2002
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER 000-49987
CONOCOPHILLIPS
(Exact name of registrant as specified in its charter)
DELAWARE 01-0562944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 NORTH DAIRY ASHFORD
HOUSTON, TX 77079
(Address of principal executive offices)
Registrant's telephone number, including area code: 281-293-1000
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------------------ ------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Preferred Share Purchase Rights Expiring June 30, 2012 New York Stock Exchange
6 3/8% Notes due 2009 New York Stock Exchange
6.65% Notes due March 1, 2003 New York Stock Exchange
6.65% Debentures due July 15, 2018 New York Stock Exchange
7% Debentures due 2029 New York Stock Exchange
7.125% Debentures due March 15, 2028 New York Stock Exchange
7.20% Notes due November 1, 2023 New York Stock Exchange
7.92% Notes due April 15, 2023 New York Stock Exchange
8.5% Notes due 2005 New York Stock Exchange
8.75% Notes due 2010 New York Stock Exchange
9 3/8% Notes due 2011 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No | |
Excluding shares held by affiliates, the registrant had 672,131,287 shares of
Common Stock, $.01 Par Value, outstanding at February 28, 2003. The aggregate
market value of common stock held by non-affiliates of the registrant was
$34,077,056,251 as of February 28, 2003. The registrant, solely for the purpose
of this required presentation, has deemed its Board of Directors and the
Compensation and Benefits Trust to be affiliates, and deducted their
stockholdings of 6,156,952 and 26,785,094 shares, respectively, in determining
the aggregate market value.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 6, 2003 (Part III)
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TABLE OF CONTENTS
PART I
Item Page
- ---- ----
1 and 2. Business and Properties ............................................. 1
Corporate Structure and Current Developments .................... 1
Segment and Geographic Information .............................. 2
Exploration and Production (E&P) ............................ 2
Midstream ................................................... 17
Refining and Marketing (R&M) ................................ 18
Chemicals ................................................... 25
Emerging Businesses ......................................... 27
Competition ..................................................... 28
General ......................................................... 29
3. Legal Proceedings ................................................... 29
4. Submission of Matters to a Vote of Security Holders ................. 32
Executive Officers of the Registrant ................................ 32
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 34
6. Selected Financial Data ............................................. 35
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 36
7a. Quantitative and Qualitative Disclosures About Market Risk .......... 78
8. Financial Statements and Supplementary Data ......................... 82
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 174
PART III
10. Directors and Executive Officers of the Registrant .................. 175
11. Executive Compensation .............................................. 175
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ................................. 175
13. Certain Relationships and Related Transactions ...................... 175
14. Controls and Procedures ............................................. 176
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .... 176
PART I
Unless otherwise indicated, "the company" and "ConocoPhillips" are used in this
report to refer to the businesses of ConocoPhillips and its consolidated
subsidiaries. "Conoco" and "Phillips" are used in this report to refer to the
individual companies prior to the merger date of August 30, 2002. Items 1 and 2,
Business and Properties, contain forward-looking statements including, without
limitation, statements relating to the company's plans, strategies, objectives,
expectations, intentions, and resources, that are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. The
words "forecasts," "intends," "believes," "expects," "plans," "scheduled,"
"anticipates," "estimates," and similar expressions identify forward-looking
statements. The company does not undertake to update, revise or correct any of
the forward-looking information. Readers are cautioned that such forward-looking
statements should be read in conjunction with the company's disclosures under
the heading: "CAUTIONARY STATEMENT FOR THE PURPOSES OF THE `SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995," beginning
on page 76.
ConocoPhillips files annual, quarterly and current reports, proxy statements and
other information with the U.S. Securities and Exchange Commission (SEC). These
filings are available free of charge through the company's internet website at
www.conocophillips.com as soon as reasonably practicable after the company
electronically files such material with, or furnishes it to, the SEC.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
CORPORATE STRUCTURE AND CURRENT DEVELOPMENTS
ConocoPhillips is a major, integrated, global energy company. ConocoPhillips was
incorporated in the state of Delaware on November 16, 2001, in connection with,
and in anticipation of, the merger between Conoco Inc. (Conoco) and Phillips
Petroleum Company (Phillips). The merger between Conoco and Phillips (the
merger) was consummated on August 30, 2002, at which time Conoco and Phillips
combined their businesses by merging with separate acquisition subsidiaries of
ConocoPhillips. As a result of the merger, Conoco and Phillips each became
wholly owned subsidiaries of ConocoPhillips. For accounting purposes, Phillips
was designated as the acquirer of Conoco and ConocoPhillips was treated as the
successor of Phillips. Accordingly, Phillips' operations and results are
presented in this Form 10-K for all periods prior to the close of the merger.
From the merger date forward, the operations and results of ConocoPhillips
reflect the combined operations of the two companies. Subsequent to the merger,
Conoco was renamed ConocoPhillips Holding Company, and Phillips was renamed
ConocoPhillips Company, but for ease of reference, those companies will be
referred to respectively in this document as Conoco and Phillips.
ConocoPhillips' business is organized into five operating segments:
1) Exploration and Production (E&P)--This segment explores for and
produces crude oil, natural gas, and natural gas liquids worldwide,
and mines oil sands to extract bitumen and upgrade it into synthetic
crude oil.
2) Midstream--This segment gathers and processes natural gas produced
by ConocoPhillips and others, and fractionates and markets natural
gas liquids, primarily in the United States, Canada and Trinidad.
The Midstream segment includes ConocoPhillips' 30.3 percent equity
investment in Duke Energy Field Services, LLC, a joint venture with
Duke Energy.
1
3) Refining and Marketing (R&M)--This segment refines, markets and
transports crude oil and petroleum products, primarily in the United
States, Europe and Asia.
4) Chemicals--This segment manufactures and markets petrochemicals and
plastics on a worldwide basis. The Chemicals segment consists
primarily of ConocoPhillips' 50 percent equity investment in Chevron
Phillips Chemical Company LLC, a joint venture with ChevronTexaco
Corporation.
5) Emerging Businesses--This segment encompasses the development of new
businesses beyond the company's traditional operations. Emerging
Businesses includes new technologies related to carbon fibers,
natural gas conversion into clean fuels and related products
(gas-to-liquids), fuels technology, and power generation.
At December 31, 2002, ConocoPhillips employed approximately 57,000 people in
over 40 countries.
SEGMENT AND GEOGRAPHIC INFORMATION
For operating segment information and geographic information, see Note
26--Segment Disclosures and Related Information in the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
EXPLORATION AND PRODUCTION (E&P)
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This segment explores for and produces crude oil, natural gas, and natural gas
liquids on a worldwide basis. It also mines deposits of oil sands in Canada to
extract the bitumen and upgrade it into a synthetic crude oil. At December 31,
2002, ConocoPhillips' E&P operations were producing in the United States; the
Norwegian and U.K. sectors of the North Sea; Canada; Nigeria; Venezuela; the
Timor Sea; offshore Australia and China; Indonesia; the United Arab Emirates;
Vietnam; Russia; and Ecuador.
The information listed below appears in the supplemental oil and gas operations
disclosures on pages 146 through 163 and is incorporated herein by reference.
o Proved worldwide crude oil, natural gas and natural gas liquids
reserves;
o Net production of crude oil, natural gas and natural gas liquids;
o Average sales prices of crude oil, natural gas and natural gas
liquids;
o Average production costs per barrel of oil equivalent;
o Net wells completed, wells in progress and productive wells; and
o Developed and undeveloped acreage.
In 2002, ConocoPhillips' worldwide crude oil production, including its share of
equity affiliates' production, averaged 682,000 barrels per day, a 21 percent
increase from 563,000 barrels per day in 2001.
2
During the year, 371,000 barrels per day of crude oil was produced in the United
States, down slightly from 373,000 barrels per day in 2001. The decrease in U.S.
production was due to lower production in Alaska, reflecting normal field
declines, as well as operating interruptions during the year, partially offset
by increased production volumes following the merger. Foreign crude oil
production volumes increased 64 percent in 2002, primarily as a result of the
merger.
E&P's worldwide production of natural gas liquids averaged 46,000 barrels per
day in 2002, compared with 35,000 barrels per day in 2001. U.S. production
accounted for 32,000 barrels per day in 2002, compared with 26,000 barrels per
day in 2001. The increases were primarily the result of the merger.
The company's worldwide production of natural gas averaged 2,047 million cubic
feet per day in 2002, compared with 1,335 million cubic feet per day in 2001.
U.S. natural gas production increased 20 percent in 2002, while foreign natural
gas production increased 126 percent. The increases were primarily due to the
merger.
ConocoPhillips' worldwide annual average crude oil sales price increased 1
percent in 2002, to $24.07 per barrel. E&P's annual average worldwide natural
gas sales price decreased 14 percent from 2001, to $2.77 per thousand cubic
feet.
The company's finding and development costs in 2002 were $5.57 per barrel of oil
equivalent, compared with $5.97 in 2001. Over the last five years,
ConocoPhillips' finding and development costs averaged $4.31 per barrel of oil
equivalent. Finding and development costs per barrel of oil equivalent is
calculated by dividing the net reserve change for the period (excluding
production and sales) into the costs incurred for the period, as reported in the
"Costs Incurred" disclosure required by Statement of Financial Accounting
Standards No. 69, "Disclosures about Oil and Gas Producing Activities."
At December 31, 2002, ConocoPhillips, including its share of equity affiliates,
held a combined 101.9 million net developed and undeveloped acres, compared with
25.8 million net acres at year-end 2001. The increase in acreage was primarily
the result of the merger. At year-end 2002, the company held acreage in 29
countries (counting the Timor Gap Zone of Cooperation between Australia and East
Timor as a single country for this purpose).
E&P--U.S. OPERATIONS
In 2002, U.S. E&P operations contributed 55 percent of ConocoPhillips' worldwide
liquids production and 54 percent of its worldwide natural gas production. The
company's U.S. operations are managed in two divisions: Alaska and the Lower 48
States.
ALASKA
ConocoPhillips is a major producer of crude oil on Alaska's North Slope, and
produces natural gas in the Cook Inlet. A brief summary of the major Alaskan
producing fields, transportation infrastructure, and exploration activities
follows.
Greater Prudhoe Area
The Greater Prudhoe Area is comprised of the Prudhoe Bay field and satellites,
as well as the Greater Point McIntyre Area fields. In 2002, an agreement was
reached among all owners to align ownership across all fields within the Greater
Prudhoe Area. ConocoPhillips now holds a 36.1 percent interest in all fields
within the Greater Prudhoe Area, all of which are operated by BP p.l.c. (BP).
3
The Prudhoe Bay field is the largest oil field on Alaska's North Slope. It is
the site of a large waterflood and enhanced oil recovery project, as well as a
gas processing plant that processes and re-injects more than 8 billion cubic
feet of natural gas daily. ConocoPhillips' net crude oil production from the
Prudhoe Bay field averaged 130,800 barrels per day in 2002, compared with
144,900 barrels per day in 2001, while natural gas liquids production averaged
24,100 barrels per day in 2002, compared with 25,000 barrels per day in 2001.
Prudhoe Bay satellite fields Aurora, Borealis, Polaris, and Midnight Sun
produced 12,700 net barrels per day of crude oil in 2002 compared with 3,400 net
barrels per day in 2001. The newly developed Borealis satellite field
contributed the biggest share in 2002, producing 7,200 net barrels per day
compared with 1,100 net barrels per day in 2001. All Prudhoe Bay satellite
fields are produced through Prudhoe Bay production facilities.
The Greater Point McIntyre Area (GPMA) is made up of the Point McIntyre, Niakuk,
Lisburne, West Beach, and North Prudhoe Bay State fields. All fields within the
GPMA are produced through the Lisburne Production Center. Net crude oil
production for GPMA averaged 19,800 barrels per day in 2002, compared with
26,000 barrels per day in 2001. The bulk of this production came from the Point
McIntyre field where an enhanced oil recovery project began in 2000.
Greater Kuparuk Area
ConocoPhillips operates the Greater Kuparuk Area, which is comprised of the
Kuparuk field and four satellite fields: Tarn, Tabasco, Meltwater and West Sak.
ConocoPhillips holds a 55.2 percent interest in the Kuparuk field, located about
40 miles west of Prudhoe Bay. Field installations include three central
production facilities that separate oil, gas and water. The gas is either used
for fuel or compressed for reinjection. ConocoPhillips' net crude oil production
from Kuparuk averaged 79,000 barrels per day in 2002, compared with 91,400
barrels per day in 2001. The decrease was due to normal field declines.
The Greater Kuparuk Area's satellite fields of Tarn, Tabasco and Meltwater
produced 21,300 net barrels per day of crude oil in 2002, compared with 12,600
net barrels per day in 2001. The increase was due to a full year's production
from Meltwater, which came online in late 2001. ConocoPhillips holds a 55.4
percent interest in these satellite fields.
In late 2002, ConocoPhillips announced the startup of Kuparuk field Drill Site
3S (Palm). This drill site will develop the oil accumulation discovered by the
Palm exploration wells drilled during the winter 2001 season. The Palm oil
accumulation effectively extends the Kuparuk field on Alaska's North Slope
approximately three miles to the northwest. The drill site produced crude oil at
a 6,000 net-barrel-per-day rate following startup and is expected to reach peak
production in 2004 following additional development drilling. Production from
Palm is processed through existing Kuparuk field facilities.
The Greater Kuparuk Area also includes the West Sak heavy-oil field.
ConocoPhillips is studying and applying new ways to develop this heavy-oil
field. In 2002, West Sak produced 3,300 net barrels of heavy oil per day,
compared with 2,700 net barrels per day in 2001. ConocoPhillips holds a 55.4
percent interest in this field.
Alpine Field
The Alpine field, located west of the Kuparuk field, began production in
November 2000. In 2002, the field produced at a net rate of 63,400 barrels of
oil per day, compared with 57,800 barrels per day in 2001. ConocoPhillips is the
operator and holds a 78 percent interest in Alpine.
4
In January 2003, ConocoPhillips and the U.S. Department of Interior Bureau of
Land Management signed a Memorandum of Understanding that provides for
completion of an Environmental Impact Statement (EIS) for five prospective
satellites, Fiord, Nanuq, Lookout, Spark, and Alpine West, as well as future
potential developments in the northeast corner of the National Petroleum
Reserve-Alaska (NPR-A) and near the Alpine oil field. A final decision to move
forward on these projects will be made after the EIS is completed and the
appropriate permits have been granted.
Cook Inlet
ConocoPhillips' assets in Alaska include the North Cook Inlet field, the Beluga
natural gas field, and the Kenai liquefied natural gas facility.
ConocoPhillips has a 100 percent interest in the North Cook Inlet field. Net
production in 2002 averaged 125 million cubic feet per day. All of the
production from the North Cook Inlet field is used to supply ConocoPhillips'
share of gas to the Kenai liquefied natural gas plant.
ConocoPhillips' interest in the Beluga River field is 33 percent. Net production
averaged 41 million cubic feet per day in 2002. Gas from the Beluga River field
is sold to local utilities and industrial consumers.
ConocoPhillips owns a 70 percent interest in the Kenai liquefied natural gas
plant, which supplies liquefied natural gas to two utility companies in Japan.
Utilizing two leased tankers, the company transports the liquefied natural gas
to Japan, where it is reconverted to dry gas at the receiving terminal.
ConocoPhillips sold 44.4 billion cubic feet of liquefied natural gas to Japan in
2002, compared with 46.1 billion cubic feet in 2001.
Exploration
ConocoPhillips holds more than one million net exploration acres in Alaska.
ConocoPhillips drilled or participated in eight exploratory wells during 2002,
on locations near Kuparuk, Prudhoe Bay and Alpine, as well as in the NPR-A and
the Cook Inlet. Of the eight wells, two are moving forward with development
plans and one is pending further appraisal. In May 2001, ConocoPhillips
announced the first discoveries in the NPR-A since the area was reopened to
exploration in 1999. ConocoPhillips plans to drill or participate in four
exploration wells in Alaska during 2003.
Transportation
ConocoPhillips transports the petroleum liquids it produces on the North Slope
to market through the Trans-Alaska Pipeline System (TAPS), an 800-mile pipeline,
marine terminal and spill response and escort vessel system that ties the North
Slope of Alaska to the port of Valdez in south-central Alaska. While ownership
interest in TAPS was 26.7 percent in 2002, regulatory approval was received in
early 2003 to purchase an additional 1.5 percent interest from Amerada Hess,
thereby increasing ConocoPhillips ownership in TAPS to 28.2 percent. The
purchase was effective January 24, 2003.
In the second quarter of 2001, ConocoPhillips and the five other owners of TAPS
completed and filed state and federal applications for renewal of the pipeline's
right-of-way permit through 2034. The State of Alaska approved the 30-year
right-of-way renewal in November 2002 and U.S. federal approval was received in
January 2003.
TAPS was shut down in early November 2002 following a major earthquake in
Alaska. There were no associated oil leaks, spills or pipeline ruptures. TAPS
remained shut down for approximately three days and was restarted after all
necessary inspections, leak testing and temporary repairs were made.
5
ConocoPhillips' ownership of stock in the Alyeska Pipeline Service Company
increased from 26.7 percent in 2002 to 28.2 percent as a result of the January
2003 purchase of an additional interest from Amerada Hess. Alyeska constructed
and operates the pipeline system on behalf of the TAPS owners. ConocoPhillips
also has ownership interests in the Alpine, Kuparuk and Oliktok pipelines on the
North Slope. In 2002, ConocoPhillips sold its 20 percent ownership interest in
the Cook Inlet Pipeline Company.
ConocoPhillips, BP and ExxonMobil agreed in late 2000 to jointly evaluate a gas
pipeline project to deliver natural gas from Alaska's North Slope to the Lower
48. The three co-owners shared equally in the costs and governance of the
program. ConocoPhillips does not believe the project provides the desired return
on investment in the current economic environment, given the significant size
and risk associated with the project. However, ConocoPhillips continues to
search for a solution that will allow this energy resource to be produced.
ConocoPhillips' wholly owned subsidiary, Polar Tankers Inc., manages the marine
transportation of the company's Alaska North Slope production. Polar Tankers is
based in Long Beach, California, and operates five ships in the Alaskan trade,
chartering additional third party operated vessels as necessary. In 2001, Polar
Tankers brought the Polar Endeavour into service, and the Polar Resolution was
brought into service in 2002. After the Polar Endeavour was placed in service,
ConocoPhillips entered into a transaction to sell and subsequently lease back
the vessel for 10 years. These 125,000-deadweight-ton, double-hulled crude oil
tankers are the first two of five Endeavour Class tankers that ConocoPhillips
plans to add to its Alaskan-trade fleet over a five-year period. The third
tanker, the Polar Discovery, is scheduled to enter the fleet in 2003.
LOWER 48 STATES
ConocoPhillips' operations in the Lower 48 States are principally located in the
following areas:
o Offshore: Gulf of Mexico;
o Onshore: Various trends in Texas, New Mexico, Oklahoma, Louisiana,
Utah, Colorado, and Wyoming
Gulf of Mexico
ConocoPhillips' current portfolio of producing properties in the Gulf of Mexico
includes three fields operated by ConocoPhillips and 24 operated by other
companies. At December 31, 2002, ConocoPhillips had 14 leases in production or
under development in the deepwater Gulf of Mexico.
ConocoPhillips held interests in 391 lease blocks in the deepwater Gulf of
Mexico as of December 31, 2002. In 2003, ConocoPhillips expects to participate
in four exploration wells in the deepwater Gulf of Mexico.
ConocoPhillips' deepwater Gulf of Mexico drilling program utilizes the Deepwater
Pathfinder, a drillship that is owned by a joint venture between Transocean
Sedco Forex Inc. and ConocoPhillips. The vessel, which went into service in
January 1999, is capable of drilling in water depths of up to 10,000 feet.
ConocoPhillips holds a 16 percent interest in the Ursa field, which is operated
by Shell. The Ursa tension-leg platform was installed in late 1998 in
approximately 3,900 feet of water, with first production occurring in March
1999. As Ursa was owned by Conoco before the merger, only the production from
August 30 through December 31, 2002, is included in ConocoPhillips' 2002
statistics and financial results. Production during this period averaged a net
12,500 barrels per day of liquids and 16 million cubic feet per day of gas.
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The Princess field, which is adjacent to the Ursa field, was discovered in 2000.
Because of Princess' proximity to Ursa, petroleum liquids and natural gas
produced from Princess can be processed and transported via the Ursa
infrastructure already in place. ConocoPhillips owns a 16 percent interest in
Princess. First production from Princess began in late 2002 with the completion
of a well on the Ursa platform.
ConocoPhillips operates and holds a 75 percent interest in the Garden Banks 783
and 784 leases which contain the Magnolia field. First production from Magnolia
is scheduled for late 2004.
ConocoPhillips owns a non-operated interest of 18.2 percent in the K2 discovery.
K2 was discovered in 1999 and appraisal continued in 2002. Further appraisal and
preliminary development operations are scheduled for 2003.
Onshore
ConocoPhillips is a large natural gas producer in three major gas producing
trends: the Lobo trend in south Texas, the San Juan Basin of New Mexico, and the
Guymon-Hugoton trend in the panhandles of Texas and Oklahoma. At December 31,
2002, the company held over 2.2 million net acres of oil and gas leases in these
trends. Combined production from the date of the merger through year-end from
these three areas averaged a net 948 million cubic feet per day of natural gas.
E&P--THE NORTH SEA
In 2002, E&P operations in the North Sea contributed 28 percent of
ConocoPhillips' worldwide liquids production and 29 percent of its worldwide
natural gas production. The company's North Sea assets are principally located
in the Norwegian and U.K. sectors.
NORWAY
The Ekofisk Area is located approximately 200 miles offshore Norway in the
center of the North Sea. The Ekofisk Area is comprised of four producing fields:
Ekofisk, Eldfisk, Embla and Tor. Ekofisk serves as a hub for petroleum
operations in the area, with surrounding developments utilizing the
infrastructure. Net production in 2002 from the Ekofisk Area was 127,000 barrels
of liquids per day and 133 million cubic feet of natural gas per day.
ConocoPhillips is the operator and has a 35.1 percent interest in Ekofisk. The
production license for the Ekofisk Area runs until 2028.
ConocoPhillips also has ownership interests in several other producing fields in
the Norwegian North Sea, the more significant of which include a 24.3 percent
interest in the Heidrun field, a 10.3 percent interest in the Statfjord field,
and a 1.6 percent interest in the Troll field.
Production from these, and other fields in the Norwegian sector of the North Sea
acquired in the merger, averaged a net 105,000 barrels of liquids per day and
112 million cubic feet of natural gas per day for the last four months of 2002.
UNITED KINGDOM
ConocoPhillips is the largest equity owner in and the joint operator of the
Britannia natural gas/condensate field. ConocoPhillips holds a 58.7 percent
interest in Britannia. First production from Britannia occurred in August 1998.
ConocoPhillips' proved reserves in Britannia included approximately 1.1 trillion
cubic feet of natural gas and 34 million barrels of petroleum liquids at
December 31, 2002. For the last four months of 2002, production from Britannia
averaged a net 13,000 barrels per day of liquids and 336 million cubic feet per
day of natural gas.
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ConocoPhillips operates and holds a 36.5 percent interest in the Judy/Joanne
fields which together comprise J-Block. Additionally, the Jade field began
production in the first quarter of 2002 from a wellhead platform and pipeline
tied to the J-Block facilities. ConocoPhillips is the operator and holds a 32.5
percent interest in Jade. Together, these fields produced a net 14,000 barrels
of liquids per day and 96 million cubic feet of natural gas per day in 2002.
ConocoPhillips continues to supply gas from J-Block to Enron Capital and Trade
Resources Limited (Enron Capital), which was placed in Administration in the
United Kingdom on November 29, 2001. ConocoPhillips has been paid all amounts
currently due and payable by Enron Capital, including outstanding amounts due
for the period prior to the appointment of the Administrator. The company
believes that Enron Capital will continue to pay the amounts due for gas
supplied by ConocoPhillips in accordance with the terms of the gas sales
agreement. ConocoPhillips does not currently expect that it will have to curtail
sales of gas under the gas sales agreement or shut in production as a result of
the Administration of Enron Capital. However, in the event Enron Capital is no
longer under Administration, there may be additional risk of production
constraints.
ConocoPhillips has various ownership interests in 15 producing gas fields in the
southern North Sea that were acquired in the merger. These fields mostly feed
into the ConocoPhillips-operated Theddlethorpe gas processing facility through
three ConocoPhillips-operated pipeline systems. Production for the last four
months of 2002 averaged a net 357 million cubic feet per day of natural gas. The
investment in the Viscount development was charged to impairment expense in the
fourth quarter of 2002 due to disappointing development drilling results.
In September 2002, ConocoPhillips began production from the Hawksley field in
the southern sector of the U.K. North Sea. The Hawksley discovery well, 44/17
a-6y, was completed in July 2002 in one of five natural gas reservoirs currently
being developed by ConocoPhillips as a single, unitized project. The other
reservoirs are McAdam, Murdoch K., Boulton, and Watt. Collectively, they are
known as CMS3 due to their utilization of the production and transportation
facilities of the ConocoPhillips-operated Caister Murdoch System (CMS).
ConocoPhillips is the operator of CMS3 and holds a 59.5 percent interest.
ConocoPhillips has a 24 percent interest in the Clair field development. Net
proved reserves are 24 million barrels of petroleum liquids. The Clair
development is comprised of a conventional steel jacket structure with minimum
manned facilities topside. First production from Clair is targeted for 2004.
ConocoPhillips is also assessing the development of the Callanish and Brodgar
fields. These new satellite development projects would be tied back to the
Britannia facility. Appraisal wells for both discoveries were drilled in 2000.
ConocoPhillips has a 75 percent interest in the Brodgar field and an 83.5
percent interest in the Callanish field.
ConocoPhillips also has ownership interests in several other producing fields in
the U.K. North Sea, including a 23.4 percent interest in the Alba field, a 40
percent interest in the MacCulloch field, and an 11.5 percent interest in the
Armada field. Production from these and other fields in the U.K. sector of the
North Sea averaged a net 50,000 barrels of liquids per day and 85 million cubic
feet of natural gas per day for the last four months of 2002.
The Interconnector pipeline, which connects the United Kingdom and Belgium,
facilitates the marketing throughout Europe of the natural gas ConocoPhillips
produces in the United Kingdom. ConocoPhillips' 10 percent equity share of the
Interconnector pipeline allows the company to ship approximately 200 million
cubic feet of natural gas per day to markets in continental Europe.
ConocoPhillips has multi-year contracts to supply natural gas to Gasunie in the
Netherlands and Wingas in Germany. Because the Interconnector pipeline provides
the flexibility to flow in either direction, ConocoPhillips is able to take
8
advantage of the long-term and short-term market conditions in both the United
Kingdom and continental Europe.
OTHER AREAS
ConocoPhillips sold its interests in the Netherlands in the fourth quarter of
2002. Financial results for the Netherlands from the date of the merger through
the date of sale are included in Corporate and Other as discontinued operations.
Accordingly, the Netherlands production statistics are not included in E&P.
EXPLORATION
ConocoPhillips plans six exploration wells and two appraisal wells in the North
Sea in 2003. In the Norwegian sector, three exploration wells and an appraisal
well are planned for 2003. In the U.K. sector, two exploratory wells that were
spudded in late 2002 will continue drilling operations into 2003. ConocoPhillips
plans to participate in an additional exploration well and an appraisal well in
the U.K. sector in 2003.
E&P--CANADA
In 2002, E&P operations in Canada contributed 2 percent of ConocoPhillips'
worldwide liquids production and 8 percent of its worldwide natural gas
production, excluding Syncrude production.
CONVENTIONAL OIL AND GAS OPERATIONS
Operations in western Canada encompass properties in Alberta, northeastern
British Columbia and southwestern Saskatchewan. The reserve base in central and
northwestern Alberta and northeastern British Columbia is dominated by
liquids-rich natural gas and light-oil fields, as well as large enhanced oil
recovery projects. The reserve base in southern Alberta and southwestern
Saskatchewan is a mix of medium-gravity crude oil and natural gas.
ConocoPhillips is working with three other energy companies, as members of the
Mackenzie Delta Producers' Group (Group), on the possibility of transporting
onshore gas production from the Mackenzie Delta in northern Canada to existing
markets. In October 2001, the Group signed a Memorandum of Understanding (MOU)
with the Aboriginal peoples of the Northwest Territories, as represented by the
Mackenzie Valley Aboriginal Pipeline Corporation (MVAPC). The MOU provides a
framework for the parties to move forward on the development of a Mackenzie
Valley pipeline, running some 800 miles to serve the North American gas market.
In January 2002, the Group and the MVAPC announced that they would begin
preparing the regulatory applications needed to develop onshore natural gas
resources in the Mackenzie Delta, including the Mackenzie Valley pipeline.
Conceptual engineering commenced in April 2002, and in September 2002, after
receiving expressions of interest from other potential shippers, the consortium
decided to increase the initial design capacity for the Mackenzie Valley
pipeline from 830 to 1,200 million cubic feet per day. The pipeline capacity
would be expandable with additional compression. ConocoPhillips would hold a 16
percent interest in the pipeline and a 75 percent interest in the development of
the Parsons Lake gas field. The Parsons Lake gas field would be one of the three
primary fields in the Mackenzie Delta that would anchor the pipeline
development. Submission of regulatory applications for the project is
anticipated in late 2003 and first gas production is currently targeted by 2008.
ConocoPhillips owns approximately 47 percent of Petrovera, a joint venture that
combines a substantial portion of ConocoPhillips' Canadian heavy-oil assets and
certain associated natural gas assets. Net production was approximately 15,100
barrels of petroleum liquids per day from the date of the merger through
year-end 2002, and is reported separately in equity affiliate production.
9
OTHER CANADIAN OPERATIONS
ConocoPhillips has two oil sands projects in Canada: Syncrude Canada Ltd. and
Surmont.
Syncrude Canada Ltd.
ConocoPhillips owns a 9.03 percent undivided interest in Syncrude Canada Ltd., a
joint venture created by a number of energy companies for the purpose of mining
shallow deposits of oil sands, extracting the bitumen and upgrading it into a
light sweet crude oil called Syncrude Sweet Blend (Syncrude). The primary plant
and facilities are located at Mildred Lake, about 25 miles north of Fort
McMurray, Alberta, together with an auxiliary mining and extraction facility
approximately 20 miles from the Mildred Lake plant. Syncrude Canada Ltd. holds
eight oil sands leases, of which ConocoPhillips' share is approximately 23,000
net acres. The necessary surface rights are also held and the sites are readily
accessible. In December 1999, the Alberta Energy and Utilities Board extended
the project license term to the year 2035.
The U.S. Securities and Exchange Commission's regulations define this project as
mining-related and not part of conventional oil and gas operations. As such,
Syncrude reserves are not included in the company's proved oil and gas reserves
as reported in its supplemental oil and gas reserves information.
Surmont
The Surmont lease is located about 35 miles south of Fort McMurray, Alberta.
ConocoPhillips owns a 43.5 percent interest and is the operator. Currently, a
pilot project is being conducted to evaluate the potential of the Steam Assisted
Gravity Drainage technology at Surmont to economically develop oil sands that
are too deep to mine. In 2001, the company submitted a regulatory application to
develop 100,000 barrels per day of heavy-oil production. This application is in
the final stages of review and a regulatory decision is expected in 2003.
E&P--SOUTH AMERICA
In 2002, E&P operations in South America were comprised of interests in
Venezuela, Ecuador and Brazil. South American operations contributed 4 percent
of ConocoPhillips' worldwide liquids production.
VENEZUELA
ConocoPhillips has two major heavy-oil projects in Venezuela: Petrozuata and
Hamaca. In addition, ConocoPhillips owns blocks in the Gulf of Paria, which
contains the Corocoro conventional oil and gas discovery and other exploration
opportunities.
Petrozuata
Petrozuata is a joint venture between ConocoPhillips, which holds a 50.1 percent
non-controlling equity interest that was acquired in the merger, and a
subsidiary of Petroleos de Venezuela S.A. (PDVSA), the national oil company of
Venezuela, which holds the remaining interest.
The project is an integrated operation that produces extra-heavy crude oil from
reserves in the Zuata region of the Orinoco Oil Belt, transports it to the Jose
industrial complex on the north coast of Venezuela, and upgrades it into
medium-grade crude oil, with associated by-products of liquefied petroleum gas,
sulfur, petroleum coke and heavy gas oil. The joint-venture agreement has a
35-year term.
Petrozuata began early production of extra-heavy crude oil in August 1998, and,
after completion of the upgrader at Jose, made the first commercial sales of
upgraded, medium-grade crude oil in April 2001. ConocoPhillips' net production
was approximately 52,200 barrels of medium-grade crude oil per day for the last
four months of 2002, and is reported separately as equity affiliate production.
The medium-grade
10
crude oil produced by Petrozuata is used as a feedstock for ConocoPhillips' Lake
Charles, Louisiana, refinery and the Cardon refinery operated by PDVSA.
ConocoPhillips has entered into an agreement to purchase up to 104,000 barrels
per day of the Petrozuata upgraded crude oil for a market-based formula price
over the term of the joint venture in the event that Petrozuata is unable to
sell the production for higher prices. All upgraded crude oil sales are
denominated in U.S. dollars. By-products produced by the upgrading facility,
principally coke and sulfur, are sold to a variety of domestic and foreign
purchasers. The loading facilities at Jose transfer crude oil and some of the
by-products to ocean vessels for export.
Hamaca
The Hamaca project also involves the development of heavy-oil reserves from the
Orinoco Oil Belt. ConocoPhillips' share in the Hamaca project is 40 percent.
ConocoPhillips holds its interest in Hamaca through a jointly held limited
liability company, which ConocoPhillips accounts for using the equity method.
The other participants in Hamaca are PDVSA and ChevronTexaco Corporation.
Drilling of development wells started in January 2001, with early production of
extra-heavy oil starting in the fourth quarter of 2001. Production averaged
8,500 net barrels per day of heavy oil in 2002, and is reported separately as
equity affiliate production.
Construction of the heavy-oil upgrader, pipelines and associated production
facilities at the Jose industrial complex began in 2000. The upgrader is
expected to begin producing commercial quantities of medium-grade crude oil in
2004, at which time ConocoPhillips' net production from the Hamaca field is
expected to increase to over 60,000 barrels per day from proved reserves.
Gulf of Paria
In 1999, Conoco drilled the Corocoro discovery that, during drill stem tests,
flowed hydrocarbons from multiple zones. In 2001, Conoco and its partners
commenced a four-well appraisal program to evaluate the Corocoro discovery.
Three of the four wells were drilled in 2001 and the fourth well was completed
in the first quarter of 2002. All four wells were successful. ConocoPhillips
currently holds a 50 percent working interest in the Gulf of Paria West Block
and is the operator. In November 2002, ConocoPhillips began progressing
development discussions with the Venezuelan government and the company expects
development approval in the first half of 2003. Upon approval of the development
plan, an affiliate of PDVSA has the option to increase its participation in the
development, which could reduce ConocoPhillips' current 50 percent interest down
to as low as 32.5 percent. In addition, Venezuelan legislation enacted in 2001
introduced a new 30 percent flat royalty regime and reduced the income tax rate
on light oil projects from 67.7 percent to 50 percent. The Corocoro Project's
Royalty Agreement, which provides for a sliding scale royalty with a 16.55
percent maximum rate, was in effect prior to the 2001 legislation and is
expected to continue to apply to the project.
In addition to the Corocoro discovery, ConocoPhillips is pursuing additional
prospects in the Gulf of Paria, with two exploration wells planned for 2003.
In December of 2002, political unrest in Venezuela caused economic and other
disruptions that shut down most oil and gas operations in Venezuela, including
the company's Petrozuata, Hamaca and Gulf of Paria operations. Limited
production began from these operations in February 2003. For more information
about the impact of the disruptions on the company's operations in Venezuela,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Outlook" on page 74.
11
BRAZIL
ConocoPhillips announced in August 2001 that the Brazilian government had signed
concession agreements finalizing the award of two exploration blocks.
ConocoPhillips, bidding alone, previously placed winning bids on BM-ES-11 and
BM-PAMA-3 in Brazil's third bid round held in June 2001. Both blocks are located
in deepwater offshore Brazil. ConocoPhillips entered into partnerships on both
blocks in late 2002, reducing its interest to 70 percent in BM-ES-11 and 65
percent in BM-PAMA-3. In 2002 a significant seismic program was initiated over
the acreage position. The evaluation of that seismic is ongoing and will
continue in 2003. ConocoPhillips will operate both blocks.
ECUADOR
ConocoPhillips has a 14 percent non-operating interest in producing fields in
the Oriente basin in Ecuador in the area collectively referred to as "Block 16,"
that was acquired in the merger. Repsol YPF, s.a. is the operator of the Block
16 area. ConocoPhillips' net production was 3,200 barrels of crude oil per day
for the last four months of 2002. Net production for 2003 is expected to
increase to over 8,000 barrels of crude oil per day with the completion of a
trans-Andean heavy-oil pipeline. The pipeline completion is anticipated in the
second half of 2003.
E&P--ASIA PACIFIC
In 2002, E&P operations in the Asia Pacific area contributed 3 percent of
ConocoPhillips' worldwide liquids production and 7 percent of its worldwide
natural gas production.
CHINA
In the South China Sea, ConocoPhillips' combined net production of crude oil
from its Xijiang facilities averaged 11,600 barrels per day in 2002.
Production from Phase I development of the Peng Lai 19-3 field in Bohai Bay
Block 11-05 began in late December 2002. By the end of January 2003, the field
was producing at a net rate of 8,200 barrels per day. ConocoPhillips holds a 49
percent interest, with the remainder held by the China National Offshore Oil
Corporation. The Phase I development utilizes one wellhead platform and a
floating production, storage and offloading facility.
ConocoPhillips continues to move forward with feasibility planning and design
for Phase II of the Peng Lai 19-3 development. Phase II would include multiple
wellhead platforms, central processing facilities, and a floating storage and
offloading facility. The Peng Lai 25-6 field, discovered in 2000 and located
three miles east of Peng Lai 19-3, will be developed in conjunction with Phase
II of the Peng Lai 19-3 development project.
Several other exploration prospects have been identified in Block 11-05, with
two exploration wells planned for 2003.
INDONESIA
ConocoPhillips operates 14 Production Sharing Contracts (PSCs) in Indonesia and
has a non-operating interest in three others, all of which were acquired in the
merger. ConocoPhillips' assets are concentrated in two core areas: the West
Natuna Sea and South Sumatra; with a potentially emerging area offshore East
Java. ConocoPhillips is party to five long-term U.S. dollar pipeline gas
contracts that have been signed in Indonesia.
12
Offshore Assets
ConocoPhillips operates six offshore PSCs: 1) South Natuna Sea Block B, 2) Nila,
3) Tobong, 4) Kakap, 5) Sakala Timur, and 6) Ketapang. The company holds a
non-operator interest in the Pangkah PSC offshore East Java, and is a
co-venturer in the West Natuna Gas Supply Group (WNG). ConocoPhillips
participates in various gas marketing arrangements in connection with these
assets. The Block B PSC is comprised of two mature oil fields and 15 gas fields
in various phases of development. The largest current development in the Block B
PSC is the Belanak field, which is scheduled for first production in late 2004.
Two additional developments are scheduled for startup dates in 2006 and 2008,
and would produce into the Belanak infrastructure. The company also has an
active exploration program in both the Natuna Sea and East Java.
Onshore Assets
ConocoPhillips operates eight onshore PSCs: 1) Corridor TAC, 2) Corridor PSC, 3)
South Jambi 'B', 4) Sakakemang JOB (jointly operated with a co-venturer), 5)
Banyumas, 6) Tungkal, 7) Block A PSC in Aceh, and 8) Warim, and holds
non-operator interests in the Bentu and Korinci-Baru PSCs. As with its offshore
properties, the company participates in various gas marketing arrangements in
connection with these fields. Exploration efforts focus on locating additional
natural gas reserves.
Gas sales are transported to Duri through a pipeline system formerly owned and
operated by the state-owned pipeline company, PGN. This system has recently
been transferred to a new company, Transgasindo (TGI), in which ConocoPhillips
received a 14 percent equity share.
Production of natural gas from Indonesia averaged a net 217 million cubic feet
per day for the last four months of 2002, while production of crude oil over the
same period averaged a net 14,700 barrels per day. The company plans to drill
five exploratory and four appraisal wells in Indonesia in 2003.
VIETNAM
ConocoPhillips has a 23.25 percent interest in Block 15-1 in the Cuu Long Basin.
In 2001, the partners in Block 15-1 declared the southwest portion of the Su Tu
Den (Black Lion) field commercial after a successful appraisal program. In
addition, an appraisal well in the northeast portion of Su Tu Den was
successfully drilled in 2002. The Su Tu Den Phase I development project was
approved in December 2001. A floating production, storage and offloading vessel
and a wellhead platform will be utilized. The field is scheduled to begin
production in the second quarter of 2004. An exploration discovery was also made
on the nearby Su Tu Vang (Golden Lion) prospect in the third quarter of 2001.
The potential commerciality of Su Tu Vang and the Northeast portion of Su Tu Den
are currently being evaluated.
ConocoPhillips has a 36 percent interest in the Rang Dong field in Block 15-2 in
the Cuu Long Basin. In the third quarter of 2002, production began from two new
wellhead platforms in the Rang Dong field. These additional platforms increased
net production from the field from under 6,800 to over 12,400 barrels per day at
year-end 2002. A successful appraisal step-out well, Rang Dong-12X, was drilled
in the central part of the field in late 2001 and tested at a rate of 9,300
barrels of petroleum liquids per day. A development plan for this area of the
field is being evaluated.
ConocoPhillips also owns interests in offshore Blocks 16-2, 5-3, 133 and 134, as
well as a 16.33 percent interest in the Nam Con Son gas pipeline.
13
TIMOR SEA AND AUSTRALIA
Bayu-Undan
ConocoPhillips' direct interest in the unitized Bayu-Undan field, located in the
Timor Sea, was 55.9 percent at year-end 2002. A further 8.25 percent interest
was held through Petroz N.L., in which the company had an 89.7 percent stock
ownership at year-end. The field is being developed in two phases. Phase I is a
gas-recycle project, where condensate and natural gas liquids will be separated
and removed and the dry gas reinjected into the reservoir. This phase is
expected to begin production in 2004, with the goal of attaining a net rate of
50,000 barrels of liquids per day from proved reserves. Phase II would involve
the export and sale of the natural gas from the field.
In March 2002, ConocoPhillips announced that it had signed a Heads of Agreement
(LNG HOA) with The Tokyo Electric Power Company, Incorporated (TEPCO) and Tokyo
Gas Co., Ltd. (Tokyo Gas) that would enable Phase II to proceed upon resolution
of certain legal, regulatory, and fiscal issues. The Timor Sea Treaty (Treaty)
was ratified by Timor-Leste (formerly East Timor) in December 2002 and by
Australia in March 2003 and is subject to certain procedural events before it is
fully effective. The Treaty will allow the issuance of new production sharing
contracts to the existing contractors in the Bayu-Undan unit, which when
combined with the expected approval of the Development Plan and the expected
enactment of certain Timor-Leste legislation will provide the legal, regulatory
and fiscal basis necessary to proceed with the project.
Under the LNG HOA, TEPCO and Tokyo Gas will purchase 3 million tons per year in
total of liquefied natural gas (LNG) for a period of 17 years, utilizing natural
gas from the Bayu-Undan field. Shipments would begin in 2006 from an LNG
facility near Darwin, Australia, utilizing ConocoPhillips' Optimized Cascade
liquefied natural gas process. Under a separate agreement, the company plans to
sell a 22.5 percent interest in one of the production sharing contracts via an
indirect sale of an affiliate to TEPCO and Tokyo Gas. Following the sale to
TEPCO and Tokyo Gas and a rebalancing of interests, ConocoPhillips' interest in
the unitized Bayu-Undan field, including Petroz N.L., would be 56.72 percent.
Greater Sunrise
During 2002, the Sunrise joint venture conducted a thorough review of a proposal
based on piping gas 330 miles to shore for sale in Darwin and elsewhere in
Australia and an alternative proposal to supply LNG to North America from a
floating LNG facility. The review found neither proposal to be commercially
viable at that time. However, the review did acknowledge the level of demand and
interest within the Australian domestic gas market, and highlighted the
potential for a floating LNG facility at Greater Sunrise to become a cost
competitive supplier of LNG into regional markets.
Consequently, in 2003, the Greater Sunrise joint venture participants plan to
continue evaluating commercial development options and markets. The Sunrise
joint venture participants are: Woodside 33.44 percent (Operator),
ConocoPhillips 30 percent, Shell 26.56 percent and Osaka Gas 10 percent.
E&P--AFRICA AND THE MIDDLE EAST
NIGERIA
ConocoPhillips' crude oil production from five leases in Nigeria averaged a net
29,100 barrels per day in 2002. These five leases include four onshore Oil
Mining Leases (OML) and a shallow-water offshore OML. Continued development and
exploratory drilling is planned for 2003 on the leases.
14
ConocoPhillips entered into a production sharing contract on Oil Prospecting
Lease (OPL) 318, deepwater Nigeria, on June 14, 2002, where ConocoPhillips is
operator with 50 percent interest. The acquisition of 3D seismic data on OPL 318
is planned to begin in 2003, with the first exploratory well expected to be
drilled in the fourth quarter of 2004.
The company is participating in a 450-megawatt gas-fired power plant to supply
electricity to Nigeria's national electricity supplier. The plant will consume
75 million cubic feet per day of natural gas sourced from within ConocoPhillips'
Nigerian proved natural gas reserves. The plant is expected to be operational in
2005.
ANGOLA
ConocoPhillips has a 20 percent interest in exploratory activity in deepwater
Block 34, offshore Angola. The first exploration well, completed in 2002, did
not encounter commercial quantities of hydrocarbons, which led to a substantial
financial impairment of the investment in the block. Further drilling is planned
on the block in 2003.
CAMEROON
On December 18, 2002, ConocoPhillips announced a successful drill stem test on
an exploratory well offshore Cameroon. The well, located in exploration permit
PH 77, offshore in the Douala Basin, obtained a maximum flow rate of 3,000
barrels of oil per day and 1.8 million cubic feet of natural gas per day during
the test.
Contractor interests in the 2,830 square mile permit are held 50 percent by
ConocoPhillips and 50 percent by a subsidiary of Petronas Carigali (Petronas).
ConocoPhillips serves as the operator of the consortium. ConocoPhillips and
Petronas are currently analyzing well results, and will be working with the
National Hydrocarbon Corporation of Cameroon on developing forward plans to
evaluate the discovery and other identified exploration prospects in the permit.
DUBAI
In Dubai, United Arab Emirates, ConocoPhillips is using horizontal drilling
techniques and advanced reservoir drainage technology to enhance the efficiency
of the offshore production operations and improve recovery rates from four
fields.
SAUDI ARABIA
ConocoPhillips has a 15 percent interest in Core Venture 1 and a 30 percent
interest in Core Venture 3 of the Kingdom of Saudi Arabia's natural gas
initiative. ConocoPhillips and its co-venturers continue to define the project
components in more detail, and to negotiate the implementation agreement, which
would set out all major financial, operational and legal terms for the
initiative, as well as a timeline for the project execution.
E&P--RUSSIA AND CASPIAN SEA REGION
RUSSIA
ConocoPhillips holds a 50 percent ownership interest in Polar Lights Company, a
Russian limited liability company established in January 1992 to develop the
Ardalin field in the Timan-Pechora basin in Northern Russia. Polar Lights, which
was acquired in the merger, started producing oil in August 1994 from the
Ardalin field. In June 2002, production commenced from the Oshkotyn field, the
first of three satellite fields under development. Net production averaged
13,500 barrels of petroleum liquids per day for the last four months of 2002.
ConocoPhillips accounts for its interest in Polar Lights using the equity method
of accounting.
15
CASPIAN SEA
ConocoPhillips has an 8.33 percent interest in an exploration project in the
Kazakhstan sector of the Caspian Sea. The exploration area consists of 10.5
blocks, totaling nearly 2,000 square miles about 50 miles west-northwest of the
Tengiz oil field, onshore Kazakhstan. The blocks are covered by a production
sharing agreement with the Kazakhstan government. The initial production phase
of the contract is for 20 years, with options to extend the agreement an
additional 20 years. In June 2002, ConocoPhillips and the other contracting
companies in conjunction with KazMunayGas, which represents the Government of
the Republic of Kazakhstan, declared the Kashagan discovery commercial. The
declaration of commerciality enables the preparation of a development plan for
the Kashagan field. The contracting companies plan to continue to explore other
structures within the North Caspian Sea license. In October 2002, ConocoPhillips
and its co-venturers announced a new hydrocarbon discovery in the Kazakhstan
sector of the Caspian Sea. An initial test well, the Kalamkas-1, located
adjacent to the Kashagan field, flowed oil.
E&P--OTHER
ConocoPhillips is continuing with plans to develop a project to build a
liquefied natural gas import terminal in northern Baja California to provide
access to gas markets in that region. The company is working with federal,
state, and local officials in Mexico to secure permits for the project, and a
decision whether or not to proceed with the terminal project is expected during
2003, pending resolution of local permitting issues.
E&P--RESERVES
The company has not filed any information with any other federal authority or
agency with respect to its estimated total proved reserves at December 31, 2002.
No difference exists between the company's estimated total proved reserves for
year-end 2001 and year-end 2000, which are shown in this filing, and estimates
of these reserves shown in a filing with another federal agency in 2002.
DELIVERY COMMITMENTS
ConocoPhillips has future commitments to deliver fixed and determinable
quantities of crude oil to U.S. customers under various supply agreements over
the next three years. During the period, the company is obligated to supply a
total of 127 million barrels of crude oil under long-term contracts. To fulfill
these obligations, ConocoPhillips plans to use production from domestic proved
reserves, which are greater than these obligations and which have estimated
production levels sufficient to meet the required delivery amounts.
ConocoPhillips has a commitment to deliver a fixed and determinable quantity of
liquefied natural gas in the future to two utility customers in Japan. The
company is obligated over the next three years to supply a total of 108 billion
cubic feet of liquefied natural gas. Production from one field in Alaska, with
estimated proved reserves greater than the company's obligation and estimated
production levels sufficient to meet the required delivery amount, will be used
to fulfill the obligation.
16
MIDSTREAM
- ---------
ConocoPhillips' Midstream business is conducted through owned and operated
assets as well as through its 30.3 percent equity investment in Duke Energy
Field Services, LLC (DEFS). The Midstream businesses purchase raw natural gas
from producers and gather natural gas through extensive pipeline gathering
systems. The gathered natural gas is then processed to extract natural gas
liquids from the raw gas stream. The remaining "residue" gas is marketed by both
ConocoPhillips and DEFS to electrical utilities, industrial users, and gas
marketing companies. Most of the natural gas liquids are fractionated--separated
into individual components like ethane, butane and propane--and marketed as
chemical feedstock, fuel, or blendstock. Total natural gas liquids extracted in
2002, including ConocoPhillips' share of DEFS, was 156,000 barrels per day, with
133,000 barrels per day of natural gas liquids fractionated.
DEFS supplies a substantial portion of its natural gas liquids to ConocoPhillips
and Chevron Phillips Chemical Company LLC (a joint venture between
ConocoPhillips and ChevronTexaco) under a supply agreement that continues until
December 31, 2014. This purchase commitment is on an "if-produced,
will-purchase" basis and so it has no fixed production schedule, but has been,
and is expected to be, a relatively stable purchase pattern over the term of the
contract. Under this agreement, natural gas liquids are purchased at various
published market index prices, less transportation and fractionation fees. DEFS
also purchases raw natural gas from ConocoPhillips' E&P operations.
DEFS is headquartered in Denver, Colorado. At December 31, 2002, DEFS owned and
operated 60 natural gas liquids extraction plants, and owned an equity interest
in another 11. Also at year end, DEFS' gathering and transmission systems
included 60,000 miles of pipeline. In 2002, DEFS' raw natural gas throughput
averaged 7.4 billion cubic feet per day, and natural gas liquids extraction
averaged 392,000 barrels per day. DEFS' assets are primarily located in the Gulf
Coast area, west Texas, Oklahoma, the Texas Panhandle, the Rocky Mountain area,
and western Canada.
Outside of DEFS, ConocoPhillips' U.S. Midstream assets at December 31, 2002,
included nine owned and operated natural gas liquids extraction plants in New
Mexico, Texas and Louisiana with a combined net plant inlet capacity of 757
million cubic feet per day and an equity interest in another two plants. One of
the company owned plants in Louisiana also includes a 10,500 barrel-per-day
liquids fractionator. In addition, ConocoPhillips owns an underground natural
gas liquids storage facility in each of Texas and Louisiana.
ConocoPhillips owns a 25,000 barrel-per-day capacity liquids fractionation plant
in Gallup, New Mexico; owns a 22.5 percent equity interest in Gulf Coast
Fractionators, which owns a natural gas liquids fractionating plant in Mt.
Belvieu, Texas (with ConocoPhillips' net share of capacity at 25,000 barrels per
day); and owns a 40 percent interest in a fractionation plant in Conway, Kansas
(with ConocoPhillips' share of capacity at 42,000 barrels per day).
ConocoPhillips owns a 700-mile intrastate natural gas and liquids pipeline
system in Louisiana and gas gathering and natural gas liquids pipelines in
several states.
ConocoPhillips' Canadian natural gas liquids business includes the following
assets:
o A 92 percent operating interest in the 2.4
billion-cubic-feet-per-day Empress natural gas processing straddle
plant near Medicine Hat, Alberta, with natural gas liquids
production capacity of 46,000 barrels per day;
o A 580-mile Petroleum Transmission Company pipeline from Empress to
Winnipeg and six related pipeline terminals;
17
o An underground natural gas liquids storage facility with 1 million
barrels of capacity;
o A 10 percent interest in the 1,902-mile Cochin liquefied petroleum
gas pipeline, originating in Edmonton, Alberta, and ending in
Sarnia, Ontario, and a terminal storage system that transports
propane, ethane and ethylene; and
o An 18 percent interest in a 30,000 barrel-per-day propane-plus
fractionator and a 5 percent interest in a 65-mile natural gas
liquids pipeline with storage near Edmonton, Alberta.
Canadian natural gas liquids extracted averaged 15,000 barrels per day in 2002.
ConocoPhillips also owns a 39 percent equity interest in Phoenix Park Gas
Processors Limited, a joint venture with the National Gas Company of Trinidad
and Tobago Limited, which processes gas in Trinidad and markets natural gas
liquids throughout the Caribbean and into the U.S. Gulf Coast. Phoenix Park's
facilities include a gas processing plant and a natural gas liquids
fractionator. ConocoPhillips' share of natural gas liquids extracted averaged
3,000 barrels per day in 2002.
REFINING AND MARKETING (R&M)
- ----------------------------
R&M operations encompass refining crude oil and other feedstocks into petroleum
products (such as gasoline, distillates and aviation fuels), buying and selling
crude oil and refined products, and transporting, distributing and marketing
petroleum products. R&M operations are organized regionally with operations in
the United States, Europe and the Asia Pacific region.
As a condition to the merger, the U.S. Federal Trade Commission (FTC) required
that the company divest specified Conoco and Phillips assets, the most
significant of which were Phillips' Woods Cross, Utah, refinery and associated
motor fuel marketing operations; Conoco's Commerce City, Colorado, refinery and
related crude oil pipelines; and Phillips' Colorado motor fuel marketing
operations. In addition, in December 2002, the company committed to and
initiated a plan to sell a substantial portion of its company-owned retail
sites. Both the FTC-required dispositions and the retail site dispositions have
been classified as discontinued operations for financial reporting purposes, and
are included in Corporate and Other. Accordingly, they are excluded from the
descriptions of R&M's continuing operations contained in this section. See Note
4--Discontinued Operations, in the Notes to Consolidated Financial Statements,
for additional information.
UNITED STATES
REFINING
At December 31, 2002, ConocoPhillips owned and operated 12 crude oil refineries
in the United States (excluding two refineries that are held for sale and
reported in discontinued operations in Corporate and Other) having an aggregate
rated crude oil refining capacity at year-end 2002 of 2,166,000 barrels per day.
The average purchase cost of a barrel of crude delivered to the company's U.S.
refineries in 2002 was $24.92, compared to $20.77 in 2001.
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East Coast Region
BAYWAY REFINERY
Located on the New York Harbor in Linden, New Jersey, Bayway has a crude oil
processing capacity of 250,000 barrels per day and processes mainly light
low-sulfur crudes. Crude oil is supplied to the refinery by tanker, primarily
from the North Sea and West Africa. The refinery produces a high percentage of
transportation fuels such as gasoline, diesel, and jet fuel along with home
heating oil. Other products include petrochemical feedstocks (propylene) and
residual fuel oil. The facility distributes its refined products to East Coast
customers through pipelines, barges, railcars and trucks. Product production
changes to meet seasonal demand. Gasoline is in higher demand during the summer,
while in winter, the refinery optimizes operations to increase heating oil
production. A 775 million-pound-per-year polypropylene plant became operational
in March 2003.
TRAINER REFINERY
The Trainer refinery is located in Trainer, Pennsylvania, about 10 miles
southwest of the Philadelphia airport on the Delaware River. The refinery has a
crude oil processing capacity of 180,000 barrels per day and processes mainly
light low-sulfur crudes. The Bayway and Trainer refineries are operated in
coordination with each other by sharing crude oil cargoes, moving feedstocks
between the facilities, and sharing certain personnel. Trainer also receives
crude oil from the North Sea and West Africa. The refinery produces a high
percentage of transportation fuels such as gasoline, diesel, and jet fuel along
with home heating oil. Other products include petrochemical feedstocks
(propylene) and residual fuel oil. Refined products are distributed to customers
in Pennsylvania, New York and New Jersey via pipeline, barge, railcar and truck.
Gulf Coast Region
ALLIANCE REFINERY
The Alliance refinery, located in Belle Chasse, Louisiana, on the Mississippi
River, is about 25 miles south of New Orleans and 63 miles north of the Gulf of
Mexico. The refinery has a crude oil processing capacity of 250,000 barrels per
day and processes mainly light low-sulfur crudes. Alliance receives domestic
crude oil via pipeline, and crude oil from the North Sea and West Africa via
pipeline connected to the Louisiana Offshore Oil Port. The refinery produces a
high percentage of transportation fuels such as gasoline, diesel, and jet fuel
along with home heating oil. Other products include petrochemical feedstocks
(benzene) and petroleum (fuel) coke. The majority of the refined products are
distributed to customers through the Colonial and Plantation pipeline systems.
LAKE CHARLES REFINERY
The Lake Charles refinery is located in Westlake, Louisiana. The refinery has a
crude oil processing capacity of 252,000 barrels per day. The refinery receives
domestic and international crude oil and processes heavy, high-sulfur,
low-sulfur and acidic crude oil. While the sources of international crude oil
can vary, the majority is Venezuelan and Mexican heavy crudes delivered via
tanker. The refinery produces a high percentage of transportation fuels such as
gasoline, off-road diesel, and jet fuel along with heating oil. The majority of
the refined products are distributed to customers by truck, rail or major
common-carrier pipelines. In addition, refinery products can be sold into export
markets through the refinery's marine terminal.
The Lake Charles facilities also include a specialty coker and calciner that
manufactures graphite and anode petroleum cokes supplied to the steel and
aluminum industries, and provides a substantial increase in light oils
production by breaking down the heaviest part of the crude barrel to allow
additional production of diesel fuel and gasoline.
The Lake Charles refinery supplies feedstocks to Excel Paralubes, Penreco and
Venture Coke Company (Venco), all joint ventures that are part of the company's
Specialty Businesses function within R&M.
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SWEENY REFINERY
The Sweeny refinery is located in Old Ocean, Texas, about 65 miles southwest of
Houston. Effective March 1, 2003, the refinery's crude oil processing capacity
increased to 215,000 barrels per day as a result of incremental debottlenecking.
The refinery primarily receives crude oil through ConocoPhillips' and jointly
owned terminals on the Gulf Coast, including a deepwater terminal at Freeport,
Texas. The refinery produces a high percentage of transportation fuels such as
gasoline, diesel, and jet fuel along with home heating oil. Other products
include petrochemical feedstocks (benzene) and petroleum (fuel) coke. Refined
products are distributed throughout the Midwest and southeastern United States
through pipeline, barge and railcar.
ConocoPhillips and PDVSA have a limited partnership that operates a 58,000
barrel-per-day delayed coker and related facilities at the Sweeny refinery.
Under the terms of the agreements, PDVSA supplies the refinery up to 165,000
barrels per day of Venezuelan Merey, or equivalent, crude oil. ConocoPhillips is
the operator of, and holds a 50 percent interest in, the coker through its
interest in Merey Sweeny, L.P.
Central Region
WOOD RIVER REFINERY
The Wood River refinery is located in Roxana, Illinois, about 15 miles north of
St. Louis, Missouri, on the east side of the Mississippi River. It is the
company's largest refinery, with a crude oil processing capacity of 286,000
barrels per day and can process a mix of both light low-sulfur and heavy
high-sulfur crudes. The facility receives domestic and foreign crude oil by
pipeline. The refinery produces a high percentage of transportation fuels such
as gasoline, diesel, and jet fuel along with home heating oil. Other products
include petrochemical feedstocks (benzene) and asphalt. Through an off-take
agreement, a significant portion of its gasoline, diesel and jet fuel is sold to
a third party at the refinery for delivery via pipelines into the upper Midwest,
including the Chicago, Illinois, and Milwaukee, Wisconsin, metropolitan areas.
Remaining refined products are distributed to customers in the Midwest by
pipeline, truck, barge and railcar.
PONCA CITY REFINERY
ConocoPhillips' refinery located in Ponca City, Oklahoma, has a crude oil
processing capacity of 194,000 barrels per day. Both foreign and domestic crudes
are delivered by pipeline from the Gulf of Mexico, Oklahoma, Kansas, Texas and
Canada. The refinery's facilities include fluid catalytic cracking, delayed
coking and hydrodesulfurization units, which enable it to produce high ratios of
gasoline and diesel fuel from crude oil. Finished petroleum products are shipped
by truck, rail and company-owned and common-carrier pipelines to markets
throughout the mid-continent region.
BORGER REFINERY
The Borger refinery is located in Borger, Texas, in the Texas Panhandle about 50
miles north of Amarillo. It includes a natural gas liquids fractionation
facility. The crude oil processing capacity is 148,000 barrels per day, and the
natural gas liquids fractionation capacity is 95,000 barrels per day. The
refinery processes mainly heavy high-sulfur crudes. The refinery receives crude
oil and natural gas liquids feedstocks through ConocoPhillips' pipelines from
west Texas, the Texas Panhandle and Wyoming. The Borger refinery can also
receive water-borne crude oil via ConocoPhillips' pipeline systems. The refinery
produces a high percentage of transportation fuels such as gasoline, diesel, and
jet fuel along with a variety of natural gas liquids and solvents. Pipelines
move refined products from the refinery to west Texas, New Mexico, Arizona,
Colorado, Kansas, Nebraska and the Chicago area.
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BILLINGS REFINERY
ConocoPhillips' Billings, Montana, refinery has a crude oil processing capacity
of 60,000 barrels per day, processing a mixture of about 95 percent Canadian
heavy high-sulfur crude plus domestic high-sulfur and low-sulfur crudes, all
delivered by pipeline. A delayed coker converts heavy high-sulfur residue into
higher value light oils. The refinery produces a high percentage of
transportation fuels such as gasoline, jet fuel, diesel and fuel grade petroleum
coke. Finished petroleum products from the refinery are delivered via
company-owned pipelines, rail, and trucks.
West Coast Region
LOS ANGELES REFINERY
The Los Angeles refinery is composed of two linked facilities located about five
miles apart in Carson and Wilmington, California, about 15 miles southeast of
Los Angeles International airport. Carson serves as the front-end of the
refinery by processing crude oil, and Wilmington serves as the back-end by
upgrading products. The refinery has a crude oil processing capacity of 132,000
barrels per day and processes mainly heavy high-sulfur crudes. The refinery
receives domestic crude oil via pipeline from California and foreign and
domestic crude oil by tanker through company-owned and third-party terminals in
the Port of Los Angeles. The refinery produces a high percentage of
transportation fuels such as gasoline, diesel, and jet fuel. Other products
include fuel grade petroleum coke. The refinery produces California Air
Resources Board gasoline, and also produces gasoline without methyl
tertiary-butyl ether (MTBE) by using ethanol to meet federally mandated
oxygenate requirements. Refined products are distributed to customers in
southern California, Nevada and Arizona by pipeline and truck.
SAN FRANCISCO AREA REFINERY
The San Francisco Area refinery is composed of two linked facilities located
about 200 miles apart. The Santa Maria facility is located in Arroyo Grande,
California, about 200 miles south of San Francisco, while the Rodeo facility is
in the San Francisco Bay area. The refinery's crude oil processing capacity is
109,000 barrels per day of mainly heavy high-sulfur crudes. Both the Santa Maria
and Rodeo facilities have calciners to upgrade the value of the coke that is
produced. The refinery receives crude oil from central California, including the
Elk Hills oil field, and foreign crude oil by tanker. Semi-refined liquid
products from the Santa Maria facility are sent by pipeline to the Rodeo
facility for upgrading to finished petroleum products. The refinery produces
transportation fuels such as gasoline, diesel, and jet fuel. Other products
include fuel grade petroleum coke. The refinery produces California Air
Resources Board gasoline, and also produces gasoline without MTBE by using
ethanol to meet federally mandated oxygenate requirements. Refined products are
distributed by pipeline, railcar, truck and barge.
FERNDALE REFINERY
The Ferndale refinery in Ferndale, Washington, is about 20 miles south of the
United States-Canada border on Puget Sound. The refinery has a crude oil
processing capacity of 92,000 barrels per day. The refinery receives crude oil
primarily from the Alaskan North Slope, with secondary sources supplied by
Canada or the Far East. Ferndale operates a deepwater dock that is capable of
taking in full tankers bringing North Slope crude oil from Valdez, Alaska. The
refinery is also connected to the Transmountain crude oil pipeline that
originates in Canada. The refinery produces transportation fuels such as
gasoline, diesel, and jet fuel. Other products include residual fuel oil
supplying the northwest marine transportation market. Construction of a new
fluidized catalytic cracking unit that will increase the yield of transportation
fuel is expected to become fully operational in the second quarter of 2003. Most
refined products are distributed by pipeline and barge to major markets in the
northwest United States.
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MARKETING
At December 31, 2002, ConocoPhillips marketed gasoline through approximately
13,700 outlets in 48 states (excluding operations reported in discontinued
operations in Corporate and Other). About 31 percent of these utilize the Conoco
brand, about 47 percent are branded Phillips 66 outlets, while the remaining
outlets feature the Circle K, 76, Exxon and Mobil brands. ConocoPhillips has the
right to use the Exxon and Mobil brands in certain areas until 2010.
ConocoPhillips also has the use of the Coastal brand in 10 states until 2011.
Wholesale
In its wholesale operations, the company utilizes a network of marketers and
dealers operating approximately 12,600 outlets. ConocoPhillips also buys and
sells petroleum products in spot markets. ConocoPhillips' refined products are
marketed on both a branded and unbranded basis.
In addition to automotive gasoline and diesel fuel, ConocoPhillips produces and
markets aviation gasoline, which is used by smaller, piston-engine aircraft.
Aviation gasoline and jet fuel are sold through independent marketers at
approximately 600 branded locations in the United States.
At December 31, 2002, CFJ Properties, a 50/50 joint venture between
ConocoPhillips and Flying J, owned and operated 96 truck travel plazas that
carry the Conoco and/or Flying J brands.
Retail
At December 31, 2002, ConocoPhillips owned and operated approximately 400
convenience stores under the Circle K, Phillips 66, Conoco and 76 brands in 12
states. The company-operated retail operations are focused in the mid-continent
and West Coast regions. All the Phillips 66 branded outlets market merchandise
through the Kicks 66 brand convenience stores.
TRANSPORTATION
Pipelines and Terminals
At December 31, 2002, ConocoPhillips' R&M segment had approximately 31,500 miles
of common-carrier crude oil, raw natural gas liquids and products pipeline
systems in the United States, including those partially owned and/or operated by
affiliates. The company also owned and/or operated 82 finished product
terminals, six liquefied petroleum gas terminals, seven crude oil terminals and
one coke exporting facility.
Tankers
At December 31, 2002, ConocoPhillips chartered 15 double-hulled crude oil
tankers, with capacities ranging in size from 650,000 to 1,100,000 barrels.
These tankers are utilized to transport feedstocks to certain of the company's
U.S. refineries. The company also has an ocean-going barge under charter, as
well as a domestic fleet of both owned and chartered boats and barges providing
inland waterway transportation. The information above excludes the operations of
the company's subsidiary, Polar Tankers Inc., which is discussed in the E&P
section, as well as an owned tanker on lease to a third party for use in the
North Sea.
ConocoPhillips has agreements for the long-term chartering of five double-hulled
crude oil tankers that are currently under construction. Delivery is expected in
the third and fourth quarters of 2003. Two of these vessels are 825,000-barrel
tankers, and three are 1,115,000-barrel tankers. The term of the agreement is 12
years from date of delivery. ConocoPhillips plans to utilize the new tankers to
replace older vessels in supplying its East Coast refining operations.
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SPECIALTY BUSINESSES
ConocoPhillips manufactures and sells a variety of high-value lubricants and
specialty products including petroleum cokes, lubes, such as automotive and
industrial lubricants, solvents and pipeline flow improvers, to commercial,
industrial and wholesale accounts worldwide. Lubricants are marketed under the
Conoco, Hydroclear, Phillips 66, 76 and Kendall brands. These lubricants are
sold by marketers, mass merchandise stores, fast lubes, tire stores, automotive
dealers, and convenience stores. Lubricants are also sold to industrial
customers in many markets.
Excel Paralubes is a joint-venture hydrocracked lubricating base oil
manufacturing facility located adjacent to the Lake Charles refinery, and is 50
percent owned by ConocoPhillips. Excel Paralubes' lube oil facility produces
approximately 20,000 barrels per day of high-quality, clear hydrocracked base
oils. Hydrocracked base oils are second in quality only to synthetic base oils,
but are produced at a much lower cost. The Lake Charles refinery supplies Excel
Paralubes with gas-oil feedstocks.
ConocoPhillips has a 50 percent interest in Penreco, a fully integrated
specialties company, which manufactures and markets highly refined specialty
petroleum products, including solvents, waxes, petrolatums and white oils, for
global markets.
The company manufactures high-quality graphite and anode-grade cokes in the
United States and Europe, for use in the global steel and aluminum industries.
Venco is a coke calcining joint venture in which ConocoPhillips has a 50 percent
interest. Green petroleum coke is supplied to Venco's Lake Charles calcining
facility from the Lake Charles refinery.
INTERNATIONAL
REFINING
At December 31, 2002, ConocoPhillips owned or had an interest in six refineries
outside the United States with an aggregate rated crude oil capacity of 440,000
net barrels per day. The average purchase cost of crude oil delivered to the
company's international refineries in 2002 was $24.55 per barrel, compared with
a $21.10 per barrel in 2001.
Humber Refinery
ConocoPhillips' wholly owned Humber refinery is located in North Lincolnshire,
United Kingdom. Effective January 1, 2003, Humber's capacity was increased by
2,000 barrels per day to 234,000 barrels per day as a result of incremental
debottlenecking. Crude oil processed at the refinery is supplied primarily from
the North Sea and includes lower-cost, acidic crudes. The refinery also
processes other intermediate feedstocks, mostly vacuum gas oils and residual
fuel oil. The refinery's location on the east coast of England provides for
cost-effective North Sea crude imports and product exports to European and world
markets.
The Humber refinery is a fully integrated refinery that produces a full slate of
light products and minimal fuel oil. The refinery also has two coking units with
associated calcining plants, which upgrade the heavy "bottoms" and imported
feedstocks into light-oil products and high-value graphite and anode petroleum
cokes. Approximately 58 percent of the light oils produced in the refinery are
marketed in the United Kingdom, while the other products are exported to the
rest of Europe and the United States. This gives the refinery the flexibility to
take full advantage of inland and global export market opportunities.
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Whitegate Refinery
The Whitegate refinery is located in Cork, Ireland. Whitegate is Ireland's only
refinery, and has a processing capacity of 72,000 barrels per day. Crude oil
processed by the refinery is light sweet crude sourced mostly from the North
Sea. The refinery primarily produces transportation fuels and fuel oil, which
are distributed to the inland market via truck and sea, as well as being
exported to the European market. ConocoPhillips also operates a deepwater crude
oil and products storage complex in Bantry Bay, Ireland.
MiRO Refinery
The MiRO refinery in Karlsruhe, Germany, is a joint-venture refinery with a
crude oil processing capacity of 283,000 barrels per day. ConocoPhillips has an
18.75 percent interest in MiRO, giving the company a net capacity share of
53,000 barrels per day. The other owners of MiRO are Shell & DEA Oil GmbH
(formerly DEA Mineraloel AG), Esso AG and Ruhr Oel GmbH, a 50/50 joint venture
between Veba and PDVSA. Approximately 60 percent of the refinery's crude oil
feedstock is low-cost, high-sulfur crude. The MiRO complex is a fully integrated
refinery producing gasoline, middle distillates, and specialty products along
with a small amount of residual fuel oil. The refinery has a high capacity to
convert lower-cost feedstocks into higher value products, primarily with a fluid
catalytic cracker and delayed coker. The refinery produces both fuel grade and
specialty calcined cokes. The refinery processes crude and other feedstocks
supplied by each of the partners in proportion to their respective ownership
interests.
Czech Republic Refineries
ConocoPhillips, through its participation in Ceska rafinerska, a.s. (CRC), has
an interest in two refineries in the Czech Republic: one in Kralupy and the
other in Litvinov. The other owners of CRC are Unipetrol A.S., Agip Petroli, and
Shell Overseas Investment B.V. The refinery at Litvinov has a crude oil
processing capacity of 103,000 barrels per day, and the Kralupy refinery has a
crude oil processing capacity of 63,000 barrels per day. ConocoPhillips' 16.33
percent ownership share of the combined capacity is 27,000 barrels per day. Both
refineries process mostly high-sulfur crude oil, with a large portion being
Russian export blend delivered by pipeline. The refineries have an alternative
crude supply via a pipeline from the Mediterranean. The two refineries are
operated as a single entity, with certain intermediate streams moving between
the two facilities. CRC markets finished products both inland and abroad.
Melaka Refinery
The refinery in Melaka, Malaysia, is a joint venture with Petronas, the
Malaysian state oil company. ConocoPhillips owns a 47 percent interest in the
joint venture. The refinery has a rated crude oil processing capacity of 120,000
barrels per day, of which ConocoPhillips' share is 56,000 barrels per day. Crude
oil processed by the refinery is sourced mostly from the Middle East. The
refinery produces a full range of refined petroleum products. The refinery
capitalizes on ConocoPhillips' proprietary coking technology to upgrade low-cost
feedstocks to higher-margin products. ConocoPhillips' share of refined products
is distributed by truck to the company's ProJET retail sites in Malaysia, or
transported by sea primarily to Asian markets.
MARKETING
ConocoPhillips had marketing operations in 15 European countries at December 31,
2002. The company's European marketing strategy is to sell primarily through
owned, leased or joint-venture retail sites using a low-cost, high-volume,
low-price strategy. ConocoPhillips also markets aviation fuels, liquid petroleum
gases, heating oils, transportation fuels and marine bunkers to commercial
customers and into the bulk or spot market.
24
ConocoPhillips uses the "JET" brand name to market its retail products in its
wholly owned operations in Austria, the Czech Republic, Denmark, Finland,
Belgium, Luxembourg, Germany, Hungary, Norway, Poland, Slovakia, Sweden and the
United Kingdom. In addition, various joint ventures in which ConocoPhillips has
an equity interest market products in Switzerland and Turkey under the "Coop"
and "Tabas" or "Turkpetrol" brand names, respectively.
As of December 31, 2002, ConocoPhillips had approximately 2,100 marketing
outlets in its wholly owned European operations, of which about 1,200 were
company-owned. Through ConocoPhillips' joint venture operations in Turkey and
Switzerland, the company also has an interest in an additional 770 sites.
The company's largest branded site networks are in Germany and the United
Kingdom, which account for 60 percent of total European branded units.
As of December 31, 2002, ConocoPhillips had 137 marketing outlets in its wholly
owned Thailand operations in Asia. In addition, through a joint venture in
Malaysia with Sime Darby Bhd., a company that has a major presence in the
Malaysian business sector, ConocoPhillips also has an interest in another 25
retail sites. In Thailand and Malaysia, retail products are marketed under the
"JET" and "ProJET" brands, respectively.
CHEMICALS
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On July 1, 2000, ConocoPhillips and ChevronTexaco combined their worldwide
chemicals businesses, excluding ChevronTexaco's Oronite business, into a new
company, Chevron Phillips Chemical Company LLC (CPChem). In addition to
contributing the assets and operations included in the company's Chemicals
segment, ConocoPhillips also contributed the natural gas liquids business
associated with its Sweeny, Texas, complex. ConocoPhillips and ChevronTexaco
each own 50 percent of CPChem. ConocoPhillips uses the equity method of
accounting for its investment in CPChem.
CPChem, headquartered in The Woodlands, Texas, has 32 production facilities and
six research and technology centers. CPChem uses natural gas liquids and other
feedstocks to produce petrochemicals such as ethylene, propylene, styrene,
benzene and paraxylene. These products are then marketed and sold, or used as
feedstocks to produce plastics and specialty chemicals, such as polyethylene,
cumene, and cyclohexane.
CPChem's domestic facilities are located at Baytown, Borger, Conroe, La Porte,
Orange, Pasadena, Port Arthur and Old Ocean, Texas; St. James, Louisiana;
Pascagoula, Mississippi; Marietta, Ohio; and Guayama, Puerto Rico. CPChem also
has nine plastic pipe plants and one pipe fittings plant in eight states.
Major international facilities are located or under construction in Belgium,
China, Saudi Arabia, Singapore, South Korea and Qatar. There is one plastic pipe
plant in Mexico.
Construction continued in Qatar on a major olefins and polyolefins complex,
named Q-Chem I. The facility is designed to have an annual capacity of 1.1
billion pounds of ethylene, 1 billion pounds of polyethylene and 100 million
pounds of 1-hexene. Construction of the complex, located in Mesaieed, Qatar, is
nearing completion and the complex is undergoing commissioning. CPChem has a 49
percent interest, with a Qatar state-firm owning the remaining 51 percent
interest. CPChem also signed an agreement for the development of a complex to be
built in Ras Laffan, Qatar, named Q-Chem II. The facility will be an integrated
ethylene and polyethylene complex. Final approval of Q-Chem II is anticipated in
mid-2004, with startup expected in 2007.
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CPChem announced plans in 2002 for a 50 percent-owned joint venture project in
Al Jubail, Saudi Arabia. The project, expected to cost approximately $1 billion,
is planned to produce styrene and propylene. Final approval of the project is
anticipated in the fourth quarter of 2003, with operational start-up expected in
2006.
A brief description of CPChem's major product lines follows.
OLEFINS AND POLYOLEFINS
Ethylene: Ethylene is a simple olefin used primarily to produce plastics, such
as polyethylene. Ethylene is produced at Old Ocean, Port Arthur and Baytown,
Texas. CPChem's net annual capacity at December 31, 2002, was approximately 7.6
billion pounds.
Polyethylene: Polyethylene is used to make a wide variety of plastic products,
including trash bags, milk jugs, bottles and plastic films. Polyethylene is
produced at Pasadena, Baytown, and Orange, Texas, as well as in China and
Singapore. CPChem's net annual capacity at December 31, 2002, was approximately
5.1 billion pounds.
Plastic Pipe: Polyethylene is used to manufacture plastic pipe and pipe
fittings. Plastic pipe is produced at nine plants in the United States and one
plant in Mexico. Pipe fittings are produced at one plant in the United States.
CPChem's net annual capacity at December 31, 2002, was approximately 544 million
pounds.
Normal Alpha Olefins: Normal alpha olefins can be custom blended for special
applications and are used extensively as polyethylene comonomers and in
plasticizers, synthetic motor oils and lubricants. Normal alpha olefins are
produced at Baytown, Texas. CPChem's net annual capacity at December 31, 2002,
was approximately 1.3 billion pounds.
AROMATICS AND STYRENICS
Styrene: Styrene, produced from benzene and ethylene, is used as a feedstock for
polystyrene and other applications. Styrene is produced at St. James, Louisiana.
CPChem's net annual capacity at December 31, 2002, was approximately 2.1 billion
pounds.
Polystyrene: Polystyrene is a thermoplastic polymer used in cups, disposable
cameras, disposable signs, and other applications. It is produced at Marietta,
Ohio, and in China. CPChem's net annual capacity at December 31, 2002, was
approximately 990 million pounds.
Benzene: Benzene is used to make cumene, cyclohexane, styrene and other
products. Benzene is produced at Pascagoula, Mississippi; Port Arthur, Texas;
and in Saudi Arabia. CPChem's net annual capacity at December 31, 2002, was
approximately 2.7 billion pounds.
Cyclohexane: Cyclohexane is a derivative of benzene that is used as a feedstock
for nylon. It is produced at Port Arthur, Texas, and in Saudi Arabia. CPChem
markets all of its own cyclohexane production, as well as that of its
affiliates. CPChem's net annual capacity at December 31, 2002, was approximately
575 million pounds. In addition, CPChem markets cyclohexane production from
ConocoPhillips' Sweeny and Borger complexes.
K-Resin(R): K-Resin(R) is a styrene-butadiene (SBC) copolymer used to produce a
clear, shatter-resistant resin. It is produced at the Houston Chemical Complex
(HCC) in Pasadena, Texas, and in South Korea. Production of K-Resin SBC at HCC
was idled in March 2000 as a result of an accident and fire at the plant. The
plant began a phased-in start-up in the fourth quarter of 2001 and the force
majeure status of the plant was lifted in May 2002. CPChem's annual capacity at
HCC at December 31, 2002, was
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approximately 270 million pounds. CPChem also has a net annual capacity of 69
million pounds at an equity affiliate's plant in Yochon, South Korea.
Paraxylene: Paraxylene is an aromatic used as a feedstock for polyester. It is
produced at Pascagoula, Mississippi. CPChem's net annual capacity at December
31, 2002, was approximately 1.0 billion pounds.
SPECIALTY PRODUCTS
Specialty Chemicals: CPChem manufactures, markets and distributes organosulfur,
paraffinic, olefinic and aromatic specialty chemicals as well as a complete line
of natural gas odorants, specialty catalysts, specialty fuels, mining chemicals
and oilfield drilling additives, enhancers and cements. These products are
manufactured and processed in Borger and Conroe, Texas and Tessenderlo, Belgium.
Ryton(TM) Polyphenylene Sulfide: CPChem produces high-performance polyphenylene
sulfide polymers sold under the trademark Ryton(TM), which is produced at
Borger, Texas. CPChem's annual capacity of Ryton polymer at December 31, 2002,
was 22 million pounds. Ryton compounds are produced in Belgium and Singapore.
These facilities have a net annual capacity of approximately 29 million pounds
of Ryton compounds in the aggregate.
CPChem has research facilities in Oklahoma, Ohio, and Texas, as well as in
Singapore and Brussels, Belgium.
EMERGING BUSINESSES
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Emerging businesses encompass the development of new businesses beyond the
company's traditional operations.
CARBON FIBERS
In 2002, ConocoPhillips completed the construction of its first carbon fibers
manufacturing plant located in Ponca City, Oklahoma. ConocoPhillips confronted
technology issues during construction, which resulted in a delay in the
development of carbon fibers applications. As a result of market, operating and
technological uncertainties, the company announced in February 2003 that it
would shut down this project.
GAS-TO-LIQUIDS (GTL)
The GTL process refines natural gas into a wide range of transportable products.
ConocoPhillips' GTL research facility is located in Ponca City, Oklahoma. The
research facility includes laboratories and pilot plants to facilitate
technology advancements. A 400 barrel-per-day pilot plant, designed to produce
clean fuels from natural gas, is under construction in Ponca City and scheduled
for completion in 2003.
FUELS TECHNOLOGY
ConocoPhillips' fuels technology businesses provide technologies and services
that can be used in the company's operations or licensed to third parties.
Downstream, major product lines include sulfur removal technologies (S Zorb),
alkylation technologies (ReVAP), and delayed coking technologies. For upstream
and downstream, fuels technology offers analytical services, pilot plant, and
industrial hygiene services.
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POWER GENERATION
The focus of the power business is on developing integrated projects in support
of the company's E&P and R&M strategies and business objectives. The projects
that enable these strategies are included within the respective E&P and R&M
segments. The projects and assets that have a significant merchant component are
included in the Emerging Business segment.
The power business is developing a 730-megawatt gas-fired combined heat and
power plant in North Lincolnshire, United Kingdom. The facility will provide
steam and electricity to the Humber refinery and steam to a neighboring
refinery, as well as market power into the U.K. market. Construction began in
2002, with commercial operation anticipated in 2004.
ConocoPhillips also owns or has an interest in gas-fired cogeneration plants in
Orange and Corpus Christi, Texas.
EMERGING TECHNOLOGY
Emerging Technology focuses on developing new business opportunities designed to
provide growth options for ConocoPhillips well into the future. Example areas of
interest include renewable energy, advanced hydrocarbon processes, energy
conversion technologies and new petroleum-based products.
COMPETITION
ConocoPhillips competes with private, public and state-owned companies in all
facets of the petroleum and chemicals businesses. Some of the company's
competitors are larger and have greater resources. Each of the segments in which
ConocoPhillips operates is highly competitive. No single competitor, or small
group of competitors, dominates any of ConocoPhillips' business lines.
Upstream, the company's E&P segment competes with numerous other companies in
the industry to locate and obtain new sources of supply, and to produce oil and
natural gas in an efficient, cost-effective manner. Based on reserves statistics
published in the September 9, 2002, issue of the Oil and Gas Journal,
ConocoPhillips had the sixth-largest total of worldwide reserves of
non-state-owned companies. The company delivers its oil and natural gas
production into the worldwide oil and natural gas commodity markets. The
principal methods of competing include geological, geophysical and engineering
research and technology; experience and expertise; and economic analysis in
connection with property acquisitions.
The company's Midstream segment, through its equity investment in DEFS and its
consolidated operations, competes with numerous other integrated petroleum
companies, as well as natural gas transmission and distribution companies, to
deliver the components of natural gas to end users in the commodity natural gas
markets. DEFS is one of the largest producers of natural gas liquids in the
United States, based on the November 18, 2002, Gas Processors Report. DEFS'
principle methods of competing include economically securing the right to
purchase raw natural gas into its gathering systems, managing the pressure of
those systems, operating efficient natural gas liquids processing plants, and
securing markets for the products produced.
Downstream, the company's R&M segment competes primarily in the United States,
Europe and the Asia Pacific region. Based on the statistics published in the
December 23, 2002, issue of the Oil and Gas Journal, ConocoPhillips had the
largest U.S. refining capacity of about 20 large refiners of petroleum products.
In the Chemicals' segment, through its equity investment in CPChem, the company
generally ranks in the middle of approximately 10 major competitors, based on
ethylene, polyethylene, benzene and
28
styrene production capacity at year-end 2002, as published by Chemical Market
Associates Inc. Petroleum products are primarily delivered into U.S. commodity
markets, while petrochemicals and plastics are delivered into the worldwide
commodity markets. Elements of downstream competition include product
improvement, new product development, low-cost structures, and manufacturing and
distribution systems. In the marketing portion of the business, competitive
factors include product properties and processibility, reliability of supply,
customer service, price and credit terms, advertising and sales promotion, and
development of customer loyalty to ConocoPhillips' or CPChem's branded products.
GENERAL
At the end of 2002, ConocoPhillips held a total of 2,043 active patents in 72
countries worldwide, including 737 active U.S. patents. During 2002, the company
received 61 patents in the United States and 134 foreign patents. The company's
products and processes generated licensing revenues of $28 million in 2002. The
overall profitability of any business segment is not dependent on any single
patent, trademark, license, franchise or concession.
Company-sponsored research and development activities charged against earnings
were $355 million, $44 million and $43 million in 2002, 2001 and 2000,
respectively.
The environmental information contained in Management's Discussion and Analysis
on pages 66 through 70 under the caption, "Environmental" is incorporated herein
by reference. It includes information on expensed and capitalized environmental
costs for 2002 and those expected for 2003 and 2004.
Like all major, international oil companies, the company has for many years
operated in countries that are subject to U.S. Government restrictions or
prohibitions on business activities by U.S. companies. In some cases, business
is permitted if the company has received a license from the Office of Foreign
Assets Control (OFAC). In some cases where the company is prohibited from doing
business, non-U.S. subsidiaries of the company are not restricted. The
regulations implementing the restrictions are complicated and subject to
interpretation by OFAC. The company has programs designed to ensure compliance
with the restrictions and believes that its present operations do not violate
the restrictions.
In view of recent political, diplomatic and military developments in the Middle
East, and throughout the world, the company is reexamining its policies and
procedures in order to prevent any actions that would violate the letter, or
even the spirit of the restrictions. These developments may affect prices,
production levels, allocation and distribution of raw materials and products,
including their import, export and ownership; the amount of tax and timing of
payment; and the cost of compliance with environmental regulations. In recent
weeks, a number of institutional investors and state governmental agencies have
questioned the appropriateness of U.S. companies transacting business in or
with any country that has reportedly been linked to terrorism, even if the
country is not subject to legal restrictions. The company is also reexamining
its policies to seek to ensure that its activities in or with certain countries
is consistent with the U.S. government's policy, interests and objectives in
such countries. Political or military developments, enactment by the U.S. of
new legal restrictions, more stringent interpretation of existing legal
restrictions, or decisions by the company to voluntarily cease operations in
certain areas in order to protect its reputation could materially adversely
affect the company.
ITEM 3. LEGAL PROCEEDINGS
The following is a description of legal proceedings involving governmental
authorities under federal, state and local laws regulating the discharge of
materials into the environment for this reporting period. The
29
following proceedings include those matters previously reported in Conoco's and
Phillips' respective 2001 Forms 10-K, first- and second- quarter 2002 Forms 10-Q
and ConocoPhillips' third-quarter 2002 Form 10-Q that have not been resolved.
While it is not possible to predict the outcome of such proceedings, if any of
such proceeding were decided adversely to ConocoPhillips, there would be no
material effect on the company's consolidated financial position. Nevertheless,
such proceedings are reported pursuant to the United States Securities and
Exchange Commission's regulations.
ConocoPhillips has responded to information requests from the United States
Environmental Protection Agency (EPA) regarding New Source Review compliance
at its Alliance, Bayway, Borger, Ferndale, Los Angeles, Rodeo, Santa Maria,
Sweeny, Trainer and Wood River refineries. Although ConocoPhillips has not
been notified of any formal findings or violations arising from these
information requests, ConocoPhillips has been informed that the EPA is
contemplating the filing of a civil proceeding against ConocoPhillips for
alleged violations of the Clean Air Act. ConocoPhillips currently seeks a
negotiated resolution of these matters which will likely result in increased
environmental capital expenditures and governmental monetary sanctions.
On December 31, 2002, the company received a Revised Proposed Agreed Order,
which amended the June 24, 2002, Proposed Agreed Order, from the Texas
Commission on Environmental Quality (TCEQ), proposing a penalty of $458,163 in
connection with alleged air emission violations at the company's Borger, Texas,
refinery as a result of an inspection conducted by the TCEQ in October 2000. On
March 19, 2003, the TCEQ issued a recalculation of the proposed penalty in the
amount of $467,834.
On December 17, 2002, the United States Department of Justice (DOJ) notified
ConocoPhillips of various alleged violations of the National Pollution
Discharge Elimination System (NPDES) Permit for the Sweeny Refinery. DOJ
asserts that these alleged violations occurred at various times during the
period beginning January 1997 through July 2002. DOJ seeks a civil penalty in
the amount of $1.6 million.
On November 14, 2002, the TCEQ issued a proposed agreed Findings Order to
resolve alleged water discharge violations of the Texas Water Code and
Commission Rules at the Sweeny Refinery for the period beginning March 2000
through July 2002. The proposed order assesses a penalty in the amount of
$488,125.
On September 27, 2002, the Montana Department of Environmental Quality (MDEQ)
issued a Notice of Violation (NOV) to ConocoPhillips. The NOV alleges that on
December 13, 2000, the company discharged 52,374 gallons of gasoline from Tank
32 at its Helena, Montana product storage terminal. The NOV seeks a penalty in
the amount of $114,000. The company anticipates that this matter will be settled
early in the second quarter of 2003.
On September 26, 2002, the EPA Region 5 filed an Administrative Complaint
against the company alleging federal clean air act compliance violations
associated with a product tank roof seal during the period December 15, 1997
through October 1, 2001. On November 25, 2002, the company and the EPA entered
into a Consent Agreement and Final Order requiring the company to pay a
$46,381 cash penalty and perform a supplemental environmental project (SEP).
The SEP is estimated to cost approximately $180,000.
On July 15, 2002, the United States filed a Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) cost recovery action against
the company alleging that the United States has incurred unreimbursed oversight
costs at the Lowry Superfund Site located in Arapahoe County, Colorado. The
United States seeks recovery of approximately $12.3 million in past oversight
costs and a declaratory judgment for future CERCLA response cost liability.
Pursuant to the terms of a prior settlement agreement between the company, Waste
Management, Inc. and others, Waste Management has assumed the
30
company's defense for this matter and it is the company's position that Waste
Management should indemnify it for any liability arising from this action.
On June 28, 2002, the company received an administrative civil complaint from
the EPA, alleging violation of Emergency Planning and Community Right to Know
Act found during an audit of the Los Angeles refinery in March 2000. This matter
was settled in the first quarter of 2003.
The company conducted negotiations with the EPA and the states of Colorado,
Louisiana, Montana, and Oklahoma throughout 2001 as part of the EPA's nationwide
initiative to enforce federal air regulations at petroleum refineries. In
December 2001, the company entered into a Consent Decree with the United States,
Colorado, Louisiana, Montana, and Oklahoma to reduce emissions from the
company's Billings, Denver, Lake Charles and Ponca City refineries by a total of
7,500 tons per year over the subsequent seven years. The company expects to
spend an estimated $95 million to $110 million over that time period to install
control technology and equipment to reduce emissions from stacks, vents, valves,
heaters, boilers and flares. The Consent Decree required and the company has
paid a civil penalty of $1.5 million, in addition to requiring $5.1 million to
be spent on supplemental environmental projects in Colorado, Louisiana, Montana
and Oklahoma. This Consent Decree also resolves certain refinery air compliance
issues previously self-disclosed to the state environmental agencies for
Colorado, Montana and Oklahoma. Other self-disclosed air compliance issues that
were outside the scope of the Consent Decree have been or will be resolved by
consent orders entered directly with the appropriate state agency.
During August 2001, the EPA and the DOJ notified the company of their intent
to seek sanctions for alleged violations of the Clean Air Act arising from a
1998 Maximum Achievable Control Technology (MACT) compliance test of a flare at
the company's Denver refinery. The matter was settled in the fourth quarter of
2002.
In June of 1997, the company experienced pipeline spills on its Seminoe pipeline
at Banner, Wyoming, and Lodge Grass, Montana. In response to these spills, the
DOJ advised the company in August 2000 that the United States is contemplating a
legal proceeding under the Clean Water Act against the company. The company and
DOJ are currently in negotiations to resolve these matters.
In addition to the above environmental matters, on March 27, 2000, an explosion
and fire occurred at the K-Resin SBC plant due to the overpressurization of an
out-of-service butadiene storage tank. One employee was killed and several
individuals, including employees of both ConocoPhillips and its contractors,
were injured. Additionally, individuals who were allegedly in the area of the
Houston Chemical Complex at the time of the incident have claimed they suffered
various personal injuries due to exposure to the event. The wrongful death claim
and the claims of the most seriously injured workers have been resolved.
Currently, there are eight lawsuits pending on behalf of approximately 100
primarily plaintiffs. Under the indemnification provisions of subcontracting
agreements with Zachry Construction Corporation and Brock Maintenance, Inc.,
ConocoPhillips sought indemnification from these subcontractors with respect to
claims made by their employees. Although that plant was contributed to CPChem
under the Contribution Agreement, ConocoPhillips retains liability for damages
arising out of the incident.
Additionally, the company is subject to various lawsuits and claims including,
but not limited to: actions challenging oil and gas royalty and severance tax
payments; actions related to gas measurement and valuation methods; actions
related to joint interest billings to operating agreement partners; claims for
damages resulting from leaking underground storage tanks; and toxic tort claims.
As a result of Conoco's separation agreement with DuPont, ConocoPhillips also
has assumed responsibility for current and future claims related to certain
discontinued chemicals and agricultural chemicals businesses operated by Conoco
in the past. In general, the effect on future financial results is not subject
to reasonable estimation because
31
considerable uncertainty exists. The ultimate liabilities resulting from such
lawsuits and claims may be material to results of operations in the period in
which they are recognized.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Held Age*
---- ------------- ----
Rand C. Berney Vice President and Controller 47
William B. Berry Executive Vice President, Exploration and Production 50
John A. Carrig Executive Vice President, Finance, and Chief Financial Officer 51
Archie W. Dunham Chairman of the Board of Directors 64
Philip L. Frederickson Executive Vice President, Commercial 46
Rick A. Harrington Senior Vice President, Legal, and General Counsel 58
John E. Lowe Executive Vice President, Planning and Strategic Transactions 44
Robert E. McKee III Executive Vice President 56
J. J. Mulva President and Chief Executive Officer 56
J. W. Nokes Executive Vice President, Refining, Marketing, Supply and Transportation 56
- ----------
*On March 1, 2003.
