less disbursements therefrom attributable to the
interest of the Plan in the entire Trust Corpus. On a monthly basis,
the Trustee shall advise the Recordkeeper in writing regarding the
actual amounts received by the Trust from the Company, and paid out
from the Trust, in respect of each of the Plans.
5.8 Legal Defense Fund. The Trustee shall establish a separate account
(the "Legal Defense Fund") to provide for the payment of legal expenses and
liabilities incurred by the Trustee with respect to which it is entitled to
reimbursement under Sections 10.3 and 10.4 and to protect Plan Participants'
rights to benefits after a Potential Change in Control or Change in Control of
the Company. The Company shall contribute cash to the Legal Defense Fund with
the Required Funding Amount in an amount equal to ten percent (10%) of the
Required Funding Amount. The Legal Defense Fund shall not be used to pay
benefits due under any Plan.
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Following a Potential Change in Control or Change in Control of the
Company, the Trustee shall pursue all claims for benefits by individual Plan
Participants against the Company, other than those which the Trustee reasonably
believes to be frivolous, and shall not compromise or settle any such claim,
unless approved by the affected Plan Participants.
ARTICLE VI
Investment Authority
6.1 Authority of Trustee. The Trustee and any successor thereto
appointed hereunder shall be a corporate professional trustee which is not an
affiliate of the Company but which has equity in excess of One Hundred Million
Dollars ($100,000,000.00). Discretionary authority for the management and
control of the assets of the Trust shall be retained by the Trustee, and all
rights associated with assets of the Trust shall be exercised by the Trustee or
the person designated by the Trustee, and shall in no event be exercisable by,
or rest with, the Plan Participants.
The assets of the Trust shall be invested and re-invested, without
distinction between principal and income, at such time or times in such
investments, pursuant to such investment strategies or courses of action and in
such shares and proportions as the Trustee, in its sole discretion shall deem
advisable, subject to the applicable investment policies and related guidelines
established by the Committee. These investment policies and related guidelines
shall be communicated by the Committee to the Trustee. The Committee shall
monitor compliance with such investment policies and related guidelines.
Subject to the applicable investment policies and related guidelines,
and subject to the requirements of Section 6.2 hereof after a Change in Control,
the Trustee shall have the following powers and discretions in addition to those
conferred by law:
(a) Investments. To invest and reinvest the Trust Corpus in:
(1) stock or rights to acquire stock (of any
classification, including common and preferred stocks), or a
registered investment fund, including a fund for which the
Trustee serves as investment manager and/or custodian;
(2) bonds and other obligations issued by such
entities as the Trustee deems appropriate (including, without
limitation, securities or obligations issued by the Company);
(3) other property (real, personal or mixed); and/or
(4) interests in investment companies and investment
trusts;
(b) Sale of Property. To sell, exchange, convey, transfer or
dispose of, and also to grant options with respect to, any property,
whether real or personal, at any time held by
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it by private contract or by public auction, for cash or upon credit,
or partly for cash and partly for credit, as the Trustee may deem best,
and no person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity,
expediency or propriety of any such sale or other disposition;
(c) Settlement of Debts. To compromise, compound and settle
any debt or obligation (except claims by Plan Participants for benefits
under any Plan) due to or from the Trust and to reduce the rate of
interest thereon, to extend or otherwise modify, or to foreclose upon,
default or otherwise enforce or act with respect to any such obligation
as the Trustee may deem advisable;
(d) Exercising Rights as Holder of Securities. With respect to
stocks, bonds or securities:
(1) to vote, in person or by general or limited proxy, any
stocks or other securities at any time held in the Trust
Corpus, at any meeting of stockholders or security holders, in
respect to any business which may come before the meeting;
(2) to exercise any options appurtenant to any stocks,
bonds or other securities for the conversion thereof into
other stocks, bonds or securities;
(3) to exercise or sell any conversion or subscription
rights appurtenant to any stocks, bonds or other securities at
any time held in the Trust Corpus, and to make any and all
necessary payments therefor;
(4) to join in, and to approve, or to dissent from and to
oppose, any corporate act or proceeding, including any
reorganization, recapitalization, consolidation, merger,
dissolution, liquidation, sale of assets or other action by or
plan in respect of corporations or properties, the stocks or
securities of which may at any time be held in the Trust
Corpus;
(5) to deposit with any committee or depository, pursuant
to any plan or agreement of protection, reorganization,
consolidation, sale, merger, or other readjustment, any
property held in the Trust Corpus; and
(6) to make payment from the Trust Corpus of any charges
or assessments imposed by the terms of any such plan or
agreement;
(e) Use of Discretion With Respect to Company Securities.
Without limiting the foregoing, with respect to stocks, bonds or
securities of the Company, the Trustee shall exercise the powers under
Section 6.1(d) at its discretion.
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(f) Depositary Function. To accept and hold any securities or
other property received by it under any of the provisions of this
Article VI, whether or not the Trustee would be authorized hereunder
then to invest therein;
(g) Borrowing Powers; Encumbering Trust Assets. To borrow
money upon such terms and conditions as the Trustee shall deem
advisable to carry out the purposes of the Trust and to pledge
securities or other property of the Trust Corpus in repayment of any
such loan;
(h) Enforcement Authority. To enforce any right, obligation or
claim and in general to protect in any way the interest of the Trust
Corpus, either before or after default, and in case the Trustee shall,
in its discretion, consider such action for the best interest of the
Trust Corpus, to abstain from the enforcement of any right, obligation
or claim and to abandon any property, whether real or personal which at
any time may be held by the Trustee;
(i) Execution of Instruments. To make, execute, acknowledge
and deliver any and all deeds, leases, assignments, transfers,
conveyances and any and all other instruments necessary or appropriate
to carry out any powers herein granted;
(j) Registration and Transfer of Investments. To cause any
investments from time to time held by it hereunder to be registered in,
or transferred into, its name as Trustee or the name of its nominee or
nominees, and with or without designation of fiduciary capacity, to
retain securities at a qualified central depository or Federal Reserve
Bank or to retain any investments unregistered or in form permitting
transfer by delivery, but the books and records of the Trustee shall at
all times show that all such investments are part of the Trust Corpus;
(k) Uninvested Assets. To hold any part or all of the Trust
Corpus uninvested; and
(l) General. To do all acts which may be necessary or proper
and to exercise any and all of the powers of the Trustee under this
Trust Agreement upon such terms and conditions as the Trustee may deem
in the best interests of the Trust Corpus.
6.2 Investment Following Change in Control. Upon and after a Change in
Control, the Trustee shall use its good faith efforts to invest or reinvest all
or such part of the Trust Corpus as the Trustee believes prudent under the
circumstances (taking into account, among other things, the anticipated cash
requirements for the payment of benefits under the Plans communicated to the
Trustee by the Recordkeeper) solely in:
(a) direct obligations of the United States of America or
agencies thereof;
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(b) obligations unconditionally and fully guaranteed as to
principal and interest by the United States of America; or
(c) any registered investment fund, including a fund for which
the Trustee serves as investment manager and/or custodian, established
and maintained as a vehicle for short-term investment.
With respect to such investments, the Trustee shall have the powers and
discretion set forth in Section 6.1 hereof, in addition to those conferred by
law; provided, however, that the Trustee shall not be liable for: (1) any losses
to the Trust resulting from compliance with the investment and diversification
limitations imposed by this Section 6.2, or (2) any loss of income due to
liquidation of any investment which liquidation is necessary to make payments or
to reimburse expenses under the terms of this Trust Agreement.
6.3 Investment of Trust Income. During the term of this Trust, income
received by the Trust, net of expenses and taxes, shall be accumulated and
reinvested.
6.4 Losses Charged Against Trust Corpus. All losses of income or
principal in respect of, and expenses (including without limitation taxes and,
as provided in Article XI hereof, any expenses of the Trustee) charged against,
the Trust Corpus shall be for the account of the Company and the Company shall
be obligated to reimburse the Trust Corpus following a Potential Change in
Control or a Change in Control of the Company for any loss in principal
amount of, or expense charged against, the Trust Corpus except to the extent
that the fair market value of the Trust Corpus as of that date equals or exceeds
the Required Funding Amount as of that date. The Trustee shall promptly notify
the Company in writing of the amount of such reimbursement. The Company agrees
that, upon receipt of such notice, it will deliver to the Trustee to be held in
the Trust an amount in cash equal to any reimbursement amount specified by the
Trustee, together with interest from the date of receipt of such notice based
upon the daily average of the prime rate charged by the Trustee.
ARTICLE VII
Payments to Plan Participants and Their Beneficiaries
7.1 Appointment of Recordkeeper. It is recognized that the Trustee
shall have no responsibility hereunder for the continued retention of the
Recordkeeper and/or any responsibility assigned to the Recordkeeper or its
performance thereof. The Company shall pay the Trustee for all fees and expenses
of the Recordkeeper.
7.2 Maintenance of Records. Except for the records dealing solely with
the Trust Corpus and its investment, which shall be maintained by the Trustee,
the Recordkeeper shall maintain all the
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records contemplated by this Trust Agreement, including the maintenance of
records for the separate Accounts of each Plan under this Trust Agreement and
the maintenance of Plan Participants' Plan interests. The Recordkeeper shall
maintain individual records with respect to each Plan Participant's interest
under each Plan.
7.3 Company Information. As soon as practicable, but in no event later
than thirty (30) days following the establishment of this Trust, the
Recordkeeper shall identify to the Company in writing the information deemed
necessary to enable the Recordkeeper to determine the amount of benefits payable
to or with respect to each Plan Participant in each Plan, including any benefits
payable after the Plan Participant's death, and the recipient. The Company shall
furnish the information needed by the Recordkeeper in order to determine the
amount of any such benefit, and shall deliver to the Recordkeeper a letter of
instructions:
(a) describing the terms of each Plan;
(b) enclosing a copy of each Plan;
(c) listing the names, addresses, and Hay points or grade
levels under the salary administration program then in effect, for the
Plan Participants (and beneficiaries) covered by each Plan;
(d) setting forth the timing, form of distributions, and
formula or other methodology for determining the amounts to be paid to
each Plan Participant and beneficiary under each Plan; and
(e) instructing the Recordkeeper how and from whom to get any
other information needed to compute benefits under each Plan.
The Company shall regularly, at least annually, furnish revised
up-dated information to the Recordkeeper. In the event the Company refuses or
neglects to provide updated Plan Participant information, as contemplated
herein, the Recordkeeper shall be entitled to rely upon the most recent
information furnished to it by the Company.
7.4 Payment Schedule. Within forty-five (45) days following a Change in
Control or Potential Change in Control (or when the Company otherwise makes
contributions to the Trust), the Recordkeeper, on behalf of the Company, shall
deliver to the Trustee a schedule (the "Payment Schedule") that indicates:
(a) in the case of all Plans, except the Special Employee
Severance Plan, the amounts payable (including the fees and expenses
incurred by the Plans) in respect of each Plan Participant (and his or
her beneficiaries); and
(b) in the case of the Special Employee Severance Plan, the
amount reasonably expected to be payable thereunder, in accordance with
the applicable minimum limits
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established in Schedule 2.1 hereof, together with an explanation of the
assumptions used by the Recordkeeper in performing its calculation.
The Payment Schedule shall be updated by the Recordkeeper as necessary,
but on at least an annual basis, in order to reflect changes therein. Following
the termination of employees entitled to benefits under the Special Employee
Severance Plan, the Recordkeeper will update the Payment Schedule to indicate
those Plan Participants to whom benefits have become payable. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
Participants and their beneficiaries in accordance with such Payment Schedule
and shall pay such fees and expenses, unless paid by the Company. The Trustee
shall make provision for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plans and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company.
7.5 Entitlement to Benefits. The entitlement of a Plan Participant or
his or her beneficiaries to benefits under the Plans shall be determined
promptly by the Committee, and any claim for such benefits shall be considered
and reviewed by the Committee under the procedures set out in the Plans. As soon
as is reasonably practicable following any such review or determination by the
Committee, the Committee shall give notice of its findings to the Recordkeeper,
together with updated information as needed, in order to permit the Recordkeeper
to make a final determination of the benefits to be paid. Upon notice of such
findings by the Committee, the Recordkeeper promptly will make a final
determination of the amounts payable and will notify the Committee.
7.6 Payment of Benefits. The Company may make payment of benefits
directly to Plan Participants or their beneficiaries as they become due under
the terms of the Plans. The Company shall notify the Trustee and Recordkeeper of
its decision to make payment of benefits directly prior to the time amounts are
payable to Participants or their beneficiaries. Within thirty (30) days of
making of any such direct payment, the Company shall provide the Trustee and the
Recordkeeper with a certification, in a form acceptable to each, indicating the
date and amount of such direct payment of benefits by the Company.
7.7 Notice of Benefits Payable. The Recordkeeper shall notify the Plan
Participant or the beneficiary of a deceased Plan Participant that the Plan
Participant's benefits under a Plan have become payable. Such notice shall
include the amount of such benefits, the manner of payment (or, where
appropriate, the various payment options available) and the name, address and
social security number of the Plan Participant. Neither the Trustee nor the
Recordkeeper shall have any responsibility for determining whether any Plan
Participant or beneficiary has become entitled to any benefit under any of the
Plans, or whether any Plan Participant or beneficiary has died, and
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each of the Trustee and the Recordkeeper shall be entitled to rely solely upon
information furnished by the Committee.
7.8 Source of Payments. All benefits payable from the Trust Corpus to a
Plan Participant or his beneficiary under a Plan shall be paid solely from the
Account of such Plan. Upon the satisfaction of all liabilities under a Plan in
respect of Plan Participants under a Plan, the Recordkeeper shall prepare and
deliver to the Trustee a certification showing the balance, if any, remaining in
the Account for such Plan. Such balance shall thereupon be reallocated ratably
by the Recordkeeper to the Accounts of other Plans covered by this Trust
(including Accounts which may have previously been reduced to a zero balance) in
the ratio that liabilities in respect of each such Plan bear to the total
liabilities of all such Plans. Upon the satisfaction of all liabilities of the
Company under all Plans, the Recordkeeper shall prepare and deliver a
certification to the Trustee and the Trustee shall thereupon distribute the
Trust Corpus to the Company.
7.9 Tax on Amounts Held in Trust Prior to Distribution. Except as
otherwise provided herein, in the event of any final determination by the
Internal Revenue Service or a court of competent jurisdiction, which
determination is not appealable or with respect to which the time for appeal has
expired, or the receipt by the Trustee of a substantially unqualified opinion of
tax counsel selected by the Trustee, which determination determines, or which
opinion opines, that the Plan Participants or any particular Plan Participant is
subject to federal income taxation on amounts held in trust hereunder prior to
the distribution to the Plan Participants or Plan Participant of such amounts,
the Trustee, on receipt by the Trustee of such opinion or notice of such
determination, shall pay to each Plan Participant the portion of the Trust
Corpus includable in such Plan Participant's federal gross income, less
applicable taxes. The Trustee shall not be required to obtain such opinion of
tax counsel unless the Internal Revenue Service, the Company, or the
Recordkeeper suggests to the Trustee that any of the Plan Participants may be
subject to income taxation on amounts held in the Trust prior to a distribution
hereunder and Trustee has doubts with respect thereto.
7.10 Indemnification of Recordkeeper by Company. The Company agrees to
indemnify and hold harmless the Recordkeeper from and against any and all
damages, losses, claims, fees or expenses as incurred (including expenses of
investigation and fees and disbursements of counsel to the Recordkeeper) arising
out of or in connection with the performance by the Recordkeeper of its duties
hereunder. In the event that payment is made to the Recordkeeper from the Trust
Corpus, as provided in Section 7.1 hereof, the Trustee shall promptly notify the
Company in writing of the amount of such payment. The Company agrees that, upon
receipt of such notice, it will deliver to the Trustee to be held in the Trust
an amount in cash equal to any payments made from the Trust Corpus to the
Trustee pursuant to this Section 7.10, together with interest from the date of
receipt of such notice based upon the daily average of the prime rate charged by
the Trustee. The
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failure of the Company to transfer any such amount shall not in any way impair
the Recordkeeper's right to indemnification, reimbursement and payment pursuant
to Section 7.1 hereof or this Section 7.10.
7.11 Resignation, Discharge & Replacement of Recordkeeper. The
Recordkeeper may resign and be discharged from its duties hereunder at any time
by giving notice in writing of such resignation to the Company, or if a Change
in Control shall previously have occurred, to the Company and the Trustee,
specifying a date (not less than sixty (60) days after the giving of such
notice) when such resignation shall take effect. Promptly after such notice, the
Company, or if a Change in Control shall previously have occurred, the
Continuing Directors (or, if there are no Continuing Directors then by
affirmative vote of at least three fourths (3/4) of the current Board of
Directors) shall appoint a successor recordkeeper, such successor recordkeeper
to become Recordkeeper hereunder upon the resignation date specified in such
notice. If a successor recordkeeper is not appointed within sixty (60) days
after such notice, the Recordkeeper shall be entitled, at the expense of the
Company, to petition a United States District Court or any court of competent
jurisdiction in the state in which the Recordkeeper maintains its principal
place of business to appoint its successor. The Recordkeeper shall continue to
serve until its successor accepts the responsibility of recordkeeper. The
Company, or if a Change in Control shall previously have occurred, the
Continuing Directors (or, if there are no Continuing Directors then by
affirmative vote of at least three fourths (3/4) of the current Board of
Directors) may at any time substitute a new recordkeeper by giving fifteen (15)
days' notice thereof to the Recordkeeper then acting. In the event of such
removal or resignation, the Recordkeeper shall provide its successor with the
records and information in its possession relating to the performance of its
duties under this Trust Agreement.
On or after a Change in Control, any successor recordkeeper appointed
under this Section 7.11, shall be an actuarial firm (or other third party
providing such services) by reputation and experience comparable to, and at
least as well-recognized as, the former Recordkeeper.
ARTICLE VIII
Payments to Trust Beneficiary When Company Is Insolvent
8.1 Responsibilities of Trustee in Insolvency. At all times during the
continuance of this Trust as provided in Section 3.4 hereof, the principal and
income of the Trust shall be subject to claims of general creditors of Company
under federal and state law, as set forth below:
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(a) The Board of Directors and the Chief Executive Officer of
the Company shall have the duty to immediately inform the Trustee in
writing of the Company's Insolvency. If a person claiming to be a
creditor of the Company alleges in writing to the Trustee that the
Company has become Insolvent, the Trustee shall determine whether the
Company is Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to Plan Participants or their
beneficiaries.
(b) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is Insolvent.
The Trustee may in all events rely on such evidence concerning the
Company's solvency as may be furnished to the Trustee and that provides
the Trustee with a reasonable basis for making a determination
concerning the Company's solvency.
(c) If at any time the Trustee has determined that the Company
is Insolvent, the Trustee shall discontinue payments to Plan
Participants or their beneficiaries and shall hold the assets of the
Trust for the benefit of the Company's general creditors. Nothing in
this Trust Agreement shall in any way diminish any rights of Plan
Participants or their beneficiaries to pursue their rights as general
creditors of the Company with respect to benefits due under the Plans
or otherwise.
(d) The Trustee shall resume the payments of benefits to Plan
Participants or their beneficiaries in accordance with Article VII of
this Trust Agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent).
8.2 Resumption of Discontinued Payments. Provided that there are
sufficient assets, if the Trustee discontinues the payment of benefits from the
Trust pursuant to Section 8.1 hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the aggregate amount
of all payments due to Plan Participants or their beneficiaries under the terms
of the Plans for the period of such discontinuance, less the aggregate amount of
any payments made to Plan Participants or their beneficiaries by the Company in
lieu of the payments provided for hereunder during any such period of
discontinuance.
ARTICLE IX
Payments to the Company
9.1 Reversion of Funds to Company. In the event the Company delivers
the Required Funding Amount to the Trustee because of a Potential Change in
Control, the Trust Corpus shall be returned to the Company one (1) year after
delivery of the Required Funding Amount to the Trustee (or earlier if this Trust
is terminated pursuant to Section 3.2 hereof, less than one (1) year following a
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Potential Change in Control) if no Change in Control shall have occurred during
such one-year period, and the Board of Directors determines, and so certifies to
the Trustee, that a Change in Control is not imminent. Such one-year period
shall recommence in the event of and upon the date of any subsequent Potential
Change in Control. If another Potential Change in Control should occur after the
Trust Corpus has been returned to the Company as provided in this Section 9.1,
the Company shall deliver a new Required Funding Amount to the Trustee pursuant
to Article V above. The Company shall notify the Trustee of the occurrence of a
Potential Change in Control and Change in Control and the Trustee may rely on
such notice.