There is no family relationship among the officers named above. Each officer of
the company is elected by the Board of Directors at its first meeting after the
Annual Meeting of Stockholders and thereafter as appropriate. Each officer of
the company holds office from date of election until the first meeting of the
directors held after the next Annual Meeting of Stockholders or until a
successor is elected. The date of the next annual meeting is May 6, 2003. Set
forth below is information concerning the executive officers.
32
RAND C. BERNEY was appointed Vice President and Controller of ConocoPhillips
upon completion of the merger. Prior to the merger, he was Phillips' Vice
President and Controller since 1997.
WILLIAM B. BERRY was appointed Executive Vice President, Exploration and
Production of ConocoPhillips on January 1, 2003, having previously served as
President of ConocoPhillips' Asia Pacific operations since completion of the
merger. Prior to the merger, he was Phillips' Senior Vice President E&P
Eurasia-Middle East operations since 2001; and Phillips' Vice President E&P
Eurasia operations since 1998.
JOHN A. CARRIG was appointed Executive Vice President, Finance, and Chief
Financial Officer of ConocoPhillips upon completion of the merger. Prior to the
merger, he was Phillips' Senior Vice President and Chief Financial Officer since
2001; Phillips' Senior Vice President, Treasurer and Chief Financial Officer
since 2000; and Phillips' Vice President and Treasurer since 1996.
ARCHIE W. DUNHAM was appointed Chairman of the Board of Directors of
ConocoPhillips upon completion of the merger. Prior to the merger, he was
Conoco's Chairman of the Board, President and Chief Executive Officer since
1999; and Conoco's President and Chief Executive Officer since 1996.
PHILIP L. FREDERICKSON was appointed Executive Vice President, Commercial of
ConocoPhillips upon completion of the merger. Prior to the merger, he was
Conoco's Senior Vice President of Corporate Strategy and Business Development
since 2001; and Conoco's Vice President of Business Development since 1998.
RICK A. HARRINGTON was appointed Senior Vice President, Legal, and General
Counsel of ConocoPhillips upon completion of the merger. Prior to the merger, he
was Conoco's Senior Vice President, Legal and General Counsel since 1998.
JOHN E. LOWE was appointed Executive Vice President, Planning and Strategic
Transactions of ConocoPhillips upon completion of the merger. Prior to the
merger, he was Phillips' Senior Vice President, Corporate Strategy and
Development since 2001; Phillips' Senior Vice President of Planning and
Strategic Transactions since 2000; Phillips' Vice President of Planning and
Strategic Transactions since 1999; Phillips' Manager of Strategic Growth
Projects since earlier in 1999; and Phillips' Supply Chain Manager in refining,
marketing and transportation since 1997.
ROBERT E. MCKEE III was appointed Executive Vice President of ConocoPhillips on
January 1, 2003, having previously served as Executive Vice President,
Exploration and Production since the completion of the merger. Prior to the
merger, he was Conoco's Executive Vice President, Exploration Production since
1996.
J. J. MULVA was appointed President and Chief Executive Officer of
ConocoPhillips upon completion of the merger. Prior to the merger, he was
Phillips' Chairman of the Board of Directors and Chief Executive Officer since
1999; Phillips' Vice Chairman of the Board of Directors, President, and Chief
Executive Officer since earlier in 1999; and Phillips' President and Chief
Operating Officer since 1994.
J. W. NOKES was appointed Executive Vice President, Refining, Marketing, Supply
and Transportation of ConocoPhillips upon completion of the merger. Prior to the
merger, he was Conoco's Executive Vice President, Worldwide Refining, Marketing,
Supply and Transportation since 1999; and Conoco's President of North American
Refining and Marketing since 1998.
33
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY COMMON STOCK PRICES AND CASH DIVIDENDS PER SHARE
Phillips Petroleum Company's (predecessor to ConocoPhillips) stock was traded
primarily on the New York, Pacific and Toronto stock exchanges. On August 30,
2002, it ceased trading.
Stock Price
----------------------
Phillips Petroleum Company (predecessor to ConocoPhillips) High Low Dividends
---------------------- ---------
2002
First $ 63.80 55.30 .36
Second 64.10 54.53 .36
Third (through August 30) 59.21 44.75 N/A
- ------------------------------------------------------------------------------------------------------------
2001
First $ 59.00 51.70 .34
Second 68.00 52.78 .34
Third 59.86 50.00 .36
Fourth 60.95 50.66 .36
- ------------------------------------------------------------------------------------------------------------
ConocoPhillips' common stock began trading on September 3, 2002, the first
trading day after the effective date of the merger.
Stock Price
----------------------
High Low Dividends
---------------------- ---------
2002
Third (from September 3) $ 53.20 45.87 .36
Fourth 50.75 44.03 .40
- ------------------------------------------------------------------------------------------------------------
Closing Stock Price at December 31, 2002 $ 48.39
Number of Stockholders of Record at February 28, 2003 60,666
- ------------------------------------------------------------------------------------------------------------
ConocoPhillips' common stock is traded on the New York Stock Exchange.
34
ITEM 6. SELECTED FINANCIAL DATA
Millions of Dollars Except Per Share Amounts
-----------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------
Sales and other operating revenues* $ 56,748 24,892 22,155 14,988 12,853
Income from continuing operations* 714 1,611 1,848 604 228
Per common share
Basic 1.48 5.50 7.26 2.39 .88
Diluted 1.47 5.46 7.21 2.37 .88
Net income (loss) (295) 1,661 1,862 609 237
Per common share
Basic (.61) 5.67 7.32 2.41 .92
Diluted (.61) 5.63 7.26 2.39 .91
Total assets 76,836 35,217 20,509 15,201 14,216
Long-term debt* 18,917 8,610 6,622 4,271 4,106
Mandatorily redeemable other minority interests and
preferred securities 491 650 650 650 650
Cash dividends declared per
common share 1.48 1.40 1.36 1.36 1.36
- -----------------------------------------------------------------------------------------------------------
*Restated to exclude discontinued operations.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations for a discussion of factors that will enhance an understanding of
this data. The following transactions affect the comparability of the amounts
included in the table above:
o the merger of Conoco and Phillips in 2002;
o the acquisition of Tosco Corporation in 2001;
o the acquisition of Atlantic Richfield Company's Alaskan operations
in 2000; and
o the contribution of a significant portion of the company's midstream
and chemicals businesses into joint ventures accounted for using
equity-method accounting in 2000.
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
March 24, 2003
Management's Discussion and Analysis is the company's analysis of its financial
performance and of significant trends that may affect future performance. It
should be read in conjunction with the financial statements and notes, and
supplemental oil and gas disclosures. It contains forward-looking statements
including, without limitation, statements relating to the company's plans,
strategies, objectives, expectations, intentions, and resources that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The words "intends," "believes," "expects," "plans,"
"scheduled," "anticipates," "estimates," and similar expressions identify
forward-looking statements. The company does not undertake to update, revise or
correct any of the forward-looking information. Readers are cautioned that such
forward-looking statements should be read in conjunction with the company's
disclosures under the heading: "CAUTIONARY STATEMENT FOR THE PURPOSES OF THE
'SAFE HARBOR' PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995," beginning on page 76.
RESULTS OF OPERATIONS
CONOCO AND PHILLIPS MERGER
On August 30, 2002, Conoco Inc. (Conoco) and Phillips Petroleum Company
(Phillips) combined their businesses by merging with wholly owned subsidiaries
of a new company named ConocoPhillips (the merger). The merger was accounted for
using the purchase method of accounting. Although the business combination of
Conoco and Phillips was a merger of equals, generally accepted accounting
principles required that one of the two companies in the transaction be
designated as the acquirer for accounting purposes. Phillips was designated as
the acquirer based on the fact that its former common stockholders initially
held more than 50 percent of the ConocoPhillips common stock after the merger.
Because Phillips was designated as the acquirer, its operations and results are
presented in this annual report for all periods prior to the close of the
merger. From the merger date forward, the operations and results of
ConocoPhillips reflect the combined operations of the two companies.
As a condition of the merger, the U.S. Federal Trade Commission (FTC) required
that the company divest specified Conoco and Phillips assets, the most
significant of which were Phillips' Woods Cross, Utah, refinery and associated
motor fuel marketing operations; Conoco's Commerce City, Colorado, refinery and
related crude oil pipelines and Phillips' Colorado motor fuel marketing
operations. All assets and operations that are required by the FTC to be
divested are included in Corporate and Other as discontinued operations.
Included in the results of discontinued operations in 2002 was a $69 million
after-tax charge for the write-down to fair value of the Phillips operations to
be disposed. Because the Conoco assets to be disposed of were recorded at fair
value in the purchase price allocation, no further write-downs were required.
Discontinued operations also include other, non-FTC mandated assets held for
sale. See Note 4--Discontinued Operations in the Notes to Consolidated Financial
Statements for additional information, including a complete list of assets
required by the FTC to be divested.
As a result of the merger, the company implemented a restructuring program in
September 2002 to capture the synergies of combining Phillips and Conoco by
eliminating redundancies, consolidating assets, and sharing common services and
functions across regions. The restructuring program that was implemented in
September 2002 is expected to be completed by the end of February 2004 and,
through December 31,
36
2002, approximately 2,900 positions worldwide, most of which are in the United
States, had been identified for elimination. Of this total, 775 employees were
terminated by December 31, 2002. Associated with implementation of the
restructuring program, ConocoPhillips accrued $770 million for merger-related
restructuring and work force reduction liabilities in 2002. These liabilities
primarily represent estimated termination payments and related employee benefits
associated with the reduction in positions. These liabilities include $337
million related to Conoco operations, which was reflected in the purchase price
allocation as an assumed liability, and $422 million ($253 million after-tax)
related to Phillips operations that was charged to selling, general and
administrative, and production and operating expenses; and $11 million
before-tax included in discontinued operations. Of the above accruals, $598
million related primarily to severance benefits. Payments will be made to former
Conoco and Phillips employees under each company's respective severance plans.
During 2002, payments of $223 million were made, resulting in a year-end 2002
severance accrual balance of $375 million.
Also related to the merger and recorded in 2002 was a $246 million write-off of
acquired in-process research and development costs related to Conoco's natural
gas-to-liquids and other technologies. In accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 4, "Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method," value
assigned to research and development activities in the purchase price allocation
that have no alternative future use should be charged to expense at the date of
the consummation of the combination. The $246 million charge was recorded in the
Emerging Businesses segment and was the same on both a before-tax and after-tax
basis.
ConocoPhillips also accrued $22 million, after-tax, in 2002 for
change-in-control costs associated with seismic contracts as a result of the
merger. The expense was recorded in Corporate and Other and did not impact
exploration expenses. In addition, the 2002 net loss also included transition
costs of $36 million, bringing total after-tax merger-related costs to $557
million. See Note 3--Merger of Conoco and Phillips in the Notes to Consolidated
Financial Statements for additional information on the merger.
CONSOLIDATED RESULTS
Millions of Dollars
--------------------------
Years Ended December 31 2002 2001 2000
--------------------------
Income from continuing operations $ 714 1,611 1,848
Income (loss) from discontinued operations (993) 32 14
Extraordinary items (16) (10) --
Cumulative effect of accounting changes -- 28 --
- -----------------------------------------------------------------------
Net income (loss) $ (295) 1,661 1,862
=======================================================================
37
A summary of the company's net income (loss) by business segment follows:
Millions of Dollars
-----------------------------
Years Ended December 31 2002 2001 2000
-----------------------------
Exploration and Production (E&P) $ 1,749 1,699 1,945
Midstream 55 120 162
Refining and Marketing (R&M) 143 397 238
Chemicals (14) (128) (46)
Emerging Businesses (310) (12) --
Corporate and Other* (1,918) (415) (437)
- ----------------------------------------------------------------------------------------
Net income (loss) $ (295) 1,661 1,862
========================================================================================
*Includes income (loss) from discontinued operations of: $ (993) 32 14
2002 vs. 2001
ConocoPhillips incurred a net loss of $295 million in 2002, compared with net
income of $1,661 million in 2001. The decrease was primarily attributable to
recognizing impairments and loss accruals totaling $1,077 million after-tax
associated with the company's retail and wholesale marketing operations that
were classified as discontinued operations in late 2002, as well as
merger-related costs totaling $557 million after-tax. Also negatively impacting
results for 2002 were asset impairments totaling $192 million after-tax, lower
refining margins, lower natural gas sales prices, decreased equity earnings from
Duke Energy Field Services, LLC (DEFS), and higher interest expenses. These
factors were partially offset by improved results from Chemicals and higher
production volumes in E&P after the merger.
2001 vs. 2000
ConocoPhillips' net income was $1,661 million in 2001, an 11 percent decline
from net income of $1,862 million in 2000. The decrease was primarily
attributable to lower crude oil and natural gas liquids prices and lower results
from the Chemicals business, partially offset by improved petroleum products
margins, as well as the acquisition of Tosco Corporation (Tosco) in September
2001. See Note 6--Acquisition of Tosco Corporation in the Notes to Consolidated
Financial Statements for additional information on the acquisition. Also
contributing to the lower results in 2001 was a decrease in the amount of gains
on asset sales, compared with 2000, partially offset by lower property
impairments in 2001.
INCOME STATEMENT ANALYSIS
2002 vs. 2001
In addition to the merger discussed previously, ConocoPhillips closed on the $7
billion acquisition of Tosco on September 14, 2001. Together, these transactions
significantly increased operating revenues, purchase costs, operating expenses
and other income statement line items. See Note 3--Merger of Conoco and Phillips
and Note 6--Acquisition of Tosco Corporation in the Notes to Consolidated
Financial Statements for additional information.
38
Sales and other operating revenues increased 128 percent in 2002. The increase
was primarily attributable to increased product sales volumes due to the impact
of the Tosco acquisition and the merger. These items were partially offset by
lower natural gas sales prices in 2002 compared with 2001.
Equity in earnings of affiliates increased 537 percent in 2002. In addition to
equity earnings from affiliates acquired in the merger for the last four months
of 2002, equity earnings from Chevron Phillips Chemical Company LLC (CPChem)
improved in 2002 as a result of improved margins. Partially offsetting these
items were lower earnings in 2002 from DEFS and Merey Sweeny, L.P. (MSLP). DEFS'
decline was primarily attributable to higher operating expenses, gas imbalance
adjustments, and lower natural gas liquids prices, while MSLP's decline was
mainly due to lower crude oil light-heavy differentials.
Other income increased 94 percent in 2002, mainly the result of a favorable
revaluation and settlement of long-term incentive performance units held by
former senior Tosco executives, as well as additional interest income following
the merger. During 2002, the company recorded gains totaling $59 million
before-tax, as the incentive performance units were marked-to-market each
reporting period and eventually settled. See Note 6--Acquisition of Tosco
Corporation in the Notes to Consolidated Financial Statements for more
information.
Purchased crude oil and products increased 176 percent in 2002. The increase
reflects higher purchase volumes of crude oil and petroleum products resulting
from the Tosco acquisition and the merger.
Production and operating expenses increased 89 percent in 2002, while selling,
general and administrative (SG&A) expenses increased 171 percent. Both increases
were primarily attributable to the Tosco acquisition and the merger. In
conjunction with the merger, ConocoPhillips wrote off $246 million of acquired
in-process research and development costs related to Conoco's natural
gas-to-liquids and other technologies to production and operating expenses in
2002. ConocoPhillips also expensed $135 million in merger-related costs to
production and operating expenses and $379 million to SG&A expenses in 2002.
Exploration expenses increased 93 percent in 2002. The increase reflects the
merger, a $77 million leasehold impairment of deepwater Block 34, offshore
Angola, and dry hole costs of $161 million in 2002, compared with $48 million in
2001.
Depreciation, depletion and amortization increased 65 percent in 2002, compared
with 2001. The increase was primarily the result of an increased depreciable
base of properties, plants and equipment following the merger and the Tosco
acquisition.
During 2002, ConocoPhillips recorded property impairments totaling $49 million
in connection with the sale of its Point Arguello assets, offshore California;
two fields in the U.K. North Sea; and its interest in a non-producing field in
Alaska. Impairment of tradenames ($102 million) was also recognized in the
statement of operations in 2002. Property impairments recorded in 2001 consisted
primarily of a $23 million impairment of the Siri field, offshore Denmark. See
Note 10--Impairments in the Notes to Consolidated Financial Statements for
additional information.
Taxes other than income taxes increased 153 percent in 2002, compared with 2001.
The increase reflects higher excise taxes due to higher petroleum products sales
and increased property and payroll taxes following the merger and the Tosco
acquisition.
Environmental liabilities assumed in acquisitions and mergers are recorded as
liabilities at discounted amounts--i.e. the total future estimated cost is
determined, then discounted back to current dollars using a time-value-of-money
concept. Over time the liability is increased by accretion to reflect the time
value of
39
money. Accretion on discounted liabilities increased 214 percent in 2002,
reflecting the impact of the environmental liabilities assumed in the Tosco
acquisition and the merger.
Interest expense increased 67 percent in 2002, mainly due to higher debt levels
following the Tosco acquisition and the merger. Foreign currency losses of $24
million were recorded in 2002, compared with losses of $11 million in 2001.
Preferred dividend requirements decreased in 2002, reflecting the redemption of
$300 million of preferred securities in May 2002.
The company's effective tax rate from continuing operations in 2002 was 67
percent, compared with 51 percent in 2001. The increase in the effective tax
rate in 2002 was primarily the result of the write-off of in-process research
and development costs without a corresponding tax benefit and a higher
proportion of income in higher-tax-rate jurisdictions.
Losses from discontinued operations were $993 million in 2002, compared with
income of $32 million in 2001. The 2002 amount includes after-tax impairments
and loss accruals. See Note 4--Discontinued Operations in the Notes to
Consolidated Financial Statements for additional information.
2001 vs. 2000
On March 31, 2000, ConocoPhillips and Duke Energy Corporation contributed their
midstream gas gathering, processing and marketing businesses to DEFS. Effective
July 1, 2000, ConocoPhillips and ChevronTexaco Corporation contributed their
chemicals businesses, excluding ChevronTexaco's Oronite business, to CPChem.
Both of these joint ventures are being accounted for using the equity method of
accounting, which significantly affects how these operations are reflected in
ConocoPhillips' consolidated statement of operations. Under the equity method of
accounting, ConocoPhillips' share of a joint venture's net income is recorded in
a single line item on the statement of operations: "Equity in earnings of
affiliates." Correspondingly, the other income statement line items (for
example, operating revenues, operating costs, etc.) include activity related to
these operations only up to the effective dates of the joint ventures.
Sales and other operating revenues increased 12 percent in 2001, primarily due
to the Tosco acquisition and increased crude oil production. These items were
partially offset by the use of equity-method accounting for the DEFS and CPChem
joint ventures, as well as a reduction in revenues attributable to certain
non-core assets sold at year-end 2000.
Equity in earnings of affiliated companies decreased 64 percent in 2001. In the
2001 period, ConocoPhillips incurred a before-tax equity loss from its
investment in CPChem of $240 million. ConocoPhillips' equity earnings related to
DEFS were higher in 2001, as a result of a full year's activity in 2001,
compared with only nine months in 2000. Equity earnings in 2001 benefited from a
full year's operations at MSLP, a 50-percent-owned equity company that owns and
operates the coker unit at the Sweeny, Texas, refinery. Other income decreased
59 percent in 2001, primarily attributable to lower net gains on asset sales in
2001 compared with 2000.
Total costs and expenses increased 16 percent in 2001, compared with 2000. The
increase was mainly the result of the Tosco acquisition, as well as a full
year's ownership of the company's Alaskan E&P operations that were acquired in
April 2000. These items were partially offset by the use of equity-method
accounting for the DEFS and CPChem joint ventures, and lower crude oil
acquisition costs at the company's refineries.
40
SEGMENT RESULTS
E&P
2002 2001 2000
------------------------------
Millions of Dollars
------------------------------
NET INCOME
Alaska $ 870 866 829
Lower 48 286 476 559
- -------------------------------------------------------------------------------------------
United States 1,156 1,342 1,388
International 593 357 557
- -------------------------------------------------------------------------------------------
$1,749 1,699 1,945
===========================================================================================
Dollars Per Unit
------------------------------
AVERAGE SALES PRICES
Crude oil (per barrel)
United States $23.83 23.57 28.83
International 25.14 24.16 28.42
Total consolidated 24.38 23.77 28.65
Equity affiliates 18.41 12.36 --
Worldwide 24.07 23.74 28.65
Natural gas--lease (per thousand cubic feet)
United States 2.75 3.56 3.47
International 2.79 2.60 2.56
Total consolidated 2.77 3.23 3.13
Equity affiliates 2.71 -- --
Worldwide 2.77 3.23 3.13
- -------------------------------------------------------------------------------------------
AVERAGE PRODUCTION COSTS PER BARREL OF OIL EQUIVALENT
United States $ 5.66 5.52 5.27
International 3.99 2.70 2.85
Total consolidated 4.94 4.60 4.29
Equity affiliates 4.38 2.74 --
Worldwide 4.92 4.60 4.29
- -------------------------------------------------------------------------------------------
FINDING AND DEVELOPMENT COSTS PER BARREL OF OIL
EQUIVALENT
United States $ 7.46 5.15 2.78
International* 5.09 6.80 1.17
Worldwide* 5.57 5.97 2.41
- -------------------------------------------------------------------------------------------
*Includes ConocoPhillips' share of equity affiliates
Millions of Dollars
------------------------------
WORLDWIDE EXPLORATION EXPENSES
General administrative; geological and geophysical; and
lease rentals $ 285 207 168
Leasehold impairment 146 51 39
Dry holes 161 48 91
- -------------------------------------------------------------------------------------------
$ 592 306 298
===========================================================================================
41
2002 2001 2000
------------------------------
Thousands of Barrels Daily
------------------------------
OPERATING STATISTICS
Crude oil produced
Alaska 331 339 207
Lower 48 40 34 34
- -------------------------------------------------------------------------------------------
United States 371 373 241
Norway 157 117 114
United Kingdom 39 19 25
Canada 13 1 6
Other areas 67 51 51
- -------------------------------------------------------------------------------------------
Total consolidated 647 561 437
Equity affiliates 35 2 --
- -------------------------------------------------------------------------------------------
682 563 437
===========================================================================================
Natural gas liquids produced
Alaska 24 25 19
Lower 48 8 1 1
- -------------------------------------------------------------------------------------------
United States 32 26 20
Norway 6 5 5
United Kingdom 2 2 2
Canada 4 -- 1
Other areas 2 2 1
- -------------------------------------------------------------------------------------------
46 35 29
===========================================================================================
Millions of Cubic Feet Daily
------------------------------
Natural gas produced*
Alaska 175 177 158
Lower 48 928 740 770
- -------------------------------------------------------------------------------------------
United States 1,103 917 928
Norway 171 130 136
United Kingdom 424 178 214
Canada 165 18 83
Other areas 180 92 33
- -------------------------------------------------------------------------------------------
Total consolidated 2,043 1,335 1,394
Equity affiliates 4 -- --
- -------------------------------------------------------------------------------------------
2,047 1,335 1,394
===========================================================================================
*Represents quantities available for sale. Excludes gas equivalent of natural
gas liquids shown above.
Thousands of Barrels Daily
------------------------------
Mining operations
Syncrude produced 8 -- --
- -------------------------------------------------------------------------------------------
2002 vs. 2001
Net income from ConocoPhillips' E&P segment increased 3 percent in 2002.
Although E&P benefited from four months of increased production volumes in 2002
following the merger, this was mostly offset by lower natural gas sales prices,
higher exploration expenses, and the unfavorable $24 million impact of a tax law
change in the United Kingdom. ConocoPhillips' average worldwide crude oil sales
price was
42
$24.07 per barrel in 2002, a 1 percent increase over $23.74 in 2001. The
company's average worldwide natural gas price in 2002 was $2.77 per thousand
cubic feet, a 14 percent decrease from $3.23 in 2001. However, natural gas
prices trended upward during 2002, with the company's December 2002 worldwide
price averaging $3.51 per thousand cubic feet.
ConocoPhillips' proved reserves at year-end 2002 were 7.81 billion barrels of
oil equivalent, a 52 percent increase over 5.13 billion barrels at year-end
2001. The increase was attributable to the merger.
2001 vs. 2000
Net income from ConocoPhillips' E&P segment decreased 13 percent in 2001, as the
positive impact of increased crude oil production was more than offset by lower
crude oil prices, and, to a lesser extent, lower natural gas production due
mainly to asset dispositions in Canada. Benefiting 2000 net income was higher
net gains on asset sales than in 2001. ConocoPhillips' average worldwide crude
oil sales price was $23.74 per barrel in 2001, a 17 percent decrease from $28.65
in 2000. Natural gas prices began 2001 at historically high levels, but trended
lower during the remainder of the year, with the company's December 2001 average
price at $2.34 per thousand cubic feet.
ConocoPhillips' proved reserves at year-end 2001 were 5.13 billion barrels of
oil equivalent, a 2 percent increase over 5.02 billion barrels at year-end 2000.
U.S. E&P
2002 vs. 2001
Net income from the company's U.S. E&P operations decreased 14 percent in 2002.
Although net income for 2002 benefited from four months of increased production
volumes following the merger, this was more than offset by lower natural gas
prices, lower production volumes in Alaska, and higher dry hole costs. The
company's U.S. average natural gas price in 2002 was 23 percent lower than 2001.
However, natural gas prices trended upward during 2002, with the company's
December 2002 average U.S. price at $3.66 per thousand cubic feet.
The company's U.S. crude oil production decreased slightly in 2002, while
natural gas production increased 20 percent. The increase in natural gas
production was mainly due to four months of production from fields acquired in
the merger. The merger impact on total crude oil production was offset by lower
production in Alaska, which experienced normal field declines, along with
operating interruptions at the Prudhoe Bay field during the year. With a full
year's combined production from both Conoco and Phillips operations, the company
expects that its total U.S. oil and gas production volumes will increase in 2003
over those of 2002. ConocoPhillips' fourth quarter production volumes, which
included a full period of combined operations, averaged 426,000 barrels per day
of liquids and 1,548 million cubic feet per day of natural gas.
2001 vs. 2000
Net income from the company's U.S. E&P operations decreased 3 percent in 2001,
compared with 2000. The 2001 results reflect a 55 percent increase in crude oil
production, due to a full year's production from the Alaska operations acquired
in April 2000, as well as increased production due to the startup of the Alpine
field in Alaska in December 2000. The benefit of increased crude oil production
was offset by
43
lower U.S. crude oil prices, which declined 18 percent in 2001. U.S. natural gas
production declined slightly in 2001, reflecting field declines and asset
dispositions. Benefiting 2000 net income was a net gain on asset sales of $44
million--most of which was related to the disposition of the company's coal and
lignite operations.
International E&P
2002 vs. 2001
Net income from the company's international E&P operations increased 66 percent
in 2002. The improvement reflects four months of increased production volumes
following the merger. However, 2002 net income included a $24 million deferred
tax charge related to tax law changes in the United Kingdom. In April 2002, the
U.K. government announced proposed changes to corporate tax laws specifically
impacting the oil and gas industry and production from the U.K. sector of the
North Sea. The proposed changes became law in July 2002. A 10 percent
supplementary charge to corporation taxes is now assessed on profits, which is
expected to be partially offset by the elimination of royalties and an increase
in first-year deduction allowances for capital investments. Net income in 2002
also included a $77 million leasehold impairment of deepwater Block 34, offshore
Angola, due to an unsuccessful exploratory well in the block, along with higher
dry hole charges.
The company's international crude oil production increased 64 percent in 2002,
while natural gas production increased 126 percent. The increases were mainly
due to the addition of four months of production from fields acquired in the
merger. With a full year's combined production from both Conoco and Phillips
operations, the company expects that its total international oil and gas
production volumes will increase in 2003 over those of 2002. ConocoPhillips'
fourth quarter production volumes, which included a full period of combined
operations, averaged 585,000 barrels per day of liquids and 1,994 million cubic
feet per day of natural gas.
2001 vs. 2000
Net income from ConocoPhillips' international E&P operations decreased 36
percent in 2001. The decrease was primarily the result of lower crude oil and
natural gas production volumes, as well as lower crude oil prices. Additionally,
after-tax foreign currency gains of $2 million were included in international
E&P's net income in 2001, compared with losses of $10 million in 2000. Net
income in 2000 included a net gain on property dispositions of $118 million
related to the disposition of the Zama area fields in Canada, partially offset
by an $86 million impairment of the Ambrosio field in Venezuela.
International crude oil production declined 3 percent in 2001, mainly due to
lower production in the U.K. North Sea, Venezuela and Canada, partly offset by
increased production from Norway and Nigeria. Canadian and Venezuelan crude oil
production declined relative to 2000 due to asset dispositions. Production in
the U.K. North Sea decreased on normal field declines. Production from Norway
improved in 2001 due to improved processing reliability and well workovers,
while Nigerian production increased on development activities and higher quotas.
International natural gas production declined 10 percent in 2001, primarily the
result of the Canadian asset dispositions and lower U.K. North Sea output noted
above, partially offset by higher production in Nigeria and new natural gas
production from offshore western Australia.
44
MIDSTREAM
2002 2001 2000
----------------------------
Millions of Dollars
----------------------------
NET INCOME $ 55 120 162
- -------------------------------------------------------------------
Dollars Per Barrel
----------------------------
AVERAGE SALES PRICES
U.S. natural gas liquids*
Consolidated $19.07 -- --
Equity 15.92 18.77 21.83**
- -------------------------------------------------------------------
Thousands of Barrels Daily
----------------------------
OPERATING STATISTICS
Natural gas liquids extracted 156 120 131***
Natural gas liquids fractionated 133 108 158
- --------------------------------------------------------------------
*Based on index prices from the Mont Belvieu and Conway market hubs that
are weighted by natural gas liquids component and location mix.
**Estimate based on ConocoPhillips' first quarter realized price and DEFS'
index price for the remainder of the year.
***Based on a weighted average of ConocoPhillips' volumes in the first
quarter of 2000, and ConocoPhillips' share of DEFS volumes for the
remainder of 2000.
2002 vs. 2001
ConocoPhillips' Midstream segment consists of the company's 30.3 percent
interest in Duke Energy Field Services, LLC (DEFS), as well as company-owned
natural gas gathering and processing operations and natural gas liquids
fractionation and marketing businesses. Net income from the Midstream segment
decreased 54 percent in 2002. The decrease was primarily due to lower results
from DEFS, which experienced a decline in natural gas liquids prices, increased
costs for gas imbalance accruals and other adjustments, and higher operating
expenses. These items were partially offset by the benefit of four month's
results from operations acquired in the merger.
Included in the Midstream segment's net income in 2002 was a benefit of $35
million, representing the amortization of the basis difference between the book
value of ConocoPhillips' contribution to DEFS and its 30.3 percent equity
interest in DEFS. The corresponding amount for 2001 was $36 million. See Note
8--Investments and Long-Term Receivables, in the Notes to Consolidated Financial
Statements for additional information on the basis difference.
2001 vs. 2000
Net income from the Midstream segment decreased 26 percent in 2001, primarily
the result of a 14 percent decline in natural gas liquids prices. In addition,
the Midstream segment's results were affected by the lack of interest charges in
the first quarter of 2000 prior to the formation of DEFS. DEFS incurs interest
expense in connection with financing incurred upon formation to fund cash
distributions to the parent entities. Prior to the formation of DEFS, the
Midstream segment did not have interest expense. Included in the Midstream
segment's net income in 2001 was a benefit of $36 million, representing the
amortization of the basis difference between the book value of ConocoPhillips'
contribution to DEFS and its 30.3 percent equity interest in DEFS. The
corresponding amount for 2000 was $27 million.
45
R&M
2002 2001 2000
-------------------------------
Millions of Dollars
-------------------------------
NET INCOME
United States $ 138 395 209
International 5 2 29
- --------------------------------------------------------------------------
$ 143 397 238
==========================================================================
Dollars Per Gallon
-------------------------------
U.S. AVERAGE SALES PRICES*
Automotive gasoline
Wholesale $ .96 .83 .92
Retail 1.03 1.01 1.07
Distillates--wholesale .77 .78 .88
- --------------------------------------------------------------------------
*Excludes excise taxes
Thousands of Barrels Daily
-------------------------------
OPERATING STATISTICS
Refining operations*
United States
Rated crude oil capacity** 1,829 732 335
Crude oil runs 1,661 686 303
Capacity utilization (percent) 91% 94 90
Refinery production 1,847 795 365
International
Rated crude oil capacity** 195 22 --
Crude oil runs 152 20 --
Capacity utilization (percent) 78% 91 --
Refinery production 164 19 --
Worldwide
Rated crude oil capacity** 2,024 754 335
Crude oil runs 1,813 706 303
Capacity utilization (percent) 90% 94 90
Refinery production 2,011 814 365
- --------------------------------------------------------------------------
Petroleum products sales volumes***
United States
Automotive gasoline 1,147 465 267
Distillates 392 170 107
Aviation fuels 185 78 41
Other products 372 220 50
- --------------------------------------------------------------------------
2,096 933 465
International 162 10 43
- --------------------------------------------------------------------------
2,258 943 508
==========================================================================
*2002 includes ConocoPhillips' share of equity affiliates.
**Weighted-average crude oil capacity for the period, including the refineries
acquired in the Tosco acquisition in September 2001 and the refineries
acquired as a result of the merger. Actual capacity at year-end 2002 and 2001
was 2,166 thousand and 1,656 thousand barrels per day, respectively, in the
United States and 440 thousand and 72 thousand barrels per day, respectively,
internationally.
***Excludes spot market sales.
46
2002 vs. 2001
Net income from the R&M segment declined 64 percent in 2002, reflecting lower
refining margins, along with an $84 million after-tax impairment of a tradename
and leasehold improvements of certain retail sites. See Note 10--Impairments in
the Notes to Consolidated Financial Statements for additional information on
these impairments. The R&M earnings for 2002 included four months' results from
operations acquired in the merger, as well as the impact of a full year's
results from Tosco operations, while the 2001 results included Tosco operations
for only the last three and one-half months of 2001.
Worldwide crude oil refining capacity utilization was 90 percent in 2002,
compared with 94 percent in 2001. The company's refineries produced 2,011,000
barrels per day of petroleum products in 2002, compared with 814,000 barrels per
day in 2001. The increase reflects a full year of operations for refineries
acquired in the Tosco acquisition and four months of operations for the
refineries acquired in the merger.
2001 vs. 2000
Net income from the R&M segment increased 67 percent in 2001. On September 14,
2001, ConocoPhillips closed on the acquisition of Tosco. This transaction
significantly increased the size of ConocoPhillips' R&M segment and benefited
2001 results. In addition to the Tosco acquisition, R&M's net income benefited
from higher gasoline and distillates margins, particularly during the second
quarter of 2001. Negatively affecting R&M results for the year were higher
utility costs at the company's refineries, resulting from higher natural gas
prices experienced in the first half of 2001.
Worldwide crude oil refining capacity utilization was 94 percent in 2001,
compared with 90 percent in 2000. The company's refineries produced 814,000
barrels per day of petroleum products in 2001, compared with 365,000 barrels per
day in 2000. The increase reflects the Tosco acquisition.
U.S. R&M
2002 vs. 2001
Net income from U.S. R&M operations declined 65 percent in 2002. The decrease
was primarily due to lower refining margins, particularly in the Midcontinent
and Gulf Coast regions, along with an $84 million after-tax impairment of a
tradename and leasehold improvements of certain retail sites. See Note
10--Impairments in the Notes to Consolidated Financial Statements for additional
information on these impairments. These items were partially offset by increased
production and sales volumes as a result of the Tosco acquisition and the
merger. Net income for 2002 included four months from operations acquired in the
merger, and a full year of Tosco operations, while the 2001 results included
Tosco operations for only three and one-half months. Results for 2001 included a
cumulative effect of a change in accounting principle that increased R&M net
income by $26 million. Effective January 1, 2001, ConocoPhillips changed its
method of accounting for the costs of major maintenance turnarounds from the
accrue-in-advance method to the expense-as-incurred method. Also included in
2001 was a $27 million write-down of inventories to market value.
The crude oil capacity utilization rate for ConocoPhillips' U.S. refineries was
91 percent in 2002, compared with 94 percent in 2001. The lower utilization rate
in 2002 reflects increased maintenance turnaround activity in 2002, the impact
of tropical storms on the company's Gulf Coast refineries in the third quarter
of 2002, and the impact of the loss of Venezuelan crude oil supply in the fourth
quarter.
47
2001 vs. 2000
Net income from the R&M segment's U.S. operations increased 89 percent in 2001,
compared with 2000. On September 14, 2001, ConocoPhillips closed on the
acquisition of Tosco. This transaction significantly increased the size of
ConocoPhillips' U.S. R&M operations and benefited 2001 net income.
In addition to the Tosco acquisition, R&M's earnings benefited from higher
gasoline and distillates margins, particularly during the second quarter of
2001, and the accounting change discussed above. Negatively affecting R&M
results for the year were higher utility costs at the company's refineries,
resulting from higher natural gas prices experienced in the first half of 2001,
as well as a $27 million write-down of inventories to market value. The Sweeny
refinery's 2001 net income benefited from the coker unit that was started up in
late 2000. The coker unit allows for the processing of heavier, lower-cost crude
oil, which reduced crude oil purchase costs and contributed to the improved
gasoline and distillates margins experienced during 2001.
ConocoPhillips' U.S. refineries (including those acquired in the Tosco
acquisition since the acquisition date) processed an average of 686,000 barrels
per day of crude oil in 2001, yielding a 94 percent capacity utilization rate.
This compares with 303,000 barrels per day and a utilization rate of 90 percent
in 2000. The Tosco acquisition accounted for 378,000 barrels per day in 2001.
International R&M
2002 vs. 2001
Net income from international R&M operations increased $3 million in 2002,
reflecting the impact of the merger, which added one wholly owned and five
joint-venture international refineries. A substantial part of ConocoPhillips'
international R&M results are related to its Humber refinery in the United
Kingdom, which had a 232,000 barrel per day crude oil processing capacity at
December 31, 2002. This refinery was shut down for an extended period of time
during the fourth quarter due to a power outage and subsequent downtime, which
negatively impacted international R&M's 2002 results.
The crude oil capacity utilization rate for ConocoPhillips' international
refineries was 78 percent in 2002, compared with 91 percent in 2001. The lower
utilization rate in 2002 reflects the extended shutdown at the Humber refinery
noted above.
2001 vs. 2000
Net income from the R&M segment's international operations decreased 93 percent
in 2001, compared with 2000, reflecting the late-2000 disposition of the
company's 50 percent interest in a refinery in Teesside, England. This was
partially offset by the addition of the Whitegate refinery in Ireland as part of
the Tosco acquisition in September 2001.
48
CHEMICALS
2002 2001 2000
------------------------------------
Millions of Dollars
------------------------------------
NET LOSS $ (14) (128) (46)
- -----------------------------------------------------------------
Millions of Pounds
-----------------------------------
OPERATING STATISTICS
Production*
Ethylene 3,217 3,291 3,574
Polyethylene 2,004 1,956 2,230
Styrene 887 456 404
Normal alpha olefins 592 563 293
- ----------------------------------------------------------------
*Production volumes for periods after July 1, 2000, include ConocoPhillips'
50 percent share of Chevron Phillips Chemical Company LLC.
2002 vs. 2001
ConocoPhillips' Chemicals segment consists of its 50 percent equity investment
in CPChem, which was formed when the company and ChevronTexaco combined their
worldwide chemicals businesses in July 2000.
The Chemicals segment incurred a net loss of $14 million in 2002, compared with
a net loss of $128 million in 2001. The worldwide chemicals industry experienced
an economic downturn beginning in the second half of 2000, and these difficult
conditions remained present through 2001 and 2002. The downturn has been marked
by decreased product demand and low product margins across key product lines.
The smaller net loss in 2002 was primarily the result of higher margins due to
lower operating expenses, feedstock costs and energy prices, partially offset by
decreased sales prices.
A fire caused the shutdown of styrene production at CPChem's St. James,
Louisiana, facility in February 2001. Production was restored in October 2001.
Production volumes for other major product lines were comparable between 2002
and 2001.
The net loss in 2001 included several asset retirements and impairments totaling
$84 million after-tax because of depressed economic conditions. A developmental
reactor at the Houston Chemical Complex in Pasadena, Texas, was retired;
property impairments were recorded on two polyethylene reactors at the Orange
chemical plant in Orange, Texas; an ethylene unit was retired at the Sweeny
complex in Old Ocean, Texas; an equity affiliate of CPChem recorded a property
impairment related to a polypropylene facility; property impairments were taken
on the manufacturing facility in Puerto Rico; and the benzene and cyclohexane
units at the Puerto Rico facility were retired. In addition, the valuation
allowance on the Puerto Rico facility's deferred tax asset related to its net
operating losses was increased in 2001 so that the deferred tax assets were
fully offset by valuation allowances. Partially offsetting these impairments was
a business interruption insurance settlement recorded by CPChem and a favorable
deferred tax adjustment, related to the tax basis of its investment, recorded by
ConocoPhillips that resulted from an impairment related to the Puerto Rico
facility, together totaling $57 million after-tax.
49
2001 vs. 2000
The Chemicals segment incurred a net loss of $128 million in 2001, compared with
a net loss of $46 million in 2000. Global conditions for the chemicals and
plastics industry were extremely difficult in 2001. Worldwide economic
slowdowns, including a recessionary economy in the United States, led to
decreased product demand and low product margins across many key product lines.
CPChem's results were negatively affected by low ethylene, polyethylene and
aromatics margins, as well as lower ethylene and polyethylene production. In
addition to low margins and production volumes, 2001 contained interest charges
incurred by CPChem that were not present in the first six months of 2000 prior
to the formation of CPChem.
The difficult marketing environment led to several asset retirements and
impairments being recorded by CPChem in 2001. Partially offsetting these
impairments was a business interruption insurance settlement recorded by CPChem
and a favorable deferred tax adjustment recorded by ConocoPhillips that resulted
from the Puerto Rico facility impairment, together totaling $57 million
after-tax.
The net loss in 2000 included ConocoPhillips' share of a property impairment
that CPChem recorded in the fourth quarter related to its Puerto Rico facility.
The impairment was required due to the deteriorating outlook for future
paraxylene market conditions and a shift in strategic direction at the facility.
In addition, a valuation allowance was recorded against a related deferred tax
asset. Combined, these two items resulted in a non-cash $180 million after-tax
charge to CPChem's earnings. ConocoPhillips' share was $90 million.
EMERGING BUSINESSES
Millions of Dollars
--------------------------------
2002 2001 2000
--------------------------------
NET LOSS
Carbon fibers $ (15) -- --
Fuels technology (16) (12) --
Gas-to-liquids (273) -- --
Power generation and other (6) -- --
- ------------------------------------------------------------------
$ (310) (12) --
==================================================================
2002 vs. 2001
The Emerging Businesses segment includes the development of new businesses
beyond the company's traditional operations. Emerging Businesses include carbon
fibers, natural gas-to-liquids technology, fuels technology and power
generation. Prior to the merger, this segment only included Phillips' fuels
technology business.
The Emerging Businesses segment posted a net loss of $310 million in 2002,
compared with a net loss of $12 million in 2001. Results for 2002 included a
$246 million write-off of acquired in-process research and development costs
related to Conoco's natural gas-to-liquids and other technologies. In accordance
with FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to
Business Combinations Accounted for by the Purchase Method," value assigned to
research and development activities in the purchase price allocation that have
no alternative future use should be charged to expense at the date of the
consummation of the combination. The $246 million charge was the same on both a
before-tax and after-
50
tax basis, as there was no tax basis to the assigned value prior to its
write-off. The increased number of developing businesses after the merger also
contributed to the larger losses in 2002.
ConocoPhillips announced in February 2003 that it will shut down its carbon
fibers project, as a result of market, operating and technology uncertainties.
At the time of the merger, the company identified these uncertainties facing the
carbon fibers project and initiated a strategic update for the new management of
the company. In early 2003, the strategic update was completed and management
made the decision to shut down the project. In the preliminary purchase price
allocation, the company valued the carbon fibers technology at an amount equal
to the plant construction costs. In the first quarter of 2003, the company will
reduce the preliminary purchase price allocation associated with this project
and accrue for shutdown, severance and other related costs that will result in a
corresponding net increase in goodwill of $125 million.
2001 vs. 2000
In 2001, the Emerging Businesses segment included the company's development of
new fuels technologies. Prior to 2001, these activities were not separately
identifiable, and were included in the R&M segment.
CORPORATE AND OTHER
Millions of Dollars
----------------------------------------
2002 2001 2000
----------------------------------------
NET LOSS
Net interest $ (396) (262) (278)
Corporate general and administrative expenses (173) (114) (87)
Discontinued operations (993) 32 14
Merger-related costs (307) -- --
Other (49) (71) (86)
- ---------------------------------------------------------------------------------------------
$(1,918) (415) (437)
=============================================================================================
2002 vs. 2001
Net interest represents interest expense, net of interest income and capitalized
interest. Net interest increased 51 percent in 2002, mainly due to higher debt
levels following the Tosco acquisition and the merger of Conoco and Phillips.
Corporate general and administrative expenses increased 52 percent in 2002,
primarily due to the impact of the merger. In addition, 2002 also included
higher benefit-related costs, primarily from the accelerated vesting of awards
under certain long-term compensation plans that occurred at the time of
stockholder approval of the merger.
Losses from discontinued operations were $993 million in 2002, compared with
income of $32 million in 2001. The 2002 amount included after-tax impairments
and loss accruals of $1,077 million associated with the assets held for sale.
See Note 4--Discontinued Operations in the Notes to Consolidated Financial
Statements for additional information on the impairments and loss accruals, as
well as a description of the assets included in discontinued operations.
51
Merger-related costs in 2002 included restructuring accruals of $252 million,
primarily related to work force reduction charges; change-in-control costs
associated with seismic contracts totaling $22 million; and other transition
costs of $33 million. Other merger-related costs of $250 million were recorded
by the operating segments, bringing total merger-related costs to $557 million
after-tax.
The category "Other" consists primarily of items not directly associated with
the operating segments on a stand-alone basis, including captive insurance
operations, certain foreign currency gains and losses, the tax impact of
consolidations, and dividends on the preferred securities of the Phillips 66
Capital Trusts I and II. Results from Other were improved in 2002 primarily due
to more favorable foreign currency transactions, and a favorable revaluation and
settlement of certain long-term incentive units that were converted into
Phillips performance units held by former senior Tosco executives, none of whom
are employees of ConocoPhillips. Included in 2002 and 2001 were extraordinary
losses on the early retirement of debt totaling $16 million and $10 million,
respectively.
2001 vs. 2000
Corporate and Other net loss decreased 5 percent in 2001, compared with 2000,
primarily due to lower net interest expense and improved results from
discontinued operations partially offset by higher staff costs, contributions,
corporate advertising and corporate transportation costs.
52
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL INDICATORS
Millions of Dollars
Except as Indicated
--------------------------------------
2002 2001 2000
--------------------------------------
Current ratio .9 1.3 .8
Total debt repayment obligations due within one year $ 849 44 262
Total debt $19,766 8,654 6,884
Mandatorily redeemable preferred securities of trust subsidiaries $ 350 650 650
Other minority interests $ 651 5 1
Common stockholders' equity $29,517 14,340 6,093
Percent of total debt to capital* 39% 37 51
Percent of floating-rate debt to total debt 12% 20 17
- -------------------------------------------------------------------------------------------------------------
*Capital includes total debt, mandatorily redeemable preferred securities, other
minority interests and common stockholders' equity. Expected new accounting
rules in 2003 likely will cause mandatorily redeemable preferred securities to
be presented as a liability. The increase in ConocoPhillips' debt-to-capital
ratio from December 31, 2001, to December 31, 2002, resulted primarily from the
merger. In addition to $12 billion of Conoco debt assumed, purchase accounting
required the debt to be recorded at fair value at the time of the merger,
increasing total debt by an additional $565 million.
SIGNIFICANT SOURCES OF CAPITAL
During 2002, cash of $4,969 million was provided by operating activities, an
increase of $1,407 million from 2001. Cash provided by operating activities
before changes in working capital increased $54 million compared with 2001,
primarily due to higher dividends from equity affiliates, higher crude oil
prices and higher crude oil and natural gas volumes, offset by lower natural gas
prices, lower refining margins, higher interest expenses and merger-related
costs. Positive working capital changes of $1,184 million were primarily due to
an increase in accounts payable, an increase in taxes and other accruals and a
decrease in inventories, partially offset by increased receivables. Discontinued
operations provided $202 million of operating cash flows in 2002, an increase of
$169 million compared to 2001. The increase in 2002 was primarily due to 2002
including a full year of cash flow from a portion of assets acquired in the
Tosco acquisition that are now included in discontinued operations.
During 2002, cash and cash equivalents increased $165 million. In addition to
the cash provided by operating activities, $815 million was received from the
sale of various ConocoPhillips assets; including the sale of exploration and
production assets in the Netherlands, assets in Canada and propane terminal
assets at Jefferson City, Missouri, and East St. Louis, Illinois. Funds were
used to support the company's ongoing capital expenditures program, repay debt
and pay dividends. In October 2002, ConocoPhillips' Board of Directors declared
a dividend of $.40 per share, payable December 2, 2002, which represented an 11
percent increase in the quarterly dividend.
To meet its liquidity requirements, including funding its capital program,
paying dividends and repaying debt, the company looks to a variety of funding
sources, primarily cash generated from operating activities. By the end of 2004,
however, the company anticipates raising funds of $3 billion to $4 billion, of
which approximately $600 million had been raised as of December 31, 2002, from
the sale of assets, including those assets required by the FTC to be sold. In
December 2002, ConocoPhillips entered into an agreement to sell its Woods Cross
refinery and associated marketing assets, subject to state and federal
regulatory approvals. Also in December 2002, the company committed to and
initiated a plan to sell a substantial portion of its U.S. company-owned retail
sites.
53
While the stability of the company's cash flows from operating activities
benefits from geographic diversity and the effects of upstream and downstream
integration, the company's operating cash flows remain exposed to the volatility
of commodity crude oil and natural gas prices and downstream margins, as well as
periodic cash needs to finance tax payments and crude oil, natural gas and
petroleum product purchases. The company's primary funding source for short-term
working capital needs is a $4 billion commercial paper program, a portion of
which may be denominated in euros (limited to euro 3 billion), supported by $4
billion in revolving credit facilities. Commercial paper maturities are
generally kept within 90 days. At December 31, 2002, ConocoPhillips had $1,517
million of commercial paper outstanding, of which $206 million was denominated
in foreign currencies.
Effective October 15, 2002, ConocoPhillips entered into two new revolving credit
facilities to replace the previously existing $2.5 billion Conoco credit
facilities, and also amended and restated a prior Phillips revolving credit
facility to include ConocoPhillips as a borrower. The company now has a $2
billion 364-day revolving credit facility expiring on October 14, 2003, and two
revolving credit facilities totaling $2 billion expiring in October 2006. There
were no outstanding borrowings under any of these facilities at December 31,
2002. These credit facilities support the company's $4 billion commercial paper
program. ConocoPhillips' Norwegian subsidiary has two $300 million revolving
credit facilities that expire in June 2004, under which no borrowings were
outstanding as of December 31, 2002.
In addition to the bank credit facilities, ConocoPhillips sells certain credit
card and trade receivables to two Qualifying Special Purpose Entities (QSPEs) in
revolving-period securitization arrangements. These arrangements provide for
ConocoPhillips to sell, and the QSPEs to purchase, certain receivables and for
the QSPEs to then issue beneficial interests of up to $1.5 billion to five
bank-sponsored entities. At December 31, 2002 and 2001, the company had sold
accounts receivable of $1.3 billion and $940 million, respectively. The
receivables sold have been sufficiently isolated from ConocoPhillips to qualify
for sales treatment. All five bank-sponsored entities are multi-seller conduits
with access to the commercial paper market and purchase interests in similar
receivables from numerous other companies unrelated to ConocoPhillips.
ConocoPhillips has no ownership in any of the bank-sponsored entities and has no
voting influence over any bank-sponsored entity's operating and financial
decisions. As a result, ConocoPhillips does not consolidate any of these
entities. Beneficial interests retained by ConocoPhillips in the pool of
receivables held by the QSPEs are subordinate to the beneficial interests issued
to the bank-sponsored entities and were measured and recorded at fair value
based on the present value of future expected cash flows estimated using
management's best estimates concerning the receivables performance, including
credit losses and dilution discounted at a rate commensurate with the risks
involved to arrive at present value. These assumptions are updated periodically
based on actual credit loss experience and market interest rates. ConocoPhillips
also retains servicing responsibility related to the sold receivables. The fair
value of the servicing responsibility approximates adequate compensation for the
servicing costs incurred. ConocoPhillips' retained interest in the sold
receivables at December 31, 2002 and 2001, was $1.3 billion and $450 million,
respectively. Under accounting principles generally accepted in the United
States, the QSPEs are not consolidated by ConocoPhillips. ConocoPhillips
retained interest in sold receivables is reported on the balance sheet in
accounts and notes receivable. See Note 13--Sales of Receivables in the Notes to
Consolidated Financial Statements for additional information.
On October 9, 2002, ConocoPhillips issued $2 billion of senior unsecured debt
securities, consisting of $400 million 3.625% notes due 2007, $1 billion 4.75%
notes due 2012, and $600 million 5.90% notes due 2032. The $1,980 million net
proceeds of the offering were used to reduce commercial paper, to retire
Conoco's $500 million floating rate notes due October 15, 2002, and for general
corporate purposes.
54
Moody's Investor Service has assigned a rating of A3 on ConocoPhillips' senior
long-term debt; and Standard and Poors and Fitch have assigned a rating of A-.
ConocoPhillips does not have any ratings triggers on any of its corporate debt
that would cause an automatic event of default in the event of a downgrade of
ConocoPhillips' debt rating and thereby impacting ConocoPhillips' access to
liquidity. In the event that ConocoPhillips' credit were to deteriorate to a
level that would prohibit ConocoPhillips from accessing the commercial paper
market, ConocoPhillips would still be able to access funds under its $4.6
billion revolving credit facilities. Based on ConocoPhillips' year-end
commercial paper balance of $1.5 billion, ConocoPhillips had access to $3.1
billion in borrowing capacity as of December 31, 2002, after repaying all
outstanding commercial paper, which provides ample liquidity to cover any needs
that its businesses may require to cover daily operations.
OTHER FINANCING AND OFF-BALANCE SHEET ARRANGEMENTS
During 1996 and 1997, ConocoPhillips formed two statutory business trusts,
Phillips 66 Capital I and Phillips 66 Capital II. The company owns all of the
common securities of the trusts and the trusts are consolidated by the company.
The trusts exist for the sole purpose of issuing preferred securities to outside
investors, and investing the proceeds thereof in an equivalent amount of
subordinated debt securities of ConocoPhillips. The two trusts were established
to raise funds for general corporate purposes. The subordinated debt securities
of ConocoPhillips held by the trusts are eliminated in consolidation. The $300
million of 8.24% Trust Originated Preferred Securities issued by Phillips 66
Capital Trust I became callable, at par, $25 per share, during May 2001. On May
31, 2002, ConocoPhillips redeemed all of its outstanding subordinated debt
securities held by the Trust, which triggered the redemption of the $300 million
of trust preferred securities at par value, $25 per share. The redemption was
funded by the issuance of commercial paper. The remaining $350 million of
mandatorily redeemable preferred trust securities issued by Phillips 66 Capital
Trust II are mandatorily redeemable in 2037, when the subordinated debt
securities of ConocoPhillips held by the trust are required to be repaid. The
mandatorily redeemable preferred securities are presented in the mezzanine
section of the balance sheet. See Note 17--Preferred Stock and Other Minority
Interests in the Notes to Consolidated Financial Statements.
ConocoPhillips also had outstanding, at December 31, 2002, $645 million of
equity held by minority interest owners, which provide a preferred return to
those minority interest holders. In 1999, Conoco formed Conoco Corporate
Holdings L.P. by contributing an office building and four aircraft. The limited
partner interest was sold to Highlander Investors L.L.C. for $141 million, which
represented an initial net 47 percent interest. Highlander is entitled to a
cumulative annual priority return on its investment of 7.86 percent. The net
minority interest in Conoco Corporate Holdings was $141 million at December 31,
2002, and is mandatorily redeemable in 2019 or callable without penalty
beginning in the fourth quarter of 2004. In 2001, Conoco and Cold Spring Finance
S.a.r.l. formed Ashford Energy Capital S.A. through the contribution of cash and
a Conoco subsidiary promissory note. Cold Spring Finance S.a.r.l. held a $504
million net minority interest in Ashford Energy at December 31, 2002, and is
entitled to a cumulative annual preferred return on its investment, based on
three-month LIBOR rates plus 1.27 percent. The preferred return at December 31,
2002, was 2.70 percent. These minority interests are presented in the mezzanine
section of the balance sheet. See Note 17--Preferred Stock and Other Minority
Interests in the Notes to Consolidated Financial Statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," and later in 2003, the FASB is expected to issue
Statement of Financial Accounting Standards (SFAS) No. 149, "Accounting for
Certain Financial Instruments with Characteristics of Liabilities and Equity."
The company is evaluating these new pronouncements to determine whether the
amounts currently presented in the mezzanine section of the balance sheet will
be required to be presented as debt or as equity
55
on the balance sheet. See Note 27--New Accounting Standards and Note
28--Variable Interest Entities in the Notes to Consolidated Financial Statements
for more information.
The company leases ocean transport vessels, drillships, tank railcars, corporate
aircraft, service stations, computers, office buildings, certain refining
equipment, and other facilities and equipment. Prior to the acquisition of Tosco
and the merger, the company had in place leasing arrangements for tankers,
corporate aircraft and the construction of various retail marketing outlets. At
December 31, 2002, approximately $730 million had been utilized under those
arrangements, which is the total capacity available. At the time the company
acquired Tosco, Tosco had in place previously arranged leasing arrangements for
various retail stations and two office buildings in Tempe, Arizona. At December
31, 2002, approximately $1.3 billion had been utilized under those arrangements,
which is the total capacity available. In addition, at the time of the merger,
Conoco had in place leasing arrangements for certain refining equipment, two
drillships, and various retail marketing outlets. At December 31, 2002,
approximately $370 million had been utilized under those arrangements.
Several of the above leasing arrangements are with special purpose entities
(SPEs) that are third-party trusts established by a trustee and funded by
financial institutions. Other than those leasing arrangements, ConocoPhillips
has no other direct or indirect relationship with the trusts or their investors.
Each SPE from which ConocoPhillips leases assets is funded by at least 3 percent
substantive, unaffiliated third-party, residual equity capital investment, which
is at risk during the entire term of the lease. Changes in market interest rates
do have an impact on the periodic amount of lease payments. ConocoPhillips has
various purchase options to acquire the leased assets from the SPEs at the end
of the lease term, but those purchase options are not required to be exercised
by ConocoPhillips under any circumstances. If ConocoPhillips does not exercise
its purchase option on a leased asset, the company does have guaranteed residual
values, which are due at the end of the lease terms, but those guaranteed
amounts would be reduced by the fair market value of the leased assets returned.
These various leasing arrangements meet all requirements under generally
accepted accounting principles to be treated as operating leases. However, in
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities," which will require consolidation in July 2003 of certain
SPEs that were created prior to January 31, 2003, and which are still in
existence at June 15, 2003. The company is evaluating the new Interpretation to
determine whether the assets and debt of the leasing arrangements would be
consolidated. See Note 28--Variable Interest Entities in the Notes to
Consolidated Financial Statements for more information. If the company is
required to consolidate all of these entities, the assets of the entities and
debt of approximately $2.4 billion would be required to be included in the
consolidated financial statements. The company's maximum exposure to loss as a
result of its involvement with the entities would be the debt of the entity less
the fair value of the assets at the end of the lease terms. Of the $2.4 billion
debt that would be consolidated, approximately $1.5 billion is associated with a
major portion of the company's owned retail stores that the company has
announced it plans to sell. As a result of the planned divestiture, the company
plans to exercise purchase option provisions during 2003 and terminate various
operating leases involving approximately 900 store sites and two office
buildings. In addition, see Note 4--Discontinued Operations in the Notes to
Consolidated Financial Statements for details regarding the provisions for
losses and penalties recorded in the fourth quarter, 2002 for the planned
divestiture. Depending upon the timing of the company's exercise of these
purchase options, and the determination of whether or not the lessor entities in
these operating leases are variable interest entities requiring consolidation in
2003, some or all of these lessor entities could become consolidated
subsidiaries of the company prior to the exercise of the purchase options and
termination of the leases. See Note 14--Guarantees and Note 19--Non-Mineral
Leases in the Notes to Consolidated Financial Statements.
56
During 2000, ConocoPhillips contributed its midstream gas gathering, processing
and marketing business and its worldwide chemicals business to joint ventures
with Duke Energy Corporation and ChevronTexaco Corporation, as successor to
Chevron Corporation (ChevronTexaco), respectively, forming DEFS and CPChem,
respectively. ConocoPhillips owns 30.3 percent of DEFS and 50 percent of CPChem,
accounting for its interests in both companies using the equity method of
accounting. The capital and financing programs of both of these joint-venture
companies are intended to be self-funding.
DEFS supplies a substantial portion of its natural gas liquids to ConocoPhillips
and CPChem under a supply agreement that continues until December 31, 2014. This
purchase commitment is on an "if-produced, will-purchase" basis so it has no
fixed production schedule, but has been, and is expected to be, a relatively
stable purchase pattern over the term of the contract. Natural gas liquids are
purchased under this agreement at various published market index prices, less
transportation and fractionation fees. DEFS also purchases raw natural gas from
ConocoPhillips' E&P operations.
ConocoPhillips and CPChem have multiple supply and purchase agreements in place,
ranging in initial terms from four to 15 years, with extension options. These
agreements cover sales and purchases of refined products, solvents, and
petrochemical and natural gas liquids feedstocks, as well as fuel oils and
gases. Delivery quantities vary by product, ranging from zero to 100 percent of
production capacity at a particular refinery, most at the buyer's option. All
products are purchased and sold under specified pricing formulas based on
various published pricing indexes, consistent with terms extended to third-party
customers.
In the second quarter of 2001, ConocoPhillips and its co-venturers in the Hamaca
project secured approximately $1.1 billion in a joint debt financing for their
heavy-crude oil project in Venezuela. The Export-Import Bank of the United
States provided a guarantee supporting a 17-year-term $628 million bank
facility. The joint venture also arranged a $470 million 14-year-term commercial
bank facility for the project. Total debt of $947 million was outstanding under
these credit facilities at December 31, 2002. ConocoPhillips, through the joint
venture, holds a 40 percent interest in the Hamaca project, which is operated on
behalf of the co-venturers by Petrolera Ameriven. The proceeds of these joint
financings are being used to partially fund the development of the heavy-oil
field and the construction of pipelines and a heavy-oil upgrader. The remaining
necessary funding will be provided by capital contributions from the
co-venturers on a pro rata basis to the extent necessary to successfully
complete construction. Once completion certification is achieved, the joint
project financings will become non-recourse with respect to the co-venturers and
the lenders under those facilities can then look only to the Hamaca project's
cash flows for payment.
MSLP is a limited partnership in which ConocoPhillips and PDVSA each own an
indirect 50 percent interest. During 1999, MSLP issued $350 million of 8.85
percent bonds due 2019 that ConocoPhillips and PDVSA are joint-and-severally
liable for under a construction completion guarantee. The bond proceeds were
used to fund construction of a coker, vacuum unit and related facilities at the
ConocoPhillips Sweeny refinery plus certain improvements to existing facilities
at the same location. MSLP owns and operates the coker and vacuum unit and, in
the third quarter of 2000, began processing long residue produced from the
Venezuelan Merey crude oil delivered under a supply agreement that
ConocoPhillips has with PDVSA. MSLP charges ConocoPhillips a fee to process the
long residue through the vacuum unit and coker. This is the partnership's
primary source of revenue. If completion certification is not attained by 2004,
the full debt is due. Upon completion certification, the 8.85 percent bonds
become non-recourse to the two MSLP partners and the bondholders can then look
only to MSLP cash flows for payment.
57
ConocoPhillips purchased the improvements to existing facilities from MSLP for a
price equal to the cost of construction and MSLP provided seller financing.
Terms of financing provide for 240 monthly payments of principal and interest
commencing September 2000 with interest accruing at a 7 percent annual rate. The
principal balance due on the seller financing was $131 million at December 31,
2002, and is included as long-term debt in ConocoPhillips' balance sheet. MSLP
pays a monthly access fee to ConocoPhillips for the use of the improvements to
the refinery. The access fee equals the monthly principal and interest paid by
ConocoPhillips to purchase the improvements from MSLP. To the extent the access
fee is not paid by MSLP, ConocoPhillips is not obligated to make payments for
the improvements.
During the first quarter of 2002, MSLP issued $25 million of tax-exempt bonds
due 2021. This issuance, combined with similar bonds MSLP issued in 1998, 2000,
and 2001, bring the total outstanding to $100 million. As a result of the
company's support as a primary obligor of a 50 percent share of these MSLP
financings, $50 million and $38 million of long-term debt is included in
ConocoPhillips' balance sheet at December 31, 2002, and December 31, 2001,
respectively.
ConocoPhillips has transactions with many unconsolidated affiliates. Equity
affiliate sales and services to ConocoPhillips amounted to $1,545 million in
2002, $1,110 million in 2001 and $1,347 million in 2000. Equity affiliate
purchases from ConocoPhillips totaled $1,554 million in 2002, $935 million in
2001 and $1,573 million in 2000. These agreements were not the result of
arms-length negotiations. However, ConocoPhillips believes that these contracts
are generally at values that are similar to those that could be negotiated with
independent third parties.
CAPITAL REQUIREMENTS
For information about ConocoPhillips' capital expenditures and investments, see
"Capital Spending" below.
During 2002 and January 2003, ConocoPhillips redeemed the following notes and
funded the redemptions with commercial paper:
o its $250 million 8.86% notes due May 15, 2022, at 104.43 percent;
o its $171 million 7.443% senior unsecured notes due 2004;
o its $250 million 8.49% notes due January 1, 2023, at 104.245
percent; and
o its $181 million SRW Cogeneration Limited Partnership note.
In addition, in April 2003, ConocoPhillips plans to redeem its $250 million
7.92% notes due in 2023 at 103.96 percent.
58
The following table summarizes the maturities of the drawn balances of the
company's various debt instruments, as well as other non-cancelable, fixed or
minimum, contractual commitments, as of December 31, 2002:
Millions of Dollars
-------------------------------------------------------------
Payments Due by Period
-------------------------------------------------------------
Up to 1 2-3 4-5 After
Debt and other non-cancelable cash commitments Total Year Years Years 5 Years
- ------------------------------------------------------------------------------------------------------------------------------
Total debt* $ 19,766 849 2,667 3,827 12,423
Mandatorily redeemable other minority interests and preferred
securities 491 -- -- -- 491
Operating leases
Minimum rental payments** 4,101 649 1,025 792 1,635
Sublease offsets (641) (129) (165) (83) (264)
Unconditional throughput and processing fee and purchase
commitments*** 3,785 438 760 598 1,989
- ------------------------------------------------------------------------------------------------------------------------------
*Includes net unamortized premiums and discounts.
**Excludes $383 million in lease commitments that begin upon delivery of five
crude oil tankers currently under construction. Delivery is expected in the
third and fourth quarters of 2003.
***Represents non-market purchase commitments and obligations to transfer funds
in the future for fixed or minimum amounts at fixed or minimum prices under
various throughput or tolling agreements.
In addition to the above contractual commitments, the company has various
guarantees that have the potential for requiring cash outflows resulting from a
contingent event that could require company performance pursuant to a funding
commitment to a third or related party. See Note 14--Guarantees in the Notes to
Consolidated Financial Statements for additional details. The following table
summarizes the potential amounts and remaining time frames of these direct and
indirect guarantees, as of December 31, 2002.
Millions of Dollars
------------------------------------------------------------
Amount of Expected Guarantee Expiration Per Period
------------------------------------------------------------
Up to 1 2-3 4-5 After
Direct and indirect guarantees Total Year Years Years 5 Years
- ------------------------------------------------------------------------------------------------------------------------------
Construction completion guarantees* $ 859 418 441 -- --
Guaranteed residual values on leases** 1,821 196 1,046 145 434
Guarantees of joint-venture debt*** 355 54 74 8 219
Other guarantees and indemnifications**** 662 121 141 37 363
- ------------------------------------------------------------------------------------------------------------------------------
*Amounts represent ConocoPhillips' maximum future potential payments under
construction completion guarantees for debt and bond financing arrangements
secured by the Hamaca and Merey Sweeny joint-venture projects in Venezuela
and Texas, respectively. The debt is non-recourse to ConocoPhillips upon
completion certification of the projects. Figures in the table represent
maximum amount due under the guarantee in the event completion certification
is not achieved. The Merey Sweeny debt is joint-and-several and included at
its gross amount.
**Represents maximum additional amounts that would be due at the end of the
term of certain operating leases if the fair value of the leased property
was less than the guaranteed amount. See Note 19--Non-Mineral Leases in the
Notes to Consolidated Financial Statements.
***Represents amount of obligations directly guaranteed by the company in the
event a guaranteed joint venture does not perform.
****Represents Merey Sweeny, L.P. agreement requirement to pay cash calls as
required to meet minimum operating requirements of the venture, in the event
revenues do not cover expenses over the next 18 years. Also includes certain
potential payments related to two drillships, two LNG vessels, dealer and
jobber loan guarantees to support the company's marketing business, a
guarantee supporting a lease assignment on a corporate aircraft and
guarantees of lease payment obligations for a joint venture. The maximum
amount of future payments under tax and general indemnifications from normal
ongoing operations is indeterminable.
59
CAPITAL SPENDING
CAPITAL EXPENDITURES AND INVESTMENTS
Millions of Dollars
--------------------------------------
2003
Budget 2002 2001 2000**
--------------------------------------
E&P
United States-Alaska $ 704 706 965 538
United States-Lower 48 780 499 389 413
International 3,433 2,071 1,162 726
- --------------------------------------------------------------------
4,917 3,276 2,516 1,677
- --------------------------------------------------------------------
Midstream 23 5 -- 17
- --------------------------------------------------------------------
R&M
United States 881 676 423 217
International 250 164 5 --
- --------------------------------------------------------------------
1,131 840 428 217
- --------------------------------------------------------------------
Chemicals -- 60 6 67
Emerging Businesses 248 122 -- --
Corporate and Other* 173 85 66 39
- --------------------------------------------------------------------
$6,492 4,388 3,016 2,017
====================================================================
United States $2,630 2,043 1,849 1,264
International 3,862 2,345 1,167 753
- --------------------------------------------------------------------
$6,492 4,388 3,016 2,017
====================================================================
Discontinued operations $ 60 97 69 5
- --------------------------------------------------------------------
*Excludes discontinued operations.
**Excludes the Alaskan acquisition.
ConocoPhillips' capital spending for continuing operations for the three-year
period ending December 31, 2002, totaled $9.4 billion, excluding the purchase of
ARCO's Alaskan businesses in 2000. The company's spending was primarily focused
on the growth of its E&P business, with more than 79 percent of total spending
for continuing operations in this segment. On March 31, 2000, ConocoPhillips
contributed the gas gathering, processing and marketing portion of its then
Midstream business to DEFS. On July 1, 2000, ConocoPhillips contributed its
Chemicals business to CPChem. The capital programs of these joint-venture
companies are intended to be self-funding.
Including approximately $400 million in capitalized interest and $200 million
that will be funded by minority interests in the Bayu-Undan gas export project,
ConocoPhillips' Board of Directors (Board) has approved $6.5 billion for capital
projects and investments for continuing operations in 2003, a 48 percent
increase over 2002 capital spending of $4.4 billion. The company plans to direct
approximately 75 percent of its 2003 capital budget to E&P and about 17 percent
to R&M. The remaining budget will be allocated toward emerging businesses,
mainly power generation, and general corporate purposes, with a significant
majority related to global integration of systems. Forty-one percent of the
budget is targeted for projects in the United States. In addition to the above
budget, ConocoPhillips expects to spend about $300 million to exercise purchase
options for retail stores and office buildings, which are currently within
various lease arrangements.
60
E&P
Capital spending for continuing operations for E&P during the three-year period
ending December 31, 2002, totaled $7.5 billion. The expenditures over the
three-year period supported several key exploration and development projects
including:
o National Petroleum Reserve--Alaska (NPR-A) and satellite field
prospects on Alaska's North Slope;
o the Hamaca heavy-oil project in Venezuela's Orinoco Oil Belt;
o the Peng Lai 19-3 discovery in China's Bohai Bay and additional
Bohai Bay appraisal and satellite field prospects;
o the Kashagan field in the north Caspian Sea, offshore Kazakhstan;
o the Jade, Clair and CMS3 developments in the United Kingdom;
o the Bayu-Undan gas recycle project in the Timor Sea;
o acquisition of deepwater exploratory interests in Angola, Nigeria,
Brazil, and the U.S. Gulf of Mexico;
o fields in Vietnam;
o Canadian conventional oil and gas projects, as well as expansion of
the Syncrude project; and
o fields in Indonesia.
Capital expenditures for construction of the Endeavour Class tankers and an
additional interest in the Trans-Alaska Pipeline System were also included in
the E&P segment.
ConocoPhillips has contracted to build, for approximately $200 million each,
five double-hulled Endeavour Class tankers for use in transporting Alaskan crude
oil to the U.S. West Coast. During 2001, the Polar Endeavour, the first
Endeavour Class tanker, entered service. The second tanker, the Polar
Resolution, entered service in May 2002. The third tanker, the Polar Discovery,
was christened on April 13, 2002, and is expected to enter service in 2003.
ConocoPhillips expects to add a new Endeavour Class tanker to its fleet each
year through 2005, allowing the company to retire older ships and cancel
non-operated charters.
In 2002, the company and its co-venturers drilled or participated in 69
development wells at the Alaska Prudhoe Bay field. Also, new equipment was added
to increase the efficiency of the field's existing water flood. At the Kuparuk
field, 14 new development wells were added, and the Drill Site 3S (Palm) was
installed earlier in the year. Production at Palm began in the fourth quarter.
At Alpine, nine new development wells were added. Other capital spending at
Alpine included facility improvements.
During the fourth quarter of 2001, heavy-crude-oil production began from the
Hamaca project in Venezuela's Orinoco Oil Belt. Construction of an upgrader to
convert heavy crude into a 26-degree API synthetic crude continues. Completion
of the upgrader is expected in 2004. ConocoPhillips owns a
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40 percent equity interest in the Hamaca project. ConocoPhillips' other
heavy-oil project, Petrozuata, incurred no significant capital expenditures in
2002. In addition to the Hamaca development and Petrozuata, ConocoPhillips
submitted a Declaration of Commerciality to the Venezuelan government on the
Corocoro oil discovery in the fourth quarter of 2002. Development approval is
expected in the first half of 2003, with expenditures to follow later in the
year.
In 2002, development activities continued on the company's Peng Lai 19-3
discovery in Block 11/05 in China's Bohai Bay with production beginning late in
the fourth quarter of 2002. Technical design activities for the second phase of
development continued during 2002.
In 2002, ConocoPhillips and its co-venturers, in conjunction with the government
of the Republic of Kazakhstan, declared the Kashagan field on the Kazakhstan
shelf in the north Caspian Sea to be commercial. This declaration of
commerciality enabled preparation of a development plan for the field. Drilling
of the first of five planned appraisal wells was successfully completed in early
2002. Evaluation of test results continues on the second and third wells,
drilling operations continue on the fourth, and testing continues on the fifth
of these appraisal wells. In May 2002, ConocoPhillips, along with the other
remaining co-venturers, completed the acquisition of proportionate interests of
other co-venturers rights, which increased ConocoPhillips' ownership interest
from 7.14 percent to 8.33 percent. In October 2002, ConocoPhillips and its
co-venturers announced a new hydrocarbon discovery in the Kazakhstan sector of
the Caspian Sea. An initial test well, the Kalamkas-1, flowed oil. This well is
located adjacent to the Kashagan field.
In 2002, development of ConocoPhillips' Jade field, in the U.K. sector of the
North Sea, continued with first production occurring in February 2002. A second
production well was successfully drilled and began producing during the second
quarter of 2002. In the second half of the year, two more production wells were
completed and began producing. ConocoPhillips is the operator and holds a 32.5
percent interest in Jade. An exploration well was spudded late in 2002 and
drilling operations are continuing into 2003.
In September 2002, ConocoPhillips began production from the Hawksley field in
the southern sector of the U.K. North Sea. The Hawksley discovery well,
44/17a-6y, was completed in July 2002 in one of five natural gas reservoirs
currently being developed by ConocoPhillips as a single, unitized project. The
other reservoirs are McAdam, Murdoch K, Boulton, and Watt. Collectively, they
are known as CMS3 due to their utilization of the production and transportation
facilities of the ConocoPhillips-operated Caister Murdoch system (CMS).
ConocoPhillips is the operator of CMS3 and holds a 59.5 percent interest.
ConocoPhillips' $1.9 billion gross Bayu-Undan gas-recycle project activities
continued in the Timor Sea during 2002. This involved the drilling of future
production wells from the wellhead platform and the installation of the platform
jackets and all in-field flowlines. Fabrication and assembly of two large
platform decks continues in Korea, as does work on the multi-product floating,
storage and offtake vessel (FSO). At year-end, the project was approximately 69
percent complete. During mid-2003, the decks and FSO will be installed with
first gas and commissioning commencing in the third quarter of 2003. Liquid
sales will commence in early 2004 with production ramp-up occurring during the
first six months of 2004. Activity associated with the Bayu-Undan gas export
project, including a pipeline to Darwin and a liquefied natural gas plant,
currently is focused on preparation of approval documentation and project
design. Construction is expected to start in early 2003, following the Timor Sea
Treaty ratification by Australia. ConocoPhillips' direct interest in the
unitized Bayu-Undan field was 55.9 percent at year-end 2002. A further 8.25
percent interest was held through Petroz N.L., in which the company had an 89.7
percent stock ownership at year-end. ConocoPhillips has effective voting control
over the pipeline and liquefied natural gas plant component of the gas export
project and thus plans to consolidate that part of the Bayu-Undan project and
present the other venturers as minority interests.
62
In 2002, ConocoPhillips continued pursuing the goal of increasing its presence
in high-potential deepwater areas. ConocoPhillips was the high bidder in the
central Gulf of Mexico sale for the Lorien prospect located in Green Canyon
Block 199 and was officially awarded the block in 2002. In Brazil,
ConocoPhillips acquired joint-venture partners for its two deepwater blocks and
purchased additional seismic data. Plans for 2003 include the purchase of
additional seismic data and the further evaluation of the two blocks' prospects.
In May 2002, initial results showed that the first exploratory well drilled in
Block 34, offshore Angola, was a dry hole. In view of this information,
ConocoPhillips reassessed the fair value of the remainder of the block and
determined that its investment in the block was impaired by $77 million, both
before- and after-tax. Further technical analysis of the results of this first
well continues. The second of three commitment wells in this block is scheduled
for drilling in 2003.
ConocoPhillips entered into a production sharing contract on Oil Prospecting
Lease (OPL) 318, deepwater Nigeria, on June 14, 2002, where ConocoPhillips is
operator with 50 percent interest. The acquisition of 3-D seismic data on OPL
318 is planned to begin in 2003, with the first exploratory well expected to be
drilled in the fourth quarter of 2004.
In the third quarter of 2002, production began from two new wellhead platforms
in the Block 15-2 Rang Dong field in Vietnam. These additional platforms
increased production from the field from under 6,800 to over 12,400 net barrels
per day at year-end 2002.
In Canada, total capital expended in 2002 was $136 million. Capital spending for
conventional oil and gas properties was $75 million and Syncrude expansion
continued with $54 million expended. In addition, the Mackenzie Delta/Parson's
Lake project efforts focused on gaining pipeline regulatory approval and
acquiring seismic data.
ConocoPhillips continued with the development of key gas fields in the Natuna
Sea in Indonesia. Total spending on Block B gas development in the last four
months of 2002 was $101 million, including investment in the Belanak floating,
production, storage and offtake vessel and wellhead platform, plus wells and
pipeline infrastructure required for the newly commenced gas sales to Petronas
Malaysia.
ConocoPhillips acquired a 14 percent interest in PT Transportasi Gas Indonesia
(TGI) in 2002. The primary assets of TGI are the Grissik-Duri pipeline, which
has been in operation since 1998, and the Grissik-Singapore pipeline that is
currently under construction with a completion date expected in late 2003. Total
funding in 2002 was $54 million, which includes acquisition cost and capital
expenditures.
Other capital spending for E&P during the three year-period ended December 31,
2002, supported:
o the Eldfisk waterflood development in Norway;
o the acquisition and development of coalbed-methane and conventional
gas prospects and producing properties in the U.S. Lower 48; and
o North Sea prospects in the U.K. and Norwegian sectors, plus other
Atlantic Margin wells in the United Kingdom, Greenland and the Faroe
Islands.
63
2003 Capital Budget
E&P's 2003 capital budget for continuing operations is $4.9 billion, 50 percent
higher than actual expenditures in 2002. Thirty percent of E&P's 2003 capital
budget is planned for the United States. Of that, 47 percent is slated for
Alaska.
ConocoPhillips has budgeted $461 million for worldwide exploration capital
activities in 2003, with 28 percent of that amount, $131 million allocated for
the United States. More than $41 million of the U.S. total will be directed
toward the exploration program in Alaska, where wells are planned in the NPR-A
and other locations on the North Slope. Outside the United States, significant
exploration expenditures are planned in Kazakhstan, Venezuela, the United
Kingdom and Norway.
The company plans to spend about $700 million in 2003 for its Alaskan
operations. Large capital projects include the ongoing construction of three
Endeavour Class tankers; development of the Meltwater, Palm and West Sak fields
in the Greater Kuparuk area; development of the Borealis field in the Greater
Prudhoe Bay area; as well as the exploratory activity discussed above.
In the Lower 48, capital expenditures will be focused on exploration and
continued development of the company's acreage positions in the deepwater Gulf
of Mexico, South Texas, the San Juan Basin, the Permian Basin, and the Texas
Panhandle. Major deepwater developments include Magnolia, K2, and the Princess
fields, while exploration continues using the drillship Pathfinder.
E&P is directing $3.4 billion of its 2003 capital budget to international
projects. The majority of these funds will be directed to developing major
long-term projects, including the Bayu-Undan liquids development and
gas-recycling project in the Timor Sea, the Hamaca heavy-oil project and
Corocoro development in Venezuela, additional development of oil and gas
reserves in offshore Block B and onshore South Sumatra blocks in Indonesia,
Blocks 15-1 and 15-2 in Vietnam, and Bohai Bay in China. In addition, funds will
be used to expand the company's positions in the U.K. and Norwegian sectors of
the North Sea, Syncrude operations in western Canada and to develop the Surmont
heavy-oil project in Canada, and the Kashagan field in the Caspian Sea.
Costs incurred for the years ended December 31, 2002, 2001, and 2000, relating
to the development of proved undeveloped oil and gas reserves were $1,631
million, $1,423 million, and $857 million, respectively. As of December 31,
2002, estimated future development costs relating to the development of proved
undeveloped oil and gas reserves for the years 2003 through 2005 were projected
to be $1,815 million, $939 million, and $539 million, respectively.
R&M
Capital spending for continuing operations for R&M during the three-year period
ending December 31, 2002, was primarily for refinery-upgrade projects to improve
product yields, to meet new environmental standards, to improve the operating
integrity of key processing units, and to install advanced process control
technology, as well as for safety projects.
Key significant projects during the three-year period included:
o construction of a polypropylene plant at the Bayway refinery in New
Jersey;
o construction on a fluid catalytic cracking (FCC) unit at the
Ferndale, Washington, refinery;
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o expansion of the alkylation unit at the Los Angeles refinery;
o completion of a coker and continuous catalytic reformer at the
company's Sweeny, Texas, refinery;
o capacity expansion and debottlenecking projects at the Borger,
Texas, refinery;
o completion of a commercial S Zorb Sulfur Removal Technology (S Zorb)
unit at the Borger refinery;
o an expansion of capacity in the Seaway crude-oil pipeline; and
o installation of advanced central control buildings and technologies
at the Sweeny and Borger facilities.
Total capital spending for continuing operations for R&M for the three-year
period was $1.5 billion, representing approximately 16 percent of
ConocoPhillips' total capital spending for continuing operations.
During 2002, construction continued on two major projects: a polypropylene plant
at the Bayway refinery in Linden, New Jersey, and an FCC unit at the Ferndale,
Washington, refinery. The Bayway polypropylene plant will utilize propylene
feedstock from the Bayway refinery to make up to 775 million pounds per year of
polypropylene. The plant became operational in March 2003. The FCC unit at
Ferndale is expected to be fully operational in the second quarter of 2003 and
will enable the refinery to significantly improve gasoline production per barrel
of crude input.
In 2002, ConocoPhillips made investments to improve its ability to meet
regulatory "clean fuels" requirements throughout its refining system. The
company plans to spend approximately $400 million per year for the next two
years on clean fuels projects in the United States and already is well ahead of
regulatory mandates for producing clean fuel in Europe. In 2002, ConocoPhillips
completed a large continuous pilot plant demonstrating S Zorb for diesel, began
construction of an S Zorb gasoline unit at its Ferndale, Washington, refinery,
and announced its sixth licensing agreement for the use of S Zorb for gasoline
and second licensing agreement for the use of S Zorb for diesel. The S Zorb
process significantly reduces sulfur content in gasoline or diesel fuel for
meeting new government regulations.
In 2002, a major expansion of the alkylation unit at the Los Angeles refinery
was completed and as a result, production of non-MTBE (methyl tertiary-butyl
ether) gasoline has increased.
2003 Capital Budget
R&M's 2003 capital budget for continuing operations is $1.1 billion, a 35
percent increase over spending of $840 million in 2002. Domestic spending is
expected to consume about 80 percent of the R&M budget.
The company plans to direct about $750 million of the R&M capital budget to
domestic refining, of which about 45 percent of the expenditures are related to
clean fuels, safety and environmental projects. Domestic marketing,
transportation and specialty businesses expect to spend about $130 million, with
the remaining budget to fund projects in the company's international refining
and marketing businesses in Europe and the Asia-Pacific region.
65
EMERGING BUSINESSES
Capital spending for Emerging Businesses during 2002 was primarily for
construction of the Immingham combined heat and power cogeneration plant near
the company's Humber refinery in the United Kingdom. Additional investments were
made at a domestic power plant in Orange, Texas, and at the company's carbon
fibers plant in Ponca City, Oklahoma.
Emerging Businesses' 2003 capital budget of $248 million is primarily dedicated
to the continued construction of the Immingham combined heat and power
cogeneration plant.
CONTINGENCIES
LEGAL AND TAX MATTERS
ConocoPhillips accrues for contingencies when a loss is probable and the amounts
can be reasonably estimated. Based on currently available information, the
company believes that it is remote that future costs related to known contingent
liability exposures will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
All significant litigation arising from the June 23, 1999, flash fire that
occurred in a reactor vessel at the K-Resin styrene-butadiene copolymer (SBC)
plant at the Houston Chemical Complex has now been resolved.
On March 27, 2000, an explosion and fire occurred at the K-Resin SBC plant due
to the overpressurization of an out-of-service butadiene storage tank. One
employee was killed and several individuals, including employees of both
ConocoPhillips and its contractors, were injured. Additionally, individuals who
were allegedly in the area of the Houston Chemical Complex at the time of the
incident have claimed they suffered various personal injuries due to exposure to
the event. The wrongful death claim and the claims of the most seriously injured
workers have been resolved. Currently, there are eight lawsuits pending on
behalf of approximately 100 primary plaintiffs. Under the indemnification
provisions of subcontracting agreements with Zachry and Brock Maintenance, Inc.,
ConocoPhillips sought indemnification from these subcontractors with respect to
claims made by their employees. Although that plant was contributed to CPChem
under the Contribution Agreement, ConocoPhillips retains liability for damages
arising out of the incident.
ENVIRONMENTAL
ConocoPhillips and each of its various businesses are subject to the same
numerous international, federal, state, and local environmental laws and
regulations as are other companies in the petroleum exploration and production;
and refining, marketing and transportation of crude oil and refined products
businesses. The most significant of these environmental laws and regulations
include, among others, the:
o Federal Clean Air Act, which governs air emissions;
o Federal Clean Water Act, which governs discharges to water bodies;
o Federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), which imposes liability on generators,
transporters, and arrangers of hazardous substances at sites where
hazardous substance releases have occurred or are threatened to
occur;
66
o Federal Resource Conservation and Recovery Act (RCRA), which governs
the treatment, storage, and disposal of solid waste;
o Federal Oil Pollution Act of 1990 (OPA90) under which owners and
operators of onshore facilities and pipelines, lessees or permittees
of an area in which an offshore facility is located, and owners and
operators of vessels are liable for removal costs and damages that
result from a discharge of oil into navigable waters of the United
States;
o Federal Emergency Planning and Community Right-to-Know Act (EPCRA)
which requires facilities to report toxic chemical inventories with
local emergency planning committees and responses departments;
o Federal Safe Drinking Water Act which governs the disposal of
wastewater in underground injections wells; and
o U.S. Department of the Interior regulations, which relate to
offshore oil and gas operations in U.S. waters and impose liability
for the cost of pollution cleanup resulting from the lessee's
operations and potential liability for pollution damages.
These laws and their implementing regulations set limits on emissions and, in
the case of discharges to water, establish water quality limits. They also, in
most cases, require permits in association with new or modified operations.
These permits can require an applicant to collect substantial information in
connection with the application process, which can be expensive and
time-consuming. In addition, there can be delays associated with notice and
comment periods and the agency's processing of the application. Many of the
delays associated with the permitting process are beyond the control of the
applicant.
Many states and foreign countries where ConocoPhillips operates also have, or
are developing, similar environmental laws and regulations governing the same
types of activities. While similar, in some cases these regulations may impose
additional, or more stringent, requirements that can add to the cost and
difficulty of marketing or transporting products across state and international
borders.
The ultimate financial impact arising from environmental laws and regulations is
neither clearly known nor easily determinable as new standards, such as air
emission standards, water quality standards and stricter fuel regulations,
continue to evolve. However, environmental laws and regulations are expected to
continue to have an increasing impact on ConocoPhillips' operations in the
United States and in most of the countries in which the company operates.
Notable areas of potential impacts include air emission compliance and
remediation obligations in the United States. Under the Clean Air Act, the EPA
has promulgated a number of stringent limits on air emissions and established a
federally mandated operating permit program. Violations of the Clean Air Act are
enforceable with civil and criminal sanctions.
The EPA has also promulgated specific rules governing the sulfur content of
gasoline, known generically as the "Tier II Sulfur Rules," which become
applicable to ConocoPhillips' gasoline as early as 2004. The company is
implementing a compliance strategy for meeting the requirements, including the
use of ConocoPhillips' proprietary technology known as S Zorb. The company
expects to use a combination of technologies to achieve compliance with these
rules and has made preliminary estimates of its cost of compliance. These costs
will be included in future budgeting for refinery compliance. The EPA has also
promulgated sulfur content rules for highway diesel fuel that become applicable
in 2006. ConocoPhillips is currently developing and testing an S Zorb system for
removing sulfur from diesel fuel. It is anticipated that S Zorb will be used as
part of ConocoPhillips' strategy for complying with these rules. Because the
company is still evaluating and developing capital strategies for compliance
with the rule, ConocoPhillips cannot provide precise cost estimates at this
time, but will do so and report these compliance costs as required by law.
67
Additional areas of potential air-related impacts to ConocoPhillips are the
proposed revisions to the National Ambient Air Quality Standards (NAAQS) and the
Kyoto Protocol. In July 1997, the EPA promulgated more stringent revisions to
the NAAQS for ozone and particulate matter. Since that time, final adoption of
these revisions has been the subject of litigation (American Trucking
Association, Inc. et al. v. United States Environmental Protection Agency) that
eventually reached the U.S. Supreme Court during fall 2000. In February 2001,
the U.S. Supreme Court remanded this matter, in part, to the EPA to address the
implementation provisions relating to the revised ozone NAAQS. If adopted, the
revised NAAQS could result in substantial future environmental expenditures for
ConocoPhillips.
In 1997, an international conference on global warming concluded an agreement,
known as the Kyoto Protocol, which called for reductions of certain emissions
that contribute to increases in atmospheric greenhouse gas concentrations. The
United States has not ratified the treaty codifying the Kyoto Protocol but may
in the future. In addition, other countries where ConocoPhillips has interests,
or may have interests in the future, have made commitments to the Kyoto Protocol
and are in various stages of formulating applicable regulations. It is not,
however, possible to accurately estimate the costs that could be incurred by
ConocoPhillips to comply with such regulations, but such expenditures could be
substantial.
ConocoPhillips also is subject to certain laws and regulations relating to
environmental remediation obligations associated with current and past
operations. Such laws and regulations include CERCLA and RCRA and their state
equivalents. Remediation obligations include cleanup responsibility arising from
petroleum releases from underground storage tanks located at numerous past and
present ConocoPhillips owned and/or operated petroleum-marketing outlets
throughout the United States. Federal and state laws require that contamination
caused by such underground storage tank releases be assessed and remediated to
meet applicable standards. In addition to other cleanup standards, many states
have adopted cleanup criteria for MTBE for both soil and groundwater. MTBE
standards continue to evolve, and future environmental expenditures associated
with the remediation of MTBE-contaminated underground storage tank sites could
be substantial.
RCRA requires permitted facilities to undertake an assessment of environmental
conditions at the facility. If conditions warrant, ConocoPhillips may be
required to remediate contamination caused by prior operations. In contrast to
CERCLA, which is often referred to as "Superfund," the cost of corrective action
activities under the RCRA corrective action program typically is borne solely by
ConocoPhillips. Over the next decade, ConocoPhillips anticipates that
significant ongoing expenditures for RCRA remediation activities may be
required, but such annual expenditures for the near term are not expected to
vary significantly from the range of such expenditures the company has
experienced over the past few years. Longer term, expenditures are subject to
considerable uncertainty and may fluctuate significantly.
ConocoPhillips from time to time receives requests for information or notices of
potential liability from the EPA and state environmental agencies alleging that
we are a potentially responsible party under CERCLA or an equivalent state
statute. On occasion, ConocoPhillips also has been made a party to cost recovery
litigation by those agencies or by private parties. These requests, notices and
lawsuits assert potential liability for remediation costs at various sites that
typically are not owned by ConocoPhillips but allegedly contain wastes
attributable to the company's past operations. As of December 31, 2001, the
company reported it had been notified of potential liability under CERCLA at 29
sites around the United States. The company also had been notified of potential
liability under comparable state laws at 11 sites around the United States. At
August 30, 2002, the date of the merger, Conoco had been notified of potential
liability under CERCLA and comparable state laws at 24 sites around the United
States. At seven of these sites, both Conoco and the company had been notified
of potential liability. The resulting total for ConocoPhillips was 57 sites. At
December 31, 2002, ConocoPhillips had resolved three of these
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sites and received four new notices of potential liability, leaving
approximately 58 sites where ConocoPhillips has been notified of potential
liability.
For most Superfund sites, ConocoPhillips' potential liability will be
significantly less than the total site remediation costs because the percentage
of waste attributable to ConocoPhillips versus that attributable to all other
potentially responsible parties is relatively low. Although liability of those
potentially responsible is generally joint and several for federal sites and
frequently so for state sites, other potentially responsible parties at sites
where ConocoPhillips is a party typically have had the financial strength to
meet their obligations, and where they have not, or where potentially
responsible parties could not be located, ConocoPhillips' share of liability has
not increased materially. Many of the sites at which the company is potentially
responsible are still under investigation by the EPA or the state agencies
concerned. Prior to actual cleanup, those potentially responsible normally
assess site conditions, apportion responsibility and determine the appropriate
remediation. In some instances, ConocoPhillips may have no liability or attain a
settlement of liability. Actual cleanup costs generally occur after the parties
obtain EPA or equivalent state agency approval. There are relatively few sites
where ConocoPhillips is a major participant, and neither the cost to
ConocoPhillips of remediation at those sites nor such cost at all CERCLA sites
in the aggregate is expected to have a material adverse effect on the
competitive or financial condition of ConocoPhillips.
Expensed environmental costs were $546 million in 2002 and are expected to be
approximately $687 million in 2003 and $717 million in 2004. Capitalized
environmental costs were $325 million in 2002 and are expected to be
approximately $638 million and $718 million in 2003 and 2004, respectively.
Remediation Accruals
ConocoPhillips accrues for remediation activities when it is probable that a
liability has been incurred and reasonable estimates of the liability can be
made. These accrued liabilities are not reduced for potential recoveries from
insurers or other third parties and are not discounted (except, if assumed in a
purchase business combination, such costs are recorded on a discounted basis).
Many of these liabilities result from CERCLA, RCRA and similar state laws that
require the company to undertake certain investigative and remedial activities
at sites where it conducts, or once conducted, operations or at sites where
ConocoPhillips-generated waste was disposed. The accrual also includes a number
of sites identified by ConocoPhillips that may require environmental
remediation, but which are not currently the subject of CERCLA, RCRA or state
enforcement activities. If applicable, undiscounted receivables are accrued for
probable insurance or other third-party recoveries. In the future,
ConocoPhillips may incur significant costs under both CERCLA and RCRA.
Considerable uncertainty exists with respect to these costs, and under adverse
changes in circumstances, potential liability may exceed amounts accrued as of
December 31, 2002.
Remediation activities vary substantially in duration and cost from site to
site, depending on the mix of unique site characteristics, evolving remediation
technologies, diverse regulatory agencies and enforcement policies, and the
presence or absence of potentially liable third parties. Therefore, it is
difficult to develop reasonable estimates of future site remediation costs.
At December 31, 2002, ConocoPhillips' balance sheet included a total
environmental accrual of $743 million, compared with $439 million at December
31, 2001, an increase of $304 million, primarily resulting from the merger. The
majority of these expenditures are expected to be incurred within the next 30
years.
Notwithstanding any of the foregoing and as with other companies engaged in
similar businesses, environmental costs and liabilities are inherent in
ConocoPhillips' operations and products, and there can be no assurance that
material costs and liabilities will not be incurred. However, ConocoPhillips
currently
69
does not expect any material adverse effect upon its results of operations or
financial position as a result of compliance with environmental laws and
regulations.
OTHER
ConocoPhillips has deferred tax assets related to certain accrued liabilities,
alternative minimum tax credits, and loss carryforwards. Valuation allowances
have been established for certain foreign and state net operating loss
carryforwards that reduce deferred tax assets to an amount that will, more
likely than not, be realized. Uncertainties that may affect the realization of
these assets include tax law changes and the future level of product prices and
costs. Based on the company's historical taxable income, its expectations for
the future, and available tax-planning strategies, management expects that the
net deferred tax assets will be realized as offsets to reversing deferred tax
liabilities and as reductions in future taxable income. The alternative minimum
tax credit can be carried forward indefinitely to reduce the company's regular
tax liability.
NEW ACCOUNTING STANDARDS
There are a number of new FASB Statements of Financial Accounting Standards
(SFAS) and Interpretations that ConocoPhillips implemented either in December
2002 or January 2003, as required: SFAS No. 143, "Accounting for Asset
Retirement Obligations;" SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections;" SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities;" SFAS
No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure;"
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others;" and
Interpretation No. 46, "Consolidation of Variable Interest Entities." In
addition, in 2003, the FASB is expected to issue SFAS No. 149, "Accounting for
Certain Financial Instruments with Characteristics of Liabilities and Equity."
For additional information about these, see Note 27--New Accounting Standards in
the Notes to Consolidated Financial Statements, which is incorporated herein by
reference.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to select appropriate accounting
policies and to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. See Note 1--Accounting Policies
in the Notes to Consolidated Financial Statements for descriptions of the
company's major accounting policies. Certain of these accounting policies
involve judgments and uncertainties to such an extent that there is a reasonable
likelihood that materially different amounts would have been reported under
different conditions, or if different assumptions had been used.
OIL AND GAS ACCOUNTING
Accounting for oil and gas exploratory activity is subject to special accounting
rules that are unique to the oil and gas industry. The acquisition of geological
and geophysical seismic information, prior to the discovery of proved reserves,
is expensed as incurred, similar to accounting for research and development
costs. However, leasehold acquisition costs and exploratory well costs are
capitalized on the balance sheet, pending determination of whether proved oil
and gas reserves have been discovered on the prospect.
70
Property Acquisition Costs
For individually significant leaseholds, management periodically assesses for
impairment based on exploration and drilling efforts to date. For leasehold
acquisition costs that individually are relatively small, management exercises
judgment and determines a percentage probability that the prospect ultimately
will fail to find proved oil and gas reserves and pools that leasehold
information with others in the geographic area. For prospects in areas that have
had limited, or no, previous exploratory drilling, the percentage probability of
ultimate failure is normally judged to be quite high. This judgmental percentage
is multiplied by the leasehold acquisition cost, and that product is divided by
the contractual period of the leasehold to determine a periodic leasehold
impairment charge that is reported in exploration expense. This judgmental
probability percentage is reassessed and adjusted throughout the contractual
period of the leasehold based on favorable or unfavorable exploratory activity
on the leasehold or on adjacent leaseholds, and leasehold impairment
amortization expense is adjusted prospectively. By the end of the contractual
period of the leasehold, the impairment probability percentage will have been
adjusted to 100 percent if the leasehold is expected to be abandoned, or will
have been adjusted to zero percent if there is an oil or gas discovery that is
under development. See the supplemental Oil and Gas Operations disclosures about
Costs Incurred and Capitalized Costs for more information about the amounts and
geographic locations of costs incurred in acquisition activity, and the amounts
on the balance sheet related to unproved properties.
Exploratory Costs
For exploratory wells, drilling costs are temporarily capitalized, or
"suspended," on the balance sheet, pending a judgmental determination of whether
potentially economic oil and gas reserves have been discovered by the drilling
effort. This judgment usually is made within two months of the completion of the
drilling effort, but can take longer, depending on the complexity of the
geologic structure. Accounting rules require that this judgment be made at least
within one year of well completion. If a judgment is made that the well did not
encounter potentially economic oil and gas quantities, the well costs are
expensed as a dry hole and are reported in exploration expense. Exploratory
wells that are judged to have discovered potentially economic quantities of oil
and gas and that are in areas where a major capital expenditure (e.g., a
pipeline or offshore platform) would be required before production could begin,
and where the economic viability of that major capital expenditure depends upon
the successful completion of further exploratory work in the area, remain
capitalized on the balance sheet as long as additional exploratory appraisal
work is under way or firmly planned. For complicated offshore exploratory
discoveries, it is not unusual to have exploratory wells remain suspended on the
balance sheet for several years while the company performs additional appraisal
drilling and seismic work on the potential oil and gas field. Unlike leasehold
acquisition costs, there is no periodic impairment assessment of suspended
exploratory well costs. Management continuously monitors the results of the
additional appraisal drilling and seismic work and expenses the suspended well
costs as dry holes when it judges that the potential field does not warrant
further exploratory efforts in the near term. See the supplemental Oil and Gas
Operations disclosures about Costs Incurred and Capitalized Costs for more
information about the amounts and geographic locations of costs incurred in
exploration activity and the amounts on the balance sheet related to unproved
properties, as well as the Wells In Progress disclosure for the number and
geographic location of wells not yet declared productive or dry.
Proved Oil and Gas Reserves
Engineering estimates of the quantities of recoverable oil and gas reserves in
oil and gas fields are inherently imprecise and represent only approximate
amounts because of the subjective judgments involved in developing such
information. Despite the inherent imprecision in these engineering estimates,
accounting rules require supplemental disclosure of "proved" oil and gas reserve
estimates due to the importance of these estimates to better understanding the
perceived value and future cash flows of a company's oil and gas operations. The
judgmental estimation of proved oil and gas reserves is also important to the
income statement because the proved oil and gas reserve estimate for a field
serves as the
71
denominator in the unit-of-production calculation of depreciation, depletion and
amortization of the capitalized costs for that field. There are several
authoritative guidelines regarding the engineering criteria that have to be met
before estimated oil and gas reserves can be designated as "proved." The
company's reservoir engineering department has policies and procedures in place
that are consistent with these authoritative guidelines. The company has
qualified and experienced internal engineering personnel who make these
estimates. Proved reserve estimates are updated annually and take into account
recent production and seismic information about each field. Also, as required by
authoritative guidelines, the estimated future date when a field will be
permanently shut-in for economic reasons is based on an extrapolation of oil and
gas prices and operating costs prevalent at the balance sheet date. This
estimated date when production will end affects the amount of estimated
recoverable reserves. Therefore, as prices and cost levels change from year to
year, the estimate of proved reserves also changes.
Canadian Syncrude Reserves
Canadian Syncrude proven reserves cannot be measured precisely. Reserve
estimates of Canadian Syncrude are based on subjective judgments involving
geological and engineering assessments of in-place crude bitumen volume, the
mining plan, historical extraction recovery and upgrading yield factors,
installed plant operating capacity and operating approval limits. The
reliability of these estimates at any point in time depends on both the quality
and quantity of the technical and economic data and the efficiency of extracting
the bitumen and upgrading it into a light sweet crude oil. Despite the inherent
imprecision in these engineering estimates, these estimates are used in
determining depreciation expense.
IMPAIRMENT OF ASSETS
Long-lived assets used in operations are assessed for impairment whenever
changes in facts and circumstances indicate a possible significant deterioration
in the future cash flows expected to be generated by an asset group. If, upon
review, the sum of the undiscounted pretax cash flows is less than the carrying
value of the asset group, the carrying value is written down to estimated fair
value. Individual assets are grouped for impairment purposes based on a
judgmental assessment of the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other groups of
assets--generally on a field-by-field basis for exploration and production
assets, at an entire complex level for downstream assets, or at a site level for
retail stores. Because there usually is a lack of quoted market prices for
long-lived assets, the fair value usually is based on the present values of
expected future cash flows using discount rates commensurate with the risks
involved in the asset group. The expected future cash flows used for impairment
reviews and related fair value calculations are based on judgmental assessments
of future production volumes, prices and costs, considering all available
information at the date of review. See Note 10--Impairments in the Notes to
Consolidated Financial Statements.
DISMANTLEMENT, REMOVAL AND ENVIRONMENTAL COSTS
Under various contracts, permits and regulations, the company has material legal
obligations to remove tangible equipment and restore the land or seabed at the
end of operations at production sites. The largest asset removal obligations
facing ConocoPhillips involve removal and disposal of offshore oil and gas
platforms around the world, and oil and gas production facilities and pipelines
in Alaska. The estimated undiscounted costs, net of salvage values, of
dismantling and removing these facilities are accrued, using primarily the
unit-of-production method, over the productive life of the asset. Estimating the
future asset removal costs necessary for this accounting calculation is
difficult. Most of these removal obligations are many years in the future and
the contracts and regulations often have vague descriptions of what removal
practices and criteria will have to be met when the removal event actually
occurs. Asset removal technologies and costs are constantly changing, as well as
political, environmental, safety and public relations considerations. See Note
11--Accrued Dismantlement, Removal and Environmental Costs in the Notes to
Consolidated Financial Statements.
72
BUSINESS ACQUISITIONS
Purchase Price Allocation
Accounting for the acquisition of a business requires the allocation of the
purchase price to the various assets and liabilities of the acquired business.
For most assets and liabilities, purchase price allocation is accomplished by
recording the asset or liability at its estimated fair value. The most difficult
estimations of individual fair values are those involving properties, plants and
equipment and identifiable intangible assets. The company uses all available
information to make these fair value determinations and, for major business
acquisitions, typically engages an outside appraisal firm to assist in the fair
value determination of the acquired long-lived assets. The company has, if
necessary, up to one year after the acquisition closing date to finish these
fair value determinations and finalize the purchase price allocation.
Intangible Assets and Goodwill
In connection with the acquisition of Tosco Corporation on September 14, 2001,
and the merger on August 30, 2002, the company recorded material intangible
assets for tradenames, air emission permit credits, and permits to operate
refineries. These intangible assets were determined to have indefinite useful
lives and so are not amortized. This judgmental assessment of an indefinite
useful life has to be continuously evaluated in the future. If, due to changes
in facts and circumstances, management determines that these intangible assets
then have definite useful lives, amortization will have to commence at that time
on a prospective basis. As long as these intangible assets are judged to have
indefinite lives, they will be subject to periodic lower-of-cost-or-market
tests, which requires management's judgment of the estimated fair value of these
intangible assets. See Note 6--Acquisition of Tosco Corporation, Note 3--Merger
of Conoco and Phillips, and Note 10--Impairments in the Notes to Consolidated
Financial Statements.
Also in connection with the acquisition of Tosco and the merger, the company
recorded a material amount of goodwill. Under the accounting rules for goodwill,
this intangible asset is not amortized. Instead, goodwill is subject to annual
reviews for impairment based on a two-step accounting test. The first step is to
compare the estimated fair value of any reporting units within the company that
have recorded goodwill with the recorded net book value (including the goodwill)
of the reporting unit. If the estimated fair value of the reporting unit is
higher than the recorded net book value, no impairment is deemed to exist and no
further testing is required that year. If, however, the estimated fair value of
the reporting unit is below the recorded net book value, then a second step must
be performed to determine the amount of the goodwill impairment to record, if
any. In this second step, the estimated fair value from the first step is used
as the purchase price in a hypothetical new acquisition of the reporting unit.
The various purchase business combination rules are followed to determine a
hypothetical purchase price allocation for the reporting unit's assets and
liabilities. The residual amount of goodwill that results from this hypothetical
purchase price allocation is compared with the recorded amount of goodwill for
the reporting unit, and the recorded amount is written down to the hypothetical
amount if lower. Because quoted market prices for the company's reporting units
are not available, management has to apply judgment in determining the estimated
fair value of its reporting units for purposes of performing the first step of
this periodic goodwill impairment test. Management uses all available
information to make these fair value determinations and may engage an outside
appraisal firm for assistance. In addition, if the first test step is not met,
further judgment has to be applied in determining the fair values of individual
assets and liabilities for purposes of the hypothetical purchase price
allocation. Again, management has to use all available information to make these
fair value determinations and may engage an outside appraisal firm for
assistance. At year-end 2002, the estimated fair values of the company's
domestic refining and marketing reporting units, excluding those acquired in the
merger and those included in discontinued operations, were more than 10 percent
higher than the recorded net book values (including the Tosco goodwill) of the
reporting units. However, a lower fair value estimate in the future could result
in impairment of the remaining $2.4 billion
73
of Tosco goodwill. The allocation of goodwill attributable to the ConocoPhillips
merger to reporting units, and its sensitivity to future impairment, will occur
after the final allocation of the purchase price in 2003.
INVENTORY VALUATION
Prior to the acquisition of Tosco in September 2001 and the merger in August
2002, the company's inventories on the last-in, first-out (LIFO) cost basis were
predominantly reflected on the balance sheet at historical cost layers
established many years ago, when price levels were much lower. Therefore, prior
to 2001, the company's LIFO inventories were relatively insensitive to current
price level changes. However, the acquisition of Tosco and the merger added LIFO
cost layers that were recorded at replacement cost levels prevalent in late
September 2001 and August 2002, respectively. As a result, the company's LIFO
cost inventories are now much more sensitive to lower-of-cost-or-market
impairment write-downs, whenever price levels fall. ConocoPhillips recorded a
LIFO inventory lower-of-cost-or-market impairment in the fourth quarter of 2001
due to a crude oil price deterioration. While crude oil is not the only product
in the company's LIFO pools, its market value is a major factor in
lower-of-cost-or-market calculations. The company estimates that additional
impairments could occur if a 60 percent/40 percent blended average of West Texas
Intermediate/Brent crude oil prices falls below $21.75 per barrel at a reporting
date. The determination of replacement cost values for the
lower-of-cost-or-market test uses objective evidence, but does involve judgment
in determining the most appropriate objective evidence to use in the
calculations.
PROJECTED BENEFIT OBLIGATIONS
Determination of the projected benefit obligations for the company's defined
benefit pension and postretirement plans are important to the recorded amounts
for such obligations on the balance sheet and to the amount of benefit expense
in the income statement. This also impacts the required company contributions
into the plans. The actuarial determination of projected benefit obligations and
company contribution requirements involves judgment about uncertain future
events, including estimated retirement dates, salary levels at retirement,
mortality rates, lump-sum election rates, rates of return on plan assets, future
health care cost-trend rates, and rates of utilization of health care services
by retirees. Due to the specialized nature of these calculations, the company
engages outside actuarial firms to assist in the determination of these
projected benefit obligations. For Employee Retirement Income Security Act-
qualified pension plans, the actuary exercises fiduciary care on behalf of plan
participants in the determination of the judgmental assumptions used in
determining required company contributions into plan assets. Due to differing
objectives and requirements between financial accounting rules and the pension
plan funding regulations promulgated by governmental agencies, the actuarial
methods and assumptions for the two purposes differ in certain important
respects. Ultimately, the company will be required to fund all promised benefits
under pension and postretirement benefit plans not funded by plan assets or
investment returns, but the judgmental assumptions used in the actuarial
calculations significantly affect periodic financial statements and funding
patterns over time. Benefit expense is particularly sensitive to the discount
rate and return on plan assets assumptions. A 1 percent decrease in the discount
rate would increase annual benefit expense by $79 million, while a 1 percent
decrease in the return on plan assets assumption would increase annual benefit
expense by $21 million.
OUTLOOK
As a condition to the merger, the U.S. Federal Trade Commission (FTC) required
that both Conoco and Phillips divest certain assets. In the fourth quarter of
2002, the propane terminal assets at Jefferson City, Missouri, and East St.
Louis, Illinois, were sold and ConocoPhillips agreed to sell its Woods Cross
business unit in Salt Lake City, Utah, plus associated assets. See Note
4--Discontinued Operations in the Notes to Consolidated Financial Statements for
a list of the remaining assets held for sale.
74
In December 2002, ConocoPhillips committed to and initiated a plan to sell a
substantial portion of its company-owned retail sites. In connection with the
anticipated sale, the company, in the fourth quarter, recorded charges totaling
$1,412 million before-tax, $1,008 million after-tax, primarily related to the
impairment of properties, plants and equipment; goodwill; intangible assets and
provision for losses and penalties to unwind various lease arrangements. The
company expects to complete the sale of the sites in 2003.
In December of 2002, political unrest in Venezuela caused economic and other
disruptions which shut down most oil production in Venezuela, including the
company's Petrozuata, Hamaca and Gulf of Paria operations. At ConocoPhillips'
Petrozuata joint venture, operations were closed down on December 15, 2002, due
to shortages of hydrogen and natural gas (required for processing and fuel).
Prior to the disruptions, Petrozuata was producing and processing approximately
120,000 gross (60,000 net) barrels of extra-heavy crude oil per day. Similarly,
the disruptions have impacted development production and construction progress
at the Hamaca joint-venture project. Construction of the Hamaca upgrader
continues, although at a reduced rate. Difficulty in obtaining supplies has been
the primary impediment. Production was shut in on December 6, 2002. Prior to the
disruptions, Hamaca was producing approximately 55,000 gross (18,000 net)
barrels of extra-heavy crude per day. In addition, the crude oil produced by
Petrozuata is used as feedstock for ConocoPhillips' Lake Charles, Louisiana,
refinery and a Venezuelan refinery operated by PDVSA. In December 2002,
ConocoPhillips substituted about 1.2 million crude barrels for its Lake Charles
refinery. At the company's Sweeny refinery, crude throughputs were reduced
slightly due to short supply of Merey Venezuelan crude oil. Overall, there was
minimum impact to net income; however, it could reduce net income $30 million to
$50 million per month in 2003 as long as production at Petrozuata and Hamaca is
shut in. Limited production began from Hamaca and Petrozuata in February 2003.
On March 12, 2002, ConocoPhillips announced that it had signed a Heads of
Agreement (LNG HOA) with The Tokyo Electric Power Company, Incorporated (TEPCO)
and Tokyo Gas Co., Ltd. (Tokyo Gas) that would enable Phase II, which involves
the export and sale of natural gas, of the Bayu-Undan field development to
proceed upon resolution of certain legal, regulatory and fiscal issues. The
Timor Sea Treaty (Treaty) was ratified by Timor-Leste (formerly East Timor) in
December 2002 and by Australia in March 2003 and is subject to certain
procedural events before it is fully effective. The Treaty will allow the
issuance of new production sharing contracts to the existing contractors in the
Bayu-Undan unit, which when combined with the expected approval of the
Development Plan and the expected enactment of certain Timor-Leste legislation
will provide the legal, regulatory and fiscal basis necessary to proceed with
the gas project. Under the terms of the LNG HOA with TEPCO and Tokyo Gas, TEPCO
and Tokyo Gas will purchase 3 million tons per year of liquefied natural gas
(LNG) for a period of 17 years, utilizing natural gas from the Bayu-Undan field.
Shipments would begin in 2006, from an LNG facility near Darwin, Australia,
utilizing ConocoPhillips' Optimized Cascade liquefied natural gas process.
In 2003, ConocoPhillips expects worldwide production of approximately 1.55
million barrels of oil equivalent per day from currently proved reserves.
Improvements for the year are expected to come from the United Kingdom, Norway
and China. These improvements will be offset by decreases in the U.S. Lower 48
and Canada as a result of the disposition of assets, as well as the impact of
the disruptions in Venezuela. In R&M, crude oil throughputs in 2003 are expected
to average approximately 2.5 million barrels per day.
Crude oil and natural gas prices are subject to external factors over which the
company has no control, such as global economic conditions, political events,
demand growth, inventory levels, weather, competing fuels prices and
availability of supply. Crude oil prices increased significantly during 2002 due
to production restraint by major exporting countries serving to rebalance
inventories, supply concerns resulting from Middle East tensions, tropical
storms in the U.S. Gulf of Mexico temporarily shutting in oil
75
production and shipping, and the disruptions in Venezuela. Global oil demand is
starting to recover on a year-over-year basis, compared with the declines that
resulted from the U.S. recession and the events of September 11, 2001. However,
the pace of improvement will depend on a continuation of the economic recovery
in the United States and globally. Conflicts in oil-producing countries and
uncertainties surrounding the global economic recovery could keep prices
volatile in 2003. U.S. natural gas prices strengthened considerably at the end
of the third quarter and remained strong in the fourth quarter stemming from
growing natural gas supply concerns, rising oil prices and an increased demand
due to the weather. Supply concerns arose from the decline in domestic gas
production and Canadian imports versus 2001, and tropical storms temporarily
shutting in production in the Gulf of Mexico.
Refining margins are subject to movements in the price of crude oil and other
feedstocks, and the prices of petroleum products, which are subject to market
factors over which the company has no control, such as the U.S. and global
economies; government regulations; seasonal factors that affect demand, such as
the summer driving months; and the levels of refining output and product
inventories. Global refining margins remained depressed during much of 2002 due
to weak oil demand, relatively high levels of gasoline and distillate
inventories and strengthening crude prices, which increased feedstock costs. As
a result of tropical storms in the Gulf of Mexico, industry refining crude oil
runs were temporarily reduced, which caused product inventory draws in the
United States and improved refining margins modestly. Refining and marketing
margins can be expected to improve when the U.S. and global economies recover.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This annual report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements can be identified by the words
"expects," "anticipates," "intends," "plans," "projects," "believes,"
"estimates" and similar expressions.
ConocoPhillips has based the forward-looking statements relating to its
operations on its current expectations, estimates and projections about
ConocoPhillips and the industries in which it operates in general.
ConocoPhillips cautions you that these statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that the company
cannot predict. In addition, ConocoPhillips has based many of these
forward-looking statements on assumptions about future events that may prove to
be inaccurate. Accordingly, ConocoPhillips' actual outcomes and results may
differ materially from what the company has expressed or forecast in the
forward-looking statements. Any differences could result from a variety of
factors, including the following:
o fluctuations in crude oil, natural gas and natural gas liquids
prices, refining and marketing margins and margins for
ConocoPhillips' chemicals business;
o changes in the business, operations, results and prospects of
ConocoPhillips;
o the operation and financing of ConocoPhillips' midstream and
chemicals joint ventures;
o potential failure to realize fully or within the expected time frame
the expected cost savings and synergies from the combination of
Conoco and Phillips;
o costs or difficulties related to the integration of the businesses
of Conoco and Phillips, as well as the continued integration of
businesses recently acquired by each of them;
76
o potential failure or delays in achieving expected reserve or
production levels from existing and future oil and gas development
projects due to operating hazards, drilling risks and the inherent
uncertainties in predicting oil and gas reserves and oil and gas
reservoir performance;
o unsuccessful exploratory drilling activities;
o failure of new products and services to achieve market acceptance;
o unexpected cost increases or technical difficulties in constructing
or modifying facilities for exploration and production projects,
manufacturing or refining;
o unexpected difficulties in manufacturing or refining ConocoPhillips'
refined products, including synthetic crude oil, and chemicals
products;
o lack of, or disruptions in, adequate and reliable transportation for
ConocoPhillips' crude oil, natural gas and refined products;
o inability to timely obtain or maintain permits, comply with
government regulations or make capital expenditures required to
maintain compliance;
o potential disruption or interruption of ConocoPhillips' facilities
due to accidents, political events or terrorism;
o international monetary conditions and exchange controls;
o liability for remedial actions, including removal and reclamation
obligations, under environmental regulations;
o liability resulting from litigation;
o general domestic and international economic and political
conditions, including armed hostilities and governmental disputes
over territorial boundaries;
o changes in tax and other laws or regulations applicable to
ConocoPhillips' business; and
o inability to obtain economical financing for exploration and
development projects, construction or modification of facilities and
general corporate purposes.
77
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL INSTRUMENT MARKET RISK
ConocoPhillips and certain of its subsidiaries hold and issue derivative
contracts and financial instruments that expose cash flows or earnings to
changes in commodity prices, foreign exchange rates or interest rates. The
company may use financial and commodity-based derivative contracts to manage the
risks produced by changes in the prices of electric power, natural gas, and
crude oil and related products, fluctuations in interest rates and foreign
currency exchange rates, or to exploit market opportunities.
With the completion of the merger on August 30, 2002, the derivatives policy
adopted during the third quarter of 2001 is no longer in effect; however, the
ConocoPhillips Board of Directors has approved an "Authority Limitations"
document that prohibits the use of highly leveraged derivatives or derivative
instruments without sufficient liquidity for comparable valuations without
approval from the Chief Executive Officer. The Authority Limitations document
also authorizes the Chief Executive Officer to establish the maximum Value at
Risk (VaR) limits for the company. Compliance with these limits is monitored
daily. The function of the Risk Management Steering Committee, monitoring the
use and effectiveness of derivatives, was assumed by the Chief Financial Officer
for risks resulting from foreign currency exchange rates and interest rates, and
by the Executive Vice President of Commercial, a new position that reports to
the Chief Executive Officer, for commodity price risk. ConocoPhillips'
Commercial Group manages commercial marketing, optimizes the commodity flows and
positions of the company, monitors related risks of the company's upstream and
downstream businesses, and selectively takes price risk to add value.
Commodity Price Risk
ConocoPhillips operates in the worldwide crude oil, refined product, natural
gas, natural gas liquids, and electric power markets and is exposed to
fluctuations in the prices for these commodities. These fluctuations can affect
the company's revenues as well as the cost of operating, investing, and
financing activities. Generally, the company's policy is to remain exposed to
market prices of commodities; however, executive management may elect to use
derivative instruments to hedge the price risk of the company's equity crude oil
and natural gas production, as well as refinery margins.
The ConocoPhillips' Commercial Group uses futures, forwards, swaps, and options
in various markets to optimize the value of the company's supply chain, which
may move the company's risk profile away from market average prices to
accomplish the following objectives:
o Balance physical systems. In addition to cash settlement prior to
contract expiration, exchange traded futures contracts may also be
settled by physical delivery of the commodity, providing another
source of supply to meet the company's refinery requirements or
marketing demand;
o Meet customer needs. Consistent with the company's policy to
generally remain exposed to market prices, the company uses swap
contracts to convert fixed-price sales contracts, which are often
requested by natural gas and refined product consumers, to a
floating market price;
o Manage the risk to the company's cash flows from price exposures on
specific crude oil, natural gas, refined product and electric power
transactions; and
78
o Enable the company to use the market knowledge gained from these
activities to do a limited amount of trading not directly related to
the company's physical business. For the 12 months ended December
31, 2002 and 2001, the gains or losses from this activity were not
material to the company's cash flows or income from continuing
operations.
ConocoPhillips uses a VaR model to estimate the loss in fair value that could
potentially result on a single day from the effect of adverse changes in market
conditions on the derivative financial instruments and derivative commodity
instruments held or issued, including commodity purchase and sales contracts
recorded on the balance sheet at December 31, 2002, as derivative instruments in
accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. Using Monte Carlo simulation, a 95 percent confidence
level and a one-day holding period, the VaR for those instruments issued or held
for trading purposes at December 31, 2002 and 2001, was $0.7 million at each
year-end. The VaR for instruments held for purposes other than trading at
December 31, 2002 and 2001, was $2 million and $1.7 million, respectively.
Interest Rate Risk
The following tables provide information about the company's financial
instruments that are sensitive to changes in interest rates. The debt tables
present principal cash flows and related weighted-average interest rates by
expected maturity dates; the derivative table shows the notional quantities on
which the cash flows will be calculated by swap termination date.
Weighted-average variable rates are based on implied forward rates in the yield
curve at the reporting date. The carrying amount of the company's floating-rate
debt approximates its fair value. The fair value of the fixed-rate financial
instruments is estimated based on quoted market prices.
79
Millions of Dollars Except as Indicated
-------------------------------------------------------------------------------------------------
Mandatorily
Redeemable Other
Minority
Interests and
Debt Preferred Securities
------------------------------------------------------------- --------------------------
Expected Fixed Average Floating Average Fixed Average
Maturity Rate Interest Rate Interest Rate Interest
Date Maturity Rate Maturity Rate Maturity Rate
- --------------- -------- -------- -------- -------- -------- --------
YEAR-END 2002
2003 $ 762 7.99% $ 706 2.60% $ -- --%
2004 1,362 5.91 -- -- -- --
2005 1,169 8.49 -- -- -- --
2006 1,507 5.82 1,517 4.54 -- --
2007 613 4.88 -- -- -- --
Remaining years 10,740 6.95 691 6.02 491 7.96
- ------------------------------------------------------------------------------------------------------------------------
Total $16,153 $ 2,914 $ 491
========================================================================================================================
Fair value $17,930 $ 2,914 $ 516
========================================================================================================================
Year-End 2001
2002 $ 43 9.31% $ -- --% $ -- --%
2003 255 7.60 -- -- -- --
2004 6 7.02 -- -- -- --
2005 1,155 8.49 -- -- -- --
2006 246 7.61 1,081 7.06 -- --
Remaining years 5,134 7.99 625 6.86 650 8.11
- ------------------------------------------------------------------------------------------------------------------------
Total $ 6,839 $ 1,706 $ 650
========================================================================================================================
Fair value $ 7,469 $ 1,706 $ 662
========================================================================================================================
Interest Rate Derivatives at December 31, 2002
----------------------------------------------------
Floating-to-Fixed
----------------------------------------------------
Expected Maturity Date Notional Average Pay Rate Average Receive Rate
- ---------------------- -------- ---------------- --------------------
2003 $ 500 3.41% 2.56%
2004 -- -- --
2005 -- -- --
2006 166 5.85 4.76
2007 -- -- --
Remaining years -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total $ 666
========================================================================================================================
Fair value loss position $ 22
========================================================================================================================
80
Foreign Currency Risk
ConocoPhillips has foreign currency exchange rate risk resulting from operations
in over 40 countries around the world. ConocoPhillips does not comprehensively
hedge the exposure to currency rate changes, although the company may choose to
selectively hedge exposures to foreign currency rate risk. Examples include firm
commitments for capital projects, certain local currency tax payments and
dividends, and cash returns from net investments in foreign affiliates to be
remitted within the coming year.
At December 31, 2002, ConocoPhillips had the following significant foreign
currency derivative contracts:
o approximately $194 million in foreign currency swaps hedging the
company's European commercial paper program, with a fair value of
$7.1 million;
o approximately $536 million in foreign currency swaps hedging
short-term intercompany loans between U.K. subsidiaries and a U.S.
subsidiary, with a fair value of $9 million; and
o approximately $24 million in foreign currency swaps hedging the
company's firm purchase and sales commitments for gasoline in
Germany, with a negative fair value of $4 million.
Although these swaps hedge exposures to fluctuations in exchange rates, the
company elected not to utilize hedge accounting as allowed by SFAS No. 133. As a
result, the change in the fair value of these foreign currency swaps is recorded
directly in earnings. Assuming an adverse hypothetical 10 percent change in the
December 31, 2002, exchange rates, the potential foreign currency remeasurement
loss in non-cash pretax earning from these swaps, intercompany loans, and
commercial paper would be approximately $3 million.
In addition to the intercompany loans discussed above, at December 31, 2002 and
2001, U.S. subsidiaries held long-term sterling-denominated intercompany
receivables totaling $152 million and $191 million, respectively, due from a
U.K. subsidiary. The U.K. subsidiary also held a dollar-denominated long-term
receivable due from a U.S. subsidiary with no balance at December 31, 2002, and
a $75 million balance at December 31, 2001. A Norwegian subsidiary held $198
million and $79 million of intercompany U.S. dollar-denominated receivables due
from its U.S. parent at December 31, 2002 and 2001, respectively. Also at
year-end 2001, a foreign subsidiary with the U.S. dollar as its functional
currency owed a $9 million Norwegian kroner-denominated payable to a Norwegian
subsidiary. The potential foreign currency remeasurement gains or losses in
non-cash pretax earnings from a hypothetical 10 percent change in the year-end
2002 and 2001 exchange rates from these intercompany balances were $35 million
and $21 million, respectively.
For additional information about the company's use of derivative instruments,
see Note 16--Derivative Instruments in the Notes to Consolidated Financial
Statements.
81
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONOCOPHILLIPS
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Management............................................................................. 83
Report of Independent Auditors................................................................... 84
Consolidated Statement of Operations for the years ended December 31, 2002, 2001 and 2000........ 85
Consolidated Balance Sheet at December 31, 2002 and 2001......................................... 86
Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000........ 87
Consolidated Statement of Changes in Common Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000............................................................. 88
Notes to Consolidated Financial Statements....................................................... 89
Supplementary Information
Oil and Gas Operations................................................................ 146
Selected Quarterly Financial Data..................................................... 164
Condensed Consolidating Financial Information......................................... 165
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts................................................... 177
All other schedules are omitted because they are either not required, not
significant, not applicable or the information is shown in another schedule, the
financial statements or in the notes to consolidated financial statements.
82
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
Management prepared, and is responsible for, the consolidated financial
statements and the other information appearing in this annual report. The
consolidated financial statements present fairly the company's financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States. In preparing its
consolidated financial statements, the company includes amounts that are based
on estimates and judgments that management believes are reasonable under the
circumstances.
The company maintains internal controls designed to provide reasonable assurance
that the company's assets are protected from unauthorized use and that all
transactions are executed in accordance with established authorizations and
recorded properly. The internal controls are supported by written policies and
guidelines and are complemented by a staff of internal auditors. Management
believes that the internal controls in place at December 31, 2002, provide
reasonable assurance that the books and records reflect the transactions of the
company and there has been compliance with its policies and procedures.
The company's financial statements have been audited by Ernst & Young LLP,
independent auditors selected by the Audit and Compliance Committee of the Board
of Directors. Management has made available to Ernst & Young LLP all of the
company's financial records and related data, as well as the minutes of
stockholders' and directors' meetings.
/s/ Archie W. Dunham /s/ J. J. Mulva /s/ John A. Carrig
ARCHIE W. DUNHAM J. J. MULVA JOHN A. CARRIG
Chairman of the Board President and Executive Vice President, Finance,
Chief Executive Officer and Chief Financial Officer
March 24, 2003
83
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ConocoPhillips
We have audited the accompanying consolidated balance sheets of ConocoPhillips
as of December 31, 2002 and 2001, and the related consolidated statements of
operations, changes in common stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 2002. Our audits also included
the condensed consolidating financial information and financial statement
schedule listed in the Index in Item 8. These financial statements, condensed
consolidating financial information and schedule are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements, condensed consolidating financial information and schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ConocoPhillips at
December 31, 2002 and 2001, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related condensed consolidating financial
information and financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2001
ConocoPhillips changed its method of accounting for the costs of major
maintenance turnarounds.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Houston, Texas
March 24, 2003
84
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS CONOCOPHILLIPS
Years Ended December 31 Millions of Dollars
-----------------------------------------
2002 2001** 2000**
-----------------------------------------
REVENUES
Sales and other operating revenues* $ 56,748 24,892 22,155
Equity in earnings of affiliates 261 41 114
Other income 215 111 270
- ------------------------------------------------------------------------------------------------------------------------
Total Revenues 57,224 25,044 22,539
- ------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Purchased crude oil and products 37,823 13,708 11,794
Production and operating expenses 4,988 2,643 2,136
Selling, general and administrative expenses 1,660 613 571
Exploration expenses 592 306 298
Depreciation, depletion and amortization 2,223 1,344 1,169
Impairments 177 26 100
Taxes other than income taxes* 6,937 2,740 2,242
Accretion on discounted liabilities 22 7 --
Interest and debt expense 566 338 369
Foreign currency transaction losses 24 11 58
Preferred dividend requirements of capital trusts and minority
interests 48 53 54
- ------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 55,060 21,789 18,791
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 2,164 3,255 3,748
Provision for income taxes 1,450 1,644 1,900
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 714 1,611 1,848
Income (loss) from discontinued operations (net of income taxes
(benefit) of $(394), $15 and $7 for 2002, 2001
and 2000, respectively) (993) 32 14
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (279) 1,643 1,862
Extraordinary items (16) (10) --
Cumulative effect of change in accounting principle -- 28 --
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (295) 1,661 1,862
========================================================================================================================
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Basic
Continuing operations $ 1.48 5.50 7.26
Discontinued operations (2.06) .11 .06
- ------------------------------------------------------------------------------------------------------------------------
Before extraordinary items and cumulative effect of change
in accounting principle (.58) 5.61 7.32
Extraordinary items (.03) (.04) --
Cumulative effect of change in accounting principle -- .10 --
- ------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (.61) 5.67 7.32
========================================================================================================================
Diluted
Continuing operations $ 1.47 5.46 7.21
Discontinued operations (2.05) .11 .05
- ------------------------------------------------------------------------------------------------------------------------
Before extraordinary items and cumulative effect of change in
accounting principle (.58) 5.57 7.26
Extraordinary items (.03) (.03) --
Cumulative effect of change in accounting principle -- .09 --
- ------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (.61) 5.63 7.26
========================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING (in thousands)
Basic 482,082 292,964 254,490
Diluted 485,505 295,016 256,326
- ------------------------------------------------------------------------------------------------------------------------
*Includes excise taxes on petroleum products sales: $ 6,236 2,178 1,781
**Restated for discontinued operations.
See Notes to Consolidated Financial Statements.
85
- -------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET CONOCOPHILLIPS
At December 31 Millions of Dollars
-----------------------
2002 2001*
-----------------------
ASSETS
Cash and cash equivalents $ 307 142
Accounts and notes receivable (net of allowance of $48 million
in 2002 and $33 million in 2001) 2,904 1,124
Accounts and notes receivable--related parties 1,476 105
Inventories 3,845 2,452
Prepaid expenses and other current assets 766 293
Assets of discontinued operations held for sale 1,605 2,382
- -------------------------------------------------------------------------------------------------------
Total Current Assets 10,903 6,498
Investments and long-term receivables 6,821 3,309
Net properties, plants and equipment 43,030 22,133
Goodwill 14,444 2,281
Intangibles 1,119 861
Other assets 519 135
- -------------------------------------------------------------------------------------------------------
Total $ 76,836 35,217
=======================================================================================================
LIABILITIES
Accounts payable $ 5,949 2,531
Accounts payable--related parties 303 91
Notes payable and long-term debt due within one year 849 44
Accrued income and other taxes 1,991 897
Other accruals 3,075 720
Liabilities of discontinued operations held for sale 649 538
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 12,816 4,821
Long-term debt 18,917 8,610
Accrued dismantlement, removal and environmental costs 1,666 1,059
Deferred income taxes 8,361 4,015
Employee benefit obligations 2,755 948
Other liabilities and deferred credits 1,803 769
- -------------------------------------------------------------------------------------------------------
Total Liabilities 46,318 20,222
- -------------------------------------------------------------------------------------------------------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
PHILLIPS 66 CAPITAL TRUSTS I AND II 350 650
- -------------------------------------------------------------------------------------------------------
OTHER MINORITY INTERESTS 651 5
- -------------------------------------------------------------------------------------------------------
COMMON STOCKHOLDERS' EQUITY
Common stock (2002--2,500,000,000 shares authorized at $.01 par value;
2001--1,000,000,000 shares authorized at $1.25 par value)
Issued (2002--704,354,839 shares; 2001--430,439,743 shares)
Par value 7 538
Capital in excess of par 25,178 9,069
Treasury stock (at cost: 2001--20,725,114 shares) -- (1,038)
Compensation and Benefits Trust (CBT) (at cost: 2002--26,785,094 shares;
2001--27,556,573 shares) (907) (934)
Accumulated other comprehensive loss (164) (255)
Unearned employee compensation--Long-Term Stock Savings Plan (LTSSP) (218) (237)
Retained earnings 5,621 7,197
- -------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity 29,517 14,340
- -------------------------------------------------------------------------------------------------------
Total $ 76,836 35,217
=======================================================================================================
*Restated for discontinued operations.
See Notes to Consolidated Financial Statements.
86
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS CONOCOPHILLIPS
Years Ended December 31 Millions of Dollars
----------------------------------
2002 2001* 2000*
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 714 1,611 1,848
Adjustments to reconcile income from continuing operations to net
cash provided by continuing operations
Non-working capital adjustments
Depreciation, depletion and amortization 2,223 1,344 1,169
Impairments 177 26 100
Dry hole costs and leasehold impairment 307 99 130
Accretion on discounted liabilities 22 7 --
Acquired in-process research and development 246 -- --
Deferred taxes 142 513 412
Other (46) 131 (210)
Working capital adjustments**
Increase (decrease) in aggregate balance of accounts receivable sold (22) (174) 317
Decrease (increase) in other accounts and notes receivable (401) 1,357 (710)
Decrease (increase) in inventories 200 (289) (12)
Decrease (increase) in prepaid expenses and other current assets (37) 50 84
Increase (decrease) in accounts payable 788 (1,004) 417
Increase (decrease) in taxes and other accruals 454 (142) 439
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 4,767 3,529 3,984
Net cash provided by discontinued operations 202 33 30
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 4,969 3,562 4,014
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired 1,180 80 (6,443)
Capital expenditures and investments, including dry hole costs (4,388) (3,016) (2,017)
Proceeds from contributing assets to joint ventures -- -- 2,061
Proceeds from asset dispositions 815 262 850
Long-term advances to affiliates and other investments (92) (28) (208)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations (2,485) (2,702) (5,757)
Net cash used in discontinued operations (99) (68) (5)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,584) (2,770) (5,762)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt 3,502 566 2,552
Repayment of debt (4,592) (945) (360)
Redemption of preferred stock of subsidiary (300) -- --
Issuance of company common stock 44 51 31
Dividends paid on common stock (684) (403) (346)
Other (190) (68) (118)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operations (2,220) (799) 1,759
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (2,220) (799) 1,759
- ---------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 165 (7) 11
Cash and cash equivalents at beginning of year 142 149 138
- ---------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 307 142 149
=====================================================================================================================
*Restated for discontinued operations.
**Net of acquisition and disposition of businesses.
See Notes to Consolidated Financial Statements.
87
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES CONOCOPHILLIPS
IN COMMON STOCKHOLDERS' EQUITY
Shares of Common Stock
--------------------------------------------
Held in
Issued Treasury Held in CBT
--------------------------------------------
December 31, 1999 306,380,511 24,409,545 28,358,258
Net income
Other comprehensive income
Foreign currency translation
Unrealized loss on securities
Equity affiliates:
Foreign currency translation
Comprehensive income
Cash dividends paid on common stock
Distributed under incentive
compensation and other
benefit plans (1,267,540) (508,828)
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
- ----------------------------------------------------------------------------------------
December 31, 2000 306,380,511 23,142,005 27,849,430
Net income
Other comprehensive income
Minimum pension liability
adjustment
Foreign currency translation
Unrealized loss on securities
Hedging activities
Equity affiliates:
Foreign currency translation
Derivatives related
Comprehensive income
Cash dividends paid on common stock
Tosco acquisition 124,059,232
Distributed under incentive
compensation and other benefit
plans (2,416,891) (292,857)
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
- ----------------------------------------------------------------------------------------
December 31, 2001 430,439,743 20,725,114 27,556,573
Net loss
Other comprehensive income
Minimum pension liability
adjustment
Foreign currency translation
Unrealized loss on securities
Hedging activities
Equity affiliates:
Foreign currency translation
Derivatives related
Comprehensive loss
Cash dividends paid on common stock
ConocoPhillips merger 273,471,505 (19,852,674)
Distributed under incentive
compensation and other benefit
plans 443,591 (872,440) (771,479)
Recognition of LTSSP unearned
compensation
Tax benefit of dividends on
unallocated LTSSP shares
- ----------------------------------------------------------------------------------------
DECEMBER 31, 2002 704,354,839 -- 26,785,094
========================================================================================
Millions of Dollars
-------------------------------------------------------------------------------------------
Common Stock Accumulated Unearned
--------------------------------------- Other Employee
Par Capital in Treasury Comprehensive Compensation Retained
Value Excess of Par Stock CBT Loss --LTSSP Earnings Total
-------------------------------------------------------------------------------------------
December 31, 1999 $ 383 2,098 (1,217) (961) (31) (286) 4,563 4,549
-------
Net income 1,862 1,862
Other comprehensive income
Foreign currency translation (53) (53)
Unrealized loss on securities (1) (1)
Equity affiliates:
Foreign currency translation (15) (15)
-------
Comprehensive income 1,793
-------
Cash dividends paid on common stock (346) (346)
Distributed under incentive
compensation and other
benefit plans 55 61 18 (65) 69
Recognition of LTSSP unearned
compensation 23 23
Tax benefit of dividends on
unallocated LTSSP shares 5 5
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 383 2,153 (1,156) (943) (100) (263) 6,019 6,093
-------
Net income 1,661 1,661
Other comprehensive income
Minimum pension liability
adjustment (143) (143)
Foreign currency translation (14) (14)
Unrealized loss on securities (2) (2)
Hedging activities (4) (4)
Equity affiliates:
Foreign currency translation (3) (3)
Derivatives related 11 11
-------
Comprehensive income 1,506
-------
Cash dividends paid on common stock (403) (403)
Tosco acquisition 155 6,883 7,038
Distributed under incentive
compensation and other benefit
plans 33 118 9 (84) 76
Recognition of LTSSP unearned
compensation 26 26
Tax benefit of dividends on
unallocated LTSSP shares 4 4
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 2001 538 9,069 (1,038) (934) (255) (237) 7,197 14,340
-------
Net loss (295) (295)
Other comprehensive income
Minimum pension liability
adjustment (93) (93)
Foreign currency translation 182 182
Unrealized loss on securities (3) (3)
Hedging activities (1) (1)
Equity affiliates:
Foreign currency translation 40 40
Derivatives related (34) (34)
-------
Comprehensive loss (204)
-------
Cash dividends paid on common stock (684) (684)
ConocoPhillips merger (531) 16,056 999 (562) 15,962
Distributed under incentive
compensation and other benefit
plans 53 39 27 (39) 80
Recognition of LTSSP unearned
compensation 19 19
Tax benefit of dividends on
unallocated LTSSP shares 4 4
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2002 $ 7 25,178 -- (907) (164) (218) 5,621 29,517
=================================================================================================================================
See Notes to Consolidated Financial Statements.
88
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONOCOPHILLIPS
NOTE 1--ACCOUNTING POLICIES
o CONSOLIDATION PRINCIPLES AND INVESTMENTS--Majority-owned, controlled
subsidiaries are consolidated. The equity method is used to account for
investments in affiliates in which the company exerts significant
influence, generally having a 20 to 50 percent ownership interest. The
company also uses the equity method for its 50.1 percent and 57.1 percent
non-controlling interests in Petrozuata C.A. and Hamaca Holding LLC,
respectively, located in Venezuela because the minority shareholders have
substantive participating rights, under which all substantive operating
decisions (e.g., annual budgets, major financings, selection of senior
operating management, etc.) require joint approvals. Undivided interests
in oil and gas joint ventures, pipelines, natural gas plants, certain
transportation assets and Canadian Syncrude mining operations are
consolidated on a proportionate basis. Other securities and investments,
excluding marketable securities, are generally carried at cost.
o REVENUE RECOGNITION--Revenues associated with sales of crude oil, natural
gas, natural gas liquids, petroleum and chemical products, and all other
items are recorded when title passes to the customer. Revenues include the
sales portion of contracts involving purchases and sales necessary to
reposition supply to address location or quality or grade requirements
(e.g., when the company repositions crude by entering into a contract with
a counterparty to sell crude in one location and purchase it in a
different location) and sales related to purchase for resale activity.
Revenues from the production of natural gas properties in which the
company has an interest with other producers are recognized based on the
actual volumes sold by the company during the period. Any differences
between volumes sold and entitlement volumes, based on the company's net
working interest, which are deemed non-recoverable through remaining
production, are recognized as accounts receivable or accounts payable, as
appropriate. Cumulative differences between volumes sold and entitlement
volumes are not significant. Revenues associated with royalty fees from
licensed technology are recorded based either upon volumes produced by the
licensee or upon the successful completion of all substantive performance
requirements related to the installation of licensed technology.
o RECLASSIFICATION--Certain amounts in the 2001 and 2000 financial
statements have been reclassified to conform with the 2002 presentation.
o USE OF ESTIMATES--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the
disclosures of contingent assets and liabilities. Actual results could
differ from the estimates and assumptions used.
o CASH EQUIVALENTS--Cash equivalents are highly liquid short-term
investments that are readily convertible to known amounts of cash and have
original maturities within three months from their date of purchase. They
are carried at cost plus accrued interest, which approximates fair value.
o INVENTORIES--The company has several valuation methods for its various
types of inventories and consistently uses the following methods for each
type of inventory. Crude oil, petroleum products, and Canadian Syncrude
inventories are valued at the lower of cost or market in the aggregate,
primarily on the last-in, first-out (LIFO) basis. Any necessary
lower-of-cost-or-market write-downs are recorded as permanent adjustments
to the LIFO cost basis. LIFO is used to better match current inventory
costs with current revenues and to meet tax-conformity requirements.
Materials, supplies and other miscellaneous inventories are valued using
the weighted-average-cost method, consistent
89
with general industry practice. Merchandise inventories at the company's
retail marketing outlets are valued using the first-in, first-out (FIFO)
retail method, consistent with general industry practice.
o DERIVATIVE INSTRUMENTS--All derivative instruments are recorded on the
balance sheet at fair value in either accounts and notes receivable, other
assets, accounts payable, or other liabilities and deferred credits.
Recognition of the gain or loss that results from recording and adjusting
a derivative to fair value depends on the purpose for issuing or holding
the derivative. Gains and losses from derivatives that are not used as
hedges are recognized immediately in earnings. For derivative instruments
that are designated and qualify as a fair value hedge, the gains or losses
from adjusting the derivative to its fair value will be immediately
recognized in earnings and, to the extent the hedge is effective, offset
the concurrent recognition of changes in the fair value of the hedged
item. Gains or losses from derivative instruments that are designated and
qualify as a cash flow hedge will be recorded on the balance sheet in
accumulated other comprehensive income/(loss) until the hedged transaction
is recognized in earnings; however, to the extent the change in the value
of the derivative exceeds the change in the anticipated cash flows of the
hedged transaction, the excess gains or losses will be recognized
immediately in earnings.
In the consolidated statement of operations, gains and losses from
derivatives that are not directly related to the company's movement of its
products are recorded in other income. Gains and losses from derivatives
used for other purposes are recorded in either sales and other operating
revenues, other income, or purchased crude oil and products, depending on
the purpose for issuing or holding the derivative.
o OIL AND GAS EXPLORATION AND DEVELOPMENT--Oil and gas exploration and
development costs are accounted for using the successful efforts method of
accounting.
PROPERTY ACQUISITION COSTS--Oil and gas leasehold acquisition costs
are capitalized. Leasehold impairment is recognized based on
exploratory experience and management's judgment. Upon discovery of
commercial reserves, leasehold costs are transferred to proved
properties.
EXPLORATORY COSTS--Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties are expensed as
incurred. Exploratory well costs are capitalized pending further
evaluation of whether economically recoverable reserves have been
found. If economically recoverable reserves are not found,
exploratory well costs are expensed as dry holes. All exploratory
wells are evaluated for economic viability within one year of well
completion. Exploratory wells that discover potentially economic
reserves that are in areas where a major capital expenditure would
be required before production could begin, and where the economic
viability of that major capital expenditure depends upon the
successful completion of further exploratory work in the area,
remain capitalized as long as the additional exploratory work is
under way or firmly planned.
DEVELOPMENT COSTS--Costs incurred to drill and equip development
wells, including unsuccessful development wells, are capitalized.
DEPLETION AND AMORTIZATION--Leasehold costs of producing properties
are depleted using the unit-of-production method based on estimated
proved oil and gas reserves. Amortization of intangible development
costs is based on the unit-of-production method using estimated
proved developed oil and gas reserves.
90
o SYNCRUDE MINING OPERATIONS--Capitalized costs, including support
facilities, include the cost of the acquisition and other capital costs
incurred. Capital costs are depreciated using the unit-of-production
method based on the applicable portion of proven reserves associated with
each mine location and its facilities.
o INTANGIBLE ASSETS OTHER THAN GOODWILL--Intangible assets that have finite
useful lives are amortized by the straight-line method over their useful
lives. Intangible assets that have indefinite useful lives are not
amortized but are tested at least annually for impairment. The company
evaluates the remaining useful lives of intangible assets not being
amortized each reporting period to determine whether events and
circumstances continue to support indefinite useful lives. Intangible
assets are considered impaired if the fair value of the intangible asset
is lower than cost. The fair value of intangible assets is determined
based on quoted market prices in active markets, if available. If quoted
market prices are not available, fair value of intangible assets is
determined based upon the present values of expected future cash flows
using discount rates commensurate with the risks involved in the asset, or
upon estimated replacement cost, if expected future cash flows from the
intangible asset are not determinable.
o GOODWILL--Goodwill is not amortized but is tested at least annually for
impairment. If the fair value of a reporting unit is less than the
recorded book value of the reporting unit's assets (including goodwill),
less liabilities, then a hypothetical purchase price allocation is
performed on the reporting unit's assets and liabilities using the fair
value of the reporting unit as the purchase price in the calculation. If
the amount of goodwill resulting from this hypothetical purchase price
allocation is less than the recorded amount of goodwill, the recorded
goodwill is written down to the new amount. Reporting units for purposes
of goodwill impairment calculations are one level below or at the
company's operating segment level. Because quoted market prices are not
available for the company's reporting units, the fair value of the
reporting units is determined based upon consideration of several factors,
including observed market multiples of operating cash flows and net
income, the depreciated replacement cost of tangible equipment, and/or the
present values of expected future cash flows using discount rates
commensurate with the risks involved in the assets.
o DEPRECIATION AND AMORTIZATION--Depreciation and amortization of
properties, plants and equipment on producing oil and gas properties,
certain pipeline assets (those which are expected to have a declining
utilization pattern), and on Syncrude mining operations are determined by
the unit-of-production method. Depreciation and amortization of all other
properties, plants and equipment are determined by either the
individual-unit-straight-line method or the group-straight-line method
(for those individual units that are highly integrated with other units).
o IMPAIRMENT OF PROPERTIES, PLANTS AND EQUIPMENT--Properties, plants and
equipment used in operations are assessed for impairment whenever changes
in facts and circumstances indicate a possible significant deterioration
in the future cash flows expected to be generated by an asset group. If,
upon review, the sum of the undiscounted pretax cash flows is less than
the carrying value of the asset group, the carrying value is written down
to estimated fair value through additional amortization or depreciation
provisions in the periods in which the determination of impairment is
made. Individual assets are grouped for impairment purposes at the lowest
level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets--generally on a
field-by-field basis for exploration and production assets, at an entire
complex level for downstream assets or at a site level for retail stores.
The fair value of impaired assets is determined based on quoted market
prices in active markets, if available, or upon the present values of
expected future cash flows using discount rates commensurate with the
risks involved in the asset group. Long-lived assets committed by
management for disposal within one year are accounted for at the lower of
amortized cost or fair value, less cost to sell.
91
The expected future cash flows used for impairment reviews and related
fair value calculations are based on estimated future production volumes,
prices and costs, considering all available evidence at the date of
review. If the future production price risk has been hedged, the hedged
price is used in the calculations for the period and quantities hedged.
The impairment review includes cash flows from proved developed and
undeveloped reserves, including any development expenditures necessary to
achieve that production. The price and cost outlook assumptions used in
impairment reviews differ from the assumptions used in the Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserve Quantities. In that disclosure, Statement of Financial Accounting
Standards (SFAS) No. 69, "Disclosures about Oil and Gas Producing
Activities," requires the use of prices and costs at the balance sheet
date, with no projection of future changes in those assumptions.
o MAINTENANCE AND REPAIRS--The costs of maintenance and repairs, which are
not significant improvements, are expensed when incurred. Effective
January 1, 2001, turnaround costs of major producing units are expensed as
incurred. Prior to 2001, the estimated turnaround costs of major producing
units were accrued in other liabilities over the estimated interval
between turnarounds. See Note 2--Extraordinary Items and Accounting Change
for further discussion of this change in accounting method.
o SHIPPING AND HANDLING COSTS--The company's Exploration and Production
segment includes shipping and handling costs in production and operating
expenses, while the Refining and Marketing segment records shipping and
handling costs in purchased crude oil and products.
o ADVERTISING COSTS--Production costs of media advertising are deferred
until the first public showing of the advertisement. Advances to secure
advertising slots at specific sports, racing or other events are deferred
until the event occurs. All other advertising costs are expensed as
incurred, unless the cost has benefits which clearly extend beyond the
interim period in which the expenditure is made, in which case the
advertising cost is deferred and amortized ratably over the interim
periods which clearly benefit from the expenditure. By the end of the
fiscal year, all such interim deferred advertising costs are fully
amortized to expense.
o PROPERTY DISPOSITIONS--When complete units of depreciable property are
retired or sold, the asset cost and related accumulated depreciation are
eliminated, with any gain or loss reflected in income. When less than
complete units of depreciable property are disposed of or retired, the
difference between asset cost and salvage value is charged or credited to
accumulated depreciation.
o DISMANTLEMENT, REMOVAL AND ENVIRONMENTAL COSTS--Through December 31, 2002,
the estimated undiscounted costs, net of salvage values, of dismantling
and removing major oil and gas production and transportation facilities,
including necessary site restoration, were accrued using either the
unit-of-production or the straight-line method, which was used for certain
regional production transportation assets that are expected to have a
straight-line utilization pattern. Effective January 1, 2003, the company
adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." See
Note 27--New Accounting Standards.
Environmental expenditures are expensed or capitalized, depending upon
their future economic benefit. Expenditures that relate to an existing
condition caused by past operations, and that do not have future economic
benefit, are expensed. Liabilities for these expenditures are recorded on
an undiscounted basis (unless acquired in a purchase business acquisition)
when environmental assessments or cleanups are probable and the costs can
be reasonably estimated. Recoveries of environmental remediation costs
from other parties are recorded as assets when their receipt is probable.
92
o STOCK COMPENSATION--Through December 31, 2002, the company accounted for
stock options using the intrinsic value method as prescribed by the
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Pro forma information
regarding changes in net income and earnings per share data (as if the
accounting prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation," had been applied) is presented in Note 20--Employee Benefit
Plans. Effective January 1, 2003, the company voluntarily adopted SFAS No.
123 prospectively. See Note 20--Employee Benefit Plans.
o FOREIGN CURRENCY TRANSLATION--Adjustments resulting from the process of
translating foreign functional currency financial statements into U.S.
dollars are included in accumulated other comprehensive loss in common
stockholders' equity. Foreign currency transaction gains and losses are
included in current earnings. Most of the company's foreign operations use
their local currency as the functional currency.
o INCOME TAXES--Deferred income taxes are computed using the liability
method and are provided on all temporary differences between the
financial-reporting basis and the tax basis of the company's assets and
liabilities, except for deferred taxes on income considered to be
permanently reinvested in certain foreign subsidiaries and foreign
corporate joint ventures. Allowable tax credits are applied currently as
reductions of the provision for income taxes.
o NET INCOME PER SHARE OF COMMON STOCK--Basic income per share of common
stock is calculated based upon the daily weighted-average number of common
shares outstanding during the year, including shares held by the Long-Term
Stock Savings Plan (LTSSP). Diluted income per share of common stock
includes the above, plus "in-the-money" stock options issued under company
compensation plans. Treasury stock and shares held by the Compensation and
Benefits Trust (CBT) are excluded from the daily weighted-average number
of common shares outstanding in both calculations.
o CAPITALIZED INTEREST--Interest from external borrowings is capitalized on
major projects with an expected construction period of one year or longer.
Capitalized interest is added to the cost of the underlying asset and is
amortized over the useful lives of the assets in the same manner as the
underlying assets.
NOTE 2--EXTRAORDINARY ITEMS AND ACCOUNTING CHANGE
During 2002, the company incurred extraordinary losses totaling $16 million
after-tax ($24 million before-tax) on the following items:
o the call premium on the early retirement of the company's $250
million 8.86% notes due May 15, 2022;
o the redemption of the company's outstanding 8.24% Junior
Subordinated Deferrable Interest Debentures due 2036, which
triggered the redemption of the $300 million of 8.24% Trust
Originated Preferred Securities of Phillips 66 Capital Trust I; and
o the call premium on the early retirement of the company's $171
million 7.443% notes due 2004.
93
In 2001, ConocoPhillips incurred an extraordinary loss of $10 million after-tax
($14 million before-tax) attributable to the call premium on the early
retirement of its $300 million 9.18% notes due September 15, 2021.
Effective January 1, 2001, the company changed its method of accounting for the
costs of major maintenance turnarounds from the accrue-in-advance method to the
expense-as-incurred method to reflect the impact of a turnaround in the period
that it occurs. The new method is preferable because it results in the
recognition of costs at the time obligations are incurred. The cumulative effect
of this accounting change increased net income in 2001 by $28 million (after
reduction for income taxes of $15 million).
The pro forma effects of retroactive application of the change in accounting
method are presented below:
Millions of Dollars
Except Per Share Amounts
------------------------
2001 2000
------------------------
Income before extraordinary items $1,643 1,851
Earnings per share
Basic 5.61 7.27
Diluted 5.57 7.22
- -----------------------------------------------------------------
Net income $1,633 1,851
Earnings per share
Basic 5.57 7.27
Diluted 5.54 7.22
- -----------------------------------------------------------------
NOTE 3--MERGER OF CONOCO AND PHILLIPS
On August 30, 2002, Conoco and Phillips combined their businesses by merging
with separate acquisition subsidiaries of ConocoPhillips (the merger). As a
result, each company became a wholly owned subsidiary of ConocoPhillips. For
accounting purposes, Phillips was treated as the acquirer of Conoco, and
ConocoPhillips was treated as the successor of Phillips.
Immediately after the closing of the merger, former Phillips stockholders held
approximately 56 percent of the outstanding shares of ConocoPhillips common
stock, while former Conoco stockholders held approximately 44 percent.
ConocoPhillips common stock, listed on the New York Stock Exchange under the
symbol "COP," began trading on September 3, 2002.
The primary reasons for the merger and the principal factors that contributed to
an accounting treatment that resulted in the recognition of goodwill were:
o the combination of Conoco and Phillips would create a stronger,
major, integrated oil company with the benefits of increased size
and scale, improving the stability of the combined business'
earnings in varying economic and market climates;
o ConocoPhillips would emerge with a global presence in both upstream
and downstream petroleum businesses, increasing its overall
international presence to over 40 countries while maintaining a
strong domestic base; and
94
o combining the two companies' operations would provide significant
synergies and related cost savings, and improve future access to
capital.
The $16 billion purchase price attributed to Conoco for accounting purposes was
based on an exchange of Conoco shares for ConocoPhillips common shares.
ConocoPhillips issued approximately 293 million shares of common stock and
approximately 23.3 million of employee stock options in exchange for 627 million
shares of Conoco common stock and 49.8 million Conoco stock options. The common
stock was valued at $53.15 per share, which was Phillips' average common stock
price over the two-day trading period immediately before and after the November
18, 2001, public announcement of the transaction. The Conoco stock options, the
fair value of which was determined using the Black-Scholes option-pricing model,
were exchanged for ConocoPhillips stock options valued at $384 million.
Transaction-related costs, included in the purchase price, were $82 million.
The preliminary allocation of the purchase price to specific assets and
liabilities was based, in part, upon an outside appraisal of the fair value of
Conoco's assets. Over the next few months ConocoPhillips expects to receive the
final outside appraisal of the long-lived assets and conclude the fair value
determination of all other Conoco assets and liabilities. Subsequent to
completion of the final allocation of the purchase price and the determination
of the ultimate asset and liability tax bases, the deferred tax liabilities will
also be finalized. The following table summarizes, based on the year-end
preliminary purchase price allocation, the fair values of the assets acquired
and liabilities assumed as of August 30, 2002:
Millions
of Dollars
----------
Cash and cash equivalents $ 1,250
Accounts and notes receivable 2,821
Inventories 1,603
Prepaid expenses and other current assets 324
Investments and long-term receivables 3,074
Properties, plants and equipment (including $300 million of land) 19,269
Goodwill 12,079
Intangibles 661
In-process research and development 246
Other assets 312
- ------------------------------------------------------------------------------
Total assets $41,639
==============================================================================
Accounts payable $ 2,879
Notes payable and long-term debt due within one year 3,101
Accrued income and other taxes 1,320
Other accruals 1,543
Long-term debt 8,930
Accrued dismantlement, removal and environmental costs 332
Deferred income taxes 4,073
Employee benefit obligations 1,648
Other liabilities and deferred credits 1,109
Minority interests 648
Common stockholders' equity 16,056
- ------------------------------------------------------------------------------
Total liabilities and equity $41,639
==============================================================================
95
The allocation of the purchase price, as reflected above, has not been adjusted
for the U.S. Federal Trade Commission (FTC)-mandated dispositions described in
Note 4--Discontinued Operations. Goodwill, land and certain identifiable
intangible assets recorded in the acquisition are not subject to amortization,
but the goodwill and intangible assets will be tested periodically for
impairment as required by SFAS No. 142, "Goodwill and Other Intangible Assets."
Of the $661 million allocated to intangible assets, $545 million is assigned to
marketing tradenames which are not subject to amortization. Of the remaining
value assigned to intangible assets, $66 million assigned to refining technology
will be amortized over 11 years and $50 million was allocated to other
intangible assets with a weighted-average amortization period of 11 years.
ConocoPhillips has not yet determined the assignment of Conoco goodwill to
specific reporting units. Currently, Conoco goodwill is being reported as part
of the Corporate and Other reporting segment. Of the $12,079 million of
goodwill, $4,302 million is attributable to the gross-up required under purchase
accounting for deferred taxes. This and the remaining "true" goodwill, or $7,777
million, will ultimately be assigned to reporting units based on the benefits
received by the units from the synergies and strategic advantages of the merger.
None of the goodwill is deductible for tax purposes.
The purchase price allocation included $246 million of in-process research and
development costs related to Conoco's natural gas-to-liquids and other
technologies. In accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business
Combinations Accounted for by the Purchase Method," the value assigned to the
research and development activities was charged to production and operating
expenses in the Emerging Businesses segment at the date of the consummation of
the merger, as these research and development costs had no alternative future
use.
Merger-related items that reduced ConocoPhillips' 2002 income from continuing
operations were:
Millions of Dollars
--------------------------
Before-Tax After-Tax
--------------------------
Write-off of acquired in-process research and development costs $246 246
Restructuring charges (see Note 5) 422 253
Incremental seismic contract costs 35 22
Transition costs 55 36
- -----------------------------------------------------------------------------------------------
Total $758 557
===============================================================================================
In total, these items reduced 2002 income from continuing operations by $557
million ($1.15 per share on a diluted basis).
96
The following pro forma summary presents information as if the merger had
occurred at the beginning of each period presented, and includes the $557
million effect of the merger-related items mentioned above.
Millions of Dollars
Except Per Share Amounts
---------------------------------
2002 2001
---------------------------------
Revenues $ 81,433 79,554
Income from continuing operations 918 3,635
Net income (loss) (70) 4,072
Income from continuing operations per share of common stock
Basic 1.36 5.39
Diluted 1.34 5.32
Net income (loss) per share of common stock
Basic (.10) 6.04
Diluted (.10) 5.97
- --------------------------------------------------------------------------------------------------------
During 2001, both Phillips and Conoco entered into other significant
transactions that are not reflected in the companies' historical income
statements for the full year 2001. The pro forma results have been prepared as
if the Phillips' September 14, 2001, acquisition of Tosco Corporation (Tosco)
(see Note 6--Acquisition of Tosco Corporation) and Conoco's July 16, 2001, $4.6
billion acquisition of Gulf Canada Resources Limited occurred on January 1,
2001. Gulf Canada Resources Limited was a Canadian-based independent exploration
and production company with primary operations in Western Canada, Indonesia, the
Netherlands and Ecuador.
The pro forma results reflect the following:
o recognition of depreciation and amortization based on the
preliminary allocated purchase price of the properties, plants and
equipment acquired;
o adjustment of interest for the amortization of the fair-value
adjustment to debt;
o cessation of the amortization of deferred gains not recognizable in
the purchase price allocation;
o accretion of discount on environmental accruals recorded at net
present value; and
o various other adjustments to conform Conoco's accounting policies to
ConocoPhillips'.
The pro forma adjustments use estimates and assumptions based on currently
available information. Management believes that the estimates and assumptions
are reasonable, and that the significant effects of the transactions are
properly reflected.
The pro forma information does not reflect any anticipated synergies that might
be achieved from combining the operations. The pro forma information is not
intended to reflect the actual results that would have occurred had the
companies been combined during the periods presented. This pro forma information
is not intended to be indicative of the results of operations that may be
achieved by ConocoPhillips in the future.
97
NOTE 4--DISCONTINUED OPERATIONS
During 2002, the company disposed of, or had committed to a plan to dispose of,
U.S. retail and wholesale marketing assets, U.S. refining and related assets,
and exploration and production assets in the Netherlands. Certain of these
planned dispositions were mandated by the FTC as a condition of the merger. For
reporting purposes, these operations are classified as discontinued operations,
and in Note 26--Segment Disclosures and Related Information, these operations
are included in Corporate and Other.
Revenues and income (loss) from discontinued operations were as follows:
Millions of Dollars
----------------------------------
2002 2001 2000
----------------------------------
Sales and other operating revenues from discontinued operations $ 7,406 2,670 786
=======================================================================================================
Income (loss) from discontinued operations before-tax $(1,387) 47 21
Income tax expense (benefit) (394) 15 7
- -------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ (993) 32 14
=======================================================================================================
Major classes of assets and liabilities of discontinued operations held for sale
were as follows:
Millions of Dollars
-------------------
ASSETS 2002 2001
-------------------
Inventories $ 211 166
Other current assets 136 81
Net properties, plants and equipment 1,178 1,663
Intangibles 23 452
Other assets 57 20
- -------------------------------------------------------------------------------------------------------
Assets of discontinued operations $1,605 2,382
======================================================================================================
LIABILITIES
Accounts payable and other current liabilities $ 331 259
Long-term debt 34 35
Accrued dismantlement, removal and environmental costs 86 83
Other liabilities and deferred credits 198 161
- ------------------------------------------------------------------------------------------------------
Liabilities of discontinued operations $ 649 538
======================================================================================================
In the fourth quarter of 2002, ConocoPhillips concluded a strategic business
review of its company-owned retail sites. The review included quantitative and
qualitative measures and identified 3,200 retail sites throughout the United
States that did not fit the company's long-range plans. The assets are being
actively marketed by an investment banking firm. The retail sites are being
grouped and marketed in packages, including the planned sale of the company's
Circle K Corporation subsidiary. Discussions are under way with potential
buyers, and the company expects to complete the sales in 2003.
98
In connection with the anticipated sale of these retail sites, ConocoPhillips
recorded charges totaling $1,412 million before-tax, $1,008 million after-tax,
primarily related to the impairment of properties, plants and equipment ($249
million); goodwill ($257 million); intangible asset ($429 million); and
provisions for losses and penalties associated with various operating lease
commitments ($477 million).
The intangible asset represents the Circle K tradename. Properties, plants and
equipment include land, buildings and equipment of owned retail sites and
leasehold improvements of leased sites. Fair value determinations were based on
estimated sales prices for comparable sites.
The provisions for losses and penalties associated with various operating lease
commitments include obligations for residual value guarantee deficiencies, and
future minimum rental payments that existed prior to the commitment date that
will continue after the exit plan is completed with no economic benefit. It also
includes penalties incurred to cancel the contractual arrangements. An
additional $130 million of lease loss provisions ($85 million after-tax) will be
recognized in 2003 as the company continues to operate the sites until sold.
As a condition to the merger of Conoco and Phillips, the FTC required that the
company divest the following assets:
o Phillips' Woods Cross business unit, which includes the Woods Cross,
Utah, refinery and associated motor fuel marketing operations (both
retail and wholesale) in Utah, Idaho, Wyoming, and Montana, as well
as Phillips' 50 percent interests in two refined products terminals
in Boise and Burley, Idaho;
o Conoco's Commerce City, Colorado, refinery and related crude oil
pipelines;
o Phillips' Colorado motor fuel marketing operations (both retail and
wholesale);
o Phillips' refined products terminal in Spokane, Washington;
o Phillips' propane terminal assets at Jefferson City, Missouri, and
East St. Louis, Illinois, which include the propane portions of
these terminals and the customer relationships and contracts for the
supply of propane therefrom;
o certain of Conoco's midstream natural gas gathering and processing
assets in southeast New Mexico; and
o certain of Conoco's midstream natural gas gathering assets in West
Texas.
Further, the FTC required that certain of these assets be held separately within
ConocoPhillips, under the management of a trustee until sold. In connection with
these anticipated sales, ConocoPhillips recorded an impairment of $113 million
before-tax, $69 million after-tax, related to the Phillips assets in the third
quarter of 2002.
In the fourth quarter of 2002, ConocoPhillips agreed to sell its Woods Cross
business unit for $25 million, subject to an adjustment for certain pension
obligations and the value of crude oil, refined products and other inventories.
Also in the fourth quarter, the company sold its propane terminal assets at
Jefferson City, Missouri, and East St. Louis, Illinois. The sales amounts did
not differ significantly from the fair-value estimates used in the third quarter
impairment calculations. Sale of the Colorado assets and the midstream assets is
expected to occur in 2003.
The company's Netherlands exploration and production assets were sold in the
fourth quarter of 2002. No gain or loss was recognized on the sale, as these
assets were recorded at fair value in the Conoco purchase price allocation.
99
NOTE 5--RESTRUCTURING
As a result of the merger, the company implemented a restructuring program in
September 2002 to capture the synergies of combining the two companies. In
connection with this program, the company recorded accruals totaling $770
million for anticipated employee severance payments, incremental pension and
medical plan benefit costs associated with the work force reductions, site
closings, and Conoco employee relocations. Of the total accrual, $337 million is
reflected in the Conoco purchase price allocation as an assumed liability, and
$422 million ($253 million after-tax) related to Phillips is reflected in
selling, general and administrative expense and production and operating
expense, and $11 million before-tax is included in discontinued operations.
Included in the total accruals of $770 million was $172 million related to
pension and other post-retirement benefits that will be paid in conjunction with
other retirement benefits over a number of future years. The table below
summarizes the balance of the accrual of $598 million, which consists of
severance related benefits to be provided to approximately 2,900 employees
worldwide and other merger related expenses. By the end of 2002, approximately
775 employees had been terminated. Changes in the severance related accrual
balance are summarized below.
Millions of Dollars
----------------------------------------------------------
2002 Reserve at
Accruals Benefit Payments December 31, 2002
-------- ---------------- -----------------
Conoco $297* (191) 106
Phillips 301 (32) 269
- ----------------------------------------------------------------------------------
Total $598 (223) 375
==================================================================================
*Purchase price adjustment.
The ending accrual balance is expected to be extinguished within one year,
except for $37 million, which is classified as long-term.
NOTE 6--ACQUISITION OF TOSCO CORPORATION
On September 14, 2001, Tosco was merged with a subsidiary of ConocoPhillips, as
a result of which ConocoPhillips became the owner of 100 percent of the
outstanding common stock of Tosco. Tosco's results of operations have been
included in ConocoPhillips' consolidated financial statements since that date.
Tosco's operations included seven U.S. refineries with a total crude oil
capacity of 1.31 million barrels per day; one 75,000-barrel-per-day refinery
located in Cork, Ireland; and various marketing, transportation, distribution
and corporate assets.
The primary reasons for ConocoPhillips' acquisition of Tosco, and the primary
factors that contributed to a purchase price that resulted in recognition of
goodwill, are:
o the Tosco operations would deliver earnings prospects, and potential
strategic and other benefits;
o combining the two companies' operations would provide significant
cost savings;
o adding Tosco to ConocoPhillips' Refining and Marketing (R&M)
operations would give the segment the size, scale and resources to
compete more effectively;
100
o the merger would transform ConocoPhillips into a stronger, more
integrated oil company with the benefits of increased size and
scale, improving the stability of the combined business' earnings in
varying economic and market climates;
o the combined company would have a stronger balance sheet, improving
its access to capital in the future; and
o the increased cash flow and access to capital resulting from the
Tosco acquisition would allow ConocoPhillips to pursue other
opportunities in the future.
Based on an exchange ratio of 0.8 shares of ConocoPhillips common stock for each
Tosco share, ConocoPhillips issued approximately 124.1 million common shares and
4.7 million vested employee stock options in the exchange, which increased
common stockholders' equity by approximately $7 billion. The common stock was
valued at $55.50 per share, which was ConocoPhillips' average common stock price
over the two-day trading period before and after the February 4, 2001, public
announcement of the transaction. The employee stock options were valued using
the Black-Scholes option pricing model, based on assumptions prevalent at the
February 2001 announcement date.
The allocation of the purchase price to specific assets and liabilities was
based, in part, upon an outside appraisal of Tosco's long-lived assets. Goodwill
and indefinite-lived intangible assets recorded in the acquisition are not
subject to amortization, but the goodwill and intangible assets will be tested
periodically for impairment as required by SFAS No. 142, "Goodwill and Other
Intangible Assets."
During the third quarter of 2002, the company concluded:
o the outside appraisal of the long-lived assets;
o the determination of the fair value of all other Tosco assets and
liabilities;
o the tax basis calculation of Tosco's assets and liabilities and the
related deferred tax liabilities; and
o the allocation of Tosco goodwill to reporting units within the R&M
operating segment.
The resulting adjustments to the purchase price allocation made in 2002
increased goodwill by $341 million. The more significant adjustments to goodwill
were a $247 million reduction in the value of refinery air emission permits to
reflect a more appropriate appraisal methodology, a $70 million liability
recorded for Tosco Long-Term Incentive Plan performance units, and a $69 million
increase in deferred tax liabilities, resulting primarily from an updated
analysis of the tax bases of Tosco's assets and liabilities. All other
adjustments in the aggregate reduced goodwill by $45 million.
Tosco Long-Term Incentive Plan performance units were derivative financial
instruments tied to ConocoPhillips' stock price and were marked-to-market each
reporting period. The resulting gains or losses from these mark-to-market
adjustments were reported in other income in the consolidated statement of
operations. In October 2002, the company and former Tosco executives negotiated
a complete cancellation of the performance units in exchange for a cash payment
to the former executives. During 2002, the company recorded gains totaling $38
million, after-tax, as this liability was marked-to-market each reporting period
and eventually settled.
101
The following table summarizes, based on the final purchase price allocation
described above, the fair values of the assets acquired and liabilities assumed
as of September 14, 2001:
Millions
of Dollars
----------
Cash and cash equivalents $ 103
Accounts and notes receivable 718
Inventories 1,965
Prepaid expenses and other current assets 154
Investments and long-term receivables 150
Properties, plants and equipment (including $1,720 million of land) 7,681
Goodwill 2,644
Intangibles 1,003
Other assets 11
- ----------------------------------------------------------------------------------------------
Total assets $14,429
==============================================================================================
Accounts payable $ 1,917
Accrued income and other taxes 350
Other accruals 206
Long-term debt 2,135
Accrued environmental costs 332
Deferred income taxes 1,824
Employee benefit obligations 177
Other liabilities and deferred credits 408
Common stockholders' equity 7,080
- ----------------------------------------------------------------------------------------------
Total liabilities and equity $14,429
==============================================================================================
Of the $1,003 million allocated to intangible assets, marketing tradenames
comprised $655 million, refinery air emission and operating permits totaled $315
million and other miscellaneous intangible assets amounted to $33 million. The
$1,003 million of intangible assets included $992 million allocated to
indefinite-lived intangible assets not subject to amortization and $11 million
allocated to intangible assets with a weighted-average amortization period of
seven years. In late 2002, the Circle K tradename ($429 million) was included
with the retail marketing operations that are held for sale at December 31,
2002, and included in the loss on disposal. See Note 4--Discontinued Operations.
ConocoPhillips finalized the required assignment of Tosco goodwill to specific
reporting units in 2002, with $1,944 million assigned to the refining reporting
unit and $700 million assigned to the marketing reporting unit. The goodwill was
assigned to the reporting units that were deemed to have benefited from the
synergies and strategic advantages of the merger. In late 2002, $257 million of
goodwill assigned to the marketing reporting unit was allocated to the retail
marketing operations held for sale at December 31, 2002, and included in the
loss on disposal. See Note 4--Discontinued Operations.
102
NOTE 7--INVENTORIES
Inventories at December 31 were:
Millions of Dollars
-------------------
2002 2001
-------------------
Crude oil and petroleum products $3,395 2,231
Canadian Syncrude (from mining operations) 4 --
Materials, supplies and other 446 221
- ---------------------------------------------------------------------------
$3,845 2,452
===========================================================================
Inventories valued on a LIFO basis totaled $3,349 million and $2,211 million at
December 31, 2002 and 2001, respectively. The remainder of the company's
inventories are valued under various other methods, including FIFO and weighted
average. The excess of current replacement cost over LIFO cost of inventories
amounted to $1,083 million and $2 million at December 31, 2002 and 2001,
respectively.
In the fourth quarter of 2001, the company recorded a $42 million before-tax,
$27 million after-tax, lower-of-cost-or-market write-down of its petroleum
products inventory. During 2000, certain inventory quantity reductions caused a
liquidation of LIFO inventory values. This liquidation increased net income by
$63 million, of which $60 million was attributable to ConocoPhillips' R&M
segment.
NOTE 8--INVESTMENTS AND LONG-TERM RECEIVABLES
Components of investments and long-term receivables at December 31 were:
Millions of Dollars
-------------------
2002 2001
-------------------
Investment in and advances to affiliated companies $5,900 2,788
Long-term receivables 526 241
Other investments 395 280
- ---------------------------------------------------------------------------
$6,821 3,309
===========================================================================
At December 31, 2002, retained earnings included $825 million related to the
undistributed earnings of affiliated companies, and distributions received from
affiliates were $313 million, $163 million and $2,180 million in 2002, 2001 and
2000, respectively.
EQUITY INVESTMENTS
The company owns or owned investments in chemicals, heavy-oil projects, oil and
gas transportation, coal mining and other industries. The affiliated companies
for which ConocoPhillips uses the equity method of accounting include, among
others, the following companies: Chevron Phillips Chemical Company LLC (CPChem)
(50 percent), Duke Energy Field Services, LLC (DEFS) (30.3 percent), Petrozuata
C.A. (50.1 percent non-controlling interest), Merey Sweeny L.P. (MSLP) (50
percent), Petrovera Resources Limited (46.7 percent), and Hamaca Holding LLC
(57.1 percent non-controlling interest). See Note 1--Accounting Policies for
additional information.
103
Summarized 100 percent financial information for DEFS, CPChem and all other
equity companies accounted for using the equity method follows:
2002 Millions of Dollars
-------------------------------------------------
Other Equity
DEFS CPChem Companies Total
------- ------- ------------ -------
Revenues $ 5,492 5,473 5,378 16,343
Income (loss) before income taxes (37) (24) 776 715
Net income (loss) (47) (30) 751 674
Current assets 1,123 1,561 5,783 8,467
Noncurrent assets 5,457 4,548 14,386 24,391
Current liabilities 1,426 1,051 4,696 7,173
Noncurrent liabilities 2,504 1,307 10,063 13,874
- ----------------------------------------------------------------------------------------
2001 Millions of Dollars
-------------------------------------------------
Other Equity
DEFS CPChem Companies Total
------- ------- ------------ -------
Revenues $ 8,025 6,010 1,555 15,590
Income (loss) before income taxes 367 (431) 607 543
Net income (loss) 364 (480) 414 298
Current assets 1,165 1,551 689 3,405
Noncurrent assets 5,465 4,309 3,949 13,723
Current liabilities 1,251 820 1,184 3,255
Noncurrent liabilities 2,426 1,606 1,960 5,992
- ----------------------------------------------------------------------------------------
2000 Millions of Dollars
-------------------------------------------------
Other Equity
DEFS* CPChem** Companies Total
------- ------- ------------ -------
Revenues $ 5,099 3,463 3,241 11,803
Income (loss) before income taxes 321 (213) 611 719
Net income (loss) 318 (241) 412 489
- ----------------------------------------------------------------------------------------
*For the period April 1, 2000, through December 31, 2000.
**For the period July 1, 2000, through December 31, 2000.
ConocoPhillips' share of income taxes incurred directly by the equity companies
is reported in equity in earnings of affiliates, and as such is not included in
income taxes in ConocoPhillips' consolidated financial statements.
DUKE ENERGY FIELD SERVICES, LLC
On March 31, 2000, ConocoPhillips combined its midstream gas gathering,
processing and marketing business with the gas gathering, processing, marketing
and natural gas liquids business of Duke Energy Corporation (Duke Energy)
forming a new company, DEFS. Duke Energy owns 69.7 percent of the company, which
it consolidates, while ConocoPhillips owns 30.3 percent, which it accounts for
using the equity method.
104
Duke Energy estimated the fair value of the ConocoPhillips' midstream business
at $1.9 billion in its purchase method accounting for the acquisition. The book
value of the midstream business contributed to DEFS was $1.1 billion, but no
gain was recognized in connection with the transaction because of
ConocoPhillips' and CPChem's long-term commitment to purchase the natural gas
liquids output from the former ConocoPhillips' natural gas processing plants
until December 31, 2014. This purchase commitment is on an "if-produced,
will-purchase" basis so it has no fixed production schedule, but has been, and
is expected to be, a relatively stable purchase pattern over the term of the
contract. Natural gas liquids are purchased under this agreement at various
published market index prices, less transportation and fractionation fees.
ConocoPhillips' consolidated results of operations include 100 percent of the
activity of the gas gathering, processing and marketing business contributed to
DEFS through March 31, 2000, and its 30.3 percent share of DEFS' earnings since
that date.
At December 31, 2002, the book value of ConocoPhillips' common investment in
DEFS was $67 million. ConocoPhillips' 30.3 percent share of the net assets of
DEFS was $743 million. This basis difference of $676 million, is being amortized
on a straight-line basis over 15 years, consistent with the remaining estimated
useful lives of the properties, plants and equipment contributed to DEFS.
Included in operating results for 2002, 2001 and 2000 was after-tax income of
$35 million, $36 million and $27 million, respectively, representing the
amortization of the basis difference.
On August 4, 2000, DEFS, Duke Energy and ConocoPhillips agreed to modify the
Limited Liability Company Agreement governing DEFS to provide for the admission
of a class of preferred members in DEFS. Subsidiaries of Duke Energy and
ConocoPhillips purchased new preferred member interests for $209 million and $91
million, respectively. The preferred member interests have a 30-year term, will
pay a distribution yielding 9.5 percent annually, and contain provisions that
require their redemption with any proceeds from an initial public offering. On
September 9, 2002, ConocoPhillips received $30 million return of preferred
member interest reducing its preferred interest to $61 million.
CHEVRON PHILLIPS CHEMICAL COMPANY LLC
On July 1, 2000, ConocoPhillips and ChevronTexaco Corporation, as successor to
Chevron Corporation (ChevronTexaco), combined their worldwide chemicals
businesses, excluding ChevronTexaco's Oronite business, into a new company,
CPChem. In addition to contributing the assets and operations included in the
company's Chemicals segment, ConocoPhillips also contributed the natural gas
liquids business associated with its Sweeny, Texas, complex. ConocoPhillips and
ChevronTexaco each own 50 percent of the voting and economic interests in
CPChem, and on July 1, 2000, ConocoPhillips began accounting for its investment
in CPChem using the equity method. Accordingly, ConocoPhillips' results of
operations include 100 percent of the activity of its chemicals business through
June 30, 2000, and its 50 percent share of CPChem's earnings since that date.
CPChem accounted for the combination using the historical bases of the assets
and liabilities contributed by ConocoPhillips and ChevronTexaco.
At December 31, 2002, the book value of ConocoPhillips' investment in CPChem was
$1,919 million. ConocoPhillips' 50 percent share of the total net assets of
CPChem was $1,747 million. This basis difference of $172 million is being
amortized over 20 years, consistent with the remaining estimated useful lives of
the properties, plants and equipment contributed to CPChem.
On July 1, 2002, ConocoPhillips purchased $125 million of Members' Preferred
Interests. Preferred distributions are cumulative at 9 percent per annum and
will be payable quarterly, upon declaration by CPChem's Board of Directors, from
CPChem's cash earnings. The securities have no stated maturity date and are
redeemable quarterly, in increments of $25 million, when CPChem's ratio of debt
to total capitalization falls below a stated level. The Members' Preferred
Interests are also redeemable at CPChem's sole option at any time.
105
NOTE 9--PROPERTIES, PLANTS AND EQUIPMENT, GOODWILL AND INTANGIBLES
The company's investment in properties, plants and equipment (PP&E), with
accumulated depreciation, depletion and amortization (DD&A), at December 31 was:
Millions of Dollars
----------------------------------------------------------------------------------
2002 2001
------------------------------------- -------------------------------------
Gross Net Gross Net
PP&E DD&A PP&E PP&E DD&A PP&E
------------------------------------- -------------------------------------
E&P $36,884 8,600 28,284 20,995 7,870 13,125
Midstream 903 16 887 49 34 15
R&M 15,605 2,765 12,840 11,553 2,804 8,749
Chemicals -- -- -- -- -- --
Emerging Businesses 690 5 685 -- -- --
Corporate and Other 477 143 334 493 249 244
- -------------------------------------------------------------------------------------------------------------
$54,559 11,529 43,030 33,090 10,957 22,133
=============================================================================================================
Changes in the carrying amount of goodwill are as follows:
Millions of Dollars
----------------------------------------------------------
E&P R&M Corporate Total
----------------------------------------------------------
Balance at December 31, 2000 $ -- -- -- --
Acquired (primarily Tosco acquisition) 15 2,266 -- 2,281
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 15 2,266 -- 2,281
Acquired (merger of Conoco and Phillips)* -- -- 12,079 12,079
Valuation and other adjustments -- 341 -- 341
Allocated to discontinued operations -- (257) -- (257)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 $ 15 2,350 12,079 14,444
=============================================================================================================
*Has not yet been allocated to reporting units.
Information on the carrying value of intangible assets at December 31 follows:
Millions of Dollars
-------------------
2002 2001
-------------------
AMORTIZED INTANGIBLE ASSETS
Refining technology related $ 78 --
Other 44 11
- ------------------------------------------------------------------------------------------------------------
$122 11
============================================================================================================
UNAMORTIZED INTANGIBLE ASSETS
Tradenames $669 226
Refinery air and operating permits 315 562
Other 13 62
- ------------------------------------------------------------------------------------------------------------
$997 850
============================================================================================================
106
NOTE 10--IMPAIRMENTS
During 2002, 2001 and 2000, the company recognized the following before-tax
impairment charges:
Millions of Dollars
----------------------------
2002 2001 2000
----------------------------
E&P
United States $ 12 3 13
International 37 23 87
R&M
Tradenames 102 -- --
Retail site leasehold improvements 26 -- --
- ----------------------------------------------------------------------
$177 26 100
======================================================================
After-tax, the above impairment charges were $115 million in 2002, $25 million
in 2001, and $95 million in 2000.
The company's E&P segment recognized impairments of $49 million before-tax on
four fields in 2002. Impairment of the Janice field in the U.K. North Sea was
triggered by its sale, while the Viscount field in the U.K. North Sea was
impaired following an evaluation of development drilling results. Sales of
properties in Alaska and offshore California resulted in the remaining E&P
impairments in 2002.
The company initiated a plan in late 2002 to sell a substantial portion of its
R&M retail sites. The planned dispositions will result in a reduction of the
amount of gasoline volumes marketed under the company's "76" tradename. As a
result, the carrying value of the "76" tradename was impaired, with the $102
million impairment determined by an analysis of the discounted cash flows based
on the gasoline volumes projected to be sold under the brand name after the
planned dispositions, compared with the volumes being sold prior to the
dispositions. The company also impaired the carrying value of certain leasehold
improvements associated with leased retail sites that are held for use. The
impairment was triggered by a review of the leased-site guaranteed residual
values and was determined by comparing the guaranteed residual values and
leasehold improvements with current market values of the related assets.
See Note 4--Discontinued Operations for information regarding the impairments
recognized in 2002 in connection with the anticipated sale of certain assets
mandated by the FTC, and the planned sale of a substantial portion of the
company's retail marketing operations.
In the second quarter of 2001, the company committed to a plan to sell its 12.5
percent interest in the Siri oil field, offshore Denmark, triggering a
write-down of the field's assets to fair market value. The sale closed in early
2002. The company also recorded a property impairment on a crude oil tanker that
was sold in the fourth quarter of 2001.
The company recorded an impairment of its Ambrosio field, located in Lake
Maracaibo, Venezuela, in 2000. The Ambrosio field exploitation program did not
achieve originally premised results. The $87 million impairment charge was based
on the difference between the net book value of the property and the discounted
value of estimated future cash flows. The remaining property impairments in 2000
were related to fields in the United States, and were prompted by an evaluation
of drilling results or negative oil and gas reserve revisions.
107
NOTE 11--ACCRUED DISMANTLEMENT, REMOVAL AND ENVIRONMENTAL COSTS
ACCRUED DISMANTLEMENT AND REMOVAL COSTS
At December 31, 2002 and 2001, the company had accrued $1,065 million and $776
million, respectively, of dismantlement and removal costs, primarily related to
worldwide offshore production facilities and to production facilities in Alaska.
The increase in 2002 was primarily due to the merger and increased cost
estimates related to production facilities in Alaska. Estimated uninflated total
future dismantlement and removal costs at December 31, 2002, were $4,751
million, compared with $2,827 million in 2001. The increase was partially due to
the merger. The remaining increase was primarily attributable to changes in
future dismantlement and removal cost estimates. These costs are accrued
primarily on the unit-of-production method. Pursuant to SFAS No. 143,
"Accounting for Asset Retirement Obligations," the accounting for these costs
was changed effective January 1, 2003. See Note 27--New Accounting Standards for
additional information.
ENVIRONMENTAL COSTS
Total environmental accruals at December 31, 2002 and 2001, were $743 million
and $439 million, respectively. The 2002 increase in accrued environmental costs
was primarily the result of the merger. A large portion of these accrued
environmental costs were acquired in various business combinations and thus are
discounted obligations. For the discounted accruals, expected inflated
expenditures are: $112 million in 2003, $71 million in 2004, $58 million in
2005, $54 million in 2006, and $53 million in 2007. Remaining expenditures in
all future years after 2007 are expected to total $399 million. These expected
expenditures are discounted using a weighted-average 5 percent discount factor,
resulting in an accrued balance of $675 million at December 31, 2002.
ConocoPhillips had accrued environmental costs, primarily related to cleanup at
domestic refineries and underground storage tanks at U.S. service stations, and
remediation activities required by the state of Alaska at exploration and
production sites formerly owned by Atlantic Richfield Company, of $427 million
and $288 million at December 31, 2002 and 2001, respectively. ConocoPhillips had
also accrued at Corporate $236 million and $136 million of environmental costs
associated with non-operating sites at December 31, 2002 and 2001, respectively.
In addition, $70 million and $12 million were included at December 31, 2002 and
2001, respectively, for sites where the company has been named a potentially
responsible party under the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Resource Conservation and Recovery
Act, or similar state laws. At December 31, 2002 and 2001, $10 million and $3
million, respectively, had been accrued for other environmental litigation.
Accrued environmental liabilities will be paid over periods extending up to 30
years.
Of the total $1,808 million and $1,215 million of accrued dismantlement, removal
and environmental costs at December 31, 2002 and 2001, $142 million and $156
million was classified as a current liability on the balance sheet, under the
caption "Other accruals."