9.2 Limitation Upon Company's Ability to Direct Payments. After the
Trust has become irrevocable, the Company shall have no right or power to direct
the Trustee to return to the Company or to divert to others any of the Trust
assets before all payments of benefits have been made to Plan Participants and
their beneficiaries pursuant to the terms of the Plans.
ARTICLE X
Powers, Duties & Responsibilities of Trustee
10.1 Limitation of Liability. The duties and responsibilities of the
Trustee shall be limited to those expressly set forth in this Trust Agreement,
and no implied covenants or obligations shall be read into this Trust Agreement
against the Trustee. The Trustee shall not be liable for any act taken or
omitted to be taken hereunder if taken or omitted to be taken by it in good
faith. The Trustee shall also be fully protected in relying upon any notice
given hereunder which it in good faith believes to be genuine and executed and
delivered in accordance with this Trust Agreement. The Trustee may consult with
legal counsel to be selected by it, and the Trustee shall not be liable for any
action taken or suffered by it in good faith in accordance with the advice of
such counsel.
10.2 Maintenance of Administrative Records. The Trustee shall maintain
such books, records and accounts as may be necessary for the proper
administration of the Trust Corpus and shall render to the Company on a monthly
basis commencing on the first day of the month following the date this Trust
Agreement was created until the termination of the Trust (and as of the date of
such termination), an accounting with respect to the Trust Corpus as of the end
of such month (and as of the date of such termination). After a Change in
Control or a Potential Change in Control has occurred, and once the Required
Funding Amount has been contributed to the Trust, the Recordkeeper shall receive
a monthly accounting, and the Plan Participants may request an annual accounting
with respect to the Trust Corpus. Unless the Company (or any Plan Participant
after a Change in Control of the Company has occurred) shall have filed with the
Trustee written exceptions or objections to any such statement and account
within one hundred eighty (180) days after receipt thereof, the Company and all
Plan Participants shall be deemed to have approved such statement and account,
and in such case the Trustee shall be forever released and
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discharged with respect to all matters and things reported in such statement and
account as though it had been settled by a decree of a court of competent
jurisdiction in an action or proceeding to which the Company and all Plan
Participants were parties.
The Trustee shall have the right, at the expense of the Trust, to apply
at any time to a court of competent jurisdiction for judicial settlement of any
account of the Trustee not previously settled as herein provided or for the
determination of any question of construction or for instructions. In any such
action or proceeding it shall be necessary to join as parties only the Trustee
and the Company (although the Trustee may also join such Plan Participants as it
may deem appropriate), and any judgment or decree entered therein shall be
conclusive.
10.3 Reimbursement of Costs & Expenses. The Trustee shall be reimbursed
by the Company for its reasonable expenses incurred in connection with the
performance of its duties hereunder (including, without limitation, legal fees
and expenses under Section 10.5 hereof) and shall be paid such fees for the
performance of such duties as may be agreed upon in writing from time to time
between the Company and the Trustee. After a Change in Control of the Company
has occurred, the fees of the Trustee shall be determined by the application of
the current rates then charged by the Trustee for the provision of the types of
investment and Trustee services contemplated in this Trust Agreement to Trusts
of a similar character. The Trustee's entitlement to reimbursement hereunder
shall not be affected by the resignation or removal of the Trustee or the
termination of the Trust.
10.4 Indemnification of Trustee by Company. The Company agrees to
indemnify and hold harmless the Trustee from and against any and all
liabilities, damages, losses, claims or expenses as incurred (including expenses
of investigation and fees and disbursements of counsel to the Trustee and any
taxes imposed on the Trust Corpus or income of the Trust) arising out of or in
connection with the performance by the Trustee of its duties hereunder. Any
amount payable to the Trustee under Section 10.3 hereof, or under this Section
10.4, and not previously paid by the Company shall be paid by the Company
promptly upon demand therefor by the Trustee or, if the Trustee so chooses in
its sole discretion, from the Trust Corpus. In the event that payment is made
hereunder to the Trustee from the Trust Corpus, the Trustee shall promptly
notify the Company in writing of the amount of such payment. The Company agrees
that, upon receipt of such notice, it will deliver to the Trustee to be held in
the Trust an amount in cash equal to any payments made from the Trust Corpus to
the Trustee pursuant to Section 10.3 hereof, or pursuant to this Section 10.4,
together with interest from the date of receipt of such notice based upon the
daily average of the prime rate charged by the Trustee. The failure of the
Company to transfer any such amount shall not in any way impair the Trustee's
right to indemnification, reimbursement and payment pursuant to Section 10.3
hereof, or pursuant to this Section 10.4.
20
<PAGE>
10.5 Institution of Litigation. Following a Potential Change in Control
or a Change in Control of the Company, the Trustee is specifically authorized
and required to take such action as may be necessary or appropriate, including
the institution of litigation or other legal process, to enforce the Company's
obligations hereunder or under the Plans on behalf of either itself or the Plan
Participants (or their beneficiaries), and any expenses thus incurred by the
Trustee shall be paid or reimbursed by the Company pursuant to Section 10.3 and
10.4 hereof.
10.6 Powers of Trustee. The Trustee shall have, without exclusion, all
powers conferred on Trustees by applicable law, unless expressly provided
otherwise herein; provided, however, that if an insurance policy is held as an
asset of the Trust upon direction of the Company, the Trustee shall have no
power to name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form) other
than to a successor trustee, or to loan to any person the proceeds of any
borrowing against such policy. Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or applicable law, the Trustee shall not have
any power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of Section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
ARTICLE XI
Resignation and Removal of Trustee
11.1 Resignation of Trustee. The Trustee may resign at any time by
written notice to the Company, which shall be effective sixty (60) days after
receipt of such notice unless the Company and Trustee agree otherwise. If a
Change in Control shall previously have occurred, the Trustee shall give such
resignation notice, in writing, to the Company and the Continuing Directors,
specifying a date (not less than sixty (60) days after the giving of such
notice) when such resignation shall take effect.
11.2 Removal and Substitution of Trustee. The Company, or if a Change
in Control shall previously have occurred, the Continuing Directors (or, if
there are no Continuing Directors, then by affirmative vote of at least
three-fourths (3/4) of the then-current Board of Directors), may at any time
substitute a new Trustee by giving fifteen (15) days notice thereof to the
Trustee then acting.
11.3 Appointment of Successor Trustee. Promptly after the giving of
notice of resignation by the Trustee under Section 11.1 hereof, the Company, or
if a Change in Control shall previously have occurred, the Continuing Directors
(or, if there are no Continuing Directors, then by affirmative vote of at least
three-fourths (3/4) of the then-current Board of Directors), shall appoint a
successor trustee such successor trustee to become Trustee hereunder upon the
resignation date specified in such notice.
21
<PAGE>
On or after a Change in Control, any successor trustee appointed or
otherwise designated under any provision of this Article XI, shall be a bank
trust department or other third party that, on the date of appointment:
(a) may be granted corporate trustee powers under the federal
or state law of the United States of America and is, in fact, duly
qualified and authorized to do trust business;
(b) has total assets of at least Ten Billion Dollars
($10,000,000,000); and
(c) has a credit rating from Moody's Investors Service of "A"
or better (or other comparable credit rating from another similarly
well-recognized credit rating service).
11.4 Failure to Appoint Successor Trustee. If a successor trustee is
not appointed:
(a) in the case of resignation of the Trustee, within sixty
(60) days after the giving of the Trustee's notice of resignation under
Section 11.1 hereof; or
(b) in the case of removal of the Trustee, within fifteen (15)
days after the giving of notice of such removal to the Trustee under
Section 11.3 hereof,
then the Trustee shall be entitled to petition a United States District
Court, or any court of competent jurisdiction in the state in which the Trustee
maintains its principal place of business, to appoint a successor trustee or
provide instructions. All expenses incurred by the Trustee in connection with
such petition shall be allowed as administrative expenses of the Trust under
Section 10.5 hereof.
11.5 Statements of Account Upon Removal or Resignation. In the event of
such removal or resignation, the Trustee shall duly file with the Company and,
on and after a Change in Control, the Continuing Directors (or, if there are no
Continuing Directors then, the Board of Directors) a written statement or
statements of accounts and proceedings as provided in Section 10.2 hereof for
the period since the last previous annual accounting of the Trust, and if
written objections to such account are not filed as provided in Section 10.2
hereof, the Trustee shall to the maximum extent permitted by applicable law be
forever released and discharged from all liability and accountability with
respect to the propriety of its acts and transactions shown in such Account.
11.6 Transfer of Trust Corpus to Successor Trustee. Upon resignation or
removal of the Trustee and appointment of a successor trustee all assets shall
subsequently be transferred to the successor trustee The transfer shall be
completed within sixty (60) days after receipt of notice of resignation, removal
or transfer, unless the Company or the Continuing Directors (or, if there are no
Continuing Directors, then by affirmative vote of at least three fourths (3/4)
of the then-current Board of Directors) extends the time limit. The Trustee
shall continue to serve until the successor trustee accepts the Trust and
receives delivery of the Trust Corpus.
22
<PAGE>
ARTICLE XII
Authorization
12.1 Actions by Board of Directors; Compensation Committee. Any action
of the Board of Directors or by the Compensation Committee pursuant to this
Trust Agreement shall be evidenced by a resolution adopted by the Board of
Directors (or a duly authorized committee thereof) or the Compensation Committee
that is certified to the Trustee by the Secretary or an Assistant Secretary of
the Company under its corporate seal, and the Trustee shall be fully protected
in acting in accordance with such resolution.
12.2 Actions by Chief Executive Officer; Treasurer. Any action of the
Chief Executive Officer or Treasurer pursuant to this Trust Agreement shall be
evidenced by a written notice or direction to such effect over the signature of
such officer, and the Trustee and the Recordkeeper each shall be fully protected
in acting in accordance with such notices or directions.
12.3 Other Actions of Company. Any action of the Company pursuant to
this Trust Agreement shall be evidenced by a written notice or direction to such
effect over the signature of any officer or other representative of the Company
who shall have been certified to the Trustee by the Chief Executive Officer,
President, Treasurer or Secretary (or any Assistant Secretary) of the Company as
having such authority. The Chief Executive Officer, President, Treasurer or
Secretary (or any Assistant Secretary) of the Company shall provide to the
Trustee in writing from time to time the names and specimen signatures of the
officers and other representatives authorized to act on behalf of the Company.
The Trustee and the Recordkeeper each shall be fully protected in acting in
accordance with such notices or directions.
12.4 Actions by the Committee. Any action of the Committee pursuant to
this Trust Agreement shall be evidenced by:
(a) a resolution adopted by a majority vote of the members of
such Committee, that is certified to the Trustee by the Secretary (or
any Assistant Secretary) of the Committee; or
(b) a written notice or direction to such effect over the
signatures of a majority of the members of such Committee, who shall
have been certified to the Trustee by the Secretary (or any Assistant
Secretary) of the Committee as having such authority. The Secretary (or
any Assistant Secretary) of the Committee shall provide to the Trustee
in writing the names and specimen signatures of the members of the
Committee as such may be constituted from time to time.
The Trustee and the Recordkeeper each shall be fully protected in
acting in accordance with such resolutions, notices or directions of the
Committee.
ARTICLE XIII
Notices
13.1 Notices. All notices, requests, reports, demands and waivers to or
upon the respective parties hereto to be effective shall be in writing, by
messenger, by overnight courier or by registered
23
<PAGE>
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; or
(b) upon receipt.
Such communications shall be addressed and directed to the parties
listed below (except where this Trust Agreement expressly provides that it be
directed to another) as follows, or to such other address or recipient for a
party as may be hereafter notified by such party hereunder:
If to the Company (or any directors or officers thereof), or to the Committee:
SUNOCO, INC.
Ten Penn Center, 27th Floor
1801 Market Street
Philadelphia, PA 19103
Attention: General Counsel
If to the Trustee:
BANKERS TRUST COMPANY
Street Address: Mailing Address
130 Liberty Street P.O. Box 318, Mail Stop 2202
New York, New York 10006 Church Street Station
New York, New York 10008
Attention: Laura L. Vannatta
Vice President
If to the Recordkeeper:
TOWERS, PERRIN, FORSTER & CROSBY, INC.
Centre Square East
1500 Market Street
Philadelphia, PA 19102
Attention: Sunoco, Inc. Retirement Plan Actuary
c/o Philadelphia Consulting Office Manager
If to a Plan Participant, to the address of such Plan Participant provided by
the Recordkeeper.
ARTICLE XIV
Miscellaneous
14.1 No Contract of Employment. Neither the establishment of this
Trust, nor any modification thereof, nor the payment of any benefits in
connection herewith, shall be construed as giving any Plan Participant, or any
person whosoever, the right to be retained in the service of the Company, and
all Plan Participants shall remain subject to discharge to the same extent as if
this Trust had never been established.
14.2 Rights of Plan Participants. Nothing in this Trust Agreement shall
in any way diminish any rights of any Plan Participant to pursue his or her
rights as a general creditor of the Company (or certain of its subsidiaries)
under the Plans.
24
<PAGE>
14.3 Amendment or Waiver.
(a) Amendment Prior to Change in Control. This Trust Agreement
may be amended only by a written instrument executed by the Trustee,
the Recordkeeper and the Company. In case of conflict between the terms
of this Trust Agreement and the terms of the Plans, the terms of the
Trust Agreement shall control; provided, however, that:
(1) provisions that, in the determination of the
Company, affect solely the Trustee may, at the option of both
the Trustee and the Company, be amended by a writing executed
only by the Company and the Trustee, with a copy of such
writing being provided to the Recordkeeper; and
(2) provisions that, in the determination of the
Company, affect solely the Recordkeeper may, at the option of
both the Recordkeeper and the Company, be amended by a writing
executed only by the Company and the Recordkeeper, with a copy
of such writing being provided to the Trustee.
(b) Amendment Following Change in Control. Upon and after a
Change in Control, and unless otherwise required by applicable statute
or regulation, the following rules will govern amendments and waivers:
(1) this Trust Agreement may not be amended except by
an instrument in writing signed on behalf of the parties
hereto together with the written consent of at least eighty
percent (80%) of the Plan Participants then entitled to
receive payments hereunder;
(2) the parties hereto, together with the consent of
not less than eighty percent (80%) of the Plan Participants
then entitled to receive payments hereunder, may at any time
waive compliance with any of the agreements or conditions
contained herein; and
(3) any agreement on the part of a party hereto or a
Plan Participant to any such waiver shall be valid if set
forth in an instrument in writing signed on behalf of such
party or Plan Participant.
14.4 Severability of Provisions. If any provision of this Trust
Agreement or the application thereof to any person or circumstances shall be
determined by a court of proper jurisdiction to be invalid or unenforceable,
such invalidity or unenforceability shall not affect either:
(a) the application of such provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable; or
(b) any other provisions of this Trust Agreement (in which
case, this Trust Agreement shall be construed and enforced as if such
invalid or unenforceable provisions had not been included),
and this Trust Agreement shall be otherwise valid and enforced to the fullest
extent permitted by law.
25
<PAGE>
14.5 Non-Alienability of Benefits. Except as otherwise required by law,
the interests of the Plan Participants and their beneficiaries under this Trust
may not be anticipated, assigned (either at law or in equity), alienated,
pledged, encumbered or subjected to attachment, garnishment, levy, execution or
other legal or equitable process.
14.6 Further Assurances. The Company shall, at any time and from time
to time, upon the reasonable request of the Trustee and/or Recordkeeper, execute
and deliver such other instruments and do such further acts as may be necessary
or proper to effectuate the purposes of this Trust Agreement.
14.7 Successors, Heirs, Assigns, and Personal Representatives. This
Trust Agreement shall be binding upon the administrators, successors and
permitted assigns of the parties.
14.8 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Trust Agreement, and shall not be employed in the construction of the Trust
Agreement.
14.9 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.
14.10 Payments to Incompetent Persons, Etc. Any benefit payable
hereunder 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 Recordkeeper, the Trustee and all other parties with respect thereto.
14.11 Governing Law; Situs of Trust. TO THE EXTENT NOT PREEMPTED BY
APPLICABLE FEDERAL LAW, THIS TRUST SHALL BE CONSTRUED AND ENFORCED ACCORDING TO
THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ANY PROVISIONS OF SUCH
LAWS REGARDING CHOICE OF LAWS OR CONFLICTS OF LAWS). THE SITUS OF THIS TRUST
SHALL BE NEW YORK COUNTY, NEW YORK.
14.12 Counterparts. This Trust Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and such
counterparts shall constitute but one and the same instrument.
14.13 Acceptance by Trustee. The Trustee by joining in the execution of
this Trust Agreement hereby signifies its acceptance of the Trust hereby
created.
14.14 Insurance Policies. Anything in this Trust Agreement to the
contrary notwithstanding, the Company may direct the Trustee to purchase one or
more paid up life insurance policies insuring the lives of one or more Plan
Participants. In such event, the Trustee will purchase such policies and shall
not be responsible under this Trust Agreement, or otherwise, in any way
26
<PAGE>
respecting the acquisition, form, terms, payment provisions or issuer of such
contract (other than the execution of any documents incidental thereto, upon
discretion of the Company). The proceeds of any policy shall be credited to the
applicable Plan upon death of the insured Plan Participant.
14.15 Survival. The Company agrees that the provisions of Sections 10.3
and 10.4 hereof shall be binding on its successors and assigns and shall survive
termination, amendment or restatement of this Trust Agreement, or the
resignation or removal of the Trustee, and that this paragraph shall be
construed as a contract between the Company and the Trustee according to the
laws of the State of New York.
14.16 Entire Understanding. This Trust Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements and understandings
relating thereto. This Trust Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and legal
representatives.
[COUNTERPART SIGNATURE PAGES FOLLOW]
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Trust Agreement as
of the date first written above.
ATTEST: SUNOCO, INC.
(the "Company")
By: s/ELRIC C. GERNER By: s/MALCOLM I. RUDDOCK
----------------- --------------------
Name: Elric C. Gerner Name: Malcolm I. Ruddock
Title: Assistant Secretary Title: Treasurer
ATTEST: BANKERS TRUST COMPANY
(the "Trustee")
By: s/DAVID ABRAMSON By: s/ALLEN MURRAY
---------------- --------------
Name: David Abramson Name: Allen Murray
Title: Vice President and Counsel Title: Vice President
ATTEST: TOWERS, PERRIN, FORSTER &
CROSBY, INC.
(the "Recordkeeper")
By: s/JOSEPH S. SWETY By: s/JOSEPH S. HESSENTHALER
----------------- ------------------------
Name: Joseph S. Swety Name: Joseph S. Hessenthaler
Title: Director of Actuarial Operations Title: Principal
28
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF PHILADELPHIA )
On the 12th day of January, in the year one thousand nine hundred and
ninety-nine (1999), before me personally came Malcolm I. Ruddock to me known,
who being by me duly sworn, did depose and say: that he/she resides in
Philadelphia, PA; that he/she is the Treasurer of SUNOCO, INC., the corporation
described in and which executed the above instrument; that he/she knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.
s/JUDITH ANN FRITSCH
--------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 27th day of January, in the year one thousand nine hundred and
ninety-nine (1999), before me personally came Allen Murray to me known, who
being by me duly sworn, did depose and say: that he/she resides in Syosset, New
York; that he/she is a Vice President of BANKERS TRUST COMPANY, the corporation
described in and which executed the above instrument; that he/she knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.
s/DAVID ABRAMSON
----------------
Notary Public
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF PHILADELPHIA )
On the 15th day of January, in the year one thousand nine hundred and
ninety-nine (1999), before me personally came Joseph S. Hessenthaler to me
known, who being by me duly sworn, did depose and say: that he/she resides in
New Jersey; that he/she is the Principal of TOWERS PERRIN, the corporation
described in and which executed the above instrument; that he/she knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.
s/EILEEN T. LUTZ
----------------
Notary Public
29
<PAGE>
Schedule 2.1 to the Deferred Compensation and Benefits Trust Agreement
Benefit Plans and Other Arrangements Subject to Trust
(1) Sunoco, Inc. Executive Retirement Plan ("SERP");
(2) Sunoco, Inc. Deferred Compensation Plan;
(3) Sunoco, Inc. Pension Restoration Plan;
(4) Sunoco, Inc. Savings Restoration Plan.