108
NOTE 12--DEBT
Long-term debt at December 31 was:
Millions of Dollars
-------------------------
2002 2001
-------------------------
9 3/8% Notes due 2011 $ 350 350
8.86% Notes due 2022 -- 250
8.75% Notes due 2010 1,350 1,350
8.5% Notes due 2005 1,150 1,150
8.49% Notes due 2023 250 250
8.25% Mortgage Bonds due 2003 150 150
8.125% Notes due 2030 600 600
7.92% Notes due 2023 250 250
7.9% Notes due 2047 100 100
7.8% Notes due 2027 300 300
7.68% Notes due 2012 64 --
7.625% Notes due 2006 240 240
7.25% Notes due 2007 200 200
7.25% Notes due 2031 500 --
7.20% Notes due 2023 250 250
7.125% Debentures due 2028 300 300
7% Debentures due 2029 200 200
6.95% Notes due 2029 1,900 --
6.65% Notes due 2003 100 100
6.65% Debentures due 2018 300 300
6.375% Notes due 2009 300 300
6.35% Notes due 2011 1,750 --
6.35% Notes due 2009 750 --
5.90% Notes due 2004 1,350 --
5.90% Notes due 2032 600 --
5.45% Notes due 2006 1,250 --
4.75% Notes due 2012 1,000 --
3.625% Notes due 2007 400 --
Commercial paper and revolving debt due to banks and others
through 2006 at 1.46% - 1.94% at year end 2002 1,517 1,081
SRW Cogeneration Limited Partnership 180 --
Floating Rate Notes due 2003 500 --
Industrial Development bonds 153 55
Guarantee of LTSSP bank loan payable at 1.69% at year-end 2002 299 322
Note payable to Merey Sweeny, L.P. at 7% 131 133
Marine Terminal Revenue Refunding Bonds at 2.9% - 3.1% at year-end 2002 265 265
Other notes payable 68 49
- --------------------------------------------------------------------------------------------------------
Debt at face value 19,067 8,545
Capitalized leases 23 --
Net unamortized premiums and discounts 676 109
- --------------------------------------------------------------------------------------------------------
Total debt 19,766 8,654
Notes payable and long-term debt due within one year (849) (44)
- --------------------------------------------------------------------------------------------------------
Long-term debt $ 18,917 8,610
========================================================================================================
109
Maturities inclusive of net unamortized premiums and discounts in 2003 through
2007 are: $849 million (included in current liabilities), $1,438 million, $1,229
million, $3,173 million and $654 million, respectively.
The company assumed $12,031 million of debt in connection with the merger.
In October 2002, ConocoPhillips entered into two new revolving credit facilities
and amended and restated a prior Phillips revolving credit facility to include
ConocoPhillips as a borrower. These credit facilities support the company's $4
billion commercial paper program, a portion of which may be denominated in euros
(limited to euro 3 billion). The company now has a $2 billion 364-day revolving
credit facility expiring on October 14, 2003, and two revolving credit
facilities totaling $2 billion expiring in October 2006. Effective with the
execution of the new facilities, the previously existing $2.5 billion in Conoco
facilities were terminated.
At December 31, 2002, ConocoPhillips had no debt outstanding under these credit
facilities, but had $1,517 million in commercial paper outstanding, which is
supported 100 percent by the long-term credit facilities. This amount
approximates fair value.
As of December 31, 2002, the company's wholly owned subsidiary, ConocoPhillips
Norway, had no outstanding debt under its two $300 million revolving credit
facilities expiring in June 2004.
Depending on the credit facility, borrowings may bear interest at a margin above
rates offered by certain designated banks in the London interbank market or at
margins above certificate of deposit or prime rates offered by certain
designated banks in the United States. The agreements call for commitment fees
on available, but unused, amounts. The agreements also contain early termination
rights if the company's current directors or their approved successors cease to
be a majority of the Board of Directors.
In October 2002, ConocoPhillips privately placed $2 billion of senior unsecured
debt securities, consisting of $400 million 3.625% notes due 2007, $1 billion
4.75% notes due 2012, and $600 million 5.90% notes due 2032, in each case fully
and unconditionally guaranteed by Conoco and Phillips. The $1,980 million
proceeds from the offering were used to reduce commercial paper, retire Conoco's
$500 million floating rate notes due October 15, 2002, and for general corporate
purposes.
ConocoPhillips redeemed the following notes during 2002 and early 2003 and
funded the redemptions with commercial paper:
o on May 15, 2002, its $250 million 8.86% notes due May 15, 2022, at
104.43 percent, resulting in a second quarter extraordinary loss
from the early retirement of debt of $13 million before-tax, $9
million after-tax;
o on November 26, 2002, its $171 million 7.443% senior unsecured notes
due 2004 resulting in a fourth quarter extraordinary loss from the
early retirement of debt of $3 million before-tax, $1 million
after-tax;
o on January 1, 2003, its $250 million 8.49% notes due January 1,
2023, at 104.245 percent; and
o on January 31, 2003, its $181 million SRW Cogeneration Limited
Partnership note which was assumed in September 2002 as a result of
acquiring its partners' interest in the partnership.
110
At December 31, 2002, $299 million was outstanding under the company's Long-Term
Stock Savings Plan (LTSSP) term loan, which will require annual installments
beginning in 2008 and continue through 2015. Under this bank loan, any
participating bank in the syndicate of lenders may cease to participate on
December 5, 2004, by giving not less than 180 days' prior notice to the LTSSP
and the company. If participating lenders give the cessation notice, the company
plans to resyndicate the loan.
Each bank participating in the LTSSP loan has the optional right, if the current
company directors or their approved successors cease to be a majority of the
Board, and upon not less than 90 days' notice, to cease to participate in the
loan. Under the above conditions, such banks' rights and obligations under the
loan agreement must be purchased by the company if not transferred to a bank of
the company's choice. See Note 20--Employee Benefit Plans for additional
discussion of the LTSSP.
NOTE 13--SALES OF RECEIVABLES
At December 31, 2002, ConocoPhillips sold certain credit card and trade
receivables to two Qualifying Special Purpose Entities (QSPEs) in
revolving-period securitization arrangements. These arrangements provide for
ConocoPhillips to sell, and the QSPEs to purchase, certain receivables and for
the QSPEs to then issue beneficial interests of up to $1.5 billion to five
bank-sponsored entities. The receivables sold have been sufficiently isolated
from ConocoPhillips to qualify for sales treatment. All five bank-sponsored
entities are multi-seller conduits with access to the commercial paper market
and purchase interests in similar receivables from numerous other companies
unrelated to ConocoPhillips. ConocoPhillips has no ownership in any of the
bank-sponsored entities and has no voting influence over any bank-sponsored
entity's operating and financial decisions. As a result, ConocoPhillips does not
consolidate any of these entities. Beneficial interests retained by
ConocoPhillips in the pool of receivables held by the QSPEs are subordinate to
the beneficial interests issued to the bank-sponsored entities and were measured
and recorded at fair value based on the present value of future expected cash
flows estimated using management's best estimates concerning the receivables
performance, including credit losses and dilution discounted at a rate
commensurate with the risks involved to arrive at present value. These
assumptions are updated periodically based on actual credit loss experience and
market interest rates. ConocoPhillips also retains servicing responsibility
related to the sold receivables. The fair value of the servicing responsibility
approximates adequate compensation for the servicing costs incurred.
ConocoPhillips' retained interest in the sold receivables at December 31, 2002
and 2001, was $1.3 billion and $450 million, respectively. Under accounting
principles generally accepted in the United States, the QSPEs are not
consolidated by ConocoPhillips. ConocoPhillips retained interest in sold
receivables is reported on the balance sheet in accounts and notes
receivable--related parties.
Total cash flows received from and paid under the securitization arrangements
were as follows:
Millions of Dollars
-------------------------
2002 2001
-------------------------
Receivables sold at beginning of year $ 940 500
Conoco receivables sold at August 30, 2002 400 --
Tosco receivables sold at September 14, 2001 -- 614
New receivables sold 18,613 8,907
Cash collections remitted (18,630) (9,081)
- ------------------------------------------------------------------------------------
Receivables sold at end of year $ 1,323 940
====================================================================================
Discounts and other fees paid on revolving balances $ 21 24
- ------------------------------------------------------------------------------------
111
At year-end, ConocoPhillips sold $264 million of receivables under a factoring
arrangement. ConocoPhillips also retains servicing responsibility related to the
sold receivables. The fair value of the servicing responsibility approximates
adequate compensation for the servicing costs incurred. At maturity of the
receivables, ConocoPhillips has a recourse obligation to repurchase uncollected
receivables. The fair value of this recourse obligation is not significant.
NOTE 14--GUARANTEES
At December 31, 2002, the company was liable for certain contingent obligations
under various contractual arrangements as described below.
CONSTRUCTION COMPLETION GUARANTEES
o The company has a construction completion guarantee related to debt
and bond financing arrangements secured by the Merey Sweeny, L.P.
(MSLP) joint-venture project in Texas. The maximum potential amount
of future payment under the guarantee, including joint-and-several
debt at its gross amount, is estimated to be $418 million assuming
that completion certification is not achieved. Of this amount, $209
million is attributable to Petroleos de Venezuela, S.A. (PDVSA),
because they are joint-and-severally liable for a portion of the
debt. If completion certification is not attained by 2004, the full
debt balance is due. The debt is non-recourse to ConocoPhillips upon
completion certification.
o The company has issued a construction completion guarantee related
to debt financing arrangements for the Hamaca Holding LLC joint
venture project in Venezuela. The maximum potential amount of future
payments under the guarantee is estimated to be $441 million, which
could be payable if the full debt financing capacity is utilized and
startup and completion of the Hamaca project is not achieved by
October 1, 2005. The project financing debt is non-recourse to
ConocoPhillips upon startup and completion certification.
GUARANTEED RESIDUAL VALUE ON LEASES
o The company leases ocean transport vessels, drillships, tank
railcars, corporate aircraft, service stations, computers, office
buildings, certain refining equipment, and other facilities and
equipment. Associated with these leases the company has guaranteed
approximately $1,821 million in residual values, which are due at
the end of the lease terms. However, those guaranteed amounts would
be reduced by the fair market value of the leased assets returned.
See Note 19--Non-Mineral Leases.
GUARANTEES OF JOINT-VENTURE DEBT
o At December 31, 2002, ConocoPhillips had guarantees of about $355
million outstanding for its portion of joint-venture debt
obligations. Of that amount, $176 million is associated with the
Polar Lights Company joint-venture project in Russia. Smaller
amounts and in some cases debt service reserves are associated with
Interconnector (UK) Ltd., Turcas Petrol, Malaysian Refining Company
Sdn. Bhd (Melaka), Hydroserve, Excel Paralubes, and Ingleside
Cogeneration Limited Partnership. The various debt obligations have
terms of up to 24 years.
112
OTHER GUARANTEES
o In addition to the construction completion guarantee explained
above, the MSLP agreement also requires the partners in the venture
to pay cash calls as required to meet minimum operating requirements
of the venture, in the event revenues do not cover expenses over the
next 18 years. The maximum potential future payments under the
agreement are estimated to be $258 million assuming MSLP does not
earn any revenue over the entire period. To the extent revenue was
generated by the venture, future required payments would be reduced
accordingly.
o The company has guaranteed certain potential payments related to its
interest in two drillships, which are operated by joint ventures.
Potential payments could be required for guaranteed residual value
amounts and amounts due under interest rate hedging agreements. The
maximum potential future payments under the agreements are estimated
to be approximately $193 million.
o During 2001, the company entered into a letter agreement authorizing
the charter, by an unaffiliated third party, of up to four LNG
vessels, which included an indemnity by the company in respect of
claims for charter hire and other charter payments. The indemnity
was subject to certain limitations and was to be applied net of
sub-charter rental income and other receipts of the unaffiliated
third party. In February 2003, the company entered into new
agreements which cancelled the 2001 letter agreement and established
separate guarantee facilities for $50 million each for two of the
LNG vessels. Under each such facility, the company may be required
to make payments should the charter revenue generated by the
relevant ship fall below certain specified minimum thresholds, and
the company will receive payments to the extent that such revenues
exceed those thresholds. The net maximum future payments over the 20
year terms of the agreements could be up to $100 million. In the
event the two ships are sold or a total loss occurs, the company
also may have recourse to the sales or insurance proceeds to recoup
payments made under the guarantee facilities.
o Other guarantees, consisting primarily of dealer and jobber loan
guarantees to support the company's marketing business, a guarantee
supporting a lease assignment on a corporate aircraft and guarantees
of lease payment obligations for a joint venture totaled $111
million. These guarantees generally extend up to 15 years and
payment would only be required if the dealer, jobber or lessee was
in default.
INDEMNIFICATIONS
o Over the years, the company has entered into various agreements to
sell ownership interests in certain corporations and joint ventures.
In addition, the company entered into a Tax Sharing Agreement in
1998 related to Conoco's separation from DuPont. These agreements
typically include indemnifications for additional taxes determined
to be due under the relevant tax law in connection with the
company's operations for years prior to the sale or separation.
Generally, the obligation extends until the related tax years are
closed. The maximum potential amount of future payments under the
indemnifications is the amount of additional tax determined to be
due under relevant tax law and the various agreements. There are no
material outstanding claims that have been asserted under these
agreements.
o As part of its normal ongoing business operations and consistent
with generally accepted and recognized industry practice,
ConocoPhillips enters into various agreements with other parties
(the Agreements). These Agreements apportion future risks between
the parties for the transaction(s) or relationship(s) governed by
such Agreements; one method of apportioning risk
113
between the company and the other contracting party is the inclusion
of provisions requiring one party to indemnify the other party
against losses that might otherwise be incurred by such other party
in the future (the Indemnity or Indemnities). Many of the company's
Agreements contain an Indemnity or Indemnities that require the
company to perform certain obligations as a result of the occurrence
of a triggering event or condition. In some instances the company
indemnifies third parties against losses resulting from certain
events or conditions that arise out of operations conducted by the
company's equity affiliates.
The nature of these indemnity obligations are diverse and too
numerous to list in this disclosure because of the thousands of
different Agreements to which the company is a party, each of which
may have a different term, business purpose, and triggering events
or conditions for an indemnity obligation. Consistent with customary
business practice, any particular indemnity obligation incurred by
the company is the result of a negotiated transaction or contractual
relationship for which the company has accepted a certain level of
risk in return for a financial or other type of benefit to the
company. In addition, the Indemnity or Indemnities in each Agreement
vary widely in their definitions of both the triggering event and
the resulting obligation, which is contingent on that triggering
event.
The company's risk management philosophy is to limit risk in any
transaction or relationship to the maximum extent reasonable in
relation to commercial and other considerations. Before accepting
any indemnity obligation, the company makes an informed risk
management decision considering, among other things, the remoteness
of the possibility that the triggering event will occur, the
potential costs to perform any resulting indemnity obligation,
possible actions to reduce the likelihood of a triggering event or
to reduce the costs of performing an indemnity obligation, whether
the company is in fact indemnified by an unrelated third party,
insurance coverage that may be available to offset the cost of the
indemnity obligation, and the benefits to the company from the
transaction or relationship.
Because many or most of the company's indemnity obligations are not
limited in duration or potential monetary exposure, the company
cannot calculate the maximum potential amount of future payments
that could be paid under the company's indemnity obligations
stemming from all its existing Agreements. The company has disclosed
contractual matters, including, but not limited to, indemnity
obligations, which will or could have a material impact on the
company's financial performance in quarterly, annual and other
reports required by applicable securities laws and regulations. The
company also accrues for contingent liabilities, including those
arising out of indemnity obligations, when a loss is probable and
the amounts can be reasonably estimated (see Note
15--Contingencies). The company is not aware of the occurrence of
any triggering event or condition that would have a material adverse
impact on the company's financial statements as a result of an
indemnity obligation relating to such triggering event or condition.
NOTE 15--CONTINGENCIES
The company is subject to various lawsuits and claims including but not limited
to: actions challenging oil and gas royalty and severance tax payments; actions
related to gas measurement and valuation methods; actions related to joint
interest billings to operating agreement partners; and claims for damages
resulting from leaking underground storage tanks, with related toxic tort
claims.
In the case of all known contingencies, the company accrues an undiscounted
liability when the loss is probable and the amount is reasonably estimable.
These liabilities are not reduced for potential insurance recoveries. If
applicable, undiscounted receivables are accrued for probable insurance or other
third-party
114
recoveries. Based on currently available information, the company believes that
it is remote that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a material adverse
impact on the company's financial statements.
As facts concerning contingencies become known to the company, the company
reassesses its position both with respect to accrued liabilities and other
potential exposures. Estimates that are particularly sensitive to future changes
include contingent liabilities recorded for environmental remediation, tax and
legal matters. Estimated future environmental remediation costs are subject to
change due to such factors as the unknown magnitude of cleanup costs, the
unknown time and extent of such remedial actions that may be required, and the
determination of the company's liability in proportion to that of other
responsible parties. Estimated future costs related to tax and legal matters are
subject to change as events evolve and as additional information becomes
available during the administrative and litigation processes.
ENVIRONMENTAL--The company is subject to federal, state and local environmental
laws and regulations. These may result in obligations to remove or mitigate the
effects on the environment of the placement, storage, disposal or release of
certain chemical, mineral and petroleum substances at various sites. When the
company prepares its financial statements, accruals for environmental
liabilities are recorded based on management's best estimate using all
information that is available at the time. Loss estimates are measured and
liabilities are based on currently available facts, existing technology, and
presently enacted laws and regulations, taking into consideration the likely
effects of inflation and other societal and economic factors. Also considered
when measuring environmental liabilities are the company's prior experience in
remediation of contaminated sites, other companies' cleanup experience and data
released by the U.S. Environmental Protection Agency (EPA) or other
organizations. Unasserted claims are reflected in ConocoPhillips' determination
of environmental liabilities and are accrued in the period that they are both
probable and reasonably estimable.
Although liability of those potentially responsible for environmental
remediation costs is generally joint and several for federal sites and
frequently so for state sites, the company is usually only one of many companies
cited at a particular site. Due to the joint and several liabilities, the
company could be responsible for all of the cleanup costs related to any site at
which it has been designated as a potentially responsible party. If
ConocoPhillips were solely responsible, the costs, in some cases, could be
material to its, or one of its segments', operations, capital resources or
liquidity. However, settlements and costs incurred in matters that previously
have been resolved have not been materially significant to the company's results
of operations or financial condition. The company has been successful to date in
sharing cleanup costs with other financially sound companies. Many of the sites
at which the company is potentially responsible are still under investigation by
the EPA or the state agencies concerned. Prior to actual cleanup, those
potentially responsible normally assess the site conditions, apportion
responsibility and determine the appropriate remediation. In some instances,
ConocoPhillips may have no liability or attain a settlement of liability. Where
it appears that other potentially responsible parties may be financially unable
to bear their proportional share, this inability has been considered in
estimating the company's potential liability and accruals have been adjusted
accordingly.
Upon ConocoPhillips' acquisition of Tosco on September 14, 2001, the assumed
environmental obligations of Tosco, some of which are mitigated by
indemnification agreements, became contingencies reportable on a consolidated
basis by ConocoPhillips. Beginning with the acquisition of the Bayway refinery
in 1993, but excluding the Alliance refinery acquisition, Tosco negotiated, as
part of its acquisitions, environmental indemnification from the former owners
for remediating contamination that occurred prior to the respective acquisition
dates. Some of the environmental indemnifications are subject to caps and time
limits. No accruals have been recorded for any potential contingent liabilities
that will be funded by the prior owners under these indemnifications.
115
As part of Tosco's acquisition of Unocal's West Coast petroleum refining,
marketing, and related supply and transportation assets in March 1997, Tosco
agreed to pay the first $7 million per year of any environmental remediation
liabilities at the acquired sites arising out of, or relating to, the period
prior to the transaction's closing, plus 40 percent of any amount in excess of
$7 million per year, with Unocal paying the remaining 60 percent per year. The
indemnification agreement with Unocal has a 25-year term from inception, and, at
December 31, 2002, had a maximum cap of $131 million for environmental
remediation costs that ConocoPhillips would be required to fund during the
remainder of the agreement period. This maximum has been adjusted for amounts
paid through December 31, 2002.
The company is currently participating in environmental assessments and cleanups
at federal Superfund and comparable state sites. After an assessment of
environmental exposures for cleanup and other costs, the company makes accruals
on an undiscounted basis (except, if assumed in a purchase business combination,
such costs are recorded on a discounted basis) for planned investigation and
remediation activities for sites where it is probable that future costs will be
incurred and these costs can be reasonably estimated. See Note 11--Accrued
Dismantlement, Removal and Environmental Costs, for a summary of the company's
accrued environmental liabilities.
OTHER LEGAL PROCEEDINGS--ConocoPhillips is a party to a number of other legal
proceedings pending in various courts or agencies for which, in some instances,
no provision has been made.
OTHER CONTINGENCIES--ConocoPhillips has contingent liabilities resulting from
throughput agreements with pipeline and processing companies. Under these
agreements, ConocoPhillips may be required to provide any such company with
additional funds through advances and penalties for fees related to throughput
capacity not utilized by ConocoPhillips.
ConocoPhillips has various purchase commitments for materials, supplies,
services and items of permanent investment incident to the ordinary conduct of
business. Such commitments are not at prices in excess of current market.
Additionally, the company has obligations under an international contract to
purchase natural gas over a period of up to 17 years. These long-term purchase
obligations are at prices in excess of December 31, 2002, quoted market prices.
No material annual gain or loss is expected from these long-term commitments.
NOTE 16--FINANCIAL INSTRUMENTS AND DERIVATIVE CONTRACTS
DERIVATIVE INSTRUMENTS
The company and certain of its subsidiaries may use financial and
commodity-based derivative contracts to manage exposures to fluctuations in
foreign currency exchange rates, commodity prices, and interest rates, or to
exploit market opportunities. With the completion of the merger of Phillips and
Conoco on August 30, 2002, the derivatives policy adopted during the third
quarter of 2001 is no longer in effect; however, the ConocoPhillips Board of
Directors has approved an "Authority Limitations" document that prohibits the
use of highly leveraged derivatives or derivative instruments without sufficient
liquidity for comparable valuations without approval from the Chief Executive
Officer. The Authority Limitations document also authorizes the Chief Executive
Officer to establish the maximum Value at Risk (VaR) limits for the company.
Compliance with these limits is monitored daily. The function of the Risk
Management Steering Committee, monitoring the use and effectiveness of
derivatives, was assumed by the Chief Financial Officer for risks resulting from
foreign currency exchange rates and interest rates, and by the Executive Vice
President of Commercial, a new position that reports to the Chief Executive
Officer, for commodity price risk. ConocoPhillips' Commercial Group manages
commercial marketing,
116
optimizes the commodity flows and positions of the company, monitors related
risks of the company's upstream and downstream businesses and selectively takes
price risk to add value.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended (Statement No. 133 or SFAS No. 133), requires companies to recognize all
derivative instruments as either assets or liabilities on the balance sheet at
fair value. Assets and liabilities resulting from derivative contracts open at
December 31, 2002, were $197 million and $206 million, respectively, and appear
as accounts and notes receivables, other assets, accounts payable, or other
liabilities and deferred credits on the balance sheet.
The accounting for changes in fair value (i.e., gains or losses) of a derivative
instrument depends on whether it meets the qualifications for, and has been
designated as, a SFAS No. 133 hedge, and the type of hedge. At this time,
ConocoPhillips is not using SFAS No. 133 hedge accounting for commodity
derivative contracts, but the company is using hedge accounting for the
interest-rate derivatives noted below. All gains and losses, realized or
unrealized, from derivative contracts not designated as SFAS No. 133 hedges have
been recognized in the statement of operations. Gains and losses from derivative
contracts held for trading not directly related to the company's physical
business, whether realized or unrealized, have been reported net in other
income.
SFAS No. 133 also requires purchase and sales contracts for commodities that are
readily convertible to cash (e.g., crude oil, natural gas, and gasoline) to be
recorded on the balance sheet as derivatives unless the contracts are for
quantities expected to be used or sold by the company over a reasonable period
in the normal course of business (the normal purchases and normal sales
exception), among other requirements, and the company has documented its intent
to apply this exception. ConocoPhillips generally applies this exception to
eligible purchase and sales contracts; however, the company may elect not to
apply this exception (e.g., when another derivative instrument will be used to
mitigate the risk of the purchase or sale contract but hedge accounting will not
be applied). When this occurs, both the purchase or sales contract and the
derivative contract mitigating the resulting risk will be recorded on the
balance sheet at fair value in accordance with the preceding paragraphs.
INTEREST RATE DERIVATIVE CONTRACTS--On August 30, 2002, the company obtained a
number of fixed-to-floating and floating-to-fixed interest rate swaps from the
merger. ConocoPhillips designated these swaps as hedges, but by December 31,
2002, all of the fixed-to-floating rate swaps and a portion of the floating-
to-fixed rate swaps had been terminated. The floating-to-fixed interest rate
swaps still open at December 31, 2002, are as follows:
Millions of Dollars
-------------------------
Notional Fair
CASH FLOW HEDGES Amount Value
-------- -----
Maturing 2006 $ 166 (19)
Maturing in less than one year 500 (3)
- --------------------------------------------------------------------------------
ConocoPhillips generally reports gains, losses, and ineffectiveness from
interest rate derivatives on the statement of operations in interest and debt
expense; however, when interest rate derivatives are used to hedge the interest
component of a lease, the resulting gains and losses are reported on the
statement of operations in production and operating expense. No portion of the
gain or loss from the swaps designated as interest rate hedges has been excluded
from the assessment of hedge ineffectiveness, which was immaterial for the
period from August 30 to December 31, 2002. In accordance with the hedge
accounting provisions of Statement No. 133, any realized gains or losses from
these derivative hedging
117
instruments will be recognized as income or expense in future periods concurrent
with the forecasted transactions. The company expects the amount of net
unrealized losses from interest rate hedges in accumulated other comprehensive
loss at December 31, 2002, that will be reclassified to earnings during the next
12 months to be immaterial.
CURRENCY EXCHANGE RATE DERIVATIVE CONTRACTS--During the third quarter of 2001,
ConocoPhillips used hedge accounting to record the results of using a forward
exchange contract to hedge the exposure to fluctuations in the exchange rate
between the U.S. dollar and Brazilian real, resulting from a firm commitment to
pay reals to acquire an exploratory lease. The hedge was closed in August 2001,
upon payment of the lease bonus. Results from the hedge appear in accumulated
other comprehensive loss on the balance sheet and will be reclassified into
earnings concurrent with the amortization or write-down of the lease bonus, but
no portion of this amount is expected to be reclassified during 2003. No
component of the hedge results was excluded from the assessment of hedge
effectiveness, and no gain or loss was recorded in the statement of operations
from hedge ineffectiveness.
After the merger, the company has foreign currency exchange rate risk resulting
from operations in over 40 countries. ConocoPhillips does not comprehensively
hedge the exposure to currency rate changes, although the company may choose to
selectively hedge exposures to foreign currency rate risk. Examples include firm
commitments for capital projects, certain local currency tax payments and
dividends, and cash returns from net investments in foreign affiliates to be
remitted within the coming year. Hedge accounting is not currently being used
for any of the company's foreign currency derivatives.
COMMODITY DERIVATIVE CONTRACTS--ConocoPhillips operates in the worldwide crude
oil, refined product, natural gas, natural gas liquids, and electric power
markets and is exposed to fluctuations in the prices for these commodities.
These fluctuations can affect the company's revenues as well as the cost of
operating, investing, and financing activities. Generally, ConocoPhillips'
policy is to remain exposed to market prices of commodity purchases and sales;
however, executive management may elect to use derivative instruments to
establish longer-term positions to hedge the price risk of the company's equity
crude oil and natural gas production, as well as refinery margins.
The ConocoPhillips Commercial Group use futures, forwards, swaps, and options in
various markets to optimize the value of the company's supply chain, which may
move the company's risk profile away from market average prices to accomplish
the following objectives:
o Balance physical systems. In addition to cash settlement prior to
contract expiration, exchange traded futures contracts may also be
settled by physical delivery of the commodity, providing another
source of supply to meet the company's refinery requirements or
marketing demand;
o Meet customer needs. Consistent with the company's policy to
generally remain exposed to market prices, the company uses swap
contracts to convert fixed-price sales contracts, which are often
requested by natural gas and refined product consumers, to a
floating market price;
o Manage the risk to the company's cash flows from price exposures on
specific crude oil, natural gas, refined product and electric power
transactions; and
o Enable the company to use the market knowledge gained from these
activities to do a limited amount of trading not directly related to
the company's physical business. For the 12 months ended December
31, 2002 and 2001, the gains or losses from this activity were not
material to the company's cash flows or income from continuing
operations.
118
At December 31, 2002, ConocoPhillips was not using hedge accounting for
commodity derivative contracts; however, during the first half of 2002, the
company did use hedge accounting for West Texas Intermediate (WTI) crude oil
futures designated as fair-value hedges of firm commitments to sell WTI crude
oil at Cushing, Oklahoma. The changes in the fair values of the futures and firm
commitments have been recognized in income. No component of the futures gain or
loss was excluded from the assessment of hedge effectiveness, and the amount
recognized in earnings during the year from ineffectiveness was immaterial.
CREDIT RISK
The company's financial instruments that are potentially exposed to
concentrations of credit risk consist primarily of cash equivalents,
over-the-counter derivative contracts, and trade receivables. ConocoPhillips'
cash equivalents, which are placed in high-quality money market funds and time
deposits with major international banks and financial institutions, are
generally not maintained at levels material to the company's financial position.
The credit risk from the company's over-the-counter derivative contracts, such
as forwards and swaps, derives from the counterparty to the transaction,
typically a major bank or financial institution. ConocoPhillips closely monitors
these credit exposures against predetermined credit limits, including the
continual exposure adjustments that result from market movements. Individual
counterparty exposure is managed within these limits, and includes the use of
cash-call margins when appropriate, thereby reducing the risk of significant
non-performance. ConocoPhillips also uses futures contracts, but futures have a
negligible credit risk because they are traded on the New York Mercantile
Exchange or the International Petroleum Exchange of London Limited.
The company's trade receivables result primarily from its petroleum operations
and reflect a broad national and international customer base, which limits the
company's exposure to concentrations of credit risk. The majority of these
receivables have payment terms of 30 days or less, and the company continually
monitors this exposure and the creditworthiness of the counterparties.
ConocoPhillips does not generally require collateral to limit the exposure to
loss; however, ConocoPhillips will sometimes use letters of credit, prepayments,
and master netting arrangements to mitigate credit risk with counterparties that
both buy from and sell to the company, as these agreements permit the amounts
owed by ConocoPhillips to be offset against amounts due to the company.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The company used the following methods and assumptions to estimate the fair
value of its financial instruments:
Cash and cash equivalents: The carrying amount reported on the balance sheet
approximates fair value.
Accounts and notes receivable: The carrying amount reported on the balance sheet
approximates fair value.
Debt and mandatorily redeemable preferred securities: The carrying amount of the
company's floating-rate debt approximates fair value. The fair value of the
fixed-rate debt and mandatorily redeemable preferred securities is estimated
based on quoted market prices.
Swaps: Fair value is estimated based on forward market prices and approximates
the net gains and losses that would have been realized if the contracts had been
closed out at year-end. When forward market prices are not available, they are
estimated using the forward prices of a similar commodity with adjustments for
differences in quality or location.
119
Futures: Fair values are based on quoted market prices obtained from the New
York Mercantile Exchange or the International Petroleum Exchange of London
Limited.
Forward-exchange contracts: Fair value is estimated by comparing the contract
rate to the forward rate in effect on December 31 and approximates the net gains
and losses that would have been realized if the contracts had been closed out at
year-end.
Certain company financial instruments at December 31 were:
Millions of Dollars
----------------------------------------------
Carrying Amount Fair Value
-------------------- -------------------
2002 2001 2002 2001
-------------------- -------------------
Financial assets
Foreign currency derivatives $ 17 -- 17 --
Commodity derivatives 180 5 180 5
Financial liabilities
Total debt, excluding capital leases $19,743 8,654 20,844 9,175
Mandatorily redeemable other minority interests and
preferred securities 491 650 516 662
Interest rate derivatives 22 -- 22 --
Foreign currency derivatives 4 -- 4 --
Commodity derivatives 180 7 180 7
- --------------------------------------------------------------------------------------------------------------------
NOTE 17--PREFERRED STOCK AND OTHER MINORITY INTERESTS
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF PHILLIPS 66
CAPITAL TRUSTS
During 1996 and 1997, the company formed two statutory business trusts, Phillips
66 Capital I (Trust I) and Phillips 66 Capital II (Trust II), in which the
company owns all common stock. The Trusts were created for the sole purpose of
issuing securities and investing the proceeds thereof in an equivalent amount of
subordinated debt securities of ConocoPhillips. ConocoPhillips established the
two trusts to raise funds for general corporate purposes.
On May 31, 2002, ConocoPhillips redeemed all of its outstanding 8.24% Junior
Subordinated Deferrable Interest Debentures due 2036 held by Trust I. This
triggered the redemption of $300 million of Trust I's 8.24% Trust Originated
Preferred Securities at par value, $25 per share. An extraordinary loss of $8
million before-tax, $6 million after-tax, was incurred during the second quarter
of 2002 as a result of the redemption.
Trust II has outstanding $350 million of 8% Capital Securities (Capital
Securities). The sole asset of Trust II is $361 million of the company's 8%
Junior Subordinated Deferrable Interest Debentures due 2037 (Subordinated Debt
Securities II) purchased by Trust II on January 17, 1997. The Subordinated Debt
Securities II are due January 15, 2037, and are redeemable in whole, or in part,
at the option of ConocoPhillips, on or after January 15, 2007, at a redemption
price of $1,000 per share, plus accrued and unpaid interest.
120
Subordinated Debt Securities II are unsecured obligations of ConocoPhillips,
equal in right of payment but subordinate and junior in right of payment to all
present and future senior indebtedness of ConocoPhillips.
The subordinated debt securities and related income statement effects are
eliminated in the company's consolidated financial statements. When the company
redeems the Subordinated Debt Securities II, Trust II is required to apply all
redemption proceeds to the immediate redemption of the Capital Securities.
ConocoPhillips fully and unconditionally guarantees Trust II's obligations under
the Capital Securities.
OTHER MANDATORILY REDEEMABLE MINORITY INTERESTS
The minority limited partner in Conoco Corporate Holdings L.P. is entitled to a
cumulative annual 7.86 percent priority return on its investment. The net
minority interest in Conoco Corporate Holdings held by the limited partner was
$141 million at December 31, 2002, and is mandatorily redeemable in 2019 or
callable without penalty beginning in the fourth quarter of 2004.
OTHER MINORITY INTERESTS
The minority interest owner in Ashford Energy Capital S.A. is entitled to a
cumulative annual preferred return on its investment, based on three-month LIBOR
rates plus 1.27 percent. The preferred return at December 31, 2002, was 2.70
percent. At December 31, 2002, the minority interest was $504 million.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," and later in 2003, the FASB is expected to issue
SFAS No. 149, "Accounting for Certain Financial Instruments with Characteristics
of Liabilities and Equity." The company is evaluating these new pronouncements
to determine whether the above items currently presented in the mezzanine
section of the balance sheet will be required to be presented as debt or equity
on the balance sheet. See Note 27--New Accounting Standards and Note
28--Variable Interest Entities for more information.
PREFERRED STOCK
ConocoPhillips has 500 million shares of preferred stock authorized, par value
$.01 per share, none of which was issued or outstanding at December 31, 2002.
NOTE 18--PREFERRED SHARE PURCHASE RIGHTS
ConocoPhillips' Board of Directors authorized and declared a dividend of one
preferred share purchase right for each common share outstanding, and authorized
and directed the issuance of one right per common share for any newly issued
shares. The rights, which expire June 30, 2012, will be exercisable only if a
person or group acquires 15 percent or more of the company's common stock or
commences a tender offer that would result in ownership of 15 percent or more of
the common stock. Each right would entitle stockholders to buy one one-hundredth
of a share of preferred stock at an exercise price of $300. In addition, the
rights enable holders to either acquire additional shares of ConocoPhillips
common stock or purchase the stock of an acquiring company at a discount,
depending on specific circumstances. The company may redeem the rights in whole,
but not in part, for one cent per right.
121
NOTE 19--NON-MINERAL LEASES
The company leases ocean transport vessels, railroad tank cars, corporate
aircraft, service stations, computers, office buildings and other facilities and
equipment. Certain leases include escalation clauses for adjusting rentals to
reflect changes in price indices, as well as renewal options and/or options to
purchase the leased property for the fair market value at the end of the lease
term. There are no significant restrictions on ConocoPhillips imposed by the
leasing agreements in regards to dividends, asset dispositions or borrowing
ability. Leased assets under capital leases were not significant in any period
presented.
ConocoPhillips has leasing arrangements with several special purpose entities
(SPEs) that are third-party trusts established by a trustee and funded by
financial institutions. Other than the leasing arrangement, ConocoPhillips has
no other direct or indirect relationship with the trusts or their investors.
Each SPE from which ConocoPhillips leases assets is funded by at least 3 percent
substantive third-party residual equity capital investment, which is at-risk
during the entire term of the lease. ConocoPhillips does have various purchase
options to acquire the leased assets from the SPEs at the end of the lease term,
but those purchase options are not required to be exercised by ConocoPhillips.
See Note 28--Variable Interest Entities, for a discussion of how the accounting
for certain leasing arrangements with SPEs may change in 2003.
In connection with the committed plan to sell a major portion of the company's
owned retail stores, the company plans to exercise purchase option provisions of
various operating leases during 2003 involving approximately 900 store sites and
two office buildings. Depending upon the timing of when the company adopts FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities," and the
determination of whether or not the lessor entities in these leases are variable
interest entities, some or all of these lessor entities could become
consolidated subsidiaries of the company prior to the exercise of the purchase
options. See Note 27--New Accounting Standards, and Note 28--Variable Interest
Entities, for additional information on FASB Interpretation No. 46.
At December 31, 2002, future minimum rental payments due under non-cancelable
leases, including those associated with discontinued operations, were:
Millions
of Dollars
----------
2003 $ 649
2004 546
2005 479
2006 425
2007 367
Remaining years 1,635
- -------------------------------------------------------------------------------
Total 4,101
Less income from subleases 641*
- -------------------------------------------------------------------------------
Net minimum operating lease payments $3,460
===============================================================================
*Includes $164 million related to railroad cars subleased to CPChem, a
related party.
122
The above amounts exclude guaranteed residual value payments, including those
associated with discontinued operations, totaling $196 million in 2003, $219
million in 2004, $827 million in 2005, $145 million in 2006, and $434 million in
the remaining years, due at the end of lease terms, which would be reduced by
the fair market value of the leased assets returned. See Note 4--Discontinued
Operations regarding the company's commitment to exit certain retail sites and
the related accrual for probable deficiencies under the residual value
guarantees.
The company also expects to recognize probable guaranteed residual value
deficiencies associated with certain retail sites included in continuing
operations. The company plans to exercise its purchase options under these
leases in 2003, resulting in the recognition of a $142 million, $92 million
after-tax, loss.
ConocoPhillips has agreements with a shipping company for the long-term charter
of five crude oil tankers that are currently under construction. The charters
will be accounted for as operating leases upon delivery, which is expected in
the third and fourth quarters of 2003. If the completed tankers are not
delivered to ConocoPhillips before specified dates in 2004, the chartering
commitments are cancelable by ConocoPhillips. Upon delivery, the base term of
the charter agreements is 12 years, with certain renewal options by
ConocoPhillips. ConocoPhillips has options to cancel the charter agreements at
any time, including during construction or after delivery. After delivery, if
ConocoPhillips were to exercise its cancellation options, the company's maximum
commitment for the five tankers together would be $92 million. If ConocoPhillips
does not exercise its cancellation options, the total operating lease commitment
over the 12-year term for the five tankers would be $383 million on an estimated
bareboat basis.
Operating lease rental expense for the years ended December 31 was:
Millions of Dollars
----------------------------------
2002 2001 2000
----------------------------------
Total rentals* $541 271 128
Less sublease rentals 21 22 2
- --------------------------------------------------------------------------------
$520 249 126
================================================================================
*Includes $12 million of contingent rentals in 2002. Contingent rentals in
2001 and 2000 were not significant.
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NOTE 20--EMPLOYEE BENEFIT PLANS
PENSION AND POSTRETIREMENT PLANS
An analysis of the projected benefit obligations for the company's pension plans
and accumulated benefit obligations for its postretirement health and life
insurance plans follows:
Millions of Dollars
-------------------------------------------------------------------
Pension Benefits Other Benefits
------------------------------------------- -------------------
2002 2001 2002 2001
------------------- ------------------- ------- -------
U.S. INT'L. U.S. Int'l.
------- ------- ------- -------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 $ 1,432 417 991 386 239 140
Service cost 75 32 40 15 9 4
Interest cost 133 48 82 24 31 11
Plan participant contributions -- 2 -- 1 15 11
Plan amendments (12) -- 6 -- 133 21
Actuarial (gain) loss 205 (21) 161 8 31 14
Acquisitions 1,349 908 277 -- 509 68
Benefits paid (159) (23) (131) (12) (47) (31)
Curtailment (36) -- -- (2) (4) --
Recognition of termination benefits 92 3 6 5 3 1
Foreign currency exchange rate change -- 135 -- (8) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at December 31 $ 3,079 1,501 1,432 417 919 239
===================================================================================================================================
Accumulated benefit obligation portion of above at
December 31 $ 2,455 1,325 1,121 345
===========================================================================================================
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at January 1 $ 732 381 696 401 21 20
Actual return on plan assets (85) (74) (91) (19) (5) 2
Acquisitions 600 594 166 -- -- 4
Company contributions 145 39 92 18 27 15
Plan participant contributions -- 2 -- 1 15 11
Benefits paid (159) (21) (131) (12) (47) (31)
Foreign currency exchange rate change -- 106 -- (8) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 1,233 1,027 732 381 11 21
===================================================================================================================================
124
Millions of Dollars
-------------------------------------------------------------------
Pension Benefits Other Benefits
------------------------------------------- -------------------
2002 2001 2002 2001
------------------- ------------------- ------- -------
U.S. INT'L. U.S. Int'l.
------- ------- ------- -------
FUNDED STATUS
Excess obligation $(1,846) (474) (700) (36) (908) (218)
Unrecognized net actuarial loss 697 171 418 61 60 30
Unrecognized prior service cost 30 5 57 7 131 18
- -----------------------------------------------------------------------------------------------------------------------------------
Total recognized amount in the consolidated balance sheet $(1,119) (298) (225) 32 (717) (170)
===================================================================================================================================
Components of above amount:
Prepaid benefit cost $ -- 52 5 37 -- --
Accrued benefit liability (1,484) (400) (501) (15) (717) (170)
Intangible asset 43 3 57 4 -- --
Accumulated other comprehensive loss 322 47 214 6 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total recognized $(1,119) (298) (225) 32 (717) (170)
===================================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate 6.75% 5.85 7.25 6.30 6.75 7.25
Expected return on plan assets 7.05 7.45 8.70 7.60 5.50 5.20
Rate of compensation increase 4.00 3.80 4.00 3.75 4.00 4.00
- -----------------------------------------------------------------------------------------------------------------------------------
Pension plan funds are invested in a diversified portfolio of assets.
Approximately $198 million held in a participating annuity contract is not
available for meeting benefit obligations in the near term. At December 31,
2002, approximately 4,300 shares of company stock were included in plan assets.
At December 31, 2001, no company stock was included in plan assets. The
company's funding policy for U.S. plans is to contribute at least the minimum
required by the Employee Retirement Income Security Act of 1974. Contributions
to foreign plans are dependent upon local laws and tax regulations. In 2003, the
company expects to contribute approximately $340 million to its domestic
qualified pension plans and $50 million to its international qualified pension
plans.
The funded status of the plans was impacted in 2002 by changes in assumptions
used to calculate plan liabilities, the merger of Conoco and Phillips, and
negative asset performance.
During 2002, the company recorded charges to other comprehensive loss totaling
$149 million ($93 million net of tax), resulting in accumulated other
comprehensive loss due to minimum pension liability adjustments at December 31,
2002, of $369 million ($236 million net of tax).
125
Millions of Dollars
---------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
------------------------------------------------------------ ---------------------------
2002 2001 2000 2002 2001 2000
---------------- ---------------- ---------------- ----- ----- -----
U.S. INT'L. U.S. Int'l. U.S. Int'l.
----- ----- ----- ----- ----- ------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 75 32 40 15 32 16 9 4 2
Interest cost 133 48 82 24 75 23 31 11 9
Expected return on plan assets (73) (49) (74) (30) (80) (29) (1) (1) (1)
Amortization of prior service cost 5 2 6 1 5 1 8 (1) (3)
Recognized net actuarial loss
(gain) 48 7 16 -- (5) -- 3 2 1
Amortization of net asset -- -- -- (1) (7) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 188 40 70 9 20 11 50 15 8
===================================================================================================================================
The company recorded curtailment losses of $23 million and $1 million in 2002
and 2000, respectively, and a curtailment gain of $2 million in 2001. The
company recorded settlement losses of $10 million in 2001.
In determining net pension and other postretirement benefit costs,
ConocoPhillips has elected to amortize net gains and losses on a straight-line
basis over 10 years. Prior service cost is amortized on a straight-line basis
over the average remaining service period of employees expected to receive
benefits under the plan.
For the company's tax-qualified pension plans with projected benefit obligations
in excess of plan assets, the projected benefit obligation, the accumulated
benefit obligation, and the fair value of plan assets were $4,288 million,
$3,542 million, and $2,259 million at December 31, 2002, respectively, and
$1,519 million, $1,211 million, and $886 million at December 31, 2001,
respectively.
For the company's unfunded non-qualified supplemental key employee pension
plans, the projected benefit obligation and the accumulated benefit obligation
were $260 million and $206 million, respectively, at December 31, 2002, and were
$109 million and $76 million, respectively, at December 31, 2001.
The company has multiple non-pension postretirement benefit plans for health and
life insurance. The health care plans are contributory, with participant and
company contributions adjusted annually; the life insurance plans are
non-contributory. For most groups of retirees, any increase in the annual health
care escalation rate above 4.5 percent is borne by the participant. The
weighted-average health care cost trend rate for those participants not subject
to the cap is assumed to decrease gradually from 10 percent in 2003 to 5 percent
in 2009.
126
The assumed health care cost trend rate impacts the amounts reported. A
one-percentage-point change in the assumed health care cost trend rate would
have the following effects on the 2002 amounts:
Millions of Dollars
---------------------------
One-Percentage-Point
---------------------------
Increase Decrease
-------- --------
Effect on total of service and interest cost components $ -- --
Effect on the postretirement benefit obligation 3 3
- ---------------------------------------------------------------------------------------
DEFINED CONTRIBUTION PLANS
At December 31, 2002, most employees (excluding retail service station
employees) were eligible to participate in either the company-sponsored Thrift
Plan of Phillips Petroleum Company, the Tosco Corporation Capital Accumulation
Plan, or the Thrift Plan for Employees of Conoco Inc. Employees could contribute
a portion of their salaries to various investment funds, including a company
stock fund, a percentage of which was matched by the company. In addition,
eligible participants in the Tosco Corporation Capital Accumulation Plan could
receive an additional company contribution in lieu of pension plan benefits.
Company contributions charged to expense in total for all three plans were $40
million in 2002, and $14 million in 2001 and $6 million in 2000.
The company's Long-Term Stock Savings Plan (LTSSP) was a leveraged employee
stock ownership plan. Prior to January 1, 2003, employees eligible for the
Thrift Plan of Phillips Petroleum Company could also elect to participate in the
LTSSP by contributing 1 percent of their salaries and receiving an allocation of
shares of common stock proportionate to their contributions. On January 1, 2003,
the Thrift Plan of Phillips Petroleum Company and the Tosco Corporation Capital
Accumulation Plan were merged into the LTSSP and the name was changed to the
ConocoPhillips Savings Plan (and the LTSSP became known as the Stock Savings
Feature within that plan). The ConocoPhillips Savings Plan replaced most
features available under the Thrift Plan of Phillips Petroleum Company and the
Tosco Corporation Capital Accumulation Plan. In addition to participating in the
Thrift Plan for Employees of Conoco Inc., on January 1, 2003, heritage Conoco
employees became eligible to participate in the Stock Savings Feature of the
ConocoPhillips Savings Plan.
In 1990, the LTSSP borrowed funds that were used to purchase previously unissued
shares of company common stock. Since the company guarantees the LTSSP's
borrowings, the unpaid balance is reported as a liability of the company and
unearned compensation is shown as a reduction of common stockholders' equity.
Dividends on all shares are charged against retained earnings. The debt is
serviced by the LTSSP from company contributions and dividends received on
certain shares of common stock held by the plan, including all unallocated
shares. The shares held by the LTSSP are released for allocation to participant
accounts based on debt service payments on LTSSP borrowings. In addition, during
the period from 2003 through 2007, when no debt principal payments are scheduled
to occur, the company has committed to make direct contributions of stock to the
LTSSP, or make prepayments on LTSSP borrowings, to ensure a certain minimum
level of stock allocation to participant accounts.
The company recognizes interest expense as incurred and compensation expense
based on the fair market value of the stock contributed or on the cost of the
unallocated shares released, using the shares-allocated method. The company
recognized total LTSSP expense of $39 million, $33 million and $40 million in
2002, 2001 and 2000, respectively, all of which was compensation expense. In
2002, 2001 and 2000, respectively, the company made cash contributions to the
LTSSP of $2 million, $17 million and
127
$23 million. In 2002, 2001 and 2000, the company contributed 771,479 shares,
292,857 shares and 508,828 shares, respectively, of company common stock from
the Compensation and Benefits Trust. The shares had a fair market value of $41
million, $17 million and $24 million, respectively. Dividends used to service
debt were $28 million, $28 million and $32 million in 2002, 2001 and 2000,
respectively.
These dividends reduced the amount of expense recognized each period. Interest
incurred on the LTSSP debt in 2002, 2001 and 2000 was $7 million, $17 million
and $26 million, respectively.
The total LTSSP shares as of December 31 were:
2002 2001
-------------------------------
Unallocated shares 7,717,710 8,379,924
Allocated shares 14,925,443 14,794,203
- --------------------------------------------------------------------------------
Total LTSSP shares 22,643,153 23,174,127
================================================================================
The fair value of unallocated shares at December 31, 2002, and 2001, was $373
million and $505 million, respectively.
STOCK-BASED COMPENSATION PLANS
Under the company's Omnibus Securities Plan approved by shareholders in 1993,
stock options and stock awards for certain employees were authorized for up to
eight-tenths of 1 percent (0.8 percent) of the total outstanding shares as of
December 31 of the year preceding the awards. Any shares not issued in the
current year were available for future grant. Upon the adoption of the 2002
Omnibus Securities Plan discussed below, the number of shares available for
issuance under the Omnibus Securities Plan was limited to 700,000. The term of
the Omnibus Securities Plan ended on December 31, 2002.
In 2001, shareholders approved the 2002 Omnibus Securities Plan, which has a
term of five years, from January 1, 2002, through December 31, 2006, and which
is authorized to issue approximately 18,000,000 shares of company common stock.
The two plans also provided for non-stock-based awards.
Shares of company stock awarded under both plans were:
2002 2001 2000
-------------------------------------
Shares 1,090,082 237,849 319,726
Weighted-average fair value $ 57.84 56.23 46.98
- --------------------------------------------------------------------------------
Stock options granted under provisions of the plans and earlier plans permit
purchase of the company's common stock at exercise prices equivalent to the
average market price of the stock on the date the options were granted. The
options have terms of 10 years and normally become exercisable in increments of
up to one-third on each anniversary date following the date of grant. Stock
Appreciation Rights (SARs) may, from time to time, be affixed to the options.
Options exercised in the form of SARs permit the holder to receive stock, or a
combination of cash and stock, subject to a declining cap on the exercise price.
128
The merger was a change-in-control event that resulted in a lapsing of
restrictions on, and payout of, stock and stock option awards under the plans.
ConocoPhillips offered to exchange certain stock awards under the plans with new
awards in the form of restricted stock units. These new restricted stock units
were converted, at the time of the merger, into awards based on the same number
of shares of ConocoPhillips common stock.
Conoco had several stock-based compensation plans that were assumed in the
merger: the 1998 Stock and Performance Incentive Plan; the 1998 Key Employee
Stock Performance Plan; the 1998 Global Performance Sharing Plan; and the 2001
Global Performance Sharing Plan. Upon the merger, outstanding stock options
under these plans were converted to ConocoPhillips stock options at the merger
exchange ratio of 0.4677.
The Conoco plans award stock options at exercise prices equivalent to the
average market price of the stock on the date the option was granted. Awards
have option terms of 10 years and become exercisable based on various formulas,
including those that become exercisable one year from date of grant, and those
that become exercisable in increments of one-third on each anniversary date
following date of grant. In total, there were 16 million shares of company stock
at December 31, 2002, available for issuance under the Conoco plans.
Stock-based compensation expense recognized by ConocoPhillips in connection with
all the plans discussed above was $60 million, $21 million and $23 million in
2002, 2001 and 2000, respectively.
Beginning in 2003, ConocoPhillips has elected to use the fair-value accounting
method provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation." The company will use the prospective transition method provided
under SFAS 123, applying the fair-value accounting method and recognizing
compensation expense for all stock options granted, modified or settled after
December 31, 2002.
Employee stock options granted prior to 2003 will continue to be accounted for
under APB No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Because the exercise price of ConocoPhillips employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is generally recognized under APB No. 25. The following
table displays pro forma information as if the provisions of SFAS No. 123 had
been applied to employee stock options granted since January 1, 1996:
2002 2001 2000
------------------------------------
Pro forma net income (loss) in millions $ (358) 1,644 1,850
Pro forma basic income (loss) per share (.74) 5.61 7.27
Pro forma diluted income (loss) per share (.74) 5.57 7.21
- ------------------------------------------------------------------------------------
Assumptions used
Risk-free interest rate 4.1% 4.5 5.9
Dividend yield 3.0% 2.5 2.5
Volatility factor 26.2% 27.0 26.0
Average grant date fair value of options $ 11.67 23.19 16.00
Expected life (years) 6 5 5
- ------------------------------------------------------------------------------------
129
In August 2002, ConocoPhillips issued 23.3 million vested stock options to
replace unexercised Conoco stock options at the time of the merger. These
options had a weighted-average exercise price of $47.65 per option, and a
Black-Scholes option-pricing model value of $16.50 per option. In September
2001, ConocoPhillips issued 4.7 million vested stock options to replace
unexercised Tosco stock options at the time of the acquisition. These options
had a weighted-average exercise price of $23.15 per option, and a Black-Scholes
option-pricing model value of $32.51 per option.
A summary of ConocoPhillips' stock option activity follows:
Weighted-Average
Options Exercise Price
---------- ----------------
Outstanding at December 31, 1999 9,844,524 $39.84
Granted 1,299,500 61.85
Exercised (1,223,779) 30.79
Forfeited (57,278) 47.06
- ------------------------------------------------------------------- ----------------
Outstanding at December 31, 2000 9,862,967 $43.82
Granted (including Tosco exchange) 9,038,571 38.81
Exercised (2,373,062) 22.36
Forfeited (96,126) 60.41
- ------------------------------------------------------------------- ----------------
Outstanding at December 31, 2001 16,432,350 $44.06
Granted (including the merger) 28,830,903 48.11
Exercised (2,032,232) 24.66
Forfeited (124,416) 57.78
- ------------------------------------------------------------------- ----------------
OUTSTANDING AT DECEMBER 31, 2002 43,106,605 $47.65
=================================================================== ----------------
OUTSTANDING AT DECEMBER 31, 2002
Weighted-Average
------------------------------------------
Exercise Prices Options Remaining Lives Exercise Price
- ---------------- ---------- --------------- --------------
$ 9.04 TO $31.44 5,067,979 2.18 YEARS $25.06
$31.52 TO $44.91 6,384,431 4.29 YEARS 39.88
$45.75 TO $66.72 31,654,195 7.67 YEARS 52.83
- ----------------------------------------------------------------------------------------------
EXERCISABLE AT DECEMBER 31
Weighted-Average
Exercise
Exercise Prices Options Price
--------------- ---------- ----------------
2002 $ 9.04 TO $31.44 5,067,979 $25.06
$31.52 TO $44.91 6,384,431 39.88
$45.75 TO $66.72 21,614,181 52.17
- ----------------------------------------------------------------------------------------------
2001 $ 9.04 to $31.44 3,056,009 $22.67
$31.52 to $44.91 3,075,354 38.06
$45.75 to $64.43 3,525,616 48.32
- ----------------------------------------------------------------------------------------------
2000 $22.57 to $31.44 1,754,047 $29.42
$32.25 to $44.91 1,674,129 37.49
$45.75 to $62.57 2,029,352 46.46
- ----------------------------------------------------------------------------------------------
130
COMPENSATION AND BENEFITS TRUST (CBT)
The CBT is an irrevocable grantor trust, administered by an independent trustee
and designed to acquire, hold and distribute shares of the company's common
stock to fund certain future compensation and benefit obligations of the
company. The CBT does not increase or alter the amount of benefits or
compensation that will be paid under existing plans, but offers the company
enhanced financial flexibility in providing the funding requirements of those
plans. ConocoPhillips also has flexibility in determining the timing of
distributions of shares from the CBT to fund compensation and benefits, subject
to a minimum distribution schedule. The trustee votes shares held by the CBT in
accordance with voting directions from eligible employees, as specified in a
trust agreement with the trustee.
The company sold 29.2 million shares of previously unissued company common stock
to the CBT in 1995 for $37 million of cash, previously contributed to the CBT by
ConocoPhillips, and a promissory note from the CBT to ConocoPhillips of $952
million. The CBT is consolidated by ConocoPhillips, therefore the cash
contribution and promissory note are eliminated in consolidation. Shares held by
the CBT are valued at cost and do not affect earnings per share or total common
stockholders' equity until after they are transferred out of the CBT. In 2002
and 2001, shares transferred out of the CBT were 771,479 and 292,857,
respectively. At December 31, 2002, 26.8 million shares remained in the CBT. All
shares are required to be transferred out of the CBT by January 1, 2021.
NOTE 21--TAXES
Taxes charged to income from continuing operations were:
Millions of Dollars
----------------------------------
2002 2001 2000
----------------------------------
TAXES OTHER THAN INCOME TAXES
Excise $ 6,246 2,177 1,781
Property 244 148 108
Production 303 328 278
Payroll 99 54 50
Environmental 5 14 12
Other 40 19 13
- ---------------------------------------------------------------------
$ 6,937 2,740 2,242
=====================================================================
INCOME TAXES
Federal
Current $ 71 133 470
Deferred 56 426 224
Foreign
Current 1,188 842 965
Deferred 114 126 127
State and local
Current 57 97 100
Deferred (36) 20 14
- ---------------------------------------------------------------------
$ 1,450 1,644 1,900
=====================================================================
131
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Major components of deferred tax
liabilities and assets at December 31 were:
Millions of Dollars
--------------------
2002 2001
--------------------
DEFERRED TAX LIABILITIES
Properties, plants and equipment, and intangibles $10,147 4,750
Investment in joint ventures 1,013 522
Inventory 385 212
Other 144 74
- --------------------------------------------------------------------------------
Total deferred tax liabilities 11,689 5,558
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Benefit plan accruals 1,304 450
Accrued dismantlement, removal and environmental costs 724 452
Deferred state income tax 201 164
Other financial accruals and deferrals 311 182
Alternative minimum tax carryforwards 421 180
Operating loss and credit carryforwards 650 310
Other 394 107
- --------------------------------------------------------------------------------
Total deferred tax assets 4,005 1,845
Less valuation allowance 608 263
- --------------------------------------------------------------------------------
Net deferred tax assets 3,397 1,582
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 8,292 3,976
================================================================================
Current assets, long-term assets, current liabilities and long-term liabilities
included deferred taxes of $68 million, $41 million, $40 million and $8,361
million, respectively, at December 31, 2002, and $47 million, $9 million, $17
million and $4,015 million, respectively, at December 31, 2001.
The company has operating loss and credit carryovers in multiple taxing
jurisdictions. These attributes generally expire between 2003 and 2009 with some
carryovers, including the alternative minimum tax, having indefinite
carryforward periods.
Valuation allowances have been established for certain operating loss and credit
carryforwards that reduce deferred tax assets to an amount that will, more
likely than not, be realized. Uncertainties that may affect the realization of
these assets include tax law changes and the future level of product prices and
costs. Based on the company's historical taxable income, its expectations for
the future, and available tax-planning strategies, management expects that the
net deferred tax assets will be realized as offsets to reversing deferred tax
liabilities and as offsets to the tax consequences of future taxable income.
The Conoco purchase price allocation for the merger resulted in net deferred tax
liabilities of $4,073 million. Included in this amount is a valuation allowance
for certain deferred tax assets of $251 million, for which subsequently
recognized tax benefits, if any, will be allocated to goodwill.
132
At December 31, 2002, and December 31, 2001, income considered to be permanently
reinvested in certain foreign subsidiaries and foreign corporate joint ventures
totaled approximately $569 million and $247 million, respectively. Deferred
income taxes have not been provided on this income, as the company does not plan
to initiate any action that would require the payment of income taxes. It is not
practicable to estimate the amount of additional tax that might be payable on
this foreign income if distributed.
The amounts of U.S. and foreign income from continuing operations before income
taxes, with a reconciliation of tax at the federal statutory rate with the
provision for income taxes, were:
Percent of
Millions of Dollars Pretax Income
----------------------------- ------------------------------
2002 2001 2000 2002 2001 2000
----------------------------- -------------------------------
Income from continuing operations before income taxes
United States $ 628 2,080 2,041 29.0% 63.9 54.4
Foreign 1,536 1,175 1,707 71.0 36.1 45.6
- ------------------------------------------------------------------------------------------------------------------------
$ 2,164 3,255 3,748 100.0% 100.0 100.0
========================================================================================================================
Federal statutory income tax $ 757 1,139 1,312 35.0% 35.0 35.0
Foreign taxes in excess of federal statutory rate 680 515 572 31.4 15.8 15.3
Domestic tax credits (77) (84) (53) (3.6) (2.6) (1.4)
Write-off of acquired in-process research and
development costs 86 -- -- 4.0 -- --
State income tax 14 76 74 .6 2.3 2.0
Other (10) (2) (5) (.4) -- (.2)
- ------------------------------------------------------------------------------------------------------------------------
$ 1,450 1,644 1,900 67.0% 50.5 50.7
========================================================================================================================
133
NOTE 22--OTHER COMPREHENSIVE INCOME (LOSS)
The components and allocated tax effects of other comprehensive income (loss)
follow:
Millions of Dollars
------------------------------------------
Tax Expense
Before-Tax (Benefit) After-Tax
-------------------------------------------
2002
Minimum pension liability adjustment $(149) (56) (93)
Unrealized loss on securities (3) -- (3)
Foreign currency translation adjustments 223 41 182
Hedging activities (1) -- (1)
Equity affiliates:
Foreign currency translation 40 -- 40
Derivatives related (34) -- (34)
- ---------------------------------------------------------------------------------------
Other comprehensive income $ 76 (15) 91
=======================================================================================
2001
Minimum pension liability adjustment $(220) (77) (143)
Unrealized loss on securities (3) (1) (2)
Foreign currency translation adjustments (14) -- (14)
Hedging activities (4) -- (4)
Equity affiliates:
Foreign currency translation (3) -- (3)
Derivatives related 17 6 11
- ---------------------------------------------------------------------------------------
Other comprehensive loss $(227) (72) (155)
=======================================================================================
2000
Unrealized loss on securities $ (2) (1) (1)
Foreign currency translation adjustments (53) -- (53)
Equity affiliates:
Foreign currency translation (15) -- (15)
- ---------------------------------------------------------------------------------------
Other comprehensive loss $ (70) (1) (69)
=======================================================================================
See Note 20--Employee Benefit Plans for more information on the minimum pension
liability adjustment.
Unrealized gains on securities relate to available-for-sale securities held by
irrevocable grantor trusts that fund certain of the company's domestic,
non-qualified supplemental key employee pension plans.
Deferred taxes have not been provided on temporary differences related to
foreign currency translation adjustments for investments in certain foreign
subsidiaries and foreign corporate joint ventures that are essentially permanent
in duration.
134
Accumulated other comprehensive loss in the equity section of the balance sheet
included:
Millions of Dollars
----------------------
2002 2001
----------------------
Minimum pension liability adjustment $(236) (143)
Foreign currency translation adjustments 98 (84)
Unrealized gain on securities 1 4
Deferred net hedging loss (5) (4)
Equity affiliates:
Foreign currency translation 1 (39)
Derivatives related (23) 11
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $(164) (255)
==================================================================================================================================
NOTE 23--CASH FLOW INFORMATION
Millions of Dollars
----------------------------------
2002 2001 2000
----------------------------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
The merger by issuance of stock $15,974 -- --
Acquisition of Tosco by issuance of stock -- 7,049 --
Note payable to purchase properties, plants and equipment -- 25 111
Investment in properties, plants and equipment of businesses through the assumption of
non-cash liabilities 181 125 472
Investment in equity affiliates through exchange of non-cash assets and liabilities* -- (15) 4,272
- ----------------------------------------------------------------------------------------------------------------------------------
CASH PAYMENTS
Interest $ 441 324 323
Income taxes 1,363 1,504 1,066
- ----------------------------------------------------------------------------------------------------------------------------------
*On March 31, 2000, ConocoPhillips combined its gas gathering, processing
and marketing business with the gas gathering, processing, marketing and
natural gas liquids business of Duke Energy into DEFS and on July 1, 2000,
ConocoPhillips and ChevronTexaco combined the two companies' worldwide
chemicals businesses into CPChem.
135
NOTE 24--OTHER FINANCIAL INFORMATION
Millions of Dollars
Except Per Share Amounts
------------------------------------
2002 2001 2000
------------------------------------
INTEREST
Incurred
Debt $ 740 524 511
Other 58 45 32
- --------------------------------------------------------------------------------------------------------------
798 569 543
Capitalized (232) (231) (174)
- --------------------------------------------------------------------------------------------------------------
Expensed $ 566 338 369
==============================================================================================================
RESEARCH AND DEVELOPMENT EXPENDITURES--expensed $ 355* 44 43
- --------------------------------------------------------------------------------------------------------------
*Includes $246 million of in-process research and development expenses related to the merger
ADVERTISING EXPENSES* $ 37 56 43
- --------------------------------------------------------------------------------------------------------------
*Deferred amounts at December 31 were immaterial in all three years
CASH DIVIDENDS paid per common share $ 1.48 1.40 1.36
- --------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSACTION GAINS (LOSSES)--after-tax
E&P $ (34) 2 (10)
R&M 9 3 (3)
Chemicals -- -- (1)
Corporate and Other 21 (8) (25)
- --------------------------------------------------------------------------------------------------------------
$ (4) (3) (39)
==============================================================================================================
NOTE 25--RELATED PARTY TRANSACTIONS
Significant transactions with related parties were:
Millions of Dollars
------------------------------------
2002 2001 2000
------------------------------------
Operating revenues (a) $ 1,554 935 1,573
Purchases (b) 1,545 1,110 1,347
Operating expenses and selling, general and
administrative expenses (c) 279 243 108
Net interest (income) expense (d) (6) 8 (3)
- --------------------------------------------------------------------------------------------------------------
(a) ConocoPhillips' Exploration and Production (E&P) segment sells natural gas
to Duke Energy Field Services, LLC (DEFS) and crude oil to the Malaysian
Refining Company Sdn. Bhd (Melaka), among others, for processing and
marketing. Natural gas liquids, solvents and petrochemical feedstocks are
sold to Chevron Phillips Chemical Company LLC (CPChem) and refined
products are sold to CFJ Properties and GKG Mineraloelhandel GMbH & Co.
KG. Also, the company charges several of its affiliates including CPChem;
Merey Sweeny, L.P. (MSLP); Hamaca Holding LLC; and Venture
136
Coke Company for the use of common facilities, such as steam generators,
waste and water treaters, and warehouse facilities.
(b) ConocoPhillips purchases natural gas and natural gas liquids from DEFS and
CPChem for use in its refinery processes and other feedstocks from various
affiliates. ConocoPhillips purchases crude oil from Petrozuata C.A. and
refined products from Melaka and Ceska rafinerska, a.s. located in the
Czech Republic. Also, ConocoPhillips pays fees to various pipeline equity
companies for transporting finished refined products.
(c) ConocoPhillips pays processing fees to various affiliates, the most
significant being MSLP. Additionally, ConocoPhillips pays contract
drilling fees to two deepwater drillship affiliates. Fees are paid to
ConocoPhillips' pipeline equity companies for transporting crude oil.
Commissions are paid to the receivable monetization companies (see Note
13--Sales of Receivables for more information).
(d) ConocoPhillips pays and/or receives interest to/from various affiliates
including the receivable monetization companies and MSLP.
Elimination of the company's equity percentage share of profit or loss on the
above transactions was not material.
NOTE 26--SEGMENT DISCLOSURES AND RELATED INFORMATION
ConocoPhillips has organized its reporting structure based on the grouping of
similar products and services, resulting in five operating segments:
1) E&P--This segment explores for and produces crude oil, natural gas,
and natural gas liquids worldwide; and mines oil sands to extract
bitumen and upgrade it into synthetic crude oil. At December 31,
2002, E&P was producing in the United States; the Norwegian and U.K.
sectors of the North Sea; Canada; Nigeria; Venezuela; the Timor Sea;
offshore Australia and China; Indonesia; the United Arab Emirates;
Vietnam; Russia; and Ecuador. The E&P segment's U.S. and
international operations are disclosed separately for reporting
purposes.
2) Midstream--Through both consolidated and equity interests, this
segment gathers and processes natural gas produced by ConocoPhillips
and others, and fractionates and markets natural gas liquids,
primarily in the United States, Canada and Trinidad. The Midstream
segment includes ConocoPhillips' 30.3 percent equity investment in
DEFS.
3) R&M--This segment refines, markets and transports crude oil and
petroleum products, mostly in the United States, Europe and Asia. At
December 31, 2002, ConocoPhillips owned 12 refineries in the United
States (excluding two refineries treated as discontinued operations
and reported in Corporate and Other); one in the United Kingdom; one
in Ireland; and had equity interests in one refinery in Germany, two
in the Czech Republic, and one in Malaysia. The R&M segment's U.S.
and international operations are disclosed separately for reporting
purposes.
4) Chemicals--This segment manufactures and markets petrochemicals and
plastics on a worldwide basis. The Chemicals segment consists
primarily of ConocoPhillips' 50 percent equity investment in CPChem.
137
5) Emerging Businesses--This segment encompasses the development of new
businesses beyond the company's traditional operations. Emerging
Businesses includes new technologies related to carbon fibers,
natural gas conversion into clean fuels and related products
(gas-to-liquids), fuels technology, and power generation.
Corporate and Other includes general corporate overhead; all interest income and
expense; preferred dividend requirements of capital trusts; discontinued
operations; restructuring charges; goodwill resulting from the merger of Conoco
and Phillips that has not yet been allocated to the operating segments; certain
eliminations; and various other corporate activities. Corporate assets include
all cash and cash equivalents.
The company evaluates performance and allocates resources based on, among other
items, net income. Segment accounting policies are the same as those in Note
1--Accounting Policies. Intersegment sales are at prices that approximate
market.
138
ANALYSIS OF RESULTS BY OPERATING SEGMENT
Millions of Dollars
---------------------------------------
2002 2001 2000
---------------------------------------
SALES AND OTHER OPERATING REVENUES
E&P
United States $ 7,222 5,879 5,346
International 4,850 2,266 2,919
Intersegment eliminations-U.S (1,304) (534) (433)
Intersegment eliminations-international (484) -- (221)
- ---------------------------------------------------------------------------------------------------------------
E&P 10,284 7,611 7,611
- ---------------------------------------------------------------------------------------------------------------
Midstream
Total sales 2,049 1,193 1,819
Intersegment eliminations (510) (416) (665)
- ---------------------------------------------------------------------------------------------------------------
Midstream 1,539 777 1,154
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 41,011 16,445 11,570
International 5,630 142 532
Intersegment eliminations-U.S (1,773) (92) (361)
Intersegment eliminations-international -- -- --
- ---------------------------------------------------------------------------------------------------------------
R&M 44,868 16,495 11,741
- ---------------------------------------------------------------------------------------------------------------
Chemicals
Total sales 13 -- 1,794
Intersegment eliminations -- -- (147)
- ---------------------------------------------------------------------------------------------------------------
Chemicals 13 -- 1,647
- ---------------------------------------------------------------------------------------------------------------
Emerging Businesses 36 7 --
Corporate and Other 8 2 2
- ---------------------------------------------------------------------------------------------------------------
Consolidated sales and other operating revenues $ 56,748 24,892 22,155
===============================================================================================================
DEPRECIATION, DEPLETION, AMORTIZATION AND IMPAIRMENTS
E&P
United States $ 999 817 552
International 735 324 487
- ---------------------------------------------------------------------------------------------------------------
Total E&P 1,734 1,141 1,039
- ---------------------------------------------------------------------------------------------------------------
Midstream 19 1 24
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 564 203 139
International 50 1 --
- ---------------------------------------------------------------------------------------------------------------
Total R&M 614 204 139
- ---------------------------------------------------------------------------------------------------------------
Chemicals -- -- 54
Emerging Businesses 4 -- --
Corporate and Other 29 24 13
- ---------------------------------------------------------------------------------------------------------------
Consolidated depreciation, depletion, amortization and impairments $ 2,400 1,370 1,269
===============================================================================================================
139
Millions of Dollars
---------------------------------------
2002 2001 2000
---------------------------------------
EQUITY IN EARNINGS OF AFFILIATES
E&P
United States $ 29 9 15
International 162 19 16
- ---------------------------------------------------------------------------------------------------------------
Total E&P 191 28 31
- ---------------------------------------------------------------------------------------------------------------
Midstream 46 165 137
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 43 88 28
International -- -- 8
- ---------------------------------------------------------------------------------------------------------------
Total R&M 43 88 36
- ---------------------------------------------------------------------------------------------------------------
Chemicals (16) (240) (90)
Emerging Businesses (3) -- --
Corporate and Other -- -- --
- ---------------------------------------------------------------------------------------------------------------
Consolidated equity in earnings of affiliates $ 261 41 114
===============================================================================================================
INCOME TAXES
E&P
United States $ 473 670 744
International 1,337 913 1,050
- ---------------------------------------------------------------------------------------------------------------
Total E&P 1,810 1,583 1,794
- ---------------------------------------------------------------------------------------------------------------
Midstream 42 73 91
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 90 210 115
International (11) -- 10
- ---------------------------------------------------------------------------------------------------------------
Total R&M 79 210 125
- ---------------------------------------------------------------------------------------------------------------
Chemicals (18) (89) 21
Emerging Businesses (38) (7) --
Corporate and Other (425) (126) (131)
- ---------------------------------------------------------------------------------------------------------------
Consolidated income taxes $ 1,450 1,644 1,900
===============================================================================================================
NET INCOME (LOSS)
E&P
United States $ 1,156 1,342 1,388
International 593 357 557
- ---------------------------------------------------------------------------------------------------------------
Total E&P 1,749 1,699 1,945
- ---------------------------------------------------------------------------------------------------------------
Midstream 55 120 162
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 138 395 209
International 5 2 29
- ---------------------------------------------------------------------------------------------------------------
Total R&M 143 397 238
- ---------------------------------------------------------------------------------------------------------------
Chemicals (14) (128) (46)
Emerging Businesses (310)* (12) --
Corporate and Other (1,918) (415) (437)
- ---------------------------------------------------------------------------------------------------------------
Consolidated net income (loss) $ (295) 1,661 1,862
===============================================================================================================
*Includes a non-cash $246 million write-off of acquired in-process research and development costs.
140
Millions of Dollars
---------------------------------------
2002 2001 2000
---------------------------------------
INVESTMENTS IN AND ADVANCES TO AFFILIATES
E&P
United States $ 156 13 5
International 2,184 573 342
- ---------------------------------------------------------------------------------------------------------------
Total E&P 2,340 586 347
- ---------------------------------------------------------------------------------------------------------------
Midstream 318 166 43
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 762 166 147
International 416 -- --
- ---------------------------------------------------------------------------------------------------------------
Total R&M 1,178 166 147
- ---------------------------------------------------------------------------------------------------------------
Chemicals 2,050 1,852 2,046
Emerging Businesses -- -- --
Corporate and Other 14 18 29
- ---------------------------------------------------------------------------------------------------------------
Consolidated investments in and advances to affiliates $ 5,900 2,788 2,612
===============================================================================================================
TOTAL ASSETS
E&P
United States $ 14,196 9,501 9,296
International 19,541 5,295 4,538
- ---------------------------------------------------------------------------------------------------------------
Total E&P 33,737 14,796 13,834
- ---------------------------------------------------------------------------------------------------------------
Midstream 1,931 196 145
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 19,553 14,553 3,112
International 3,632 183 68
- ---------------------------------------------------------------------------------------------------------------
Total R&M 23,185 14,736 3,180
- ---------------------------------------------------------------------------------------------------------------
Chemicals 2,095 1,934 2,170
Emerging Businesses 737 2 --
Corporate and Other 15,151 3,553 1,180
- ---------------------------------------------------------------------------------------------------------------
Consolidated total assets $ 76,836 35,217 20,509
===============================================================================================================
CAPITAL EXPENDITURES AND INVESTMENTS*
E&P
United States $ 1,205 1,354 951
International 2,071 1,162 726
- ---------------------------------------------------------------------------------------------------------------
Total E&P 3,276 2,516 1,677
- ---------------------------------------------------------------------------------------------------------------
Midstream 5 -- 17
- ---------------------------------------------------------------------------------------------------------------
R&M
United States 676 423 217
International 164 5 --
- ---------------------------------------------------------------------------------------------------------------
Total R&M 840 428 217
- ---------------------------------------------------------------------------------------------------------------
Chemicals 60 6 67
Emerging Businesses 122 -- --
Corporate and Other 85 66 39
- ---------------------------------------------------------------------------------------------------------------
Consolidated capital expenditures and investments $ 4,388 3,016 2,017
===============================================================================================================
*Including dry hole costs.
141
Additional information on items included in Corporate and Other (on a before-tax
basis unless otherwise noted):
Millions of Dollars
---------------------------------------
2002 2001 2000
---------------------------------------
Interest income $ 40 13 28
Interest expense 566 338 369
Extraordinary losses, after-tax 16 10 --
Significant non-cash items
Impairments included in discontinued operations 1,048 -- --
Loss accruals related to retail site leases included in
discontinued operations 477 -- --
Restructuring charges, net of benefits paid 269 -- --
- --------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
Millions of Dollars
---------------------------------------------------------------------------------------
Other
United United Foreign Worldwide
States Norway Kingdom Canada Countries Consolidated
---------------------------------------------------------------------------------------
2002
Sales and Other Operating
Revenues* $46,674 1,850 3,387 997 3,840 56,748
- --------------------------------------------------------------------------------------------------------------------------
Long-Lived Assets** $28,492 3,767 4,969 3,460 8,242 48,930
- --------------------------------------------------------------------------------------------------------------------------
2001
Sales and Other Operating
Revenues* $22,466 1,322 380 42 682 24,892
- --------------------------------------------------------------------------------------------------------------------------
Long-Lived Assets** $19,955 1,484 654 29 2,799 24,921
- --------------------------------------------------------------------------------------------------------------------------
2000
Sales and Other Operating
Revenues* $18,700 231 2,183 175 866 22,155
- --------------------------------------------------------------------------------------------------------------------------
Long-Lived Assets** $13,198 1,487 709 30 1,831 17,255
- --------------------------------------------------------------------------------------------------------------------------
*Sales and other operating revenues are attributable to countries based on
the location of the operations generating the revenues.
**Defined as net properties, plants and equipment plus investments in and
advances to affiliates.
142
NOTE 27--NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 was adopted by the company on January 1, 2003, and
requires major changes in the accounting for asset retirement obligations, such
as required decommissioning of oil and gas production platforms, facilities and
pipelines. SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period when it is incurred
(typically when the asset is installed at the production location). When the
liability is initially recorded, the entity capitalizes the cost by increasing
the carrying amount of the related property, plant and equipment. Over time, the
liability is accreted for the change in its present value each period, and the
initial capitalized cost is depreciated over the useful life of the related
asset. Upon adoption of SFAS No. 143, the company adjusted its recorded asset
retirement obligations to the new requirements using a cumulative-effect
approach as required. All transition amounts were measured using the company's
current information, assumptions, and credit-adjusted, risk-free interest rates.
While the original discount rates used to establish an asset retirement
obligation will not change in the future, changes in cost estimates or the
timing of expenditures will result in immediate adjustments to the recorded
liability, with an offsetting adjustment to properties, plants and equipment.
Application of the new rules, effective January 1, 2003, should result in an
increase in net properties, plants and equipment of approximately $1.2 billion,
an asset retirement obligation liability increase of approximately $1.1 billion,
and a cumulative after-tax effect of adoption gain that is expected to increase
net income and stockholders' equity by approximately $137 million. The estimated
after-tax impact on income before extraordinary items and cumulative effect of
changes in accounting principle for the year 2003 is an improvement of $33
million. The majority of the liability and asset increase is attributable to
assets acquired in the merger and production facilities in Alaska. Following
prevalent oil and gas industry practice for acquisitions completed prior to
January 1, 2003, ConocoPhillips did not record an initial liability for the
estimated cost of removing properties, plants and equipment at the end of their
useful lives. Instead, estimated removal costs were accrued on a
unit-of-production basis as an additional component of depreciation, building
the removal cost liability over the remaining useful lives of the properties,
plants and equipment. However, upon adoption of SFAS No. 143, these asset
retirement obligations are required to be recorded, significantly increasing
asset retirement liabilities on the balance sheet with an offsetting increase to
properties, plants and equipment.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," (VIEs) in an effort to expand upon and strengthen
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
In general, a VIE is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
Interpretation No. 46 requires a VIE to be consolidated by a company if that
company is subject to a majority of the risk of loss from the VIE's activities,
is entitled to receive a majority of the VIE's residual returns, or both. The
interpretation also requires disclosures about VIEs that the company is not
required to consolidate, but in which it has a significant variable interest.
The consolidation requirements of Interpretation No. 46 applied immediately to
variable interest entities created after January 31, 2003, and to older entities
no later than the third quarter of 2003. The company is studying the impact of
the interpretation on existing variable interest entities with which the company
is involved. Certain of the disclosure requirements are required in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. These are included in Note
28--Variable Interest Entities.
143
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities initiated after
December 31, 2002, and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized and measured initially at fair
value at the date the liability is incurred, rather than at the commitment date.
The company plans to apply the provisions of SFAS No. 146 prospectively for
restructuring activities initiated in 2003 and future years. However, for
restructuring activities initiated in 2002 the company will continue to apply
EITF Issue Nos. 94-3 and 95-3 until those identified restructuring activities
are completed. See Note 4--Discontinued Operations and Note 5--Restructuring for
more information.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." For specified guarantees issued or modified after
December 31, 2002, the interpretation requires a guarantor to recognize, at the
inception of the guarantee, a liability for the fair value of all the
obligations it has undertaken in issuing the guarantee, including its ongoing
obligation to stand ready and make cash payments over the term of the guarantee
in the event that specified triggering events or conditions occur. The
measurement of the liability for the fair value of the guarantee obligation
should be based on the premium that would be required to issue the same
guarantee in a stand-alone arm's-length transaction with an unrelated party if
that information is available, or estimated using expected present value
measurement techniques. For specified guarantees existing as of December 31,
2002, the interpretation also requires a guarantor to disclose (a) the nature of
the guarantee, including how the guarantee arose and the events or circumstances
that would require the guarantor to perform under the guarantee; (b) the maximum
potential amount of future payments under the guarantee; (c) the carrying amount
of the liability; and (d) the nature and extent of any recourse provisions or
available collateral that would enable the guarantor to recover the amounts paid
under the guarantee. The required disclosures are included in Note
14--Guarantees.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
The rescission of SFAS No. 4 will require that gains and losses on
extinguishments of debt no longer be presented as extraordinary items in the
income statement, commencing in 2003. All prior periods will be restated to
reflect this change in presentation. See Note 2--Extraordinary Items and
Accounting Change.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," an amendment of SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. ConocoPhillips adopted the fair-value method
recommended by SFAS No. 123 on January 1, 2003, and is using the prospective
transition method. See Note 20--Employee Benefit Plans for more information on
this accounting change.
In 2003, the FASB is expected to issue SFAS No. 149, "Accounting for Certain
Financial Instruments with Characteristics of Liabilities and Equity," to
address the balance sheet classification of certain financial instruments that
have characteristics of both liabilities and equity. SFAS No. 149 is expected to
provide that mandatorily redeemable instruments meet the conceptual definition
of liabilities and must be presented as such on the balance sheet. The statement
is expected to be effective upon issuance for all contracts created or modified
after the issuance date and is otherwise effective on all previously existing
contracts no later than the third quarter of 2003. ConocoPhillips is currently
evaluating the impact of proposed SFAS No. 149, and it is likely that some or
all of currently reported mandatorily redeemable preferred stock and minority
interest securities will be reclassified as liabilities. See Note 17--Preferred
Stock and Other Minority Interests for more information.
144
NOTE 28--VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," which provides guidance related to identifying
variable interest entities and determining whether such entities should be
consolidated. See Note 27--New Accounting Standards for further explanation of
this new accounting standard.
As required, the company will immediately apply this interpretation to variable
interest entities created, or interests in variable interest entities obtained,
after January 31, 2003. For variable interest entities created before February
1, 2003, the company will initially apply the guidance in this interpretation in
the third quarter of 2003. At that time, if the company is determined to be the
primary beneficiary of a variable interest entity created before February 1,
2003, the company will consolidate that entity. This interpretation excludes the
QSPE's discussed in Note 13--Sales of Receivables.
The company is still evaluating the impact of this very recent, complex
interpretation on existing potential variable interest entities in which the
company is involved. Based on a preliminary review, when the company initially
applies the guidance of this interpretation in July 2003, it is reasonably
possible that the company will be required to begin consolidating entities in
the following areas:
o The company leases ocean transport vessels, drillships, corporate
aircraft, service stations, office buildings, and certain refining
equipment from special purpose entities (SPEs) that are third-party
trusts established by a trustee and principally funded by financial
institutions. If the company is required to consolidate all of these
entities, the assets of the entities and debt of approximately $2.4
billion would be required to be included in the consolidated
financial statements. The company's maximum exposure to loss as a
result of its involvement with the entities would be the debt of the
entity, less the fair value of the assets at the end of the lease
terms. Of the $2.4 billion debt that would be consolidated,
approximately $1.5 billion is associated with a major portion of the
company's owned retail stores that the company has announced it
plans to sell. As a result of the planned divestiture, the company
plans to exercise purchase option provisions during 2003 and
terminate various operating leases involving approximately 900 store
sites and two office buildings. In addition, see Note
4--Discontinued Operations for details regarding the provisions
recorded for losses and penalties in the fourth quarter of 2002 for
the planned divestiture. Depending upon the timing of the company's
exercise of these purchase options, and the determination of whether
or not the lessor entities in these operating leases are variable
interest entities requiring consolidation in 2003, some or all of
these lessor entities could become consolidated subsidiaries of the
company prior to the exercise of the purchase options and
termination of the leases. See Note 14--Guarantees and Note
19--Non-Mineral Leases.
o In December 2001, in order to raise funds for general corporate
purposes, Conoco and Cold Spring Finance S.a.r.l. formed Ashford
Energy Capital S.A. through the contribution of cash and a Conoco
subsidiary promissory note. Through its $504 million investment,
Cold Spring is entitled to a cumulative annual preferred return,
based on three-month LIBOR rates plus 1.27 percent. The preferred
return at December 31, 2002, was 2.70 percent. The company already
consolidates Ashford and reports Cold Spring's investment as a
minority interest. If it is determined that Cold Spring is a
variable interest entity, the company may have to consolidate Cold
Spring under Interpretation No. 46. If that were to occur, Cold
Spring's financing of approximately $500 million at December 31,
2002, could be reported as debt of ConocoPhillips.
145
- --------------------------------------------------------------------------------
OIL AND GAS OPERATIONS (Unaudited)
Exploration and Production
In accordance with SFAS No. 69, "Disclosures about Oil and Gas Producing
Activities," and regulations of the U.S. Securities and Exchange Commission, the
company is making certain supplemental disclosures about its oil and gas
exploration and production operations. While this information was developed with
reasonable care and disclosed in good faith, it is emphasized that some of the
data is necessarily imprecise and represents only approximate amounts because of
the subjective judgments involved in developing such information. Accordingly,
this information may not necessarily represent the current financial condition
of the company or its expected future results.
ConocoPhillips' disclosures by geographic areas include the United States
(U.S.), Norway, the United Kingdom (U.K.), Canada and Other Areas. Other Areas
include Nigeria, China, Australia, the Timor Sea, Indonesia, Vietnam, United
Arab Emirates, Ecuador and other countries. When the company uses equity
accounting for operations that have proved reserves, these oil and gas
operations are shown separately and designated as Equity Affiliates. In 2002,
these consisted of two heavy-oil projects in Venezuela, an oil development
project in northern Russia and a heavy-oil project in Canada. In 2001 and 2000
this consisted of a heavy-oil project in Venezuela.
Amounts in 2000 were impacted by ConocoPhillips' purchase of all of Atlantic
Richfield Company's (ARCO) Alaska businesses in late April 2000. Amounts in 2002
were impacted by the merger of Conoco and Phillips (the merger) in late August
2002.
CONTENTS--OIL AND GAS OPERATIONS PAGE
- --------------------------------------------------------------------------------
Proved Reserves Worldwide 147
Results of Operations 153
Statistics 155
Costs Incurred 159
Capitalized Costs 160
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserve Quantities 161
146
o PROVED RESERVES WORLDWIDE
Years Ended CRUDE OIL
December 31 -----------------------------------------------------------------------------------------------------
Millions of Barrels
-----------------------------------------------------------------------------------------------------
Consolidated Operations
------------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
-----------------------------------------------------------------------------------------------------
DEVELOPED AND UNDEVELOPED
End of 1999 33 109 142 521 57 12 232 964 -- 964
Revisions 9 12 21 73 3 (2) 1 96 -- 96
Improved recovery 31 -- 31 5 -- -- -- 36 -- 36
Purchases 1,594 1 1,595 -- -- -- -- 1,595 -- 1,595
Extensions and discoveries 12 3 15 -- -- 6 34 55 613 668
Production (75) (12) (87) (41) (9) (2) (19) (158) -- (158)
Sales -- (1) (1) -- -- (12) -- (13) -- (13)
- ----------------------------------------------------------------------------------------------------------------------------------
End of 2000 1,604 112 1,716 558 51 2 248 2,575 613 3,188
Revisions 77 (2) 75 51 (6) -- 4 124 48 172
Improved recovery 67 1 68 12 -- -- -- 80 -- 80
Purchases -- -- -- -- -- -- 17 17 -- 17
Extensions and discoveries 9 6 15 -- 2 -- 12 29 -- 29
Production (126) (12) (138) (43) (6) -- (19) (206) (1) (207)
Sales -- -- -- -- -- -- (3) (3) -- (3)
- ----------------------------------------------------------------------------------------------------------------------------------
End of 2001 1,631 105 1,736 578 41 2 259* 2,616 660 3,276
Revisions 32 (8) 24 (26) (5) 5 (32) (34) (27) (61)
Improved recovery 46 1 47 5 2 -- -- 54 -- 54
Purchases -- 132 132 262 143 101 223 861 733 1,594
Extensions and discoveries 14 6 20 3 3 1 22 49 4 53
Production (120) (14) (134) (58) (14) (5) (24) (235) (13) (248)
Sales -- (2) (2) (13) (7) (13) (1) (36) -- (36)
- ----------------------------------------------------------------------------------------------------------------------------------
END OF 2002 1,603 220 1,823 751 163 91 447** 3,275 1,357 4,632
==================================================================================================================================
DEVELOPED
End of 1999 25 93 118 433 37 10 114 712 -- 712
End of 2000 1,207 98 1,305 478 25 2 116 1,926 -- 1,926
End of 2001 1,275 91 1,366 513 21 2 96 1,998 47 2,045
END OF 2002 1,335 169 1,504 611 102 81 223 2,521 378 2,899
- ----------------------------------------------------------------------------------------------------------------------------------
*Includes proved reserves of 17 million barrels attributable to a
consolidated subsidiary in which there is a 13 percent minority interest.
**Includes proved reserves of 14 million barrels attributable to a
consolidated subsidiary in which there is a 10 percent minority interest.
147
o Purchases in 2002 were primarily related to the merger. Other Areas in
2002 includes 1 million barrels related to an operation that was
classified as discontinued following the merger, and was sold by year-end.
The amount for this operation was not included in the schedule of sources
of change in discounted future net cash flows, or as a part of the
company's per-unit finding and development cost calculation.
o At the end of 2000 and 1999, Other Areas included 2 million and 14 million
barrels, respectively, of reserves in Venezuela in which the company had
an economic interest through risk-service contracts. These properties were
sold in June 2001. Net production to the company was approximately 400,000
barrels in 2001; 1,200,000 barrels in 2000; and 600,000 barrels in 1999.
o In addition to conventional crude oil, natural gas and natural gas liquids
(NGL) proved reserves, ConocoPhillips has proven oil sands reserves in
Canada, associated with a Syncrude project totaling 272 million barrels at
the end of 2002. For internal management purposes, ConocoPhillips views
these reserves and their development as part of its total exploration and
production operations. However, U.S. Securities and Exchange Commission
regulations define these reserves as mining related. Therefore, they are
not included in the company's tabular presentation of proved crude oil,
natural gas and NGL reserves. These oil sand reserves are also not
included in the standardized measure of discounted future net cash flows
relating to proved oil and gas reserve quantities.
148
Years Ended NATURAL GAS
December 31 -----------------------------------------------------------------------------------------------------
Billions of Cubic Feet
-----------------------------------------------------------------------------------------------------
Consolidated Operations
------------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
-----------------------------------------------------------------------------------------------------
DEVELOPED AND UNDEVELOPED
End of 1999 798 2,554 3,352 1,176 681 521 634 6,364 -- 6,364
Revisions 87 183 270 (162) 10 (200) 1 (81) -- (81)
Improved recovery -- -- -- 52 -- -- -- 52 -- 52
Purchases 2,448 193 2,641 -- -- -- -- 2,641 -- 2,641
Extensions and discoveries 7 211 218 -- -- 22 4 244 131 375
Production (103) (283) (386) (54) (79) (33) (14) (566) -- (566)
Sales -- (5) (5) -- -- (246) -- (251) -- (251)
- ----------------------------------------------------------------------------------------------------------------------------------
End of 2000 3,237 2,853 6,090 1,012 612 64 625 8,403 131 8,534
Revisions 60 9 69 (65) (59) (2) 64 7 14 21
Improved recovery -- -- -- 13 -- -- -- 13 -- 13
Purchases -- 12 12 -- 10 -- 10 32 -- 32
Extensions and discoveries 5 405 410 -- 23 -- 374 807 -- 807
Production (141) (261) (402) (53) (68) (7) (40) (570) -- (570)
Sales -- -- -- -- (8) -- -- (8) -- (8)
- ----------------------------------------------------------------------------------------------------------------------------------
End of 2001 3,161 3,018 6,179 907 510 55 1,033* 8,684 145 8,829
Revisions (27) (70) (97) 4 (24) 16 (75) (176) -- (176)
Improved recovery 5 1 6 13 1 -- -- 20 -- 20
Purchases -- 1,862 1,862 1,003 1,580 1,241 2,062 7,748 17 7,765
Extensions and discoveries 2 225 227 -- 43 21 420 711 1 712
Production (147) (340) (487) (68) (158) (59) (68) (840) (2) (842)
Sales (5) (1) (6) (1) (3) (97) (161) (268) -- (268)
- ----------------------------------------------------------------------------------------------------------------------------------
END OF 2002 2,989 4,695 7,684 1,858 1,949 1,177 3,211** 15,879 161 16,040
==================================================================================================================================
DEVELOPED
End of 1999 630 2,317 2,947 856 413 131 349 4,696 -- 4,696
End of 2000 2,969 2,564 5,533 738 321 54 336 6,982 -- 6,982
End of 2001 2,969 2,684 5,653 788 265 45 736 7,487 3 7,490
END OF 2002 2,806 4,302 7,108 1,544 1,734 1,098 1,349 12,833 28 12,861
- ----------------------------------------------------------------------------------------------------------------------------------
*Includes proved reserves of 10 billion cubic feet attributable to a
consolidated subsidiary in which there is a 13 percent minority interest.
**Includes proved reserves of 10 billion cubic feet attributable to a
consolidated subsidiary in which there is a 10 percent minority interest.
149
o Natural gas production may differ from gas production (delivered for sale)
in the company's statistics disclosure, primarily because the quantities
above include gas consumed at the lease, but omit the gas equivalent of
liquids extracted at any ConocoPhillips-owned, equity-affiliate, or
third-party processing plant or facility.
o Purchases in 2002 were related to the merger. Other Areas in 2002 includes
161 billion cubic feet related to an operation that was classified as
discontinued following the merger, and was sold by year-end. The amount
for this operation was not included in the schedule of sources of change
in discounted future net cash flows, or as a part of the company's
per-unit finding and development cost calculation.
o Extensions and discoveries in Other Areas in 2002 were primarily in
Nigeria.
o Sales in Other Areas in 2002 were for a discontinued operation. See note
on purchases above.
o Natural gas reserves are computed at 14.65 pounds per square inch absolute
and 60 degrees Fahrenheit.
150
Years Ended NATURAL GAS LIQUIDS
December 31 -----------------------------------------------------------------------------------------------------
Millions of Barrels
-----------------------------------------------------------------------------------------------------
Consolidated Operations
------------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
-----------------------------------------------------------------------------------------------------
DEVELOPED AND UNDEVELOPED
End of 1999 1 91 92 29 4 4 78 207 -- 207
Revisions 57 11 68 7 -- (2) 2 75 -- 75
Purchases 147 -- 147 -- -- -- -- 147 -- 147
Extensions and discoveries -- 2 2 -- -- -- -- 2 -- 2
Production (7) (8) (15) (2) (1) -- (1) (19) -- (19)
Sales -- -- -- -- -- (2) (1) (3) -- (3)
- ----------------------------------------------------------------------------------------------------------------------------------
End of 2000 198 96 294 34 3 -- 78 409 -- 409
Revisions (25) 2 (23) -- -- -- 4 (19) -- (19)
Improved recovery -- -- -- 1 -- -- -- 1 -- 1
Purchases -- -- -- -- -- -- 10 10 -- 10
Extensions and discoveries -- 2 2 -- -- -- -- 2 -- 2
Production (9) (7) (16) (2) -- -- (1) (19) -- (19)
- ----------------------------------------------------------------------------------------------------------------------------------
End of 2001 164 93 257 33 3 -- 91* 384 -- 384
Revisions (4) 5 1 (3) 2 -- (11) (11) -- (11)
Improved recovery -- 1 1 -- -- -- -- 1 -- 1
Purchases -- 80 80 12 2 38 21 153 -- 153
Extensions and discoveries -- 4 4 -- -- 1 -- 5 -- 5
Production (9) (9) (18) (2) (1) (2) (1) (24) -- (24)
Sales -- -- -- -- -- (2) (1) (3) -- (3)
- ----------------------------------------------------------------------------------------------------------------------------------
END OF 2002 151 174 325 40 6 35 99** 505 -- 505
==================================================================================================================================
DEVELOPED
End of 1999 1 89 90 22 3 1 17 133 -- 133
End of 2000 197 94 291 27 2 1 17 338 -- 338
End of 2001 163 92 255 29 2 -- 16 302 -- 302
END OF 2002 151 166 317 34 6 30 15 402 -- 402
- ----------------------------------------------------------------------------------------------------------------------------------
*Includes proved reserves of 10 million barrels attributable to a
consolidated subsidiary in which there is a 13 percent minority interest.
**Includes proved reserves of 9 million barrels attributable to a
consolidated subsidiary in which there is a 10 percent minority interest.
151
o Natural gas liquids reserves include estimates of natural gas liquids to
be extracted from ConocoPhillips' leasehold gas at gas processing plants
or facilities. Estimates are based at the wellhead and assume full
extraction. Production above differs from natural gas liquids production
per day delivered for sale primarily due to:
(1) Natural gas consumed at the lease.
(2) Natural gas liquids production delivered for sale includes only
natural gas liquids extracted from ConocoPhillips' leasehold gas and
sold by ConocoPhillips' Exploration and Production (E&P) segment,
whereas the production above also includes natural gas liquids
extracted from ConocoPhillips' leasehold gas at equity-affiliate or
third-party facilities.
o Purchases in 2002 were related to the merger.
152
o RESULTS OF OPERATIONS
Years Ended Millions of Dollars
December 31 ----------------------------------------------------------------------------------------------------
Consolidated Operations
-----------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
-----------------------------------------------------------------------------------------------------
2002
Sales $ 2,997 927 3,924 400 794 125 747 5,990 180 6,170
Transfers 102 401 503 1,285 30 235 -- 2,053 62 2,115
Other revenues (2) 3 1 35 28 7 21 92 12 104
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,097 1,331 4,428 1,720 852 367 768 8,135 254 8,389
Production costs 769 444 1,213 209 134 118 190 1,864 57 1,921
Exploration expenses 101 108 209 33 34 32 276* 584 -- 584
Depreciation, depletion and
amortization 552 334 886 206 274 105 85 1,556 30 1,586
Property impairments 4 8 12 -- 41 -- -- 53 -- 53
Transportation costs 681 87 768 75 50 -- 15 908 8 916
Other related expenses 23 16 39 60 15 14 12 140 12 152
- -----------------------------------------------------------------------------------------------------------------------------------
967 334 1,301 1,137 304 98 190 3,030 147 3,177
Provision for income taxes 294 66 360 857 124 49 275 1,665 (18) 1,647
- -----------------------------------------------------------------------------------------------------------------------------------
Results of operations for
producing activities 673 268 941 280 180 49 (85) 1,365 165 1,530
Other earnings 197 18 215 20 (10) 24** (6) 243 (24) 219
- -----------------------------------------------------------------------------------------------------------------------------------
E&P net income (loss) $ 870 286 1,156 300 170 73 (91) 1,608 141 1,749
===================================================================================================================================
2001
Sales $ 3,020 1,178 4,198 175 371 31 478 5,253 8 5,261
Transfers 119 119 238 1,039 -- -- -- 1,277 -- 1,277
Other revenues 34 26 60 13 10 5 (4) 84 1 85
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 3,173 1,323 4,496 1,227 381 36 474 6,614 9 6,623
Production costs 784 328 1,112 124 41 6 92 1,375 2 1,377
Exploration expenses 61 69 130 20 11 -- 154 315 -- 315
Depreciation, depletion and
amortization 531 203 734 115 118 4 49 1,020 2 1,022
Property impairments -- -- -- -- -- -- 23 23 -- 23
Transportation costs 726 77 803 27 33 3 6 872 -- 872
Other related expenses 2 5 7 -- (8) 1 28 28 2 30
- -----------------------------------------------------------------------------------------------------------------------------------
1,069 641 1,710 941 186 22 122 2,981 3 2,984
Provision for income taxes 392 173 565 729 50 7 139 1,490 -- 1,490
- -----------------------------------------------------------------------------------------------------------------------------------
Results of operations for
producing activities 677 468 1,145 212 136 15 (17) 1,491 3 1,494
Other earnings 189 8 197 17 -- -- (9) 205 -- 205
- -----------------------------------------------------------------------------------------------------------------------------------
E&P net income (loss) $ 866 476 1,342 229 136 15 (26) 1,696 3 1,699
===================================================================================================================================
2000
Sales $ 2,252 1,102 3,354 139 481 169 556 4,699 -- 4,699
Transfers 74 275 349 1,186 -- -- -- 1,535 -- 1,535
Other revenues 9 25 34 5 (1) 140 (2) 176 -- 176
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 2,335 1,402 3,737 1,330 480 309 554 6,410 -- 6,410
Production costs 494 308 802 118 42 35 100 1,097 -- 1,097
Exploration expenses 38 73 111 14 36 5 138 304 -- 304
Depreciation, depletion and
amortization 305 190 495 106 138 68 65 872 -- 872
Property impairments -- 13 13 -- -- -- 87 100 -- 100
Transportation costs 364 101 465 27 39 9 5 545 -- 545
Other related expenses (9) 4 (5) 21 (2) 4 32 50 -- 50
- -----------------------------------------------------------------------------------------------------------------------------------
1,143 713 1,856 1,044 227 188 127 3,442 -- 3,442
Provision for income taxes 443 207 650 817 69 13 153 1,702 -- 1,702
- -----------------------------------------------------------------------------------------------------------------------------------
Results of operations for
producing activities 700 506 1,206 227 158 175 (26) 1,740 -- 1,740
Other earnings 129 53 182 16 (1) -- 8 205 -- 205
- -----------------------------------------------------------------------------------------------------------------------------------
E&P net income (loss) $ 829 559 1,388 243 157 175 (18) 1,945 -- 1,945
===================================================================================================================================
*Includes a $77 million leasehold impairment charge for an investment in
Angola.
**Includes $27 million for a Syncrude oil project in Canada that is defined
as a mining operation by U.S. Securities and Exchange Commission
regulations.
153
o Results of operations for producing activities consist of all the
activities within the E&P organization, except for pipeline and marine
operations, a liquefied natural gas operation, Syncrude operations, and
crude oil and gas marketing activities, which are included in Other
earnings. Also excluded are non-E&P activities, including ConocoPhillips'
Midstream segment, downstream petroleum and chemical activities, as well
as general corporate administrative expenses and interest.
o Transfers are valued at prices that approximate market.
o Other revenues include gains and losses from asset sales, certain amounts
resulting from the purchase and sale of hydrocarbons, and other
miscellaneous income.
o Production costs consist of costs incurred to operate and maintain wells
and related equipment and facilities used in the production of petroleum
liquids and natural gas. These costs also include taxes other than income
taxes, depreciation of support equipment and administrative expenses
related to the production activity. Excluded are depreciation, depletion
and amortization of capitalized acquisition, exploration and development
costs.
o Exploration expenses include dry hole, leasehold impairment, geological
and geophysical expenses and the cost of retaining undeveloped leaseholds.
Also included are taxes other than income taxes, depreciation of support
equipment and administrative expenses related to the exploration activity.
o Exploration expenses in 2002 included $77 million for the impairment of a
substantial portion of the company's investment in deepwater Block 34,
offshore Angola. Initial results released in early May 2002 indicated that
the first exploratory well drilled in Block 34 was a dry hole, resulting
in ConocoPhillips' reassessment of the fair value of the remainder of the
block.
o Depreciation, depletion and amortization (DD&A) in Results of Operations
differs from that shown for total E&P in Note 26--Segment Disclosures and
Related Information in the Notes to Consolidated Financial Statements,
mainly due to depreciation of support equipment being reclassified to
production or exploration expenses, as applicable, in Results of
Operations. In addition, Other earnings include certain E&P activities,
including their related DD&A charges.
o Transportation costs include costs to transport oil, natural gas or
natural gas liquids to their points of sale. The profit element of
transportation operations in which the company has an ownership interest
are deemed to be outside the oil and gas producing activity. The net
income of the transportation operations is included in Other earnings.
o Other related expenses include foreign currency gains and losses, and
other miscellaneous expenses.
o The provision for income taxes is computed by adjusting each country's
income before income taxes for permanent differences related to the oil
and gas producing activities that are reflected in the company's
consolidated income tax expense for the period, multiplying the result by
the country's statutory tax rate and adjusting for applicable tax credits.
o Other earnings consist of activities within the E&P segment that are not a
part of the "Results of operations for producing activities." These
non-producing activities include pipeline and marine operations, liquefied
natural gas operations, Syncrude operations, and crude oil and gas
marketing activities.
154
o STATISTICS
NET PRODUCTION 2002 2001 2000
----------------------------
Thousands of Barrels Daily
----------------------------
CRUDE OIL
Alaska 331 339 207
Lower 48 40 34 34
- ---------------------------------------------------------------------------------
United States 371 373 241
Norway 157 117 114
United Kingdom 39 19 25
Canada 13 1 6
Other areas 67 51 51
- ---------------------------------------------------------------------------------
Total consolidated 647 561 437
Equity affiliates 35 2 --
- ---------------------------------------------------------------------------------
682 563 437
=================================================================================
NATURAL GAS LIQUIDS*
Alaska 24 25 19
Lower 48 8 1 1
- ---------------------------------------------------------------------------------
United States 32 26 20
Norway 6 5 5
United Kingdom 2 2 2
Canada 4 -- 1
Other areas 2 2 1
- ---------------------------------------------------------------------------------
46 35 29
=================================================================================
*Represents amounts extracted attributable to E&P operations (see natural gas
liquids reserves for further discussion). Includes for 2002, 2001 and 2000,
14,000, 15,000 and 12,000 barrels daily in Alaska, respectively, that were sold
from the Prudhoe Bay lease to the Kuparuk lease for reinjection to enhance
crude oil production.
Millions of Cubic Feet Daily
-----------------------------
NATURAL GAS*
Alaska 175 177 158
Lower 48 928 740 770
- ---------------------------------------------------------------------------------
United States 1,103 917 928
Norway 171 130 136
United Kingdom 424 178 214
Canada 165 18 83
Other areas 180 92 33
- ---------------------------------------------------------------------------------
Total consolidated 2,043 1,335 1,394
Equity affiliates 4 -- --
- ---------------------------------------------------------------------------------
2,047 1,335 1,394
=================================================================================
*Represents quantities available for sale. Excludes gas equivalent of natural
gas liquids shown above.
155
2002 2001 2000
-------------------------------
AVERAGE SALES PRICES
CRUDE OIL PER BARREL
Alaska $ 23.75 23.60 28.87
Lower 48 24.48 23.27 28.57
United States 23.83 23.57 28.83
Norway 25.21 24.02 28.27
United Kingdom 25.33 24.52 28.19
Canada 22.87 26.96 28.21
Other areas 25.33 24.30 28.87
Total international 25.14 24.16 28.42
Total consolidated 24.38 23.77 28.65
Equity affiliates 18.41 12.36 --
Worldwide 24.07 23.74 28.65
- ----------------------------------------------------------------------------------------------
NATURAL GAS LIQUIDS PER BARREL
Alaska $ 23.48 23.61 28.97
Lower 48 15.66 22.47 22.97
United States 20.00 23.49 27.94
Norway 16.51 16.55 14.13
United Kingdom 20.61 18.49 20.57
Canada 20.39 18.77 25.49
Other areas 7.23 7.22 7.18
Total international 17.47 14.61 15.14
Worldwide 18.93 19.74 21.20
- ----------------------------------------------------------------------------------------------
NATURAL GAS (LEASE) PER THOUSAND CUBIC FEET
Alaska $ 1.85 1.75 1.40
Lower 48 2.79 3.68 3.56
United States 2.75 3.56 3.47
Norway 3.20 3.53 2.56
United Kingdom 2.92 2.88 2.61
Canada 3.03 3.80 3.26
Other areas 1.90 .50 .50
Total international 2.79 2.60 2.56
Total consolidated 2.77 3.23 3.13
Equity affiliates 2.71 -- --
Worldwide 2.77 3.23 3.13
- ----------------------------------------------------------------------------------------------
AVERAGE PRODUCTION COSTS PER BARREL OF OIL EQUIVALENT
Alaska $ 5.48 5.46 5.35
Lower 48 6.00 5.67 5.15
United States 5.66 5.52 5.27
Norway 2.99 2.36 2.28
United Kingdom 3.29 2.22 1.83
Canada 7.26 4.08 4.59
Other areas 5.26 3.69 4.75
Total international 3.99 2.70 2.85
Total consolidated 4.94 4.60 4.29
Equity affiliates 4.38 2.74 --
Worldwide 4.92 4.60 4.29
- ----------------------------------------------------------------------------------------------
156
2002 2001 2000
-------------------------------
DEPRECIATION, DEPLETION AND AMORTIZATION
PER BARREL OF OIL EQUIVALENT
Alaska $ 3.94 3.70 3.30
Lower 48 4.52 3.51* 3.18
United States 4.14 3.58 3.25
Norway 2.95 2.19 2.04
United Kingdom 6.73 6.38 6.02
Canada 6.46 2.72 8.91
Other areas 2.35 1.96 3.09
Total international 4.11 2.94 3.64
Total consolidated 4.13 3.37 3.41
Equity affiliates 2.30 2.74 --
Worldwide 4.06 3.37 3.41
- ----------------------------------------------------------------------------------------------
*Includes a $12 million charge related to an asset transfer.
- ----------------------------------------------------------------------------------------------
NET WELLS COMPLETED* Productive Dry
---------------------- ----------------------
2002 2001 2000 2002 2001 2000
---------------------- ----------------------
EXPLORATORY
Alaska -- 1 -- 4 1 1
Lower 48 29 63 45 6 3 4
- ----------------------------------------------------------------------------------------------
United States 29 64 45 10 4 5
Norway -- ** ** ** -- --
United Kingdom ** ** 1 2 1 1
Canada 19 -- 3 2 -- 1
Other areas 2 2 6 7 1 6
- ----------------------------------------------------------------------------------------------
Total consolidated 50 66 55 21 6 13
Equity affiliates 3 -- -- 1 -- --
- ----------------------------------------------------------------------------------------------
53 66 55 22 6 13
==============================================================================================
DEVELOPMENT
Alaska 48 47 52 1 2 1
Lower 48 283 333 208 14 11 8
- ----------------------------------------------------------------------------------------------
United States 331 380 260 15 13 9
Norway 4 3 1 -- -- --
United Kingdom 7 1 1 -- -- --
Canada 20 5 8 1 -- 1
Other areas 13 2 6 ** -- --
- ----------------------------------------------------------------------------------------------
Total consolidated 375 391 276 16 13 10
Equity affiliates 49 20 -- 1 -- --
- ----------------------------------------------------------------------------------------------
424 411 276 17 13 10
==============================================================================================
*Includes wildcat and production step-out wells. Excludes farmout
arrangements.
**ConocoPhillips' total proportionate interest was less than one.
157
WELLS AT YEAR-END 2002 Productive**
---------------------------------------
In Progress* Oil Gas
----------------- ----------------- -----------------
Gross Net Gross Net Gross Net
----------------- ----------------- -----------------
Alaska 25 15 1,680 735 24 15
Lower 48 101 61 11,801 2,826 15,534 7,586
- ------------------------------------------------------------------------------------
United States 126 76 13,481 3,561 15,558 7,601
Norway 13 2 519 85 60 7
United Kingdom 14 5 189 37 288 87
Canada 7 5 3,395 2,408 5,359 3,463
Other areas 33 16 943 321 76 31
- ------------------------------------------------------------------------------------
Total consolidated 193 104 18,527 6,412 21,341 11,189
Equity affiliates 4 2 2,095 875 161 63
- ------------------------------------------------------------------------------------
197 106 20,622 7,287 21,502 11,252
====================================================================================
*Includes wells that have been temporarily suspended.
**Includes 3,205 gross and 1,554 net multiple completion wells.
ACREAGE AT DECEMBER 31, 2002
Thousands of Acres
------------------------
Gross Net
------------------------
DEVELOPED
Alaska 878 431
Lower 48 5,219 3,142
- ------------------------------------------------------------------------------------
United States 6,097 3,573
Norway 430 47
United Kingdom 1,496 465
Canada 4,764 2,343
Other areas 5,147 2,128
- ------------------------------------------------------------------------------------
Total consolidated 17,934 8,556
Equity affiliates 490 151
- ------------------------------------------------------------------------------------
18,424 8,707
====================================================================================
UNDEVELOPED
Alaska 2,467 1,422
Lower 48 3,494 2,115
- ------------------------------------------------------------------------------------
United States 5,961 3,537
Norway 5,243 1,309
United Kingdom 3,298 1,379
Canada 13,631 7,716
Other areas* 118,115 78,324
- ------------------------------------------------------------------------------------
Total consolidated 146,248 92,265
Equity affiliates 2,118 943
- ------------------------------------------------------------------------------------
148,366 93,208
====================================================================================
*Includes two Somalia concessions where operations have been suspended by
declarations of force majeure totaling 33,905 thousand gross and net acres.
158
o COSTS INCURRED
Millions of Dollars
----------------------------------------------------------------------------------------------------
Consolidated Operations
-----------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
----------------------------------------------------------------------------------------------------
2002
Acquisition $ 9 3,735 3,744 1,348 3,050 2,562 2,064 12,768 1,671 14,439
Exploration 94 112 206 33 28 58 309 634 1 635
Development 433 409 842 174 232 46 857 2,151 467 2,618
- -----------------------------------------------------------------------------------------------------------------------------------
$ 536 4,256 4,792 1,555 3,310 2,666 3,230 15,553 2,139 17,692
===================================================================================================================================
2001
Acquisition $ 17 37 54 -- -- -- 228 282 -- 282
Exploration 93 57 150 26 18 -- 223 417 -- 417
Development 610 312 922 94 75 3 401 1,495 420 1,915
- -----------------------------------------------------------------------------------------------------------------------------------
$ 720 406 1,126 120 93 3 852 2,194 420 2,614
===================================================================================================================================
2000
Acquisition $5,787 151 5,938 36 -- 33 5 6,012 3 6,015
Exploration 32 66 98 17 36 6 213 370 -- 370
Development 422 218 640 71 50 42 192 995 135 1,130
- -----------------------------------------------------------------------------------------------------------------------------------
$6,241 435 6,676 124 86 81 410 7,377 138 7,515
===================================================================================================================================
o Costs incurred include capitalized and expensed items.
o Acquisition costs include the costs of acquiring proved and unproved oil
and gas properties. The amounts in 2002 relate primarily to the merger.
Acquisition costs included proved properties of $3,420 million, $13
million and $87 million in the Lower 48 for 2002, 2001, and 2000,
respectively. The 2002 amounts in Norway and the U.K. included $1,255
million and $2,464 million for proved properties, respectively. The 2002
and 2000 amounts in Canada included proved properties of $2,003 million
and $33 million, respectively. The 2002 and 2001 amounts in Other Areas
included $1,493 million and $63 million for proved properties. The 2002
amount for Equity Affiliates of $1,671 million is for proved properties.
The 2000 amount in Alaska included $5,125 million for proved properties.
o Exploration costs include geological and geophysical expenses, the cost of
retaining undeveloped leaseholds, and exploratory drilling costs.
o Development costs include the cost of drilling and equipping development
wells and building related production facilities for extracting, treating,
gathering and storing petroleum liquids and natural gas.
159
o CAPITALIZED COSTS
At December 31 Millions of Dollars
----------------------------------------------------------------------------------------------------
Consolidated Operations
-----------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
----------------------------------------------------------------------------------------------------
2002
Proved properties $7,037 7,737 14,774 5,422 4,178 2,023 3,832 30,229 2,847 33,076
Unproved properties 849 489 1,338 142 622 546 1,556 4,204 -- 4,204
- -----------------------------------------------------------------------------------------------------------------------------------
7,886 8,226 16,112 5,564 4,800 2,569 5,388 34,433 2,847 37,280
Accumulated depreciation,
depletion and amortization 1,636 2,891 4,527 2,224 1,033 182 661 8,627 37 8,664
- -----------------------------------------------------------------------------------------------------------------------------------
$6,250 5,335 11,585 3,340 3,767 2,387 4,727 25,806 2,810 28,616
===================================================================================================================================
2001
Proved properties $6,646 4,552 11,198 2,889 1,773 104 1,752 17,716 708 18,424
Unproved properties 772 181 953 40 41 3 768 1,805 -- 1,805
- -----------------------------------------------------------------------------------------------------------------------------------
7,418 4,733 12,151 2,929 1,814 107 2,520 19,521 708 20,229
Accumulated depreciation,
depletion and amortization 1,097 3,238 4,335 1,529 1,161 79 540 7,644 4 7,648
- -----------------------------------------------------------------------------------------------------------------------------------
$6,321 1,495 7,816 1,400 653 28 1,980 11,877 704 12,581
===================================================================================================================================
o Capitalized costs include the cost of equipment and facilities for oil and
gas producing activities. These costs include the activities of
ConocoPhillips' E&P organization, excluding pipeline and marine
operations, the Kenai liquefied natural gas operation, Syncrude
operations, and crude oil and natural gas marketing activities.
o Proved properties include capitalized costs for oil and gas leaseholds
holding proved reserves; development wells and related equipment and
facilities (including uncompleted development well costs); and support
equipment.
o Unproved properties include capitalized costs for oil and gas leaseholds
under exploration (including where petroleum liquids and natural gas were
found but determination of the economic viability of the required
infrastructure is dependent upon further exploratory work under way or
firmly planned) and for uncompleted exploratory well costs, including
exploratory wells under evaluation.
160
o STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVE QUANTITIES
Amounts are computed using year-end prices and costs (adjusted only for existing
contractual changes), appropriate statutory tax rates and a prescribed 10
percent discount factor. Continuation of year-end economic conditions also is
assumed. The calculation is based on estimates of proved reserves, which are
revised over time as new data become available. Probable or possible reserves,
which may become proved in the future, are not considered. The calculation also
requires assumptions as to the timing of future production of proved reserves,
and the timing and amount of future development and production costs.
While due care was taken in its preparation, the company does not represent that
this data is the fair value of the company's oil and gas properties, or a fair
estimate of the present value of cash flows to be obtained from their
development and production.
161
DISCOUNTED FUTURE NET CASH FLOWS
At December 31 Millions of Dollars
----------------------------------------------------------------------------------------------------
Consolidated Operations
-----------------------------------------------------------------------------
Lower Total Other Equity Combined
Alaska 48 U.S Norway U.K. Canada Areas Total Affiliates Total
----------------------------------------------------------------------------------------------------
2002
Future cash inflows $54,497 28,679 83,176 29,571 11,709 8,076 22,654 155,186 32,983 188,169
Less:
Future production and
transportation costs 26,035 7,763 33,798 4,598 3,376 1,885 5,403 49,060 4,992 54,052
Future development costs 2,927 1,168 4,095 1,762 1,227 617 2,249 9,950 1,698 11,648
Future income tax
provisions 7,665 5,349 13,014 16,998 3,077 2,361 6,912 42,362 8,501 50,863
- -----------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 17,870 14,399 32,269 6,213 4,029 3,213 8,090 53,814 17,792 71,606
10 percent annual discount 9,097 7,405 16,502 2,515 1,483 1,422 3,730 25,652 11,585 37,237
- -----------------------------------------------------------------------------------------------------------------------------------
Discounted future net cash
flows $ 8,773 6,994 15,767 3,698 2,546 1,791 4,360* 28,162 6,207 34,369
===================================================================================================================================
2001
Future cash inflows $33,138 9,441 42,579 14,278 2,143 174 6,712 65,886 11,581 77,467
Less:
Future production and
transportation costs 20,541 4,241 24,782 2,117 357 52 1,426 28,734 3,483 32,217
Future development costs 3,071 530 3,601 627 248 9 1,079 5,564 1,282 6,846
Future income tax
provisions 1,797 1,253 3,050 8,762 389 8 2,596 14,805 2,133 16,938
- -----------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 7,729 3,417 11,146 2,772 1,149 105 1,611 16,783 4,683 21,466
10 percent annual discount 3,297 1,821 5,118 1,247 360 44 1,019 7,788 3,687 11,475
- -----------------------------------------------------------------------------------------------------------------------------------
Discounted future net cash
flows $ 4,432 1,596 6,028 1,525 789 61 592** 8,995 996 9,991
===================================================================================================================================
2000
Future cash inflows $39,554 29,027 68,581 16,002 3,012 537 7,792 95,924 14,812 110,736
Less:
Future production and
transportation costs 20,338 3,996 24,334 2,060 426 105 1,379 28,304 2,519 30,823
Future development costs 2,916 479 3,395 679 372 1 1,024 5,471 1,684 7,155
Future income tax
provisions 3,772 8,206 11,978 10,103 592 160 2,316 25,149 2,546 27,695
- -----------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 12,528 16,346 28,874 3,160 1,622 271 3,073 37,000 8,063 45,063
10 percent annual discount 5,660 8,684 14,344 1,429 571 113 1,761 18,218 6,428 24,646
- -----------------------------------------------------------------------------------------------------------------------------------
Discounted future net cash
flows $ 6,868 7,662 14,530 1,731 1,051 158 1,312 18,782 1,635 20,417
===================================================================================================================================
*Includes $139 million attributable to a consolidated subsidiary in which
there is a 10 percent minority interest.
**Includes $17 million attributable to a consolidated subsidiary in which
there is a 13 percent minority interest.
Excludes discounted future net cash flows from Canadian Syncrude of $869
million.
162
SOURCES OF CHANGE IN DISCOUNTED FUTURE NET CASH FLOWS
Millions of Dollars
----------------------------------------------------------------------------------------
Consolidated Operations Equity Affiliates Total
---------------------------- --------------------------- ---------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
---------------------------- --------------------------- ---------------------------
Discounted future net cash flows at
the beginning of the year $ 8,995 18,782 6,205 996 1,635 -- 9,991 20,417 6,205
- ---------------------------------------------------------------------------------------------------------------------------------
Changes during the year
Revenues less production and
transportation costs for the year (5,271) (4,283) (4,592) (177) (6) -- (5,448) (4,289) (4,592)
Net change in prices, and production
and transportation costs 15,566 (14,668) 10,396 2,734 (1,552) -- 18,300 (16,220) 10,396
Extensions, discoveries and improved
recovery, less estimated future
costs 1,284 757 1,817 22 -- 2,402 1,306 757 4,219
Development costs for the year 2,151 1,495 995 467 420 135 2,618 1,915 1,130
Changes in estimated future
development costs (1,790) (1,011) (775) (108) (17) (135) (1,898) (1,028) (910)
Purchases of reserves in place, less
estimated future costs 22,161 130 8,168 4,781 -- -- 26,942 130 8,168
Sales of reserves in place, less
estimated future costs (563) (9) (1,037) (16) -- -- (579) (9) (1,037)
Revisions of previous quantity
estimates* (185) 15 1,750 (712) 38 -- (897) 53 1,750
Accretion of discount 1,540 2,877 1,217 177 260 -- 1,717 3,137 1,217
Net change in income taxes (15,726) 4,909 (5,360) (1,957) 218 (767) (17,683) 5,127 (6,127)
Other -- 1 (2) -- -- -- -- 1 (2)
- ---------------------------------------------------------------------------------------------------------------------------------
Total changes 19,167 (9,787) 12,577 5,211 (639) 1,635 24,378 (10,426) 14,212
- ---------------------------------------------------------------------------------------------------------------------------------
Discounted future net cash flows at
year-end $ 28,162 8,995 18,782 6,207 996 1,635 34,369 9,991 20,417
=================================================================================================================================
*Includes amounts resulting from changes in the timing of production.
o The net change in prices, and production and transportation costs is the
beginning-of-the-year reserve-production forecast multiplied by the net
annual change in the per-unit sales price, and production and
transportation cost, discounted at 10 percent.
o Purchases and sales of reserves in place, along with extensions,
discoveries and improved recovery, are calculated using production
forecasts of the applicable reserve quantities for the year multiplied by
the end-of-the-year sales prices, less future estimated costs, discounted
at 10 percent.
o The accretion of discount is 10 percent of the prior year's discounted
future cash inflows, less future production, transportation and
development costs.
o The net change in income taxes is the annual change in the discounted
future income tax provisions.
163
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA
Millions of Dollars Per Share of Common Stock
------------------------------------------------------- ----------------------------------------------------
Income (Loss)
Before
Extraordinary Income (loss) Before
Income from Items and Extraordinary Items
Continuing Cumulative and Cumulative
Sales and Operations Effect of Effect of Change in
Other Before Change in Net Accounting Principle Net Income (loss)
Operating Income Accounting Income ---------------------- ----------------------
Revenues* Taxes* Principle (Loss) Basic Diluted Basic Diluted
-------------------------------------------------------- ------- ------- ------- -------
2002
First $ 8,431 51 (102) (102) (.27) (.27) (.27) (.27)
Second 10,414 678 366 351 .95 .95 .91 .91
Third 14,557 312 (116) (116) (.24) (.24) (.24) (.24)
Fourth 23,346 1,123 (427) (428) (.63) (.63) (.63) (.63)
- ------------------------------------------------------------------------------------------------------------------------------
2001
First $ 5,160 1,019 488 516 1.91 1.90 2.02 2.01
Second 5,179 1,198 619 619 2.42 2.40 2.42 2.40
Third 5,808 699 374 364 1.35 1.34 1.31 1.30
Fourth 8,745 339 162 162 .42 .42 .42 .42
- ------------------------------------------------------------------------------------------------------------------------------
*Restated to exclude discontinued operations. See Management's Discussion and
Analysis and Note 4--Discontinued Operations in the Notes to Consolidated
Financial Statements for additional information. Sales and other operating
revenues include excise taxes on petroleum products sales.
164
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the merger of ConocoPhillips Holding Company (formerly named
Conoco Inc.) and ConocoPhillips Company (formerly named Phillips Petroleum
Company) with wholly owned subsidiaries of ConocoPhillips, and to simplify the
company's credit structure, the companies have established various cross
guarantees. With the new organizational structure, ConocoPhillips Company is the
direct or indirect parent of former Conoco and Phillips subsidiaries and is
wholly owned by ConocoPhillips Holding Company, which is wholly owned by
ConocoPhillips. ConocoPhillips and ConocoPhillips Holding Company have fully and
unconditionally guaranteed the payment obligations of ConocoPhillips Company
with respect to its publicly held debt securities. Similarly, ConocoPhillips and
ConocoPhillips Company have fully and unconditionally guaranteed the payment
obligations of ConocoPhillips Holding Company with respect to the publicly held
debt securities of ConocoPhillips Holding Company. In addition, ConocoPhillips
Company and ConocoPhillips Holding Company have fully and unconditionally
guaranteed the payment obligations of ConocoPhillips with respect to its
publicly held debt securities. All guarantees are joint and several. The
following condensed consolidating financial statements present the results of
operations, financial position and cash flows for:
o ConocoPhillips, ConocoPhillips Company, ConocoPhillips Holding
Company (in each case, reflecting investments in subsidiaries
utilizing the equity method of accounting);
o All other non-guarantor subsidiaries of ConocoPhillips Holding
Company and ConocoPhillips Company; and
o The consolidating adjustments necessary to present ConocoPhillips'
results on a consolidated basis.
These condensed consolidating financial statements should be read in conjunction
with the company's accompanying consolidated financial statements.
165
Millions of Dollars
----------------------------------------------------------------------------------------
Year Ended December 31, 2002
----------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
STATEMENT OF OPERATIONS ConocoPhillips Company Company Subsidiaries* Adjustments Consolidated
-------------- -------------- -------------- ------------- ----------- ------------
REVENUES
Sales and other operating revenues $ -- -- 16,744 40,004 -- 56,748
Equity in earnings (losses) of
affiliates (646) (682) 352 255 982 261
Other income -- -- (48) 263 -- 215
Intercompany revenues -- 191 2,800 3,123 (6,114) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues (646) (491) 19,848 43,645 (5,132) 57,224
- -----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Purchased crude oil and products -- -- 15,595 27,854 (5,626) 37,823
Production and operating expenses -- 9 1,438 3,573 (32) 4,988
Selling, general and administrative
expenses 3 -- 980 681 (4) 1,660
Exploration expenses -- -- 165 427 -- 592
Depreciation, depletion and amortization -- -- 584 1,639 -- 2,223
Impairments -- -- -- 177 -- 177
Taxes other than income taxes -- -- 785 6,152 -- 6,937
Accretion on discounted liabilities -- -- (1) 23 -- 22
Interest and debt expense 29 120 745 124 (452) 566
Foreign currency transaction losses -- -- 8 16 -- 24
Preferred dividend requirements of
capital trusts and minority
interests -- -- -- 48 -- 48
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 32 129 20,299 40,714 (6,114) 55,060
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes (678) (620) (451) 2,931 982 2,164
Provision for income taxes (11) 26 (202) 1,637 -- 1,450
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations (667) (646) (249) 1,294 982 714
Income (loss) from discontinued
operations -- -- (70) (923) -- (993)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items (667) (646) (319) 371 982 (279)
Extraordinary items -- -- (14) (2) -- (16)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (667) (646) (333) 369 982 (295)
===================================================================================================================================
*At December 31, 2002, Tosco Corporation (Tosco) was a wholly owned subsidiary
of ConocoPhillips Company and included in All Other Subsidiaries. On January
1, 2003, Tosco was merged into ConocoPhillips Company. As a result of this
merger, Tosco ceased to exist as a legal entity and ConocoPhillips Company
assumed all of Tosco's properties, rights and obligations.
166
Millions of Dollars
------------------------------------------------------------------------------------
Year Ended December 31, 2001
------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
STATEMENT OF OPERATIONS ConocoPhillips Company Company Subsidiaries* Adjustments Consolidated
-------------- -------------- -------------- ------------- ----------- ------------
REVENUES
Sales and other operating revenues $ - - 12,457 12,435 - 24,892
Equity in earnings (losses) of affiliates - - 1,583 222 (1,764) 41
Other income - - (1) 112 - 111
Intercompany revenues - - 1,308 1,985 (3,293) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues - - 15,347 14,754 (5,057) 25,044
- -----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Purchased crude oil and products - - 9,015 7,290 (2,597) 13,708
Production and operating expenses - - 1,166 1,746 (269) 2,643
Selling, general and administrative expenses - - 540 90 (17) 613
Exploration expenses - - 139 222 (55) 306
Depreciation, depletion and amortization - - 379 965 - 1,344
Impairments - - - 26 - 26
Taxes other than income taxes - - 1,874 866 - 2,740
Accretion on discounted liabilities - - 2 5 - 7
Interest and debt expense - - 551 142 (355) 338
Foreign currency transaction losses (gains) - - (1) 12 - 11
Preferred dividend requirements of capital
trusts and minority interests - - - 53 - 53
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses - - 13,665 11,417 (3,293) 21,789
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes - - 1,682 3,337 (1,764) 3,255
Provision for income taxes - - 50 1,594 - 1,644
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations - - 1,632 1,743 (1,764) 1,611
Income from discontinued operations - - 11 21 - 32
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items and
cumulative effect of change in accounting
principle - - 1,643 1,764 (1,764) 1,643
Extraordinary items - - (10) - - (10)
Cumulative effect of change in accounting
principle - - 28 - - 28
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ - - 1,661 1,764 (1,764) 1,661
====================================================================================================================================
*At December 31, 2002, Tosco Corporation (Tosco) was a wholly owned subsidiary
of ConocoPhillips Company and included in All Other Subsidiaries. On January
1, 2003, Tosco was merged into ConocoPhillips Company. As a result of this
merger, Tosco ceased to exist as a legal entity and ConocoPhillips Company
assumed all of Tosco's properties, rights and obligations.
167
Millions of Dollars
---------------------------------------------------------------------------------------
Year Ended December 31, 2000
---------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
STATEMENT OF OPERATIONS ConocoPhillips Company Company Subsidiaries Adjustments Consolidated
-------------- -------------- -------------- ------------ ----------- ------------
REVENUES
Sales and other operating revenues $ - - 15,252 6,903 - 22,155
Equity in earnings (losses) of affiliates - - 1,471 218 (1,575) 114
Other income - - 292 (22) - 270
Intercompany revenues - - 1,663 2,319 (3,982) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues - - 18,678 9,418 (5,557) 22,539
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Purchased crude oil and products - - 11,924 3,173 (3,303) 11,794
Production and operating expenses - - 1,244 1,160 (268) 2,136
Selling, general and administrative expenses - - 563 42 (34) 571
Exploration expenses - - 112 208 (22) 298
Depreciation, depletion and amortization - - 391 778 - 1,169
Impairments - - 13 87 - 100
Taxes other than income taxes - - 1,939 303 - 2,242
Interest and debt expense - - 575 149 (355) 369
Foreign currency transaction losses - - - 58 - 58
Preferred dividend requirements of capital
trusts and minority interests - - - 54 - 54
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses - - 16,761 6,012 (3,982) 18,791
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes - - 1,917 3,406 (1,575) 3,748
Provision for income taxes - - 70 1,830 - 1,900
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations - - 1,847 1,576 (1,575) 1,848
Income (loss) from discontinued operations - - 15 (1) - 14
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ - - 1,862 1,575 (1,575) 1,862
====================================================================================================================================
168
Millions of Dollars
--------------------------------------------------------------------------------------
At December 31, 2002
--------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
BALANCE SHEET ConocoPhillips Company Company Subsidiaries* Adjustments Consolidated
-------------- -------------- -------------- ------------- ----------- ------------
ASSETS
Cash and cash equivalents $ -- -- 113 194 -- 307
Accounts and notes receivable 8 -- 15,655 13,921 (25,204) 4,380
Inventories -- -- 1,321 2,524 -- 3,845
Prepaid expenses and other current assets 5 -- 153 543 65 766
Assets of discontinued operations held
for sale -- -- 263 1,342 -- 1,605
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 13 -- 17,505 18,524 (25,139) 10,903
Investments and long-term receivables 32,301 35,538 44,011 23,124 (128,153) 6,821
Net properties, plants and equipment -- -- 8,893 34,137 -- 43,030
Goodwill** -- -- -- 14,444 -- 14,444
Intangibles -- -- 6 1,113 -- 1,119
Other assets 14 19 110 376 -- 519
- -----------------------------------------------------------------------------------------------------------------------------------
Total 32,328 35,557 70,525 91,718 (153,292) 76,836
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 5,840 3,291 14,071 8,254 (25,204) 6,252
Notes payable and long-term debt due
within one year -- 526 164 159 -- 849
Accrued income and other taxes (1) 53 255 1,684 -- 1,991
Other accruals 21 58 1,242 1,754 -- 3,075
Liabilities of discontinued operations
held for sale -- -- 126 523 -- 649
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 5,860 3,928 15,858 12,374 (25,204) 12,816
Long-term debt 3,509 4,054 5,553 5,801 -- 18,917
Accrued dismantlement, removal and
environmental costs -- -- 247 1,419 -- 1,666
Deferred income taxes -- (41) 766 7,644 (8) 8,361
Employee benefit obligations -- -- 1,213 1,542 -- 2,755
Other liabilities and deferred credits -- 3,729 34,081 32,100 (68,107) 1,803
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 9,369 11,670 57,718 60,880 (93,319) 46,318
Trust Preferred Securities and other
minority interests -- (12) -- 1,013 -- 1,001
Retained earnings (937) (1,349) 7,331 8,792 (8,216) 5,621
Other stockholders' equity 23,896 25,248 5,476 21,033 (51,757) 23,896
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 32,328 35,557 70,525 91,718 (153,292) 76,836
===================================================================================================================================
*At December 31, 2002, Tosco Corporation (Tosco) was a wholly owned subsidiary
of ConocoPhillips Company and included in All Other Subsidiaries. On January
1, 2003, Tosco was merged into ConocoPhillips Company. As a result of this
merger, Tosco ceased to exist as a legal entity and ConocoPhillips Company
assumed all of Tosco's properties, rights and obligations.
**ConocoPhillips has not yet determined the assignment of Conoco goodwill to
specific reporting units and related subsidiaries. Currently, Conoco goodwill
is reported as part of the Corporate and Other reporting segment in All Other
Subsidiaries.
169
Millions of Dollars
----------------------------------------------------------------------------------------
At December 31, 2001
----------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
BALANCE SHEET ConocoPhillips Company Company Subsidiaries* Adjustments Consolidated
-------------- -------------- -------------- ------------- ----------- ------------
ASSETS
Cash and cash equivalents $ -- -- 19 123 -- 142
Accounts and notes receivable -- -- 1,535 2,232 (2,538) 1,229
Inventories -- -- 307 2,145 -- 2,452
Prepaid expenses and other current assets -- -- 93 200 -- 293
Assets of discontinued operations
held for sale -- -- 184 2,198 -- 2,382
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets -- -- 2,138 6,898 (2,538) 6,498
Investments and long-term receivables -- -- 25,381 10,148 (32,220) 3,309
Net properties, plants and equipment -- -- 3,879 18,254 -- 22,133
Goodwill -- -- -- 2,281 -- 2,281
Intangibles -- -- 59 802 -- 861
Other assets -- -- 68 67 -- 135
- -----------------------------------------------------------------------------------------------------------------------------------
Total -- -- 31,525 38,450 (34,758) 35,217
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable -- -- 1,939 3,190 (2,507) 2,622
Notes payable and long-term debt due
within one year -- -- 4 40 -- 44
Accrued income and other taxes -- -- (31) 928 -- 897
Other accruals -- -- 238 482 -- 720
Liabilities of discontinued operations
held for sale -- -- 34 504 -- 538
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities -- -- 2,184 5,144 (2,507) 4,821
Long-term debt -- -- 7,282 1,328 -- 8,610
Accrued dismantlement, removal and
environmental costs -- -- 356 703 -- 1,059
Deferred income taxes -- -- 467 3,556 (8) 4,015
Employee benefit obligations -- -- 725 223 -- 948
Other liabilities and deferred credits -- -- 6,175 3,072 (8,478) 769
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities -- -- 17,189 14,026 (10,993) 20,222
Trust Preferred Securities and other
minority interests -- -- -- 655 -- 655
Retained earnings -- -- 7,197 23,889 (23,889) 7,197
Other stockholders' equity -- -- 7,139 (120) 124 7,143
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ -- -- 31,525 38,450 (34,758) 35,217
===================================================================================================================================
*At December 31, 2002, Tosco Corporation (Tosco) was a wholly owned subsidiary
of ConocoPhillips Company and included in All Other Subsidiaries. On January
1, 2003, Tosco was merged into ConocoPhillips Company. As a result of this
merger, Tosco ceased to exist as a legal entity and ConocoPhillips Company
assumed all of Tosco's properties, rights and obligations.
170
Millions of Dollars
----------------------------------------------------------------------------------------
Year Ended December 31, 2002
----------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
STATEMENT OF CASH FLOWS ConocoPhillips Company Company Subsidiaries* Adjustments Consolidated
-------------- -------------- -------------- ------------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
continuing operations $ 1,120 2,859 1,060 1,887 (2,159) 4,767
Net cash provided by (used in)
discontinued operations -- -- (7) 209 -- 202
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities 1,120 2,859 1,053 2,096 (2,159) 4,969
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired -- -- (81) 1,261 -- 1,180
Capital expenditures and investments,
including dry holes -- (346) (618) (3,897) 473 (4,388)
Proceeds from asset dispositions -- -- (179) 794 200 815
Long-term advances to affiliates and
other investments (4,344) (1,200) (12,154) (2,030) 19,636 (92)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations (4,344) (1,546) (13,032) (3,872) 20,309 (2,485)
Net cash used in discontinued operations -- -- (6) (93) -- (99)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (4,344) (1,546) (13,038) (3,965) 20,309 (2,584)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt 3,502 3,012 15,350 1,274 (19,636) 3,502
Repayment of debt -- (3,006) (1,680) (215) 309 (4,592)
Redemption of preferred stock of
subsidiaries -- -- -- (300) -- (300)
Issuance of company common stock 7 -- 37 -- -- 44
Dividends paid on common stock (271) (1,200) (1,621) 1,231 1,177 (684)
Other (14) (119) (7) (50) -- (190)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities 3,224 (1,313) 12,079 1,940 (18,150) (2,220)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- -- 94 71 -- 165
Cash and cash equivalents at beginning
of year -- -- 19 123 -- 142
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of
Year $ -- -- 113 194 -- 307
===================================================================================================================================
*At December 31, 2002, Tosco Corporation (Tosco) was a wholly owned subsidiary
of ConocoPhillips Company and included in All Other Subsidiaries. On January
1, 2003, Tosco was merged into ConocoPhillips Company. As a result of this
merger, Tosco ceased to exist as a legal entity and ConocoPhillips Company
assumed all of Tosco's properties, rights and obligations.
171
Millions of Dollars
----------------------------------------------------------------------------------------
Year Ended December 31, 2001
----------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
STATEMENT OF CASH FLOWS ConocoPhillips Company Company Subsidiaries* Adjustments Consolidated
-------------- -------------- -------------- ------------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
continuing operations $ -- -- 2,302 1,628 (401) 3,529
Net cash provided by discontinued
operations -- -- 25 8 -- 33
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities -- -- 2,327 1,636 (401) 3,562
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired -- -- (23) 103 -- 80
Capital expenditures and investments,
including dry holes -- -- (814) (2,343) 141 (3,016)
Proceeds from asset dispositions -- -- 17 245 -- 262
Long-term advances to affiliates and
other investments -- -- (670) 446 196 (28)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations -- -- (1,490) (1,549) 337 (2,702)
Net cash used in discontinued operations -- -- (8) (60) -- (68)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities -- -- (1,498) (1,609) 337 (2,770)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt -- -- 566 643 (643) 566
Repayment of debt -- -- (1,050) (342) 447 (945)
Issuance of company common stock -- -- 51 -- -- 51
Dividends paid on common stock -- -- (403) (259) 259 (403)
Other -- -- (13) (56) 1 (68)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities -- -- (849) (14) 64 (799)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- -- (20) 13 -- (7)
Cash and cash equivalents at beginning
of year -- -- 39 110 -- 149
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of
Year $ -- -- 19 123 -- 142
===================================================================================================================================
*At December 31, 2002, Tosco Corporation (Tosco) was a wholly owned subsidiary
of ConocoPhillips Company and included in All Other Subsidiaries. On January
1, 2003, Tosco was merged into ConocoPhillips Company. As a result of this
merger, Tosco ceased to exist as a legal entity and ConocoPhillips Company
assumed all of Tosco's properties, rights and obligations.
172
Millions of Dollars
---------------------------------------------------------------------------------------
Year Ended December 31, 2000
---------------------------------------------------------------------------------------
ConocoPhillips Consoli-
Holding ConocoPhillips All Other dating Total
STATEMENT OF CASH FLOWS ConocoPhillips Company Company Subsidiaries Adjustments Consolidated
-------------- -------------- -------------- ------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
continuing operations $ - - 1,684 3,893 (1,593) 3,984
Net cash provided by discontinued
operations - - 30 - - 30
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities - - 1,714 3,893 (1,593) 4,014
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired - - (6,443) - - (6,443)
Capital expenditures and investments,
including dry holes - - (1,342) (1,825) 1,150 (2,017)
Proceeds from contributing assets to
joint ventures - - 841 1,220 - 2,061
Proceeds from asset dispositions - - 313 854 (317) 850
Long-term advances to affiliates and
other investments - - (349) (3,251) 3,392 (208)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations - - (6,980) (3,002) 4,225 (5,757)
Net cash used in discontinued operations - - (5) - - (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities - - (6,985) (3,002) 4,225 (5,762)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt - - 5,675 269 (3,392) 2,552
Repayment of debt - - (39) (321) - (360)
Issuance of company common stock - - 31 - - 31
Dividends paid on common stock - - (346) (761) 761 (346)
Other - - (53) (64) (1) (118)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities - - 5,268 (877) (2,632) 1,759
- ----------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS - - (3) 14 - 11
Cash and cash equivalents at beginning
of year - - 42 96 - 138
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of
Year $ - - 39 110 - 149
==================================================================================================================================
173
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
174
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information presented under the headings "Election of Directors and Director
Biographies" and "Stock Ownership--Section 16(a) Beneficial Ownership Reporting
Compliance" in the company's definitive proxy statement for the Annual Meeting
of Stockholders on May 6, 2003 (2003 Proxy Statement), is incorporated herein by
reference.* Information regarding the executive officers appears in Part I of
this report on pages 32 and 33.
ITEM 11. EXECUTIVE COMPENSATION
Information presented under the following headings in the 2003 Proxy Statement
is incorporated herein by reference:
"Board of Directors Information--How are Directors Compensated?"
"Executive Compensation--Compensation Tables"
"Executive Compensation--Employment Agreements"
"Executive Compensation--Severance Arrangements"
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information presented under the headings "Stock Ownership--Holdings of Major
Stockholders," "--Holdings of Officers and Directors" and "Executive
Compensation--Compensation Tables--Equity Compensation Plan Information" in the
2003 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- ----------
*Except for information or data specifically incorporated herein by
reference under Items 10 through 13, other information and data appearing
in the 2003 Proxy Statement are not deemed to be a part of this Annual
Report on Form 10-K or deemed to be filed with the Commission as a part of
this report.
175
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this annual report, ConocoPhillips
carried out an evaluation, under the supervision, and with the participation of,
the company's Management, including the company's President and Chief Executive
Officer, and its Executive Vice President Finance and Chief Financial Officer,
of the effectiveness of ConocoPhillips' disclosure controls and procedures
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.
Based upon that evaluation, the company's President and Chief Executive Officer
and its Executive Vice President Finance and Chief Financial Officer concluded
that ConocoPhillips' disclosure controls and procedures are effective, in all
material respects, with respect to the recording, processing, summarizing and
reporting, within the time periods specified in the Securities and Exchange
Commission's rules and forms, of information required to be disclosed by the
issuer in the reports that it files or submits under the Exchange Act.
There were no significant changes in ConocoPhillips' internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of the evaluation referred to above.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Financial Statement Schedules
------------------------------------------------------
The financial statements and schedule listed in the Index to Financial
Statements and Financial Statement Schedules, which appears on page 82
are filed as part of this annual report.
2. Exhibits
--------
The exhibits listed in the Index to Exhibits, which appears on pages
178 through 181, are filed as a part of this annual report.
(b) Reports on Form 8-K
-------------------
During the three months ended December 31, 2002, the company filed the
following Current Reports on Form 8-K:
o Amendment No. 1, filed October 1, 2002, to the Current Report on
Form 8-K filed August 30, 2002, providing audited financial
statements and pro forma financial information related to the
merger of Conoco and Phillips.
o Filed on October 8, 2002, to report in Item 5 the private placement
of $2 billion of various types of Notes and to report the company's
third-quarter 2002 interim update of market and operating
conditions.
o Filed on December 20, 2002, to report in Item 5 that the company was
restating its audited financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 2001, to reflect
discontinued operations and a segment realignment.
176
CONOCOPHILLIPS
(CONSOLIDATED)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Millions of Dollars
-----------------------------------------------------------------------------------
Additions
---------------------------
Balance At Charged to Balance At
Description January 1 Expense Other Deductions December 31
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b)
2002
Deducted from asset accounts:
Allowance for doubtful accounts and notes
receivable $ 33 21 13 19(c) 48
Deferred tax asset valuation allowance 263 102 251(f) 8 608
Included in other liabilities:
Employee termination benefits -- 301 297(f) 223(g) 375
- ------------------------------------------------------------------------------------------------------------------------------------
2001
Deducted from asset accounts:
Allowance for doubtful accounts and notes
receivable $ 18 13 18 16(c) 33
Deferred tax asset valuation allowance 315 14 (47) 19 263
Included in other liabilities:
Reserve for maintenance turnarounds 47 -- -- 47(e) --
- ------------------------------------------------------------------------------------------------------------------------------------
2000
Deducted from asset accounts:
Allowance for doubtful accounts and notes
receivable $ 19 8 -- 9*(c) 18
Deferred tax asset valuation allowance 328 (11) (2) -- 315
Included in other liabilities:
Reserve for maintenance turnarounds 88 52 -- 93(d) 47
- ------------------------------------------------------------------------------------------------------------------------------------
*Includes $2 million transferred to joint-venture companies.
(a) Amounts charged to income less reversal of amounts previously charged to
income.
(b) Represents acquisitions/dispositions and the effect of translating foreign
financial statements.
(c) Amounts charged off less recoveries of amounts previously charged off.
(d) Includes $24 million transferred to an equity-affiliate company on July 1,
2000.
(e) Effective January 1, 2001, ConocoPhillips changed its method of accounting
for the costs of major maintenance turnarounds from the accrue-in-advance
method to the expense-as-incurred method.
(f) Included in the merger purchase price allocation.
(g) Benefit payments.
177
CONOCOPHILLIPS
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2 Agreement and Plan of Merger, dated as of November 18, 2001, by and
among ConocoPhillips Company (formerly named Phillips Petroleum
Company) ("CPCo"), ConocoPhillips (formerly named CorvettePorsche
Corp.), P Merger Corp. (formerly named Porsche Merger Corp.), C Merger
Corp. (formerly named Corvette Merger Corp.) and ConocoPhillips
Holding Company (formerly named Conoco Inc.) ("Holding") (incorporated
by reference to Annex A to the Joint Proxy Statement/Prospectus
included in ConocoPhillips' Registration Statement on Form S-4;
Registration No. 333-74798 (the "Form S-4")).
3.1 Restated Certificate of Incorporation of ConocoPhillips (incorporated
by reference to Exhibit 3.1 to the Current Report of ConocoPhillips on
Form 8-K filed on August 30, 2002; File No. 000-49987 (the "Form
8-K")).
3.2 Certificate of Designations of Series A Junior Participating Preferred
Stock of ConocoPhillips (incorporated by reference to Exhibit 3.2 to
the Form 8-K).
3.3 By-Laws of ConocoPhillips (incorporated by reference to Exhibit 3.3 to
the Form 8-K).
4.1 Rights agreement, dated as of June 30, 2002, between ConocoPhillips
and Mellon Investor Services LLC, as rights agent, which includes as
Exhibit A the form of Certificate of Designations of Series A Junior
Participating Preferred Stock, as Exhibit B the form of Rights
Certificate and as Exhibit C the Summary of Rights to Purchase
Preferred Stock (incorporated by reference to Exhibit 4.1 to the Form
8-K).
ConocoPhillips and its subsidiaries are parties to several debt
instruments under which the total amount of securities authorized does
not exceed 10% of the total assets of ConocoPhillips and its
subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A)
of Item 601(b) of Regulation S-K, ConocoPhillips agrees to furnish a
copy of such instruments to the SEC upon request.
MATERIAL CONTRACTS
10.1 Trust Agreement dated June 23, 1995, between CPCo and WestStar Bank,
as Trustee of the Deferred Compensation Plan for Non-Employee
Directors of Phillips Petroleum Company Trust.
10.2 Trust Agreement dated December 12, 1995, between CPCo and Vanguard
Fiduciary Trust Company, as Trustee of the Phillips Petroleum Company
Compensation and Benefits Arrangements Stock Trust (incorporated by
reference to Exhibit 10(c) to the Annual Report of CPCo on Form 10-K
for the year ended December 31, 1995; File No. 1-720).
10.3 Contribution Agreement, dated as of December 16, 1999, by and among
CPCo, Duke Energy Corporation and Duke Energy Field Services, LLC
(incorporated by reference to Exhibit 99.1 to the Current Report of
CPCo on Form 8-K, filed December 22, 1999; File No. 1-720).
178
Exhibit
Number Description
- ------ -----------
10.4 Governance Agreement, dated as of December 16, 1999, by and among
CPCo, Duke Energy Corporation and Duke Energy Field Services, LLC
(incorporated by reference to Exhibit 99.2 to the Current Report of
CPCo on Form 8-K, filed December 22, 1999; File No. 1-720).
10.5 Amended and Restated Limited Liability Company Agreement of Duke
Energy Field Services, LLC, dated as of March 31, 2000, by and between
Phillips Gas Company and Duke Energy Field Services Corporation
(incorporated by reference to Exhibit 99.1 to the Current Report of
CPCo on Form 8-K, filed April 13, 2000; File No. 1-720).
10.6 Parent Company Agreement, dated as of March 31, 2000, by and among
CPCo, Duke Energy Corporation, Duke Energy Field Services, LLC, and
Duke Energy Field Services Corporation (incorporated by reference to
Exhibit 99.2 to the Current Report of CPCo on Form 8-K, filed April
13, 2000; File No. 1-720).
10.7 Contribution Agreement, dated as of May 23, 2000, by and among CPCo,
Chevron Corporation and Chevron Phillips Chemical Company LLC
(incorporated by reference to Exhibit 2.1 to the Current Report of
CPCo on Form 8-K, filed June 1, 2000; File No. 1-720).
10.8 Amended and Restated Limited Liability Company Agreement of Chevron
Phillips Chemical Company LLC, dated as of July 1, 2000, by and
between CPCo, Chevron Corporation, Chevron U.S.A. Inc., Chevron
Overseas Petroleum Inc., Chevron Pipe Line Company, Drilling
Specialties Co., WesTTex 66 Pipeline Co., and Phillips Petroleum
International Corporation (incorporated by reference to Exhibit 99.1
to the Current Report of CPCo on Form 8-K filed July 14, 2000; File
No. 1-720).
10.9 Master Purchase and Sale Agreement dated as of March 15, 2000, as
amended as of April 6, 2000, among Atlantic Richfield Company,
CH-Twenty, Inc., BP Amoco p.l.c. and CPCo (incorporated by reference
to Exhibit 2 to the Current Report of CPCo on Form 8-K, filed April
18, 2000; File No. 1-720).
10.10 Trust Agreement dated June 1, 1998, between CPCo and Wachovia Bank,
N.A., as Trustee of the Phillips Petroleum Company Grantor Trust.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS OR ARRANGEMENTS
10.11 1986 Stock Plan of Phillips Petroleum Company.
10.12 1990 Stock Plan of Phillips Petroleum Company.
10.13 Annual Incentive Compensation Plan of Phillips Petroleum Company.
10.14 Incentive Compensation Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(g) to the Annual Report of
CPCo on Form 10-K for the year ended December 31, 1999; File No.
1-720).
179
Exhibit
Number Description
- ------ -----------
10.15 Principal Corporate Officers Supplemental Retirement Plan of Phillips
Petroleum Company (incorporated by reference to Exhibit 10(h) to the
Annual Report of CPCo on Form 10-K for the year ended December 31,
1995; File No. 1-720)
10.16 Phillips Petroleum Company Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10(n) to the Annual Report of
CPCo on Form 10-K for the year ended December 31, 2000; File No.
1-720).
10.17 Key Employee Deferred Compensation Plan of Phillips Petroleum Company.
10.18 Non-Employee Director Retirement Plan of Phillips Petroleum Company.
10.19 Omnibus Securities Plan of Phillips Petroleum Company.
10.20 Deferred Compensation Plan for Non-Employee Directors of Phillips
Petroleum Company.
10.21 Key Employee Missed Credited Service Retirement Plan of Phillips
Petroleum Company (incorporated by reference to Exhibit 10(s) to the
Annual Report of CPCo on Form 10-K for the year ended December 31,
2000; File No. 1-720).
10.22 Phillips Petroleum Company Stock Plan for Non-Employee Directors.
10.23 Key Employee Supplemental Retirement Plan of Phillips Petroleum
Company.
10.24 Defined Contribution Makeup Plan of ConocoPhillips.
10.25 Phillips Petroleum Company Executive Severance Plan (incorporated by
reference to Exhibit 10(a) to the Quarterly Report of CPCo on Form
10-Q for the quarter ended June 30, 1999; File No. 1-720).
10.26 2002 Omnibus Securities Plan of Phillips Petroleum Company.
10.27 1998 Stock and Performance Incentive Plan of ConocoPhillips.
10.28 1998 Key Employee Stock Performance Plan of ConocoPhillips.
10.29 Deferred Compensation Plan for Non-Employee Directors of
ConocoPhillips.
10.30 Conoco Inc. Key Employee Severance Plan (incorporated by reference to
Exhibit 10.6 to the Annual Report of Holding on Form 10-K for the year
ended December 31, 2001; File No. 1-14521).
10.31 Conoco Inc. Salary Deferral and Savings Restoration Plan.
10.32 Conoco Inc. Directors' Charitable Gift Plan.
10.33 Phillips Petroleum Company Director Charitable Contribution Plan.
180
Exhibit
Number Description
- ------ -----------
10.34 ConocoPhillips Form Indemnity Agreement with Directors.
10.35 Employment Agreement, dated as of November 18, 2001, by and among
ConocoPhillips, CPCo and J. J. Mulva (incorporated by reference to
Exhibit 10.1 to the Form S-4).
10.36 Employment Agreement, dated as of November 18, 2001, by and among
ConocoPhillips, Holding and Archie W. Dunham (incorporated by
reference to Exhibit 10.2 to the Form S-4).
10.36.1 Letter Agreement, dated as of July 22, 2002, by and among Holding and
Archie W. Dunham.
10.37 Letter Agreement, dated as of April 12, 2002, between Holding and
Robert E. McKee III (incorporated by reference to Exhibit 10.1 to the
Quarterly Report of ConocoPhillips on Form 10-Q for the quarterly
period ended September 30, 2002; File No. 000-49987 (the "Form
10-Q")).
10.38 Letter Agreement, dated as of April 12, 2002, between Holding and Jim
W. Nokes (incorporated by reference to Exhibit 10.2 to the Form 10-Q).
10.39 Rabbi Trust Agreement dated December 17, 1999 (incorporated by
reference to Exhibit 10.11 of Holding's Form 10-K for the year ended
December 31, 1999, File No. 001-14521).
10.39.1 Amendment to Rabbi Trust Agreement dated February 25, 2002.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Principal Subsidiaries of ConocoPhillips.
23 Consent of Independent Auditors.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.3 Unaudited Pro Forma Combined Statement of Operations for the Year
Ended December 31, 2002.
181
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.
CONOCOPHILLIPS
March 24, 2003 /s/ J. J. Mulva
-------------------------------------
J. J. Mulva
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on behalf of the registrant by the following officers in the
capacity indicated and by a majority of directors in response to Instruction D
to Form 10-K on March 24, 2003.
SIGNATURE TITLE
/s/ Archie W. Dunham Chairman of the Board of Directors
- --------------------------------
Archie W. Dunham
/s/ J. J. Mulva President and Chief Executive Officer
- -------------------------------- (Principal executive officer)
J. J. Mulva
/s/ John A. Carrig Executive Vice President, Finance,
- -------------------------------- and Chief Financial Officer
John A. Carrig (Principal financial officer)
/s/ Rand C. Berney Vice President and Controller
- -------------------------------- (Principal accounting officer)
Rand C. Berney
182
/s/ Kenneth M. Duberstein Director and Member of
- -------------------------------- Audit and Compliance Committee
Kenneth M. Duberstein
/s/ Ruth R. Harkin Director and Member of
- -------------------------------- Audit and Compliance Committee
Ruth R. Harkin
/s/ Larry D. Horner Director and Member of
- -------------------------------- Audit and Compliance Committee
Larry D. Horner
/s/ Frank A. McPherson Director and Chairperson of
- -------------------------------- Audit and Compliance Committee
Frank A. McPherson
/s/ J. Stapleton Roy Director and Member of
- -------------------------------- Audit and Compliance Committee
J. Stapleton Roy
/s/ Victoria J. Tschinkel Director and Chairperson of
- -------------------------------- Public Policy Committee
Victoria J. Tschinkel
/s/ Kathryn C. Turner Director and Member of
- -------------------------------- Audit and Compliance Committee
Kathryn C. Turner
183
CERTIFICATIONS
I, J.J. Mulva, certify that:
1. I have reviewed this annual report on Form 10-K of ConocoPhillips;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003
/s/ J. J. Mulva
--------------------------------------
J. J. Mulva
President and Chief Executive Officer
184
I, John A. Carrig, certify that:
1. I have reviewed this annual report on Form 10-K of ConocoPhillips;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003
/s/ John A. Carrig
---------------------------------------------
John A. Carrig
Executive Vice President, Finance, and Chief
Financial Officer
185
CONOCOPHILLIPS
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2 Agreement and Plan of Merger, dated as of November 18, 2001, by and
among ConocoPhillips Company (formerly named Phillips Petroleum
Company) ("CPCo"), ConocoPhillips (formerly named CorvettePorsche
Corp.), P Merger Corp. (formerly named Porsche Merger Corp.), C Merger
Corp. (formerly named Corvette Merger Corp.) and ConocoPhillips
Holding Company (formerly named Conoco Inc.) ("Holding") (incorporated
by reference to Annex A to the Joint Proxy Statement/Prospectus
included in ConocoPhillips' Registration Statement on Form S-4;
Registration No. 333-74798 (the "Form S-4")).
3.1 Restated Certificate of Incorporation of ConocoPhillips (incorporated
by reference to Exhibit 3.1 to the Current Report of ConocoPhillips on
Form 8-K filed on August 30, 2002; File No. 000-49987 (the "Form
8-K")).
3.2 Certificate of Designations of Series A Junior Participating Preferred
Stock of ConocoPhillips (incorporated by reference to Exhibit 3.2 to
the Form 8-K).
3.3 By-Laws of ConocoPhillips (incorporated by reference to Exhibit 3.3 to
the Form 8-K).
4.1 Rights agreement, dated as of June 30, 2002, between ConocoPhillips
and Mellon Investor Services LLC, as rights agent, which includes as
Exhibit A the form of Certificate of Designations of Series A Junior
Participating Preferred Stock, as Exhibit B the form of Rights
Certificate and as Exhibit C the Summary of Rights to Purchase
Preferred Stock (incorporated by reference to Exhibit 4.1 to the Form
8-K).
ConocoPhillips and its subsidiaries are parties to several debt
instruments under which the total amount of securities authorized does
not exceed 10% of the total assets of ConocoPhillips and its
subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A)
of Item 601(b) of Regulation S-K, ConocoPhillips agrees to furnish a
copy of such instruments to the SEC upon request.
MATERIAL CONTRACTS
10.1 Trust Agreement dated June 23, 1995, between CPCo and WestStar Bank,
as Trustee of the Deferred Compensation Plan for Non-Employee
Directors of Phillips Petroleum Company Trust.
10.2 Trust Agreement dated December 12, 1995, between CPCo and Vanguard
Fiduciary Trust Company, as Trustee of the Phillips Petroleum Company
Compensation and Benefits Arrangements Stock Trust (incorporated by
reference to Exhibit 10(c) to the Annual Report of CPCo on Form 10-K
for the year ended December 31, 1995; File No. 1-720).
10.3 Contribution Agreement, dated as of December 16, 1999, by and among
CPCo, Duke Energy Corporation and Duke Energy Field Services, LLC
(incorporated by reference to Exhibit 99.1 to the Current Report of
CPCo on Form 8-K, filed December 22, 1999; File No. 1-720).
Exhibit
Number Description
- ------ -----------
10.4 Governance Agreement, dated as of December 16, 1999, by and among
CPCo, Duke Energy Corporation and Duke Energy Field Services, LLC
(incorporated by reference to Exhibit 99.2 to the Current Report of
CPCo on Form 8-K, filed December 22, 1999; File No. 1-720).
10.5 Amended and Restated Limited Liability Company Agreement of Duke
Energy Field Services, LLC, dated as of March 31, 2000, by and between
Phillips Gas Company and Duke Energy Field Services Corporation
(incorporated by reference to Exhibit 99.1 to the Current Report of
CPCo on Form 8-K, filed April 13, 2000; File No. 1-720).
10.6 Parent Company Agreement, dated as of March 31, 2000, by and among
CPCo, Duke Energy Corporation, Duke Energy Field Services, LLC, and
Duke Energy Field Services Corporation (incorporated by reference to
Exhibit 99.2 to the Current Report of CPCo on Form 8-K, filed April
13, 2000; File No. 1-720).
10.7 Contribution Agreement, dated as of May 23, 2000, by and among CPCo,
Chevron Corporation and Chevron Phillips Chemical Company LLC
(incorporated by reference to Exhibit 2.1 to the Current Report of
CPCo on Form 8-K, filed June 1, 2000; File No. 1-720).
10.8 Amended and Restated Limited Liability Company Agreement of Chevron
Phillips Chemical Company LLC, dated as of July 1, 2000, by and
between CPCo, Chevron Corporation, Chevron U.S.A. Inc., Chevron
Overseas Petroleum Inc., Chevron Pipe Line Company, Drilling
Specialties Co., WesTTex 66 Pipeline Co., and Phillips Petroleum
International Corporation (incorporated by reference to Exhibit 99.1
to the Current Report of CPCo on Form 8-K filed July 14, 2000; File
No. 1-720).
10.9 Master Purchase and Sale Agreement dated as of March 15, 2000, as
amended as of April 6, 2000, among Atlantic Richfield Company,
CH-Twenty, Inc., BP Amoco p.l.c. and CPCo (incorporated by reference
to Exhibit 2 to the Current Report of CPCo on Form 8-K, filed April
18, 2000; File No. 1-720).
10.10 Trust Agreement dated June 1, 1998, between CPCo and Wachovia Bank,
N.A., as Trustee of the Phillips Petroleum Company Grantor Trust.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS OR ARRANGEMENTS
10.11 1986 Stock Plan of Phillips Petroleum Company.
10.12 1990 Stock Plan of Phillips Petroleum Company.
10.13 Annual Incentive Compensation Plan of Phillips Petroleum Company.
10.14 Incentive Compensation Plan of Phillips Petroleum Company
(incorporated by reference to Exhibit 10(g) to the Annual Report of
CPCo on Form 10-K for the year ended December 31, 1999; File No.
1-720).
Exhibit
Number Description
- ------ -----------
10.15 Principal Corporate Officers Supplemental Retirement Plan of Phillips
Petroleum Company (incorporated by reference to Exhibit 10(h) to the
Annual Report of CPCo on Form 10-K for the year ended December 31,
1995; File No. 1-720)
10.16 Phillips Petroleum Company Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10(n) to the Annual Report of
CPCo on Form 10-K for the year ended December 31, 2000; File No.
1-720).
10.17 Key Employee Deferred Compensation Plan of Phillips Petroleum Company.
10.18 Non-Employee Director Retirement Plan of Phillips Petroleum Company.
10.19 Omnibus Securities Plan of Phillips Petroleum Company.
10.20 Deferred Compensation Plan for Non-Employee Directors of Phillips
Petroleum Company.
10.21 Key Employee Missed Credited Service Retirement Plan of Phillips
Petroleum Company (incorporated by reference to Exhibit 10(s) to the
Annual Report of CPCo on Form 10-K for the year ended December 31,
2000; File No. 1-720).
10.22 Phillips Petroleum Company Stock Plan for Non-Employee Directors.
10.23 Key Employee Supplemental Retirement Plan of Phillips Petroleum
Company.
10.24 Defined Contribution Makeup Plan of ConocoPhillips.
10.25 Phillips Petroleum Company Executive Severance Plan (incorporated by
reference to Exhibit 10(a) to the Quarterly Report of CPCo on Form
10-Q for the quarter ended June 30, 1999; File No. 1-720).
10.26 2002 Omnibus Securities Plan of Phillips Petroleum Company.
10.27 1998 Stock and Performance Incentive Plan of ConocoPhillips.
10.28 1998 Key Employee Stock Performance Plan of ConocoPhillips.
10.29 Deferred Compensation Plan for Non-Employee Directors of
ConocoPhillips.
10.30 Conoco Inc. Key Employee Severance Plan (incorporated by reference to
Exhibit 10.6 to the Annual Report of Holding on Form 10-K for the year
ended December 31, 2001; File No. 1-14521).
10.31 Conoco Inc. Salary Deferral and Savings Restoration Plan.
10.32 Conoco Inc. Directors' Charitable Gift Plan.
10.33 Phillips Petroleum Company Director Charitable Contribution Plan.
Exhibit
Number Description
- ------ -----------
10.34 ConocoPhillips Form Indemnity Agreement with Directors.
10.35 Employment Agreement, dated as of November 18, 2001, by and among
ConocoPhillips, CPCo and J. J. Mulva (incorporated by reference to
Exhibit 10.1 to the Form S-4).
10.36 Employment Agreement, dated as of November 18, 2001, by and among
ConocoPhillips, Holding and Archie W. Dunham (incorporated by
reference to Exhibit 10.2 to the Form S-4).
10.36.1 Letter Agreement, dated as of July 22, 2002, by and among Holding and
Archie W. Dunham.
10.37 Letter Agreement, dated as of April 12, 2002, between Holding and
Robert E. McKee III (incorporated by reference to Exhibit 10.1 to the
Quarterly Report of ConocoPhillips on Form 10-Q for the quarterly
period ended September 30, 2002; File No. 000-49987 (the "Form
10-Q")).
10.38 Letter Agreement, dated as of April 12, 2002, between Holding and Jim
W. Nokes (incorporated by reference to Exhibit 10.2 to the Form 10-Q).
10.39 Rabbi Trust Agreement dated December 17, 1999 (incorporated by
reference to Exhibit 10.11 of Holding's Form 10-K for the year ended
December 31, 1999, File No. 001-14521).
10.39.1 Amendment to Rabbi Trust Agreement dated February 25, 2002.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Principal Subsidiaries of ConocoPhillips.
23 Consent of Independent Auditors.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.3 Unaudited Pro Forma Combined Statement of Operations for the Year
Ended December 31, 2002.
EXHIBIT 10.1
AMENDED AND RESTATED
TRUST AGREEMENT
Dated as of June 23, 1995
between
PHILLIPS PETROLEUM COMPANY
and
WESTSTAR BANK, as Trustee
TRUST AGREEMENT
THIS AMENDED AND RESTATED TRUST AGREEMENT made and entered into as of this
23rd day of June, 1995, by and between PHILLIPS PETROLEUM COMPANY, a Delaware
corporation with its executive offices at Phillips Building, Bartlesville,
Oklahoma (the "Company") , and WESTSTAR BANK, a state banking corporation with
its principal trust office at Weststar Bank Tower Building, 100 SE Frank
Phillips Boulevard, Bartlesville, Oklahoma 74003 (the "Trustee").
WITNESSETH THAT:
WHEREAS, the Company heretofore established the Deferred Compensation Plan
for Non-Employee Directors of Phillips Petroleum Company (the "Plan") for the
purpose of providing a program whereby certain eligible members of the Board of
Directors (the "Board") of the Company may defer the payment of all or a portion
of their cash compensation or lump sum retirement benefits; and
WHEREAS, the Company has heretofore established a trust (the "Trust")
under the terms of a Trust Agreement dated as of August 24, 1990 (the "Original
Trust Agreement") to aid the Company in meeting its obligations under the Plan,
so as, to the extent possible within the intent set forth below, to assure
payment of the Benefits under the Plan; and
WHEREAS, the Company has made and may continue to make contributions to
this Trust from time to time, which contributions (if made) will be applied in
payment of the Company's obligations to pay such benefits; and
WHEREAS, the Plan provides for the Company to pay all benefits thereunder
from its general assets, and the establishment and maintenance of this Trust
shall not reduce or otherwise
- 1 -
affect the Company's continuing liability to pay benefits from such assets
except that the Company's liability shall be offset by actual benefit payments
made by this Trust; and
WHEREAS, the Trust established by this Trust Agreement is intended to be
classified for income tax purposes as a "grantor trust" with the result that the
income of the Trust be treated as income of the Company pursuant to Subpart E,
Part I of Subchapter J of Chapter 1, of Subtitle A of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, the Company desires to amend the terms of the Trust to permit the
Trustee to receive and act upon specific directions from the Company and others
with respect to the investment and reinvestment of such particularly identified
portions of the funds.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Company and the Trustee agree to amend and restate the Trust Agreement as
follows:
SECTION 1. ESTABLISHMENT AND TITLE OF THE TRUST
1.1 The Company hereby reaffirms its establishment with the Trustee of the
Trust, to accept such sums of money and other property, including without
limitation one or more insurance or annuity contracts, acceptable to the Trustee
as from time to time may be paid or delivered to the Trustee. All such money and
other property, all investments and reinvestments made therewith or proceeds
thereof and all earnings and profits thereon that are not paid to the Company as
provided in Section 6.1 of this Trust Agreement, less all payments and charges
as authorized herein, are hereinafter referred to as the "Trust Fund." The Trust
Fund shall be held by the Trustee in trust and shall be dealt with in accordance
with the provisions of this Trust Agreement. The Trust Fund shall be held for
the exclusive purpose of providing payments to the participants of the Plan and
their beneficiaries and defraying reasonable expenses of administration in
accordance with the provisions of this Trust Agreement until all such payments
- 2 -
have been made; provided, however, that the Trust Fund shall at all times be
subject to the claims of the creditors of the Company as set forth in Section 7
of this Trust Agreement.
SECTION 2. ACCEPTANCE BY THE TRUSTEE
2.1 The Trustee accepts the Trust established under this Trust Agreement
on the terms and subject to the provisions set forth herein, and it agrees to
discharge and perform fully and faithfully all of the duties and obligations
imposed upon it under this Trust Agreement.
SECTION 3. LIMITATION ON USE OF FUNDS
3.1 No part of the corpus of the Trust Fund shall be recoverable by the
Company or used for any purpose other than for the exclusive purpose of
providing payments to participants of the Plan and their beneficiaries and
defraying reasonable expenses of administration in accordance with the
provisions of this Trust Agreement until all such payments required by this
Trust Agreement have been made; provided, however, that W nothing in this
Section 3.1 shall be deemed to limit or otherwise prevent the payment from the
Trust Fund of expenses and other charges as provided in Sections 9.1 and 9.2 of
this Trust Agreement or the application of the Trust Fund as provided in Section
5.4 of this Trust Agreement if the Trust is finally determined not to constitute
a grantor trust and (ii) the Trust Fund shall at all times be subject to the
claims of creditors of the Company as set forth in Section 7 of this Trust
Agreement.
SECTION 4. DUTIES AND POWERS OF THE TRUSTEE WITH RESPECT TO INVESTMENTS
4.1 The assets of the Trust Fund shall be invested by the Trustee in
accordance with the written investment guidelines provided from time to time by
the Company. In this regard, pursuant to instructions given by the Company, the
Trustee shall allocate the assets of the Trust
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Fund among one or more accounts ("Accounts"). The Company may further direct the
Trustee to deposit the assets of an Account with an independent fund manager
("Custodian"), who may be a mutual fund manager, and to delegate the investment
responsibility for the Account to such Custodian.
The Custodian of an Account shall invest and reinvest the Account as
directed by or shall arrange that the Trustee shall receive confirmation of
transactions within an Account managed by a Custodian, that no amounts invested
with a Custodian may be disbursed to anyone other than by instruction from the
Trustee, and that upon the Company's bankruptcy or insolvency the Custodian
shall be advised of such event by the Board and the Chief Executive Officer of
the Company, and such Custodians shall thereafter accept only the instructions
of the Trustee.
In the event that assets are transferred to a Custodian pursuant to the
instructions of the Company, the Trustee shall not be responsible for the
selection of such Custodian or the acts of the Custodian including but not
limited to the safekeeping of the assets of the Account, the investments of the
assets, or disbursement of any amount from the Account by the Custodian.
4.2 Subject to the provisions of Section 4.1, the Trustee shall have the
following additional powers and authority with respect to all property
constituting a part of the Trust Fund:
(a) To sell, exchange or transfer any such property at public or private
sale for cash or on credit and grant options for the purchase or
exchange thereof, including call options for property held in the
Trust Fund and put options for the purchase of property.
(b) To participate in any plan of reorganization, consolidation, merger,
combination, liquidation or other similar plan relating to any such
property, and to consent to or
- 4 -
oppose any such plan or any action thereunder, or any contract,
lease, mortgage, purchase, sale or other action by any corporation
or other entity.
(c) To use Trust Fund assets to purchase, and to pay all premiums and
other charges upon, individual or group annuity or life insurance
contracts, the rates of return and maturity dates of which may
reasonably be expected to yield assets of the Trust Fund sufficient
to assist' the Company in paying benefits under the Plan, and to
withdraw from or borrow against such policies and contracts.
(d) To deposit any such property with any protective, reorganization or
similar committee; to delegate discretionary power to any such
committee; and to pay part of the expenses and compensation of any
such committee and any assessments levied with respect to any
property so deposited.
(e) To exercise any conversion privilege or subscription right available
in connection with any such property; to oppose or to consent to the
reorganization, consolidation, merger or readjustment of the
finances of any corporation, company or association, or to the sale,
mortgage, pledge or lease of the property of any corporation,
company or association any of the securities of which may at any
time be held in the Trust Fund and to do any act with reference
thereto, including the exercise of options, the making of agreements
or subscriptions and the payment of expenses, assessments or
subscriptions, which may be deemed necessary or advisable in
connection therewith, and to hold and retain any securities or other
property which it may so acquire.
- 5 -
(f) To commence or defend suits or legal proceedings and to represent
the Trust in all suits or legal proceedings; to settle, compromise
or submit to arbitration, any claims, debts or damages, due or owing
to or from the Trust.
(g) To exercise, personally or by general or limited power of attorney,
any right, including the right to vote, appurtenant to any
securities or other such property.
(h) To borrow money from any lender in such amounts and upon such terms
and conditions as shall be deemed advisable or proper to carry out
the purposes of the Trust and to pledge any securities or other
property for the repayment of any such loan.
(i) To engage any legal counsel, including counsel to the Company, any
enrolled actuary, or any other suitable agents to consult with such
counsel, enrolled actuary, or agents with respect to the
construction of this Trust Agreement, the duties of the Trustee
hereunder, the transactions contemplated by this Trust Agreement or
any act which the Trustee proposes to take or omit, to rely upon the
advice of such counsel, enrolled actuary or agents, and to pay its
reasonable fees, expenses and compensation.
(j) To register any securities held by it in its own name or in the name
of any custodian of such property or of its nominee, including the
nominee of any system for the central handling of securities, with
or without the addition of words indicating that such securities are
held in a fiduciary capacity, to deposit or arrange for the deposit
of any such securities with such a system and to hold any securities
in bearer form.
- 6 -
(k) To make, execute and deliver, as Trustee, any and all deeds, leases,
notes, bonds, guarantees, mortgages, conveyances, contracts,
waivers, releases or other instruments in writing necessary or
proper for the accomplishment of any of the foregoing powers.
(l) To transfer assets of the Trust Fund to a successor trustee as
provided in Section 1.4.
(m) To exercise, generally, any of the powers which an individual owner
might exercise in connection with property either real, personal or
mixed held by the Trust Fund, and to do all other acts that the
Trustee may deem necessary or proper to carry out any of the powers
set forth in this Section 4 or otherwise in the best interests of
the Trust Fund.
SECTION 5. PAYMENTS BY THE TRUSTEE
5.1 The establishment of the Trust and the payment or delivery to the
Trustee of money or other property acceptable to the Trustee shall not vest in
Plan participants or their beneficiaries any right, title or interest in and to
any assets of the Trust, except as otherwise set forth in this Section 5.
5.2 The Trustee shall make payment of Plan benefits to participants and
beneficiaries of the Plan from the assets held in the Trust Fund, if and to the
extent such assets are available for distribution, in accordance with the terms
and conditions set forth in the Plan and subject to the election, if any, of the
participant or his beneficiary thereunder.
- 7 -
5.3 If the Trust Fund is not sufficient to make one or more payments of
benefits due under the Plan to such participant or beneficiary in accordance
with the terms of the Plan, the Company shall make the balance of each such
payment as it falls due.
5.4 Notwithstanding anything contained in this Trust Agreement to the
contrary, if at any time the Trust finally is determined by the Internal Revenue
Service ("IRS") not to be a "grantor trust" with the result that the income of
the Trust Fund is not treated as income of the Company pursuant to Subpart E,
Part I of Subchapter J of the Code, or if a tax is finally determined by the IRS
or is determined by counsel to the Trustee to be payable by any Plan participant
or beneficiary in respect of any vested interest in the Trust Fund prior to
payment of such interest to such participant or beneficiary, then the Trust
shall immediately terminate and the full fair market value of the assets in the
Trust Fund shall be returned to the Company. The Company shall fully reimburse
each participant and their beneficiaries for any tax liability they may incur
pursuant to the operation of this Section. For purposes of this Section, a final
determination of the IRS shall be a decision rendered by the IRS which is no
longer subject to administrative appeal within the IRS.
5.5 Notwithstanding anything in this Trust Agreement to the contrary, the
Company shall remain primarily liable under the Plan to pay benefits. However,
the Company's liability under the Plan shall be reduced or offset to the extent
and by the value of any benefit payments under the Plan made from the Trust.
5.6 The Trustee shall deduct from each payment under this Trust Agreement
any federal, state or local withholding or other taxes or charges which the
Trustee may be required to
- 8 -
deduct under applicable laws, shall pay such amount to the appropriate
governmental authorities, and shall inform the Company of all amounts so
deducted and paid.
SECTION 6. FUNDING OF THE TRUST
6.1 Amounts held for the benefit of each participant and beneficiary in
the Trust shall be held, administered and accounted for the benefit of
participants and beneficiaries of the Plan. The Trust Fund shall consist of such
sums of money and such other property acceptable to the Trustee as shall from
time to time be paid or delivered to the Trustee by the Company, and any
earnings or profits thereon. The Company shall make contributions to the Trust
from time to time in accordance with such funding method and policy as will
permit the Trust to make payment of benefits provided by the Plan. In the event
that the total assets of the Trust Fund at any time exceed the arithmetic sum of
all benefits accrued under the Plan for participants and beneficiaries, the
Trustee shall follow the written instructions from the Company as to the
disposition of such excess amount, which instructions may include payment of
such amount to the Company. In determining the value of the Trust as of any
date, Trust assets shall be valued on the basis of their then fair market value.
SECTION 7. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO PARTICIPANTS AND
BENEFICIARIES WHEN COMPANY IS INSOLVENT
7.1 It is the intent of the parties hereto that the Trust assets are and
shall remain at all times subject to the claims of the general creditors of the
Company. Accordingly, the Company shall not create a security interest in the
Trust assets in favor of the Participants and beneficiaries of the Plan or any
creditor.
- 9 -
(a) If the Trustee receives the notice provided for in Section 7.2
hereof, or otherwise receives actual notice that the Company is
insolvent or bankrupt as defined in Section 7.2 hereof, the Trustee
will make no further distributions from the Trust to any of the
participants or beneficiaries of the Plan but will deliver the
entire amount of the Trust assets only as a court of competent
jurisdiction, or duly appointed receiver or other person authorized
to act by such a court, may direct to make the Trust assets
available to satisfy the claims of the Company's general creditors.
The Trustee shall resume distributions from the Trust to the
participants and beneficiaries of the Plan under the terms hereof,
upon no less than thirty (30) days, advance notice to the Company,
if it determines that the Company was not, or is no longer bankrupt
or insolvent. Unless the Trustee has actual knowledge of the
Company's bankruptcy or insolvency, the Trustee shall have no duty
to inquire whether the Company is bankrupt or insolvent.
(b) 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 within thirty (30) days independently determine
whether the Company is insolvent.
The Company shall cooperate with and assist the Trustee in making
such determination. In making such a determination, the Trustee may
retain outside experts competent to advise the Trustee as to whether
the Company has, in fact, become insolvent. The expense of retaining
such outside experts shall be deemed to be expenses within the scope
of Section 9.2.
- 10 -
7.2 The Board and Chief Executive officer shall advise the Trustee
promptly in writing of the Company's bankruptcy or insolvency. The Company shall
be deemed to be bankrupt or insolvent upon the occurrence of any of the
following:
(a) The Company shall make an assignment for the benefit of creditors,
file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver, liquidator, sequestrator,
or any trustee for it or a substantial part of its assets, or shall
commence any case under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction (federal or state), whether now or hereafter in
effect; or if there shall have been filed any such petition or
application, or any such case shall have been commenced against it,
in which an order for relief is entered or which remains
undismissed; or the Company by any act or omission shall indicate
its consent to, approval of or acquiescence in any such petition,
application or case or order for relief or to the appointment of a
custodian, receiver or any trustee for it or any substantial part of
any of its property, or shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged; or
(b) The Company shall generally not pay its debts as such debts become
due or shall cease to pay its debts in the ordinary course of
business.
7.3 If the Trustee discontinues payments of benefits under the Plan from
the Trust pursuant to Section 7.1 of this Trust Agreement and subsequently
resumes such payments, the first payment to a participant or beneficiary
following such discontinuance shall include the aggregate amount of all payments
which would have been made to the participant or beneficiary
- 11 -
in accordance with the Plan during the period of such discontinuance, less the
aggregate amount of payments of benefits under the Plan made to the participant
or beneficiary by the Company during any such period of discontinuance.
SECTION 8. THIRD PARTIES
8.1 A third party dealing with the Trustee shall not be required to make
inquiry as to the authority of the Trustee to take any action nor be under any
obligation to see to the proper application by the Trustee of the proceeds of
sale of any property sold by the Trustee or to inquire into the validity or
propriety of any act of the Trustee.
SECTION 9. TAXES, EXPENSES AND COMPENSATION
9.1 The Company shall from time to time pay taxes of any and all kinds
whatsoever which at any time are lawfully levied or assessed upon or become
payable in respect of the Trust Fund, the income or any property forming a part
thereof, or any security transaction pertaining thereto. To the extent that any
taxes lawfully levied or assessed upon the Trust Fund are not paid by the
Company, the Trustee shall pay such taxes out of the Trust Fund. The Trustee
shall withhold Federal, State and local taxes from any payments made to a
participant or beneficiary in accordance with the provisions of applicable law.
The Trustee shall contest the validity of taxes in any manner deemed appropriate
by the Company or its counsel, but at the Company's expense, and only if it has
received an indemnity bond or other security satisfactory to it to pay any such
expenses. In the alternative, the Company may itself contest the validity of any
such taxes.
9.2 The Company shall pay the Trustee such reasonable compensation for its
services as may be agreed upon in writing from time to time by the Company and
the Trustee. The
- 12 -
Company shall also pay the reasonable expenses incurred by the Trustee in the
performance of its duties under this Trust Agreement, including fees of counsel
engaged by the Trustee. Such compensation and expenses shall be charged against
and paid from the Trust Fund to the extent that the Company does not pay such
compensation.
SECTION 10. ADMINISTRATION AND RECORDS
10.1 The Trustee shall keep or cause to be kept accurate and detailed
accounts of any investments, receipts, disbursements and other transactions
hereunder, and all accounts, books and records relating thereto shall be open to
inspection and audit at all reasonable times by any person designated by the
Company. All such accounts, books and records shall be preserved (in original
form, or on microfilm, magnetic tape or any other similar process) for such
period as the Trustee may determine, but the Trustee may only destroy such
accounts, books and records after first notifying the Company in writing of its
intention to do so and transferring to the Company any of such accounts, books
and records requested.
10.2 Within 30 days after the close of each calendar year, and within 30
days after the removal or resignation of the Trustee or the termination of the
Trust, the Trustee shall file with the Company a written account setting forth
all investments, receipts, disbursements and other transactions effected by it
during the preceding calendar year, or during the period from the close of the
preceding calendar year to the date of such removal, resignation or termination,
including a description of all investments and securities purchased and sold
with the cost or net proceeds of such purchases or sales and showing all cash,
securities and other property held at the end of such calendar year or other
period.
- 13 -
10.3 The Trustee shall from time to time permit an independent public
accountant selected by the Company (except one to whom the Trustee has
reasonable objection) to have access during ordinary business hours to such
records as may be necessary to audit the Trustee's accounts.
10.4 As of the last day of each calendar year and such other times as the
Company may reasonably request, the fair market value of the assets held in the
Trust Fund shall be determined. Within 30 days after the close of each calendar
year, the Trustee shall file with the Company the written report of the
determination of such fair market value of the assets held in the Trust Fund.
10.5 Nothing contained in this Trust Agreement shall be construed as
depriving the Trustee or the Company of the right to have a judicial settlement
of the Trustee's accounts, and upon any proceeding for a judicial settlement of
the Trustee's accounts or for instructions the only necessary parties thereto in
addition to the Trustee shall be the Company.
10.6 In the event of the removal or resignation of the Trustee, the
Trustee shall deliver to the successor Trustee all records which shall be
required by the successor Trustee to enable it to carry out the provisions of
this Trust Agreement.
10.7 In addition to any returns required of the Trustee by law, the
Trustee shall prepare and file such tax reports and other returns as the Company
and the Trustee may from time to time agree.
SECTION 11. REMOVAL OR RESIGNATION OF THE TRUSTEE AND DESIGNATION OF SUCCESSOR
TRUSTEE
11.1 At any time the Company may remove the Trustee with or without cause,
upon at least 60 days, notice in writing to the Trustee. A copy of such notice
shall be sent to the Trustee.
- 14 -
11.2 The Trustee may resign at any time upon at least 60 days, notice in
writing to the Company.
11.3 In the event of such removal or resignation, the Trustee shall duly
file with the Company a written account as provided in Section 10.2 of this
Trust Agreement for the period since the last previous annual accounting,
listing the investments of the Trust and any uninvested cash balance thereof,
and setting forth all receipts, disbursements, distributions and other
transactions respecting the Trust not included in any previous account.
11.4 Within 60 days after any such notice of removal or resignation of the
Trustee, the Company shall designate a successor Trustee qualified to act
hereunder. Each such successor Trustee, during each period as it shall act as
such, shall have the powers, duties and restrictions (including without
limitation, the restrictions regarding amendment of certain sections of this
Trust Agreement as described in Section 14.1 hereof) herein conferred upon the
Trustee, and the word "Trustee" wherever used herein, except where the context
otherwise requires, shall be deemed to include any successor Trustee. Upon
designation of a successor Trustee and delivery to the resigned or removed
Trustee of written acceptance by the successor Trustee of such designation, such
resigned or removed Trustee shall promptly assign, transfer, deliver and pay
over to such Trustee, in conformity with the requirements of applicable law, the
funds and properties in its control or possession then constituting the Trust
Fund.
SECTION 12. ENFORCEMENT OF TRUST AGREEMENT AND LEGAL PROCEEDINGS
12.1 The Company shall have the right to enforce any provision of this
Trust Agreement. The general creditors of the Company shall have the right under
federal and state laws to enforce the Trust provisions opening the Trust to such
general creditors in the event of
- 15 -
insolvency of the Company. In any action or proceedings affecting the Trust the
only necessary parties shall be the Company and the Trustee and, except as
otherwise required by applicable law, no other person shall be entitled to any
notice or service of process. Any judgment entered in such an action or
proceeding shall to the maximum extent permitted by applicable law be binding
and conclusive on all persons having or claiming to have any interest in the
Trust.
SECTION 13. TERMINATION AND SUSPENSION
13.1 The Trust shall terminate when all payments which have or may become
payable pursuant to the terms of the Trust have been made and any remaining
assets shall then be paid by Trustee to the Company.
SECTION 14. AMENDMENTS
14.1 The Company may from time to time amend or modify, in whole or in
part, any or all of the provisions of this Trust Agreement (except Sections 1.1,
3.1, 5, 10, 11.4, 12, 13, 14 and 16, which sections may only be amended by the
unanimous written consent of all participants and beneficiaries of the Plan),
with the written consent of the Trustee, but without the consent of any
participant or beneficiary of the Plan, provided that any such amendment shall
not adversely affect the rights of any participant or beneficiary hereunder, or
cause the Trust to cease to constitute a grantor trust as described in Section
5.4 of this Trust Agreement; provided further, that the Trust created hereunder
shall be irrevocable by the Company without the express written consent of all
participants and beneficiaries of the Plan.