(5) Sunoco, Inc. Special Executive Severance Plan;
(6) Executive Employment Agreements with:
(a) John G. Drosdick
(b) Robert W. Owens
(c) David C. Shanks
(7) The funding of the Sunoco, Inc. Special Employee Severance Plan
necessary to provide benefits in accordance with the terms of such Plan in the
event of a Potential Change in Control assuming the respective percentage of
each employee category listed in the table below shall be entitled to such
benefits under this Plan:
Percentage of Eligible Employees
Employee Category Deemed to Receive Benefits
Grades 11 to 13 25%
Grades 1 to 10 20%
Nonexempt salaried 20%
Hourly 10%
In the event of a Change in Control, the funding of the Sunoco, Inc.
Special Employee Severance Plan will be calculated on the basis of the benefits
reasonably expected to be payable under that Plan, but not less than the
percentages specified above.
(8) The entire funding for all the Indemnification Agreements with the
senior executives set forth below shall be Five Million Dollars
($5,000,000.00) in the aggregate upon a Potential Change in
Control, and an amount upon a Change in Control calculated on the
basis of the Indemnification Agreements with the following senior
executives:
(a) Robert M. Aiken, Jr. (j) Joseph P. Krott
(b) Robert H. Campbell (k) Michael J. McGoldrick
(c) Michael H.R. Dingus (l) Ann C. Mule'
(d) John G. Drosdick (m) Rolf D. Naku
(e) Bruce G. Fischer (n) Robert W. Owens
(f) Jack L. Foltz (o) Malcolm I. Ruddock, Jr.
(g) Deborah M. Fretz (p) David C. Shanks
(h) Thomas W. Hofmann (q) Sheldon L. Thompson
(i) David E. Knoll (r) Charles K. Valutas
30
<PAGE>
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
Sunoco, Inc. and Subsidiaries
(Millions of Dollars Except Ratio)
- --------------------------------------------------------------------------------
For the
Twelve
Months Ended
December 31,
1998
------------
(UNAUDITED)
Fixed Charges:
Consolidated interest cost and debt expense $ 77
Interest allocable to rental expense(b) 39
----
Total $ 116
====
Earnings:
Consolidated income before income tax expense $ 389
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 (14)
Dividends received from less than 50 percent
owned affiliated companies 9
Fixed charges 116
Interest capitalized (6)
Amortization of previously capitalized interest 6
----
Total $ 506
====
Ratio of Earnings to Fixed Charges 4.36
====
- ----------------
(a) The consolidated financial statements of Sunoco, contain the accounts of
all subsidiaries that are Inc. and subsidiaries 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. 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>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Millions of Dollars
Except Per Share Amounts) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales and other
operating revenue
(including consumer
excise taxes) $8,413 $10,464 $11,233 $9,834 $9,513
Income (loss) from
continuing operations
before cumulative
effect of change in
accounting principle* $280 $263 $(281) $(8) $(19)
Income from discontinued
operations** $-- $-- $166 $235 $116
Cumulative effect of
change in accounting
principle*** $-- $-- $-- $(87) $(7)
Net income (loss) $280 $263 $(115) $140 $90
- -----------------------------------------------------------------------------------------
PER SHARE DATA:
Income (loss) from
continuing operations
before cumulative effect
of change in accounting
principle:
Basic $3.09 $3.03 $(4.43) $(.33) $(.18)
Diluted $2.95 $2.70 $(4.43) $(.33) $(.18)
Net income (loss):
Basic $3.09 $3.03 $(2.17) $1.29 $.84
Diluted $2.95 $2.70 $(2.17) $1.29 $.84
Cash dividends on
preference stock+ $1.6516 $3.60 $3.60 $1.80 $--
Cash dividends on common
stock+ $1.00 $1.00 $1.00 $1.40 $1.80
Shareholders' equity++ $16.75 $15.40 $14.69 $17.16 $17.42
- -----------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $4,849 $4,667 $5,025 $5,085 $5,646
Long-term debt $823 $824 $835 $888 $936
Shareholders' equity $1,514 $1,462 $1,438 $1,699 $1,863
- -----------------------------------------------------------------------------------------
</TABLE>
*Includes after-tax provision for write-down of assets and other matters total-
ling $38, $21, $254, $61 and $32 million for 1998, 1997, 1996, 1995 and 1994,
respectively. In 1998, also includes a $38 million after-tax gain on settle-
ment of insurance litigation and a $13 million tax benefit resulting from a
change in tax election. (See Notes 2, 5 and 14 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 and $28
million for 1996, 1995 and 1994, 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 and postemployment bene-
fits in 1994.
+Effective in the third quarter of 1995, Sunoco began paying quarterly divi-
dends on preference stock at a rate of $.90 per share and reduced its quar-
terly common stock dividend from $.45 to $.25 per share. On May 28, 1998, the
Company redeemed all of its outstanding shares of preference stock. The cash
dividends per share of preference stock for 1998 represent the dividends paid
through the redemption date. (See Note 15 to the consolidated financial state-
ments.)
++Prior to 1998, assumes redemption of preference shares for common stock util-
izing a ratio of two shares of common stock for each outstanding preference
share. The actual redemption of the preference shares occurred on May 28,
1998. (See Note 15 to the consolidated financial statements.)
9
<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 24 for a discussion
of the factors which could cause actual results to differ materially from those
projected.
OUTLOOK
The volatility of crude oil and refined product prices and the overall
supply/demand balance of fuels, petrochemical and lubricant products will con-
tinue to affect Sunoco's profitability. Sunoco anticipates refined product mar-
gins will continue to fluctuate in the very competitive U.S. market. Uncer-
tainty in world markets, particularly in Asia and South America, will also con-
tribute to the unpredictability of refining and marketing margins.
Notwithstanding this highly volatile and uncertain environment, Sunoco believes
it has the resources to achieve improvements in profitability and growth
through the successful execution of its business plan. This plan focuses on im-
proving operating results by:
.Increasing production of high-value refined products;
.Improving reliability and efficiency of operations;
.Increasing retail gasoline sales volumes and gasoline throughput and merchan-
dise sales per outlet;
.Reducing operating and administrative costs per barrel; and
.Diversifying and growing the asset portfolio through strategic acquisitions
and investments that are synergistic and accretive to earnings.
Sunoco's operating results improved dramatically during the 1997-98 period as a
result of the ongoing implementation of this plan. During this two-year period:
.Overall production levels increased significantly at the Company's mainland
refineries with a large portion of the increase attributable to high-value fu-
els, petrochemical and lubricant products;
.Input to crude units averaged 99 percent of rated capacity;
.Merchandise sales per convenience store in the Northeast increased 10 percent
in 1998 after increasing 6 percent in 1997;
.Overall operating and administrative costs (including refinery fuel costs but
excluding the costs attributable to the Company's new investments in phenol and
cokemaking facilities) declined approximately $20 million in 1998 after declin-
ing approximately $160 million in 1997; and
.New investments were completed, diversifying and enhancing Sunoco's earnings
base, including:
- --Acquisition of the largest phenol facility in North America;
- --Start-up of the Indiana Harbor cokemaking operation;
- --Modernization of the Company's three catalytic cracking units in its North-
east refining system;
- --Expansion of cumene production capacity;
- --Debottlenecking of one of the Toledo refinery's crude oil units; and
- --Turnaround and modernization of the Puerto Rico refinery.
10
<PAGE>
In 1999, Sunoco also expects to benefit from a reduced refinery maintenance
schedule and a full year's income contribution from the new investments noted
above.
Sunoco's key goals are to maintain a return on capital employed of at least 12
percent for any four consecutive quarters and to grow earnings per share by at
least 15 percent compounded annually. In early 1999, there has been significant
downward pressure on refined product margins. However, if refined product mar-
gins for the full year 1999 equal the levels experienced in 1998, the improve-
ments outlined above should enable Sunoco to achieve these goals.
RESULTS OF OPERATIONS
EARNINGS PROFILE OF SUNOCO BUSINESSES (after tax)
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sun Northeast Refining $ 65 $ 75 $ (60)
Sunoco Northeast Marketing 69 73 1
Sunoco Chemicals 40 77 40
Sun Lubricants 12 1 (14)
Sunoco MidAmerica Marketing & Refining 32 40 (3)
Sunoco Logistics 52 51 48
Sun Coke 57 38 31
Corporate expenses (23) (23) (23)
Net financing expenses and other (37) (48) (47)
Sun International Production* -- -- 41
- ------------------------------------------------------------------------------
267 284 14
- ------------------------------------------------------------------------------
Special items:
Gain on settlement of insurance
litigation 38 -- --
Benefit from change in tax election 13 -- --
Provision for write-down of assets and
other matters (38) (21) (254)
Gain on divestment of International
Production business* -- -- 125
- ------------------------------------------------------------------------------
Consolidated net income (loss) $280 $263 $(115)
- ------------------------------------------------------------------------------
</TABLE>
* Sunoco completed the sale of its International Production business on Septem-
ber 30, 1996. This business is classified as a discontinued operation in the
consolidated financial statements.
ANALYSIS OF EARNINGS PROFILE OF SUNOCO BUSINESSES
In 1998, Sunoco, Inc. and its subsidiaries earned $280 million, or $2.95 per
share of common stock on a diluted basis compared to net income of $263 mil-
lion, or $2.70 per share in 1997 and a net loss of $115 million, or $2.17 per
share in 1996. Excluding the special items shown separately in the Earnings
Profile of Sunoco Businesses, Sunoco earned $267 million in 1998, compared to
$284 million in 1997 and $14 million in 1996.
The $17 million decrease in earnings before special items in 1998 was primarily
due to significantly lower chemical margins, lower average retail and wholesale
gasoline margins and a greater amount of scheduled and unscheduled downtime at
the Company's refining facilities. Partially offsetting these negative factors
were higher margins for lubricants, waxes and residual fuels, a favorable for-
eign sweet crude oil market and income from Sunoco's Indiana Harbor cokemaking
facility which commenced operations in March 1998 and from the Philadelphia
phenol facility acquired in mid-1998. Also offsetting the decline was the rec-
ognition in 1998 of $12 million of after-tax benefits related to the settlement
of income tax disputes with the Internal Revenue Service and of $7 million of
after-tax earnings from the receipt of cash distributions from petroleum indus-
try insurance consortia in which Sunoco participates.
In 1997, the $270 million increase in earnings before special items 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
11
<PAGE>
contributing to the improvement were higher average retail and wholesale gaso-
line margins and higher chemical margins. Partially offsetting these positive
factors were lower base oil margins and the absence of earnings from Sunoco's
International Production business, which was divested in 1996.
Sun Northeast Refining
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) (millions of dollars) $65 $75 $(60)
Capital employed (millions of dollars) $726 $578 $502
Wholesale margin* (per barrel) $3.18 $3.25 $2.76
Wholesale sales (thousands of barrels
daily):
To unaffiliated customers:
Gasoline 104.9 101.4 93.8
Middle distillates 166.7 169.9 133.6
Residual fuel 53.0 53.9 47.7
Asphalt -- -- 15.8
Other 29.2 33.2 31.3
- ----------------------------------------------------------------------------
353.8 358.4 322.2
To affiliates (primarily gasoline) 186.1 182.9 188.3
- ----------------------------------------------------------------------------
539.9 541.3 510.5
- ----------------------------------------------------------------------------
Crude unit capacity** (thousands of
barrels daily) at December 31 482.0 482.0 482.0
Crude unit capacity utilized 98% 100% 93%
Conversion capacity*** (thousands of
barrels daily) at December 31 191.0 191.0 191.0
Conversion capacity utilized 95% 96% 80%
- ----------------------------------------------------------------------------
</TABLE>
* Wholesale sales price less cost of crude oil, other feedstocks and purchased
refined products.
** Effective January 1, 1999, the rated capacity of the crude units increased
to 505 thousand barrels daily.
*** Represents capacity to upgrade low-value petroleum products into higher-
value products through catalytic cracking. Effective January 1, 1999, the
conversion capacity increased to 210 thousand barrels daily.
Sun Northeast Refining operating results decreased $10 million in 1998 due to
lower realized margins for wholesale fuels and a 4.3 million barrel decline in
gasoline and distillate production, partially offset by benefits from a favora-
ble foreign sweet crude oil market and a $10 million pretax reduction in oper-
ating expenses. The production decline was caused by a substantial increase in
the amount of scheduled and unscheduled refinery downtime. The most significant
downtime was at a 72,000-barrels-per-day catalytic cracking unit at the Phila-
delphia refinery. It included a 29-day shutdown due to an emergency power in-
terruption by the local utility and related start-up problems and a subsequent
scheduled six-week turnaround and modernization. With the completion of this
work in July 1998, all three of Sunoco's catalytic cracking units in the North-
east have been upgraded during the past two years. The combined output of these
units during the fourth quarter of 1998 was a record 203,000 barrels daily.
Scheduled maintenance activity during 1998 also included a 23-day turnaround of
a 200,000-barrels-per-day crude unit at the Philadelphia refinery.
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 by the Company's high cost of MTBE (a component of reformulated
gasoline) due to a contractual purchase commitment. In 1998 and 1996, Sunoco
recorded provisions amounting to $26 and $85 million after tax, respectively,
for estimated losses expected to be realized with respect to this purchase com-
mitment. These provisions
12
<PAGE>
are reported as part of the Provisions for Write-Down of Assets and Other Mat-
ters shown separately in the Earnings Profile of Sunoco Businesses (see Notes 2
and 14 to the consolidated financial statements).
During 1996, Sunoco reconfigured its Philadelphia refinery to process only
sweet crude oil and to cease asphalt production. The reconfiguration was part
of a process to integrate the Point Breeze and Girard Point segments of the re-
finery. This project has contributed to the substantial improvement in the
Northeast refining system's operating reliability and cost structure. In con-
nection with the reconfiguration, a $53 million after-tax provision was estab-
lished 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 Sunoco Businesses.
Sunoco Northeast Marketing
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $69 $73 $1
Capital employed (millions of dollars) $351 $402 $494
Gasoline margin* (per barrel) $4.99 $5.40 $4.02
Sales (thousands of barrels daily):
Gasoline 155.8 152.3 159.5
Middle distillates 18.2 17.3 15.7
- ---------------------------------------------------------------------------
174.0 169.6 175.2
- ---------------------------------------------------------------------------
Retail gasoline outlets 2,791 2,821 2,880
- ---------------------------------------------------------------------------
</TABLE>
* Retail sales price less wholesale price. The retail sales price is the
weighted average price received through the various branded marketing distri-
bution channels.
Sunoco Northeast Marketing operating results declined $4 million in 1998 pri-
marily due to lower retail gasoline margins, which were down approximately 1
cent per gallon versus 1997. Partially offsetting this negative factor was a 2
percent increase in retail gasoline sales volumes. Operating results also bene-
fitted from a 4 percent improvement in average gasoline throughput at the
Company's direct sites and a 10 percent increase in average merchandise sales
per convenience store.
The $72 million increase in Sunoco Northeast Marketing operating results in
1997 was primarily due to significantly higher retail gasoline margins and a
$47 million pretax decrease in marketing and administrative expenses. Partially
offsetting these positive factors were 5 percent lower retail gasoline sales
volumes. Retail gasoline margins were adversely impacted in 1996 by the high
cost of MTBE.
Sunoco Chemicals
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $40 $77 $40
Capital employed (millions of dollars) $543 $356 $298
Petrochemicals margin* (per barrel) $20.21 $25.01 $21.46
Petrochemical sales (thousands of barrels
daily):
Phenol and acetone** 6.8 -- --
Aromatics*** 7.4 10.8 9.6
Propylene 10.5 10.8 6.4
Ethylene/ethylene oxide 3.0 2.8 2.4
Other -- -- 1.8
- ------------------------------------------------------------------------------
27.7 24.4 20.2
- ------------------------------------------------------------------------------
</TABLE>
* Wholesale sales price less the cost of feedstocks and product purchases.
** Sunoco Chemicals sold 13.5 thousand barrels daily of phenol and acetone sub-
sequent to the June 30, 1998 acquisition of the Philadelphia phenol facili-
ty. The amount in the table reflects the 2.49 million barrels sold during
the second half of 1998 divided by 365 days.
*** Reflects a reduction of 2.8 thousand barrels daily of cumene sales during
1998. With the acquisition of the phenol facility, all cumene production is
now used in the production of phenol and acetone.
13
<PAGE>
Sunoco Chemicals income decreased $37 million in 1998 due to significantly
lower margins, particularly for polymer-grade propylene (down over 50 percent)
and cumene. Partially offsetting these negative factors was $11 million of af-
ter-tax income attributable to operations at the Philadelphia phenol facility
acquired from AlliedSignal Inc. ("Allied") on June 30, 1998. The phenol facil-
ity currently has the capacity to produce annually more than one billion pounds
of phenol and 620 million pounds of acetone. In connection with this acquisi-
tion, Sunoco Chemicals has entered into a long-term contract to supply Allied
with approximately 735 million pounds of phenol annually at a price based on
the market value of cumene feedstock plus an amount approximating other phenol
production costs. Sunoco Chemicals also benefitted from expansion of cumene
production capacity at the Philadelphia refinery in July 1998. This facility
produced cumene at an annualized rate of 1,050 million pounds during the fourth
quarter of 1998, well in excess of the 850 million pounds per year capacity
that was originally projected for the facility upon completion of the expan-
sion. In 1997, 573 million pounds of cumene were produced.
Income from Sunoco Chemicals increased $37 million in 1997 largely due to
higher margins and sales volumes reflecting a significant increase in produc-
tion levels. Total petrochemical production available for sale 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 vol-
umes 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.
Sun Lubricants
<TABLE>
<CAPTION>
1998 1997* 1996*
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) (millions of dollars) $12 $1 $(14)
Capital employed (millions of dollars) $391 $363 $479
Wholesale margin** (per barrel):
Specialty oils*** $41.90 $37.27 $33.21
Base oils $17.08 $14.90 $20.63
Fuels and waxes $2.01 $1.51 $1.37
Wholesale sales (thousands of barrels
daily):
To unaffiliated customers:
Specialty oils*** 11.0 11.7 9.3
Base oils 6.9 7.1 8.7
- -----------------------------------------------------------------------------
17.9 18.8 18.0
Gasoline 17.9 26.2 36.4
Middle distillates 30.3 36.9 49.8
Residual fuel 13.5 22.8 30.8
Lubes extracted feedstocks 8.4 .7 --
Waxes and other 12.8 12.9 13.2
- -----------------------------------------------------------------------------
100.8 118.3 148.2
To affiliates+ 9.5 17.8 21.1
- -----------------------------------------------------------------------------
110.3 136.1 169.3
- -----------------------------------------------------------------------------
</TABLE>
* Restated to conform to the 1998 presentation.
** Wholesale sales price less cost of crude oil, other feedstocks and purchased
refined products.
*** Comprised principally of transportation and industrial lubricants.
+ Includes "lubes-extracted" feedstocks which are transported to the Toledo re-
finery for further processing.
The $11 million improvement in Sun Lubricants operating results in 1998 was
primarily due to higher margins for lubricants, waxes and residual fuels and a
$10 million pretax decline in operating expenses. Production volumes and earn-
ings during 1998 were limited by a 59-day maintenance turnaround at the Puerto
Rico refinery as well as by a two-week shutdown of this facility resulting from
Hurricane Georges. Sun Lubricants operating results for 1998 exclude a $13 mil-
lion tax benefit attributable to a change in tax election
14
<PAGE>
concerning the Puerto Rico possession tax credit. The tax benefit is shown sep-
arately in the Earnings Profile of Sunoco Businesses.
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 Sunoco 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
significantly 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 35,000 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 Sunoco Businesses.