14.2 The Company and the Trustee shall execute such supplements to, or
amendments of, this Trust Agreement as shall be necessary to give effect to any
such amendment or modification.
- 16 -
SECTION 15. NONALIENATION
15.1 Except insofar as applicable law may otherwise require and subject to
Sections 1.1, 3.1 and 7 of this Trust Agreement, W no amount payable to or in
respect of any participant or beneficiary at any time under the Trust shall be
subject in any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any
attempt to so alienate, sell, transfer, assign, pledge, attach, charge or
otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (ii) the Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of a participant or beneficiary.
SECTION 16. COMMUNICATIONS
16.1 Communications to the Company shall be addressed to Phillips
Petroleum Company, Attention: Senior Vice President and Treasurer, 17 Phillips
Building, Bartlesville, Oklahoma 74004; provided, however, that upon the
Company's written request, such communications shall be sent to such other
address as the Company may specify.
16.2 Communications to the Trustee shall be addressed to WestStar Bank,
Attention: Trust Department, 100 S. E. Frank Phillips Boulevard, Bartlesville,
Oklahoma 74003; provided, however, that upon the Trustee's written request, such
communications shall be sent to such other address as the Trustee may specify.
16.3 No communication shall be binding on the Trustee until it is received
by the Trustee, no communication shall be binding on the Company until it is
received by the Company and no communication shall be binding on any participant
or beneficiary until it is received by the participant or beneficiary.
- 17 -
16.4 Any action of the Company pursuant to this Trust Agreement, including
all orders, requests, directions, instructions, approvals and objections of the
Company to the Trustee, shall be in writing, signed on behalf of the Company by
any duly authorized officer of the Company. Any action by any participant or
beneficiary shall be in writing. The Trustee may rely on, and will be fully
protected with respect to any such action taken or omitted in reliance on, any
information, order, request, direction, instruction, approval, objection, and
list delivered to the Trustee by the Company or, to the extent applicable under
this Trust Agreement by a participant or beneficiary.
SECTION 17. MISCELLANEOUS PROVISIONS
17.1 This Trust Agreement shall be binding upon and inure to the benefit
of the Company and the Trustee and their respective successors and assigns and
the personal representatives of individuals.
17.2 The Trustee assumes no obligation or responsibility with respect to
any action required by this Trust Agreement on the part of the Company.
17.3 Each participant or beneficiary shall file with the Trustee such
pertinent personal information as the Trustee shall specify, and shall have no
rights nor be entitled to any benefits under the Trust unless such information
is filed.
17.4 Any corporation into which the Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger,
reorganization or consolidation to which the Trustee may be a party, or any
corporation to which all or substantially all the trust business of the Trustee
may be transferred shall be the successor of the Trustee hereunder without the
execution or filing of any instrument or the performance of any act.
- 18 -
17.5 Titles to the Sections of this Trust Agreement are included for
convenience only and shall not control the meaning or interpretation of any
provision of this Trust Agreement.
17.6 This Trust Agreement and the Trust established here under shall be
governed by and construed, enforced, and administered in accordance with the
laws of the State of Oklahoma and the Trustee shall be liable to account only in
the courts of the State of Oklahoma.
17.7 This Trust Agreement may be executed in any number of counterparts,
each of which shall be deemed to be the original although the others shall not
be produced.
17.8 The words "beneficiary" or "beneficiaries" shall have the meaning set
forth in the Plan.
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the parties
hereto as of the day and year first above written.
ATTEST: PHILLIPS PETROLEUM COMPANY
By: /s/ Dale J. Billam By: /s/ T. C. Morris
-------------------------- ---------------------------------
Title: Secretary Title: Sr. V. P., Treasurer and CFO
-------------------------- ---------------------------------
WESTSTAR BANK, a state banking corporation
ATTEST:
By: /s/ Frances David By: /s/ Bertha Lankriet
-------------------------- ---------------------------------
Title: Asst. Secretary Title: Vice President and Trust Officer
-------------------------- ---------------------------------
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STATE OF OKLAHOMA) )
) SS
COUNTY OF WASHINGTON )
On this 23rd day of June 1995, before me came T. C. Morris to me known,
who, being by me duly sworn, did depose and say that he resides at Bartlesville,
Oklahoma; that he is the Sr. V.P., Treasurer & CFO of PHILLIPS PETROLEUM
COMPANY, the corporation described in and which executed the foregoing
instrument; that he 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 or by a duly authorized committee
thereof; and that he signed his name thereto by like order.
/s/ Connie Wallace
------------------------------------
Notary Public
My Commission expires:
July 11, 1996
STATE OF OKLAHOMA) )
) SS
COUNTY OF WASHINGTON )
On this 22nd day of June 1995, before me came Bertha Lanckriet to me
known, who, being by me duly sworn, did depose and say that she resides at
Bartlesville, Oklahoma; that she is the V. Pres. & Trust Officer of WESTSTAR
BANK, a state banking corporation, the corporation described in and which
executed the foregoing instrument; that 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 she
signed her name thereto by like order.
/s/ Mickie Wheat
------------------------------------
Notary Public
My Commission Expires:
March 20, 1999
Exhibit 10.10
PHILLIPS PETROLEUM COMPANY
GRANTOR TRUST AGREEMENT
This Grantor Trust Agreement (the "Trust Agreement") is made as of this 1st day
of June, 1998 by and between PHILLIPS PETROLEUM COMPANY ("the Company") and
WACHOVIA BANK, N.A. ("the Trustee").
RECITALS
(a) WHEREAS, the Company has adopted the nonqualified deferred
compensation Plans and Agreements (the "Arrangements") as listed in
Attachment 1;
(b) WHEREAS, the Company has incurred or expects to incur liability under
the terms of such Arrangements with respect to the individuals
participating in such Arrangements (the "Participants and
Beneficiaries");
(c) WHEREAS, The Chase Manhattan Bank, N.A. ("Chase") currently serves as
trustee for the Arrangements;
(d) WHEREAS, the Company has determined that Chase shall no longer serve as
trustee for the Arrangements and that Wachovia Bank, N.A. shall serve
as successor trustee for the Arrangements effective as of June 1, 1998;
(e) WHEREAS, the Trustee wishes to serve as trustee for the Arrangements;
(f) WHEREAS, the Company and the Trustee deem it necessary and desirable to
enter into this written agreement of Trust for the Arrangements (the
"Trust Agreement") to amend and restate the terms and conditions of the
Trust for the Arrangements (the "Trust");
(g) WHEREAS, the Trust has been and is intended to be a "grantor trust"
with the corpus and income of the Trust treated as assets and income of
the Company for federal income tax purposes pursuant to Sections 671
through 679 of the Internal Revenue Code of 1986, as amended;
(h) WHEREAS, the Company desires that the terms of the Trust continue to
permit the particular identification of portions of the funds deposited
in trust to particular Arrangements and to permit the Trustee to
receive and act upon specific directions from the Company and others
with respect to the investment and reinvestment of such particularly
identified portions of the funds prior to a Change of Control;
(i) WHEREAS, subject to the claims of the creditors of the Company or its
Participating Subsidiaries, as defined herein, in the event of the
Insolvency (as herein defined) of the Company or its Participating
Subsidiaries, the Company hereby contributes to the Trust assets that
should be held therein until paid to Participants and their
Beneficiaries in such manner and at such times as specified in the
Arrangements and in this Trust Agreement;
(j) WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of
the Arrangements as an unfunded plan maintained for the purpose of
providing 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
(k) WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds (the "Fund") to
assist it in satisfying its liabilities under the Arrangements.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF THE TRUST
(a) The Trust is intended to be a Grantor Trust, of which the Company is
the Grantor, within the meaning of subpart E, part 1, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended,
and shall be construed accordingly.
(b) The Company shall be considered a Grantor for the purposes of the
Trust.
(c) Subject to Section 5(b), the Trust hereby established is irrevocable by
the Company.
(d) The Company hereby agrees that the assets held in the Trust by Chase
for the Arrangements shall be transferred to the Trustee in the Trust
and shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
(e) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of Participants and general
creditors as herein set forth. 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 Arrangements
and this Trust Agreement shall be unsecured contractual rights of
Participants and their Beneficiaries against the Company. Any assets
held by the Trust will be subject to the claims of the general
creditors of the Company under federal and state law in the event the
Company is Insolvent, as defined in Section 3(a) herein.
(f) The Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property acceptable to
the Trustee in the Trust to augment the principal to be held,
administered and disposed of by the Trustee as provided in this Trust
Agreement. Prior to a Change of Control, neither the Trustee nor any
Participant or Beneficiary shall have any right to compel additional
deposits.
(g) Upon a Change of Control, the Company shall, as soon as possible, but
in no event longer than thirty (30) days following the occurrence of a
Change of Control, as defined herein, make an irrevocable contribution
to the Trust in an amount that is sufficient to fund the Trust in an
amount equal to no less than one-hundred percent (100%) but no more
than
one-hundred and twenty (120%) of the Required Funding Amount, together
with the amount of the Expense Account as established by the Trustee
pursuant to Section 1(h). The determination of such Required Funding
Amount and the Expense Account to be contributed after a Change of
Control shall be determined by the Trustee in the same manner as the
determination of such amount required under paragraph (f) of this
Section 1, and such amounts shall be communicated to the Company by the
Trustee in writing
(h) The Trustee may from time to time earmark funds in the Fund to be held
in an Expense Account and used to pay the Trustee's fees and Trust
expenses, provided that the aggregate of all amounts credited to the
Expense Account prior to a Change of Control shall not be more than
$250,000, and after a Change of Control shall not be less than $250,000
nor more than two percent (2%) of the value of the Fund. To the extent
that there is a balance in the Expense Account, the Trustee shall
utilize such Expense Account for payment of its fees and expenses, and
in the absence of such a balance, the Trustee shall seek payment from
the Company. In the event that the Company shall fail or refuse to make
such payment within sixty (60) days of demand, the Trustee may satisfy
such obligations out of the assets of the Trust. If after a Change of
Control the Trustee satisfies obligations out of the assets of the
Trust, the Company shall immediately upon demand by the Trustee deposit
into the Trust Fund a sum equal to the amount demanded by the Trustee
to reimburse the Fund for such expenses. If such funds are not
deposited with sixty (60) days of such demand, the Trustee may, in its
discretion, commence legal action against the Company for recovery of
the amount paid out of the Trust and demanded by the Trustee.
(i) In its discretion, the Trustee may institute an action to collect a
contribution due the Trust following a Change of Control or in the
event that the Trust should ever experience a short-fall in the amount
of assets necessary to make payments pursuant to the terms of the
Arrangements, or if the Company should ever fail to contribute the
amounts requested by the Trustee pursuant to Sections I (f) or I (g).
SECTION 2. PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES
(a) Prior to a Change of Control, distributions from the Trust shall be
made by the Trustee to Participants and Beneficiaries at the direction
of the Company except as may otherwise be provided by this Trust. The
entitlement of a Participant or his or her Beneficiaries to benefits
under the Arrangements shall be determined by the Company or such party
or professional administrator as it shall designate under the
Arrangements as the Company's agent, and any claim for such benefits
shall be considered and reviewed under the procedures set out in the
Arrangements except as may otherwise be provided by this Trust.
(b) Notwithstanding Section 2(a), a Participant or Beneficiary who believes
that he is entitled to a distribution pursuant to one or more of the
Arrangements may make application to the Trustee for an independent
determination by the Trustee concerning his entitlement after he has
exhausted his administrative remedies under the Arrangement at issue.
In making its independent determination, the Trustee may consider
information provided it
by the Participant or Beneficiary or the Company. The Trustee shall, in
such case, reach its own independent determination as to the
Participant's or Beneficiary's entitlement to such benefits under the
Arrangement, even if the Trustee has been informed by the Company that
the individual is not entitled to the benefit. Such determination shall
be made within sixty (60) days of the Trustee's receipt of the
Participant's or Beneficiary's application for determination. If the
Trustee so desires, it may, in its sole discretion, make additional
inquiries and take such additional measures as it deems necessary in
order to enable it to determine whether such benefits claimed are due
and payable, including but not limited to, interviewing or requesting
affidavits from appropriate persons. The Trustee may engage an actuary,
independent of the Company, to assist it in determining whether
benefits are due and payable. In addition, the Trustee may engage its
own counsel or other experts it deems necessary. The cost of such
actuary, counsel, and other expert, and any other costs reasonably
incurred by the Trustee in making its determination shall be borne by
the Company. If the Company fails to pay any such costs when due, the
Trustee may use the assets of the Trust Fund to pay them as provided in
Section I(h). The determination of the Trustee shall be final and
binding on all parties. Upon determining that an individual is entitled
to receive payment of a benefit, the Trustee shall notify such
individual and the Company of the amount payable and the data upon
which such determination is based. The Company waives any right to
contest any amount paid over by the Trustee hereunder pursuant to a
good faith determination made by the Trustee notwithstanding any claim
by or on behalf of the Company (absent a manifest abuse of discretion
by the Trustee) that such payments should not be made.
(c) The Company may make payment of benefits directly to Participants or
their Beneficiaries as they become due under the terms of the
Arrangements. The Company shall notify the Trustee of its decision to
make payment of benefits directly to Participants or their
Beneficiaries prior to the time amounts are payable to such
individuals. The Trustee may reimburse the Company for such payments
upon presentation of proof satisfactory to the Trustee, in its
discretion, that such payments have in fact been made. In the event the
Company makes such payments directly, the Company may request the
Trustee within thirty (30) days of the making of the payment to
reimburse the Company for such payment from the Trust, and upon receipt
of evidence satisfactory to the Trustee that such payment has been
made, the Trustee shall pay such reimbursement to the Company. In
addition, if the principal of the Trust, and any earnings thereon, are
not sufficient to make payments of benefits in accordance with the
terms of the Arrangements, the Company shall make the balance of each
such payment as it falls due in accordance with the Arrangements. The
Trustee shall notify the Company where principal and earnings are not
sufficient. Nothing in this Agreement shall relieve the Company of its
liabilities to pay benefits due under the Arrangements except to the
extent such liabilities are met by application of assets of the Trust.
(d) The Company shall provide the Trustee with a copy of each Arrangement
and shall provide the Trustee with a copy of any amendment to any
Arrangement within thirty (30) days of the adoption of the amendment.
The Trustee shall be entitled to rely on the terms of each Arrangement
as in effect prior to its amendment until the Trustee receives a copy
of such amendment.
(e) On or before each Funding Date, the Company shall deliver to the
Trustee a schedule of benefits due under the Arrangements. Such
information shall, for defined benefit obligations, consist of
information of the same type as is furnished by the Company to the
actuary for its tax qualified defined benefit plan for those
Participants actively employed, recognizing that individual benefit
amounts cannot be finalized until commencement of benefits and
application of certain federal tax limitations to the Participant's
qualified plan benefits. Such information for individual deferred
compensation account balances and defined contribution obligations
shall consist of such information as determined by the third party
recordkeeper. The Company agrees to cooperate at all times with the
Trustee to furnish updated data as is necessary to determine final
benefits due to each Participant and Beneficiary. Subsequent to a
Change of Control, the Trustee shall pay benefits due in accordance
with such schedule. After a Change of Control, the Company shall
continue to make the determination of benefits due to Participants or
their Beneficiaries and shall provide the Trustee with an updated
schedule of benefits due; provided however, a Participant or their
Beneficiaries may make application to the Trustee for an independent
decision as to the amount or form of their benefits due under the
Arrangements as provided by Section 2(b).
(f) The Trustee agrees that it will not itself institute any action at law
or at equity, whether in the nature of an accounting, interpleading
action, request for a declaratory judgment or otherwise, requesting a
court or administrative or quasi-judicial body to make the
determination required to be made by the Trustee under this Section 2
in the place and stead of the Trustee.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO THE TRUST BENEFICIARY
WHEN THE COMPANY IS INSOLVENT
(a) The Trustee shall cease payment of benefits to Participants and their
Beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii) the
Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
(b) At all times during the continuance of this Trust, the principal and
income of the Trust shall be subject to claims of general creditors of
the Company under federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing
that the Company is Insolvent. 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 Participants or their Beneficiaries.
(2) Unless the Trustee has actual knowledge that the Company is
Insolvent, 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.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to
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 Participants or their Beneficiaries to
pursue their rights as general creditors of the Company with
respect to benefits due under the Arrangements or otherwise.
(4) The Trustee shall resume the payment of benefits to
Participants or their Beneficiaries in accordance with Section
2 of this Trust Agreement only after the Trustee has
determined that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof
and subsequently resumes such payments, the first payment following
such discontinuance shall include the aggregate amount of all payments
due to Participants or their Beneficiaries under the terms of the
Arrangements for the period of such discontinuance, less the aggregate
amount of any payments made to Participants or their Beneficiaries by
the Company in lieu of the payments provided for hereunder during any
such period of discontinuance.
(d) For purposes of this Section 3, Company shall include its Participating
Subsidiaries, where "Participating Subsidiary" is defined as a
subsidiary of the Company, of which the Company beneficially owns,
directly or indirectly, more than 50% of the aggregate voting power of
all outstanding classes and series of stock, where such subsidiary has
adopted one or more of the Arrangements and has employed one or more
Participants.
SECTION 4. PAYMENTS WHEN A SHORT-FALL OF THE TRUST ASSETS OCCURS
(a) If there are not sufficient assets for the payment of benefits pursuant
to Section 2 or Section 3(c) hereof and the Company does not otherwise
make such payments within a reasonable time after demand from the
Trustee, the Trustee shall make payment of benefits from the Trust to
the Participants or their Beneficiaries as payments become due to those
individuals. If at any time the assets of the Trust are insufficient to
pay all Participants and Beneficiaries to whom a payment is then owed,
such payments shall be reduced pro rata based on the amounts then due
and payable.
(b) Upon receipt of a contribution from the Company necessary to make up
for a shortfall in the payments due, the Trustee shall resume payments
to all the Participants and Beneficiaries under the Arrangements. The
Trustee shall have the night to compel a contribution to the Trust from
the Company to make-up for any shortfall at any time.
SECTION 5. PAYMENTS TO THE COMPANY
(a) Except as provided in Sections 2(c), 3, 5(b) and 8(a), 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
payment of benefits have been made to Participants and their
Beneficiaries pursuant to the terms of the Arrangements.
(b) If this Trust is determined to not constitute: (i) a grantor trust as
set forth in paragraph (g) of the Recitals, or (ii) an unfunded
arrangement under ERISA as set forth in paragraph (j) of the Recitals,
by a federal court and appeals from that holding are no longer timely
or have been exhausted, this Trust shall terminate. The Board of
Directors of the Company may also terminate this Trust if it
determines, based upon an opinion of legal counsel which is
satisfactory to the Trustee, that either (i) judicial authority or the
opinion of the U.S. Department of Labor, Treasury Department or
Internal Revenue Service (as expressed in proposed or final
regulations, advisory opinions or rulings, or similar administrative
announcements) creates a significant risk that the Trust will be
funding for a pension benefit plan within the meaning of ERISA ("ERISA
Funding") or the Internal Revenue Code ("Tax Funding"), or (ii) ERISA
or the Internal Revenue Code requires the Trust to be amended in a way
that creates a significant risk that the Trust will be held to be ERISA
Funding or Tax Funding, and failure to so amend the Trust could subject
the Company to significant penalties. Upon any such termination, the
assets of the terminated Trust remaining after payment of the Trustee's
fees and expenses shall be distributed, in accordance with the written
directions of the Company, as follows:
(1) Prior to a Change of Control, such assets of the Trust shall
be transferred to a new trust established by the Company which
is not deemed to be ERISA Funding or Tax Funding, but which is
substantially similar in all other respects to this Trust, as
determined by the Trustee in its sole discretion, if the
Company determines that it is possible to establish such a
trust;
(2) Following a Change of Control or if the Company determines
that it is not possible or practical to establish the trust
pursuant to (1) above, then upon the written consent of a
seventy-five percent (75%) majority of the Participants and
Beneficiaries, the assets of the Trust may be distributed to
the Company; or
(3) If the Company determines that it is not possible or practical
to establish the trust pursuant to (1) above and the Company
either (i) fails to receive the consent of a seventy-five
percent (75%) majority of the Participants and Beneficiaries
within thirty (30) days of such termination, or (ii) upon the
direction of the Company, then the assets shall be distributed
to Participants and Beneficiaries, as the case may be, pro
rata based on the then present value of the benefits to which
they would have otherwise been entitled; provided, however
that in the event any portion of the Trust Fund Was been
identified with a particular Arrangement, the portion of the
Fund so identified with that Arrangement shall be first so
distributed to provide benefits of that Arrangement, and the
excess, if any, shall be so distributed pro rata to the extent
necessary to provide benefits of other
Arrangements. If a surplus remains in the Trust after such
distributions, it shall be returned to the Company.
SECTION 6. INVESTMENT AUTHORITY
(a) The Trustee shall not be liable in discharging its duties hereunder,
including without limitation its duty to invest and reinvest the Fund,
if it acts for the exclusive benefit of the Participants and their
Beneficiaries, in good faith and as a prudent person would act in
accomplishing a similar task and in accordance with the terms of this
Trust Agreement and any applicable federal or state laws, rules or
regulations.
(b) Subject to investment guidelines agreed to in writing from time to time
by the Company and the Trustee prior to a Change of Control, the
Trustee shall have the power in investing and reinvesting the Fund in
its sole discretion:
(1) To invest and reinvest in any readily marketable common and
preferred stocks, bonds, notes, debentures (including
convertible stocks and securities but not including any stock
or security of Phillips Petroleum Company other than a de
minimus amount held in a collective or mutual fund),
certificates of deposit or demand or time deposits (including
any such deposits with the Trustee) and shares of investment
companies and mutual funds, without being limited to the
classes or property in which the Trustees are authorized to
invest by any law or any rule of court of any state and
without regard to the proportion any such property may bear to
the entire amount of the Fund;
(2) To commingle for investment purposes all or any portion of the
Fund with assets of any other similar trust or trusts
established by the Company with the Trustee for the purpose of
safeguarding deferred compensation or retirement income
benefits of its employees;
(3) To retain any property at any time received by the Trustee;
(4) To sell or exchange any property held by it at public or
private sale, for cash or on credit, to grant and exercise
options for the purchase or exchange thereof, to exercise all
conversion or subscription rights pertaining to any such
property and to enter into any covenant or agreement to
purchase any property in the future;
(5) To participate in any plan of reorganization, consolidation,
merger, combination, liquidation or other similar plan
relating to property held by it and to consent to or oppose
any such plan or any action thereunder or any contract, lease,
mortgage, purchase, sale or other action by any person;
(6) To deposit any property held by it with any protective,
reorganization or similar committee, to delegate discretionary
power thereto, and to pay part of the expenses and
compensation thereof any assessments levied with respect to
any such property to deposit;
(7) To extend the time of payment of any obligation held by it;
(8) To hold uninvested any moneys received by it, without
liability for interest thereon, but only in anticipation of
payments due for investments, reinvestments, expenses or
disbursements;
(9) To exercise all voting or other rights with respect to any
property held by it and to grant proxies, discretionary or
otherwise, which shall be at the direction of the Financial
Administrator prior to a Change of Control;
(10) For the purposes of the Trust, to borrow money from others, to
issue its promissory note or notes therefor, and to secure the
repayment thereof by pledging any property held by it;
(11) To employ suitable contractors and counsel, who may be counsel
to the Company or to the Trustee, and to pay their reasonable
expenses and compensation from the Fund to the extent not paid
by the Company;
(12) To register investments in its own name or in the name of a
nominee; to hold any investment in bearer form; and to combine
certificates representing securities with certificates of the
same issue held by it in other fiduciary capacities or to
deposit or to arrange for the deposit of such securities with
any depository, even though, when so deposited, such
securities may be held in the name of the nominee of such
depository with other securities deposited therewith by other
persons, or to deposit or to arrange for the deposit of any
securities issued or guaranteed by the United States
government, or any agency or instrumentality thereof,
including securities evidenced by book entries rather than by
certificates, with the United States Department of the
Treasury or a Federal Reserve Bank, even though, when so
deposited, such securities may not be held separate from
securities deposited therein by other persons; provided,
however, that no securities held in the Fund shall be
deposited with the United States Department of the Treasury or
a Federal Reserve Bank or other depository in the same account
as any individual property of the Trustee, and provided,
further, that the books and records of the Trustee shall at
all times show that all such securities are part of the Trust
Fund;
(13) To settle, compromise or submit to arbitration any claims,
debts or damages due or owing to or from the Trust,
respectively, to commence or defend suits or legal proceedings
to protect any interest of the Trust, and to represent the
Trust in all suits or legal proceedings in any court or before
any other body or tribunal; provided, however, that the
Trustee shall not be required to take any such action unless
it shall have been indemnified by the Company to its
reasonable satisfaction against liability or expenses it might
incur therefrom;
(14) To hold and retain policies of life insurance or interests
therein, annuity contracts, and other property of any kind
which policies are contributed to the Trust by the Company or
any subsidiary of the Company or are purchased by the Trustee;
(15) To hold any other class of assets which may be contributed by
the Company and that is deemed reasonable by the Trustee,
unless expressly prohibited herein;
(16) Generally, to do all acts, whether or not expressly
authorized, that the Trustee may deem necessary or desirable
for the protection of the Fund.
(c) Prior to a Change of Control, the Company shall have the right, subject
to this Section to direct the Trustee with respect to investments,
including the right to identify portions of the funds in Trust to
particular Arrangements.
(1) The Company may at any time direct the Trustee to segregate
all or a portion of the Fund in a separate investment account
or accounts and may appoint one or more investment managers
and/or an investment committee established by the Company to
direct the investment and reinvestment of each such investment
account or accounts. In such event, the Company shall notify
the Trustee of the appointment of each such investment manager
and/or investment committee. No such investment manager shall
be related, directly or indirectly, to the Company, but
members of the investment committee may be employees of the
Company.
(2) Thereafter, the Trustee shall make every sale or investment
with respect to such investment account as directed in writing
by the investment manager or investment committee. It shall be
the duty of the Trustee to act strictly in accordance with
each direction. The Trustee shall be under no duty to question
any such direction of the investment manager or investment
committee, to review any securities or other property held in
such investment account or accounts acquired by it pursuant to
such directions or to make any recommendations to the
investment managers or investment committee with respect to
such securities or other property.
(3) Prior to a Change of Control, the Company may particularly
identify a portion of the Trust Fund with a particular
Arrangement, and the portion thus identified shall prior to a
Change of Control be invested as instructed by the Company and
shall be restricted in application to provide benefits or to
reimburse the Company pursuant to Section 2(c) for benefits
paid under such Arrangement as to which the particularly
identified portion has been identified.
(4) Notwithstanding the foregoing, the Trustee, without obtaining
prior approval or direction from an investment manager or
investment committee, shall invest cash balances held by it
from time to time in short term cash equivalents including,
but not limited to, through the medium of any short term
mutual fund established and maintained by the Trustee subject
to the instrument establishing such trust fund, U.S. Treasury
Bills, commercial paper (including such forms of commercial
paper as may be available through the Trustee's Trust
Department), certificates of deposit (including certificates
issued by the Trustee in its separate corporate capacity), and
similar Type securities, with a maturity not to exceed one
year; and, furthermore, sell such short term investments as
may be necessary to carry out the instructions of an
investment manager or investment committee regarding more
permanent type investment and directed distributions.
(5) The Trustee shall neither be liable nor responsible for any
loss resulting to the Fund by reason of any sale or purchase
of an investment directed by an investment manager or
investment committee nor by reason of the failure to take any
action with respect to any investment which was acquired
pursuant to any such direction in the absence of further
directions of such investment manager or investment committee.
(6) Notwithstanding anything in this Agreement to the contrary,
the Trustee shall be indemnified and saved harmless by the
Company from and against any and all personal liability to
which the Trustee may be subjected by carrying out any
directions of an investment manager or investment committee
issued pursuant hereto or for failure to act in the absence of
directions of the 'investment manager or investment committee
including, all expenses reasonably incurred in its defense in
the event the Company fails to provide such defense; provided,
however, the Trustee shall not be so indemnified if it
participates knowingly in, or knowingly undertakes to conceal,
an act or omission of an investment manager or investment
committee, having actual knowledge that such act or omission
is a breach of a fiduciary duty; provided further, however,
that the Trustee shall not be deemed to have knowingly
participated in or knowingly undertaken to conceal an act or
omission of an investment manager or investment committee with
knowledge that such act or omission was a breach of fiduciary
duty by merely complying with directions of an investment
manager or investment committee or for failure to act in the
absence of directions of an investment manager or investment
committee. The Trustee may rely upon any order, certificate,
notice, direction or other documentary confirmation purporting
to have been issued by the investment manager or investment
committee which the Trustee believes to be genuine and to have
been issued by the investment manager or investment committee.
The Trustee shall not be charged with knowledge of the
termination of the appointment of any investment manager or
investment committee until it receives written notice thereof
from the Company.
(d) Following a Change of Control, the Trustee shall have the sole and
absolute discretion in the management of the Trust assets and shall
have all the powers set forth under Section 6(b). In investing the
Trust assets, the Trustee shall consider:
(1) the needs of the Arrangements;
(2) the need for matching of the Trust assets with the liabilities
of the Arrangements; and
(3) the duty of the Trustee to act solely in the best interests of
the Participants and their Beneficiaries.
(e) The Trustee shall have the right, in its sole discretion, to delegate
its investment responsibility to an investment manager who may be an
affiliate of the Trustee. In the event the Trustee shall exercise this
right, the Trustee shall remain, at all times responsible for the acts
of an investment manager.
(f) The Company shall have the right at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value
for any asset held by the Trust. This right is exercisable by the
Company in a nonfiduciary capacity without the approval or consent of
any person in a fiduciary capacity; provided, however, that such assets
and asset values must be confirmed and agreed by the Trustee prior to
any such substitution as provided by this Section 6(g).
(g) Except for insurance contracts, the value of any assets reacquired
under Section 6(f) shall be determined as provided in this paragraph.
The value of any insurance contract reacquired under Section 6(f) shall
be the present value of future projected cash flow or benefits payable
under the Contract, but not less than the cash surrender value. The
projection shall include death benefits based on reasonable mortality
assumptions. including known facts specifically relating to the health
of the insured and the terms of the Contract to be reacquired. Values
shall be reasonably determined by the Trustee and may be based on the
determination of agents or experts selected by the Trustee. The Trustee
shall have the right, but shall be under no duty or obligation, to
secure confirmation of value by an agent or expert for all property to
be substituted for other property.
SECTION 7. INSURANCE CONTRACTS
(a) To the extent that the Trustee is directed by the Company prior to a
Change of Control to invest part or all of the Trust Fund in insurance
contracts, the type and amount thereof shall be specified by the
Company. The Trustee shall be under no duty to make inquiry as to the
propriety of the type or amount so specified.
(b) Each insurance contract issued shall provide that the Trustee shall be
the owner thereof with the power to exercise all rights, privileges,
options and elections granted by or permitted under such contract or
under the rules of the insurer. The exercise by the Trustee of any
incidents of ownership under any contract shall, prior to a Change of
Control, be subject to the direction of the Company. After a Change of
Control, the Trustee shall have all such rights.
(c) 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 an
insurance policy held in the Trust Fund.
No insurer shall be deemed to be a party to the Trust and an insurer's
obligations shall be measured and determined solely by the terms of
contracts and other agreements executed by the insurer.
SECTION 8. DISPOSITION OF INCOME
(a) Subject to Sections 2(c) and 3, no income received by the Trust may be
returned to the Company, but shall be accumulated and reinvested within
the Trust, except for that portion of the assets of the Trust which is
determined by the Trustee to be in excess of one-hundred and twenty
percent (120%) of the Required Funding Amount. Following a
Change of Control, any return of assets pursuant to this Section 8, and
subject to Sections 2(c) and 3, shall be limited to that portion of the
assets which exceeds 120% of the sum of the Required Funding Amount and
the Expense Fund as determined by the Trustee in its discretion.
SECTION 9. ACCOUNTING BY THE TRUSTEE
(a) The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be agreed
upon in writing between the Company and the Trustee and shall deliver
an accounting of such accounts and transactions to the Company within
forty-five (45) days following the close of each calendar year and
within forty-five (45) days after the removal or resignation of the
Trustee. The Trustee shall deliver to the Company reports of its
receipts and disbursements a Trustee hereunder on a quarterly basis.
The Trustee shall deliver to the Company a written account of its
administration of the Trust during such year or during the period from
the close of the last preceding year to the date of such removal or
resignation setting forth all investments, receipts, disbursements and
other transactions effected by it, including a description of all
securities and investments purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash, securities
and other property held in the Trust at the end of such year or as of
the date of such removal or resignation, as the case may be. The
Company may approve such account by an instrument in writing delivered
to the Trustee. In the absence of the Company's filing with the Trustee
objections to any such account within ninety (90) days after its
receipt, the Company shall be deemed to have so approved such account.
In such case, or upon the written approval by the Company of any such
account, the Trustee shall, to the extent permitted by law, be
discharged from all liability to the Company for its acts or failures
to act described by such account. The foregoing, however, shall not
preclude the Trustee from having its accounting settled by a court of
competent jurisdiction. The Trustee shall be entitled to hold and to
commingle the assets of the Trust in one Fund for investment purposes
but at the direction of the Company prior to a Change of Control, the
Trustee shall create one or more sub-accounts.
(b) The Trustee shall from time to time permit public accountant(s)
selected by the Company (who may be employees of the Company) to have
access during ordinary business hours to such records as may be
necessary to audit the Trustee's accounts.
SECTION 10. RESPONSIBILITY OF THE TRUSTEE
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in
like capacity and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims, provided,
however, that the Trustee shall incur no liability to any person for
any action taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with, the terms
of the Arrangements or this Trust and is given in writing by the
Company. In the event of a dispute between the Company and
a party, the Trustee may apply to a court of competent jurisdiction to
resolve the dispute, subject, however to Section 2(e) hereof.
(b) The Company hereby indemnifies the Trustee against losses, liabilities,
claims, costs and expenses in connection with the administration of the
Trust, unless resulting from the gross negligence or misconduct of
Trustee. To the extent the Company fails to make any payment on account
of an indemnity provided in this paragraph 10(b), in a reasonably
timely manner, the Trustee may obtain payment from the Trust Fund. If
the Trustee undertakes or defends any litigation arising in connection
with this Trust or to protect a Participant's or Beneficiary's rights
under the Arrangements, the Company agrees to indemnify the Trustee
against the Trustee's costs, reasonable expenses and liabilities
(including, without limitation, attorneys' fees and expenses) relating
thereto and to be primarily liable for such payments. If the Company
does not pay such costs, expenses and liabilities in a reasonably
timely manner, the Trustee may obtain payment from the Trust Fund.
(c) Prior to a Change of Control, the Trustee may consult with legal
counsel (who may also be counsel for the Company generally) with
respect to any of its duties or obligations hereunder. Following a
Change of Control, the Trustee shall select independent legal counsel
and may consult with counsel or other persons with respect to its
duties and with respect to the rights of Participants or their
Beneficiaries under the Arrangements.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder and may rely on
any determinations made by such agents and information provided to it
by the Company.
(e) The Trustee shall have, without exclusion, all powers conferred on the
Trustee by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to 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.
SECTION 11. TAXES, COMPENSATION AND EXPENSES OF THE TRUSTEE
(a) The Company shall from time to time pay taxes of any and all kinds
whatsoever that at any time are lawfully levied or assessed upon the
Company or become payable by the Company in respect of the Trust Fund,
the income or any property forming a part thereof, or any security
transaction pertaining thereto. All references in this Trust Agreement
to the payment of taxes shall include interest and applicable
penalties. The Trustee shall comply with all Federal and State tax
filing requirements of the Trust and shall furnish to the Company for
its review and comment a draft copy of Form 1041 (U.S. Fiduciary Income
Tax Return) or any other tax filings for the Trust together with
supporting schedules a minimum of two weeks prior to the tax return
filing due date. To enable the
Company to make monthly tax accrual and to compute its estimated income
tax obligations, the Trustee will furnish, on or prior to the eighth
business day of the succeeding month, a monthly report identifying the
type and amount of income by source of investment (interest, dividends,
etc.).
(b) The Trustee's compensation shall be as agreed in writing from time to
time by the Company and the Trustee. The Company shall pay all
administrative expenses and the Trustee's fees and shall promptly
reimburse the Trustee for any fees and expenses of its agents. If not
so paid, the fees and expenses shall be paid from the Trust.
SECTION 12. RESIGNATION AND REMOVAL OF THE TRUSTEE
(a) Prior to a Change of Control, 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 the Trustee agree
otherwise. Following a Change of Control, the Trustee may resign only
after the appointment of a successor Trustee.
(b) The Trustee may be removed by the Company on sixty days (60) days
notice or upon shorter notice accepted by the Trustee prior to a Change
of Control. Subsequent to a Change of Control, the Trustee may only be
removed by the Company with the written consent of a seventy-five
percent (75%) majority of the Participants and Beneficiaries.
(c) If the Trustee resigns within two years after a Change of Control, as
defined herein, the Company, or if the Company fails to act within a
reasonable period of time following such resignation, the Trustee shall
apply to a court of competent jurisdiction for the appointment of a
successor Trustee or for instructions.
(d) 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 extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be appointed by
the Company, in accordance with Section 13 hereof, by the effective
date of resignation or removal under paragraph(s) (a) or (b) of this
section. If no such appointment has been made, the Trustee may apply to
a court of competent jurisdiction for appointment of a successor or for
instructions. All expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
SECTION 13. APPOINTMENT OF SUCCESSOR
(a) If the Trustee resigns or is removed in accordance with Section 12
hereof, the Company may appoint, subject to Section 12, any third party
national banking association with a market capitalization exceeding
$100,000,000 to replace the Trustee upon resignation or removal. The
successor Trustee shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust. The former Trustee
shall execute any instrument necessary or reasonably requested by the
Company or the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets,
subject to Section 8 and 9 hereof. The successor Trustee shall not be
responsible for and the Company shall indemnify and defend the
successor Trustee from any claim or liability resulting from any action
or inaction of any prior Trustee or from any other past event, or any
condition existing at the time it becomes successor Trustee.
SECTION 14. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company. Prior to a Change of Control, the Company
may amend Attachment I to add new Arrangements or to delete
Arrangements which have been paid in full, and at any time and from
time to time may amend Attachment II, the list of individuals
authorized to act on behalf of the Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the
Arrangements or shall make the Trust revocable other than is provided
in Section 5(b).
(b) The Trust shall not terminate until the date on which Participants and
their Beneficiaries have received all of the benefits due to them under
the terms and conditions of the Arrangements.
(c) Upon written approval of a 75% of the majority of the Participants or
Beneficiaries entitled to payment of benefits pursuant to the terms of
the Arrangements, the Company may terminate this Trust prior to the
time all benefit payments under the Arrangements have been made. All
assets in the Trust at termination shall be returned to the Company.
(d) This Trust Agreement may not be amended or terminated by the Company
for two (2) years following a Change of Control without the written
consent of a seventy-five percent (75%) majority of the Participants
and Beneficiaries, and no such amendment shall adversely affect any
benefits of a Participant or Beneficiary without the written consent of
the affected person.
SECTION 15. DEFINITIONS OF A CHANGE OF CONTROL
(a) Change of Control shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 as amended (a "Person")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) of twenty percent (20%)
or more of either (a) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock")
or (b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly
from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or
maintained by the Company or any corporation controlled by the
Company or (D) any acquisition pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 15(a); or
(ii) Individuals who, as of January 12, 1998, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to January 12, 1998,
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Corporate Transaction beneficially own, directly or
indirectly, more than sixty percent (60%) of, respectively,
the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a
corporation which as a result of such transactions owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Corporate
Transaction) beneficially own, directly or indirectly, twenty
percent (20%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Corporate
Transaction and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Corporate Transaction;
or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
For purposes of this Section 15(a), the Incumbent Board, by a majority
vote, shall have the power to determine on the basis of information
known to them (a) the number of shares beneficially owned by any
person, entity or group; (b) whether there exists an agreement,
arrangement or understanding with another as to matters referred to in
this Section 15(a); and (c) such other matters with respect to which a
determination is necessary under this Section 15(a).
Notwithstanding anything to the contrary in Section 15(a)(i) or Section
15(a)(ii) or Section 15(a)(iii) or any other provision of this
Agreement, a Change of Control shall not have occurred (or be deemed to
have occurred) as a result of the consummation of the transactions
contemplated under the Agreement and Plan of Merger dated as of
November 18, 2001 by and among Phillips Petroleum Company,
CorvettePorsche Corp., Porsche Merger Corp., Corvette Merger Corp., and
Conoco Inc. ("Merger Agreement").
SECTION 16. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(b) The Company hereby represents and warrants that all of the Arrangements
have been established, maintained and administered in accordance with
all applicable laws, including without limitation, ERISA- The Company
hereby indemnifies and agrees to hold the Trustee harmless from all
liabilities, including attorney's fees, relating to or arising out of
the establishment, maintenance and administration of the Arrangements.
To the extent the Company does not pay any of such liabilities in a
reasonably timely manner, the Trustee may obtain payment from the
Trust.
(c) Benefits payable to Participants and their Beneficiaries under this
Trust Agreement 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.
(d) The persons authorized to act for the Company are identified on
Attachment H and such list may be amended by the Company from time to
time without the consent of the Trustee. The individual identified as
the Financial Administrator shall have the power to act for the Company
with respect to all matters herein regarding the investment of Trust
assets, the authority to request reimbursements to be paid to the
Company and is the individual designated to receive requests for
contributions from the Trustee. The Senior Vice President and Chief
Financial Officer, or his successor, of the Company shall be the
Financial Administrator. The individual identified as the Benefits
Administrator shall have the power to act for the Company with respect
to all matters herein regarding the determination of benefits owed
under the Arrangements and the Payment of such benefits. The Executive
Vice President, Planning, Corporate Relations and Services of the
Company, or his successor, shall be the Benefits Administrator. Both
the Financial Administrator and the Benefits Administrator may, from
time to time, seek advice and guidance, or delegate functions assigned
under this Trust Agreement to them, to other individuals who shall be
identified on Attachment II as authorized to act for such
Administrator, and each Administrator shall have the authority to amend
the list of individuals who are authorized to so act on his or her
behalf in Attachment H and to communicate the amended list to the
Trustee. Further, both the Benefits and Financial Administrator may
delegate administrative functions to other specified individuals who
are identified in writing to the Trustee. The Trustee shall be entitled
to rely upon the latest list of authorized individuals received.
(e) This Trust Agreement shall be governed by and construed in accordance
with the laws of North Carolina.
IN WITNESS WHEREOF, this Grantor Trust Agreement has been executed on behalf of
the parties hereto on the day and year first above written.
PHILLIPS PETROLEUM COMPANY WACHOVIA BANK, N.A.
By: /s/ T. C. Morris By: /s/ Peter D. Quinn
--------------------------------- -----------------------------------
Its: Senior Vice President and Its: Vice President
Chief Financial Officer ----------------------------------
--------------------------------
ATTEST: ATTEST:
By: /s/ Dale Billam By: /s/ Ronald W. Darby
--------------------------------- -----------------------------------
Its: Corporate Secretary Its: Vice President and Assistant
-------------------------------- Secretary
----------------------------------
ATTACHMENT I
LIST OF ARRANGEMENTS
KEY EMPLOYEE DEFERRED COMPENSATION PLAN OF PHILLIPS PETROLEUM COMPANY:
PHILLIPS PETROLEUM COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:
KEY EMPLOYEE SUPPLEMENTAL RETIREMENT PLAN OF PHILLIPS PETROLEUM COMPANY:
DEFINED CONTRIBUTION MAKEUP PLAN OF PHILLIPS PETROLEUM COMPANY:
KEY EMPLOYEE MISSED CREDITED SERVICE RETIREMENT PLAN OF PHILLIPS PETROLEUM
COMPANY
PRINCIPAL CORPORATE OFFICERS SUPPLEMENTAL RETIREMENT PLAN OF PHILLIPS PETROLEUM
COMPANY:
Annuity payments all in payout status
SUPPLEMENTAL RETIREMENT:
Annuity payments all in payout status accrued as a result of
participation in the Phillips Petroleum Company Key Employee Death
Protection Plan and the individual contracts for deferred compensation
PHILLIPS OIL COMPANY EXCESS BENEFIT PLAN:
One remaining participant in annuity payout
AMINOIL RETIREMENT CONTRACTS:
Contracts with J.B. Coffman and Guy Cessna - both in annuity payout
status
PHILLIPS PETROLEUM COMPANY EXECUTIVE SEVERANCE PLAN
The Trust Agreement is in all other respects ratified and confirmed
without amendment.
ATTACHMENT II
INDIVIDUALS AUTHORIZED TO ACT ON BEHALF OF THE COMPANY
FINANCIAL ADMINISTRATOR
J. A. Carrig
INDIVIDUALS AUTHORIZED TO ACT FOR FINANCIAL ADMINISTRATOR
J.W. Sheets
J. E. Durbin
F. M. Vallejo
BENEFITS ADMINISTRATOR
J. C. High
INDIVIDUALS AUTHORIZED TO ACT FOR BENEFITS ADMINISTRATOR
H. L. Black, Jr.
Exhibit 10.11
Amended by the Board of Directors August 26, 2002
1986 STOCK PLAN
OF
PHILLIPS PETROLEUM COMPANY
1. PURPOSE
The purpose of the 1986 Stock Plan of Phillips Petroleum Company is to
provide incentive earnings opportunities to those key employees whose
decisions and actions most directly affect the profitability and growth of
the Company and its subsidiaries. Since the incentive earnings
opportunities under this Plan are based on the market value of the
Company's Common Stock it will have the additional effect of increasing
these employees' identity of interest with that of the Company's
stockholders. There are two programs permitted by this Plan; a Stock
Option Plan and the Strategic Incentive Plan.
2. DEFINITIONS
a) "Board" shall mean the Board of Directors of the Company.
b) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
c) "Company" shall mean ConocoPhillips.
d) "Committee" shall mean the Compensation Committee of the Board of
Directors as appointed from time to time, and consisting of not less
than three Board members. Each member of the Committee shall be a
"disinterested person" as that term is now or hereafter defined in
Rule 16(b)(3) of the Securities and Exchange Commission.
e) "Earned Award" shall mean the award which an SIP Participant is
entitled to receive under the Strategic Incentive Plan.
f) "Employee" shall mean any person employed by the Company or a
Subsidiary on a full-time salaried basis, including officers and
employee directors thereof.
g) "Fair Market Value" shall mean the average of the highest price and
the lowest price at which Stock shall have been sold on the date of
the grant of the Option as reflected on
1
the consolidated tape of New York Stock Exchange issues. In the
event that any Option shall be granted on a date on which there were
no such sales of Stock, the fair market value of Stock on such date
shall be the average of the highest price and lowest price at which
Stock shall have been sold on the last trading day preceding the
date of grant of such Option as reflected on the consolidated tape
of New York Stock Exchange issues.
h) "Incentive Stock Option" or "ISO" shall mean an Option grant which
meets or complies with the terms and conditions set forth in Section
422A of the Code and Treasury regulations promulgated thereunder.
i) "Indicators of Performance" shall mean the criteria which the
Committee will use at the conclusion of the Performance Period to
evaluate the Company's overall performance as described in Section
9(b) of this Plan.
j) "Strategic Incentive Plan Participant" or "SIP Participant" shall
mean any eligible Employee who has been so designated by the
Committee.
k) "Option" or "Stock Option" shall mean a right granted under the Plan
to an Optionee to purchase a stated number of shares of Stock at a
stated exercise price.
l) "Optionee" shall mean an employee who has received a Stock Option
granted under the Plan.
m) "Performance Period" shall mean a period established by the
Committee beginning on the first day of a calendar year, of not less
than three consecutive calendar years, at the conclusion of which
settlement will be made with a SIP Participant with respect to his
Earned Award.
n) "Plan" shall mean the 1986 Stock Plan of Phillips Petroleum Company.
o) "Restricted Stock" shall mean Stock which is not transferable except
in accordance with the terms established for such transfer at the
time of its issue in accordance with the plan under which it was
issued.
2
p) "Stock" shall mean the common stock, including both Restricted and
unrestricted Stock, of the Company.
q) "Stock Appreciation Right" or "SAR" shall mean the right of an
Optionee to exercise his Option in accordance with Section 8 of this
Plan.
r) "Subsidiary" shall mean any corporation, a majority of the voting
stock of which is beneficially owned, directly or indirectly, by the
Company.
s) "Target Award" shall mean the award, expressed in shares of Stock,
which will be considered an Earned Award, absent any adjustment
thereto for individual performance, if the Committee determines
pursuant to Section 9(b) of this Plan that the Company's overall
performance was "competitive".
t) "Total Disability" and "Totally Disabled" shall mean that condition
in which, by reason of bodily injury or disease, an employee is and
will at all times thereafter be wholly prevented from engaging in
any occupation or employment for compensation, profit or gain. All
determinations of Total Disability shall be made by the insurance
company carrying the group life insurance plan of the Company on the
date on which the employee, whether or not eligible for benefits
under such insurance plan, becomes Totally Disabled.
3. ADMINISTRATION
The Committee is authorized, subject to the provisions of the Plan, from
time to time to establish such rules and regulations and to appoint such
agents as it deems appropriate for the proper administration of the Plan,
and to make such determinations under, and such interpretations of, and to
take such steps in connection with the Plan or the Options or Stock
Appreciation Rights or the Strategic Incentive Plan as it deems necessary
or advisable. Each determination, interpretation, or other action made or
taken pursuant to the provisions of the Plan by the Committee shall be
final and shall be binding and conclusive for all purposes and upon all
persons.
3
4. ELIGIBILITY
Only those Employees who, in the sole judgment of the Committee, may have
a significant effect on the profitability and growth of the Company, shall
be eligible to receive Options and Stock Appreciation Rights under this
Plan. Of such Employees, those who are in positions evaluated at grade 35
or higher under the Company's salary administration system are eligible
for participation in the Strategic Incentive Plan; provided, however, the
Committee may also permit Employees eligible for Participation in the Plan
evaluated at less than grade 35 to participate in the Strategic Incentive
Plan if in the opinion of the Committee such Employees have a significant
effect on the Company's long term growth and profitability.
5. MAXIMUM SHARES AVAILABLE
The Stock to be distributed under the Plan may be either authorized and
unissued shares or issued shares whether held in the treasury of the
Company or otherwise. The total amount of Stock which, under the
provisions of this Plan, may be subject to delivery on the exercise of
Options, issued in satisfaction of exercised options or SAR's, or issued
under the Strategic Incentive Plan shall not exceed 3.5% of the number of
issued and outstanding shares of Stock, determined as of the effective
date of this Plan. The maximum number of shares is subject to adjustment
in accordance with the provisions of Section 10 hereof.
6. STOCK OPTIONS
a) Award of Options: (i) The Committee, at any time and from time to
time prior to December 31, 1990, may grant Options under the Plan to
eligible Employees, for such numbers of shares and having such terms
as the Committee shall designate, subject, however, to the
provisions of the Plan. The Committee will also determine the type
of Option granted (e.g., ISO, nonstatutory, other statutory Options
as from time to time may be permitted by the Code) or a combination
of various types of Options. Options
4
designated as ISOs shall comply with all the provisions of Section
422A of the Code and applicable Treasury Department regulations. The
aggregate Fair Market Value (determined at the time the Option is
granted) of Stock with respect to which ISOs are exercisable for the
first time by any individual during a calendar year under all plans
of the Company, and any subsidiary shall not exceed $100,000. The
date on which an Option shall be granted shall be the date of the
Committee's authorization of such grant. Any individual at any one
time and from time to time may hold more than one Option granted
under the Plan or under any other Stock plan of the Company. (ii)
Each Option shall be evidenced by a Stock Option Agreement in such
form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall
approve.
b) Exercise Price. The price at which shares of Stock may be purchased
under an Option shall not be less than 100 percent of the Fair
Market Value of the Stock on the date the Option is granted.
c) Term of Options. The period during which an option may be exercised
shall be determined by the Committee; provided, that such period
will not be longer than ten years from the date on which the Option
is granted for those Options designated as ISOs or 11 years for
other types of Options. The date or dates on which installment
portion(s) of an Option may be exercised during the term of an
Option shall be determined by the Committee and may vary from Option
to Option. If the Committee makes no such specific arrangement with
respect to an Option, each such Option granted pursuant to the Plan
shall become exercisable in four installments. The first such
installment shall become exercisable on the first anniversary of the
date of the grant for 25 percent of the number of shares of Stock
subject to the Option. Thereafter, on each anniversary of the date
of the grant an installment shall become exercisable for an
additional 25 percent of the number of shares of Stock subject to
the
5
Option until the Option shall have become fully exercisable. To the
extent that an installment is not exercised when it becomes
exercisable, it shall not expire but shall continue to be
exercisable at any time thereafter until the Option shall be
cancelled, expire or be surrendered. In no event, however, will any
option or portion of an option be exercisable within six months of
its grant date. The Committee may accelerate the exercise schedule
on outstanding Options, if in its sole judgment conditions are such
to warrant such acceleration.
d) Termination of Employment. (i) If, prior to a date one year from the
date an Option shall have been granted, the Optionee's employment
with the Company or Subsidiary shall be terminated for any reason,
such Option shall be cancelled and all rights thereunder shall
cease; provided that an option granted in any year to an Optionee
who terminates his employment on January 1 of the following year due
to retirement pursuant to the terms of a retirement plan of the
Company or a Subsidiary shall not be cancelled for that reason, and
provided, further, the Committee may, in its sole discretion
determine that all or any portion of any other Option shall not be
cancelled due to termination of employment prior to a date one year
from the date the Option shall have been granted. (ii) If, on or
after one year from the date an Option shall have been granted, an
Optionee's employment with the Company or Subsidiary is terminated
for any reason except retirement pursuant to the terms of a
retirement plan of the Company or a Subsidiary, Total Disability, or
death, any Option granted to him under the Plan shall be cancelled
on such termination; provided, that the Committee may, in its sole
discretion, determine that all or a portion of any such Option shall
not be cancelled. (iii) If, on or after a date one year from the
date the Option is granted, an Optionee shall terminate employment
by reason of retirement pursuant to a retirement plan of the Company
or Subsidiary, or by reason of Total Disability, the Optionee shall
retain all rights provided by the Option at the time of such
termination of employment.
6
If on or after a date one year from the date the Option is granted,
or such shorter period as may be permitted pursuant to (d) (ii)
above, an Optionee shall die while in the employ of the Company or
Subsidiary or after termination of employment by reason of
retirement pursuant to a retirement plan of the Company or
Subsidiary, the executor or administrator of the estate of the
Optionee or the person or persons to whom the Option shall have been
validly transferred by the executor or the administrator pursuant to
will or the laws of descent and distribution shall have the right to
exercise the Option to the same extent the Optionee could have, had
he not died. No transfer of an Option by the Optionee by will or by
the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written
notice thereof and a copy of the will and such other evidence as the
Company may deem necessary to establish the validity of the transfer
and the acceptance by the transferee or transferees of the terms and
conditions of such Option. (iv) Transfer of employment between the
Company and a Subsidiary or between Subsidiaries shall not
constitute termination of employment for the purpose of any Option
granted under the Plan. Whether any leave of absence shall
constitute termination of employment for the purposes of any Option
granted under the Plan shall be determined in each case by the
Committee in its sole discretion.
e) Payment for Shares. (i) The exercise price for all shares of Stock
purchased upon the exercise of an Option, or a portion thereof,
shall be paid in full at the time of such exercise. Such payment may
be made in cash, by tendering shares of Stock having a value on the
date of exercise equal to the exercise price, or tendering shares of
Restricted Stock having a value on the date of exercise equal to the
exercise price. Such value shall be the Fair Market Value except
that the applicable date for determination of the highest and lowest
price on the New York Stock Exchange shall be the date on which the
Option is exercised, or if not a trading date, then the last
7
trading day on such Exchange preceding the date on which the Option
is exercised. If Restricted Stock is used in such exercise, the
resulting new shares shall have the same restrictions as the
tendered shares. The number of shares so restricted shall not be
less than the number of shares of Restricted Stock tendered. The
Committee may, in its sole discretion and judgment, limit the extent
to which shares of Stock or shares of Restricted Stock may be used
in exercising Options. (ii) The Stock delivered to the Optionee upon
exercise of an Option, whether or not Restricted Stock is used for
payment of the purchase price of the Option may, at the discretion
of the Committee, have restrictions placed on it, provided that the
Stock Option agreement with the Optionee covering the Option permits
such use of Restricted Stock.
7. DETRIMENTAL ACTIVITIES
If the Committee determines that, subsequent to the grant of any
Option, the Optionee has engaged or is engaging in any activity
which, in the sole judgment of the Committee, is or may be
detrimental to the Company or a Subsidiary, the Committee may refuse
to honor the exercise of such Optionee's Options already requested,
and cancel the Option or Options granted to that Optionee.
8. STOCK APPRECIATION RIGHTS
a) Grant. The Committee may, at its discretion, affix Stock
Appreciation Rights to any Option, either at the time of its initial
granting to the Optionee or at a later date. The addition of such
SARs must be accomplished prior to the completion of the period
during which the Option may be exercised and such exercise period
may not be extended beyond that which was initially established. The
Committee may establish any SAR terms and conditions that it desires
at the time such SAR is established, provided that, notwithstanding
any provision of this Plan to the contrary, the terms and conditions
of a SAR related to an ISO shall be the same as the terms applicable
to the underlying ISO.
8
b) Exercise of Stock Appreciation Right. (i) A Stock Appreciation Right
shall be exercisable at such time as may be determined by the
Committee, which shall be not less than six months after its grant,
and provided further that a Stock Appreciation Right shall be
exercisable only to the extent that the related Option could be
exercised. Option shares with respect to which the related Stock
Appreciation Right shall have been exercised may not again be
subjected to Options under this Plan. Upon the exercise of a Stock
Appreciation Right, that portion of the Option underlying the Stock
Appreciation Right will be considered as having been exercised. (ii)
The Committee may impose any other conditions upon the exercise of a
Stock Appreciation Right, which conditions may include a condition
that the Stock Appreciation Right may only be exercised in
accordance with rules and regulations adopted by the Committee from
time to time. Such rules and regulations may govern the right to
exercise Stock Appreciation Rights granted prior to the adoption or
amendment of such rules and regulations as well as Stock
Appreciation Rights granted thereafter. The exercise of a Stock
Appreciation Right for cash shall be made only during the periods
specified in Rule 16b-3(e)(3)(iii) of the Securities and Exchange
Commission. (iii) Upon the exercise of a Stock Appreciation Right,
the Company shall give to an Optionee an amount (less any applicable
withholding taxes) equivalent to the excess of the value of the
shares of Stock for which the right is exercised on the date of such
exercise over the exercise price of such shares under the related
Option. The value on the date of exercise shall be the Fair Market
Value as determined in Section 6(e) of this Plan. Such amount shall
be either in cash or in shares of Stock or both as the Committee
shall determine. Such determination may be made at the time of the
granting of the Stock Appreciation Right and may be changed at any
time thereafter. The shares may consist either in whole or in part
of authorized and unissued shares of Stock or issued shares of Stock
whether held in the treasury of the Company or otherwise. No
9
fractional shares of Stock shall be issued and the Committee shall
determine whether cash shall be given in lieu of such fractional
share or whether such fractional share shall be eliminated.
c) Expiration or Termination of Stock Appreciation Rights. (i) Subject
to (c)(ii), each Stock Appreciation Right and all rights and
obligations thereunder shall expire on a date to be determined by
the Committee. (ii) A Stock Appreciation Right shall terminate and
may no longer be exercised upon the termination of the related
Option.
d) Amend, Suspension or Termination of Stock Appreciation Rights. The
Committee may at any time amend, suspend or terminate any Stock
Appreciation Right theretofore granted under the Plan.
9. STRATEGIC INCENTIVE PLAN
a) Administrative Procedure. Normally, the Committee shall adopt
administrative procedures applicable to a Performance Period prior
to, or within 30 days after, the date designated by the Committee
for the Commencement of such Performance Period. The Committee may,
however, adopt such administrative procedures more than 30 days
after such commencement if in its opinion such delayed action is
appropriate. Such procedures shall establish Indicators of
Performance and the Target Awards applicable to the Performance
Period. Indicators of Performance may vary from Performance Period
to Performance Period.
b) Indicators of Performance. Indicators of Performance may include,
but shall not be limited to, increased shareholder value, earnings
per share, return on shareholder's equity, return on assets and/or
other similar criteria. Such indicators may be based on the
Company's performance compared to the performance of one or more
selected companies in the petroleum industry during the same
Performance Period or may relate solely to the Company's performance
during the Performance Period or a
10
combination of such indicators. At the completion of the Performance
Period, the Committee will review the Company's actual performance
with respect to the Indicators of Performance and, in its sole
judgment, rank the Company's overall performance. Such ranking may
range from "noncompetitive" through "competitive" to "outstanding".
In arriving at such ranking the Committee may take into
consideration, and make appropriate adjustments for, events
occurring during the Performance Period which the Committee, in its
sole judgment, concludes have affected the performance of the
Company or any selected company with respect to any of the
Indicators of Performance. No earned Awards will be granted if the
Company's overall performance is ranked "noncompetitive". Subject to
individual performance adjustments therein, if any, pursuant to
paragraph 9(c) of this Plan, if the Company's overall performance is
ranked "competitive", Target Awards will result; higher or lower
ranking will result in greater or lesser awards provided that in no
event, including individual performance adjustments, shall the
Earned Award of a SIP Participant exceed 150% of his Target Award.
c) Award Adjustments. The Committee in its sole discretion may make
adjustments in awards determined under paragraph (b) of this Section
based on the SIP Participant's individual performance during the
Performance Period. The administrative procedures for each
Performance Period shall establish the method to be used by the
Committee in determining which, if any, SIP Participants may receive
such performance adjustments and, subject to the maximum set out in
paragraph (b) of this Section, the size of such adjustments.
d) Partial Performance Period Participation. The administrative
procedures adopted for each Performance Period shall also include
procedures to be used in determining the extent to which an Employee
shall participate in a partial Performance Period due to either
assignment to a position which makes eligible to be a SIP
Participant after the
11
beginning of such Performance Period or termination of employment
prior to the completion of such a Performance Period in which he was
a SIP Participant.
e) Award Settlement. With respect to each Performance Period,
settlement of all Earned Awards shall be made in Stock as soon as
practicable following the date on which the Committee determines the
size of Earned Awards; provided that the Committee may decide to
settle such awards over a period or periods of time as the Committee
shall deem appropriate.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, Stock split, Stock
dividend, exchange of Stock, combination of Stock, merger, consolidation
or any other change in corporate structure of the Company affecting the
Stock, or in the event of a sale by the Company of all or a significant
part of its assets, or any distribution to its shareholders other than a
normal cash dividend, the Committee may make appropriate adjustment in the
number, kind, price and value of Stock authorized by this Plan and any
adjustment to outstanding Awards as it determines appropriate so as to
prevent dilution or enlargements of rights.
11. MISCELLANEOUS
a) Except as otherwise required by law, no action taken under the Plan
shall be taken into account in determining any benefits under any
pension, retirement, thrift, profit sharing, group insurance, or
other benefit plan maintained by the Company or any Subsidiary,
unless such other plan specifically provides for such inclusion.
b) No Option or Stock Appreciation Right or right under the Strategic
Incentive Plan shall be transferable other than by will or the laws
of descent and distribution. During the lifetime of an Optionee, any
Option or Stock Appreciation Right shall be exercisable only by him
or by his duly appointed guardian or legal representative.
12
c) The Company shall have the right to withhold from any settlement
hereunder any federal, state, or local taxes required by law to be
withheld. Such withholding may be satisfied by the withholding of
shares of Stock by the Company if the Optionee so requests in a
manner prescribed by the Committee, if the Committee so approves,
and such withholding of shares does not violate any applicable laws,
rules or regulations of federal, state or local authorities.
d) All administrative expenses associated with the administration of
the Plan shall be borne by the Company.
e) Masculine pronouns and other words of masculine gender used herein
shall refer to both men and women.
f) The titles and headings of the sections in this Plan are for
convenience of reference only and in the event of any conflicts, the
text of the Plan, rather than such titles or headings, shall
control.
12. AMENDMENT AND TERMINATION
The Board may at any time terminate or amend this Plan in such respect as
it shall deem advisable, provided, the Board may not, without further
approval of the stockholders of the Company amend the Plan so as to (i)
increase the number of shares of Stock which may be issued under the Plan,
except as provided for in Section 10; (ii) materially modify the
requirements as to eligibility for participation; (iii) materially
increase the benefits accruing to Participants under the Plan; (iv) extend
the duration of the Plan beyond the date approved by the stockholders; or
(v) increase the maximum dollar amount of ISOs which an individual
Optionee may exercise during any calendar year beyond that permitted in
the Code and applicable regulations of the Treasury Department.
Notwithstanding the foregoing, no such termination or amendment may
adversely affect the rights of any Participant under any Award that is
outstanding at the time of such termination or amendment without the
Participant's consent.
13
13. DURATION OF THE PLAN
The Plan shall become effective on approval by the stockholders at the
annual meeting of the stockholders in April of 1986, retroactive to
January 1, 1986, and shall terminate on December 31, 1990.
14. CHANGE OF CONTROL
a) In the event of a Change of Control:
i) Any Stock Options and Stock Appreciation Rights outstanding as
of the date of the Change of Control that are not then fully
exercisable and vested, shall become fully exercisable and
vested to the full extent of the original grant;
ii) All restrictions and other limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall
become free of all restrictions and become fully vested and
transferable to the full extent of the original grant;
iii) All Performance Awards and other Awards outstanding as of the
date of the Change of Control shall be considered to be earned
and payable in full, and any deferral or other restriction
shall lapse and except as provided in subsection (c) of this
Section 14, such Performance Units shall be settled in cash as
promptly as is practicable; and
iv) Section 7 of the Plan, and all noncompetition covenants and
other similar restrictive covenants applicable to any
outstanding Awards, shall lapse and become null and void and
of no further effect.
b) A "Change of Control" shall mean:
i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 as amended (a "Person")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) of 20% or more of either
(a) the then outstanding shares of common stock of the Company
(the "Outstanding Company
14
Common Stock") or (b) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition
pursuant to a transaction which complies with clauses (A), (B)
and (C) of subsection (iii) of this Section 14(b); or
ii) Individuals who, as of August 26, 2002, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to August 26, 2002,
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding
15
Company Voting Securities immediately prior to such Corporate
Transaction beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Corporate Transaction of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be,
(B) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
Corporate Transaction) beneficially own, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Corporate
Transaction and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Corporate Transaction;
or
iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
c) Notwithstanding the foregoing, if any right to receive cash granted
pursuant to this Section 14 would make a Change of Control
transaction ineligible for pooling-of-interest accounting under APB
No. 16 that but for the nature of such right would be
16
eligible for such accounting treatment, the Committee shall have the
ability to substitute for the cash payable pursuant to such right
Stock or other securities with a fair market value equal to the cash
that would otherwise be payable hereunder.
17
Exhibit 10.12
Amended by the Board of Directors August 26, 2002
1990 STOCK PLAN
OF
PHILLIPS PETROLEUM COMPANY
(As Approved April 25, 1989)
1. PURPOSE
The purpose of the 1990 Stock Plan of Phillips Petroleum Company is to
provide incentive earnings opportunities to those key employees whose
decisions and actions most directly affect the profitability and growth of
the Company and its subsidiaries. Since the incentive earnings
opportunities under this Plan are based on the market value of the
Company's Common Stock, it will have the additional effect of increasing
these employees' identity of interest with that of the Company's
stockholders. There are two programs permitted by this Plan; a Stock
Option Plan and the Strategic Incentive Plan.
2. DEFINITIONS
a) "Board" shall mean the Board of Directors of the Company.
b) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
c) "Company" shall mean ConocoPhillips.
d) "Committee" shall mean the Compensation Committee of the Board of
Directors as appointed from time to time, and consisting of not less
than three Board members. Each member of the Committee shall be a
"disinterested person" as that term is now or hereafter defined in
Rule 16(b)(3) of the Securities and Exchange Commission.
e) "Earned Award" shall mean the award which an SIP Participant is
entitled to receive under the Strategic Incentive Plan.
f) "Employee" shall mean any person employed by the Company or a
Subsidiary on a full-time salaried basis, including officers and
employee directors thereof.
g) "Fair Market Value" shall mean the average of the highest price and
the lowest price at which Stock shall have been sold on the date of
the grant of the Option as reflected on the consolidated tape of New
York Stock Exchange issues. In the event that any Options shall be
granted on a date on which there were no such sales of Stock, the
fair market value of Stock on such date shall be the average of the
highest price and the lowest price at which Stock shall have been
sold on the last trading day preceding the date of grant of such
Option as reflected on the consolidated tape of New York Stock
Exchange issues.
h) "Incentive Stock Option" or "ISO" shall mean an Option which meets
or complies with the terms and conditions set forth in Section 422A
of the Code and Treasury regulations promulgated thereunder.
i) "Indicators of Performance" shall mean the criteria which the
Committee will use at the conclusion of the Performance Period to
evaluate the Company's overall performance as described in Section
9(b) of this Plan.
2
j) "Strategic Incentive Plan Participant" or "SIP Participant" shall
mean any eligible Employee who has been so designated by the
Committee.
k) "Option" or "Stock Option" shall mean a right granted under the Plan
to an Optionee to purchase a stated number of shares of Stock at a
stated exercise price.
l) "Optionee" shall mean an employee who has received a Stock Option
granted under the Plan.
m) "Performance Period" shall mean a period established by the
Committee beginning on the first day of a calendar year, of not less
than three consecutive calendar years, at the conclusion of which
settlement will be made with a SIP Participant with respect to his
Earned Award.
n) "Plan" shall mean the 1990 Stock Plan of Phillips Petroleum Company.
o) "Restricted Stock" shall mean Stock which is not transferable except
in accordance with the terms established for such transfer at the
time of its issue in accordance with the plan under which it was
issued.
p) "Stock" shall mean the common stock, including both Restricted and
unrestricted Stock, of the Company.
q) "Stock Appreciation Right" or "SAR" shall mean the right of an
Optionee to exercise an Option granted in accordance with Section 8
of this Plan.
r) "Subsidiary" shall mean any corporation, a majority of the voting
stock of which is beneficially owned, directly or indirectly, by the
Company.
s) "Target Award" shall mean the award, expressed in shares of Stock,
which will be considered an Earned Award, absent any adjustment
thereto for
3
individual performance, if the Committee determines pursuant to
Section 9(b) of this Plan that the Company's overall performance was
"competitive."
t) "Total Disability" and "Totally Disabled" shall mean the condition
in which, by reason of bodily injury or disease, an employee is and
will at all times thereafter be wholly prevented from engaging in
any occupation or employment for compensation, profit or gain. All
determinations of Total Disability shall be made by the insurance
company carrying the group life insurance plan of the Company on the
date on which the employee, whether or not eligible for benefits
under such insurance plan, becomes Totally Disabled.
3. ADMINISTRATION
The Committee is authorized, subject to the provisions of the Plan, from
time to time to establish such rules and regulations and to appoint such
agents as it deems appropriate for the proper administration of the Plan,
and to make such determinations under, and such interpretations of, and to
take such steps in connection with the Plan or the Options or Stock
Appreciation Rights or the Strategic Incentive Plan as it deems necessary
or advisable. Each determination, interpretation, or other action made or
taken pursuant to the provision of the Plan by the Committee shall be
final and shall be binding and conclusive for all purposes and upon all
persons. Notwithstanding any provision of the Plan or any Administrative
Procedure adopted thereunder which may be capable of being construed to
the contrary, no discretion concerning the administration of the Plan
4
insofar as it relates to persons subject to Section 16 of the Securities
Exchange Act of 1934 shall be afforded to a person who is not a
disinterested person in respect of the Plan.
4. ELIGIBILITY
Only those Employees who, in the sole judgment of the Committee, may have
a significant effect on the profitability and growth of the Company, shall
be eligible to receive Options and Stock Appreciation Rights under this
Plan. Of such Employees, those who are in positions evaluated at grade 35
or higher under the Company's salary administration system are eligible
for participation in the Strategic Incentive Plan; provided, however, the
Committee may also permit Employees eligible for Participation in the Plan
evaluated at less than grade 35 to participate in the Strategic Incentive
Plan if in the opinion of the Committee such Employees have a significant
effect on the Company's long term growth and profitability.
5. MAXIMUM SHARES AVAILABLE
The Stock to be distributed under the Plan may be either authorized and
unissued shares or issued shares whether held in the treasury of the
Company or otherwise. The total amount of Stock which, under the
provisions of this Plan, may be subject to delivery on the exercise of
Options, issued in satisfaction of exercised Options or SAR's, or issued
under the Strategic Incentive Plan shall not exceed 8.6 million shares of
the Company's Stock, which represents approximately 3.5% of the number of
issued and outstanding shares of Stock as of December 31, 1988. The
maximum number of shares is subject to adjustment in accordance with the
5
provisions of Section 10 hereof. In determining the number of shares
subject to delivery under this Plan, those represented by cancelled
Options, forfeited Options, expired Options and non-earned awards under
the Strategic Incentive Plan shall be returned upon the occurrence of such
event to the pool of shares available for distribution under the Plan and
may be the subject of further Options or SAR's, or may be issued under the
Strategic Incentive Plan.
6. STOCK OPTIONS
a) Award of Options. (i) The Committee, at any time and from time to
time prior to December 31, 1994, may grant Options under the Plan to
eligible Employees, for such numbers of shares and having such terms
as the Committee shall designate, subject, however, to the
provisions of the Plan. The Committee will also determine the type
of Option granted (e.g., ISO, nonstatutory, other statutory Options
as from time to time may be permitted by the Code) or a combination
of various types of Options. Options designated as ISO's shall
comply with all the provisions of Section 422A(b) of the Code and
applicable Treasury Department regulations. The aggregate Fair
Market Value (determined at the time the Option is granted) of Stock
with respect to which ISO's are exercisable for the first time by
any individual during a calendar year under all plans of the
Company, and any subsidiary shall not exceed $100,000. All shares
over the $100,000 first exercisable value shall be granted as a
non-qualified Option. The date on which an Option shall be granted
shall be the date of the Committee's authorization of such grant.
Any individual at
6
any one time and from time to time may hold more than one Option
granted under the Plan or under any other Stock plan of the Company.
(ii) Each Option shall be evidenced by a Stock Option Agreement in
such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall
approve.
b) Exercise Price. The price at which shares of Stock may be purchased
under an Option shall not be less than 100 percent of the Fair
Market Value of the Stock on the date the Option is granted.
c) Term of Options. The period during which an Option may be exercised
shall be determined by the Committee; provided, that such period
will not be longer than ten years from the date on which the Option
is granted for those Options designated as ISO's or 11 years for
other types of Options. The date or dates on which installment
portion(s) of an Option may be exercised during the term of an
Option shall be determined by the Committee and may vary from Option
to Option. If the Committee makes no such specific arrangement with
respect to an Option, each such Option granted pursuant to the Plan
shall become exercisable in four installments. The first such
installment shall become exercisable on the first anniversary of the
date of the grant for 25 percent of the number of shares of Stock
subject to the Option. Thereafter, on each anniversary of the date
of the grant an installment shall become exercisable for an
additional 25 percent of the number of shares of Stock subject to
the Option until the Option shall have become fully exercisable. To
the extent that an installment is
7
not exercised when it becomes exercisable, it shall not expire but
shall continue to be exercisable at any time thereafter until the
Option shall be cancelled, expire or be surrendered. The Committee
may accelerate the exercise schedule on outstanding Options, if in
its sole judgment conditions are such to warrant such acceleration.
d) Termination of Employment. (i) If, prior to a date one year from the
date an Option shall have been granted, the Optionee's employment
with the Company or Subsidiary shall be terminated for any reason,
such Option shall be cancelled and all rights thereunder shall
cease; provided that an Option granted in any year to an Optionee
who terminates employment on January 1 of the following year due to
retirement pursuant to the terms of a retirement plan of the Company
or a Subsidiary shall not be cancelled for that reason, and
provided, further, the Committee may, in its sole discretion
determine that all or any portion of any other Option shall not be
cancelled due to termination of employment prior to a date one year
from the date the Option shall have been granted.
(ii) If, on or after one year from the date an Option shall have
been granted, an Optionee's employment with the Company or
Subsidiary is terminated for any reason except retirement pursuant
to the terms of a retirement plan of the Company or a Subsidiary,
Total Disability, or death, any Option so granted under the Plan
shall be cancelled on such termination; provided, that the Committee
may, in its sole discretion, determine that all or a portion of any
such Option shall not be cancelled.
8
(iii) If, on or after a date one year from the date the Option is
granted, an Optionee shall terminate employment by reason of
retirement pursuant to a retirement plan of the Company or
Subsidiary, or by reason of Total Disability, the Optionee shall
retain all rights provided by the Option at the time of such
termination of employment. If on or after a date one year from the
date the Option is granted, or such shorter period as may be
permitted pursuant to (d)(ii) above, an Optionee shall die while in
the employ of the Company or Subsidiary or after termination of
employment by reason of retirement pursuant to a retirement plan of
the Company or Subsidiary, the executor or administrator of the
estate of the Optionee or the person or persons to whom the Option
shall have been validly transferred by the executor or the
administrator pursuant to will or the laws of descent and
distribution shall have the right to exercise the Option to the same
extent the Optionee could have, had the Optionee not died. No
transfer of an Option by the Optionee by will or by the laws of
descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice
thereof and a copy of the will and such other evidence as the
Company may deem necessary to establish the validity of the transfer
and the acceptance by the transferee or transferees of the terms and
conditions of such Option.
(iv) Transfer of employment between the Company and a Subsidiary or
between Subsidiaries shall not constitute termination of employment
for the purpose of any Option granted under the Plan. Whether any
leave of
9
absence shall constitute termination of employment for the purposes
of any Option granted under the Plan shall be determined in each
case by the Committee in its sole discretion.
e) Payment for Shares. (i) The exercise price for all shares of Stock
purchased upon the exercise of an Option, or a portion thereof,
shall be paid in full at the time of such exercise. Such payment may
be made in cash, by tendering shares of Stock having a value on the
date of exercise equal to the exercise price, or tendering shares of
Restricted Stock having a value on the date of exercise equal to the
exercise price. Such value shall be the Fair Market Value except
that the applicable date for determination of the highest and lowest
price on the New York Stock Exchange shall be the date on which the
Option is exercised, or if not a trading date, then the last trading
day on such Exchange preceding the date on which the Option is
exercised. If Restricted Stock is used in such exercise, the
resulting new shares shall have the same restrictions as the
tendered shares. The number of shares so restricted shall not be
less than the number of shares of Restricted Stock tendered. The
Committee may, in its sole discretion and judgment, limit the extent
to which shares of Stock or shares of Restricted Stock may be used
in exercising Options.
(ii) The Stock delivered to the Optionee upon exercise of an Option,
whether or not Restricted Stock is used for payment of the purchase
price of the Option may, at the discretion of the Committee, have
restrictions
10
placed on it, provided that the Stock Option Agreement with the
Optionee covering the Option permits such use of Restricted Stock.
f) Should a withholding tax obligation arise upon the exercise of an
Option, the withholding tax may be satisfied by withholding shares
of Stock or by payment of cash.
7. DETRIMENTAL ACTIVITIES
If the Committee determines that, subsequent to the grant of any Option,
the Optionee has engaged or is engaging in any activity which, in the sole
judgment of the Committee, is or may be detrimental to the Company or a
Subsidiary, the Committee may refuse to honor the exercise of such
Optionee's Options already requested, and cancel the Option or Options
granted to that Optionee.
8. STOCK APPRECIATION RIGHTS
a) Grant. The Committee may, at its discretion, affix Stock
Appreciation Rights to any Option, either at the time of its initial
granting to the Optionee or at a later date. The addition of such
SAR's must be accomplished prior to the completion of the period
during which the Option may be exercised and such exercise period
may not be extended beyond that which was initially established. The
Committee may establish any SAR terms and conditions that it desires
at the time such SAR is established, provided that, to the extent
permitted by applicable law, notwithstanding any provision of this
Plan to the contrary, the terms and conditions of a SAR related to
an ISO shall be the same as the terms applicable to the underlying
ISO.
11
b) Exercise of Stock Appreciation Right. (i) A Stock Appreciation Right
shall be exercisable at such time as may be determined by the
Committee, which shall be not less than six months after its grant,
and provided further that a Stock Appreciation Right shall be
exercisable only to the extent that the related Option could be
exercised. Option shares with respect to which the related Stock
Appreciation Right shall have been exercised may not again be
subjected to Options under this Plan. Upon the exercise of a Stock
Appreciation Right, that portion of the Option underlying the Stock
Appreciation Right will be considered as having been exercised.
(ii) The Committee may impose any other conditions upon the exercise
of a Stock Appreciation Right, which conditions may include a
condition that the Stock Appreciation Right may only be exercised in
accordance with rules and regulations adopted by the Committee from
time to time. Such rules and regulations may govern the right to
exercise Stock Appreciation Rights granted prior to the adoption or
amendment of such rules and regulations as well as Stock
Appreciation Rights granted thereafter. The exercise of a Stock
Appreciation Right for cash shall be made only during the periods
specified in Rule 16b-3 of the Securities and Exchange Commission.
(iii) Upon the exercise of a Stock Appreciation Right, the Company
shall give to an Optionee an amount (less any applicable withholding
taxes, which at the Company's discretion may be settled by
withholding shares of Stock or by payment of cash) equivalent to the
excess of the value of
12
the shares of Stock for which the right is exercised on the date of
such exercise over the exercise price of such shares under the
related Option. The value on the date of exercise shall be the Fair
Market Value as determined in Section 6(e) of this Plan. Such amount
shall be either in cash or in shares of Stock or both as the
Committee shall determine. Such determination may be made at the
time of the granting of the Stock Appreciation Right and may be
changed at any time thereafter. The shares may consist either in
whole or in part of authorized and unissued shares of Stock or
issued shares of Stock whether held in the treasury of the Company
or otherwise. No fractional shares of Stock shall be issued and the
Committee shall determine whether cash shall be given in lieu of
such fractional share or whether such fractional share shall be
eliminated.
c) Expiration or Termination of Stock Appreciation Rights.
(i) Subject to (c)(ii), each Stock Appreciation Right and all rights
and obligations thereunder shall expire on a date to be determined
by the Committee.
(ii) A Stock Appreciation Right shall terminate and may no longer be
exercised upon the termination of the related Option
d) Amendment, Suspension or Termination of Stock Appreciation Rights. The
Committee may, at any time, amend, suspend, or terminate any Stock
Appreciation Right theretofore granted under the Plan.
13
9. STRATEGIC INCENTIVE PLAN
a) Administrative Procedure. Normally, the Committee shall adopt
administrative procedures applicable to a Performance Period prior
to, or within 30 days after, the date designated by the Committee
for the Commencement of such Performance Period. The Committee may,
however, adopt such administrative procedures more than 30 days
after such commencement if in its option such delayed action is
appropriate. Such procedures shall establish Indicators of
Performance and the Target Awards applicable to the Performance
Period. Indicators of Performance may vary from Performance Period
to Performance Period.
b) Indicators of Performance. Indicators of Performance may include,
but shall not be limited to, increased shareholder value, earnings
per share, return on shareholder's equity, return on assets and/or
other similar criteria. Such indicators may be based on the
Company's performance compared to the performance of one or more
selected companies in the petroleum industry during the same
Performance Period or may relate solely to the Company's performance
during the Performance Period or a combination of such indicators.
At the completion of the Performance Period, the Committee will
review the Company's actual performance with respect to the
Indicators of Performance, and, in its sole judgment, rank the
Company's overall performance. Such ranking may range from
"noncompetitive" through "competitive" to "outstanding." In arriving
at such ranking, the Committee may take into consideration, and make
14
appropriate adjustments for, events occurring during the Performance
Period, which the Committee, in its sole judgment, concludes have
affected the performance of the Company or any selected company with
respect to any of the Indicators of Performance. No Earned Awards
will be granted if the Company's overall performance is ranked
"non-competitive." Subject to individual performance adjustments
therein, if any, pursuant to paragraph 9(c) of this Plan, if the
Company's overall performance is ranked "competitive," Target Awards
will result; higher or lower ranking will result in greater or
lesser awards provided that in no event, including individual
performance adjustments, shall the Earned Award of a SIP Participant
exceed 150% of the SIP Participant's Target Award.
c) Award Adjustments. The Committee in its sole discretion may make
adjustments in awards determined under paragraph (b) of this Section
based on the SIP Participant's individual performance during the
Performance Period. The administrative procedures for each
Performance Period shall establish the method to be used by the
Committee in determining which, if any, SIP Participants may receive
such performance adjustments and, subject to the maximum set out in
paragraph (b) of this Section, the size of such adjustments.
d) Partial Performance Period Participation. The administrative
procedures adopted for each Performance Period shall also include
procedures to be used in determining the extent to which an Employee
shall participate in a
15
partial Performance Period due to either assignment to a position
which makes the Employee eligible to be a SIP Participant after the
beginning of such Performance Period or termination of employment
prior to the completion of such a Performance Period in which the
Employee was a SIP Participant.
e) Award Settlement. With respect to each Performance Period,
settlement of all Earned Awards shall be made in Stock as soon as
practicable following the date on which the Committee determines the
size of Earned Awards; provided that the Committee may decide to
settle such awards over a period or periods of time as the Committee
shall deem appropriate.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, Stock split, Stock
dividend, exchange of Stock, combination of Stock, merger, consolidation
or any other change in corporate structure of the Company affecting the
Stock, or in the event of a sale by the Company of all or a significant
part of its assets, or any distribution to its shareholders other than a
normal cash dividend, the Committee may make appropriate adjustment in the
number, kind, price and value of Stock authorized by this Plan and any
adjustment to outstanding Awards as it determines appropriate so as to
prevent dilution or enlargement of rights.
11. MISCELLANEOUS
a) Except as otherwise required by law, no action taken under the Plan
shall be taken into account in determining any benefits under any
pension, retirement, thrift, profit sharing, group insurance, or
other benefit plan
16
maintained by the Company or any Subsidiary, unless such other plan
specifically provides for such inclusion.
b) No Option or Stock Appreciation Right or right under the Strategic
Incentive Plan shall be transferable other than by will or the laws
of descent and distribution. During the lifetime of an Optionee, any
Option or Stock Appreciation Right shall be exercisable only by the
Optionee or the Optionee's duly appointed guardian or legal
representative.
c) The Company shall have the right to withhold from any settlement
hereunder any Federal, state, or local taxes required by law to be
withheld. Such withholding may be satisfied by the withholding of
shares of Stock by the Company if the Optionee so requests in a
manner prescribed by the Committee, if the Committee so approves,
and such withholding of shares does not violate any applicable laws,
rules or regulations of Federal, state or local authorities.
d) All administrative expenses associated with the administration of
the Plan shall be borne by the Company.
e) Masculine pronouns and other words of masculine gender used herein
shall refer to both men and women.
f) The titles and headings of the sections in this Plan are for
convenience of reference only and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall
control.
12. AMENDMENT AND TERMINATION
The Board may, at any time, terminate or amend this Plan in such respect
as it
17
shall deem advisable, provided, the Board may not, without further
approval of the stockholders of the Company if such approval is required
in order that transactions in Company securities under the Plan be exempt
from the operation of Section 16(b) of the Securities Exchange Act of
1934, amend the Plan so as to (i) increase the number of shares of Stock
which may be issued under the Plan, except as provided for in Section 10;
(ii) materially modify the requirements as to eligibility for
participation; (iii) materially increase the benefits accruing to
Participants under the Plan; (iv) extend the duration of the Plan beyond
the date approved by the stockholders; or (v) increase the maximum dollar
amount of ISO's which an individual Optionee may first exercise during any
calendar year beyond that permitted in the Code and applicable regulations
of the Treasury Department. Notwithstanding the foregoing, no such
termination or amendment may adversely affect the rights of any
Participant under any Award that is outstanding at the time of such
termination or amendment without the Participant's consent.
13. DURATION OF THE PLAN
The Plan shall become effective on January 1, 1990, provided that it has
been approved by the stockholders at the annual meeting of the
stockholders in April of 1989, and shall terminate on December 31, 1994.
14. CHANGE OF CONTROL
a) In the event of a Change of Control:
i) Any Stock Options and Stock Appreciation Rights outstanding as
of the date of the Change of Control that are not then fully
18
exercisable and vested, shall become fully exercisable and
vested to the full extent of the original grant;
ii) All restrictions and other limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall
become free of all restrictions and become fully vested and
transferable to the full extent of the original grant;
iii) All Performance Awards and other Awards outstanding as of the
date of the Change of Control shall be considered to be earned
and payable in full, and any deferral or other restriction
shall lapse and except as provided in subsection (c) of this
Section 14, such Performance Units shall be settled in cash as
promptly as is practicable; and
iv) All noncompetition covenants and other similar restrictive
covenants applicable to any outstanding Awards shall lapse and
become null and void and of no further effect.
b) A "Change of Control" shall mean:
i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 as amended (a "Person")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) of 20% or more of either
(a) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (b) the combined
19
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for the purposes of this subsection
(i), the following acquisitions shall not constitute a Change
of Control: (A) any acquisition directly from the Company, (B)
any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (D) any acquisition pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 14(b); or
ii) Individuals who, as of August 26, 2002, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to August 26, 2002,
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors
20
or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to
such Corporate Transaction beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Corporate Transaction of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be,
(B) no Person (excluding
21
any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Corporate Transaction)
beneficially own, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such Corporate Transaction or
the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Corporate Transaction and (C)
at least a majority of the members of the board of directors
of the corporation resulting from such Corporate Transaction
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Corporate Transaction; or
iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
c) Notwithstanding the foregoing, if any right to receive cash granted
pursuant to this Section 14 would make a Change of Control
transaction ineligible for pooling-of-interests accounting under APB
No. 16 that but for the nature of such right would be eligible for
such accounting treatment, the Committee shall have the ability to
substitute for the cash payable pursuant to such right Stock or
other securities with a fair market value equal to the cash that
would otherwise be payable hereunder.
22
Exhibit 10.13
Amended by the Board of Directors August 26, 2002
ANNUAL INCENTIVE COMPENSATION PLAN
OF
PHILLIPS PETROLEUM COMPANY
SECTION 1. PURPOSE AND ESTABLISHMENT
The purpose of the Annual Incentive Compensation Plan of Phillips Petroleum
Company (the "Plan") is to benefit the shareholders of Phillips Petroleum
Company by encouraging high levels of performance by individuals whose
performance is a key element in achieving the Company's continued financial and
operational success and to enable the Company to recruit, reward, retain and
motivate all employees to work as a team to achieve the Company's mission of
being the top performer in each of our businesses through the recognition and
reward of such performance on an annual basis when measured against
predetermined annual performance objectives.
The Annual Incentive Compensation Plan of Phillips Petroleum Company is
established effective January 1, 1993.
-1-
SECTION 2. DEFINITIONS
As used in this Plan:
(a) "AWARD" means the grant of cash or any other form of Share based or
non-Share based Award granted pursuant to this Plan.
(b) "AWARD AGREEMENT" means a written agreement between the Company and
a Participant that sets forth the terms, conditions and any
limitations applicable to an Award granted to the Participant.
(c) "BENEFICIARY" means a person or persons designated by a Participant
to receive, in the event of death, any unpaid portion of an Award
held by the Participant. Any Participant may, subject to such
limitations as may be prescribed by the Committee, designate one or
more persons primarily or contingently as beneficiaries in writing
upon forms supplied by and delivered to the Company, and may revoke
such designations in writing. If a Participant fails effectively to
designate a beneficiary, then the Award will be paid in the
following order of priority:
-2-
Surviving spouse
Surviving children in equal shares
To the estate of the Participant.
(d) "BOARD" means the Board of Directors of Phillips Petroleum Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute.
(f) "COMMITTEE" means the Compensation Committee of the Board of
ConocoPhillips or any successor committee with substantially the
same responsibilities.
(g) "COMPANY" means Phillips Petroleum Company, a Delaware corporation,
or any successor corporation.
(h) "DISABILITY" shall mean the inability, in the opinion of the
Company's group life insurance carrier, of a Participant, because of
an injury or sickness, to work at a reasonable occupation which is
available with the Company or at any gainful occupation which the
Participant is or
-3-
may become fitted.
(i) "EMPLOYEE" means any individual who is a salaried employee of the
Company or any Participating Subsidiary.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(k) "FAIR MARKET VALUE PER SHARE" in reference to the common stock of
the Company means
(i) the average of the reported highest and lowest sale prices per
share of such stock as reported on the composite tape of the
New York Stock Exchange transactions (or such other reporting
system as shall be selected by the Committee), on the relevant
date; or
(ii) in the absence of reported sales on that date, the average of
the reported highest and lowest sales prices per share on the
last previous day for which there was a reported sale.
(l) "PARTICIPANT" means any Employee who has been designated
-4-
by the Committee to be eligible for an Award under this Plan.
(m) "PARTICIPATING SUBSIDIARY" means a subsidiary of the Company, of
which the Company beneficially owns, directly or indirectly, more
than 50% of the aggregate voting power of all outstanding classes
and series of stock, and one or more employees of which are
Participants, or are eligible for Awards pursuant to the Plan.
(n) "PERFORMANCE MEASURES" means the criteria which the Committee will
use to evaluate the Company's performance.
(o) "PLAN YEAR" means calendar year.
(p) "RESTRICTED STOCK" means shares of Stock which have certain
restrictions attached to the ownership thereof.
(q) "RETIREMENT" means termination of employment with the Company or a
Participating Subsidiary which qualifies the Employee for Retirement
as that term is defined in the Retirement Income Plan of Phillips
Petroleum Company or of the applicable retirement plan of a
Participating Subsidiary.
-5-
(r) "RULE 16B-3" has the meaning described in Section 12(c).
(s) "SECTION 16" means Section 16 of the Exchange Act or any successor
regulation and the rules promulgated thereunder as they may be
amended from time to time.
(t) "STOCK" mean shares of common stock of ConocoPhillips, par value
$.01.
(u) "STOCK UNIT" means the right to receive a payment equivalent in
value to one share of Stock on the date of payment.
SECTION 3. ELIGIBILITY
Awards may be granted only to Employees who are designated as Participants from
time to time by the Committee. The Committee shall determine which Employees
shall be Participants, the types of Awards to be made to Participants and the
terms, conditions and limitations applicable to the Awards.
SECTION 4. PERFORMANCE MEASURES
-6-
As soon as practicable after the beginning of the year the Committee shall
determine the Performance Measures for the Plan Year and shall advise
Participants of the Performance Measures. The Performance Measures may include
corporate, group, business unit and Staff objectives. The objectives may include
a combination of financial and/or operational criteria and may be measured
solely against internal targets or in comparison to the performance of an
industry peer group or both. The Committee shall establish a threshold
Performance Measure applicable to overall financial performance of the Company
which must be achieved before Awards for the Plan Year will be granted.
SECTION 5. DETERMINATION OF AWARDS
Following the completion of the Plan Year, the Committee will review the
Company's performance with respect to the Performance Measures, and in its sole
judgment, determine the amount and manner of Awards to be granted to eligible
Employees. No Awards will be granted if the threshold Performance Measure
established under Section 4 is not achieved.
SECTION 6. PAYMENT OF AWARDS
(a) Each Award may be made at the discretion of the Committee either in
cash, in Stock, in Restricted Stock, in Stock
-7-
Units, or in another form as determined by the Committee and may be
made partly in one form and partly in one or more other forms. In
the case of an Award in Stock, Restricted Stock, or Stock Units, the
number shall be determined by using the Fair Market Value Per share
of Stock on the date of the Award, provided, however, that no
Employee whose acquisition of Stock, Restricted Stock, Stock Units
or other form of Award would be subject to the provisions of Section
16 of the Exchange Act shall be eligible to receive an Award
otherwise than in cash, and the Committee shall grant Awards to such
persons only in cash, unless prior to the grant of any such Award
all action necessary to qualify such award for the exemption under
Rule 16b-3 shall have been taken.
(b) The payment of any Award shall be subject to such obligations or
conditions as the Committee may specify in making or recommending
the Award, but Awards need not be evidenced by Award Agreements.
(c) Part or all of a cash Award may be deferred by a Participant under
the terms of the Key Employee Deferred Compensation Plan of Phillips
Petroleum Company or any successor plan thereto.
-8-
(d) Any Award payable in Stock or Restricted Stock may, in the
discretion of the Committee, be paid part or all in cash, on each
date on which payment in Stock or Restricted Stock would otherwise
have been made, in an amount equal to the Fair Market Value per
share of Stock on each such date, multiplied by the number of shares
of Stock or Restricted Stock which would otherwise have been paid on
such date.
(e) Awards may be granted in Restricted Stock that is issued to a
Participant and is subject to such terms, conditions and
restrictions as the Committee deems appropriate, which may include
restrictions upon the sale, assignment, transfer or other
disposition of the Restricted Stock and the requirement of
forfeiture of the Restricted Stock upon termination of employment
under certain specified conditions. The Committee may provide for
the lapse of any such term or condition or waive any term or
condition based on such factors or criteria as the Committee may
determine. The Participant shall have, with respect to awards of
Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the Restricted Stock and the rights to
receive any cash or stock dividend on such Stock.