Sunoco MidAmerica Marketing & Refining
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) (millions of dollars) $32 $40 $(3)
Capital employed (millions of dollars) $288 $329 $345
- ----------------------------------------------------------------------------
Retail Marketing:
Gasoline margin* (per barrel) $3.47 $3.28 $3.86
Sales (thousands of barrels daily):
Gasoline 52.8 49.5 46.2
Middle distillates 4.6 4.6 4.8
- ----------------------------------------------------------------------------
57.4 54.1 51.0
- ----------------------------------------------------------------------------
Retail gasoline outlets 930 968 926
- ----------------------------------------------------------------------------
Refining and Wholesale Marketing:
Wholesale margin** (per barrel):
Fuels $3.76 $4.18 $3.55
Petrochemicals $5.95 $7.53 $3.76
Wholesale sales (thousands of barrels
daily):
To unaffiliated customers:
Gasoline 41.8 42.6 36.8
Middle distillates 21.5 20.1 16.0
Residual fuel 4.3 3.4 3.9
Petrochemicals 10.1 10.8 11.3
Other 7.5 7.9 10.0
- ----------------------------------------------------------------------------
85.2 84.8 78.0
To affiliates and Sunoco MidAmerica
Retail Marketing 57.7 55.2 52.6
- ----------------------------------------------------------------------------
142.9 140.0 130.6
- ----------------------------------------------------------------------------
Crude unit capacity*** (thousands of
barrels daily) at December 31 130.0 125.0 125.0
Crude unit capacity utilized 102% 106% 100%
Conversion capacity (thousands of
barrels daily) at December 31 88.0 86.0 86.0
Conversion capacity utilized 92% 97% 90%
- ----------------------------------------------------------------------------
</TABLE>
* Retail sales price less wholesale price. The retail sales price is the
weighted average price received through the various branded marketing distri-
bution channels.
** Wholesale sales price of fuels or petrochemicals less cost of crude oil,
other feedstocks and purchased refined products.
*** Effective January 1, 1999, the crude unit capacity at the Toledo refinery
increased to 140 thousand barrels daily.
15
<PAGE>
Sunoco MidAmerica Marketing & Refining results decreased $8 million in 1998
primarily due to lower wholesale gasoline and petrochemical margins. Partially
offsetting these negative factors were higher retail gasoline margins and 7
percent higher retail gasoline volumes. Production levels were essentially un-
changed compared to 1997 despite a one-month scheduled turnaround and
debottlenecking of one of the Toledo refinery's crude oil units and a one-week
shutdown of the refinery caused by a regional electricity emergency. Subsequent
to completion of the turnaround in the fourth quarter, the Toledo refinery's
crude unit capacity increased to 140,000 barrels daily.
Sunoco MidAmerica Marketing & Refining results improved $43 million in 1997
largely due to an increase in wholesale fuel margins and sales volumes. Also
contributing to the improvement were higher chemical margins and a $12 million
pretax decrease in operating expenses. Partially offsetting these positive fac-
tors were lower retail gasoline margins.
Sunoco Logistics
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $52 $51 $48
Capital employed (millions of dollars) $197 $181 $184
Pipeline throughput (thousands of barrels
daily):
Unaffiliated customers 672 682 627
Affiliated customers 931 932 819
- ------------------------------------------------------------------------------
1,603 1,614 1,446
- ------------------------------------------------------------------------------
</TABLE>
Sunoco Logistics income increased $1 million in 1998 after increasing $3 mil-
lion in 1997. The improvement in earnings during the 1996-98 period was primar-
ily due to improved results from Sunoco's Southwestern logistics operations and
higher throughput in the Eastern product pipeline system.
Sun Coke
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $57 $38 $31
Capital employed (millions of dollars) $249 $189 $76
Average sales price of coke and coal (per
ton) $59.93 $47.84 $40.03
Production (thousands of tons):
Coke 1,473 664 648
Coal 2,959 3,287 4,416
Proven and probable coal reserves
(millions of tons) 121 124 132
- ------------------------------------------------------------------------------
</TABLE>
Sun Coke income increased $19 million in 1998 primarily due to an $18 million
income contribution from the Company's Indiana Harbor cokemaking facility in
East Chicago, IN. Start-up of the Indiana Harbor cokemaking operation commenced
in the first quarter of 1998 and all four batteries at this facility, totalling
268 proprietary heat recovery ovens, produced at the full rated capacity of 1.3
million tons of coke annually during the second half of the year. In 1997, Sun
Coke income increased $7 million primarily due to higher margins for coke from
the Jewell cokemaking operation and improved results from steam coal mining op-
erations in Kentucky. Sun Coke results included gains from an income tax set-
tlement in 1998 and an insurance recovery in 1997, each totalling approximately
$2 million after tax.
Net Financing Expenses and Other--Net financing expenses and other decreased
$11 million in 1998 after increasing $1 million in 1997. The decrease in 1998
was primarily due to the recognition of $7 million of after-tax earnings from
cash distributions received from petroleum industry insurance consortia in
which Sunoco participates and $10 million of after-tax interest income related
to income tax settlements.
16
<PAGE>
Sun International Production--On September 30, 1996, Sunoco completed the sale
of its International Production business for $278 million in cash which re-
sulted in a $125 million after-tax gain. This gain is shown separately in the
Earnings Profile of Sunoco Businesses. Prior to the divestment, operating re-
sults for this business unit totalled $41 million in 1996.
Gain on Settlement of Insurance Litigation--In 1998, Sunoco recognized a $38
million after-tax gain in connection with the settlement of several insurance
claims. The claims related to certain environmental matters of Sunoco, includ-
ing its predecessor companies and subsidiaries, arising from ownership and op-
eration of its businesses. (See Note 14 to the consolidated financial state-
ments.)
Benefit from Change in Tax Election--During 1998, Sunoco revoked its election
under the Internal Revenue Code concerning the Puerto Rico possession tax cred-
it. This change resulted in a $13 million tax benefit, which is attributable to
Sun Lubricants. (See Note 5 to the consolidated financial statements.)
Provision for Write-down of Assets and Other Matters--During 1998, Sunoco added
$40 million ($26 million after tax) to the accrual it established on December
31, 1996 for estimated losses expected to be realized by Sun Northeast Refining
from an off-take agreement to purchase MTBE. In addition, in 1998, Sunoco re-
corded an $8 million after-tax provision to write-down its MTBE inventory to
market value in Sun Northeast Refining, increased the estimated net realizable
value of a previously written down asset held for sale in Sun Northeast Refin-
ing by $8 million after tax, established a $7 million after-tax accrual for en-
vironmental remediation activities principally in Sunoco Northeast Marketing
and recorded a $5 million after-tax provision to write-off certain assets pri-
marily in Sunoco Chemicals.
In 1997, Sunoco established a $32 million accrual ($21 million after tax) for
approximately 320 involuntary employee terminations and related costs. The em-
ployee reductions were throughout Sunoco's six refining and marketing business
units and also included senior management and support staff.
In 1996, Sunoco established a $53 million after-tax provision related to the
reconfiguration of Sun Northeast Refining's Philadelphia refinery and an $80
million after-tax provision related to the reconfiguration of Sun Lubricants'
Puerto Rico refinery. In addition, in 1996, Sunoco established an accrual ($85
million after tax) for losses expected to be realized by Sun Northeast Refining
with respect to the MTBE off-take agreement and an accrual ($15 million after
tax) for environmental remediation activities principally in Sunoco Northeast
Marketing. In 1996, Sunoco also recorded a provision to write down to fair
value certain assets in Sun Northeast Refining ($14 million after tax) and Sun
Lubricants ($7 million after tax). (See Notes 2 and 14 to the consolidated fi-
nancial statements.)
ANALYSIS OF CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues--Total revenues from continuing operations were $8.6 billion in 1998,
$10.5 billion in 1997 and $11.3 billion in 1996. The 18 percent decrease in
1998 was primarily due to lower refined product prices. In 1997, the 7 percent
decrease 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.
Costs and Expenses--Total pretax costs and expenses attributable to continuing
operations were $8.2 billion in 1998, $10.1 billion in 1997 and $11.7 billion
in 1996. The 19 percent decrease in 1998 was primarily due to lower crude oil
and refined product acquisition costs largely as a result of a decline in crude
oil prices. In 1997, the 14 percent decrease was primarily due to lower resales
of purchased crude oil and lower crude oil and refined product acquisition
costs. Also contributing to the decrease in 1997 were reduced
17
<PAGE>
operating and administrative expenses reflecting cost containment efforts and a
decline in the provisions for asset write-downs, employee terminations and
other matters.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash and Working Capital--At December 31, 1998, Sunoco had cash and cash equiv-
alents of $38 million compared to $33 million at December 31, 1997 and had a
working capital deficit of $204 million compared to a working capital deficit
of $216 million at December 31, 1997. Sunoco's working capital position is con-
siderably stronger than indicated because of the relatively low historical
costs assigned under the LIFO method of accounting for most of the inventories
reflected in the consolidated balance sheet. The current replacement cost of
all such inventories exceeds their carrying value at December 31, 1998 by $205
million. Inventories valued at LIFO, which consist of crude oil and refined
products, are readily marketable at their current replacement values. Manage-
ment believes that the current levels of Sunoco's cash and working capital are
adequate to support Sunoco's ongoing operations.
Cash Flows and Financial Capacity--In 1998, Sunoco's net cash provided by oper-
ating activities ("cash generation") was $352 million compared to $452 million
in 1997 and $332 million in 1996. The $100 million decrease in cash generation
in 1998 was largely due to a decline in income before special items and a re-
duction in noncash charges. 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.
Divestment activities have also been a source of cash and in the past have en-
hanced liquidity. During the 1996-98 period, proceeds from divestments totalled
$763 million, including $413 million received in 1996 from the sales of the In-
ternational Production business and the common stock of Suncor Inc., the
Company's former Canadian petroleum subsidiary.
In early 1998, Sunoco transferred an interest in its Indiana Harbor cokemaking
operation in East Chicago, IN, to a third party in exchange for $200 million in
cash. The investor is entitled to 95 percent of the cash flows and tax benefits
from this cokemaking operation until certain cumulative return targets have
been met. After this preferential return period, which is expected to end in
2002, the third party will be entitled to a variable minority interest in the
cash flows and tax benefits from the Indiana Harbor cokemaking operation rang-
ing from 5 to 23 percent. Sunoco did not recognize any gain or loss on this
transaction.
Management believes that future cash generation generally will be sufficient to
satisfy Sunoco's capital requirements and to pay the current level of cash div-
idends on Sunoco's common stock. However, from time to time, the Company's
short-term cash requirements may exceed its cash generation due to various fac-
tors including volatility in crude oil and refined product markets and in-
creases in capital spending and working capital levels. During those periods,
the Company may supplement its cash generation with proceeds from financing ac-
tivities.
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 Sunoco. The Company
also has access to short-term financing under a non-committed money market fa-
cility. At December 31, 1998, $120 million was borrowed from the participating
banks under the Agreement. There were no other amounts outstanding related to
the above short-term borrowing arrangements at December 31, 1998 or 1997.
18
<PAGE>
The following table sets forth amounts outstanding related to Sunoco's
borrowings:
<TABLE>
<CAPTION>
December 31
-----------------------
(Millions of Dollars) 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Short-term borrowings $ 120 $ --
Current portion of long-term debt 69 12
Long-term debt 823* 824
- -----------------------------------------------------------
Total borrowings $1,012 $836
- -----------------------------------------------------------
</TABLE>
*Includes the Company's $150 million 8 1/8 percent notes due in 1999 which Su-
noco intends to refinance on a long-term basis.
Sunoco's debt-to-capital ratio was 40.1 percent at December 31, 1998 compared
to 36.4 percent at December 31, 1997. Management believes there is sufficient
borrowing capacity available to pursue strategic investment opportunities as
they arise. No commitments have been made with respect to any investment oppor-
tunity which would require the use of a significant portion of Sunoco's unused
financial capacity. In addition, the Company has the option of issuing addi-
tional common or preference stock as a means of increasing its equity base;
however, there are no current plans to do so.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
(Millions of Dollars) 1999 PLAN 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sun Northeast Refining $ 99 $130 $ 81 $148
Sunoco Northeast Marketing 104 74 46 81
Sunoco Chemicals 70 53* 37 57
Sun Lubricants 32 39 22 30**
Sunoco MidAmerica Marketing
& Refining 66 57 29 36
Sunoco Logistics 42 39 32 22
Sun Coke 9 65 133 34
- -------------------------------------------------------------------------------
Consolidated capital
expenditures $422 $457 $380 $408
- -------------------------------------------------------------------------------
</TABLE>
* Excludes $157 million purchase of a phenol facility in Philadelphia.
** Excludes $74 million purchase of the Kendall lubricants business and related
working capital.
In 1998, in addition to the $157 million acquisition of the Philadelphia phenol
facility and the $12 million of capital outlays at this facility subsequent to
the acquisition, major capital outlays included: $58 million to complete the
construction of the Indiana Harbor cokemaking facility that commenced opera-
tions in the first quarter of 1998; $30 million to complete the expansion of
the Philadelphia refinery's cumene production facilities; $94 million for the
scheduled turnaround and modernization of numerous units throughout the
Company's refinery network; and $44 million to upgrade or acquire Sunoco(R) re-
tail marketing locations in the Northeast.
In 1997, major capital expenditures included: $118 million for the then ongoing
construction of the Indiana Harbor cokemaking facility; $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 acquisition of 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 Marcus Hook refin-
ery; and $19 million to begin construction of the Indiana Harbor cokemaking fa-
cility.
The 1999 capital expenditure plan is comprised of $283 million for base infra-
structure and legally required spending and $139 million for growth projects.
The growth projects include expenditures to improve refinery efficiency, in-
crease sales in Sunoco's retail marketing network and expand chemicals produc-
tion.
19
<PAGE>
ENVIRONMENTAL MATTERS
Sunoco is subject to numerous federal, state and local laws which regulate the
discharge of materials into the environment or that otherwise relate to the
protection of the environment. These laws have required, and are expected to
continue to require, Sunoco to make significant expenditures of both a capital
and expense nature. The following table summarizes Sunoco's expenditures for
environmental projects and compliance activities:
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Pollution abatement capital* $ 35 $ 23 $ 29
Remediation 34 38 37
Operations, maintenance and administration 173 188 185
- -------------------------------------------------------------------------------
$242 $249 $251
- -------------------------------------------------------------------------------
</TABLE>
* Capital expenditures for pollution abatement are expected to approximate $41
and $25 million in 1999 and 2000, 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 two phases of the reformulated gasoline regula-
tions which require an increase in the minimum quantity of oxygen for certain
non-attainment areas, a reduction in benzene content, and a reduction in sum-
mertime Reid Vapor Pressure ("RVP"). Sunoco expects to implement the final more
stringent phase of these regulations in 2000 with modest capital investment.
Pursuant to the Clean Air Act, the U.S. Environmental Protection Agency ("EPA")
has under review whether it is appropriate to require more stringent emissions
standards ("Tier 2 Standards") for new passenger cars and light duty trucks,
effective no earlier than the 2004 model year. In connection with these poten-
tial Tier 2 Standards, the EPA is considering mandated reductions in the sulfur
levels in reformulated and conventional gasoline. It is anticipated that the
EPA will issue final regulations by the end of 1999. While it is likely that
the EPA will require gasoline sulfur reductions, there are a number of uncer-
tainties about the final rule and how it would be implemented, including the
allowable sulfur levels, the timing of any requirements, the areas of the coun-
try that would be subject to any such requirements and the technology available
to meet the requirements. While some of the alternatives would be potentially
significant to Sunoco and its operations, the ultimate impact of the Tier 2
Standards cannot be determined until the EPA issues the finalized rule.
In order to obtain a secure supply of oxygenates, Sunoco entered into an off-
take agreement with Belvieu Environmental Fuels ("BEF"), a joint venture in
which Sunoco is a one-third partner, whereby Sunoco agreed to purchase all of
the MTBE from BEF's production facility. In 1998 and 1996, Sunoco recorded pre-
tax provisions amounting to $40 and $130 million, respectively, for estimated
losses expected to be realized with respect to the off-take agreement. During
1998 and 1997, actual losses attributable to this agreement amounting to $47
and $65 million, respectively, were charged against the loss accrual. The ac-
crual has a remaining balance of $58 million as of December 31, 1998. (See Note
14 to the consolidated financial statements.)
The EPA has convened an advisory Panel on Oxygenate Use in Gasoline (the "Pan-
el"). The purpose of the Panel is to review public health and environmental is-
sues that have been raised by the use of MTBE in gasoline, and specifically the
discovery of MTBE in water supplies. The Panel is expected to make recommenda-
tions to the EPA in mid-1999. Several states have also commenced review of the
use of MTBE in gasoline. MTBE is the primary oxygenate used by Sunoco and
throughout the industry to meet the reformulated gasoline requirements under
the Clean Air Act. While restrictions on the use of MTBE could have a signifi-
cant impact on Sunoco and its operations, it is not possible to reach any con-
clusions until federal or state actions, if any, are taken.
20
<PAGE>
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
Sunoco to the potential obligation to remove or mitigate the environmental ef-
fects of the disposal or release of certain pollutants at Sunoco's facilities
and at third-party or formerly-owned sites. Under CERCLA, Sunoco 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, 1998, Sunoco had been named as a PRP at 55 sites identified or
potentially identifiable as "Superfund" sites under CERCLA. Sunoco has reviewed
the nature and extent of its involvement at each site and other relevant cir-
cumstances and, based upon the other parties involved or Sunoco's negligible
participation therein, believes that its potential liability associated with
such sites will not be significant.
Under various environmental laws, including RCRA, Sunoco has initiated correc-
tive remedial action at its 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.
Sunoco 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 14 to the
consolidated financial statements.
On October 4, 1996, Sunoco 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
matters of Sunoco, including its predecessor companies and subsidiaries, aris-
ing from the ownership and operation of its businesses. In 1998, the Company
entered into several settlements which resolved a portion of these claims. As a
result, the Company received net cash proceeds totalling $4 million in 1998 and
$40 million in early 1999 and will receive an additional $14 million primarily
during the remainder of 1999. A $58 million pretax gain ($38 million after tax)
was recognized in 1998 in connection with these settlements. While negotiations
are currently ongoing with certain of the other insurance companies to resolve
the remaining litigation, the Company cannot quantify the ultimate outcome of
this matter.
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 Sunoco'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 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 Sunoco's net cash provided by oper-
ating 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 Sunoco's consolidated financial position or,
over an extended period of time, on Sunoco's cash flows or liquidity.
YEAR 2000 READINESS DISCLOSURE
Sunoco, like most companies, is faced with the Year 2000 Issue as a result of
its use of computer systems that were designed to use two digits rather than
four to define a year. For example, some computer software may interpret a date
using the two digit representation "00" as the year 1900 instead of the year
2000. If not corrected, such misinterpreta-
21
<PAGE>
tions could result in outright system failures or in miscalculations causing
operational or financial processing disruptions.
Sunoco began significant efforts to address its exposures related to the Year
2000 Issue in 1997. A project team was put in place to assess, remediate or re-
place, test and implement computer systems and applications (which consist of
internally developed and purchased computer applications, hardware, systems
software and embedded chip and manufacturing process control systems) so that
such systems and related processes will continue to operate and properly proc-
ess information dated after December 31, 1999.
The initial phase of these plans, an inventory and assessment of potential
problem areas, is complete. The remediation/replacement phase for the Company's
key computer applications is substantially on schedule, and the Company esti-
mates that as of December 31, 1998 it has completed approximately 90 percent of
the activities in this phase. Testing is an ongoing process as software and
hardware are remediated, upgraded or replaced. Additionally, from February 1999
through July 1999, the Company has planned a complete Year 2000 compliance
readiness test and a full systems integration test in an environment that simu-
lates the processing conditions that will exist after December 31, 1999. The
Company anticipates that the remediation/replacement and testing phases for all
of its computer applications will be completed by July 31, 1999. Notwithstand-
ing this belief, the Company will develop contingency plans for these systems
as well as the business processes and operations that they support. Such plans
are expected to be complete by September 30, 1999.
With regard to third-party system interfaces, Sunoco's computer systems have
been remediated to correctly interpret dates as they are currently supplied and
to have the capability to both send and receive expanded dates if necessary.
Third parties with whom the Company has interfaces have been contacted, advised
of Sunoco's plans for such interfaces and asked to promptly notify the Company
should their own remediation plans result in a change to their current system
interface with the Company. To date, the Company has not been notified by any
third party that an interface change will be required.
The total cost to Sunoco during the 1997-99 period of achieving Year 2000 com-
pliant systems is currently estimated to be $37 million, which represents ap-
proximately 20 percent of the information technology budget during that period.
Such amount, which includes both expense and capital spending, is being funded
from Sunoco's net cash flows from operating activities. It consists of $20 mil-
lion of expense incurred modifying or repairing existing software and hardware
and $17 million of capital expenditures replacing two key non-compliant systems
with newly purchased systems that, in addition to being compliant, provide en-
hanced business functionality. Through December 31, 1998, $25 million has been
spent, of which $14 million relating to the modification or repair of existing
software and hardware has been expensed and $11 million relating to the re-
placement of the two non-compliant systems has been capitalized.
The Company is contacting its key customers and suppliers in writing in an at-
tempt to ascertain their ability to continue to meet their obligations to the
Company due to the Year 2000 Issue. The responses received are being evaluated,
and the Company may choose to develop alternative sources of supply, markets or
other contingency plans.
The failure to correct a material Year 2000 problem or the inability of any key
customer, key supplier or a governmental agency to make the necessary computer
system changes on a timely basis, could result in interruptions to Company op-
erations or business activities. Such interruptions could have a material ad-
verse impact on the Company's results of operations, liquidity or financial
condition. Due to the general uncertainty inherent in the Year 2000 Issue, par-
ticularly as it relates to the readiness of the Company's key customers and
suppliers, and of governmental agencies, the Company cannot ascertain at this
time whether the consequences of Year 2000 failures will have a material impact
on the Company's results of operations, liquidity or financial condition.
22
<PAGE>
The foregoing Year 2000 discussion constitutes a "forward-looking" statement
within the meaning of Section 21E of the Securities Exchange Act of 1934. It is
based on management's current expectations, estimates and projections, which
could ultimately prove to be inaccurate. Factors which could affect the
Company's ability to be Year 2000 compliant by the end of 1999 include the
failure of customers, suppliers and governmental agencies to achieve compli-
ance, the inaccuracy of certifications received from them, and a shortage of
necessary personnel to modify or repair existing software.
DERIVATIVE INSTRUMENTS
Sunoco uses futures and forward contracts to achieve ratable pricing of its
crude oil purchases and to convert certain refined product sales from fixed to
floating price. In addition, price collars, swaps and option contracts are used
to lock in a portion of the Company's electricity and natural gas refinery fuel
costs. Sunoco also uses swaps, price collars and other contracts from time to
time to hedge the unfavorable impact of significant increases in crude oil
prices and to lock in what Sunoco considers to be favorable margins for various
refined products. These contracts vary in duration but do not extend beyond
1999.
Sunoco is at risk for possible changes in the market value of all of its deriv-
ative contracts; however, such risk would be mitigated by price changes in the
underlying hedged transactions. At December 31, 1998, Sunoco had a net deferred
loss of $5 million on its outstanding derivative contracts. The potential in-
cremental loss from a hypothetical 10 percent adverse change in the year-end
market prices of commodities that were being hedged by derivative contracts at
December 31, 1998 was estimated to be $7 million. This hypothetical loss was
estimated by multiplying the difference between the hypothetical and the actual
year-end market prices of the underlying commodities by the contract volume
amounts.
Sunoco also 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 fi-
nancial institutions with high credit ratings. (See Note 17 to the consolidated
financial statements.)
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133") was issued.
SFAS No. 133, which Sunoco expects to adopt effective January 1, 2000 when
adoption is mandatory, changes the method of accounting for derivative instru-
ments. The Company has not yet determined the impact that the new standard will
have on its results of operations and financial position. For a further discus-
sion concerning SFAS No. 133, see Note 1 to the consolidated financial state-
ments.
CASH DIVIDENDS AND SHARE REDEMPTION AND REPURCHASES
The Company has paid cash dividends on a regular quarterly basis since 1904.
During the 1996-98 period, the quarterly cash dividend paid on common stock
amounted to $.25 per share ($1.00 per year). The Company expects to continue to
sustain the quarterly common stock cash dividend at its current level.
During the third quarter of 1995, Sunoco exchanged 25 million "depositary
shares" for an equal number of shares of its common stock in a tax-free trans-
action. Each depositary share represented ownership of one-half share of the
Company's Series A cumulative preference stock. The depositary shares accrued
dividends quarterly at a rate of $.45 per share, or one-half the rate paid on
the preference stock. Cash dividends paid on the depositary shares totalled
$1.80 per share in both 1996 and 1997 and $.8258 per share in 1998 prior to
their redemption (see below).
On May 28, 1998, the Company redeemed all of its 24,067,520 then outstanding
depositary shares. Under the terms of redemption, established when the deposi-
tary shares were issued, each depositary share was redeemed in exchange for
0.949837 share of Sunoco's
23
<PAGE>
common stock plus accrued and unpaid dividends of $.3758. The depositary-to-
common stock exchange ratio represented the call price of $40 per depositary
share payable in Sunoco common stock valued at $42.1125 per common share--the
average of the closing prices for Sunoco common stock on the New York Stock Ex-
change, as reported on the consolidated tape, for the five consecutive trading
days from April 20 to April 24, 1998, inclusive. At the exchange ratio of
0.949837 share of common stock for each depositary share, 22,859,633 shares of
Sunoco common stock held in treasury were reissued. In connection with this re-
demption, a lawsuit has been filed alleging that Sunoco incorrectly calculated
the exchange ratio and should have issued an additional 1.36 million shares of
Sunoco common stock. The Company believes the exchange ratio was correctly cal-
culated and is vigorously defending its position.
During the 1996-98 period, the Company repurchased 8,777,350 shares of its com-
mon stock and 932,480 of its depositary shares for $349 million. These amounts
include 3,154,343 shares of common stock purchased on December 28, 1998 for
$121 million in cash under a forward purchase contract that Sunoco entered into
during August 1998. On December 28, 1998, the Board of Directors authorized a
new program to purchase up to an additional $150 million of Company common
stock in the open market or through privately negotiated transactions from time
to time depending on prevailing market conditions. As of January 31, 1999, $155
million remained available under the share repurchase programs.
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 Sunoco believes these forward-looking statements are rea-
sonable, they are based upon a number of assumptions concerning future condi-
tions, any or all of which may ultimately prove to be inaccurate. Such forward-
looking statements involve risks and are inherently uncertain. Important fac-
tors that could cause actual results to differ materially from those projected
in such statements are discussed below.
Sunoco'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. Sunoco's
income and revenues are affected by market supply and demand for Sunoco's prod-
ucts and actions taken by competitors (including both pricing and expansion and
retirement 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 Sunoco's
control, 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 Sunoco's
business include the continued availability of debt and equity financing,
changes in labor relations, nonperformance by major customers, general economic
conditions (including recessionary trends, inflation and interest and currency
exchange
24
<PAGE>
rates), and civil, criminal, regulatory or administrative actions, claims or
proceedings. Sunoco's operations could also be affected by domestic and inter-
national political, legislative, regulatory and legal actions, such as restric-
tions on production, restrictions on imports and exports, price controls, tax
increases and retroactive tax claims, expropriation of property and cancella-
tion of contract rights. Sunoco is impacted by laws pertaining to workers'
health and safety, and current or amended state and federal environmental and
other similar regulations (including, particularly, 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
Sunoco. Unpredictable or unknown factors not discussed herein could also have
material adverse effects on forward-looking statements. All forward-looking
statements included in this Annual Report to Shareholders are expressly quali-
fied in their entirety by the foregoing cautionary statements. The Company un-
dertakes 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.
25
<PAGE>
- ----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Sunoco, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of Dollars and Shares
Except Per Share Amounts)
- ----------------------------------------------------------------------------
For the Years Ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue
(including consumer excise taxes) $8,413 $10,464 $11,233
Interest income (Note 3) 23 7 15
Other income (Note 4) 147 60 52
- ----------------------------------------------------------------------------
8,583 10,531 11,300
COSTS AND EXPENSES
Cost of products sold and operating
expenses 5,646 7,610 8,718
Selling, general and administrative
expenses 521 533 589
Consumer excise taxes 1,559 1,563 1,612
Payroll, property and other taxes 82 78 89
Depreciation, depletion and
amortization 257 259 267
Provision for write-down of assets
and other matters (Note 2) 58 32 356
Interest cost and debt expense 77 78 79
Interest capitalized (6) (7) (2)
- ----------------------------------------------------------------------------
8,194 10,146 11,708
Income (loss) from continuing
operations before income tax expense
(benefit) 389 385 (408)
Income tax expense (benefit) (Note 5) 109 122 (127)
- ----------------------------------------------------------------------------
Income (loss) from continuing
operations 280 263 (281)
Income from discontinued operations
(Note 2) -- -- 166
- ----------------------------------------------------------------------------
NET INCOME (LOSS) 280 263 (115)
Dividends on preference stock (20) (44) (45)
- ----------------------------------------------------------------------------
Net income (loss) applicable to
common shareholders $ 260 $ 219 $ (160)
- ----------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK
(Note 6):
Basic:
Income (loss) from continuing
operations $3.09 $3.03 $(4.43)
Income from discontinued operations -- -- 2.26
- ----------------------------------------------------------------------------
Net income (loss) $3.09 $3.03 $(2.17)
- ----------------------------------------------------------------------------
Diluted:
Income (loss) from continuing
operations $2.95 $2.70 $(4.43)
Income from discontinued operations -- -- 2.26
- ----------------------------------------------------------------------------
Net income (loss) $2.95 $2.70 $(2.17)
- ----------------------------------------------------------------------------
Weighted average number of shares
outstanding:
Basic 84.2 72.3 73.6
Diluted 95.0 97.4 73.6
- ----------------------------------------------------------------------------
CASH DIVIDENDS PAID PER SHARE:
Preference stock (Note 15) $1.6516 $3.60 $3.60
Common stock $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
26
<PAGE>
- ----------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Sunoco, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of Dollars)
- ----------------------------------------------------------------------------
At December 31 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 38 $ 33
Accounts and notes receivable, net 537 671
Inventories (Note 7) 483 431
Deferred income taxes (Note 5) 122 113
- ----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,180 1,248
- ----------------------------------------------------------------------------
Investments and long-term receivables (Note 8) 108 137
Properties, plants and equipment, net (Note 9) 3,346 3,064
Deferred charges and other assets 215 218
- ----------------------------------------------------------------------------
TOTAL ASSETS $4,849 $4,667
- ----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 589 $ 830
Accrued liabilities 488 534
Short-term borrowings (Note 10) 120 --
Current portion of long-term debt (Note 11) 69 12
Taxes payable 118 88
- ----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,384 1,464
- ----------------------------------------------------------------------------
Long-term debt (Note 11) 823 824
Retirement benefit liabilities (Note 12) 449 477
Deferred income taxes (Note 5) 175 73
Other deferred credits and liabilities (Note 13) 504 367
Commitments and contingent liabilities (Note 14)
SHAREHOLDERS' EQUITY (Notes 15 and 16)
Cumulative preference stock--Series A, no par value
Redeemed in 1998;
Outstanding, 1997--12,057,150 shares -- 723
Common stock, par value $1 per share
Authorized--200,000,000 shares;
Issued, 1998--132,026,021 shares;
Issued, 1997--131,572,867 shares 132 132
Capital in excess of par value 1,393 1,361
Earnings employed in the business 1,608 1,430
- ----------------------------------------------------------------------------
3,133 3,646
Less common stock held in treasury, at cost
1998--41,621,835 shares; 1997--60,744,258 shares 1,619 2,184
- ----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,514 1,462
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,849 $4,667
- ----------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
27
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Sunoco, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of Dollars)
- --------------------------------------------------------------------------------
For the Years Ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 280 $ 263 $(115)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Income from discontinued operations -- -- (166)
Gain on settlement of insurance
litigation (58) -- --
Provision for write-down of assets and
other matters 58 32 356
Gain on divestments (14) (12) (14)
Depreciation, depletion and
amortization 257 259 267
Deferred income tax expense (benefit) 95 131 (129)
Changes in working capital pertaining
to operating activities:
Accounts and notes receivable 190 203 (198)
Inventories (43) 45 57
Accounts payable and accrued
liabilities (361) (383) 257
Taxes payable 19 (51) 7
Other (71) (35) (7)
- --------------------------------------------------------------------------------
Net cash provided by continuing
operating activities 352 452 315
Net cash provided by discontinued
operating activities -- -- 17
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 352 452 332
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (457) (380) (408)
Acquisition of Philadelphia phenol
facility, net of $109 seller financing
(Notes 2 and 18) (48) -- --
Acquisition of Kendall lubricants
business (Notes 2 and 18) -- -- (74)
Proceeds from divestments:
International Production operations
(Note 2) -- -- 278
Suncor common stock (Note 2) -- -- 135
Other 136 182 32
Investing activities of discontinued
operations -- -- (13)
Other 9 11 --
- --------------------------------------------------------------------------------
Net cash used in investing activities (360) (187) (50)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of)
short-term borrowings 108 -- (54)
Proceeds from issuance of long-term
debt 12 -- --
Repayments of long-term debt (53) (53) (2)
Proceeds from transferred interest in
cokemaking operation 200 -- --
Cash dividend payments (102) (117) (119)
Purchases of preference stock for
retirement (1) (27) (2)
Purchases of common stock for treasury (144) (144) (31)
Proceeds from issuance of common stock
under management incentive and
employee option plans 13 48 4
Other (20) (6) (22)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 13 (299) (226)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 5 (34) 56
Cash and cash equivalents at beginning
of year 33 67 11
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 38 $ 33 $ 67
- --------------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
28
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Sunoco, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in Millions,
Shares in Thousands)
- ------------------------------------------------------------------------------------------------------------
Cumulative
Preference Stock Common Stock Earnings Common Stock
---------------------- ------------------ Capital in Employed Held in Treasury
Number of Liquidation Number of Par Excess of in the ------------------
Shares Value Shares Value Par Value Business Shares Cost
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income -- -- -- -- -- 280 -- --
Cash dividend payments -- -- -- -- -- (102) -- --
Purchases for retirement (23) (1) -- -- -- -- -- --
Purchases for treasury -- -- -- -- -- -- 3,728 144
Redemption of preference
stock in exchange
for common stock (Note
15) (12,034) (722) -- -- 13 -- (22,860) (709)
Issued under management
incentive plans -- -- 321 -- 9 -- -- --
Issued under employee
option plan -- -- 132 -- 4 -- -- --
Other -- -- -- -- 6 -- 10 --
- ------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1998 -- $ -- 132,026 $132 $1,393 $1,608 41,622 $1,619
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
29
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sunoco, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN COMPANY NAME
Sun Company, Inc. changed its name to Sunoco, Inc. effective November 6, 1998.
PRINCIPLES OF CONSOLIDATION
Sunoco, 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, "Sunoco" 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
Sunoco 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 and capitalized coal mine development costs are generally
depreciated on a straight-line basis over their estimated useful lives. Coal
property acquisition costs are depleted by the unit of production method based
on proven reserves. Gains and losses on the disposals of fixed assets are gen-
erally reflected in income.
ENVIRONMENTAL REMEDIATION
Sunoco accrues environmental remediation costs for work at identified sites
where an assessment has indicated that cleanup costs are probable and reasona-
bly estimable. Such accruals are undiscounted and are based on currently avail-
able information, estimated timing of remedial actions and related inflation
assumptions, existing technology and presently enacted laws and regulations.
MAINTENANCE SHUTDOWNS
Maintenance and repair costs in excess of $500 thousand incurred in connection
with major maintenance shutdowns are capitalized when incurred and amortized
over the period benefitted by the maintenance activities.
DERIVATIVE INSTRUMENTS
Sunoco uses swaps, options, futures, forwards and other off-balance sheet com-
modity-based financial and nonfinancial derivative instruments to hedge its ex-
posure to crude oil, natural gas, refined product and electricity price vola-
tility. Such contracts, which effectively meet the Company's risk reduction and
correlation criteria, are accounted for principally using hedge accounting as
prescribed by Statement of Financial Accounting Standards No. 80, "Accounting
for Futures Contracts" ("existing hedge accounting"). Effectiveness is measured
based upon the correlation between the gains and losses on the derivative con-
tracts and the corresponding offsetting changes in the market value of the
items being hedged. Under existing hedge accounting, gains or losses on deriva-
tive contracts (whether or not held until the 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 items being hedged. In the event a deriva-
tive contract were to become ineffective as a hedge or if an anticipated trans-
action being hedged were no longer likely to occur, any related unrealized de-
rivative gain or loss would be recognized in income at such time. The cash
flows from hedge contracts are included in operating activities in the consoli-
dated statements of cash flows. Sunoco does not hold or issue derivative in-
struments for trading purposes.
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133") was issued.
Sunoco expects to adopt SFAS No. 133 effective January 1, 2000 when adoption is
mandatory. It will require the Company to recognize all derivative contracts on
the balance sheet at their fair value. Changes in fair value of derivative con-
tracts that are not hedges will be recognized in net income as they occur. If
the derivative contracts are hedges, depending on their nature, changes in
their fair values will either be offset in net income against the changes in
the fair values of the items being hedged or reflected initially as a separate
component of shareholders' equity and subsequently
30
<PAGE>
recognized in net income when the hedged items are recognized in net income.
The ineffective portions of changes in the fair values of derivative contracts
designated as hedges will be immediately recognized in net income. The Company
has not yet determined the impact that SFAS No. 133 will have on its results of
operations or its financial position.
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 16).
2. CHANGES IN BUSINESS
The following is a summary of Sunoco's significant changes in business during
the three-year period ended December 31, 1998:
ACQUISITIONS OF PHENOL FACILITY AND KENDALL LUBRICANTS BUSINESS
On June 30, 1998, Sunoco acquired the Philadelphia phenol facility of
AlliedSignal Inc. ("Allied") for $157 million. Of this amount, $48 million was
paid on the acquisition date, $41 million was paid in the second half of 1998
and $68 million will be paid in monthly installments during 1999. In connection
with this acquisition, Sunoco has entered into a long-term contract to supply
Allied with approximately 735 million pounds of phenol annually at a price
based on the market value of cumene feedstock plus an amount approximating
other phenol production costs.
On November 1, 1996, Sunoco acquired the Kendall lubricants blending, packaging
and marketing business for $74 million.
These acquisitions have been accounted for as purchases. Their results of oper-
ations have been included in the consolidated statements of operations since
their acquisition dates. The purchase price of each acquisition has been allo-
cated to the assets acquired and liabilities assumed based on their relative
fair market values at the respective acquisition dates (Note 18).
The unaudited pro forma net income and net income per share of common stock on
a diluted basis of Sunoco for the years ended December 31, 1998 and 1997, as if
the acquisition of the phenol facility had occurred on January 1, 1997, were
$294 million ($3.09 per share) and $280 million ($2.87 per share), respective-
ly. The pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been con-
ducted during the periods presented and is not intended to be a projection of
future results.
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>
1998
MTBE purchase
commitment $ 40 $ 26
Other 18 12
- --------------------------------------------
$ 58 $ 38
- --------------------------------------------
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
- --------------------------------------------
</TABLE>
During the fourth quarter of 1998, Sunoco added to the accrual it established
on December 31, 1996 for estimated losses expected to be realized from an off-
take agreement to purchase MTBE (Note 14). In addition, Sunoco established an
accrual for environmental remediation activities, increased the estimated net
realizable value of a previously written down asset held for sale and recorded
provisions to write-down its MTBE inventory to market value and to write-off
certain assets primarily in its refining and marketing business.
During the first quarter of 1997, Sunoco established an accrual for approxi-
mately 320 involuntary employee terminations and related costs. The employee
reductions were throughout the organization and included senior management,
support staff and operations personnel.
During the fourth quarter of 1996, Sunoco reconfigured the Philadelphia refin-
ery to process only sweet crude oil and to cease asphalt production. This
reconfiguration continued the integration of the Point Breeze and Girard Point
facilities at the Philadelphia, PA, refinery. In late 1996, Sunoco also an-
nounced 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, Sunoco recorded provisions to write off redundant
and/or unprofitable processing units and established accruals for environmental
remediation activities, employee terminations and related costs. In addition,
at December 31, 1996, Sunoco established accruals for estimated losses expected
to be realized with respect to the off-take agreement to purchase MTBE and for
other environmental remediation activities and recorded a provision to write
down to fair value certain assets in its refining and marketing business.
31
<PAGE>
DISCONTINUED OPERATIONS
On September 30, 1996, Sunoco completed the sale of its international oil and
gas production business for $278 million in cash. The sale of this business
represents the completion of the Company's withdrawal from oil and gas explora-
tion and production activities. The Company withdrew from international explo-
ration activities in 1992 and divested its remaining 55-percent interest in
Suncor Inc., a Canadian integrated oil company, on June 8, 1995. Sunoco re-
ceived $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.