-9-
(f) Awards may be granted in Stock Units that are subject to such terms
and conditions as the Committee deems appropriate. The number of
Stock Units awarded with respect to any Award shall be the number
determined by using the Fair Market Value per share of Stock on the
date of the Award. Any Award made in Stock Units may, in the
discretion or the recommendation of the Committee, be paid in shares
of Stock on each date on which payment in cash would otherwise be
made.
(g) In lieu of the foregoing forms of payment of Awards, the Committee
may specify or recommend any other form of payment which it
determines to be of substantially equivalent economic value to the
cash value of the Award including, without limitation, forms
involving payments to a trust or trusts for the benefit of one or
more Participants.
(h) Each payment of an Award that is to be made in cash shall be from
the general funds of the Company or the Participating Subsidiary
making the payment.
(i) In the event the Participant resigns during the Plan Year or before
Awards are paid for the Plan Year, no Awards shall be made to that
Participant, provided, that the
-10-
Committee may, in its sole discretion, determine that an Award shall
be made with respect to the period of time during which the
Participant was an Employee.
(j) In the event the Participant transfers to a non-participating
subsidiary or otherwise becomes ineligible prior to the end of the
Plan Year, the Participant may remain a Participant for the purpose
of all Awards which shall have been made prior to the Participant's
transfer or prior to the Participant becoming ineligible or are to
be made, but in such later case, only with respect to the period of
time during which the Participant was an eligible Participant.
(k) In the event the Participant terminates employment by reason of
Disability, the Participant may remain a Participant for the purpose
of all Awards which shall have been made prior to the Participant's
Disability or are to be made, but in such later case, only with
respect to the period of time prior to the Disability.
(l) In the event the Participant terminates employment by Retirement,
the Participant may remain a Participant for the purpose of all
Awards which shall have been made
-11-
prior to Retirement or are to be made, but in such later case, only
with respect to the period of time during which the Participant was
an Employee.
(m) In the event of the death of a Participant to whom an Award is to be
or shall have been made, the Award or any portion thereof remaining
unpaid may be paid to such Participant's Beneficiary either in the
manner in which payment would have been made had the Participant not
died or in such other manner as may be determined by the Committee.
SECTION 7. ADMINISTRATION
(a) The Plan and all Awards granted pursuant thereto shall be
administered by the Committee so as to permit the Plan to comply
with Rule 16b-3. A majority of the members of the Committee shall
constitute a quorum. The vote of a majority of a quorum shall
constitute action by the Committee.
(b) To the extent permitted by Section 12, the Committee is authorized
to
(i) determine which Employees shall be Participants in
-12-
the Plan and which form of Awards shall be granted to
Participants,
(ii) establish, amend and rescind rules, regulations and guidelines
relating to this Plan as it deems appropriate,
(iii) interpret and administer this Plan, Awards and Award
Agreements,
(iv) establish, modify and terminate terms and conditions of Award
Agreements,
(v) grant waivers and accelerations of Plan, Award and Award
Agreement restrictions and
(vi) take any other action necessary for the proper administration
and operation of the Plan, all of which shall be executed in
accordance with the objectives of this Program.
(c) The Committee may delegate to the officers or employees of the
Company the authority to carry out any of its responsibilities under
and described in this Plan, under such conditions or limitations as
the Committee may
-13-
establish, other than its authority with regard to Participants who
are subject to Section 16.
(d) Determinations of the Committee and its designees shall be final,
binding and conclusive on the Company, its Participating
Subsidiaries, shareholders, Employees and Participants. No member of
the Committee or any of its designees shall be personally liable for
any action or determination made in good faith with respect to this
Program, any Award, or any Award Agreement.
SECTION 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Subject to any required action by the shareholders of ConocoPhillips, in the
event of a reorganization, recapitalization, stock split, stock dividend,
exchange of Stock, combination of Stock, merger, consolidation or any other
changes in corporate structure of ConocoPhillips affecting the Stock, or in the
event of a sale by ConocoPhillips of all or a significant part of its assets, or
any distribution to ConocoPhillips' shareholders other than a normal cash
dividend, the Committee may make appropriate adjustment in the number, kind,
price and value of Stock authorized by this Plan and any adjustments to
outstanding Awards as it determines appropriate so as to prevent dilution or
enlargement of rights.
-14-
SECTION 9. CHANGE OF CONTROL
(a) In the event of a Change of Control, all restrictions and other
limitations applicable to any Restricted Stock shall lapse, and such
Restricted Stock shall become free of all restrictions and become fully
vested and transferable to the full extent of the original grant.
(b) A "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d) or 14(d)(2) of the Exchange Act (a
"Person")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (a) the
then outstanding shares of common stock of ConocoPhillips (the
"Outstanding Company Common Stock") or (b) the combined voting power
of the then outstanding voting securities of ConocoPhillips entitled
to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of
this subsection (i), the following acquisitions shall not constitute
a Change of Control: (A) any acquisition directly from
ConocoPhillips, (B) any acquisition by ConocoPhillips, (C) any
acquisition by any employee
-15-
benefit plan (or related trust) sponsored or maintained by
ConocoPhillips or any corporation controlled by ConocoPhillips or
(D) any acquisition pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) of this Section 9(b);
or
(ii) Individuals who, as of August 26, 2002, constitute the Board of
Directors of ConocoPhillips (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors
of ConocoPhillips (the "CP Board"); provided, however, that any
individual becoming a director subsequent to August 26, 2002, whose
election, or nomination for election by ConocoPhillips'
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the CP Board; or
(iii) Approval by the shareholders of ConocoPhillips of a reorganization,
merger or consolidation or sale or other
-16-
disposition of all or substantially all of the assets of
ConocoPhillips or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such
Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns
ConocoPhillips or all or substantially all of ConocoPhillips' assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Corporate Transaction of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding any employee benefit plan (or
related trust) of ConocoPhillips or such corporation resulting from
such Corporate Transaction) beneficially own, directly or
-17-
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Corporate
Transaction and (C) at least a majority of the members of the board
of directors of the corporation resulting from such Corporate
Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the CP
Board, providing for such Corporate Transaction; or
(iv) Approval by the shareholders of ConocoPhillips of a complete
liquidation or dissolution of ConocoPhillips.
SECTION 10. RIGHTS OF EMPLOYEES
(a) Status as an eligible Employee shall not be construed as a
commitment that any Award will be made under the Plan to such
eligible Employee or to eligible Employees generally.
(b) Nothing contained in the Plan (or in any other documents
-18-
related to this Plan or to any Award) shall confer upon any Employee
or Participant any right to continue in the employ or other service
of the Company or constitute any contract or limit in any way the
right of the Company to change such person's compensation or other
benefits or to terminate the employment of such person with or
without cause.
SECTION 11. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
No certificate for Stock distributable pursuant to this Plan shall be issued and
delivered unless the issuance of such certificate complies with all applicable
legal requirements including, without limitation, compliance with the provisions
of applicable state securities laws, the Securities Act of 1933, as amended from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Stock may, at the time, be listed.
SECTION 12. AMENDMENTS AND TERMINATION
(a) The Committee or the Board, as appropriate, may, insofar as
permitted by law, from time to time, suspend or terminate this Plan
or revise or amend it in any respect whatsoever; provided, however,
unless the Committee or the Board, as
-19-
appropriate, specifically otherwise provides, any revision or
amendment that would cause this Plan to fail to comply with any
requirement of applicable law, regulation or rule if such amendment
were not approved by the shareholders of ConocoPhillips shall not be
effective unless and until the approval of the shareholders of
ConocoPhillips is obtained.
(b) Subject to the terms and conditions and within the limitations of
this Plan, the Committee may amend, cancel, modify or extend
outstanding Awards granted under this Plan, but no such action taken
after a Change of Control, at the request of a third party seeking
to effect a Change of Control, or otherwise in connection with or in
anticipation of a Change of Control, may adversely affect the rights
of any Participant with respect to any outstanding award without
such Participant's consent.
(c) This Plan is intended to comply with Rule 16b-3 promulgated by the
Securities and Exchange Commission as now in force or as such
regulation or successor regulation shall be hereafter amended ("Rule
16b-3") with respect to Participants who are subject to Section 16
of the Exchange Act. Should the requirements of Rule 16b-3 change,
the Board or the Committee, as appropriate, may
-20-
amend the program to comply with the requirements of the amended
Rule 16b-3 or its successor provision or provisions.
SECTION 13. UNFUNDED PLAN
The Plan shall be unfunded. Neither the Company nor the Board of Directors shall
be required to segregate any assets that may, at any time, be represented by
Awards made pursuant to the Plan. Neither the Company, the Committee, nor the
Board of Directors shall be deemed to be a trustee of any amounts to be paid
under the Plan.
SECTION 14. LIMITS OF LIABILITY
(a) Any liability of the Company to any Participant with respect to an
Award shall be based solely upon contracted obligations created by
the Plan and the Award Agreement.
(b) Neither the Company nor any member of the Board of Directors or of
the Committee, nor any person participating in any determination of
any question under the Plan, or in the interpretation,
administration or application of the Plan, shall have any liability
to any party for any action taken or not taken, in good faith under
the
-21-
Plan.
-22-
Exhibit 10.17
AMENDED BY THE BOARD OF DIRECTORS AUGUST 26, 2002
KEY EMPLOYEE DEFERRED COMPENSATION PLAN OF
PHILLIPS PETROLEUM COMPANY
PURPOSE
The purpose of the Key Employee Deferred Compensation Plan of Phillips Petroleum
Company (the "Plan") is to attract and retain key employees by providing them
with an opportunity to defer receipt of cash amounts which otherwise would be
paid to them under various compensation programs or plans by the Company.
SECTION 1. Definitions.
(a) "Affiliated Group" shall mean the Company plus other subsidiaries
and affiliates in which it owns a 5% or more equity interest.
(b) "Award" shall mean the United States cash dollar amount (i) allotted
to an Employee under the terms of an Incentive Compensation Plan or
the Long Term Incentive Compensation Plan, or (ii) required to be
credited to an Employee's Deferred Compensation Account pursuant to
the Incentive Compensation Plan, the Long Term Incentive
Compensation Plan, the Strategic Incentive Plan, the Long Term
Incentive Plan, or any similar plans, or any administrative
procedure adopted pursuant thereto, (iii) credited as a result of a
Participant's deferral of the receipt of the value of the Stock
which would otherwise be delivered to an Employee in the event
restrictions lapse on Restricted Stock or Restricted Stock Units or
the settlement of Restricted Stock Units previously awarded or which
may be awarded to the Participant pursuant to the Incentive
Compensation Plan, the Long Term Incentive Compensation Plan, the
Strategic Incentive Plan, the Long Term Incentive Plan, the Omnibus
Securities Plan, or any similar plans, or any administrative
procedure adopted pursuant thereto, (iv)
1
credited resulting from a lump sum distribution from any of the
Company's non-qualified retirement plans and/or plans which provide
for a retirement supplement, (v) resulting from the forfeiture of
Restricted Stock, required by the Company, of key employees who
become employees of GPM Gas Corporation, (vi) credited as a result
of an Employee's deferral of the receipt of the lump sum cash
payment from the Employee's account in the Defined Contribution
Makeup Plan, (vii) credited as a result of an Employee's voluntary
reduction of Salary (viii) credited as a result of an Employee's
deferral of the settlement of a Long Term Performance Unit Award, or
(ix) any other amount determined by the Committee to be an Award
under the Plan. Sections 2 and 3 of this Plan shall not apply with
respect to Awards included under (ii), (v), and (ix) above and a
participant receiving such an Award shall be deemed, with respect
thereto, to have elected a Section 5(b)(i) payment option - 10
annual installments commencing about one year after retirement, but
subject to revision under the terms of this Plan.
(c) "Board of Directors" shall mean the board of directors of the
Company.
(d) "Chief Executive Officer (CEO)" shall mean the Chief Executive
Officer of the Company.
(e) "Committee" shall mean the Compensation Committee of the Board of
Directors.
(f) "Company" shall mean Phillips Petroleum Company.
(g) "Deferred Compensation Account" shall mean an account established
and maintained for each Participant in which is recorded the amounts
of Awards deferred by a Participant, the deemed gains, losses and
earnings accrued thereon and payments made therefrom all in
accordance with the terms of the Plan.
2
(h) "Defined Contribution Makeup Plan" shall mean the Defined
Contribution Makeup Plan of Phillips Petroleum Company or any
similar plan or successor plans.
(i) "Disability" shall mean the inability, in the opinion of the
Company's Medical Director or the Medical Director of the Company's
parent, of a Participant, because of an injury or sickness, to work
at a reasonable occupation which is available with the Company,
ConocoPhillips, a Participating Subsidiary, or another subsidiary of
ConocoPhillips.
(j) "Employee" shall mean any individual or Rehired Participant who
satisfies the conditions of Section 5(j) who is a salaried employee
of the Company or of a Participating Subsidiary who is eligible to
receive an Award from an Incentive Compensation Plan, has Restricted
Stock and/or Restricted Stock Units or is classified as a Grade 32P
or any equivalent grade at ConocoPhillips. Employee shall also
include Participants who are employed by a member of the Affiliated
Group and former employees who Retire or are Laid Off and are
eligible to receive a lump sum distribution from non-qualified
retirement plans.
(k) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time or any successor statute.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute.
(m) "Incentive Compensation Plan" shall mean the Incentive Compensation
Plan of the Company, or the Annual Incentive Compensation Plan of
Phillips Petroleum Company, or similar plan of a Participating
Subsidiary, or any similar or successor plans, or all, as the
context may require.
3
(n) "Layoff" or "Laid Off" shall mean layoff under the Phillips Layoff
Plan or any similar plan which the Company, ConocoPhillips, any
Participating Subsidiary, any member of the Affiliated Group, or any
other subsidiary of ConocoPhillips may adopt from time to time under
the terms of which the Participant executes and does not revoke a
general release of liability, acceptable to the Company,
ConocoPhillips, such Participating Subsidiary, such member of the
Affiliated Group, or such other subsidiary of ConocoPhillips, as
applicable, under such layoff plan.
(o) "Long-Term Incentive Compensation Plan" shall mean the Long-Term
Incentive Compensation Plan of the Company which was terminated
December 31, 1985.
(p) "Long-Term Incentive Plan" shall mean the Long-Term Incentive Plan,
or similar or successor plan, established under the Omnibus
Securities Plan of Phillips Petroleum Company.
(q) "Long Term Performance Unit Award" shall mean a Performance Award as
authorized by Section 4.4 of the Omnibus Securities Plan, or similar
or successive plan, where the applicable administrative procedure
for such award provides that the recipient is eligible to indicate a
preference to defer all or any part of such award.
(r) "Newhire Employee" shall mean any Employee who is hired or rehired
during a calendar year.
(s) "Participant" shall mean a person for whom a Deferred Compensation
Account is maintained.
(t) "Participating Subsidiary" shall mean a subsidiary of the Company,
of which the Company beneficially owns, directly or indirectly, more
than 50% of the aggregate voting power of all outstanding classes
and series of stock, where such subsidiary has
4
adopted one or more plans making participants eligible for
participation in this Plan and one or more Employees of which are
Potential Participants.
(u) "Plan Administrator" shall mean the Executive Vice President,
Planning, Corporate Relations and Services, or his successor.
(v) "Potential Participant" shall mean a person who has received a
notice specified in Section 2 or in Section 5 (h).
(w) "Rehired Participant" shall mean a Participant who subsequent to
Retirement or Layoff is rehired by the Company, ConocoPhillips, or
any other subsidiary of ConocoPhillips and whose employment status
is classified as regular full-time or its equivalent.
(x) "Restricted Stock" and "Restricted Stock Units" shall mean
respectively shares of Stock and units each of which shall represent
a hypothetical share of Stock, which have certain restrictions
attached to the ownership thereof or the delivery of shares pursuant
thereto.
(y) "Retirement" or "Retire", or "Retiring" shall mean termination of
employment with the Company, ConocoPhillips, or any other subsidiary
of ConocoPhillips on or after the earliest early retirement date as
defined in the Retirement Income Plan of Phillips Petroleum Company
or of the applicable retirement plan of ConocoPhillips, a
Participating Subsidiary, a member of the Affiliated Group or any
other subsidiary of ConocoPhillips.
(z) "Retirement Income Plan" shall mean the Retirement Income Plan of
the Company or a similar retirement plan of the Participating
Subsidiary pursuant to the terms of which the Participant retires.
5
(aa) "Settlement Date" shall mean the date on which all acts under the
Incentive Compensation Plan or the Long-Term Incentive Compensation
Plan or actions directed by the Committee, as the case may be, have
been taken which are necessary to make an Award payable to the
Participant.
(bb) "Salary" shall mean the monthly equivalent rate of pay for an
Employee before adjustments for any before-tax voluntary reductions.
(cc) "Stock" means shares of common stock of ConocoPhillips, par value
$.01.
(dd) "Strategic Incentive Plan" shall mean the Strategic Incentive Plan
portion of the 1986 Stock Plan of the Company, of the 1990 Stock
Plan of the Company, and of any successor plans of similar nature.
(ee) "Trustee" shall mean the trustee of the grantor trust established by
the Trust Agreement between the Company and Wachovia Bank, N.A.
dated as of June 1, 1998, or any successor trustee.
SECTION 2. Notification of Potential Participants.
(a) Incentive Compensation Plan. Each year, during September, Employees
who are eligible to receive an Award in the immediately following
calendar year under the Company's or a Participating Subsidiary's
Incentive Compensation Plan will be notified and given the
opportunity, in a manner prescribed by the Plan Administrator, to
indicate a preference concerning deferral of all or part of such
Award.
(b) Restricted Stock and Restricted Stock Units Awards. (i) Each year
Employees who are or will become 55 years of age prior to the end of
the calendar year or who are
6
over 55 years old and have not previously been notified will be
notified and given the opportunity, in a manner prescribed by the
Plan Administrator, to indicate a preference concerning the deferral
of the receipt of the value of all or part of the Stock which would
otherwise be delivered to the Employees in the event restrictions
lapse on Restricted Stock and/or Restricted Stock Units or the
settlement of Restricted Stock Units previously awarded or which may
be awarded to the Employees.
(ii) Employees who have been granted a special Restricted Stock
Award and/or Restricted Stock Units Award by the Compensation
Committee, may, in the year preceding the year in which the
restrictions are scheduled to lapse or the Restricted Stock Units
are to be settled, indicate a preference concerning the deferral of
the value of all or part of the stock which would otherwise be
delivered to the Employees in the next calendar year when the
restrictions lapse on the special Restricted Stock and /or
Restricted Stock Units or the Restricted Stock Units are settled
based on the terms of the special Restricted Stock Awards and/or
Restricted Stock Units Awards.
(iii) Employees who are Laid Off during or after the year they reach
age 50 will be given an opportunity within 30 days of being notified
of Layoff, in the manner prescribed by the Plan Administrator, to
indicate a preference concerning the deferral of the receipt of the
values of all or part of the Stock which would be otherwise be
delivered to the Employees in the event Restricted Stock Units,
which have been granted in exchange for Restricted Stock pursuant to
the Exchange offer initiated by the Company on December 17, 2001,
are settled.
(c) Lump Sum Distribution from Non-Qualified Retirement Plans. With
respect to the lump sum distribution permitted from the Company's
non-qualified retirement plans and/or plans which provide for a
retirement supplement, Employees may indicate, in a manner
prescribed by the Plan Administrator, a preference for all or part
of the lump sum distribution, if any, to be considered an Award
under this Plan.
(d) Lump Sum from Defined Contribution Makeup Plan. Employees who will
receive a
7
lump sum cash payment from their account under the Defined
Contribution Makeup Plan, may indicate, in a manner prescribed by
the Plan Administrator, a preference concerning deferral of all of
part of such payment.
(e) Salary Reduction. Annually, Employees and Newhire Employees on the
U.S. dollar payroll may elect, in a manner prescribed by the Plan
Administrator, a voluntary reduction of Salary for each pay period
of the following calendar year, or for Newhire Employees the
remainder of the calendar year in which they are hired, in which
case the Company will credit a like amount as an Award hereunder,
provided that the amount of such reduction shall be not less than 2%
nor more than a percentage of the Employee's Salary per pay period
such that the resulting salary that is paid is sufficient to satisfy
all benefit plan deductions, tax deductions, elective deductions and
other deductions required to be withheld by the Company.
(f) Long Term Performance Unit Award. As soon as practicable following
the grant of a Long Term Performance Unit Award, Employees will be
notified and given the opportunity, in a manner prescribed by the
Plan Administrator, to indicate a preference concerning deferral of
all or part of such Award.
(g) Performance Based Incentive Award. Each year, during September,
Employees who are eligible to receive a Performance Based Incentive
Award in the immediately following calendar year will be notified
and given the opportunity, in a manner prescribed by the Plan
Administrator, to indicate a preference for the award to be paid as
cash, deferred to their KEDCP account or issued as Restricted Stock
or a combination of cash, deferred compensation and Restricted
Stock.
SECTION 3. Indication of Preference or Election to Defer Award.
(a) Incentive Compensation Plan. If a Potential Participant prefers to
defer under this Plan
8
all or any part of the Award to which a notice received under
Section 2(a) pertains, the Potential Participant must indicate such
preference, in a manner prescribed by the Plan Administrator, (i) if
the Potential Participant is subject to Section 16 of the Exchange
Act, to the Committee, or (ii) if the Potential Participant is not
subject to Section 16 of the Exchange Act, to the CEO. The Potential
Participant's preference must be received on or before October 1 of
the year in which said Section 2(a) notice was received. Such
indication must state the portion of the Award the Potential
Participant desires to be deferred. If an indication is not received
by October 1, the Potential Participant will be deemed to have
elected to receive any ICP award awarded by the Committee.
Such indication of preference, if accepted, becomes irrevocable on October
1 of the year in which the indication is submitted to the Committee or
CEO, except that, in the event of any of the following:
i) the Employee is demoted to a job classification/grade that is
no longer eligible to receive an Award from an Incentive
Compensation Plan,
ii) the Employee's employment status is classified to a status
other than regular full-time or its equivalent,
iii) the Employee is receiving Unavoidable Absence Benefits (UAB)
pay such that the pay received is less than his/her pay had
been prior to being on UAB,
the Employee can request, subject to approval by the Plan Administrator,
that his/her indication of preference to defer, whether approved or not,
be revoked for that Incentive Compensation Plan Award.
The Committee or CEO, as applicable, shall consider such indication of
preference as submitted and shall decide whether to accept or reject the
preference expressed. The Potential Participant shall be notified in
writing of the decision.
(b) Restricted Stock or Restricted Stock Units. If a Potential
Participant prefers to defer under this Plan the value of all or any
part of the Restricted Stock or Restricted Stock
9
Units to which a notice received under Section 2(b) pertains, the
Potential Participant must indicate such preference, in a manner
prescribed by the Plan Administrator, (i) if the Potential
Participant is subject to Section 16 of the Exchange Act, to the
Committee, or (ii) if the Potential Participant is not subject to
Section 16 of the Exchange Act, to the CEO. The Potential
Participant's preference must be received on or before October 1 of
the year in which said Section 2(b) notice was received. Such
indication must state the portion of the value of the Restricted
Stock or Restricted Stock Units the Potential Participant desires to
be deferred. If an indication is not received by October 1, the
Potential Participant will be deemed to have elected to receive any
shares or units for which the restrictions are lapsed. Such
indication of preference becomes irrevocable on October 1 of the
year in which the indication is submitted to the Committee or CEO.
The Committee or CEO, as applicable, shall consider such indication
of preference as submitted and shall decide whether to accept or
reject the preference expressed. The Potential Participant shall be
notified in writing of the decision. A deferral of the value of the
Restricted Stock or Restricted Stock Units will be paid under the
terms of Section 5(b)(i) hereof - 10 annual installments commencing
about one year after retirement, but subject to revision under the
terms of this Plan. Such approved indication of preference shall
apply to any Restricted Stock Units granted in exchange for shares
of Restricted Stock pursuant to the Exchange offer initiated by the
Company on December 17, 2001.
(c) Lump Sum Distribution from Non-Qualified Retirement Plans. If a
Potential Participant prefers to defer under this Plan all or part
of the lump sum distribution to which Section 2(c) pertains, the
Potential Participant must indicate such preference, in a manner
prescribed by the Plan Administrator, (i) if the Potential
Participant is subject to Section 16 of the Exchange Act, to the
Committee or (ii) if the Potential Participant is not subject to
Section 16 of the Exchange Act, to the CEO. The Potential
Participant's preference must be received in the period beginning 90
days prior to and ending no less than 30 days prior to the date of
commencement of
10
retirement benefits under such plans. Such indication must state the
portion of the lump sum distribution the Potential Participant
desires to be deferred. The Committee or CEO, as applicable, shall
consider such indication of preference as submitted and shall decide
whether to accept or reject the preference expressed as soon as
practicable. Such indication of preference, if accepted, becomes
irrevocable on the date of such acceptance.
(d) Lump Sum from Defined Contribution Makeup Plan. If a Potential
Participant prefers to defer under this Plan all or part of the lump
sum cash payment to which Section 2(d) pertains, the Potential
Participant must indicate such preference, in a manner prescribed by
the Plan Administrator, (i) if the Potential Participant is subject
to Section 16 of the Exchange Act, to the Committee or (ii) if the
Potential Participant is not subject to Section 16 of the Exchange
Act, to the CEO. The Potential Participant's preference must be
received in the period beginning 365 days prior to and ending no
less than 90 days prior to the Participant's retirement date except
that if a Potential Participant is notified of layoff during or
after the year in which the Potential Participant reaches age 50 and
if there is not at least 120 days between the date the Potential
Participant is notified of layoff and the Potential Participant's
termination date, the Potential Participant's preference must be
received within 30 days of being notified of layoff. Such indication
must state the portion of the lump sum payment the Potential
Participant desires to be deferred. The Committee or CEO, as
applicable, shall consider such indication of preference as
submitted and shall decide whether to accept or reject the
preference expressed as soon as practicable. Such indication of
preference, if accepted, becomes irrevocable on the date of such
acceptance. A deferral of the lump sum from the Defined Contribution
Makeup Plan will be paid under the terms of Section 5(b)(i) hereof -
10 annual installments commencing about one year after retirement,
but subject to revision under the terms of the Plan.
11
(e) Salary Reduction. If a Potential Participant elects to voluntarily
reduce Salary and receive an Award hereunder in lieu thereof, the
Potential Participant must make an election, in the manner
prescribed by the Plan Administrator, which must be received on or
before November 30 prior to the beginning of the calendar year of
the elected deferral or for Newhire Employees as soon as practicable
within a 30-day period after their first day of employment or
reemployment. Such election must be in writing signed by the
Potential Participant, and must state the amount of the salary
reduction the Potential Participant elects. Such election becomes
irrevocable on November 30 prior to the beginning of the calendar
year or for Newhire Employees after the 30-day period after their
first day of employment or reemployment, except that in the event of
any of the following:
i) the Employee is demoted to a job classification/grade that is
no longer eligible to receive an Award from an Incentive
Compensation Plan,
ii) the Employee's employment status is classified to a status
other than regular full-time or its equivalent,
iii) the Employee is receiving Unavoidable Absence Benefits (UAB)
pay such that the pay received is less than his/her pay had
been prior to being on UAB,
the Employee can request, subject to approval by the Plan Benefits
Administrator, that his/her election to voluntarily reduce his/her
salary be revoked for the remainder of the calendar year.
An Award in lieu of voluntarily reduced salary will be paid under
the terms of Section 5(b)(i) hereof - 10 annual installments
commencing about one year after retirement, but subject to revision
under the terms of the Plan.
(f) Long Term Performance Unit Award. If a Potential Participant prefers
to defer under this Plan the value of all or any part of the Long
Term Performance Unit Award to which a notice received under Section
2(f) pertains, the Potential Participant must
12
indicate such preference, in a manner prescribed by the Plan
Administrator, (i) if the Potential Participant is subject to
Section 16 of the Exchange Act, to the Committee, or (ii) if the
Potential Participant is not subject to Section 16 of the Exchange
Act, to the CEO. The Potential Participant's preference must be
received on or before 90 days from the grant date of the Long Term
Performance Unit Award. Such indication must state the portion of
the value of the Long Term Performance Unit Award the Potential
Participant desires to be deferred. If an indication is not received
by 90 days from the grant date of the award, the Potential
Participant will be deemed to have elected not to defer any portion
of the Award. Such indication of preference becomes irrevocable 90
days from the grant date of the Award. The Committee or CEO, as
applicable, shall consider such indication of preference as
submitted and shall decide whether to accept or reject the
preference expressed. The Potential Participant shall be notified in
writing of the decision. A deferral of the value of the Long Term
Performance Unit Award will be paid under the terms of Section 5(b)
(i) hereof - 10 annual installments commencing about one year after
retirement, but subject to revision under the terms of this Plan.
(g) Performance Based Incentive Award. The Potential Participant who is
eligible to receive a Performance Based Incentive Award in the
immediately following calendar year, must indicate a preference, in
a manner prescribed by the Plan Administrator, (i) if the Potential
Participant is subject to Section 16 of the Exchange Act, to the
Committee, or (ii) if the Potential Participant is not subject to
Section 16 of the Exchange Act, to the CEO. The Potential
Participant's preference must be received on or before October 1 of
the year in which said Section 2(g) notice was received. Such
indication must state the portion of the award the Potential
Participant desires to be in cash, the portion to be deferred and
the portion to be in Restricted Stock. If an indication is not
received by October 1, the Potential Participant will be deemed to
have elected to receive the award as cash. Such indication of
preference becomes irrevocable on October 1 of the year in which the
indication is submitted to the
13
Committee or CEO. The Committee or CEO, as applicable, shall
consider such indication of preference as submitted and shall decide
whether to accept or reject the preference expressed.
SECTION 4. Deferred Compensation Accounts.
(a) Credit for Deferral. Amounts deferred pursuant to Section 3(a) and
Section 5(h)(1) will be credited to the Participant's Deferred
Compensation Account as soon as practicable, but not less than 30
days after the Settlement Date of the Incentive Compensation Plan.
Amounts deferred pursuant to Section 3(b) and Section 5(h)(2) will
be credited at market value of the underlying Restricted Stock or
the shares represented by the Restricted Stock Units, as applicable,
as soon as practicable, but not later than 30 days after the date as
of which the restrictions lapse. For this purpose, the market value
of the underlying Restricted Stock or the shares represented by the
Restricted Stock Units, as applicable, shall be based on the higher
of (i) the average of the high and low selling prices of the Company
Stock on the date the restrictions lapse or the last trading day
before the day the restrictions lapse if such date is not a trading
day or (ii) the average of the high three monthly Fair Market Values
of the Company Stock during the twelve calendar months preceding the
month in which the restrictions lapse. The monthly Fair Market Value
of the Company Stock is the average of the daily Fair Market Value
of the Stock for each trading day of the month. The daily Fair
Market Value of the Stock shall be deemed equal to the average of
the high and low selling prices of the Stock on the New York Stock
Exchange. Amounts deferred pursuant to Section 3(d), 3(e), and 3(f)
and Section 5(h)(3) will be credited to the Participant's Deferred
Compensation Account as soon as practicable, but not later than 30
days after the cash payment would have been made had it not been
deferred. Amounts deferred pursuant to other provisions of this plan
shall be credited as soon as practicable but not later than 30 days
after the date the Award would otherwise be payable.
14
(b) Designation of Investments. The amount in each Participant's
Deferred Compensation Account shall be deemed to have been invested
and reinvested from time to time, in such "eligible securities" as
the Participant shall designate. Prior to or in the absence of a
Participant's designation, the Company shall designate an "eligible
security" in which the Participant's Deferred Compensation Account
shall be deemed to have been invested until designation instructions
are received from the Participant. Eligible securities are those
securities designated by the Chief Financial Officer of the Company,
or his successor. The Chief Financial Officer of the Company may
include as eligible securities, stocks listed on a national
securities exchange, and bonds, notes, debentures, corporate or
governmental, either listed on a national securities exchange or for
which price quotations are published in The Wall Street Journal and
shares issued by investment companies commonly known as "mutual
funds". The Participant's Deferred Compensation Account will be
adjusted to reflect the deemed gains, losses and earnings as though
the amount deferred was actually invested and reinvested in the
eligible securities for the Participant's Deferred Compensation
Account.
Notwithstanding anything to the contrary in this section 4(b), in
the event the Company actually purchases or sells such securities in
the quantities and at the times the securities are deemed to be
purchased or sold for a Participant's Deferred Compensation Account,
the Account shall be adjusted accordingly to reflect the price
actually paid or received by the Company for such securities after
adjustment for all transaction expenses incurred (including without
limitation brokerage fees and stock transfer taxes).
In the case of any deemed purchase not actually made by the Company,
the Deferred Compensation Account shall be charged with a dollar
amount equal to the quantity and kind of securities deemed to have
been purchased multiplied by the fair market
15
value of such security on the date of reference and shall be
credited with the quantity and kind of securities so deemed to have
been purchased. In the case of any deemed sale not actually made by
the Company, the account shall be charged with the quantity and kind
of securities deemed to have been sold, and shall be credited with a
dollar amount equal to the quantity and kind of securities deemed to
have been sold multiplied by the fair market value of such security
on the date of reference. As used herein "fair market value" means
in the case of a listed security the closing price on the date of
reference, or if there were no sales on such date, then the closing
price on the nearest preceding day on which there were such sales,
and in the case of an unlisted security the mean between the bid and
asked prices on the date of reference, or if no such prices are
available for such date, then the mean between the bid and asked
prices to the nearest preceding day for which such prices are
available.
The Senior Vice President and Chief Financial Officer of the Company
may also designate a Fund Manager to provide services which may
include recordkeeping, Participant accounting, Participant
communication, payment of installments to the Participant, tax
reporting and any other services specified by the Company in
agreement with the Fund Manager.
(c) Payments. A Participant's Deferred Compensation Account shall be
debited with respect to payments made from the account pursuant to
this Plan as of the date such payments are made from the account.
The payment shall be made as soon as practicable, but no later than
30 days, after the installment payment date.
If any person to whom a payment is due hereunder is under legal
disability as determined in the sole discretion of the Plan
Administrator, the Plan Administrator shall have the power to cause
the payment due such person to be made to such person's guardian or
other legal representative for the person's benefit, and such
payment shall constitute a full release and discharge of the
Company, the Plan
16
Administrator and any fiduciary of the Plan.
(d) Statements. At least one time per year the Company or the Company's
designee will furnish each Participant a written statement setting
forth the current balance in the Participant's Deferred Compensation
Account, the amounts credited or debited to such account since the
last statement and the payment schedule of deferred Awards and
deemed gains, losses and earnings accrued thereon as provided by the
deferred payment option selected by the Participant.
SECTION 5. Payments from Deferred Compensation Accounts.
(a) Election of Method of Payment for an Incentive Compensation Plan
Award. At the time a Potential Participant submits an indication of
preference to defer all or any part of an Award under an Incentive
Compensation Plan as provided in Section 3(a) above, the Potential
Participant shall also elect in a manner prescribed by the Plan
Administrator, which of the payment options, provided for in
Paragraph (b) of this Section, shall apply to the deferred portion
of said Award adjusted for any deemed gains, losses and earnings
accrued thereon credited to the Participant's Deferred Compensation
Account under this Plan. Subject to Paragraphs (e), (g) and (h) of
this Section, if the Committee or CEO, as appropriate, accepts the
Potential Participant's indication of preference, the election of
the method of payment of the amount deferred shall become
irrevocable.
(b) Payment Options. A Potential Participant may elect to have the
deferred portion of an Incentive Compensation Plan Award adjusted
for any deemed gains, losses and earnings accrued thereon paid:
(i) (Post-Retirement) in 10 annual installments, the payment of
the first of such installments to commence on the first day of
the first calendar quarter which is
17
on or after the first anniversary of the Potential Participant's
first day of Retirement, or
(ii) (Pre-Retirement) in annual installments of not less than 5 nor
more than 10, in semi-annual installments of not less than 10
nor more than 20, or in quarterly installments of not less
than 20 nor more than 40. The first of such installments to
commence, as soon as practicable after any date specified by
the Potential Participant, so long as such date is the first
day of a calendar quarter, is on or after the Settlement Date,
is at least one year from the date the payout option was
elected, and is prior to the date the Potential Participant
will attain the Participant's Normal Retirement Date under the
terms of the Retirement Income Plan.
(c) Election of Method of Payment of the Value of Restricted Stock and
Restricted Stock Units. As provided in Section 3(b) above, a
deferral of the value of all or part of the Restricted Stock or
Restricted Stock Units will be considered payment option (b)(i) of
this Section subject to Paragraphs (e) and (g) of this Section.
(d) Election of Method of Payment of a Lump Sum Distribution from
Non-Qualified Retirement Plans. At the time a Potential Participant
submits an indication of preference to defer all or part of the lump
sum distribution as provided in Section 3(c) above, the Potential
Participant shall also elect in a manner prescribed by the Plan
Administrator which payment option shall apply to the deferred lump
sum adjusted for any gains, losses and earnings to be accrued
thereon credited to the Participant's Deferred Compensation Account
under this Plan. The payment options are annual installments of not
less than 5 nor more than 10, semi-annual installments of not less
than 10 nor more than 20, or quarterly installments of not less than
20 nor more than 40. The first installment to commence as soon as
practicable after any date specified by the Potential Participant,
so long as such date is the first day of a calendar quarter
18
and is at least one year from the date the payout option was
elected. Subject to Paragraph (g) of this Section, if the Committee
or CEO, as appropriate, accepts the Potential Participant's
indication of preference, the election of the method of payment of
the amount deferred shall become irrevocable.
(e) Payment Option Revisions. If a Section 5(b)(i) payment option
applies to any part of the balance of a Participant's Deferred
Compensation Account, the Participant may revise such payment option
as follows:
(i) Prior to Retirement. The Participant at any time during a
period beginning 365 days prior to and ending 90 days prior to
the date the Participant Retires may, with respect to the
total of all amounts subject to such payment option at the
time of the Participant's retirement, in the manner prescribed
by the Plan Administrator, revise such payment option and
elect one of the payment options specified in (e)(iv) of this
Section to apply to such total amount in place of such payment
option.
(ii) Upon Layoff. If a Participant who is eligible to Retire or who
is Laid Off during or after the year in which the Participant
reaches age 50 is notified of Layoff and if there is not at
least 120 days between the date the Participant is notified of
Layoff and the Participant's termination date, the Participant
may, within 30 days of being notified of Layoff, in the manner
prescribed by the Plan Administrator, revise such payment
option and elect one of the payment options specified in
(e)(iv) of this Section to apply to such total amount in place
of the such payment option.
(iii) If Disabled. The Participant may at any time during a period
from the date of the beginning of the qualifying period for
the Company's Long Term Disability Plan or similar plan to no
later than 90 days prior to the end of such
19
period, or within 30 days of the amendment of this Plan
providing for such election, in the manner prescribed by the
Plan Administrator, revise such payment option and elect one
of the payment options specified in (e)(iv) of this Section to
apply to the total of all amounts subject to such payment
option; provided, however, that after the payments have begun,
such payments may be made in a different manner if, the
Participant due to an unanticipated emergency caused by an
event beyond the control of the Participant results in
financial hardship to the Participant, so request and the CEO
gives written consent to the method of payment requested.
(iv) Payment Options After Revision. If a Participant revises a
Section 5(b)(i) payment option as specified in (e)(i), (e)(ii)
or (e)(iii) of this Section, the Participant, subject to the
exception in (e)(v) of this Section, may select payments in
annual installments of not less than 5 nor more than 10, in
semi-annual installments of not less than 10 nor more than 20,
or in quarterly installments of not less than 20 nor more than
40 with the first installment to commence, as soon as
practicable following any date specified by the Participant so
long as such date is the first day of a calendar quarter, is
on or after the Participant's first day of Retirement or the
first day the Participant is no longer an Employee following
Layoff, is at least one year from the date the payment option
was revised and is not more than two calendar quarters after
the Participant's 70th birthday.
(v) Payment Option After Revision Exception. If a Participant
elected a Section 5(b)(i) payment option for amounts deferred
prior to January 1, 1994, the Participant may select payments
in one lump sum or annual installments of not less than 5 nor
more than 20 in addition to the payment options specified in
(e)(iii) of this Section, provided that the commencement date
specified by the Participant would be permitted under
paragraph (e)(iii) of this Section.
20
(f) Installment Amount. The amount of each installment shall be
determined by dividing the balance in the Participant's Deferred
Compensation Account as of the date the installment is to be paid,
by the number of installments remaining to be paid (inclusive of the
current installment).
(g) Death of Participant. Upon the death of a Participant, the
Participant's beneficiary or beneficiaries designated in accordance
with Section 6, or in the absence of an effective beneficiary
designation, the surviving spouse, surviving children (natural or
adopted) in equal shares, or the Estate of the deceased Participant,
in that order of priority, shall receive payments in accordance with
the payment option selected by the Participant, if death occurred
after such payments had commenced; or if death occurred before
payments have commenced, the beneficiary may select payments in
annual installments of not less than 5 nor more than 10, in
semi-annual installments of not less than 10 nor more than 20, or in
quarterly installments of not less than 20 nor more than 40 with the
first installment to commence, as soon as practicable following any
date specified by the beneficiary so long as such date is the first
day of a calendar quarter and is at least one year from the date the
payment option is selected and is not more than two calendar
quarters after the date the deceased Participant would have been age
70; provided, however, such payments may be made in a different
manner if the beneficiary or beneficiaries entitled to receive or
receiving such payments, due to an unanticipated emergency caused by
an event beyond the control of the beneficiary or beneficiaries that
results in financial hardship to the beneficiary or beneficiaries,
so requests and the CEO gives written consent to the method of
payment requested.
(h) Disability of Participant. In the event a Participant or employee
becomes disabled, the individual may, in the period from the date of
the beginning of the qualifying period for the Company's Long Term
Disability Plan to no later than 90 days prior to
21
the end of such period, or within 30 days of the amendment of this
Plan providing for such election, indicate a preference, in a manner
prescribed by the Plan Administrator, for any of the following:
1) to defer part or all of any Incentive Compensation Plan Award
the Employee is eligible to receive in the immediately
following calendar year,
2) to defer part or all of the value of the Stock which would
otherwise be delivered to the Employee when the restrictions
lapse on any Restricted Stock or Restricted Stock Units or
Restricted Stock Units are settled,
3) to defer part or all of the value from their account under the
Defined Contribution Makeup Plan which would otherwise be paid
as a lump sum to the Participant.
Such indications of preference shall be subject to approval by the
Committee if the Potential Participant is subject to Section 16 of
the Exchange Act or by the CEO if the Potential Participant is not
subject to Section 16 of the Exchange Act. The Committee or CEO, as
applicable, shall consider such indication or preference as
submitted and shall decide whether to accept or reject the
preference expressed.
Such indications of preference, if accepted, becomes irrevocable on
the date of such acceptance. A deferral of any amount will be paid
under the terms of Section 5(b)(I) hereof - ten (10) annual
installments, but subject to revision as specified under the terms
of this Plan.
(i) Termination of Employment.
In the event a Participant's employment with the Company,
ConocoPhillips, any Participating Subsidiary, or any other
subsidiary of ConocoPhillips terminates for any
22
reason other than death, Retirement, Disability, or by layoff during
or after the year in which the Participant reaches age 50, the
entire balance of the Participant's Deferred Compensation Account
shall be paid to the Participant in one lump sum as soon as
practicable after the date the Participant terminates employment,
except that a Participant who becomes employed by a member of the
Affiliated Group, ConocoPhillips or any other subsidiary of
ConocoPhillips immediately after terminating employment with the
Company or Participating Subsidiary shall not receive their benefit
under the plan until the Participant terminates employment from the
Affiliated Group, ConocoPhillips or any other subsidiary of
ConocoPhillips and provided, however, the Committee, in its sole
discretion, may elect to make such payments in the amounts and on
such schedule as it may determine.
(j) Rehire of Participant
In the event a Participant is a Rehired Participant, he/she will be
eligible to receive notifications as specified in Section 2 and will
be eligible to submit an Indication of Preference or Election to
Defer as specified in Section 3, if the Participant agrees to the
suspension of payments from his/her Deferred Compensation Account
during the period of reemployment by the Company. Upon termination
of reemployment, such payments shall resume on the same schedule as
was in effect at the time the Participant previously Retired or was
Laid Off.
SECTION 6. Special Provisions for Former ARCO Alaska Employees
Notwithstanding any provisions to the contrary, in order to comply with
the terms of the Master Purchase and Sale Agreement ("Sale Agreement") by
which the Company acquired certain Alaskan assets of Atlantic Richfield
Company ("ARCO"), a Participant who was eligible to participate in the
ARCO employee benefit plans immediately prior to becoming an Employee and
who was not employed by ARCO Marine, Inc. (a "former ARCO Alaska
employee") may, in a manner prescribed by the Plan Administrator, indicate
a preference or
23
make an election to:
a) voluntarily reduce salary and receive an Award in the amount of the
reduction credited to, at the Employee's election, (i) an account
under this Plan, or (ii) for so long as the ARCO Executive Deferral
Plan will accept such deferrals of salary, but not beyond December
31, 2001, an account under the ARCO Executive Deferral Plan.
b) defer any Award payable to a former ARCO employee who is
involuntarily terminated prior to April 18, 2002 in lieu of a target
ARCO Annual Incentive Plan (AIP) award, and at the Employee's
election credit the Award to (i) an account under this Plan, or (ii)
to the ARCO Executive Deferral Plan.
c) defer the Final ARCO Supplemental Executive Retirement Plan (SERP)
benefit that will be calculated as of the earlier of April 17, 2002
or the date the former ARCO employee voluntarily or involuntarily
terminates employment from the Company or any Participating
Subsidiary to the ARCO Executive Deferral Plan.
d) defer the value of the restricted stock granted on July 31, 2000 to
an account under this Plan when the restrictions lapse on July 31,
2001, July 31, 2002 and July 31, 2002. Such indications of
preference shall be made in July of the year preceding the calendar
year when the restrictions are scheduled to lapse or as soon as
practicable after July 31, 2000 for the restrictions on the shares
that are to be lapsed on July 31, 2001.
e) all indications of preference in Section 6(a), (b) and (c) are
subject to approval by the Compensation Committee if the Employee is
subject to Section 16 of the Exchange Act and by the CEO if the
Employee is not subject to Section 16 of the Exchange Act.
f) for a former ARCO Alaska employee who was classified as a grade 7 or
8 under
24
ARCO's job classification system and was eligible under ARCO's
Executive Deferral Plan to voluntarily reduce salary and defer the
amount of the voluntary salary reduction and who is now classified
as a grade 31 or below under Phillips' job classification system,
make an annual election to voluntarily reduce salary and defer the
amount of the voluntary salary reduction for salary received from
July 31, 2000 through December 31, 2000 and for the five years from
2001 through 2005 and receive a salary deferral credit under this
Plan.
SECTION 7. Designation of Beneficiary
Each Participant shall designate a beneficiary or beneficiaries to receive
the entire balance of the Participant's Deferred Compensation Account by
giving signed written notice of such designation to the Plan
Administrator. The Participant may from time to time change or cancel any
previous beneficiary designation in the same manner. The last beneficiary
designation received by the Plan Administrator shall be controlling over
any prior designation and over any testamentary or other disposition.
After acceptance by the Plan Administrator of such written designation, it
shall take effect as of the date on which it was signed by the
Participant, whether the Participant is living at the time of such
receipt, but without prejudice to the Company or the CEO on account of any
payment made under this Plan before receipt of such designation.
SECTION 8. Nonassignability
The right of a Participant, or beneficiary, or other person who becomes
entitled to receive payments under this Plan, shall not be assignable or
subject to garnishment, attachment or any other legal process by the
creditors of, or other claimants against, the Participant, beneficiary, or
other such person.
SECTION 9. Administration.
25
(a) The Plan Administrator may adopt such rules, regulations and forms
as deemed desirable for administration of the Plan and shall have
the discretionary authority to allocate responsibilities under the
Plan to such other persons as may be designated, whether or not
employee members of the Board of Directors.
(b) Any claim for benefits hereunder shall be presented in writing to
the Plan Administrator for consideration, grant or denial. In the
event that a claim is denied in whole or in part by the Plan
Administrator, the claimant, within ninety days of receipt of said
claim by the Plan Administrator, shall receive written notice of
denial. Such notice shall contain:
(1) a statement of the specific reason or reasons for the denial;
(2) specific references to the pertinent provisions hereunder on
which such denial is based;
(3) a description of any additional material or information
necessary to perfect the claim and an explanation of why such
material or information is necessary; and
(4) an explanation of the following claims review procedure set
forth in paragraph (c) below.
(c) Any claimant who feels that a claim has been improperly denied in
whole or in part by the Plan Administrator may request a review of
the denial by making written application to the Trustee. The
claimant shall have the right to review all pertinent documents
relating to said claim and to submit issues and comments in writing
to the Trustee. Any person filing an appeal from the denial of a
claim must do so in writing within sixty days after receipt of
written notice of denial. The Trustee shall render a decision
regarding the claim within sixty days after receipt of a request for
review, unless special circumstances require an
26
extension of time for processing, in which case a decision shall be
rendered within a reasonable time, but not later than 120 days after
receipt of the request for review. The decision of the Trustee shall
be in writing and, in the case of the denial of a claim in whole or
in part, shall set forth the same information as is required in an
initial notice of denial by the Plan Administrator, other than an
explanation of this claims review procedure. The Trustee shall have
absolute discretion in carrying out its responsibilities to make its
decision of an appeal, including the authority to interpret and
construe the terms hereunder, and all interpretations, findings of
fact, and the decision of the Trustee regarding the appeal shall be
final, conclusive and binding on all parties.
(d) Compliance with the procedures described in paragraphs (b) and (c)
shall be a condition precedent to the filing of any action to obtain
any benefit or enforce any right which any individual may claim
hereunder. Notwithstanding anything to the contrary in the Plan,
these paragraphs (b), (c) and (d) may not be amended without the
written consent of a seventy-five percent (75%) majority of
Participants and Beneficiaries and such paragraphs shall survive the
termination of this Plan until all benefits accrued hereunder have
been paid.
SECTION 10. Employment not Affected by Plan.
Participation or nonparticipation in this Plan shall neither adversely
affect any person's employment status, or confer any special rights on any
person other than those expressly stated in the Plan. Participation in the
Plan by an Employee of the Company or of a Participating Subsidiary shall
not affect the Company's or the Participating Subsidiary's right to
terminate the Employee's employment or to change the Employee's
compensation or position.
SECTION 11. Determination of Recipients of Awards.
The determination of those persons who are entitled to Awards under the
Incentive
27
Compensation Plan and any other such plans shall be governed solely by the
terms and provisions of the applicable plan, and the selection of an
Employee as a Potential Participant or the acceptance of an indication of
preference to defer an Award hereunder shall not in any way entitle such
Potential Participant to an Award.
SECTION 12. Method of Providing Payments.
(a) Nonsegregation. Amounts deferred pursuant to this Plan and the
crediting of amounts to a Participant's Deferred Compensation
Account shall represent the Company's unfunded and unsecured promise
to pay compensation in the future. With respect to said amounts, the
relationship of the Company and a Participant shall be that of
debtor and general unsecured creditor. While the Company may make
investments for the purpose of measuring and meeting its obligations
under this Plan such investments shall remain the sole property of
the Company subject to claims of its creditors generally, and shall
not be deemed to form or be included in any part of the Deferred
Compensation Account.
(b) Funding. It is the intention of the Company that this Plan shall be
unfunded for federal tax purposes and for purposes of Title I of
ERISA; provided, however, that the Company may establish a grantor
trust to satisfy part or all of its Plan payment obligations so long
as the Plan remains unfunded for federal tax purposes and for
purposes of Title I of ERISA.
SECTION 13. Amendment or Termination of Plan.
The Company reserves the right to amend this Plan from time to time or to
terminate the Plan entirely, provided, however, that no amendment may
affect the balance in a Participant's account on the effective date of the
amendment. No Participant shall participate in a decision to amend or
terminate this Plan. In the event of termination of the Plan, the
28
Chief Executive Officer, in his sole discretion, may elect to pay to the
Participant in one lump sum as soon as practicable after termination of
the Plan, the balance then in the Participant's account.
29
SECTION 14. Miscellaneous Provisions.
(a) Except as otherwise provided herein, the Plan shall be binding upon
the Company, its successors and assigns, including but not limited
to any corporation which may acquire all or substantially all of the
Company's assets and business or with or into which the Company may
be consolidated or merged.
(b) This Plan shall be construed, regulated, and administered in
accordance with the laws of the State of Oklahoma except to the
extent that said laws have been preempted by the laws of the United
States.
30
Exhibit 10.18
Board of Directors Amended
February 9, 1998
NON-EMPLOYEE DIRECTOR RETIREMENT PLAN
OF PHILLIPS PETROLEUM COMPANY
ARTICLE I - PURPOSE
The Non-Employee Director Retirement Plan is intended to provide Non-Employee
Directors with income commencing upon their retirement from service on the
Phillips Petroleum Company Board of Directors.
ARTICLE II - DEFINITIONS
The following terms, when used in this Plan, have the following meaning unless
the context clearly indicates otherwise:
1. "Annual Board Service Retainer" shall mean the sum of the cash
compensation paid for Board service exclusive of compensation for
committee membership and of fees for attendance at Board or
Committee meetings, if any, plus the value of the Company common
stock granted, if any, to a Non-Employee Director during the twelve
calendar months immediately preceding the date on which the Non-
Employee Director retires, such value to be determined as the
product of the number of shares of such common stock granted
multiplied by the higher of the Fair Market Value for the last year
or the average of the
- 1 -
high three Fair Market Values calculated in accordance with Article
II, Section 6, for the last ten years preceding the Non-Employee
Director's retirement.
2. "Board" shall mean the Board of Directors of the Company.
3. "Chief Executive Officer" shall mean the Chief Executive Officer of
the Company.
4. "Company" shall mean Phillips Petroleum Company.
5. "Disability" shall mean that condition in which, by reason of bodily
injury or disease, a Non-Employee Director is prevented from serving
in such capacity. All determinations of Disability shall be made by
a physician selected by the Company.
6. "Fair Market Value" shall be calculated as the average of the high
three monthly fair market values of the Company common stock during
the twelve calendar months preceding the month in which the
Non-Employee Director retires. The monthly fair market value of the
Company common stock is the average of the daily fair market value
of the stock for each trading day of the month. The daily fair
market value of the stock shall be deemed equal to the average of
the high and low selling prices
- 2 -
of the stock on the New York Stock Exchange, as reported in the Wall
Street Journal.
7. "Non-Employee Director" shall mean a member of the Board of
Directors who is not a present employee nor former employee of the
Company or any of its subsidiaries.
8. "Normal Retirement Date" shall mean the date of the Annual
Stockholders Meeting of the Company in the year in which the
director is no longer eligible for election as a director as defined
in the Bylaws of the Company, currently the year in which the
director attains age 71.
9. "Plan" shall mean the Non-Employee Director Retirement Plan of
Phillips Petroleum Company, the terms and provisions of which are
herein set forth, together with such amendments thereto as may
hereafter from time to time be adopted.
10. "Retires" or "Retirement" shall mean the termination of Board
service due to a) the Non-Employee Director's not being nominated
for election to the Board; or b) the Non-Employee Director's not
being reelected to Board service after being so nominated; or c) the
Non-Employee Director's resignation from Board service as a result
of the Director's Disability or any reason, acceptable to a majority
of the remaining members of the Board of
- 3 -
Directors.
11. "Years of Service" shall mean the number of full and partial
consecutive calendar years during which the Non-Employee Director
was a member of the Board; provided, however that only a
Non-Employee Director whose Normal Retirement Date occurs in 1998,
shall accrue Years of Service after December 31, 1997, and further
that no Non-Employee Director shall accrue Years of Service after
the date of the 1998 Annual Stockholders Meeting of the Company.
ARTICLE III - ELIGIBILITY
Only Non-Employee Directors are eligible to participate in the Plan.
ARTICLE IV - PAYMENT OF RETIREMENT BENEFITS
Upon Retirement from Board service each Non-Employee Director shall receive
payments under this Plan. Notwithstanding anything to the contrary in this Plan,
no payments shall be made under this Plan for any Non-Employee Director who has
given written consent to the Company to receive an Award of Restricted Stock, as
of March 2, 1998, under the Phillips Petroleum Company Stock Plan for
Non-Employee Directors representing and in lieu of his or her accrued benefits
under this Plan.
- 4 -
a) These payments shall be made on a monthly basis beginning on or
about the first of the month after Retirement. The amount of these
monthly payments shall be equal to the Annual Board Service Retainer
divided by 12; provided, however, that the amount of payments to any
retired Non-Employee Director who has commenced receiving payments
from this Plan prior to April 10, 1995, shall not be increased or
paid in a different manner, but shall be paid in the same amount and
manner as in effect at the time payments commenced. These payments
shall continue for a number of months equal to Years of Service
times 12.
b) Notwithstanding (a) above, a Retiring Non-Employee Director may, not
earlier than 150 days nor later than 30 days prior to the date
retirement benefit payments would begin, express a preference, in
the manner prescribed by the Chief Executive Officer, to have the
monthly payment provided hereunder converted to one lump sum payment
which is calculated as the present value of the monthly payment
amount using the December 1 of the year prior to Retirement rate of
the 30-year Treasury Bond as quoted in the Federal Reserve
Statistical Release Bulletin No. H.15, or the comparable successor
publication, and the number of Years of Service.
All or part of such lump sum payment may be either paid
- 5 -
to the Non-Employee Director or considered for deferral under the
Deferred Compensation Plan for Non-Employee Directors of Phillips
Petroleum Company. The Chief Executive Officer shall consider such
indication of preference for a lump sum and shall respectively
decide in the Chief Executive Officer's sole discretion whether to
accept or reject the preference expressed. In the event the Chief
Executive Officer accepts such Non-Employee Director's preference
for a lump sum, part or all of the retirement benefit shall be paid
in a lump sum as soon as practicable after the later of such
acceptance or on or about the first of the month after Retirement.
ARTICLE V - DEATH OF NON-EMPLOYEE DIRECTOR
In the event a Non-Employee Director dies prior to Retirement, no benefits shall
be payable from this Plan. After commencement of Retirement payments, if paid as
a monthly payment determined in accordance with Article IV (a), such monthly
payments will continue until the total number of payments has been made, or the
death of the retired Non-Employee Director, whichever occurs first. If death
occurs first, then the remaining payments shall be made to the surviving spouse,
if any. If there is no surviving spouse, or if the surviving spouse should die,
then there will be no further payment obligation under this Plan.
- 6 -
ARTICLE VI - ADMINISTRATION
The Chief Executive Officer is authorized, subject to the provisions of the
Plan, to establish rules and regulations, to make determinations under and such
interpretations of, and to take steps in connection with the Plan as the Chief
Executive Officer deems necessary or advisable, and to appoint agents as the
Chief Executive Officer deems appropriate for the proper administration of the
Plan. Each determination, interpretation, or other action made or taken pursuant
to the provisions of the Plan by the Chief Executive Officer shall be reported
to the Board of Directors and once so reported shall be final and shall be
binding and conclusive for all purposes and upon all persons.
ARTICLE VII - TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time terminate the Plan and may from time to time alter or
amend the Plan, or any part thereof, (including any amendment deemed necessary
to ensure that the Company may comply with any regulatory requirement);
provided, however, that no director may act to terminate or amend the Plan if
such action would either increase benefits payable under the Plan to that
director or remove or reduce the risk that such director's benefits under the
Plan might be forfeited. Such termination or amendment will not negatively
impact any rights or benefits accrued to date of such termination or amendment
under this Plan. After the 1998 Annual Stockholders Meeting of the Company and
- 7 -
upon the final payment of all amounts owed to Retired Non-Employee Directors and
their surviving spouses, this Plan shall automatically terminate without further
action of this Board.
- 8 -
ARTICLE VIII - NON-ASSIGNABILITY
Retirement payments may not be pledged, anticipated, assigned (either at law or
in equity), alienated or subject to attachment, garnishment, levy, execution or
other legal or equitable process.
ARTICLE IX - MISCELLANEOUS
(a) All amounts payable under this Plan are unfunded and unsecured benefits
and shall be paid solely from the general assets of the Company and any
rights accruing to the Non-Employee Director or the surviving spouse under
the Plan shall be those of a unsecured general creditor; provided,
however, that the Company may establish a grantor trust to pay part or all
of its Plan payment obligations so long as the Plan remains unfunded for
federal tax purposes.
(b) Except as otherwise provided herein, the Plan shall be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's
assets and business or with or into which the Company may be consolidated
or merged.
(c) This Plan shall be construed, regulated, and administered in accordance
with the laws of the State of Delaware except to the extent that said laws
have been preempted by the laws of
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the United States.
ARTICLE X - EFFECTIVE DATE OF THE PLAN
The Plan is amended and restated effective as of January 1, 1998.
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Exhibit 10.19
Amended by the Board of Directors August 26, 2002
OMNIBUS SECURITIES PLAN
OF
PHILLIPS PETROLEUM COMPANY
(AMENDED AND RESTATED)
SECTION 1. PURPOSE AND ESTABLISHMENT.
The purpose of the Omnibus Securities Plan of Phillips Petroleum Company (the
"Plan") is to benefit the Company's stockholders by encouraging high levels of
performance by individuals whose performance is a key element in achieving the
Company's continued financial and operational success, and to enable the Company
to recruit, reward, retain and motivate employees to work as a team to achieve
the Company's mission of being the top performer in each of our businesses by
rewarding the creation of shareholder value.
The Omnibus Securities Plan of Phillips Petroleum Company shall become effective
January 1, 1993, upon its adoption by the Company's stockholders at the 1993
Annual Meeting.
SECTION 2. DEFINITIONS.
For purposes of the Plan, the following terms, as used herein, shall have the
meaning specified:
(a) "AWARD" or "AWARDS" means an award granted pursuant to Section 4 hereof.
(b) "AWARD AGREEMENT" means an agreement described in Section 5 hereof entered
into between the Company and a Participant, setting forth the terms,
conditions and any limitations applicable to the Award granted to the
Participant.
(c) "BENEFICIARY" means a person or persons designated by a Participant to
receive, in the event of death, any unpaid portion of an Award held by the
Participant. Any Participant may, subject to such limitations as may be
prescribed by the Committee, designate one or more persons primarily or
contingently as beneficiaries in writing upon forms supplied by and
delivered to the Company, and may revoke such designations in writing. If
a Participant fails effectively to designate a beneficiary, then the Award
will be paid in the following order of priority:
(i) Surviving spouse;
(ii) Surviving children in equal shares;
(iii) To the estate of the Participant.
(d) "BOARD" means the Board of Directors of the Company as it may be comprised
from time to time.
(e) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
(f) "COMMITTEE" means the Compensation Committee of the Board or any successor
committee with substantially the same responsibilities.
(g) "COMPANY" means ConocoPhillips, a Delaware corporation or any successor
corporation.
(h) "DISABILITY" shall mean the inability, in the opinion of the Company's
group life insurance carrier, of a Participant, because of an injury or
sickness, to work at a reasonable occupation which is available with the
Company or at any gainful occupation which the Participant is or may
become fitted.
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(i) "EMPLOYEE" means any individual who is a salaried employee of the Company
or any Participating Subsidiary.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and
in effect from time to time, or any successor statute.
(k) "FAIR MARKET VALUE" in reference to the common Stock of the Company
means
(i) the average of the reported highest and lowest sale prices per share
of such Stock as reported on the composite tape of New York Stock
Exchange transactions (or such other reporting system as shall be
selected by the Committee) on the relevant date; or
(ii) in the absence of reported sales on that date, the average of the
reported highest and lowest sales prices per share on the last
previous day for which there was a reported sale.
The Committee shall determine the Fair Market Value of any security that
is not publicly traded, using such criteria as it shall determine, in its
sole discretion, to be appropriate for such valuation.
(l) "INSIDER" means any person who is subject to Section 16 of the Exchange
Act.
(m) "PARTICIPANT" means an Employee who has been designated by the Committee
to be eligible for an Award pursuant to this Plan.
(n) "PARTICIPATING SUBSIDIARY" means a subsidiary of the Company, of which the
Company beneficially owns, directly or indirectly, more than 50% of the
aggregate voting power of
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all outstanding classes and series of stock, and one or more Employees of
which are Participants, or are eligible for Awards pursuant to this Plan.
-4-
(o) "RESTRICTED STOCK" means shares of Stock which have certain restrictions
attached to the ownership thereof, which may be issued under Section 4.3.
(p) "RETIREMENT" means termination of employment with the Company or a
Participating Subsidiary which qualifies the Employee for Retirement as
that term is defined in the Retirement Income Plan of Phillips Petroleum
Company or of the applicable retirement plan of a Participating
Subsidiary.
(q) "RULE 16B-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission as now in force or as such regulation or successor regulation
shall be hereafter amended.
(r) "SECTION 16" means Section 16 of the Exchange Act or any successor
regulation and the rules promulgated thereunder as they may be amended
from time to time.
(s) "STOCK" means shares of Common Stock of the Company, par value $.01.
(t) "STOCK APPRECIATION RIGHT" means a right, the value of which is determined
relative to the appreciation in value of shares of Stock, which may be
issued under Section 4.2.
(u) "STOCK OPTION" means a right to purchase shares of Stock granted pursuant
to Section 4.1 and includes Incentive Stock Options and Non-Qualified
Stock Options as defined in Section 4.1.
SECTION 3. ELIGIBILITY.
Awards may be granted only to Employees who are designated as Participants from
time to time by the Committee. The Committee shall determine which Employees
shall be Participants, the types
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of Awards to be made to Participants and the terms, conditions and limitations
applicable to the Awards.
SECTION 4. AWARDS
Awards may include, but are not limited to, those described in this Section 4.
The Committee may grant Awards singly, in tandem or in combination with other
Awards, as the Committee may in its sole discretion determine. Subject to the
other provisions of this Plan, Awards may also be granted in combination or in
tandem with, in replacement of, or as alternatives to, grants or rights under
this Plan and any other employee plan of the Company.
4.1 STOCK OPTIONS
A Stock Option is a right to purchase a specified number of shares of Stock at a
specified price during such specified time as the Committee shall determine.
(a) Options granted may be either of a type that complies with the
requirements of incentive stock options as defined in Section 422 of the
Code ("Incentive Stock Options") or of a type that does not comply with
such requirements ("Non-Qualified Options"), provided, however, that the
aggregate number of shares which may be subject to Incentive Stock Options
under this Plan shall not exceed twenty million (20,000,000) shares of
Stock.
(b) The exercise price per share of any Stock Option shall be no less than the
Fair Market Value per share of the Stock subject to the option on the date
the Stock Option is granted.
(c) A Stock Option may be exercised, in whole or in part, by giving written
notice of exercise to the Company specifying the number of shares of Stock
to be purchased.
-6-
(d) The exercise price of the Stock subject to the Stock Option may be paid in
cash or, at the discretion of the Committee, may also be paid by the
tender of Stock already owned by the Participant, or through a combination
of cash and Stock, or through such other means the Committee determines
are consistent with the Plan's purpose and applicable law. No fractional
shares of Stock will be issued or accepted.
4.2 STOCK APPRECIATION RIGHTS
A Stock Appreciation Right is a right to receive, upon surrender of the right,
but without payment, an amount payable in cash and/or shares of Stock under the
terms and conditions as the Committee shall determine.
(a) A Stock Appreciation Right may be granted in tandem with part or all of,
in addition to, or completely independent of a Stock Option or any other
Award under this Plan. A Stock Appreciation Right issued in tandem with a
Stock Option may be granted at the time of grant of the related Stock
Option or at any time thereafter during the term of the Stock Option.
(b) The amount payable in cash and/or shares of Stock with respect to each
right shall be equal in value to a percent of the amount by which the Fair
Market Value per share of Stock on the exercise date exceeds the exercise
price of the Stock Appreciation Right. The applicable percent shall be
established by the Committee. The amount payable in shares of Stock, if
any, is determined with reference to the Fair Market Value on the date of
exercise.
(c) Stock Appreciation Rights issued in tandem with Stock Options shall be
exercisable only to the extent that the Stock Options to which they relate
are exercisable. Upon exercise of the Stock Appreciation Right, the
Participant shall surrender to the Company the underlying Stock Option.
Stock Appreciation Rights issued in tandem with Stock Options shall
automatically terminate upon the exercise of such Stock Options.
-7-
4.3 RESTRICTED STOCK
Restricted Stock is Stock that is issued to a Participant and is subject to such
terms, conditions and restrictions as the Committee deems appropriate, which may
include, but are not limited to, restrictions upon the sale, assignment,
transfer or other disposition of the Restricted Stock and the requirement of
forfeiture of the Restricted Stock upon termination of employment under certain
specified conditions. The Committee may provide for the lapse of any such term
or condition or waive any term or condition based on such factors or criteria as
the Committee may determine. The Participant shall have, with respect to awards
of Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the Restricted Stock and the right to receive any
cash or stock dividends on such Stock. No more than thirty percent (30%) of the
total number of shares of Stock available for Awards under the Plan shall be
issued during the duration of the Plan as Restricted Stock.
4.4 PERFORMANCE AWARDS
Performance Awards may be granted under this Plan from time to time based on the
terms and conditions as the Committee deems appropriate provided that such
Awards shall not be inconsistent with the terms and purposes of this Plan.
Performance Awards are Awards which are contingent upon the performance of all
or a portion of the Company and/or its Subsidiaries or which are contingent upon
the individual performance of a Participant. Performance Awards may be in the
form of performance units, performance shares and such other forms of
performance Awards which the Committee shall determine. The Committee shall
determine the performance measurements and criteria for such performance Awards.
4.5 OTHER AWARDS
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The Committee may from time to time grant Stock, other Stock based and non-Stock
based Awards under the Plan including without limitations those Awards pursuant
to which Shares of Stock are or may in the future be acquired, Awards
denominated in Stock units, securities convertible into Stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such other Stock, Stock based and non-Stock based Awards provided
that such Awards shall not be inconsistent with the terms and purposes of this
Plan.
SECTION 5. AWARD AGREEMENTS.
Each Award under this Plan shall be evidenced by an Award Agreement setting
forth the number of shares of Stock or other security, Stock Appreciation
Rights, or units subject to the Award and such other terms and conditions
applicable to the Award as determined by the Committee.
(a) Award Agreements shall include the following terms:
(i) NON-ASSIGNABILITY:
A provision that the Awards under the Plan other than Awards
representing Non-Qualified Stock Options shall not be assigned,
pledged or otherwise transferred except by will or by the laws of
descent and distribution, and that during the lifetime of a
Participant, an Award other than an Award representing Non-Qualified
Stock Options shall be exercised only by such Participant or by the
Participant's legal guardian or legal representative.
(ii) TERMINATION OF EMPLOYMENT: A provision describing the treatment of
an Award in the event of the Retirement, Disability, death or other
termination of a Participant's employment with the Company,
including but not limited to terms relating to the vesting, time for
exercise, forfeiture or cancellation of an Award in such
circumstances.
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(iii) RIGHTS AS STOCKHOLDER: A provision that a Participant shall have no
rights as a stockholder with respect to any securities covered by an
Award until the date the Participant becomes the holder of record.
Except as provided in Section 8 hereof, no adjustment shall be made
for dividends or other rights, unless the Award Agreement
specifically requires such adjustment, in which case, grants of
dividend equivalents or similar rights shall not be considered to be
a grant of any other stockholder right.
(iv) WITHHOLDING: A provision requiring the withholding of applicable
taxes required by law from all amounts paid in satisfaction of an
Award. In the case of an Award paid in cash, the withholding
obligation shall be satisfied by withholding the applicable amount
and paying the net amount in cash to the Participant. In the case of
Awards paid in shares of Stock or other securities of the Company, a
Participant may satisfy the withholding obligation by paying the
amount of any taxes in cash or, with the approval of the Committee,
shares of Stock or other securities may be deducted from the payment
to satisfy the obligation in full or in part as long as such
withholding of shares does not violate any applicable laws, rules or
regulations of Federal, state or local authorities. The number of
shares to be deducted shall be determined by reference to the Fair
Market Value of such shares of Stock on the applicable date.
(v) HOLDING PERIOD: In the case of an Award to an Insider:
(A) of an equity security, a provision stating (or the effect of
which is to require) that such security must be held for a
least six months (or such longer period as the Committee in
its discretion specifies) from the date of acquisition; or
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(B) of a derivative security with a fixed exercise price within
the meaning of Section 16, a provision stating (or the effect
of which is to require) that at least six months (or such
longer period as the Committee in its discretion specifies)
must elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security
(other than upon exercise or conversion) or its underlying
equity security; or
(C) of a derivative security without a fixed exercise price within
the meaning of Section 16, a provision stating (or the effect
of which is to require) that at least six months (or such
longer period as the Committee in its discretion specifies)
must elapse from the date upon which such price is fixed to
the date of disposition of the derivative security (other than
by exercise or conversion) or its underlying equity security.
(b) Award Agreements may include the following terms:
(i) REPLACEMENT, SUBSTITUTION, AND RELOADING: Any provisions
(A) permitting the surrender of outstanding Awards or securities
held by the Participant in order to exercise or realize rights
under other Awards, or in exchange for the grant of new Awards
under similar or different terms (including the grant of
reload options), or,
(B) requiring holders of Awards to surrender outstanding Awards as
a condition precedent to the grant of new Awards under the
Plan.
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(ii) TRANSFERABILITY OF NON-QUALIFIED STOCK OPTIONS: Such provisions as
the Committee may, in its discretion, authorize in any particular
case, with respect to all or any portion of any Non-Qualified Stock
Options to be granted to Participant, the transfer by such
Participant of any of such Non-Qualified Stock Options to (a) the
spouse, children or grandchildren (including in each case
stepchildren or step grandchildren) of the Participant (all such
persons collectively "Immediate Family Members":), (b) a trust or
trusts for the exclusive benefit of persons all of whom are
Immediate Family Members, or (c) a partnership in which all partners
are Immediate Family Members, provided that following any such
permitted transfer, subsequent transfers of transferred
Non-Qualified Stock Options, except by will or the laws of descent
and distribution, are prohibited. Following any transfer
contemplated hereby, the transferred Non-Qualified Stock Options
shall continue to be subject to all of the terms hereof and
Administrative Procedure and the Award Agreement pursuant to which
it was originally granted and the transferee shall be obliged to
comply in all respects with all of the terms and conditions hereof,
the Administrative Procedure and the Award Agreement in the same
manner as if the transferee were a Participant hereunder.
(iii) OTHER TERMS: Such other terms as are necessary and appropriate to
effect an Award to the Participant including but not limited to the
term of the Award, vesting provisions, deferrals, any requirements
for continued employment with the Company, any other restrictions or
conditions (including performance requirements) on the Award and the
method by which restrictions or conditions lapse, effect on the
Award of a Change of Control as defined in Section 9, the price,
amount or value of Awards.
SECTION 6. SHARES OF STOCK SUBJECT TO THE PLAN
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(a) Subject to the adjustment provisions of Section 8 hereof, the number of
Shares for which Awards may be granted in each calendar year during any
part of which the Plan is in effect (including, for the purpose of this
limitation, shares of Stock which have been or may be the subject of
Awards under the Prior Plans as defined in Section 17 hereof during such
year) shall not exceed eight-tenths of one percent (.8%) of the total
issued and outstanding shares of Stock on December 31 of the immediately
preceding year. In the event that not all of the shares available in one
year are used for Awards in that year, the number of shares not used for
Awards that year shall be carried forward and shall be available for
Awards in succeeding calendar years in addition to the eight-tenths of one
percent (.8%) of shares that would otherwise be available in such years.
(b) Any unexercised or undistributed portion of any terminated, expired,
exchanged, or forfeited Award or Awards settled in cash in lieu of shares
of Stock shall be available for further Awards in addition to those
available under Section 6(a) hereof.
(c) For the purposes of computing the total number of shares of Stock granted
under the Plan, the following rules shall apply to Awards payable in Stock
or other securities, where appropriate:
(i) except as provided in (v) of this Section, each Stock Option shall
be deemed to be the equivalent of the maximum number of shares that
may be issued upon exercise of the particular Stock Option;
(ii) except as provided in (v) of this Section, each other Stock-based
Award payable in some other security shall be deemed to be equal to
the number of shares to which it relates;
-13-
(iii) except as provided in (v) of this Section, where the number of
shares available under the Award is variable on the date it is
granted, the number of shares shall be deemed to be the maximum
number of shares that could be received under that particular Award;
(iv) where one or more types of Awards (both of which are payable in
shares of Stock or another security) are granted in tandem with each
other, such that the exercise of one type of Award with respect to a
number of shares cancels an equal number of shares of the other,
each joint Award shall be deemed to be the equivalent of the number
of shares under the other; and
(v) each share awarded or deemed to be awarded under the preceding
subsections shall be treated as shares of Stock, even if the Award
is for a security other than Stock.
Additional rules for determining the number of shares of Stock granted under the
Plan may be made by the Committee, as it deems necessary or appropriate.
(d) The Stock which may be issued pursuant to an Award under the Plan may be
treasury or authorized but unissued Stock or Stock may be acquired,
subsequently or in anticipation of the transaction, in the open market to
satisfy the requirements of the Plan.
SECTION 7. ADMINISTRATION.
(a) The Plan and all Awards granted pursuant thereto shall be administered by
the Committee so as to permit the Plan to comply with Rule 16b-3. A
majority of the members of the Committee shall constitute a quorum. The
vote of a majority of a quorum shall constitute action by the Committee.
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(b) The Committee shall periodically determine the Participants in the Plan
and the nature, amount, pricing, timing, and other terms of Awards to be
made to such individuals.
(c) The Committee shall have the power to interpret and administer the Plan.
All questions of interpretation with respect to the Plan, the number of
shares of Stock or other security, Stock Appreciation Rights, or units
granted, and the terms of any Award Agreements shall be determined by the
Committee and its determination shall be final and conclusive upon all
parties in interest. In the event of any conflict between an Award
Agreement and the Plan, the terms of the Plan shall govern.
(d) It is the intent of the Company that the Plan and Awards hereunder satisfy
and be interpreted in a manner, that, in the case of Participants who are
or may be Insiders, satisfies the applicable requirements of Rule 16b-3,
so that such persons will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 and will not be subjected to
avoidable liability thereunder. If any provision of the Plan or of any
Award would otherwise frustrate or conflict with the intent expressed in
this Section 7(d), that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict. To the extent
of any remaining irreconcilable conflict with such intent, the provision
shall be deemed void as applicable to Insiders.
(e) The Committee may delegate to the officers or employees of the Company the
authority to execute and deliver such instruments and documents, to do all
such acts and things, and to take all such other steps deemed necessary,
advisable or convenient for the effective administration of the Plan in
accordance with its terms and purpose, except that the Committee may not
delegate any discretionary authority with respect to substantive decisions
or functions regarding the Plan or Awards thereunder as these relate to
Insiders including but not limited to decisions regarding the timing,
eligibility, pricing, amount or other material term of such Awards.
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SECTION 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by the Company's shareholders, in the event of a
reorganization, recapitalization, Stock split, Stock dividend, exchange of
Stock, combination of Stock, merger, consolidation or any other change in
corporate structure of the Company affecting the Stock, or in the event of a
sale by the Company of all or a significant part of its assets, or any
distribution to its shareholders other than a normal cash dividend, the
Committee may make appropriate adjustment in the number, kind, price and value
of Stock authorized by this Plan and any adjustments to outstanding Awards as it
determines appropriate so as to prevent dilution or enlargement of rights.
SECTION 9. CHANGE OF CONTROL
(a) In the event of a Change of Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of
the date of the Change of Control that are not then fully
exercisable and vested, shall become fully exercisable and vested to
the full extent of the original grant;
(ii) All restrictions and other limitations applicable to any Restricted
Stock shall lapse, and such Restricted Stock shall become free of
all restrictions and become fully vested and transferable to the
full extent of the original grant;
(iii) All Performance Awards and other Awards outstanding as of the date
of the Change of Control shall be considered to be earned and
payable in full, and any deferral or other restriction shall lapse
and except as provided in subsection (c) of this Section 9, such
Performance Units shall be settled in cash as promptly as is
practicable; and
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(iv) All noncompetition covenants and other similar restrictive covenants
applicable to any outstanding Awards shall lapse and become null and
void and of no further effect.
(b) A "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14 (d)(2) of the Exchange Act (a
"Person")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (a) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (b) the combined power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company or (D) any
acquisition pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) of this Section 9(b); or
(ii) Individuals who, as of August 26, 2002, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to August 26, 2002, whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election
-17-
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of
assets of another entity (a "Corporate Transaction"), in each case,
unless, following such Corporate Transaction, (A) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such Corporate Transaction beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Corporate
Transaction) beneficially own, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the
combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Corporate Transaction and (C) at least a majority of
the members of the board of directors of the corporation resulting
from such Corporate Transaction were members of the Incumbent Board
at the time
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of the execution of the initial agreement, or of the action of the
Board, providing for such Corporate Transaction; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Notwithstanding the foregoing, if any right to receive cash granted
pursuant to this Section 9 would make a Change of Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 that but
for the nature of such right would be eligible for such accounting
treatment, the Committee shall have the ability to substitute for the cash
payable pursuant to such right Stock or other securities with a fair
market value equal to the cash that would otherwise be payable hereunder.
SECTION 10. RIGHTS OF EMPLOYEES.
(a) Status as an eligible Employee shall not be construed as a commitment that
any Award will be made under the Plan to such eligible Employee or to
eligible Employees generally.
(b) Nothing contained in the Plan (or in any other documents related to this
Plan or to any Award) shall confer upon any Employee or Participant any
right to continue in the employ or other service of the Company or
constitute any contract or limit in any way the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person with or without cause.
SECTION 11. AWARDS IN FOREIGN COUNTRIES.
The Committee shall have the authority to adopt such modifications, procedures
and subplans as may be necessary or desirable to comply with provisions of the
laws of foreign countries in which
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the Company or its Participating Subsidiaries may operate to assure the
viability of the benefits of Awards made to Participants employed in such
countries and to meet the purpose of this Plan.
SECTION 12. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
No certificate for Stock distributable pursuant to this Plan shall be issued and
delivered unless the issuance of such certificate complies with all applicable
legal requirements including, without limitation, compliance with the provisions
of applicable state securities laws, the Securities Act of 1933, as amended from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Stock may, at the time, be listed.
SECTION 13. AMENDMENT AND TERMINATION.
The Board of Directors may at any time amend, suspend or terminate the Plan. The
Committee may at any time alter or amend any or all Award Agreements under the
Plan, but no such alteration or amendment may adversely affect the rights of the
Participant in question without such Participant's consent. However, no such
action may, without further approval of the stockholders of the Company, be
effective if such approval is required in order that transactions in Company
securities under the Plan be exempt from the operation of Section 16(b) of the
Securities Exchange Act of 1934 and may not amend the plan so as to
(i) increase the number of shares of Stock which may be issued under the
Plan, except as provided for in Section 8;
(ii) materially modify the requirements as to eligibility for
participation,
(iii) materially increase the benefits accruing to Participants under the
Plan; or
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(iv) extend the duration beyond the date approved by the stockholders.
SECTION 14. UNFUNDED PLAN.
The Plan shall be unfunded. Neither the Company nor the Board of Directors shall
be required to segregate any assets that may at any time be represented by
Awards made pursuant to the Plan. Neither the Company, the Committee, nor the
Board of Directors shall be deemed to be a trustee of any amounts to be paid
under the Plan.
SECTION 15. LIMITS OF LIABILITY.
(a) Any liability of the Company to any Participant with respect to an Award
shall be based solely upon contractual obligations created by the Plan and
the Award Agreement.
(b) Neither the Company nor any member of the Board of Directors or of the
Committee, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability to any party for any
action taken or not taken, in good faith under the Plan.
SECTION 16. DURATION OF THE PLAN.
This Plan shall become effective on January 1, 1993, upon the adoption by the
Company's stockholders at the 1993 Annual Meeting and the Committee shall have
authority to grant Awards hereunder until December 31, 2002, subject to the
ability of the Board of Directors to terminate the Plan as provided in Section
13.
SECTION 17. TERMINATION OF OTHER PLANS.
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Effective upon the adoption of the Plan by stockholders, no further grants of
options, stock appreciation rights, stock or restricted stock shall be made
under the Company's 1986 Stock Plan and 1990 Stock Plan ("Prior Plans").
Thereafter, all grants and awards made under the Prior Plans prior to that date
shall continue in accordance with the terms of the Prior Plans.
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Exhibit 10.20
BOARD OF DIRECTORS AMENDED
AUGUST 26, 2002
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
PHILLIPS PETROLEUM COMPANY
Section 1. Purpose of the Plan
The amount of total compensation which is paid to the Non-Employee Director for
services rendered as a Non-Employee Director is set by resolution of the Board
of Directors and is comprised of a portion paid in cash ("Cash Compensation")
and a portion paid in shares ("Stock Compensation") of Phillips Petroleum
Company common stock $1.25 par value ("Phillips Common Stock"). "Cash
Compensation" shall also include any portion of the compensation that is paid to
a Continuing Director (as defined in Section 13) in cash (including, without
limitation, any cash compensation payable pursuant to any restricted stock unit)
by ConocoPhillips for services as a member of the ConocoPhillips Board (as
defined in Section 13), and "Stock Compensation" shall also include any portion
of the compensation that is paid to a Continuing Director by ConocoPhillips in
ConocoPhillips common stock $.01 par value ("CP Common Stock") for services as a
member of the ConocoPhillips Board. "Common Stock" shall mean Phillips Common
Stock or CP Common Stock, as the context may require.
The purpose of the Deferred Compensation Plan for Non-Employee Directors
("Plan") is to provide a program whereby a member of the Board of Directors of
Phillips Petroleum Company ("Company") who is not an officer, present employee,
nor former employee of the Company or
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any of its subsidiaries ("Non-Employee Director") may indicate a preference to:
1) defer the payment of part or all of the Cash Compensation payable to the
Non-Employee Director ("Cash Payment")
2) receive part or all of the Cash Compensation and part or all of the Stock
Compensation payable to the Non-Employee Director in shares of
Unrestricted Stock under the terms of the Phillips Petroleum Company Stock
Plan for Non-Employee Directors ("Unrestricted Stock Award")
3) receive part or all of the Cash Compensation and/or part or all of the
Stock Compensation in shares of Restricted Stock under the terms of the
Phillips Petroleum Company Stock Plan for Non-Employee Directors
("Restricted Stock Award"),
4) delay the lapsing of restrictions on Restricted Stock or delay the
settlement of Restricted Stock Units due to the attainment of certain ages
under the terms of the Phillips Petroleum Company Stock Plan for
Non-Employee Directors ("Restricted Stock Lapsing"),
5) defer the value of shares of unrestricted Common Stock which would
otherwise be delivered to the Non-Employee Director as a result of
restrictions being lapsed on shares of Restricted Stock or when Restricted
Stock Units or similar Awards are settled due to the attainment of certain
ages or at Retirement under the terms of the Phillips Petroleum Company
Stock Plan for Non-Employee Directors or under the terms of the grant of
such Awards ("Value of Restricted Stock or Awards"), and
6) defer the payment of all or a portion of the lump sum payment from the
Non-Employee Director Retirement Plan ("Retirement Payment").
Section 2. Indications of Preference
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(a) Cash Payment. For each calendar year, a Non-Employee Director may indicate
a preference to have payment of part or all of the Non-Employee Director's
Cash Compensation deferred. On or before December 1 of each year, the
indication of preference to defer Cash Compensation to be paid in the next
calendar year may be made by giving written notice thereof to the
Corporate Secretary, except that such indication of preference may be made
by the end of the month in which a Non-Employee Director is first elected
to the Board of Directors. The Chief Executive Officer (CEO) shall
consider such indication of preference and shall decide whether to accept
or reject the preference expressed as soon as practicable. Such indication
of preference to defer Cash Compensation, if accepted, becomes irrevocable
on the date of such acceptance.
(b) Unrestricted Stock Award. For each calendar year, a Non-Employee Director
may indicate a preference to receive Unrestricted Stock for part or all of
the Cash Compensation and/or part or all of the Stock Compensation that
would be paid in the next calendar year. On or before December 1 of each
year, such indication of preference to receive Unrestricted Stock instead
of cash and/or for the Stock Compensation may be made by giving written
notice thereof to the Corporate Secretary, except that such indication of
preference may be made by the end of the month in which a Non-Employee
Director is first elected to the Board of Directors. The CEO shall
consider such indication of preference and shall decide whether to accept
or reject the preference expressed as soon as practicable. Such indication
of preference to receive Unrestricted Stock, if accepted, becomes
irrevocable on the date of such acceptance.
-3-
(c) Restricted Stock Award. For each calendar year, a Non-Employee Director
may indicate a preference to receive Restricted Stock for part or all of
the Cash Compensation and/or part or all of the Stock Compensation. On or
before December 1 of each year, such indication of preference to receive
Restricted Stock instead of cash and/or for the Stock Compensation that
would be paid in the next calendar year may be made by giving written
notice thereof to the Corporate Secretary, except that such indication of
preference may be made by the end of the month in which a Non-Employee
Director is first elected to the Board of Directors. The CEO shall
consider such indication of preference and shall decide whether to accept
or reject the preference expressed as soon as practicable. Such indication
of preference to receive Restricted Stock, if accepted, becomes
irrevocable on the date of such acceptance.
(d) Restricted Stock Lapsing or Restricted Stock Units Settled. Each year
Non-Employee Directors who are or will become 65 years of age prior to the
end of that calendar year or who are over 65 years old and have not
previously been given the opportunity may indicate a preference to delay
the lapsing of restrictions on Restricted Stock and that would otherwise
be lapsed, and to defer the receipt of shares of Common Stock that would
otherwise be delivered in settlement of restricted stock units or similar
awards, in either case based on their age under the terms of the Phillips
Petroleum Company Stock Plan for Non-Employee Directors until the day the
Director retires from the Board of Directors. The Non-Employee Director
must make the indication of preference by giving written notice thereof to
the Corporate Secretary on or before December 1 of that year, except that
-4-
such indication of preference may be made within 30 days of the amendment
of this plan providing for such indication of preference or by the end of
the month in which a Non-Employee Director is first elected to the Board
of Directors if such Director would receive shares of Common Stock as a
result of restrictions being lapsed on shares of Restricted Stock or
pursuant to Awards based on their age under the terms of the Phillips
Petroleum Company Stock Plan for Non-Employee Directors. The CEO shall
consider such indication of preference and shall decide whether to accept
or reject the preference expressed as soon as practicable. Such indication
of preference to delay the lapsing of restrictions on Restricted Stock or
the settlement of Restricted Stock Units or Awards, if accepted, becomes
irrevocable on the date of such acceptance. Such approved indication of
preference shall apply to any Restricted Stock Units granted in exchange
for shares of Restricted Stock pursuant to the Exchange offer initiated by
the Company on December 17, 2001.
(e) Value of Restricted Stock and Restricted Stock Units.
(i) Each year Non-Employee Directors who are or will become 65
years of age prior to the end of that calendar year or who are
over 65 years old and have not previously been given the
opportunity may indicate a preference concerning the deferral
of the receipt of the value of all or part of the Common Stock
which would otherwise be delivered to the Non-Employee
Director as a result of restrictions being lapsed on shares of
Restricted Stock or and the settlement of Restricted Stock
Units or similar Awards based on their age under the terms of
the Phillips Petroleum Company Stock Plan for Non-Employee
Directors.
(ii) If the Non-Employee Director has previously indicated a
preference to delay the
-5-
lapsing of restrictions on Restricted Stock or the settlement
of Restricted Stock Units or similar Awards until the Director
retires from the Board of Directors, or if the Non-Employee
Director Retires from the Board prior to being given an
opportunity to indicate such preference, such Non-Employee
Director may indicate a preference concerning the deferral of
the receipt of the value of all or part of the Common Stock
which would otherwise be delivered to the Non-Employee
Director as a result of restrictions being lapsed on shares of
Restricted Stock or the settlement of Restricted Stock Units
or Awards until the Director retires from the Board of
Directors. (iii) The Non-Employee Director must make the
indication of preference specified in Sections 2 (e) (i) and
(ii) herein by giving written notice to the Corporate
Secretary on or before December 1 of the applicable year,
except that such indication of preference may be made within
30 days of the amendment of this Plan providing for such
indication of preference or by the end of the month in which a
Non-Employee Director is first elected to the Board of
Directors or as soon as practicable prior to the Director's
Retirement from the Board if such Director would receive
shares of Common Stock as a result of restrictions being
lapsed on shares of Restricted Stock or the settlement of
Restricted Stock Units or Awards under the terms of the
Phillips Petroleum Company Stock Plan for Non-Employee
Directors prior to the next period for indicating such
preference. The CEO shall consider such indication of
preference and shall decide whether to accept or reject the
preference expressed as soon as practicable. Such indication
of preference to defer the value of Restricted Stock or
Restricted Stock Units or Awards, if accepted, becomes
irrevocable on the date of such acceptance.
(f) Retirement Payment. If a Non-Employee Director prefers to defer under this
Plan all or
-6-
part of the lump sum payment from the Non-Employee Director Retirement
Plan, the Non-Employee Director must indicate such preference to the Chief
Executive Officer (CEO) of the Company. The Non-Employee Director's
preference must be received by the Corporate Secretary in the period
beginning 150 days prior to and ending no less than 30 days prior to the
date the retirement payment is to be made. Such indication must be in
writing signed by the Non-Employee Director and must state the portion of
the lump sum payment the Non-Employee Director desires to be deferred. The
CEO shall consider such indication of preference as submitted and shall
decide whether to accept or reject the preference expressed as soon as
practicable. Such indication of preference to defer the Retirement
Payment, if accepted, becomes irrevocable on the date of such acceptance.
Section 3. Deferred Compensation Accounts
(a) Credit for Deferral. The Company will establish and maintain an account
for each Non-Employee Director who defers Cash Compensation, the Value of
Restricted Stock or Restricted Stock Units or Awards and/or a Retirement
Payment in which will be credited the amounts deferred. Amounts deferred
shall be credited as soon as practicable but not later than 30 days after
the date the payment would otherwise have been made. The value of the
underlying Restricted Stock or Restricted Stock Units or Awards shall be
the higher of (a) the average of the high and low selling prices of the
Common Stock on the date the restrictions lapse or the shares are to be
delivered, as applicable, or the last trading day before such date, if
such date is not a trading day, or (b) the average of the high three
monthly Fair Market Values of the Common Stock during the twelve calendar
months preceding the month in which the restrictions lapse or the shares
are to be delivered, as
-7-
applicable. The monthly Fair Market Value of the Common Stock is the
average of the daily Fair Market Value of the Common Stock for each
trading day of the month. The daily Fair Market Value of the Common Stock
shall be deemed equal to the average of the reported highest and lowest
sales prices per share of such Common Stock as reported on the composite
tape of the New York Stock Exchange transactions.
(b) Designation of Investments. The amount in each Non-Employee Director's
Deferred Compensation Account shall be deemed to have been invested and
reinvested from time to time, in such "eligible securities" as the
Non-Employee Director shall designate. Prior to or in the absence of a
Non-Employee Director's designation, the Company shall designate an
"eligible security" in which the Non-Employee Director's Deferred
Compensation Account shall be deemed to have been invested until
designation instructions are received from the Non-Employee Director.
Eligible securities are those securities designated by the Chief Financial
Officer of the Company. The Chief Financial Officer of the Company may
include as eligible securities, stocks listed on a national securities
exchange, and bonds, notes, debentures, corporate or governmental, either
listed on a national securities exchange or for which price quotations are
published in The Wall Street Journal and shares issued by investment
companies commonly known as "mutual funds". The Non-Employee Director's
Deferred Compensation Account will be adjusted to reflect the deemed
gains, losses and earnings as though the amount deferred was actually
invested and reinvested in the eligible securities for the Non-Employee
Director's Deferred Compensation Account.
-8-
Notwithstanding anything to the contrary in this Section 3(b), in the
event the Company actually purchases or sells such securities in the
quantities and at the times the securities are deemed to be purchased or
sold for a Non-Employee Director's Deferred Compensation Account, the
Account shall be adjusted accordingly to reflect the price actually paid
or received by the Company for such securities after adjustment for all
transaction expenses incurred (including without limitation brokerage fees
and stock transfer taxes).
In the case of any deemed purchase not actually made by the Company, the
Deferred Compensation Account shall be charged with a dollar amount equal
to the quantity and kind of securities deemed to have been purchased
multiplied by the fair market value of such security on the date of
reference and shall be credited with the quantity and kind of securities
so deemed to have been purchased. In the case of any deemed sale not
actually made by the Company, the account shall be charged with the
quantity and kind of securities deemed to have been sold, and shall be
credited with a dollar amount equal to the quantity and kind of securities
deemed to have been sold multiplied by the fair market value of such
security on the date of reference. As used herein "fair market value"
means in the case of a listed security the closing price on the date of
reference, or if there were no sales on such date, then the closing price
on the nearest preceding day on which there were such sales, and in the
case of an unlisted security the mean between the bid and asked prices on
the date of reference, or if no such prices are available for such date,
then the mean between the bid and asked prices to the nearest preceding
day for which such prices are available.