The international oil and gas production business was classified as a discon-
tinued operation during 1996 up to its September 30 divestment date. The fol-
lowing is a summary of the income from this discontinued operation during the
nine-month period:
<TABLE>
<CAPTION>
(Millions of Dollars)
- ----------------------------------------------
<S> <C>
Income before income tax benefit $152
Income tax benefit 14
- ----------------------------------------------
Income from discontinued
operations $166
- ----------------------------------------------
</TABLE>
Included in the table above is a $125 million divestment gain (comprised of a
pretax gain of $93 million and an income tax benefit of $32 million). Prior to
its divestment, sales and other operating revenue in 1996 from this business
totalled $187 million.
3. SETTLEMENT OF INCOME TAX DISPUTES
In 1998, Sunoco settled certain income tax disputes with the Internal Revenue
Service related to deductions claimed in prior years. These settlements, which
include the recognition of $15 million of interest income, increased 1998 net
income by $12 million.
4. OTHER INCOME
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997 1996
- -------------------------------------------
<S> <C> <C> <C>
Gain on settlement of
insurance litigation (Note
14) $ 58 $-- $--
Equity in earnings of
affiliated companies 26 25 24
Gain on divestments 14 12 14
Investment income from
insurance consortia 12 -- --
Other 37 23 14
- -------------------------------------------
$147 $ 60 $ 52
- -------------------------------------------
</TABLE>
During 1998, petroleum industry insurance consortia in which the Company par-
ticipates made cash distributions to their shareholders. Sunoco's share of
these distributions (including a return of its capital investment) amounted to
$17 million and increased 1998 net income by $7 million.
5. INCOME TAXES
The components of income tax expense (benefit) from continuing operations are
as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997 1996
- --------------------------------------------
<S> <C> <C> <C>
Income taxes currently
payable:
U.S. federal $ 12 $ (9) $ --
State and other 2 -- 2
- --------------------------------------------
14 (9) 2
- --------------------------------------------
Deferred taxes:
U.S. federal 96 130 (118)
State and other (1) 1 (11)
- --------------------------------------------
95 131 (129)
- --------------------------------------------
$109 $122 $(127)
- --------------------------------------------
</TABLE>
The reconciliation of income tax expense (benefit) at the U.S. statutory rate
to the income tax expense (benefit) from continuing operations is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997 1996
- ---------------------------------------------
<S> <C> <C> <C>
Income tax expense
(benefit) at U.S.
statutory rate of 35
percent $136 $135 $(143)
Increase (reduction) in
income taxes resulting
from:
Puerto Rico possession
tax credit (13)* -- 25
Dividend exclusion for
affiliated companies (3) (4) (4)
Nonconventional fuel
credit (2) -- --
State income taxes net
of Federal income tax
effects -- -- (2)
Other (9) (9) (3)
- ---------------------------------------------
$109 $122 $(127)
- ---------------------------------------------
</TABLE>
* During 1998, Sunoco revoked its election under the Internal Revenue Code
concerning the Puerto Rico possession tax credit. The $13 million tax
benefit resulted primarily from recognition of additional deferred tax
benefits associated with the write-down of assets recorded in 1996 in
connection with the project to reconfigure the Company's Puerto Rico refinery
(Note 2).
The tax effects of temporary differences which comprise the net deferred income
tax asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31
-----------------
(Millions of Dollars) 1998 1997
- --------------------------------------------
<S> <C> <C>
Deferred tax assets:
Retirement benefit
liabilities $ 142 $ 152
Environmental
remediation
liabilities 63 70
Other liabilities not
yet deductible 251 203
Federal net operating
loss carryforward -- 50
Alternative minimum tax
credit carryforward* 67 60
Other 85 66
Valuation allowance** (32) (32)
- --------------------------------------------
576 569
- --------------------------------------------
Deferred tax
liabilities:
Properties, plants and
equipment (581) (469)
Other (48) (60)
- --------------------------------------------
(629) (529)
- --------------------------------------------
Net deferred income tax
asset (liability) $ (53) $ 40
- --------------------------------------------
</TABLE>
* Alternative minimum tax credit carryforwards may be carried forward indefi-
nitely.
** The valuation allowance reduces certain state net operating loss
carryforwards to the amount that will more likely than not be realized.
32
<PAGE>
The net deferred income tax asset (liability) is classified in the consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
December 31
-------------
(Millions of Dollars) 1998 1997
- -------------------------------------
<S> <C> <C>
Current asset $ 122 $113
Noncurrent liability (175) (73)
- -------------------------------------
$ (53) $ 40
- -------------------------------------
</TABLE>
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share ("EPS") for 1998 and 1997:
<TABLE>
<CAPTION>
(In Millions, Except Per Share Amounts) 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Net income after dividends
on preference stock (basic
EPS numerator) $260 $219
Add: Dividends on
preference stock 20 44
- ----------------------------------------------------------
Net income (diluted EPS
numerator) $280 $263
- ----------------------------------------------------------
Weighted average number of
common shares outstanding
(basic EPS denominator) 84.2 72.3
Add effect of dilutive
securities:
Redeemable preference
shares (Note 15) 9.8 24.6
Stock incentive awards 1.0 .5
- ----------------------------------------------------------
Weighted average number of
shares (diluted EPS
denominator) 95.0 97.4
- ----------------------------------------------------------
Basic EPS $3.09 $3.03
Diluted EPS $2.95 $2.70
- ----------------------------------------------------------
</TABLE>
In 1996, 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 basic per share amounts.
7. INVENTORIES
<TABLE>
<CAPTION>
December 31
---------------
(Millions of Dollars) 1998 1997
- ---------------------------------------------
<S> <C> <C>
Crude oil $184 $150
Refined products 219 214
Materials, supplies and
other 80 67
- ---------------------------------------------
$483 $431
- ---------------------------------------------
</TABLE>
The current replacement cost of all inventories valued at LIFO exceeded their
carrying value by $205 and $492 million at December 31, 1998 and 1997, respec-
tively. During 1996, Sunoco reduced certain inventory quantities which were
valued at lower LIFO costs prevailing in prior years. The effect of this reduc-
tion was to decrease the 1996 net loss by $8 million.
8. INVESTMENTS AND LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
December 31
---------------
(Millions of Dollars) 1998 1997
- ----------------------------------------------
<S> <C> <C>
Investments in and advances
to affiliated companies $ 80 $ 77
Investment in real estate
operations held for sale 12 43
Accounts and notes
receivable 16 12
Other investments -- 5
- ----------------------------------------------
$108 $137
- ----------------------------------------------
</TABLE>
Dividends received from affiliated companies amounted to $15, $13 and $15 mil-
lion in 1998, 1997 and 1996, respectively. Earnings employed in the business at
December 31, 1998 include $53 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>
1998
Refining and
marketing* $5,781 $2,709 $3,072
Cokemaking and
coal mining 466 193 273
Corporate 1 -- 1
- ----------------------------------------------------------
$6,248 $2,902 $3,346
- ----------------------------------------------------------
1997
Refining and
marketing* $5,424 $2,586 $2,838
Cokemaking and
coal mining 413 188 225
Corporate 1 -- 1
- ----------------------------------------------------------
$5,838 $2,774 $3,064
- ----------------------------------------------------------
</TABLE>
* Includes gross amounts leased to third parties totalling $529 and $569 mil-
lion at December 31, 1998 and 1997, respectively. Related accumulated
depreciation totalled $229 and $224 million at December 31, 1998 and 1997,
respectively.
Annual future minimum rentals due Sunoco, as lessor, on noncancelable operating
leases at December 31, 1998 are as follows (in millions of dollars):
<TABLE>
- ----------------------------------
<S> <C>
Year ending December 31:
1999 $38
2000 25
2001 10
2002 1
2003 1
Thereafter 1
- ----------------------------------
$76
- ----------------------------------
</TABLE>
10. SHORT-TERM BORROWINGS AND 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 bearing interest based on selected reference rates. The Company can borrow
directly from the participating banks under this Agreement or use it to support
commercial paper issued by Sunoco. The Agreement is subject to commitment fees,
the amounts of which are not
33
<PAGE>
material. Under the terms of the Agreement, Sunoco is required, among other
things, to maintain consolidated net worth of at least $1.0 billion. At Decem-
ber 31, 1998, the Company's consolidated net worth was $1.5 billion. Amounts
outstanding from the participating banks under the Agreement totalled $120 mil-
lion at December 31, 1998. This borrowing bears interest based on the New
York interbank Eurodollar rate (5.84 percent at December 31, 1998). Sunoco also
has access to short-term financing under a non-committed money market facility.
There were no other amounts outstanding related to the above short-term borrow-
ing arrangements at December 31, 1998 or 1997.
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
-------------
(Millions of Dollars) 1998 1997
- ----------------------------------------------
<S> <C> <C>
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
7.60% environmental
industrial revenue bonds
due 2024 100 100
6 3/4% convertible
debentures due 2012
(Note 15) 10 10
Non-interest bearing seller
financing 68 --
Other 17 30
- ----------------------------------------------
895 840
Less:unamortized discount 3 4
current portion 69 12
- ----------------------------------------------
$823 $824
- ----------------------------------------------
</TABLE>
The Company's 8 1/8 percent notes due in 1999 have not been classified as cur-
rent portion of long-term debt since Sunoco has the ability and intent to refi-
nance this obligation on a long-term basis.
On June 30, 1998, $109 million of non-interest bearing seller financing with an
imputed rate of 7 percent was provided by AlliedSignal Inc. in connection with
the Company's acquisition of Allied's Philadelphia phenol facility (Note 2). At
December 31, 1998, $68 million remained outstanding which will be repaid in
monthly installments during 1999.
The aggregate amount of long-term debt maturing and sinking fund requirements
in the years 1999 through 2003, after giving effect to the planned refinancing
of the 8 1/8 percent notes on a long-term basis, is as follows (in millions of
dollars):
- -------------------------------
<TABLE>
<S> <C> <C> <C>
1999 $ 69 2002 $--
2000 $ 1 2003 $--
2001 $150
</TABLE>
- -------------------------------
12. RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
PLANS
Sunoco has noncontributory defined benefit pension plans ("defined benefit
plans") which provide retirement benefits for the majority of its employees.
Sunoco also has plans which provide health care and life insurance benefits for
substantially all of its retirees ("postretirement benefit plans"). The
postretirement benefit plans are unfunded and the costs are shared by Sunoco
and its retirees.
Pension and postretirement health care and life insurance expense (benefit)
consisted of the following components:
<TABLE>
<CAPTION>
Defined Postretirement
Benefit Plans Benefit Plans
------------------------- ------------------------
(Millions of Dollars) 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost (cost of
benefits earned during
the year) $ 26 $ 26 $ 29 $ 5 $ 4 $ 5
Interest cost on benefit
obligation 87 92 91 23 23 23
Expected return on plan
assets (108) (105) (100) -- -- --
Amortization of:
Net transition asset (9) (9) (9) -- -- --
Prior service cost
(benefit) 1 1 1 (8) (8) (8)
Unrecognized losses 2 2 2 -- -- (1)
Curtailment (gains)
losses* -- 2 -- -- (5) --
- ------------------------------------------------------------------------------
$ (1) $ 9 $ 14 $20 $14 $19
- ------------------------------------------------------------------------------
</TABLE>
*Recognized in connection with the employee termination program implemented
during 1997 (Note 2).
34
<PAGE>
The following tables set forth the components of the changes in benefit obliga-
tions and fair value of plan assets during 1998 and 1997 as well as the funded
status and amounts both recognized and not recognized in the balance sheets at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Defined Postretirement
Benefit Plans Benefit Plans
-------------- ----------------
(Millions of Dollars) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year* $1,268 $1,242 $336 $332
Service cost 26 26 5 4
Interest cost 87 92 23 23
Actuarial (gains) losses 24 81 8 (2)
Acquisitions 17 -- 3 --
Benefits paid (141) (176) (28) (27)
Premiums paid by participants -- -- 4 4
Other -- 3 (3) 2
- -------------------------------------------------------------------------------
Benefit obligations at end of year* $1,281 $1,268 $348 $336
- -------------------------------------------------------------------------------
Fair value of plan assets at beginning of
year** $1,277 $1,242
Actual return on plan assets 172 197
Employer contributions 13 --
Acquisitions 15 --
Benefits paid from plan assets (127) (162)
- -------------------------------------------------------------
Fair value of plan assets at end of year** $1,350 $1,277
- -------------------------------------------------------------
Benefit obligation (in excess of) less than
plan assets at end of year $ 69 $ 9 $(348) $(336)
Unrecognized net transition asset (10) (19) -- --
Unrecognized prior service cost (benefit) 11 13 (47) (51)
Unrecognized net (gain) loss (101) (60) 19 10
- -------------------------------------------------------------------------------
Net liability recognized in balance sheet at
end of year $ (31) $ (57) $(376) $(377)
- -------------------------------------------------------------------------------
* Represents the projected benefit obligation for defined benefit plans and the
accumulated postretirement benefit obligation ("APBO") for postretirement
benefit plans.
** Less than 1 percent of plan assets was invested in Company stock.
The net liability recognized in the balance sheets at December 31, 1998 and
1997 is classified as follows:
<CAPTION>
Defined Postretirement
Benefit Plans Benefit Plans
-------------- ----------------
(Millions of Dollars) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement benefit liabilities $ (73) $ (100) $(376) $(377)
Deferred charges and other assets* 42 43 -- --
- -------------------------------------------------------------------------------
$ (31) $ (57) $(376) $(377)
- -------------------------------------------------------------------------------
* Represents an intangible asset for which an equivalent additional minimum li-
ability is included in retirement benefit liabilities.
Certain of the Company's defined benefit plans have accumulated benefit obliga-
tions in excess of the fair value of plan assets. The total projected benefit
obligations, accumulated benefit obligations and fair value of plan assets of
such plans were $255, $234 and $106 million, respectively, as of December 31,
1998 and $254, $232 and $94 million, respectively, as of December 31, 1997.
The following weighted average assumptions were used during 1998 and 1997 in
accounting for the plans:
<CAPTION>
Defined Postretirement
Benefit Plans Benefit Plans
-------------- ----------------
(Millions of Dollars) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.00% 6.75% 7.00%
----------------
Long-term rate of return on plan assets 9.00% 9.00%
Rate of compensation increase 4.00% 4.00%
- ------------------------------------------------------------
</TABLE>
The health care cost trend assumptions used at December 31, 1998 and 1997 to
compute the APBO for the postretirement benefit plans were 6.8 and 7.0 percent,
respectively, which are assumed to decline gradually to 5.5 percent in 2001 and
to remain at that level thereafter.
35
<PAGE>
A one-percentage point change each year in assumed health care cost trend rates
would have the following effects at December 31, 1998:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
(Millions of Dollars) Point Increase Point Decrease
- ----------------------------------------------------
<S> <C> <C>
Effect on total
of service and
interest cost
components of
postretirement
benefits
expense $1 $(1)
Effect on APBO $4 $(6)
- -----------------------------------------------------
</TABLE>
DEFINED CONTRIBUTION PENSION PLANS
Sunoco has defined contribution pension plans which provide retirement benefits
for most of its employees. Sunoco's contributions, which are principally based
on a percentage of employees' annual base compensation and are charged against
income as incurred, amounted to $18, $17 and $18 million in 1998, 1997 and
1996, respectively.
Sunoco's principal defined contribution plan is SunCAP. Sunoco matches 100 per-
cent of employee contributions to this plan up to 5 percent of an employee's
base compensation. SunCAP is a combined profit sharing and employee stock own-
ership plan which contains a provision designed to permit SunCAP, only upon ap-
proval by the Company's Board of Directors, to borrow in order to purchase
shares of Company common stock. As of December 31, 1998, no such borrowings had
been approved.
13. TRANSFERRED INTERESTS IN COKEMAKING OPERATIONS
In 1998, Sunoco transferred an interest in its Indiana Harbor cokemaking opera-
tion in East Chicago, IN, to a third party for $200 million in cash. In 1995,
Sunoco transferred an interest in its Jewell cokemaking operation in Vansant,
VA, to another third party for $95 million in cash. The investors are entitled
to 95 percent of the cash flows and tax benefits from the respective cokemaking
operations until certain cumulative return targets have been met. After these
preferential return periods, which are expected to end in 2002 and 2000, re-
spectively, the third parties will be entitled to variable minority interests
in the cash flows and tax benefits from the respective operations ranging from
5 to 25 percent. Sunoco did not recognize any gain or loss on these transac-
tions. The outstanding balance attributable to the transferred interests in
these operations totalled $226 and $69 million at December 31, 1998 and 1997,
respectively, and is reflected in other deferred credits and liabilities in the
consolidated balance sheets.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Sunoco, 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 1998, 1997 and
1996 amounted to $118, $107 and $97 million, respectively. Approximately 8 per-
cent of total rental expense was recovered through related sublease rental in-
come during 1998.
The aggregate amount of future minimum annual rentals applicable to noncancel-
able operating leases are as follows (in millions of dollars):
<TABLE>
- ----------------------------------
<S> <C>
Year ending December 31:
1999 $ 63
2000 52
2001 65
2002 73
2003 62
Thereafter 214
- ----------------------------------
$529
- ----------------------------------
</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, owning and operating a methyl tertiary butyl ether ("MTBE") production fa-
cility 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, Sunoco entered into an off-take agreement with BEF whereby
Sunoco agreed to purchase all of the MTBE production from the plant. For the
first 14,000 barrels daily of production, Sunoco agreed to pay BEF prices
through May 1997 based on the market value of MTBE feedstocks (methanol and bu-
tane) 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 con-
tract market (the "contract market price"). Sunoco also agreed to pay BEF the
current spot market price for production above 14,000 barrels daily. In addi-
tion, the price to be paid by Sunoco for the first 12,600 barrels daily of MTBE
production through May 2000, at a minimum, generally will equal the sum of
BEF's annual raw material and cash operating costs associated with this produc-
tion plus BEF's debt service payments (collectively, the "minimum price") if
the minimum price per gallon exceeds the applicable formula or contract market
price. After May 2000, Sunoco and BEF will negotiate a new price for the last
four years of the agreement based upon the market conditions existing at that
time.
Sunoco's total MTBE purchases under this agreement were $182, $235 and $214
million during 1998, 1997 and 1996, respectively. The first 14,000 barrels
daily of MTBE production were based upon the formula price through May 1997.
Thereafter, the first 12,600 barrels daily of MTBE purchases under the agree-
ment have been based upon the minimum price. The formula prices paid by Sunoco
during most of 1996 were believed to have approximated prices of other MTBE
long-term sales agree-
36
<PAGE>
ments in the marketplace. However, management determined that the contract mar-
ket 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 determined that the spot mar-
ket for MTBE had developed by the latter part of 1996. During the fourth quar-
ter of 1996, spot market prices for MTBE were less than the prices paid by
Sunoco under the off-take agreement with BEF. At that time, the Company ex-
pected this adverse relationship to continue into the future. Accordingly, a
$130 million accrual ($85 million after tax) was established at December 31,
1996 for the estimated losses expected to be realized with respect to this
agreement.
The $130 million loss accrual was based primarily on the Company's marketplace
assumptions concerning the worldwide supply and demand for MTBE through May
2000. At December 31, 1996, the Company believed that MTBE demand would in-
crease in 1999 largely as a result of various jurisdictions electing to volun-
tarily comply with (or opt into) the reformulated gasoline requirements of the
Clean Air Act by the end of 1998. At December 31, 1998, the number of "opt ins"
was lower than what the Company had originally anticipated and certain other
jurisdictions are considering "opting out" of the voluntary reformulated fuel
requirements. As a result of these and other market factors, management now be-
lieves that MTBE demand will not increase as previously anticipated. According-
ly, an additional $40 million provision ($26 million after tax) was added to
the accrual in December 1998 for incremental losses expected to be realized
with respect to this agreement. During 1998 and 1997, actual MTBE purchase
costs in excess of spot market prices totalling $47 and $65 million, respec-
tively, were charged against the accrual. The accrual has a remaining balance
of $58 million as of December 31, 1998.
Sunoco is a party under agreements which provide for future payments to secure
wastewater treatment services at its Toledo refinery and coal handling services
at its Indiana Harbor cokemaking facility. The fixed and determinable amounts
of the obligations under these agreements are as follows (in millions of dol-
lars):
<TABLE>
- --------------------------------------------
<S> <C>
Year ending December 31:
1999 $ 10
2000 10
2001 10
2002 10
2003 9
2004 through 2018 93
- --------------------------------------------
Total 142
Less: Amount representing interest 59
- --------------------------------------------
Total at present value $ 83
- --------------------------------------------
</TABLE>
Payments under these agreements, including variable components, commenced in
mid-1998 and totalled $8 million.
Sunoco is contingently liable under various arrangements which guarantee debt
of affiliated companies and others aggregating approximately $27 million at
December 31, 1998 and maturing at various dates through 2013.
Sunoco is subject to numerous federal, state and local laws which regulate the
discharge of materials into the environment or that otherwise relate to the
protection of the environment. These laws result in liabilities and loss con-
tingencies for remediation at Sunoco's facilities and at third-party or former-
ly-owned sites. The accrued liability for environmental remediation is classi-
fied in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
December 31
-------------
(Millions of Dollars) 1998 1997
- ---------------------------------------------
<S> <C> <C>
Accrued liabilities $ 56 $ 59
Other deferred credits and
liabilities 126 145
- ---------------------------------------------
$182 $204
- ---------------------------------------------
</TABLE>
Pretax charges against income for environmental remediation totalled $13, $6
and $56 million in 1998, 1997 and 1996, 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 regulatory changes which incorpo-
rated a risk-based methodology and clarified previously uncertain remediation
requirements. Claims for recovery of environmental liabilities that are proba-
ble of realization totalled $3 million at December 31, 1998 and are included in
deferred charges and other assets in the consolidated balance sheets.
On October 4, 1996, Sunoco 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
matters of Sunoco, including its predecessor companies and subsidiaries, aris-
ing from the ownership and operation of its businesses. In 1998, the Company
entered into several settlements which resolved a portion of these claims. As a
result, the Company received net cash proceeds totalling $4 million in 1998 and
$40 million in early 1999 and will receive an additional $14 million primarily
during the remainder of 1999. A $58 million pretax gain ($38 million after tax)
was recognized in other income in 1998 in connection with these settlements.
While negotiations are currently ongoing with certain of the other insurance
companies to resolve the remaining liti-
37
<PAGE>
gation, the Company cannot quantify the ultimate outcome of this matter.
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 Sunoco's liability at multi-
party sites, if any, in light of the number, participation levels and financial
viability of other parties.
Many other legal and administrative proceedings are pending against Sunoco. The
ultimate outcome of these proceedings and the matters discussed above cannot be
ascertained at this time; however, it is reasonably possible that some of them
could be resolved unfavorably to Sunoco. Management believes that any expendi-
tures attributable to these matters will be incurred over an extended period of
time and will be funded from Sunoco's net cash flows from operating activities.
Although the ultimate impact of these matters could have a significant impact
on results of operations for any one year, management of Sunoco believes that
any additional liabilities which may arise pertaining to such matters would not
be material in relation to the consolidated financial position of Sunoco at De-
cember 31, 1998.
15. 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 Su-
noco common stock 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 December 31,
1998, there were 242,981 shares of common stock reserved for this potential
conversion (Note 11).
On August 3, 1995, the Company issued 12,500,000 shares of Series A cumulative
preference stock in exchange for 25,000,000 shares of Company common stock in a
tax-free transaction. Each share of preference stock was evidenced by two "de-
positary shares", which were entitled, proportionally, to all the rights, pref-
erences and privileges of the underlying preference stock. On May 28, 1998, the
Company redeemed all of its 12,033,760 then outstanding shares of preference
stock. Under the terms of redemption, established when the shares of preference
stock were issued, each preference share was redeemed in exchange for 1.899674
shares of Sunoco's common stock plus accrued and unpaid dividends of $.7516.
The preference-to-common stock exchange ratio represented the call price of $80
per preference share payable in Sunoco common stock valued at $42.1125 per com-
mon share--the average of the closing prices for Sunoco common stock on the New
York Stock Exchange, as reported on the consolidated tape, for the five consec-
utive trading days from April 20 to April 24, 1998, inclusive. At the exchange
ratio of 1.899674 shares of common stock for each share of preference stock,
22,859,633 shares of Sunoco common stock held in treasury were reissued. In
connection with this redemption, a lawsuit has been filed alleging that Sunoco
incorrectly calculated the exchange ratio and should have issued an additional
1.36 million shares of Sunoco common stock. The Company believes the exchange
ratio was correctly calculated and is vigorously defending its position.
During the 1996-98 period, the Company repurchased 8,777,350 shares of its com-
mon stock and 932,480 of its depositary shares for $349 million. These amounts
include 3,154,343 shares of common stock purchased on December 28, 1998 for
$121 million in cash under a forward purchase contract that Sunoco entered into
during August 1998. On December 28, 1998, the Board of Directors authorized a
new program to purchase up to an additional $150 million of Company stock in
the open market or through privately negotiated transactions from time to time
depending on prevailing market conditions. As of January 31, 1999, $155 million
remained available under the share repurchase programs.
The Company's Articles of Incorporation authorize the issuance of up to
15,000,000 shares of preference stock without par value, subject to approval by
the Board. The Board also has authority to fix the number, 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 its preference stock as Series B participating cumu-
lative preference stock. Pursuant to the plan, the Company declared a dividend
of one stock purchase right ("Right") for each share of common stock outstand-
ing 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. The Rights are attached to the common stock until they become exercis-
able. Generally, the Rights become exercisable a specified period after a party
acquires 15 percent or more of the aggregate outstanding common stock or an-
nounces a tender offer for 15 percent or more of the common stock. Each Right
initially entitles a holder to purchase one one-hundredth of a share of the Se-
ries B participating cumulative preference stock for $100. After a party has
acquired 15 percent or more of the common stock, each Right will
38
<PAGE>
entitle a holder to pay $100 for the number of shares of Company common stock
(or in certain situations, common stock of the acquiring party) having a then
current market value of $200. Alternatively, the Company has the option to ex-
change 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 common
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 or more of
the common stock. In general, none of the benefits of the Rights will be avail-
able to a holder of 15 percent or more of the common stock. The Rights will ex-
pire on February 12, 2006, unless earlier exchanged or redeemed.
The Employee Option Plan ("EOP") 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 its fair mar-
ket value on the date of grant. Since its adoption, stock option awards for
1,963,280 shares were made to eligible employees under EOP.
16. MANAGEMENT INCENTIVE PLANS
Sunoco'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 Sunoco. The option awards under LTPEP 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. 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 Sunoco's principal management incen-
tive plans for 1998 and 1997 were $13 and $17 million, respectively. There were
no charges against income for Sunoco's principal management incentive plans in
1996.
The following table summarizes information with respect to common stock option
awards under the EOP (Note 15) and Sunoco'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, 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
Granted -- 822,640 $32.88
Exercised (131,719) $28.00 (413,413)* $29.62
Canceled (9,600) $28.00 (15,803) $34.79
- -----------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1998 570,119 $28.00 3,775,202 $31.43
- -----------------------------------------------------------------------------------
EXERCISABLE, DECEMBER 31
- -----------------------------------------------------------------------------------
1996 1,487,475 $28.00 3,354,340 $29.83
1997 711,438 $28.00 2,723,938 $29.31
1998 570,119 $28.00 2,398,752 $28.98
- -----------------------------------------------------------------------------------
AVAILABLE FOR GRANT,
DECEMBER 31
- -----------------------------------------------------------------------------------
1996 288,120 --
1997 417,030 3,334,250
1998 426,630 2,419,660
- -----------------------------------------------------------------------------------
</TABLE>
* Includes 124,260 and 144,116 options in 1998 and 1997, respectively, canceled
due to the exercise of related alternate appreciation rights which resulted
in the issuance of 22,859 and 81,735 shares, respectively. Alternate appreci-
ation 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.
39
<PAGE>
The following table provides additional information concerning the options out-
standing at December 31, 1998:
<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 - $27.88 930,087 7 $25.93 930,087 $25.93
$28.00 - $29.75 886,694 4 $28.01 886,694 $28.01
$30.19 - $31.50 1,040,830 5 $30.70 1,040,830 $30.70
$32.88 - $41.13 1,487,710 9 $36.10 111,260 $41.13
- --------------------------------------------------------------------------------------
$23.25 - $41.13 4,345,321 7 $30.98 2,968,871 $28.79
- --------------------------------------------------------------------------------------
</TABLE>
Common stock unit awards entitle the holder to receive Company common stock
upon completion of a restriction period or upon attainment of predetermined
performance targets. The following table summarizes information with respect to
common stock unit awards under Sunoco's management incentive plans:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------
<S> <C> <C> <C>
Balance at
beginning of
year 219,829 125,440 4,800
Granted 96,870 107,910 122,240
Matured (8,933) (3,600) (1,600)
Canceled (1,780) (9,921) --
- ------------------------------------------------
Balance at end of
year 305,986 219,829 125,440
- ------------------------------------------------
</TABLE>
The Company follows the method of accounting for employee stock compensation
plans prescribed by Accounting Principles Board Opinion 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 accounting for employee stock compensation plans pre-
scribed by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" been followed, the pro forma impact on Sunoco's net
income (loss) and net income (loss) per share of common stock on a diluted ba-
sis would have been as follows:
<TABLE>
<CAPTION>
(Millions of Dollars, Except Per Share Amounts) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $280 $263 $(115)
Pro forma $278 $262 $(118)
Net income (loss) per share:
As reported $2.95 $2.70 $(2.17)
Pro forma $2.93 $2.69 $(2.21)
- -----------------------------------------------------------------------------
</TABLE>
The pro forma amounts above are based upon the estimated fair values of $7.52,
$10.59 and $5.41 per option granted during 1998, 1997 and 1996, respectively.
These values are calculated using the Black-Scholes option pricing model based
on the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------
<S> <C> <C> <C>
Expected life
(years) 6 6 7
Risk-free
interest rate 4.8% 5.8% 6.0%
Dividend yield 3.0% 2.5% 4.1%
Expected
volatility 24.5% 24.3% 24.4%
- --------------------------------------------
</TABLE>
17. 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.
Sunoco'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, 1998 and 1997, the estimated fair values of Sunoco's long-term debt were
$917 and $918 million, respectively, compared to carrying amounts of $823 and
$824 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 Sunoco at
the respective balance sheet dates for similar issues.
The Company guarantees the debt of affiliated companies and others (Note 14).
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.
Sunoco uses a variety of off-balance sheet commodity-based financial and nonfi-
nancial derivative instruments for hedging purposes. Sunoco is at risk for pos-
sible 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, Sunoco is exposed to credit
40
<PAGE>
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 Sunoco's derivative contracts are re-
viewed regularly by management.
Sunoco uses futures and forward contracts to achieve ratable pricing of its
crude oil purchases and to convert certain refined product sales from fixed to
floating price. In addition, price collars, swaps and option contracts are used
to lock in a portion of the Company's electricity and natural gas refinery fuel
costs. Sunoco also uses swaps, price collars and other option contracts from
time to time to hedge the unfavorable impact of significant increases in crude
oil prices and to lock in what Sunoco considers to be favorable wholesale mar-
gins for various refined products. These contracts vary in duration but do not
extend beyond 1999.
The following table sets forth summary information concerning Sunoco's finan-
cial and nonfinancial derivative instruments at December 31, 1998:
<TABLE>
<CAPTION>
Deferred
(Millions of Dollars) Gain (Loss) Fair Value*
- -----------------------------------------------
<S> <C> <C>
Swaps $ 2 $ 2
Options (1) (1)
Futures and
forwards (6) (5)
- -----------------------------------------------
$(5) $(4)
- -----------------------------------------------
</TABLE>
* Based on various indices or dealer quotes.
18. SUPPLEMENTAL CASH FLOW INFORMATION
Sunoco acquired the Philadelphia phenol facility of AlliedSignal Inc. in 1998
and the Kendall lubricants business in 1996 (Note 2). The following is a sum-
mary of the effects of these transactions on Sunoco's consolidated financial
position as of the acquisition dates:
<TABLE>
<CAPTION>
Philadelphia Kendall
Phenol Lubricants
(Millions of Dollars) Facility Business
- -----------------------------------------------
<S> <C> <C>
Allocation of
purchase price:
Accounts and notes
receivable $ -- $30
Inventories 20 16
Properties, plants
and equipment 155 16
Other assets 4 12
Accounts payable and
accrued liabilities (1) --
Retirement benefit
liabilities (5) --
Other liabilities (16) --
- -----------------------------------------------
157 74
- -----------------------------------------------
Seller financing:
Short-term
borrowings and
current portion of
long-term debt (74) --
Long-term debt (35) --
- -----------------------------------------------
(109) --
- -----------------------------------------------
Cash paid on
acquisition date $ 48 $74
- -----------------------------------------------
</TABLE>
Cash payments for (refunds of) income taxes were $(6), $26 and $7 million in
1998, 1997 and 1996, respectively. Cash payments for interest, net of amounts
capitalized, were $69, $75 and $74 million in 1998, 1997 and 1996,
respectively.
19. BUSINESS SEGMENT INFORMATION
Sunoco is principally a petroleum refiner and marketer with interests in
cokemaking and coal mining. Sunoco's operations are organized into seven busi-
ness segments.
The Northeast Refining segment manufactures petroleum products and petrochemi-
cal feedstocks at Sunoco's Marcus Hook and Philadelphia refineries and sells
these products to other Sunoco businesses and to wholesale and industrial cus-
tomers. The Northeast Marketing segment sells gasoline and middle distillates
at retail and operates convenience stores in the Mid-Atlantic and New England
states. The Chemicals segment manufactures base commodity and intermediate pet-
rochemicals primarily at Sunoco's Marcus Hook and Philadelphia refineries and
at its Philadelphia phenol facility, its Brandenburg, KY ethylene/ethylene ox-
ide plant and its Mont Belvieu, TX joint venture MTBE facility. This segment
also distributes and markets these products. The Lubricants segment manufac-
tures, blends, packages and markets a broad line of paraffinic and aromatic lu-
bricating and specialty oils produced at Sunoco's Tulsa and Puerto Rico refin-
eries and manufactures and markets at wholesale the related fuels produced at
these facilities. The MidAmerica Marketing & Refining segment sells gasoline
and middle distillates at retail and operates convenience stores in the Mid-
west. It also manufactures, distributes and markets fuels and petrochemicals
produced at Sunoco's Toledo refinery. The Logistics segment operates crude oil
and refined product pipelines and engages in domestic lease crude oil acquisi-
tion and related trucking operations, crude oil and product terminalling and
petroleum transport operations. Logistics operations are conducted primarily in
the Northeast, Midwest and South Central regions of the United States. The Coke
segment makes high-quality coke at Sunoco's Indiana Harbor facility in East
Chicago, IN, and its Jewell facility in Vansant, VA and produces coal from
mines in Virginia.
Effective in 1998, the segment information is presented in accordance with
Statement of Financial Accounting Standards No. 131, "Disclosures about Seg-
ments of an Enterprise and Related Information" which requires segments to be
determined based upon how operations are managed and evaluated internally.
Prior period amounts have been restated to conform to the 1998 presentation.
41
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
MidAmerica
Northeast Northeast Marketing
(Millions of Dollars) Refining Marketing Chemicals Lubricants & Refining Logistics Coke Consolidated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Sales and other
operating revenue
(including consumer
excise taxes):
Unaffiliated customers $2,483 $2,826 $412 $1,002 $1,409 $ 56 $225 $8,413
- --------------------------------------------------------------------------------------------------------------------
Intersegment $1,300 $ -- $ -- $ 55 $ -- $115 $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
Operating profit $ 101 $ 107 $ 53 $ 19 $ 44 $ 62 $ 70 $ 456
Equity income (loss) -- -- 10 (1) 5 12 -- 26
Income tax expense (36) (38) (23) (6) (17) (22) (13) (155)
- --------------------------------------------------------------------------------------------------------------------
Profit contribution $ 65 $ 69 $ 40 $ 12 $ 32 $ 52 $ 57 327
- ----------------------------------------------------------------------------------------------------
Special items (after
taxes) 13*
Corporate expenses
(after taxes) (23)
Net financing expenses
and other (after taxes) (37)
---------
Net income $ 280
---------
Depreciation, depletion
and amortization $ 71 $ 69 $ 22 $ 28 $ 37 $ 13 $ 17 $ 257
- --------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 130 $ 74 $ 53** $ 39 $ 57 $ 39 $ 65 $ 457
- --------------------------------------------------------------------------------------------------------------------
Investments in and
advances to affiliated
companies $ -- $ -- $ 47 $ 9 $ 3 $ 21 $ -- $ 80
- --------------------------------------------------------------------------------------------------------------------
Identifiable assets $1,375 $ 817 $627 $ 561 $ 524 $441 $345 $4,849***
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Consists of a $38 million after-tax gain on settlement of insurance litiga-
tion, a $13 million tax benefit from change in tax election and a $38 mil-
lion after-tax provision for write-down of assets and other matters (Notes
5 and 14).
** Excludes $157 million acquisition of a phenol facility in Philadelphia
(Note 2).
*** After elimination of intersegment receivables. Identifiable assets also in-
clude Sunoco's $122 million consolidated deferred income tax asset and $113
million attributable to corporate activities of which $64 million relates
to a receivable from settlement of insurance litigation and $12 million to
real estate operations held for sale.
42
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
MidAmerica
Northeast Northeast Marketing
(Millions of Dollars) Refining Marketing Chemicals Lubricants & Refining Logistics Coke Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Sales and other
operating revenue
(including consumer
excise taxes):
Unaffiliated customers $3,476 $3,216 $424 $1,429 $1,712 $ 56 $151 $10,464
- ---------------------------------------------------------------------------------------------------------------------------
Intersegment $1,838 $-- $ -- $ 135 $ -- $112 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit $ 116 $ 113 $110 $ -- $ 60 $ 58 $ 45 $ 502
Equity income -- -- 9 1 2 13 -- 25
Income tax expense (41) (40) (42) -- (22) (20) (7) (172)
- ---------------------------------------------------------------------------------------------------------------------------
Profit contribution $ 75 $ 73 $ 77 $ 1 $ 40 $ 51 $ 38 355
- -----------------------------------------------------------------------------------------------------------
Provision for employee
terminations and
related costs (after
taxes) (Note 2) (21)
Corporate expenses
(after taxes) (23)
Net financing expenses
and other (after taxes) (48)
--------
Net income $ 263
--------
Depreciation, depletion
and amortization $ 79 $ 74 $ 14 $ 25 $ 42 $ 13 $ 12 $ 259
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 81 $ 46 $ 37 $ 22 $ 29 $ 32 $133 $ 380
- ---------------------------------------------------------------------------------------------------------------------------
Investments in and
advances to affiliated
companies $-- $-- $ 40 $ 11 $ 4 $ 22 $ -- $ 77
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets $1,347 $ 850 $389 $ 654 $ 618 $425 $262 $ 4,667*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* After elimination of intersegment receivables. Identifiable assets also in-
clude Sunoco's $113 million consolidated deferred income tax asset and $102
million attributable to corporate activities of which $43 million relates to
real estate operations held for sale.
43
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
MidAmerica
Northeast Northeast Marketing
(Millions of Dollars) Refining Marketing Chemicals Lubricants & Refining Logistics Coke Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Sales and other
operating revenue
(including consumer
excise taxes):
Unaffiliated customers $4,060 $3,473 $322 $1,702 $1,461 $ 50 $165 $11,233
- -------------------------------------------------------------------------------------------------------------------------------
Intersegment $1,957 $-- $-- $ 181 $-- $114 $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ (91) $ 2 $ 52 $(24) $(4) $ 57 $ 39 $ 31
Equity income -- -- 9 1 -- 14 -- 24
Income tax (expense)
benefit 31 (1) (21) 9 1 (23) (8) (12)
- -------------------------------------------------------------------------------------------------------------------------------
Profit contribution
(loss) $ (60) $ 1 $ 40 $(14) $(3) $ 48 $ 31 43
- -------------------------------------------------------------------------------------------------------------
Provision for write-down
of assets and other
matters (after taxes)
(Note 2) (254)
Corporate expenses
(after taxes) (23)
Net financing expenses
and other (after taxes) (47)
Income from discontinued
operations 166*
----------
Net loss $ (115)
----------
Depreciation, depletion
and amortization $ 90 $ 66 $ 13 $ 26 $ 41 $ 14 $ 17 $ 267
- -------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 148 $ 81 $ 57 $ 30** $ 36 $ 22 $ 34 $ 408
- -------------------------------------------------------------------------------------------------------------------------------
Investments in and
advances to affiliated
companies $-- $-- $ 31 $ 10 $ 11 $ 20 $-- $ 72
- -------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $1,477 $ 898 $324 $ 773 $ 710 $433 $140 $ 5,025***
- -------------------------------------------------------------------------------------------------------------------------------
* Consists of income from international production operations, including a $125 million after-tax gain resulting from the
divestment of this business on September 30, 1996 (Note 2).
** Excludes $74 million purchase of the Kendall lubricants business and related working capital (Note 2).
*** After elimination of intersegment receivables. Identifiable assets also include Sunoco's $152 million consolidated deferred
income tax asset and $177 million attributable to corporate activities of which $79 million relates to real estate operations
held for sale.
</TABLE>
Income tax amounts give effect to the tax credits earned by each segment. Over-
head expenses that can be identified with a segment have been included as de-
ductions in determining the segment's operating profit and profit contribution.
Net financing expenses and other consist principally of interest cost, debt and
other financing expenses less interest income and interest capitalized.
Intersegment revenues are accounted for based on the prices negotiated by the
segments which approximate market. Identifiable assets are those assets that
are utilized within a specific segment.
The following table sets forth Sunoco's sales to unaffiliated customers and
other operating revenue by product or service:
<TABLE>
<CAPTION>
(Millions of Dollars) 1998 1997 1996
- -------------------------------------------------
<S> <C> <C> <C>
Gasoline $2,993 $ 4,021 $ 4,097
Middle
distillates 1,623 2,276 2,209
Residual fuel 328 504 574
Petrochemicals 516 565 458
Lubricants 438 500 427
Other refined
products 350 438 571
Other products
and services 349 344 335
Resales of
purchased crude oil 32 102 785
Coke and coal 225 151 165
Consumer excise
taxes 1,559 1,563 1,612
- -------------------------------------------------
$8,413 $10,464 $11,233
- -------------------------------------------------
</TABLE>
44
<PAGE>
- -----------------------------------------------------------------
REPORT OF MANAGEMENT
To the Shareholders of Sunoco, Inc.
The accompanying consolidated financial statements of Sunoco, Inc. and its
subsidiaries ("Sunoco") 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, Sunoco's
financial position, results of operations and cash flows. Other financial in-
formation presented in this Annual Report is consistent with that in the finan-
cial statements.
To fulfill its responsibility for the financial statements, Sunoco 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.
Sunoco's independent auditors, Ernst & Young LLP, have expressed an opinion on
the fairness of management's financial statements by conducting their audits in
accordance with generally accepted auditing standards and issuing the report
presented on this page.
The Audit Committee of the Board of Directors is comprised of directors who
are not employees of Sunoco and meets a minimum of four times annually. It as-
sists the Board of Directors in discharging its duties relating to accounting
and reporting practices and internal controls, and it assesses the performance
and recommends the appointment of independent auditors. Both the independent
auditors and Sunoco's internal auditors have unrestricted access to the Commit-
tee to discuss audit findings and other financial matters.
/s/ ROBERT H. CAMPBELL
Robert H. Campbell
Chairman & Chief Executive Officer
/s/ JOHN G. DROSDICK
John G. Drosdick
President & Chief Operating Officer
/s/ THOMAS W. HOFMANN
Thomas W. Hofmann
Vice President & Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Sunoco, Inc.
We have audited the accompanying consolidated balance sheets of Sunoco, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our responsibil-
ity is to express an opinion on these financial statements based on our audits.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sunoco, Inc. and
subsidiaries at December 31, 1998 and 1997 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting prin-
ciples.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
February 11, 1999
45
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL FINANCIAL AND OPERATING INFORMATION (Unaudited)
REFINING AND MARKETING DATA
<TABLE>
<CAPTION>
REFINERY
UTILIZATION* 1998 1997 1996
- ---------------------------------------------
<S> <C> <C> <C>
Refinery crude
unit capacity at
December 31 697.0 692.0 777.0
- ---------------------------------------------
Total input to
crude units:
Crude oil 669.0 670.5 691.4
Other feedstocks 16.8 25.5 29.6
- ---------------------------------------------
685.8 696.0 721.0
- ---------------------------------------------
Refinery crude
unit capacity
utilized 98% 101% 93%
- ---------------------------------------------
</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. The crude oil inputs in 1997 prior to
March 6 and the reduced crude oil processed at this facility after the
reconfiguration (approximately 35,000 barrels per day) are excluded from the
table above. The reconfiguration has resulted in a significant reduction in
fuels production while fully maintaining the lubricants manufacturing capa-
bilities of the facility. Effective January 1, 1999, Sunoco's crude oil
processing capacity increased 33 thousand barrels per day.
<TABLE>
<CAPTION>
REFINED PRODUCT
SALES* 1998 1997 1996
- --------------------------------------------
<S> <C> <C> <C>
Gasoline:
Wholesale 164.6 170.2 167.0
Retail 208.6 201.8 205.7
Middle
distillates 241.3 248.8 219.9
Residual fuel 70.8 80.1 82.4
Petrochemicals 37.8 35.2 31.5
Lubricants** 17.9 18.8 18.0
Asphalt*** -- -- 18.3
Other** 57.9 54.7 52.0
- --------------------------------------------
798.9 809.6 794.8
- --------------------------------------------
</TABLE>
* Thousands of barrels daily to third parties.
** Reclassified to conform to the 1998 presentation.
*** Sunoco withdrew from the asphalt business in December 1996.
<TABLE>
<CAPTION>
REFINED PRODUCT
MARGIN INFORMATION* 1998 1997 1996
- -----------------------------------------------
<S> <C> <C> <C>
Average sales
price $21.42 $28.10 $28.65
Average cost of
products sold** 15.50 22.09 23.59
- -----------------------------------------------
$ 5.92 $ 6.01 $ 5.06
- -----------------------------------------------
</TABLE>
* Dollars per barrel
** Consists of crude oil, other purchased feedstocks and refined products.
<TABLE>
<CAPTION>
RETAIL GASOLINE
OUTLETS 1998 1997 1996
- ---------------------------------------------
<S> <C> <C> <C>
Direct outlets:
Company owned or
leased 1,323 1,334 1,366
Dealer owned 519 499 535
- ---------------------------------------------
Total direct
outlets 1,842 1,833 1,901
Distributor
outlets 1,879 1,956 1,905
- ---------------------------------------------
3,721 3,789 3,806
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THROUGHPUT PER
DIRECT OUTLET* 1998 1997** 1996**
- ------------------------------------------------
<S> <C> <C> <C>
Company owned or
leased 102.7 98.7 101.7
Dealer owned 77.7 76.2 77.3
- ------------------------------------------------
Average-total
direct outlets 95.8 92.4 94.6
- ------------------------------------------------
</TABLE>
* Thousands of gallons of gasoline monthly.
** Restated to conform to the 1998 presentation.
<TABLE>
<CAPTION>
PIPELINE
SHIPMENTS* 1998 1997 1996
- --------------------------------------------
<S> <C> <C> <C>
Crude oil 53.8 58.9 56.3
Refined products 30.6 29.7 28.8
- --------------------------------------------
</TABLE>
* Billions of barrel miles. Includes Sunoco's proportionate share of shipments
in pipelines in which it has an ownership interest.
COKEMAKING AND COAL DATA*
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------
<S> <C> <C> <C>
Production
(thousands of
tons):
Coke:
Indiana Harbor
operation 779** -- --
Jewell
operation 694 664 648
- ----------------------------------------------
1,473 664 648
- ----------------------------------------------
Coal:
Metallurgical 1,063 1,460 1,490
Steam 1,896 1,827 2,926
- ----------------------------------------------
2,959 3,287 4,416
- ----------------------------------------------
Sales (thousands
of tons):
Coke 1,361 701 621
- ----------------------------------------------
Coal:
Metallurgical 340 746 592
Steam 2,004 1,694 2,921
- ----------------------------------------------
2,344 2,440 3,513
- ----------------------------------------------
Average sales
price of coke
and coal (per
ton) $59.93 $47.84 $40.03
- ----------------------------------------------
Proven and
probable coal
reserves
(millions of
tons) at
December 31:
Metallurgical 113 114 115
Steam 8 10 17
- ----------------------------------------------
121 124 132
- ----------------------------------------------
Proven coal
reserves
(million of
tons) at
December 31 55 58 63
- ----------------------------------------------
Net acreage (in
thousands) at
December 31:
Developed 25 24 22
Undeveloped 101 102 103
- ----------------------------------------------
</TABLE>
* In early 1999, Sunoco divested its Shamrock steam coal operation located in
Kentucky. With this divestment, the Company ceased steam coal mining opera-
tions.
** Start-up of this operation commenced in the first quarter of 1998 with pro-
duction at full rated capacity of 1.3 million tons annually during the sec-
ond half of 1998.
46
<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL AND STOCK MARKET INFORMATION (Unaudited)
(Millions of Dollars Except Per Share Amounts and Common Stock Prices)
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- -------------------------------------
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) $2,086 $2,166 $2,107 $2,054 $2,733 $2,577 $2,634 $2,520
Gross profit* $197 $265 $234 $212 $205 $306 $302 $180
Net income $56** $92 $80*** $52+ $18++ $105 $111 $29
Earnings per share of
common stock:+++
Basic $.64 $1.05 $.86 $.56 $.10 $1.29 $1.39 $.25
Diluted $.58 $.97 $.85 $.55 $.10 $1.07 $1.14 $.25
Cash dividends per share
of preference stock# $.90 $.7516 $-- $-- $.90 $.90 $.90 $.90
Cash dividends per share
of common stock $.25 $.25 $.25 $.25 $.25 $.25 $.25 $.25
Common stock price##
--high $44.31 $43.19 $40.19 $37.25 $28.38 $31.94 $46.38 $44.38
--low $37.63 $36.38 $30.75 $29.50 $24.00 $24.00 $30.50 $35.56
--end of period $40.94 $38.81 $32.00 $36.06 $26.13 $31.00 $43.81 $42.06
- ---------------------------------------------------------------------------------------------------------
</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 $9 million after-tax benefit from the settlement of an income tax
dispute and a $5 million after-tax gain from a cash distribution made to Su-
noco by an insurance consortium in which the Company participates.
***Includes a $13 million tax benefit resulting from a change in tax election.
+Includes a $38 million after-tax provision for write-down of assets and other
matters and a $38 million after-tax gain on settlement of insurance litiga-
tion.
++Includes a $21 million after-tax provision for employee terminations and re-
lated costs.
+++For the first and fourth quarters of 1997, the diluted per share amounts are
equal to the basic per share amounts since the assumed redemption of prefer-
ence shares would not have been dilutive during those periods.
#On May 28, 1998, the Company redeemed all of its outstanding shares of prefer-
ence stock. The cash dividends per share of preference stock for the second
quarter of 1998 represent the accrued dividends paid in connection with the
redemption.
##The Company's common stock is principally traded on the New York Stock Ex-
change, Inc. under the symbol "SUN." The Company had approximately 33,000
holders of record of common stock as of January 29, 1999.
47
<PAGE>
Exhibit 21
50.10% DECEMBER 31, 1998
SUNOCO, INC.
SUBSIDIARIES OF THE REGISTRANT
COMPANY NAME: INC./REG.
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
- ---Sun Transport, Inc. DE
Mascot Petroleum Company, Inc. DE
Mohawk Valley Oil, Inc. NY
- ---Marcy Valley Oil Company, Inc. DE
Radnor Corporation PA
- ---Radnor/Argyle Corporation DE
- ---Radnor/Beachway Corporation DE
- ---Radnor/California Service Corporation DE
- ---Radnor/Credit Corporation DE
- ---Radnor/Delaware Avenue Corporation PA
- ---Radnor Development Corporation DE
- ---Radnor/Dutton Mill Corporation PA
- ---Radnor/Edgewater, Inc. DE
- ---Radnor/Fulton Industrial Corporation DE
- ---Radnor/Grand Oaks Corporation DE
- ---Radnor/Green Meadows Corporation DE
- ---Radnor/Investment Corporation DE
- ---Radnor/Island Corporation DE
- ---Radnor/Lakeside Corporation DE
- ---Radnor/Loudoun Corporation DE
- ---Radnor/Main St. Corporation DE
- ---Radnor/Marina Corporation PA
- ---Radnor/Murrieta Corporation DE
- ---Radnor/North Corporation DE
- ---Radnor/Parke East Corporation DE
- ---Radnor/Pier 5 Corporation PA
- ---Radnor/Plantation Corporation DE
- ------Radnor Realty, Inc. DE
- ---Radnor/Plymouth Corporation PA
- ---I Radnor/Plymouth Investment Company DE
- ------Plymouth Building I Business Trust PA
<PAGE>
COMPANY NAME: INC./REG.
- ---III Radnor/Plymouth Investment Company DE
- ---Radnor/Sarasota Corporation DE
- ------Laurel Oak Realty Corporation DE
- ---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 Suncoast 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
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 & Coke Company DE
- ---Bearcat Coke Company DE
- ---Elk River Minerals Corporation DE
- ---Indiana Harbor Coke Company DE
- ---Indiana Harbor Coke Corporation IN
- ---Jewell Coke Company DE
- ---Jewell Resources Corporation VA
- ------Dominion Coal Corporation VA
- ------Jewell Coal & Coke Company, Inc. VA
<PAGE>
COMPANY NAME: INC./REG.
- ------Jewell Smokeless Coal Corporation VA
- ------Oakwood Red Ash Coal Corporation VA
- ------Vansant Coal Corporation VA
- ---Shamrock Coal Company, Incorporated DE
Sun Coke Company DE
Sun Company, Inc. DE
(Name Saver Company)
Sun Company, Inc. PA
(Name Saver Company)
Sun Executive Services Company PA
Sun Geologic and Seismic, Inc. DE
Sun Ocean Ventures, Inc. DE
Sun Oil Argentina Limited BA
Sun Oil Argentina Limited S.A. Arg.
Sun Oil Company DE
(Name Saver Company)
Sun Oil Company (U.K.) Ltd. DE
Sun Oil Export Company 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
- ------National Sun Gas Company, Inc. OK
- ---Sun Pipe Line Services Co. DE
<PAGE>
COMPANY NAME: INC./REG.
Sun Refining and Marketing Company DE
(Name Saver Company)
Sun Services Corporation PA
Sun Ship, Inc. PA
- ---Lesley Corporation DE
Sun-Del Services, Inc. DE
Sunoco, 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
Sunoco Overseas, Inc. DE
- ---Lugrasa, S.A. PN
Sunoco Science and Technological Services, Inc. NY
(Name Saver Company)
The Claymont Investment Company DE
Triad Carriers, Inc. PA
- ---BBQ, Inc. PA
- ---Carrier Systems Motor Freight, Inc. DE
<PAGE>
Exhibit 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Sunoco, Inc. of our report dated February 11, 1999, included in the
1998 Annual Report to Shareholders of Sunoco, Inc.
Our audits also included the financial statement schedule of Sunoco, Inc.
for the years ended December 31, 1998, 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 11, 1999 with respect
to the consolidated financial statements of Sunoco, Inc. incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1998, in the following registration statements:
Sunoco, Inc. Capital Accumulation Plan Form S-8 Registration Statement
(Registration No. 33-9931);
Sunoco, Inc. Long-Term Performance Enhancement Plan Form S-8 Registration
Statement (Registration No. 333-30941);
Sunoco, Inc. Long-Term Incentive Plan Form S-8 Registration Statement
(Registration No. 33-10055);
Sunoco, Inc. and Subsidiaries Stock Supplement Plan Form S-8 Registration
Statement (Registration No. 2-53283);
Sunoco, Inc. Executive Long-Term Stock Investment Plan Form S-8
Registration Statement (Registration No. 33-44059);
Sunoco, Inc. Employee Option Plan Form S-8 Registration Statement
(Registration No. 33-49275);
Sunoco, Inc. Form S-3 Registration Statement (Registration No. 33-53717);
<PAGE>
Sunoco, Inc. Dividend Reinvestment Plan Form S-3 Registration Statement
(Registration No. 33-39834); and
Sunoco, Inc. Dividend Reinvestment Plan Form S-3 Registration Statement
(Registration No. 33-52615).
/s/ ERNST & YOUNG LLP
- ---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
March 5, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned officers and/or directors
of Sunoco, Inc., a Pennsylvania corporation, do and each of them does, hereby
constitute and appoint Thomas W. Hofmann, Jack L. Foltz and Joseph P. Krott, 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 Sunoco, Inc. Form 10-K for the year ending December 31,
1998 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.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
this 4th day of March 1999.
/s/ ROBERT H. CAMPBELL /s/ THOMAS W. HOFMANN
Robert H. Campbell Thomas W. Hofmann
Chairman & Chief Executive Officer Vice President & Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ RAYMOND E. CARTLEDGE /s/ JAMES G. KAISER
Raymond E. Cartledge James G. Kaiser
Director Director
/s/ ROBERT E. CAWTHORN /s/ ROBERT D. KENNEDY
Robert E. Cawthorn Robert D. Kennedy
Director Director
/s/ JOHN G. DROSDICK /s/ JOSEPH P. KROTT
John G. Drosdick Joseph P. Krott
President & Chief Operating Officer Comptroller
(Principal Accounting Officer)
/s/ MARY JOHNSTON EVANS /s/ R. ANDERSON PEW
Mary Johnston Evans R. Anderson Pew
Director Director
/s/ THOMAS P. GERRITY /s/ WILLIAM F. POUNDS
Thomas P. Gerrity William F. Pounds
Director Director
/s/ ROSEMARIE B. GRECO /s/ G. JACKSON RATCLIFFE
Rosemarie B. Greco G. Jackson Ratcliffe
Director Director
/s/ ALEXANDER B. TROWBRIDGE
Alexander B. Trowbridge
Director
<PAGE>
EXHIBIT 24.2
I, Ann C. Mule', Secretary of Sunoco, 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 Sunoco, Inc., duly
called and held on March 4, 1999, 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 Sunoco, Inc. Annual Report to the Securities and
Exchange Commission on Form 10-K, for the year ended December 31, 1998, 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 Chairman and Chief Executive
Officer, the President and Chief Operating Officer, the 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 4, 1999
Philadelphia, Pennsylvania
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 546
<ALLOWANCES> 9
<INVENTORY> 483
<CURRENT-ASSETS> 1,180
<PP&E> 6,248
<DEPRECIATION> 2,902
<TOTAL-ASSETS> 4,849
<CURRENT-LIABILITIES> 1,384
<BONDS> 823
<COMMON> 132
0
0
<OTHER-SE> 1,382
<TOTAL-LIABILITY-AND-EQUITY> 4,849
<SALES> 8,413
<TOTAL-REVENUES> 8,583
<CGS> 7,205
<TOTAL-COSTS> 7,205
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 389
<INCOME-TAX> 109
<INCOME-CONTINUING> 280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280
<EPS-PRIMARY> 3.09
<EPS-DILUTED> 2.95
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 67 33
<SECURITIES> 0 0
<RECEIVABLES> 872 677
<ALLOWANCES> 8 6
<INVENTORY> 476 431
<CURRENT-ASSETS> 1,535 1,248
<PP&E> 5,829 5,838
<DEPRECIATION> 2,785 2,774
<TOTAL-ASSETS> 5,025 4,667
<CURRENT-LIABILITIES> 1,817 1,464
<BONDS> 835 824
<COMMON> 130 132
0 0
748 723
<OTHER-SE> 560 607
<TOTAL-LIABILITY-AND-EQUITY> 5,025 4,667
<SALES> 11,233 10,464
<TOTAL-REVENUES> 11,300 10,531
<CGS> 10,330<F1> 9,173<F1>
<TOTAL-COSTS> 10,330<F1> 9,173<F1>
<OTHER-EXPENSES> 704<F1> 363<F1>
<LOSS-PROVISION> 8 6
<INTEREST-EXPENSE> 79 78
<INCOME-PRETAX> (408) 385
<INCOME-TAX> (127) 122
<INCOME-CONTINUING> (281) 263
<DISCONTINUED> 166 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (115) 263
<EPS-PRIMARY> (2.17) 3.03
<EPS-DILUTED> (2.17) 2.70
<FN>
<F1> RESTATED TO CONFORM TO THE 1998 PRESENTATION.
</FN>
</TABLE>