-9-
The Treasurer may also designate a Fund Manager to provide services which
may include recordkeeping, Non-Employee Director accounting, Non-Employee
Director communication, payment of installments to the Non-Employee
Director, tax reporting and any other services specified by the Company in
agreement with the Fund Manager.
(c) Payments. A Non-Employee Director's Deferred Compensation Account shall be
debited with respect to payments made from the account pursuant to this
Plan as of the date such payments are made from the account. The payment
shall be made as soon as practicable, but no later than 30 days, after the
installment payment date.
If any person to whom a payment is due hereunder is under legal disability
as determined in the sole discretion of the Chief Executive Officer, the
Company shall have the power to cause the payment due such person to be
made to such person's guardian or other legal representative for the
person's benefit, and such payment shall constitute a full release and
discharge of the Company and any fiduciary of the Plan.
(d) Statements. At least one time per year the Company or the Company's
designee will furnish each Non-Employee Director a written statement
setting forth the current balance in the Non-Employee Director's Deferred
Compensation Account, the amounts credited or debited to such account
since the last statement and the payment schedule of deferred amounts and
deemed gains, losses and earnings accrued thereon as provided by the
deferred payment option selected by the Non-Employee Director.
-10-
Section 4. Deferred Payment Options
(a) Payment Options for Cash Compensation and the Value of Restricted Stock or
Restricted Stock Units or Awards. A Non-Employee Director, at the time
notice of an indication of preference to defer Cash Compensation or the
Value of Restricted Stock or Restricted Stock Units or Awards is given,
shall also specify in writing whether the Cash Compensation or the Value
of Restricted Stock or Restricted Stock Units or Awards deferred by such
indication and any deemed gains, losses and earnings accrued thereon is to
be paid in one lump sum or in annual installments of not less than 5 nor
more than 10. If a lump sum payment is selected, the Non-Employee Director
will specify the date the lump sum payment is to be made so long as the
date is the first day of a calendar quarter and is at least one year from
the date of the election or is specified as the first day of the calendar
quarter following retirement from the Board of Directors. If annual
installments of not less than 5 nor more than 10 are selected, the first
installment will begin as soon as practicable after the first day of the
calendar quarter which is on or after the Non-Employee Director's
retirement. After a payment option is selected the first time a
Non-Employee Director defers Cash Compensation or the value of Restricted
Stock or Restricted Stock Units or Awards, all subsequent deferrals of
Cash Compensation and/or the value of Restricted Stock or Restricted Stock
Units or Awards will have the same payment option.
b) Payment Options for Retirement Payment.
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(i) The payment option for a deferred Retirement Payment for a
Non-Employee Director who has previously deferred Cash Compensation
or the Value of Restricted Stock or Restricted Stock Units or Awards
will be the same as the payment option for the deferred
Compensation.
(ii) The payment option for a deferred Retirement Payment for a
Non-Employee Director who has not previously deferred Cash
Compensation or the Value of Restricted Stock or Restricted Stock
Units or Awards will be 10 annual installments with the first
installment to begin as soon as practicable after the first day of
the calendar quarter which is on or after the Non-Employee
Director's Retirement, except that a different payment schedule may
be selected by the Non-Employee Director at the time the
Non-Employee Director submits a preference to defer all or part of
the lump sum Retirement payment. The payment options in this
situation are: annual installments of not less than 5 nor more than
10, semi-annual installments of not less than 10 nor more than 20,
or quarterly installments of not less than 20 nor more than 40. The
first installment to commence as soon as practicable after any date
specified by the Non-Employee Director, so long as such date is the
first day of a calendar quarter and is at least one year from the
date the payout option was selected. Subject to Section 5, if the
CEO, accepts the Non-Employee Director's indication of preference,
the method of payment of the deferred Retirement Payment shall
become irrevocable.
-12-
(c) Payment Option Revision. If a Non-Employee Director specified annual
installments of not less than 5 nor more than 10 pursuant to Section 4(a)
herein, the Non-Employee Director may at any time during a period
beginning 365 days prior to and ending 90 days prior to the date the
Non-Employee Director terminates Board service due to (a) not being
nominated for election to the Board; or (b) not being reelected to Board
service after being so nominated; or (c) resignation from Board service as
a result of the Director's disability or any reason acceptable to a
majority of the remaining members of the Board of Directors ("Retires" or
"Retirement"), or as soon as practicable if there are less than 90 days
prior to Retirement in the manner prescribed by the Company, revise such
payment option and select one of the following payment options in place of
such payment option:
(i) annual installments of not less than 5 nor more than 10,
(ii) semi-annual installments of not less than 10 nor more than 20, or
(iii) quarterly installments of not less than 20 nor more than 40,
with the first installment to commence, as soon as practicable following
any date specified by the Non-Employee Director so long as such date is
the first day of a calendar quarter, is on or after the Non-Employee
Director's Retirement Date, is at least one year from the date the payment
option was revised and is no later than five (5) years after the
Non-Employee Director's Retirement Date.
(d) Installment Amount. The amount of each installment shall be determined by
dividing the balance in the Non-Employee Director's Deferred Compensation
Account as of the date the installment is to be paid, by the number of
installments remaining to be paid (inclusive
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of the current installment).
Section 5. Death of Non-Employee Director
Upon the death of a Non-Employee Director, the Non-Employee Director's
beneficiary or beneficiaries designated in accordance with Section 6 of this
Plan, or, in the absence of an effective beneficiary designation, the surviving
spouse, the surviving children (natural or adopted) in equal shares, or the
Estate of the deceased Non-Employee Director, in that order of priority, shall
receive the beneficiary's or beneficiaries' portion of the payments in
accordance with the deferred payment schedule selected by the Non-Employee
Director, whether the Non-Employee Director's death occurred before or after
such payments have commenced; provided, however, such payments may be made in a
different manner if the beneficiary or beneficiaries entitled to receive such
payments, due to an unanticipated emergency caused by an event beyond the
control of the beneficiary or beneficiaries that results in financial hardship
to the beneficiary or beneficiaries, so requests and the CEO gives written
consent to the method of payment requested.
Section 6. Designation of Beneficiary
Each Non-Employee Director who defers under this Plan shall designate a
beneficiary or beneficiaries to receive the entire balance of the Non-Employee
Director's Deferred Compensation Account by giving signed written notice of such
designation to the Corporate Secretary. The Non-Employee Director may from time
to time change or cancel any previous
-14-
beneficiary designation in the same manner. The last written beneficiary
designation received by the Corporate Secretary shall be controlling over any
prior designation and over any testamentary or other disposition. After receipt
by the Corporate Secretary of such written designation, it shall take effect as
of the date on which it was signed by the Non-Employee Director, whether the
Non-Employee Director is living at the time of such receipt, but without
prejudice to the Company on account of any payment made under this Plan before
receipt of such designation.
Section 7. Nonassignability
The right of a Non-Employee Director or beneficiary or other person who becomes
entitled to receive payments under this Plan shall not be pledged, assigned or
subject to garnishment, attachment or any other legal process by the creditors
of or other claimants against the Non-Employee Director, beneficiary, or other
such person.
Section 8. Administration, Interpretation and Amendment
The Plan shall be administered by the Chief Executive Officer of the Company.
The decision of the Chief Executive Officer with respect to any questions
arising as to the interpretation of this Plan, including the severability of any
and all of the provisions thereof, shall be final, conclusive and binding. The
Company reserves the right to amend this Plan from time to time or to terminate
the Plan entirely, provided, however, that no amendment may affect the balance
in a Non-Employee Director's account on the effective date of the amendment. In
the event of
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termination of the Plan, the Chief Executive Officer in the Chief Executive
Officer's sole discretion, may elect to pay in one lump sum as soon as
practicable after termination of the Plan, the balance then in the Non-Employee
Director's account.
Section 9. Nonsegregation
Amounts deferred pursuant to this Plan and the crediting of amounts to a
Non-Employee Director's Deferred Compensation Account shall represent the
Company's unfunded and unsecured promise to pay compensation in the future. With
respect to said amounts, the relationship of the Company and a Non-Employee
Director shall be that of debtor and general unsecured creditor. While the
Company may make investments for the purpose of measuring and meeting its
obligations under this Plan such investments shall remain the sole property of
the Company subject to claims of its creditors generally, and shall not be
deemed to form or be included in any part of the Deferred Compensation Account.
Section 10. Funding
All amounts payable under the Plan are unfunded and unsecured benefits and shall
be paid solely from the general assets of the Company and any rights accruing to
the Non-Employee Director or the beneficiary under this Plan shall be those of
an unsecured general creditor; provided, however, that the Company may establish
a grantor trust to pay part or all of its Plan payment obligations so long as
the Plan remains unfunded for federal tax purposes.
-16-
Section 11. Miscellaneous
(a) Except as otherwise provided herein, the Plan shall be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's
assets and business or with or into which the Company may be consolidated
or merged.
(b) This Plan shall be construed, regulated, and administered in accordance
with the laws of the State of Delaware except to the extent that said laws
have been preempted by the laws of the United States.
Section 12. Effective Date of the Plan
This Plan is amended and restated effective as of December 10, 2001.
Section 13. Continuing Directors and Noncontinuing Directors
Notwithstanding anything contained in this Plan to the contrary:
(a) Elections made by a Non-Employee Director who is a member of the board of
directors (the "ConocoPhillips Board") of ConocoPhillips (a "Continuing
Director") immediately following the closing (the "Closing") of the
transactions (the "Merger") contemplated by the Agreement and Plan of
Merger dated as of November 18, 2001 by and among Phillips
-17-
Petroleum Company, CorvettePorsche Corp., Porsche Merger Corp., Corvette
Merger Corp., and Conoco Inc. (the "Merger Agreement") shall be effective
for the following compensation received from ConocoPhillips with respect
to service as a Continuing Director for the portion of calendar year 2002
that follows the Closing, without any action on the part of such
Continuing Director, Phillips Petroleum Company or ConocoPhillips: (i) the
deferral of the receipt of Cash Compensation, (ii) the receipt of
Unrestricted Stock in lieu of Cash Compensation or Stock Compensation,
(iii) the receipt of Restricted Stock in lieu of Cash Compensation or
Stock Compensation, (iv) the deferral of the lapsing of restrictions on
Restricted Stock that would otherwise lapse, (v) the deferral of receipt
of the value of all or part of the Common Stock which would otherwise be
delivered to the Continuing Director as a result of restrictions being
lapsed; and (vi) the deferral of receipt of a lump sum payment from the
Non-employee Director Retirement Plan; and
(b) ConocoPhillips shall be the co-sponsor of this Plan and shall be the
obligor hereunder with respect to compensation of Continuing Directors for
services on the ConocoPhillips Board that is deferred hereunder;
(c) A Continuing Director shall not be deemed to have "retired" or otherwise
terminated service as a Non-Employee Director for any purpose of this Plan
solely as a result of such director's ceasing to be a director of Phillips
Petroleum Company in connection with the Merger, and no distributions of
the Continuing Directors' account balances under the Plan shall be made
solely as a result of the consummation of the transactions contemplated by
the Merger Agreement. For any Continuing Director, service as a member of
the ConocoPhillips Board shall be treated as service as a Non-Employee
-18-
Director, and "retirement" or any other termination of service from the
ConocoPhillips Board shall be deemed to be a retirement or termination of
service (as applicable) as a Non-Employee Director for all purposes of
this Plan.
(d) Each individual who ceases to be a Non-Employee Director in connection
with the Merger who is not a Continuing Director shall be deemed to have
retired as of the Closing Date for purposes of this Plan (including,
without limitation, for purposes of Section 4).
-19-
Exhibit 10.22
BOARD OF DIRECTORS AMENDED
AUGUST 26, 2002
PHILLIPS PETROLEUM COMPANY
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I - PURPOSES OF THE PLAN
The purposes of this Plan are to enable non-employee members of the Board of
Directors to acquire additional stock ownership and further alignment with
shareholders of the Company, and to attract and retain highly qualified
individuals as directors of this Company without significantly changing the
total amount of non-employee director compensation.
ARTICLE II - DEFINITIONS
1. "Award" shall mean a grant of Restricted Stock or Unrestricted Stock pursuant
to this Plan.
2. "Beneficiary" means a person or persons designated by a Non-Employee Director
to receive, in the event of death, any shares of Common Stock held by the
Non-Employee Director under this Plan. Any Non-Employee Director may designate
one or more persons primarily or contingently as beneficiaries in writing upon
forms supplied by and delivered to the Company, and may revoke such designations
in writing. If a Non-Employee Director fails effectively to designate a
beneficiary, then such shares will be paid in the following order of priority:
(i) Surviving Spouse,
(ii) Surviving children (natural or adopted) in equal shares,
(iii) To the Estate of the Non-Employee Director.
3. "Board" means the Board of Directors of the Company.
4. "Cash Compensation" shall mean the portion of the total compensation that is
payable in cash to the Non-Employee Director for services rendered as a
Non-Employee Director.
5. "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 as
amended (a "Person")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 20% or more of either
(a) the then outstanding shares of Common Stock of the Company (the "Outstanding
Company Common Stock") or (b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition pursuant to a
-2-
transaction which complies with clauses (A), (B) and (C) of Subparagraph (iii)
of this Paragraph 5; or
(ii) Individuals who, as of August 26, 2002, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
August 26, 2002, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such Corporate
Transaction, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more than 60%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting
-3-
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Corporate Transaction)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C) at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Corporate Transaction; or
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
6. "Chief Executive Officer" shall mean the Chief Executive Officer of the
Company.
-4-
7. "Company" shall mean ConocoPhillips.
8. "Common Stock" shall mean the common stock of the Company having a par value
of $.01 per share.
9. "Disability" shall mean that condition in which, by reason of bodily injury
or disease, a Non-Employee Director is prevented from serving in such capacity.
All determinations of Disability shall be made by a physician selected by the
Chief Executive Officer.
10. "Fair Market Value" in reference to a share of Common Stock of the Company
shall be deemed equal to the average of the reported highest and lowest sales
prices per share of such Common Stock on the applicable date, or the last
trading day before the applicable day if such date is not a trading day, as
reported on the composite tape of the New York Stock Exchange transactions for
the applicable date, as reported in the Wall Street Journal.
11. "Non-Employee Director" shall mean a member of the Board who is not an
employee or former employee of the Company or any of its subsidiaries.
12. "Normal Retirement Date" shall mean the date of the Annual Stockholders
Meeting of the Company in the year in which the director is no longer eligible
for election as a director as determined by the
-5-
Bylaws of the Company, currently the year in which the director attains age 71.
13. "Plan" shall mean the Phillips Petroleum Company Stock Plan for Non-Employee
Directors, including any amendments thereto as may hereafter from time to time
be adopted.
14. "Restricted Stock" shall mean Common Stock awarded under this Plan, which is
subject to certain forfeiture and transferability restrictions as may be
provided in the Plan.
15. "Retires" or "Retirement" shall mean the termination of Board service due to
(a) the Non-Employee Director's not being nominated for election to the Board;
(b) the Non-Employee Director's not being reelected to Board service after being
so nominated; or (c) the Non-Employee Director's resignation from Board service
as a result of the director's Disability.
16. "Stock Compensation" shall mean the portion of the total compensation that
is payable in Common Stock to the Non-Employee Director for services rendered as
a Non-Employee Director.
17. "Unrestricted Stock" shall mean Common Stock either Awarded under this Plan
to a Non-Employee Director as part of the Non-Employee Director's compensation
for Board service or issued to such Director upon the lapsing of restrictions on
Restricted Stock, and which is nonforfeitable and free of transferability
restrictions under the
-6-
Plan.
ARTICLE III - ELIGIBILITY
Each Non-Employee Director who is participating in the Non-Employee Director
Retirement Plan of Phillips Petroleum Company ( the "NED Retirement Plan") on
December 31, 1997, and (i) whose Normal Retirement Date is after 1998, and (ii)
who consents in writing on or before February 27, 1998, to receive an Award of
Restricted Stock in this Plan in lieu of a benefit from the NED Retirement Plan,
is eligible to participate and shall be a participant in this Plan. All
Non-Employee Directors who are first elected to serve on the Board after 1997
are eligible and will participate in this Plan. After the date of the 1998
Annual Stockholders Meeting of the Company, all Non-Employee Directors of the
Company are eligible and will participate in this Plan.
ARTICLE IV - AWARDS OF COMMON STOCK
1. There shall be an Award of shares of Restricted Stock to each eligible
Non-Employee Director representing the converted present value of the accrued
benefit of each Non-Employee Director who has consented in writing on or before
February 27, 1998, to the conversion of his or her benefits under the NED
Retirement Plan to such an Award under this Plan, such Award to be made
effective in its entirety on the first business day of March 1998, for prior
service and in lieu of a benefit payable from the NED Retirement Plan. Such
Award shall be
-7-
equal to the converted present value of the Non-Employee Director's benefits
under the NED Retirement Plan (the "Conversion Amount"). The Conversion Amount
shall be determined by calculating to a single lump sum the present value of the
monthly payment provided under the NED Retirement Plan using the December 1,
1997 rate of the 30-year Treasury Bond as quoted in the Federal Reserve
Statistical Release Bulletin No. H.15 and the number of Years of Service (as
defined in the NED Retirement Plan) through December 31, 1997, and assuming that
such monthly payments are deemed to begin on January 1, 1998. The number of
shares Awarded pursuant to this Paragraph 1 shall be determined by dividing the
Conversion Amount by (i) the Fair Market Value of the Common Stock as of January
12, 1998, and rounding up to the next higher whole number.
2. On the first business day of March, 1998, there shall be an Award of 400
shares of Restricted Stock to each eligible Non-Employee Director for past
service during the director's then-current term of office.
3. Subject to Paragraph 4 of this Article IV, after December 31, 1998, there
shall be an Award of shares of Unrestricted Stock to each Non-Employee Director
each calendar year equal to the value of the stock portion of the total
compensation to be received for Board service, such Award to be made effective
in its entirety on the first business day in January of each year for past
service during the director's then-current term of office; or in respect of a
Non-Employee Director who served in such term of office only subsequent to
-8-
the first of January of that term of office and prior to the Annual Stockholders
Meeting of the Company for that year, then such Award shall be effective in its
entirety on the fifteenth day of the month following the month of such
director's election, for past services during the first term in which the
Non-Employee Director serves. The number of shares of Unrestricted Stock to be
determined by dividing the value of the applicable Stock Compensation amount by
the Fair Market Value and rounding up to the next higher whole number.
4. After December 31, 1998, for each Non-Employee Director whose preference to
receive Restricted Stock in lieu of part or all of the Non-Employee Director's
Award of Unrestricted Stock has been approved, there shall be an additional
Award of shares of Restricted Stock to each such Non-Employee Director each
calendar year that such preference is approved, such Award to be made effective
in its entirety at the time the Unrestricted Stock would have been issued for
past service, representing the number of shares of Unrestricted Stock which the
Non-Employee Director has indicated a preference to receive as Restricted Stock.
Such indication of preference shall be made in the manner and at the times
provided in the Deferred Compensation Plan for Non-Employee Directors of
Phillips Petroleum Company ("DCPNED"). The Restricted Stock Awarded pursuant to
this Paragraph in lieu of such Unrestricted Stock shall thereafter be subject to
the terms of this Plan and be subject to forfeiture and all restrictions as
Restricted Stock under the terms of this Plan.
5. After December 31, 1998, for each Non-Employee Director whose
-9-
preference to receive Unrestricted Stock and/or Restricted Stock in lieu of part
or all of the Non-Employee Director's Cash Compensation has been approved, there
shall be an additional Award of shares of Unrestricted Stock and/or Restricted
Stock to each such Non-Employee Director each year that such preference is
approved, such Award to be made effective in its entirety at the time the Cash
Compensation would have been paid for past service. The number of shares of
Unrestricted Stock or Restricted Stock to be determined by dividing the
applicable Cash Compensation amount by the Fair Market Value and rounding up to
the next higher whole number. Such indication of preference shall be made in the
manner and at the times provided in the Deferred Compensation Plan for
Non-Employee Directors of Phillips Petroleum Company. The Restricted Stock
Awarded pursuant to this Paragraph shall thereafter be subject to the terms of
this Plan and be subject to forfeiture and all restrictions as Restricted Stock
under the terms of this Plan.
6. Each Non-Employee Director who receives an Award of Restricted Stock on the
first business day of March 1998 pursuant to Paragraphs 1 or 2 of this Article
shall also receive an Award of a dividend equivalent to be determined as though
such shares Awarded to the director on the first business day of March 1998 were
continuously held by the Plan for the director from the first business day of
January 1998 until the first business day of March 1998. All dividends earned on
any Restricted Stock held under this Plan (including dividend equivalent amounts
Awarded pursuant to the preceding sentence) shall be reinvested in additional
shares of Restricted Stock
-10-
on the date such dividends are payable and such additional shares of Restricted
Stock shall be subject to the terms and conditions generally applicable to
Restricted Stock under the Plan. The number of shares of Restricted Stock
acquired through this reinvestment of dividends shall be acquired at the Fair
Market Value of Common Stock on the date such dividends are payable and shall be
purchased through the Company's dividend reinvestment program if practicable;
provided, however if not purchased through the dividend reinvestment program,
the shares purchased with dividends shall be rounded up to the next higher whole
number.
7. The Restricted Stock held for the benefit of each Non-Employee Director shall
be held in escrow for the Non-Employee Director by the Treasurer of the Company.
The Non-Employee Director will have all rights of ownership to such Restricted
Stock including, but not limited to, voting rights and the right to receive
dividends (provided such dividends must be reinvested in Restricted Stock), and
other distributions, except that the Non-Employee Director shall not have the
right to sell, transfer, assign, pledge or otherwise dispose of such shares
until the escrow is terminated. The escrow shall end as to shares of such stock
on the earliest date restrictions on Restricted Stock lapse pursuant to Article
V.
8. Upon termination of the Restricted Stock escrow, the Company shall deliver to
the Non-Employee Director his or her shares of such Common Stock free of any
restrictions. Unless the Non-Employee Director has requested to defer receipt in
the manner and at the times
-11-
provided in the DCPNED, the director will receive such unrestricted shares of
Common Stock as soon as practicable after the termination of the escrow as to
those shares. A Non-Employee Director who has properly and timely elected to
have receipt of part or all of the shares of Restricted Stock for which
restrictions lapse deferred shall receive instead a credit to his or her account
in the DCPNED in an amount and at the time determined pursuant to the terms of
the DCPNED.
ARTICLE V - TERMS AND CONDITIONS OF RESTRICTED STOCK
1. All Restricted Stock Awarded or held under the Plan shall be subject to the
following terms and conditions:
A. Shares of Restricted Stock shall be, subject to Subparagraph B of this
Article V, forfeitable, nontransferable and nonassignable and may not be
pledged, anticipated, assigned (either at law or in equity), alienated, or
subject to attachment, garnishment, levy, execution, or other legal or
equitable process until the restrictions lapse pursuant to Subparagraphs B
or C hereof.
B. Each share of Restricted Stock shall become nonforfeitable,
transferable and all restrictions shall lapse upon the earliest to occur
of (i) the Non-Employee Director's Retirement, including Retirement due to
Disability, (ii) the Non-Employee Director's death, (iii) the Non-Employee
Director's termination from Board service for any reason in connection
with or within one-year
-12-
following a Change of Control, (iv) a Change of Control; provided, that, a
Corporate Transaction under Paragraph 5(iii) of Article II shall be a
Change of Control for purposes of this clause (iv) only if clause (C) of
Paragraph 5(iii) of Article II is not satisfied in connection with such
Corporate Transaction, of (v) the Non-Employee Director's termination of
Board service for any reason other than those described in clauses (i),
(ii), and (iii), but only if a majority of the remaining directors of the
Board consent to the vesting of such shares and the lapsing of such
restrictions.
C. Shares of Restricted Stock shall become nonforfeitable, transferable
and all restrictions shall lapse on the first business day of October of
each year in the following amounts unless the Non-Employee Director has
elected, under the terms of the DCPNED, to delay the lapsing of such
restrictions until the day of the Director's retirement:
(i) 20% of all shares of Restricted Stock held under the Plan for
the Non-Employee Director in the year in which he or she will attain
age 66;
(ii) 25% of all shares of Restricted Stock held under the Plan for
the Non-Employee Director in the year in which he or she will attain
age 67;
(iii) 33 1/3 % of all shares of Restricted Stock held under
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the Plan for the Non-Employee Director in the year in which he or
she will attain age 68;
(iv) 50% of all shares of Restricted Stock held under the Plan for
the Non-Employee Director in the year in which he or she will attain
age 69; and
(v) 100% of all shares of Restricted Stock held under the Plan for
the Non-Employee Director in the year in which he or she will attain
age 70.
ARTICLE VI - ADJUSTMENTS
Subject to any required action by the Company's shareholders, if the class of
shares of Restricted Stock then subject to the Plan is changed into or exchanged
for a different number or kind of shares or securities, as the result of any one
or more reorganizations, recapitalizations, stock splits, reverse stock splits,
stock dividends or similar events, or in the event of a sale by the Company of
all or a significant part of its assets, or any distribution to its shareholders
other than a normal cash dividend, an adjustment shall be made in the number
and/or type of shares or securities for which Restricted Stock has been or may
thereafter be Awarded under this Plan so as to prevent dilution or enlargement
of rights.
ARTICLE VII - ADMINISTRATION OF THE PLAN
-14-
The Plan shall be administered by the Chief Executive Officer who is authorized
to adopt rules and regulations, to make determinations under and such
determinations of, and to take steps in connection with the Plan as the Chief
Executive Officer deems necessary or advisable, and to appoint agents as the
Chief Executive Officer deems appropriate for the proper administration of the
Plan. Each determination, interpretation, or other action made or taken pursuant
to the provisions of the Plan by the Chief Executive Officer shall be reported
to the Board and once so reported shall be final and shall be binding and
conclusive for all purposes and upon all persons.
ARTICLE VIII - MISCELLANEOUS
1. The Chief Executive Officer may rely upon information reported to him or her
by officers or employees of the Company with delegated responsibilities and
shall not be liable for any act of commission or omission of others or, except
in circumstances involving his or her own bad faith, for any act taken or
omitted by himself or herself.
2. The Plan and each Award hereunder shall be subject to all applicable laws and
the rules and regulations of governmental authorities promulgated thereunder.
3. Shares of Common Stock received with respect to Restricted Stock received
pursuant to a stock split, dividend reinvestment, stock dividend or other change
in the capitalization of the Company will be held subject to the same
restrictions on transferability that are
-15-
applicable to such shares Awarded hereunder as Restricted Stock.
4. All amounts payable under this Plan are unfunded and unsecured benefits and
shall be paid solely from the general assets of the Company and any rights
accruing to the Non-Employee Director or his or her Beneficiaries under the Plan
shall be those of a general creditor; provided, however, that the Company may
establish a grantor trust to pay part or all of its Plan payment obligations so
long as the Plan remains unfunded for federal tax purposes.
5. Except as otherwise provided herein, the Plan shall be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged.
6. This Plan shall be construed, regulated, and administered in accordance with
the laws of the State of Delaware except to the extent that said laws have been
preempted by the laws of the United States.
ARTICLE X - AMENDMENT OR TERMINATION
The Board of Directors of the Company may amend or terminate the Plan. No
amendment or termination of the Plan shall deprive any Non-Employee Director or
former Non-Employee Director or any Beneficiary of any rights or benefits
accrued to the date of such amendment or termination.
-16-
ARTICLE XI
The Board or an authorized Committee of the board consisting solely of
Non-Employee Directors may from time to time grant stock, other stock-based
Awards under the Plan, including without limitations those awards pursuant to
which shares of stock are or may in the future be acquired, Awards denominated
in stock units, securities convertible into stock, phantom securities and
dividend equivalents. The Board or such Committee shall determine the terms and
conditions of such other stock and stock-based Awards, provided that such Awards
shall not be inconsistent with the terms and purposes of this Plan.
ARTICLE XII - EFFECTIVE DATE
The Plan is amended and restated effective as of December 10, 2001.
-17-
Exhibit 10.23
AMENDED BY BOARD OF DIRECTORS
AUGUST 26, 2002
KEY EMPLOYEE SUPPLEMENTAL RETIREMENT PLAN OF
PHILLIPS PETROLEUM COMPANY
PURPOSE
The purpose of the Key Employee Supplemental Retirement Plan of Phillips
Petroleum Company (the "Plan") is to attract and retain key employees by
providing them with supplemental retirement benefits. This Plan is intended to
be and shall be administered as an unfunded excess benefit plan for highly
compensated employees within the meaning of ERISA Sections 3(36) and 4(b)(5)
subject to Section V.
SECTION I. Definitions.
As used in this Plan:
(a) "Board" shall mean the board of directors of the Company.
(b) "Chief Executive Officer (CEO)" shall mean the Chief Executive Officer of
the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
(d) "Committee" shall mean the Compensation Committee of the Board of
Directors of ConocoPhillips.
(e) "Company" shall mean Phillips Petroleum Company.
(f) "Employee" shall mean a person who is an active participant in the
Retirement Plan.
(g) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended
1
from time to time, or any successor statute.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
(i) "Incentive Compensation Plan" shall mean the Incentive Compensation Plan
of the Company, or the Annual Incentive Compensation Plan of Phillips
Petroleum Company, or similar plan of a Participating Subsidiary, or any
similar or successor plans, or all, as the context may require.
(j) "KEDCP" shall mean the Key Employee Deferred Compensation Plan of Phillips
Petroleum Company.
(k) "Nonqualified Plans" shall mean the Key Employee Supplemental Retirement
Plan, Supplemental Executive Retirement Plan, the Key Employee Missed
Credited Service Retirement Plan and any similar plan or plans of the
Company or a Participating Subsidiary.
(l) "Participating Subsidiary" shall mean a subsidiary of the Company, of
which the Company beneficially owns, directly or indirectly, more than 50%
of the aggregate voting power of all outstanding classes and series of
stock, where such subsidiary has adopted one or more plans making
participants eligible for participation in this Plan.
(m) "Plan" shall mean the Key Employee Supplemental Retirement Plan of
Phillips Petroleum Company, the terms of which are stated in and by this
document.
(n) "Plan Administrator" shall mean Executive Vice President, Planning,
Corporate Relations and Services, or his successor.
(o) "Restricted Stock" shall mean shares of Stock which have certain
restrictions attached to the ownership thereof.
2
(p) "Retirement Plan" shall mean the Retirement Income Plan of Phillips
Petroleum Company, which plan is qualified under Code Section 401(a).
(q) "Salary" shall mean the monthly equivalent rate of pay for an Employee
before adjustments for any before-tax voluntary reductions.
(r) "Stock" means shares of common stock of ConocoPhillips, par value $.01.
(s) "Total Final Average Earnings" shall mean the average of the high 3
earnings, excluding Incentive Compensation Plan Awards, paid in
consecutive years of the last 10 years prior to termination of employment
plus the average of the high 3 Incentive Compensation Awards for any of
such last 10 years under the Incentive Compensation Plan, whether paid or
deferred, and shall include the value of any special awards specified by
the Compensation Committee to be included for final average earnings
purposes under the terms of the special awards when granted by the
Compensation Committee and shall also recognize benefits paid under
Section 4.2 of the Phillips Petroleum Company Executive Severance Plan in
the same manner as layoff pay is recognized by the Retirement Plan.
(t) "Trustee" means the trustee of the grantor trust established by the Trust
Agreement between the Company and Wachovia Bank, N.A. dated as of June 1,
1998, or any successor trustee.
SECTION II. Plan Benefits.
Supplemental payments will be made in such amounts which, together with the
payments which the Employee or the Employee's surviving spouse, in the case of
the death of an Employee prior to retirement or the death of a former Employee
prior to commencing retirement benefits is
3
eligible to receive under the Retirement Plan, will equal the retirement benefit
that would have been payable under the Retirement Plan except for any or all of
the following reasons:
(a) An Employee's deferral of all or any portion of one or more awards under
the Incentive Compensation Plan, pursuant to the provisions of KEDCP,
which results in a reduction in the total retirement benefits which would
have been payable under the Retirement Plan,
(b) The issuance of Restricted Stock in settlement of awards under the
Incentive Compensation Plan (which for purposes of this Section the
initial value thereof shall be considered a "deferral"), which results in
a reduction in the total retirement benefits which would have been payable
under the Retirement Plan,
(c) An Employee's voluntary reduction of salary pursuant to the provisions of
KEDCP which results in a reduction in the total retirement benefits which
would have been payable under the Retirement Plan,
(d) The payments which would have been received under the Retirement Plan
except for limitations relating to Code Section 401(a)(17), or
(e) The payments which would have been received under the Retirement Plan
except for limitations relating to Code Section 415, including without
limitation the interest rate limitations of Code Section 415(b)(2)(E).
(f) The payments which would have been received under the Retirement Plan if
benefits under Section 4.2 of the Phillips Petroleum Company Executive
Severance Plan were recognized under the Retirement Plan as layoff pay for
purposes of final average earnings and credited service.
In addition to the supplemental payments in Section II (a), (b), (c), (d), (e)
and (f) hereof, an
4
additional supplemental retirement payment will be made to an Employee who
terminates employment on or after February 8, 1993, calculated under the terms
of the Retirement Plan using as final average earnings the difference, if any,
between the Total Final Average Earnings and the Final Average Earnings used in
the Retirement Plan.
SECTION III. Special Survivor Benefit.
Each senior vice president or higher level executive of the Company may, as soon
as practicable, following the announcement of the merger of Conoco and Phillips,
elect to receive a lump sum benefit under the Company's Nonqualified Plans when
they retire after the transaction. If such officer should die before actually
commencing retirement benefits, then his or her surviving spouse will receive a
lump sum benefit calculated on the same basis as if the executive had commenced
his or her retirement benefit from the Retirement Income Plan and applicable
Nonqualified Plans as a lump sum, less the value of the pre-retirement 50% joint
and survivor annuity death benefit payable under the Retirement Income Plan, the
first of the month following the death of the executive. The surviving spouse
who receives such lump sum will not be eligible to receive the pre-retirement
50% joint and survivor annuity death benefit from the Nonqualified Plans.
SECTION IV. Special Provision for former ARCO Alaska Employees.
Notwithstanding any provisions to the contrary, in order to comply with the
terms of the Board approved Master Purchase and Sale Agreement ("Sale
Agreement") by which the Company
5
acquired certain Alaskan assets of Atlantic Richfield Company, Inc. ("ARCO"),
the following supplemental payments will be made:
(a) The payments which would have been received under Article XXIV - ARCO
Flight Crew of the Retirement Plan for those who were classified as an
Aviation Manager, Chief Pilot, Assistant Chief Pilot, Captain or Reserve
Captain as of July 31, 2000 if they had been eligible for those benefits
under the Retirement Plan, except that if they receive a limited social
security makeup benefit from the Retirement Plan it will be offset from
the benefit payable from the plan.
(b) A final ARCO Supplemental Executive Retirement Plan (SERP) benefit will be
calculated at the earlier of the time an Employee who had an ARCO SERP
benefit terminates employment or, 2 years following the ARCO/BP Amoco
p.l.c. merger, April 17, 2002 ("calculation date"). The SERP benefit
attributable to service through July 31, 2000 shall be paid by BP Amoco
p.l.c. and the difference shall be paid by this plan. The SERP calculation
will be done as if the Employee had continued to participate in the
Atlantic Richfield Retirement Plan and SERP up to the calculation date.
The ARCO Annual Incentive Plan (AIP) amount used will be:
(i) if the Employee terminates employment involuntarily prior to April
17, 2002, the highest of the actual AIP in the last 3 years
including the AIP target payment amount for years after 1999 or the
payment received under Phillips Annual Incentive Compensation Plan
(ii) if the Employee terminates employment voluntarily prior to April 17,
2002, or if the calculation is made as of April 17, 2002, then the
AIP will include the highest 3
6
year average using the highest of the actual AIP, the AIP target
payment amount for years after 1999, or the payment received under
Phillips Annual Incentive Compensation Plan.
Any benefit paid by this plan under this Section IV (b)(ii) and the SERP
benefit paid by BP Amoco p.l.c. shall offset the benefit payable from this
plan at the time the Employee commences benefits under the Retirement
Plan.
SECTION V. Payment of Benefits.
Subject to the requirement that the manner of payment of supplemental retirement
benefits which an Employee is eligible to receive under this Plan, the Principal
Corporate Officers Supplemental Retirement Plan of Phillips Petroleum Company,
the Phillips Petroleum Company Supplemental Executive Retirement Plan, the
Phillips Petroleum Company Key Employee Death Protection Plan, the Key Employee
Missed Credited Service Retirement Plan and any similar plan or plans of the
Company or a Participating Subsidiary, shall be the same and, subject further to
the condition that an Employee who receives payments under this Plan in the
manner described in Section IV (b) hereof, shall agree to be available to
provide from time to time advice and consultation to the Company after
reasonable notice and for reasonable compensation therefore:
(a) An Employee may elect in the manner prescribed by the Plan
Administrator to have the payments provided for hereunder made on a
straight life annuity basis, or to have such life annuity payments
converted in the manner provided by the Retirement Plan
7
to any one of the other forms of payments which the Employee would
be entitled to select (except the lump-sum settlement option) if
such payments were to be paid to the Employee under the Retirement
Plan.
(b) Notwithstanding (a) above, an Employee who is commencing retirement
benefits and is eligible for a lump sum distribution from the
Retirement Income Plan may, not earlier than 90 days nor later than
30 days prior to commencing retirement benefits, express a
preference, in the manner prescribed by the Plan Administrator, to
have the payment of the amounts provided for hereunder converted in
the manner provided by the Retirement Plan from a life annuity basis
to one lump-sum payment of which all or part of the lump sum payment
is either paid to the Employee or considered an award pursuant to
the provisions of KEDCP. The Chief Executive Officer, with respect
to Employees who are not subject to Section 16 of the Exchange Act,
and the Committee, with respect to Employees who are subject to
Section 16 of the Exchange Act, shall consider such indication of
preference and shall respectively decide in the Chief Executive
Officer's or the Committee's sole discretion whether to accept or
reject the preference expressed. In the event the Chief Executive
Officer or the Committee, as applicable, accepts such Employee's
preference, part or all of the Plan benefits shall be paid in a lump
sum as soon as practicable after the later of such acceptance or the
Employee's retirement benefit commencement date or credited as of
the Employee's retirement benefit commencement date to the
Employee's KEDCP account as applicable.
SECTION VI. Method of Providing Benefits.
8
All amounts payable under this Plan shall be paid solely from the general assets
of the Company and any rights accruing to an eligible Employee or Retiree under
the Plan shall be those of a general creditor; provided, however, that the
Company may establish a grantor trust to satisfy part or all of its Plan payment
obligations so long as the Plan remains an unfunded excess benefit plan for
purposes of Title I of ERISA.
SECTION VII. Nonassignability.
The right of an Employee, or beneficiary, or other person who becomes entitled
to receive payments under this Plan, shall not be assignable or subject to
garnishment, attachment or any other legal process by the creditors of, or other
claimants against, the Employee, beneficiary, or other such person.
SECTION VIII. Administration.
(a) The Plan shall be administered by the Plan Administrator. The Plan
Administrator may adopt such rules, regulations and forms as deemed
desirable for administration of the Plan and shall have the discretionary
authority to allocate responsibilities under the Plan to such other
persons as may be designated, whether or not employee members of the
Board.
(b) Any claim for benefits hereunder shall be presented in writing to the Plan
Administrator for consideration, grant or denial. In the event that a
claim is denied in whole or in part by
9
the Plan Administrator, the claimant, within ninety days of receipt of
said claim by the Plan Administrator, shall receive written notice of
denial. Such notice shall contain:
(1) a statement of the specific reason or reasons for the denial;
(2) specific references to the pertinent provisions hereunder on which
such denial is based;
(3) a description of any additional material or information necessary to
perfect the claim and an explanation of why such material or
information is necessary; and
(4) an explanation of the following claims review procedure set forth in
paragraph (c) below.
(c) Any claimant who feels that a claim has been improperly denied in whole or
in part by the Plan Administrator may request a review of the denial by
making written application to the Trustee. The claimant shall have the
right to review all pertinent documents relating to said claim and to
submit issues and comments in writing to the Trustee. Any person filing an
appeal from the denial of a claim must do so in writing within sixty days
after receipt of written notice of denial. The Trustee shall render a
decision regarding the claim within sixty days after receipt of a request
for review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered within a reasonable
time, but not later than 120 days after receipt of the request for review.
The
10
decision of the Trustee shall be in writing and, in the case of the denial
of a claim in whole or in part, shall set forth the same information as is
required in an initial notice of denial by the Plan Administrator, other
than an explanation of this claims review procedure. The Trustee shall
have absolute discretion in carrying out its responsibilities to make its
decision of an appeal, including the authority to interpret and construe
the terms hereunder, and all interpretations, findings of fact, and the
decision of the Trustee regarding the appeal shall be final, conclusive
and binding on all parties.
(d) Compliance with the procedures described in paragraphs (b) and (c) shall
be a condition precedent to the filing of any action to obtain any benefit
or enforce any right which any individual may claim hereunder.
Notwithstanding anything to the contrary in this Plan, these paragraphs
(b), (c) and (d) may not be amended without the written consent of a
seventy-five percent (75%) majority of Participants and Beneficiaries and
such paragraphs shall survive the termination of this Plan until all
benefits accrued hereunder have been paid.
SECTION IX. Employment not Affected by Plan.
Participation or nonparticipation in this Plan shall neither adversely affect
any person's employment status, or confer any special rights on any person other
than those expressly stated in the Plan. Participation in the Plan by an
Employee of the Company or of a Participating Subsidiary shall not affect the
Company's or the Participating Subsidiary's right to terminate the Employee's
employment or to change the Employee's compensation or position.
11
SECTION X. Miscellaneous Provisions.
(a) The Board reserves the right to amend or terminate this Plan at any time,
if, in the sole judgment of the Board, such amendment or termination is
deemed desirable; provided that no member of the Board who is also an
Employee or Retiree shall participate in any action which has the actual
or potential effect of increasing his or her benefits hereunder, and
further provided, the Company shall remain liable for any benefits accrued
under this Plan prior to the date of amendment or termination.
(b) Except as otherwise provided herein, the Plan shall be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's
assets and business or with or into which the Company may be consolidated
or merged.
(c) No amount accrued or payable hereunder shall be deemed to be a portion of
an Employee's compensation or earnings for the purpose of any other
employee benefit plan adopted or maintained by the Company, nor shall this
Plan be deemed to amend or modify the provisions of the Retirement Plan.
(d) The Plan shall be construed, regulated, and administered in accordance
with the laws of the State of Oklahoma except to the extent that said laws
have been preempted by the laws of the United States.
12
Exhibit 10.24
Amended by Corporate Approval
December 19, 2002
DEFINED CONTRIBUTION MAKEUP PLAN
OF
CONOCOPHILLIPS
SECTION 1. DEFINITIONS.
For purposes of the Plan, the following terms, as used herein, shall have the
meaning specified:
(a) "AFFILIATED COMPANY" means ConocoPhillips and any company or other legal
entity that is controlled, either directly or indirectly, by
ConocoPhillips.
(b) "AFFILIATED GROUP" shall mean ConocoPhillips and its subsidiaries and
affiliates in which it owns a 5% or more equity interest.
(c) "ALLOCATION RATIO" shall mean the ratio determined by dividing (i) an
amount equal to the total value of the unallocated shares of Stock
allocated to Stock Savings Feature participants and beneficiaries as of a
Stock Savings Feature Semiannual Allocation Date or Supplemental
Allocation Date (as defined in the CPSP) by (ii) an amount equal to the
total net Stock Savings Feature employee deposits used in the calculation
of the Stock Savings Feature Semiannual Allocation or Supplemental
Allocation (as defined in the CPSP).
-1-
(d) "BENEFICIARY" means a person or persons designated by a Participant to
receive, in the event of death, any unpaid portion of a Participant's
Benefit from this Plan. Any Participant may designate one or more persons
primarily or contingently as beneficiaries in writing upon forms supplied
by and delivered to the Company, and may revoke such designations in
writing. If a Participant fails to properly designate a beneficiary, then
the Benefits will be paid in the following order of priority:
(i) Surviving spouse;
(ii) Surviving children in equal shares;
(iii) To the estate of the Participant.
(e) "BENEFIT" shall mean an obligation of the Company to pay amounts from this
Plan.
(f) "BOARD" means the Board of Directors of the Company, as it may be
comprised from time to time.
(g) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
(h) "CPSP" means the ConocoPhillips Savings Plan.
(i) "COMMITTEE" means the Compensation Committee of the Board of Directors of
ConocoPhillips or any successor committee with substantially the same
responsibilities.
(j) "COMPANY" means ConocoPhillips Company, a Delaware corporation, or any
successor corporation.
-2-
(k) "DISABILITY" means the inability, in the opinion of the Medical Director
of ConocoPhillips, of a Participant, because of an injury or sickness, to
work at a reasonable occupation that is available with the a member of the
Affiliated Group.
(l) "EMPLOYEE" means any individual who is a salaried employee of the Company
or any Participating Subsidiary.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and
in effect from time to time, or any successor statute.
(n) "HIGHLY COMPENSATED EMPLOYEE" shall mean an Employee whose compensation
exceeds the amount set forth in Code Section 401(a)(17), as amended from
time to time, or who is eligible to elect a voluntary salary reduction
under the provisions of the KEDCP; provided, however, that Employees of
ConocoPhillips Services Inc. or Employees of any member of the Affiliated
Group that prior to August 30, 2002, was also a member of the controlled
group of companies of which Conoco Inc. was then a member shall only be a
Highly Compensated Employee for purposes of the Supplemental Stock Savings
Feature of this Plan.
(o) "KEDCP" shall mean the Key Employee Deferred Compensation Plan of
ConocoPhillips Company or any similar or successor plan maintained by an
Affiliated Company.
-3-
(p) "LAYOFF" or "LAID OFF" means layoff under the Phillips Layoff Plan, the
Work Force Stabilization Plan of Phillips Petroleum Company, the Phillips
Petroleum Company Executive Severance Plan, The Conoco Inc. Severance Pay
Plan, the Conoco Inc. Key Employee Severance Plan or any similar plan
which the Company, any Participating Subsidiary or a member of the
Affiliated Group may adopt from time to time under the terms of which the
Participant executes and does not revoke a general release of liability,
acceptable to the Company, Participating Subsidiary or a member of the
Affiliated Group, as applicable, under such layoff plan.
(q) "PARTICIPANT" means an Employee who is eligible to receive a Benefit from
this Plan as a result of being a Highly Compensated Employee and any
person for whom a Supplemental Thrift Feature Account and/or a
Supplemental Stock Savings Feature Account is maintained.
(r) "PARTICIPATING SUBSIDIARY" means a subsidiary of ConocoPhillips, which has
adopted the CPSP, and one or more Employees of which are Participants
eligible to make deposits to the CPSP, or are eligible for Benefits
pursuant to this Plan.
(s) "PAY" means, "Pay" as defined in the CPSP except, without regard to Pay
Limitations or voluntary Salary Reduction under provisions of the KEDCP.
(t) "PAY LIMITATIONS" means the compensation limitations applicable to the
CPSP that are set forth in Code Section 401(a)(17), as adjusted.
-4-
(u) "PLAN ADMINISTRATOR" means the Manager, Compensation and Benefits, of
ConocoPhillips or his successor.
(v) "RETIREMENT" means termination of employment with the Company, a
Participating Subsidiary or a member of the Affiliated Group that
qualifies the Employee for Retirement as that term is defined in the
applicable provisions of the ConocoPhillips Retirement Plan or of the
applicable retirement plan of a member of the Affiliated Group.
(w) "STOCK" means shares of common stock, $0.01 par value, issued by
ConocoPhillips, and prior to August 30, 2002, shares of common stock,
$1.25 par value, of Phillips Petroleum Company.
(x) "STOCK SAVINGS FEATURE" shall mean the Stock Savings Feature of the CPSP.
(y) "SUPPLEMENTAL THRIFT CONTRIBUTIONS" means, (i) prior to the month in which
the Participant's Pay first exceeds the Pay Limitations in a year, the
same percentage of a Participant's Pay that the Participant is depositing
as a Basic Deposit to the Thrift Feature for that month multiplied by the
amount of the Participant's voluntary salary reduction under the KEDCP for
that month, and (ii) provided the Participant is making deposits to the
Thrift Feature for the month in which the Participant's Pay exceeds the
Pay Limitations and each month thereafter until the end of the year, the
same percentage of the Participant's Pay that the Participant was
depositing as a Basic Deposit to
-5-
the Thrift Feature for the month in which he or she reached the Pay
Limitations for the year, multiplied by the sum of the amount of the
Participant's voluntary salary reduction under the KEDCP for that month
plus the amount of the Participant's Pay for that month that is in excess
of the Pay Limitations for that year.
(z) "SUPPLEMENTAL STOCK SAVINGS FEATURE ACCOUNT" means the Plan Benefit
account of a Participant that reflects the portion of his or her Benefit
that is intended to replace certain Stock Savings Feature benefits to
which the Participant might otherwise be entitled but for the application
of the Pay Limitations and/or a voluntary salary reduction under the
KEDCP.
(aa) "SUPPLEMENTAL STOCK SAVINGS CONTRIBUTIONS" means (i) prior to the month in
which the Participant's Pay first exceeds the Pay Limitations in a year,
for each month that the Participant makes deposits to the Stock Savings
Feature, 1% of the amount of the Participant's voluntary salary reduction
under the KEDCP for that month, and (ii) provided the Participant is
making deposits to the Stock Savings Feature in the month in which the
Participant's Pay exceeds the Pay Limitations, for that month and for each
month thereafter until the end of the year, 1% of the sum of the amount of
the Participant's voluntary salary reduction under the KEDCP for that
month plus the amount of the Participant's Pay for that month that is in
excess of the Pay Limitations for that year.
-6-
(bb) "SUPPLEMENTAL THRIFT FEATURE ACCOUNT" means the Plan Benefit account of a
Participant which reflects the portion of his or her Benefit which is
intended to replace certain Thrift Feature benefits to which the
Participant might otherwise be entitled but for the application of the Pay
Limitations and/or a voluntary salary reduction under the KEDCP.
(cc) "THRIFT FEATURE" shall mean the Thrift Feature of the CPSP.
(dd) "TRUSTEE" shall mean the trustee of the grantor trust established by the
Trust Agreement between the Company (known then as Phillips Petroleum
Company) and Wachovia Bank, N.A. dated as of June 1, 1998, or any
successor trustee.
(ee) "VALUATION DATE" means "Valuation Date" as defined in the CPSP.
SECTION 2. PURPOSE.
The purpose of this Plan is to provide supplemental benefits for those Highly
Compensated Employees whose benefits under the CPSP are affected by Pay
Limitations or by a voluntary reduction in salary under provisions of KEDCP.
This Plan is intended to be and shall be administered as an unfunded benefit
plan for Highly Compensated Employees.
SECTION 3. ELIGIBILITY.
Benefits may only be granted to Highly Compensated Employees.
-7-
SECTION 4. SUPPLEMENTAL THRIFT FEATURE ACCOUNT BENEFITS.
For each month in which Company Contributions to a Participant's account in the
Thrift Feature are, or would be, limited by the Pay Limitations and/or by a
voluntary salary reduction to the KEDCP, a Benefit amount shall be credited to
his or her Supplemental Thrift Feature Account no later than the end of the
month following the Valuation Date that Company contributions are made to the
Participant's Thrift Feature Account, or would be made to such account but for
Pay Limitations. The Participant will be credited with an amount equal to the
amount of his or her Supplemental Thrift Contributions each month to the same
investment funds and in the same proportions as the Participant has directed his
or her latest available investment allocation for Deposits to the Thrift
Feature.
SECTION 4.1 SUPPLEMENTAL THRIFT FEATURE ACCOUNT EARNINGS
The Supplemental Thrift Feature Account shall be eligible to be invested in the
same investment funds as are made available to Participants in the Thrift
Feature from time to time. While such investments shall consist solely of book
entries and shall not actually be invested in such funds, the book entry share
value of such deemed investment funds in this Plan shall be determined to be the
same share value as the actual value of shares in the investment funds of the
CPSP. The amounts deemed invested in this Plan shall be valued at the same time
and in the same manner as though they were actually invested in the CPSP. Also,
deemed investments in the Participant's Supplemental Thrift Feature Account may
be exchanged into other available investment funds in
-8-
the same manner, at the same times, and subject to the same limitations as
though the deemed amounts were actually invested in the CPSP. However, to the
extent that earnings in the form of dividends on Company Stock in the CPSP are
eligible to be passed through to the Participant, such dividends will be deemed
to have been reinvested in the Company Stock Fund of this Plan, without regard
to whether the Participant has made a pass through election under the CPSP.
-9-
SECTION 5. SUPPLEMENTAL STOCK SAVINGS FEATURE ACCOUNT BENEFITS.
For each month in which a Semiannual Allocation or Supplemental Allocation (as
defined in the CPSP) to a Participant's account in the Stock Savings Feature is,
or would be, limited by the Pay Limitations and/or by a voluntary salary
reduction under the KEDCP, a Benefit amount shall be credited to his or her
Supplemental Stock Savings Feature Account. The amount to be credited shall be
calculated in shares in the Leveraged Stock Fund of this Plan as though the
Participant had made Supplemental Stock Savings Contributions and shall be equal
to (i) the Participant's Supplemental Stock Savings Contributions during the
applicable Allocation Period (as defined in the CPSP) multiplied by the
applicable Allocation Ratio, divided by (ii) the share value for the Leveraged
Stock Fund of the CPSP on the applicable Allocation Date. This amount shall be
credited no later than the end of the month following the Valuation Date that
the Semiannual Allocation or Supplemental Allocation to the Leveraged Stock Fund
would have been made had the Participant received a Semiannual Allocation or
Supplemental Allocation under the Stock Savings Feature. A share in the
Leveraged Stock Fund of the Supplemental Stock Savings Feature Account shall
have a value equivalent to a share in the Leveraged Stock Fund of the CPSP.
SECTION 5.1 SUPPLEMENTAL STOCK SAVINGS ACCOUNT FEATURE EARNINGS
After being initially invested in the Leveraged Stock Fund account, the amounts
in the Participant's Supplemental Stock Savings Feature Account shall thereafter
be eligible to be invested in the same investment funds as are made available to
-10-
Participants in the CPSP from time to time. While such investments shall consist
solely of book entries and shall not actually be invested in such funds, the
book entry share value of such deemed investment funds in this Plan shall be
determined to be the same share value as the actual value of shares in the
investment funds of the CPSP. The amounts deemed invested in this Plan shall be
valued at the same time and in the same manner as though they were actually
invested in the CPSP. Also, deemed investments in the Participant's Supplemental
Stock Savings Feature Account may be exchanged into other available investment
funds in the same manner, at the same times, and subject to the same limitations
as though the deemed amounts were actually invested in the CPSP. However, to the
extent that earnings in the form of dividends on Company Stock in the CPSP are
eligible to be passed through to the Participant, such dividends will be deemed
to have been reinvested in the Company Stock Fund of this Plan, without regard
to whether the Participant has made a pass through election under the CPSP.
SECTION 6. PAYMENT.
If a Participant terminates employment with the Affiliated Group for any reason
except death, Disability, Layoff during or after the year in which the
Participant reaches age 50, or Retirement, Benefits which the Participant is
eligible to receive under this Plan shall be paid in one lump sum cash payment
as soon as practicable following his or her termination. If a Participant dies
prior to Retirement, Benefits which the Participant is eligible to receive under
this Plan shall be paid in one lump sum cash payment to the Participant's
Beneficiary as soon as practicable after his or her death. If a Participant
Retires, is
-11-
Laid off during or after the year in which the Participant reaches age 50, or
becomes Disabled, Benefits which the Participant is eligible to receive under
this Plan shall be paid in one lump sum cash payment as soon as practicable
following the Participant's Retirement, Layoff, determination of Disability or
termination of employment; provided that such a Participant may indicate a
preference to defer part or all of such lump sum cash payment under the terms of
the KEDCP.
All lump sum cash payments shall be made only as of a Valuation Date and shall
be net of withholding for applicable taxes required by law.
The Chief Executive Officer of ConocoPhillips, with respect to Participants who
are not subject to Section 16 of the Exchange Act, and the Committee, with
respect to Participants who are subject to Section 16 of the Exchange Act, shall
consider such indication of preference and shall respectively decide in the
Chief Executive Officer's or the Committee's sole discretion whether to accept
or reject the preference expressed. In the event the Chief Executive Officer or
the Committee, as applicable, accepts such Participant's preference, the
Participant's Benefit from this Plan shall be credited as an Award under the
KEDCP as soon as practicable after the Participant's Retirement, Layoff or the
date the Participant is determined to be Disabled.
SECTION 7. ADMINISTRATION.
-12-
(a) The Plan shall be administered by the Plan Administrator. The Plan
Administrator may delegate to employees of the Company or any Affiliated
Company the authority to execute and deliver such instruments and
documents, to do all such acts and things, and to take all such other
steps deemed necessary, advisable or convenient for the effective
administration of the Plan in accordance with its terms and purpose,
except that the Plan Administrator may not delegate any discretionary
authority with respect to substantive decisions or functions regarding the
Plan or Benefits thereunder.
(b) Any claim for benefits hereunder shall be presented in writing to the Plan
Administrator for consideration, grant or denial. In the event that a
claim is denied in whole or in part by the Plan Administrator, the
claimant, within ninety days of receipt of said claim by the Plan
Administrator, shall receive written notice of denial. Such notice shall
contain:
(1) a statement of the specific reason or reasons for the denial;
(2) specific references to the pertinent provisions hereunder on which
such denial is based;
(3) a description of any additional material or information necessary to
perfect the claim and an explanation of why such material or
information is necessary; and
-13-
(4) an explanation of the following claims review procedure set forth in
paragraph (c) below.
(c) Any claimant who feels that a claim has been improperly denied in whole or
in part by the Plan Administrator may request a review of the denial by
making written application to the Trustee. The claimant shall have the
right to review all pertinent documents relating to the claim and to
submit issues and comments in writing to the Trustee. Any person filing an
appeal from the denial of a claim must do so in writing within sixty days
after receipt of written notice of denial. The Trustee shall render a
decision regarding the claim within sixty days after receipt of a request
for review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered within a reasonable
time, but not later than 120 days after receipt of the request for review.
The decision of the Trustee shall be in writing and, in the case of the
denial of a claim in whole or in part, shall set forth the same
information as is required in an initial notice of denial by the Plan
Administrator, other than an explanation of this claims review procedure.
The Trustee shall have absolute discretion in carrying out its
responsibilities to make its decision of an appeal, including the
authority to interpret and construe the terms hereunder, and all
interpretations, findings of fact, and the decision of the Trustee
regarding the appeal shall be final, conclusive and binding on all
parties.
-14-
(d) Compliance with the procedures described in paragraphs (b) and (c)
shall be a condition precedent to the filing of any action to obtain
any benefit or enforce any right that any individual may claim
hereunder. Notwithstanding anything to the contrary in this Plan,
these paragraphs (b), (c) and (d) may not be amended without the
written consent of a seventy-five percent (75%) majority of
Participants and Beneficiaries and such paragraphs shall survive the
termination of this Plan until all benefits accrued hereunder have
been paid.
SECTION 8. RIGHTS OF EMPLOYEES AND PARTICIPANTS.
Nothing contained in the Plan (or in any other documents related to this Plan or
to any Benefit) shall confer upon any Employee or Participant any right to
continue in the employ or other service of the Company or any member of the
Affiliated Group or constitute any contract or limit in any way the right of the
Company or any member of the Affiliated Group to change such person's
compensation or other benefits or to terminate the employment of such person
with or without cause.
SECTION 9. AWARDS IN FOREIGN COUNTRIES.
The Board or its delegate shall have the authority to adopt such modifications,
procedures and subplans as may be necessary or desirable to comply with
provisions of the laws of foreign countries in which the Company or
Participating Subsidiaries may
-15-
operate to assure the viability of the Benefits of Participants employed in such
countries and to meet the purpose of this Plan.
-16-
SECTION 10. AMENDMENT AND TERMINATION.
The Board reserves the right to amend or terminate this Plan at any time, and to
delegate such authority as the Board deems necessary or desirable; provided that
no member of the Board who is also a Participant shall participate in any action
which has the actual or potential effect of increasing his or her Benefits
hereunder; and further provided, the Company shall remain liable for any
Benefits accrued under this Plan prior to the date of amendment or termination.
SECTION 11. UNFUNDED PLAN.
All amounts payable under this Plan shall be paid solely from the general assets
of the Company and any rights accruing to a Participant under the Plan shall be
those of a general creditor; provided, however, that the Company or
ConocoPhillips may establish a grantor trust to satisfy part or all of the
Company's Plan payment obligations so long as the Plan remains unfunded for
purposes of Title I of ERISA.
SECTION 12. MISCELLANEOUS PROVISIONS.
(a) No right or interest of a Participant under this Plan shall be assignable
or transferable, in whole or in part, directly or indirectly, by operation
of law or otherwise (excluding devolution upon death or mental
incompetency), without the prior consent of the Board.
(b) This Plan shall be restated and amended effective as of January 1, 2003.
-17-
(c) No amount accrued or payable hereunder shall be deemed to be a portion of
an Employee's compensation or earnings for the purpose of any other
employee benefit plan adopted or maintained by the Company, nor shall this
Plan be deemed to amend or modify the provisions of the CPSP.
(d) This Plan shall be construed, regulated, and administered in accordance
with the laws of the State of Texas except to the extent that said laws
have been preempted by the laws of the United States.
(e) Except as otherwise provided herein, the Plan shall be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's
assets and business or with or into which the Company may be consolidated
or merged.
-18-
Exhibit 10.26
BOARD OF DIRECTORS APPROVED
AUGUST 26, 2002
2002 OMNIBUS SECURITIES PLAN
OF
PHILLIPS PETROLEUM COMPANY
(2002-2006)
SECTION 1. PURPOSE AND ESTABLISHMENT
The purpose of the Omnibus Securities Plan of Phillips Petroleum Company (the
"Plan") is to benefit the Company's stockholders by encouraging high levels of
performance by individuals whose performance is a key element in achieving the
Company's continued financial and operational success, and to enable the Company
to recruit, reward, retain and motivate employees to work as a team to achieve
the Company's mission of being the top performer in each of our businesses by
rewarding the creation of shareholder value.
The 2002 Omnibus Securities Plan of Phillips Petroleum Company shall become
effective January 1, 2002, upon its adoption by the Company's stockholders at
the 2001 Annual Meeting.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms, as used herein, shall have the
meaning specified:
(a) "AWARD" or "AWARDS" means an award granted pursuant to Section 4 hereof.
(b) "AWARD AGREEMENT" means an agreement described in Section 5 hereof entered
into between the Company and a Participant, setting forth the terms,
conditions and any limitations applicable to the Award granted to the
Participant.
(c) "BENEFICIARY" means a person or persons designated by a Participant to
receive, in the event of death, any unpaid portion of an Award held by the
Participant. Any Participant may, subject to such limitations as may be
prescribed by the Committee, designate one or more persons primarily or
contingently as beneficiaries in writing upon forms supplied by and
delivered to the Company, and may revoke such designations in writing. If
a Participant fails effectively to designate a beneficiary, then the Award
will be paid in the following order of priority:
(i) Surviving spouse;
(ii) Surviving children in equal shares;
(iii) To the estate of the Participant.
(d) "BOARD" means the Board of Directors of the Company as it may be comprised
from time to time.
(e) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
(f) "COMMITTEE" means the Compensation Committee of the Board or any successor
committee with substantially the same responsibilities.
(g) "COMPANY" means ConocoPhillips, a Delaware corporation or any successor
corporation.
(h) "COVERED EMPLOYEE" means a Participant designated prior to the grant of
Restricted Stock or Performance Awards by the Committee as one who is or
may be a "covered employee" within the meaning of Section 162(m)(3) of the
Code in the year in which Restricted Stock or Performance Awards are
expected to be taxable to such Participant.
-2-
(i) "DATE OF CHANGE OF CONTROL" shall mean the earliest date on which any of
the occurrences listed in Section 9 of this Plan should occur.
(j) "DISABILITY" shall mean the inability, in the opinion of the independent
third party who administers the Long Term Disability Plan for the Company
or as certified by a physician who is licensed as a Medical Doctor (M.D.)
or a Doctor of Osteopathy (D.O.) that the Participant, because of an
injury or sickness, is unable to work at a reasonable occupation which is
available with the Company or at any gainful occupation which the
Participant is or may become fitted.
(k) "EMPLOYEE" means any individual who is a salaried employee of the Company
or any Participating Subsidiary.
(l) "EXECUTIVE OFFICER" means the Chief Executive Officer (CEO) position and
those positions that report directly to the CEO and other positions so
designated by the Compensation Committee.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and
in effect from time to time, or any successor statute.
(n) "FAIR MARKET VALUE" in reference to the common stock of the Company means
(i) the average of the reported highest and lowest sales prices per
share of such Stock during regular business hours as reported on the
composite tape of New York Stock Exchange transactions (or such
other reporting system as shall be selected by the Committee) on the
relevant date; or
-3-
(ii) in the absence of reported sales on that date, the average of the
reported highest and lowest sales prices per share during regular
business hours on the last previous day for which there was a
reported sale.
The Committee shall determine the Fair Market Value of any security that
is not publicly traded, using such criteria as it shall determine, in its
sole discretion, to be appropriate for such valuation.
(O) "INSIDER" means any person who is subject to Section 16 of the Exchange
Act.
(P) "INVOLUNTARY TERMINATION" of a Participant means:
(i) Termination of the Participant's employment with the Company for any
reason other than voluntary termination (except as provided in
clause (ii)), death, disability or termination for cause,
(ii) A termination of employment by the Participant within 60 days
following a reduction of ten percent or more of the Participant's
annual salary or a reduction in the Participant's job
responsibilities, or
(iii) A termination of the Participant's employment by the Company as a
consequence of refusing a transfer by the Company to a location in
excess of 50 miles from the Participant's work location upon the
Date of Change of Control, unless the move is covered by the
Company's moving policy.
In no event shall a Participant be considered Involuntarily Terminated if he or
she is retained in the employment of the Company, its subsidiaries or
affiliates.
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(q) "PARTICIPANT" means an Employee who has been designated by the Committee
to be eligible for an Award pursuant to this Plan.
(r) "PERFORMANCE GOAL" means a performance goal established by the Committee
in connection with the grant of a Qualified Performance-Based Award, which
is based on the attainment of specified levels of one or more of the
following measures on either absolute or relative basis: earnings per
share, sales, net profit after tax, gross profit, operating profit, cash
generation, unit volume, return on equity, economic profit, safety, growth
project achievement, change in working capital, return on capital, return
on investment, shareholder return, and is established in writing by the
Committee within the time period prescribed by Section 162(m) of the Code
and related regulations.
(s) "QUALIFIED PERFORMANCE-BASED AWARD" means an Award of Restricted Stock or
Performance Units or another type of Award designated as such by the
Committee at the time of grant, based upon a determination that (i) the
recipient is a Covered Employee with respect to such Award and (ii) the
Committee wishes such Award to qualify for the Section 162(m) Exemption.
(t) "PARTICIPATING SUBSIDIARY" means an entity of the Company, of which the
Company beneficially owns, directly or indirectly, more than 50% of the
aggregate voting power of all outstanding classes and series of stock or
membership interest, and in which one or more Employees are Participants,
or are eligible for Awards pursuant to this Plan.
(u) "RESTRICTED STOCK" means shares of Stock which have certain restrictions
attached to the ownership thereof, which may be issued under Section 4.3.
(v) "RETIREMENT" means termination of employment with the Company or a
Participating Subsidiary which qualifies the Employee for Retirement as
that term is defined in the
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Retirement Income Plan of Phillips Petroleum Company or of the applicable
retirement plan of a Participating Subsidiary.
(w) "RULE 16B-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission as now in force or as such regulation or successor regulation
shall be hereafter amended.
(x) "SECTION 16" means Section 16 of the Exchange Act or any successor
regulation and the rules promulgated thereunder as they may be amended
from time to time.
(y) "SECTION 162(m) EXEMPTION" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
(z) "STOCK" means shares of common stock of the Company, par value $.01 or as
modified from time to time.
(aa) "STOCK APPRECIATION RIGHT" means a right, the value of which is determined
relative to the appreciation in value of shares of Stock, which may be
issued under Section 4.2.
(bb) "STOCK OPTION" means a right to purchase shares of Stock granted pursuant
to Section 4.1 and includes Incentive Stock Options and Non-Qualified
Stock Options as defined in Section 4.1.
SECTION 3. ELIGIBILITY
Awards may be granted only to Employees who are designated as Participants from
time to time by the Committee. The Committee shall determine which Employees
shall be Participants, the types of Awards to be made to Participants and the
terms, conditions and limitations applicable to the Awards.
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SECTION 4. AWARDS
Awards may include, but are not limited to, those described in this Section 4.
The Committee may grant Awards singly, in tandem or in combination with other
Awards, as the Committee may in its sole discretion determine. Subject to the
other provisions of this Plan, Awards may also be granted in combination or in
tandem with, in replacement of, or as alternatives to, grants or rights under
this Plan and any other employee plan of the Company. The Committee must approve
all grants made under this Plan to the Chief Executive Officer. The Committee
may also designate from time to time other classes of officers or employees for
whom Committee approval will be required for grants of equity under this Plan.
The Chief Executive Officer shall have authority to approve stock option grants,
restricted stock, or other forms of equity compensation, to Participants other
than those whose grant has been designated by the Committee for approval by the
Committee.
4.1 STOCK OPTIONS
A Stock Option is a right to purchase a specified number of shares of Stock at a
specified price during such specified time as the Committee shall determine.
(a) Options granted may be either of a type that complies with the
requirements of incentive stock options as defined in Section 422 of the
Code and is designated as such ("Incentive Stock Options") or of a type
that does not comply with such requirements or is designated as not being
an Incentive Stock Option ("Non-Qualified Options"). The maximum award
term for all Stock Options awarded under this Plan shall be ten (10)
years.
(b) The exercise price per share of any Stock Option shall be no less than the
Fair Market Value per share of the Stock subject to the option on the date
the Stock Option is granted.
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(c) A Stock Option may be exercised, in whole or in part, by giving written
notice of exercise to the Company specifying the number of shares of Stock
to be purchased.
(d) The exercise price of the Stock subject to the Stock Option may be paid in
cash or, at the discretion of the Committee, may also be paid by the
tender of Stock already owned by the Participant, or through a combination
of cash and Stock, or through such other means the Committee determines
are consistent with the Plan's purpose and applicable law. No fractional
shares of Stock will be issued or accepted.
(e) Notwithstanding any other provision of this Plan, other than Section 8, no
Participant may be granted Stock Options and Stock Appreciation Rights
covering in excess of 2,000,000 shares of Stock in any calendar year. If
Stock Appreciation Rights are granted in tandem with an equal number of
Stock Options, the total number of shares covered by such Stock
Appreciation Rights and Stock Options shall be deemed, for purposes of
this limitation, to equal the number of shares covered by such Stock
Options.
4.2 STOCK APPRECIATION RIGHTS
A Stock Appreciation Right is a right to receive, upon surrender of the right,
but without payment, an amount payable in cash and/or shares of Stock under the
terms and conditions as the Committee shall determine.
(a) A Stock Appreciation Right may be granted in tandem with part or all of,
in addition to, or completely independent of a Stock Option or any other
Award under this Plan. A Stock Appreciation Right issued in tandem with a
Stock Option may be granted at the time of grant of the related Stock
Option or at any time thereafter during the term of the Stock Option.
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(b) The amount payable in cash and/or shares of Stock with respect to each
right shall be equal in value to a percent of the amount by which the Fair
Market Value per share of Stock on the exercise date exceeds the exercise
price of the Stock Appreciation Right. The applicable percent shall be
established by the Committee. The amount payable in shares of Stock, if
any, is determined with reference to the Fair Market Value on the date of
exercise.
(c) Stock Appreciation Rights issued in tandem with Stock Options shall be
exercisable only to the extent that the Stock Options to which they relate
are exercisable. Upon exercise of the Stock Appreciation Right, the
Participant shall surrender to the Company the underlying Stock Option.
Stock Appreciation Rights issued in tandem with Stock Options shall
automatically terminate upon the exercise of such Stock Options.
(d) Grants of Stock Appreciation Rights are subject to the limitations set
forth in Section 4.1(e) above.
4.3 RESTRICTED STOCK
Restricted Stock is Stock that is issued to a Participant and is subject to such
terms, conditions and restrictions as the Committee deems appropriate, which may
include, but is not limited to, restrictions upon the sale, assignment, transfer
or other disposition of the Restricted Stock and the requirement of forfeiture
of the Restricted Stock upon termination of employment under certain specified
conditions. The Committee may provide for the lapse of any such term or
condition or waive any term or condition based on such factors or criteria as
the Committee may determine. Pursuant to this Section 4.3, an Award of
Restricted Stock may be either time-lapsed Restricted Stock or Performance-Based
Restricted Stock. The Participant shall have, with respect to awards of
Restricted Stock, all of the rights of a shareholder of the Company, including
the right to vote the Restricted Stock and the right to receive any cash or
stock dividends on such Stock.
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4.4 PERFORMANCE AWARDS
Performance Awards may be granted under this Plan from time to time based on the
terms and conditions as the Committee deems appropriate provided that such
Awards shall not be inconsistent with the terms and purposes of this Plan.
Performance Awards are Awards which are contingent upon the performance of all
or a portion of the Company and/or its Participating Subsidiaries or which are
contingent upon the individual performance of a Participant. Performance Awards
may be in the form of performance units, performance shares and such other forms
of performance Awards which the Committee shall determine. The Committee shall
determine the performance measurements and criteria for such Performance Awards.
4.5 OTHER AWARDS
The Committee may from time to time grant stock, other stock-based and non-stock
based Awards under the Plan including without limitations those Awards pursuant
to which shares of stock are or may in the future be acquired, Awards
denominated in stock units, securities convertible into stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such other stock, stock-based and non-stock based Awards provided
that such Awards shall not be inconsistent with the terms and purposes of this
Plan.
4.6 QUALIFIED PERFORMANCE-BASED AWARDS
The provisions of this Section 4.6 shall apply to all Qualified
Performance-Based Awards, notwithstanding any other provision of this Plan,
other than Sections 8 and 9. No Participant may be granted Qualified
Performance-Based Awards covering in excess of 2,000,000 shares of Stock or
allowing for the payment of cash in excess of $10,000,000 in any calendar year.
Each Qualified Performance-Based Award shall be earned, vested and payable (as
applicable) only upon the achievement of one or more Performance Goals (together
with the satisfaction of any other
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conditions, such as continued employment, as the Committee may determine to be
appropriate); provided, that (i) the Committee may provide, either in connection
with the grant thereof or by amendment thereafter, that achievement of such
Performance Goals will be waived upon the death or disability of the
Participant, and (ii) the provisions of Sections 8 and 9 shall apply
notwithstanding this sentence. Except as specifically provided in the preceding
sentence, no Qualified Performance-Based Award may be amended, nor may the
Committee exercise any discretionary authority it may otherwise have under this
Plan with respect to a Qualified Performance-Based Award under this Plan, in any
manner to waive the achievement of the applicable Performance Goals or to
increase the amount payable pursuant thereto or the value thereof, or otherwise
in a manner that would cause the Qualified Performance-Based Award to cease to
qualify for the Section 162(m) Exemption. Under this Plan, a Qualified
Performance-Based Award may include Restricted Stock.
SECTION 5. AWARD AGREEMENTS
Each Award under this Plan shall be evidenced by an Award Agreement setting
forth the number of shares of Stock or other security, Stock Appreciation
Rights, or units subject to the Award and such other terms and conditions
applicable to the Award as determined by the Committee.
(a) Award Agreements shall include the following terms:
(i) NON-ASSIGNABILITY: A provision that the Awards under the Plan other
than Awards representing Non-Qualified Stock Options shall not be
assigned, pledged or otherwise transferred except by will or by the
laws of descent and distribution, and that during the lifetime of a
Participant, an Award other than an Award representing Non-Qualified
Stock Options shall be exercised only by such Participant or by the
Participant's legal guardian or legal representative.
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(ii) TERMINATION OF EMPLOYMENT: A provision describing the treatment of
an Award in the event of the Retirement, Disability, death or other
termination of a Participant's employment with the Company,
including but not limited to terms relating to the vesting, time for
exercise, forfeiture or cancellation of an Award in such
circumstances.
(iii) RIGHTS AS STOCKHOLDER: A provision that a Participant shall have no
rights as a stockholder with respect to any securities covered by an
Award until the date the Participant becomes the holder of record.
Except as provided in Section 8 hereof, no adjustment shall be made
for dividends or other rights, unless the Award Agreement
specifically requires such adjustment, in which case, grants of
dividend equivalents or similar rights shall not be considered to be
a grant of any other stockholder right.
(iv) WITHHOLDING: A provision requiring the withholding of applicable
taxes required by law from all amounts paid in satisfaction of an
Award. In the case of an Award paid in cash, the withholding
obligation shall be satisfied by withholding the applicable amount
and paying the net amount in cash to the Participant. In the case of
Awards paid in shares of Stock or other securities of the Company, a
Participant may satisfy the withholding obligation by paying the
amount of any taxes in cash or, with the approval of the Committee,
shares of Stock or other securities may be deducted from the payment
to satisfy the Company's minimum withholding obligation in full or
in part as long as such withholding of shares does not violate any
applicable laws, rules or regulations of Federal, state or local
authorities. The number of shares to be deducted shall be determined
by reference to the Fair Market Value of such shares of Stock on the
applicable date.
(b) Award Agreements may include the following terms:
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(i) REPLACEMENT AND SUBSTITUTION: Except as provided in Section 13 (b)
dealing with repricing of Stock Options, such provisions permitting
the surrender of outstanding Awards or securities held by the
Participant in order to exercise or realize rights under other
Awards, or in exchange for the grant of new Awards under similar or
different terms, may be included.
(ii) TRANSFERABILITY OF NON-QUALIFIED STOCK OPTIONS: Such provisions as
the Committee may, in its discretion, authorize in any particular
case, with respect to all or any portion of any Non-Qualified Stock
Options to be granted to Participant, the transfer by such
Participant of any of such Non-Qualified Stock Options to (a) the
spouse, children or grandchildren (including in each case
stepchildren or step grandchildren) of the Participant (all such
persons collectively "Immediate Family Members"), (b) a trust or
trusts for the exclusive benefit of persons all of whom are
Immediate Family Members, or (c) a partnership in which all partners
are Immediate Family Members, provided that following any such
permitted transfer, subsequent transfers of transferred
Non-Qualified Stock Options, except by will or the laws of descent
and distribution, are prohibited. Following any transfer
contemplated hereby, the transferred Non-Qualified Stock Options
shall continue to be subject to all of the terms hereof,
administrative procedures and the Award Agreement pursuant to which
it was originally granted, and the transferee shall be obliged to
comply in all respects with all of the terms and conditions hereof,
the administrative procedures and the Award Agreement in the same
manner as if the transferee were a Participant hereunder.
(iii) OTHER TERMS: Such other terms as are necessary and appropriate to
effect an Award to the Participant including but not limited to the
term of the Award, vesting provisions, deferrals, any requirements
for continued employment with the
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Company, any other restrictions or conditions (including performance
requirements) on the Award and the method by which restrictions or
conditions lapse, effect on the Award of a Change of Control as
defined in Section 9, the price, amount or value of Awards.
SECTION 6. SHARES OF STOCK SUBJECT TO THE PLAN
(a) Subject to the adjustment provisions of Section 8 hereof, the number of
shares of Stock for which Awards may be granted during the term of this
Plan shall be 12,500,000; provided, that immediately following the
Effective Time of the Merger (as those terms are defined in the next
sentence), the number of shares of Stock for which Awards may be granted
during the term of this Plan shall be increased by the product of (i) a
fraction, the numerator of which is 12,500,000 and the denominator of
which is the number of shares of Stock outstanding immediately before the
Effective Time times (ii) the number of shares of Stock issued by the
Company to stockholders of Tosco Corporation pursuant to the Merger; and
provided, further, that the numbers described in clauses (i) and (ii) of
the preceding proviso shall be adjusted as appropriate in the event there
is any adjustment made pursuant to Section 8 hereof before the Effective
Time of the Merger. The terms "Effective Time" and "Merger" shall have the
meanings given to them in the Agreement and Plan of Merger, dated as of
February 4, 2001, by and among the Company, Ping Acquisition Corp. and
Tosco Corporation, as the same may be amended from time to time.
Shares issued under the Plan which do not fall under Section 4.1 or 4.2
shall be limited to 2,000,000 shares during the term of the Plan;
provided, that immediately following the Effective Time of the Merger, the
2,000,000 share limitation shall be increased by the
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product of (i) a fraction, the numerator of which is 2,000,000 and the
denominator of which is the number of shares of Stock outstanding
immediately before the Effective Time times (ii) the number of shares of
Stock issued by the Company to stockholders of Tosco Corporation pursuant
to the Merger; and provided, further, that the numbers described in
clauses (i) and (ii) of the preceding proviso shall be adjusted as
appropriate in the event there is any adjustment made pursuant to Section
8 hereof before the Effective Time of the Merger.
(b) Any unexercised or undistributed portion of any terminated, expired,
exchanged, or forfeited Award or Awards settled in cash in lieu of shares
of Stock shall be available for further Awards in addition to those
available under Section 6(a) hereof.
(c) For the purposes of computing the total number of shares of Stock granted
under the Plan, the following rules shall apply to Awards payable in Stock
or other securities, where appropriate:
(i) except as provided in (v) of this Section, each Stock Option shall
be deemed to be the equivalent of the maximum number of shares that
may be issued upon exercise of the particular Stock Option;
(ii) except as provided in (v) of this Section, each other stock-based
Award payable in some other security shall be deemed to be equal to
the number of shares to which it relates;
(iii) except as provided in (v) of this Section, where the number of
shares available under the Award is variable on the date it is
granted, the number of shares shall be deemed to be the maximum
number of shares that could be received under that particular Award;
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(iv) where one or more types of Awards (both of which are payable in
shares of Stock or another security) are granted in tandem with each
other, such that the exercise of one type of Award with respect to a
number of shares cancels an equal number of shares of the other,
each joint Award shall be deemed to be the equivalent of the number
of shares under the other; and
(v) each share awarded or deemed to be awarded under the preceding
subsections shall be treated as shares of Stock, even if the Award
is for a security other than Stock.
Additional rules for determining the number of shares of Stock granted under the
Plan may be made by the Committee, as it deems necessary or appropriate.
(d) The Stock which may be issued pursuant to an Award under the Plan may be
treasury or authorized but unissued Stock or Stock may be acquired,
subsequently or in anticipation of the transaction, in the open market to
satisfy the requirements of the Plan.
SECTION 7. ADMINISTRATION
(a) A majority of the members of the Committee shall constitute a quorum. The
vote of a majority of a quorum shall constitute action by the Committee.
(b) The Committee shall periodically determine the Participants in the Plan
and the nature, amount, pricing, timing, and other terms of Awards to be
made to such individuals.
(c) The Committee shall have the power to interpret and administer the Plan.
All questions of interpretation with respect to the Plan, the number of
shares of Stock or other security, Stock Appreciation Rights, or units
granted, and the terms of any Award Agreements shall be
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determined by the Committee and its determination shall be final and
conclusive upon all parties in interest. In the event of any conflict
between an Award Agreement and the Plan, the terms of the Plan shall
govern.
(d) It is the intent of the Company that the Plan and Awards hereunder satisfy
and be interpreted in a manner, that, in the case of Participants who are
or may be Insiders, satisfies the applicable requirements of Rule 16b-3,
so that such persons will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 and will not be subjected to
avoidable liability thereunder. If any provision of the Plan or of any
Award would otherwise frustrate or conflict with the intent expressed in
this Section 7(d), that provision, to the extent possible, shall be
interpreted and deemed amended so as to avoid such conflict. To the extent
of any remaining irreconcilable conflict with such intent, the provision
shall be deemed void as applicable to Insiders.
(e) The Committee may delegate to the officers or employees of the Company the
authority to execute and deliver such instruments and documents, to do all
such acts and things, and to take all such other steps deemed necessary,
advisable or convenient for the effective administration of the Plan in
accordance with its terms and purpose, except that the Committee may not
delegate any discretionary authority with respect to substantive decisions
or functions regarding the Plan or Awards thereunder as these relate to
any Qualified Performance-Based Awards nor to Insiders including, but not
limited to, decisions regarding the timing, eligibility, pricing, amount
or other material term of such Awards.
SECTION 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Subject to any required action by the Company's stockholders, in the event of a
reorganization, recapitalization, Stock split, Stock dividend, exchange of
Stock, combination of Stock, merger, consolidation or any other change in
corporate structure of the Company affecting the Stock, or in
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the event of a sale by the Company of all or a significant part of its assets,
or any distribution to its stockholders other than a normal cash dividend, the
Committee may make appropriate adjustment in the number, kind, price and value
of Stock authorized by this Plan, in the limitations imposed by Sections 4.1(e)
and 4.6, and any adjustments to outstanding Awards as it determines appropriate
so as to prevent dilution or enlargement of rights; provided, that such
adjustments to the limitations imposed by Sections 4.1(e) and 4.6, and to
Qualified Performance-Based Awards shall be carried out in a manner complying
with the requirements for the Section 162(m) Exemption.
SECTION 9. CHANGE OF CONTROL
(a) In the event of a Change of Control, unless explicitly provided otherwise
in the applicable Award Agreement:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of
the Date of Change of Control that are not then fully exercisable
and vested, shall become fully exercisable and vested to the full
extent of the original grant and shall remain exercisable following
any Involuntary Termination for a period not less than the lesser of
one year and the remainder of the original term of such Stock Option
or Stock Appreciation Right;
(ii) All restrictions and other limitations applicable to any Restricted
Stock shall lapse, and such Restricted Stock shall become free of
all restrictions and become fully vested and transferable to the
full extent of the original grant;
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(iii) All Performance Awards and other Awards outstanding as of the Date
of Change of Control shall be considered to be earned, at the higher
of the target level or the level earned based upon performance from
the beginning of the applicable performance period through the Date
of Change of Control, and shall be paid in full, and any deferral or
other restriction shall lapse and except as provided in subsection
(c) of this Section 9, such Performance Awards shall be settled in
cash as promptly as is practicable; and (iv) All noncompetition
covenants and other similar restrictive covenants applicable to any
outstanding Awards shall lapse and become null and void and of no
further effect.
(b) A "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14 (d)(2) of the Exchange Act (a
"Person")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 15 percent or more of either
(a) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (b) the combined power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company or (D) any
acquisition pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) of this Section 9(b); or
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(ii) Individuals who, as of August 26, 2002, constituted the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to August 26, 2002, whose election,
or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Corporate
Transaction"), in each case, unless, following such Corporate
Transaction, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, more than 60 percent of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction of the
Outstanding Company Common Stock and Outstanding Company
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Voting Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) beneficially
own, directly or indirectly, 15 percent or more of, respectively,
the then outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting
power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the
Corporate Transaction and (C) at least a majority of the members of
the board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of
the Board, providing for such Corporate Transaction; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Notwithstanding the foregoing, if any right to receive cash granted
pursuant to this Section 9 would make a Change of Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 that but
for the nature of such right would be eligible for such accounting
treatment, the Committee shall have the ability to substitute for the cash
payable pursuant to such right Stock or other securities with a Fair
Market Value equal to the cash that would otherwise be payable hereunder
and to make such other adjustments as may be necessary to preserve such
eligibility (so long as such other adjustments do not materially diminish
the value of the affected Awards).
SECTION 10. RIGHTS OF EMPLOYEES
(a) Status as an eligible Employee shall not be construed as a commitment that
any Award will be made under the Plan to such eligible Employee or to
eligible Employees generally.
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(b) Nothing contained in the Plan (or in any other documents related to this
Plan or to any Award) shall confer upon any Employee or Participant any
right to continue in the employ or other service of the Company or
constitute any contract or limit in any way the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person with or without cause.
SECTION 11. AWARDS IN FOREIGN COUNTRIES
The Committee shall have the authority to adopt such modifications, procedures
and subplans as may be necessary or desirable to comply with provisions of the
laws of foreign countries in which the Company or its Participating Subsidiaries
may operate to assure the viability of the benefits of Awards made to
Participants employed in such countries and to meet the purpose of this Plan.
SECTION 12. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
No Stock certificate distributable pursuant to this Plan shall be issued and
delivered unless the issuance of such certificate complies with all applicable
legal requirements including, without limitation, compliance with the provisions
of applicable state securities laws, the Securities Act of 1933, as amended from
time to time, or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Stock may, at the time, be listed.
SECTION 13. AMENDMENT AND TERMINATION
(a) The Board of Directors may at any time amend, suspend or terminate the
Plan. The Committee may at any time alter or amend any or all Award
Agreements under the Plan, but no such alteration or amendment may
adversely affect the rights of the Participant in question without such
Participant's consent. However, no such action may, without further
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approval of the stockholders of the Company, be effective if such approval
is required in order that transactions in Company securities under the
Plan be exempt from the operation of Section 16(b) of the Securities
Exchange Act of 1934, nor may any such action amend the Plan so as to
(i) increase the number of shares of Stock which may be issued under the
Plan, except as provided for in Section 8; or
(ii) materially modify the requirements as to eligibility for
participation.
(b) In addition, except for adjustments pursuant to Section 8 hereof, in no
event may any Stock Option or Stock Appreciation Right granted under this
Plan be amended to decrease the exercise price thereof, cancelled in
conjunction with the grant of any new Stock Option or Stock Appreciation
Right with a lower price, or otherwise be subject to any action that would
be treated, for accounting purposes, as a repricing of such Stock Option
or Stock Appreciation Right.
SECTION 14. UNFUNDED PLAN
The Plan shall be unfunded. Neither the Company nor the Board of Directors shall
be required to segregate any assets that may at any time be represented by
Awards made pursuant to the Plan. Neither the Company, the Committee, nor the
Board of Directors shall be deemed to be a trustee of any amounts to be paid
under the Plan.
SECTION 15. LIMITS OF LIABILITY
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(a) Any liability of the Company to any Participant with respect to an Award
shall be based solely upon contractual obligations created by the Plan and
the Award Agreement.
(b) Neither the Company nor any member of the Board of Directors or of the
Committee, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability to any party for any
action taken or not taken, in good faith under the Plan.
SECTION 16. DURATION OF THE PLAN
This Plan shall become effective on January 1, 2002, upon the adoption by the
Company's stockholders at the 2001 Annual Meeting, and the Committee shall have
authority to grant Awards hereunder until December 31, 2006, subject to the
ability of the Board of Directors to terminate the Plan as provided in Section
13.
SECTION 17. TERMINATION OF OTHER PLANS
The Omnibus Securities Plan of 1993 ("1993 Plan") shall continue for its
duration or until December 31, 2002, and grants may be made from the 1993 Plan
until it expires by its terms or until shares of Stock are no longer awardable
under the 1993 Plan. Grants other than Incentive Stock Options, Non-qualified
Stock Options, and Stock Appreciation Rights that are made under the 1993 Plan,
following the approval by stockholders of the 2002 Omnibus Securities Plan,
shall not exceed 700,000 shares. All Stock Options granted under the 1993 Plan,
following the approval by stockholders of the 2002 Omnibus Securities Plan,
shall be granted at not less than the Fair Market Value of the Stock on the date
of the grant, and the term of such options shall not exceed ten (10) years.
-24-
Exhibit 10.27
1998 STOCK AND PERFORMANCE INCENTIVE PLAN
OF CONOCOPHILLIPS
(AS AMENDED AND RESTATED EFFECTIVE AUGUST 30, 2002)
RECITALS
Conoco Inc. ("Conoco") established the 1998 Stock and Performance
Incentive Plan of Conoco Inc. (the "Plan") effective October 16, 1998. Paragraph
5 specifies the number of shares of Common Stock with respect to which awards
may be granted under the Plan. Paragraph 14 reserves to the Board the right to
amend the Plan. Paragraph 16 provides that in the event of certain transactions,
including a reorganization, the Board is authorized to (a) issue or assume
Awards by means of substitution of new Awards, as appropriate, for previously
issued Awards or an assumption of previously issued Awards as part of such
adjustment or (b) to cancel Awards that are Options or SARs and give the
Participants who are the holders of such Awards notice and opportunity to
exercise for 30 days prior to such cancellation.
Effective October 8, 2001, Conoco reclassified its Class A Common
Stock and Class B Common Stock into a single class of new common stock ("Common
Stock") by merging Conoco Delaware I, Inc., a wholly owned subsidiary of Conoco
("Merger Sub"), with and into Conoco (the "Merger"), pursuant to an Agreement
and Plan of Merger, dated as of July 17, 2001, between Conoco and Merger Sub. In
connection with the Merger and pursuant to their authority under Paragraph 14,
the Board authorized the amendment and restatement of the Plan to provide for
the issuance of Awards with respect to the new class of Common Stock, effective
October 8, 2001 (the effective time of the Merger). In addition, in connection
with the Merger and effective October 8, 2001, pursuant to its authority under
Paragraph 16, the Board substituted a new Award for each previously issued
outstanding Award. The new Award applied to a number of shares of Common Stock
equal to the total number of shares of Conoco Class A Common Stock and Class B
Common Stock for which the previously issued outstanding Award had not been
exercised, and provides for the same exercise price and the same other terms and
conditions as those applicable under the previously issued outstanding Award.
On September 21, 2001, the stockholders of Conoco approved a Plan
amendment to increase the number shares of Common Stock available for Awards
under the Plan, which increase was included in October 8, 2001 amendment and
restatement of the Plan.
On October 30, 2001, the Board of Directors of Conoco approved
certain Stock Award and Plan amendment limitations to the Plan.
Effective November 18, 2001, Conoco entered into the Agreement and
Plan of Merger by and among Phillips Petroleum Company, Corvette Porsche Corp.,
Porsche Merger Corp., Corvette Merger Corp. and Conoco (the "Phillips Merger
Agreement"), which provides for a series of transactions including the formation
of ConocoPhillips, a Delaware corporation, and the merger of Conoco into and
with a subsidiary of ConocoPhillips (collectively, the "Phillips Merger"). In
connection with and effective upon the closing of the Phillips Merger, the Board
of Directors of Conoco approved the amendment and restatement of the Plan to
reflect the
transfer of sponsorship to ConocoPhillips, the renaming of the Plan as the "1998
Stock and Performance Incentive Plan of ConocoPhillips," and to make certain
changes related thereto.
Now, therefore, Conoco hereby amends and restates the Plan,
effective as of the Closing of the Phillips Merger, to read as follows:
1. Plan. The Plan was adopted by the Company to reward certain corporate
officers and key employees of the Company, certain independent contractors and
nonemployee directors of the Company by providing for certain cash benefits and
by enabling them to acquire shares of Common Stock of the Company.
2. Objectives. The purpose of this Amended and Restated 1998 Stock and
Performance Incentive Plan of ConocoPhillips is to further the interests of the
Company, its Subsidiaries and its shareholders by providing incentives in the
form of Awards to key employees, independent contractors and directors who can
contribute materially to the success and profitability of the Company and its
Subsidiaries and to provide for issuance of Awards in connection with the
"Option Program" under which certain existing DuPont awards were canceled at the
election of the holders. Such Awards will recognize and reward outstanding
performances and individual contributions and give Participants in the Plan an
interest in the Company parallel to that of the shareholders, thus enhancing the
proprietary and personal interest of such Participants in the Company's
continued success and progress. This Plan will also enable the Company and its
Subsidiaries to attract and retain such employees, independent contractors and
directors.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Annual Director Award Date" means, for each year beginning on or
after the IPO Closing Date, the first business day of the month next succeeding
the date upon which the annual meeting of stockholders of the Company is held in
such year.
"Authorized Officer" means the the Chief Executive Officer of the
Company (or any other senior officer of the Company to whom either of them shall
delegate the authority to execute any Award Agreement, where applicable).
"Award" means an Employee Award, a Director Award or an Independent
Contractor Award.
"Award Agreement" means any Employee Award Agreement, Director Award
Agreement or Independent Contractor Award Agreement.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Chairman" means the Chairman of the Board as of the IPO Pricing
Date.
"Change of Control" is defined in Attachment A.
2
"Class A Common Stock" means the Class A Common Stock, par value
$.01 per share, of Conoco Inc.
"Class B Common Stock" means the Class B Common Stock, par value
$.01 per share, of Conoco Inc.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan.
"Common Stock" means, from and after the effective time of the
Phillips Merger (as defined in the Recitals), ConocoPhillips common stock, par
value $.01 per share. Prior to the effective time of the Phillips Merger and
after the Merger (as defined in the Recitals), "Common Stock" means Conoco
common stock, par value $.01 per share. Prior to the effective time of the
Merger, "Common Stock" means Class A Common Stock or Class B Common Stock, as
appropriate.
"Company" means ConocoPhillips, a Delaware corporation. Prior to the
effective time of the Phillips Merger, "Company" means Conoco.
"Conoco" means Conoco Inc., a Delaware corporation.
"Director Amendment Date" means October 1, 2000, the date as of
which the Plan was amended to reflect a change in the compensation structure for
Nonemployee Directors.
"Director Award" means a Director Option or Stock Unit.
"Director Award Agreement" means a written agreement setting forth
the terms, conditions and limitations applicable to a Director Award.
"Director Option" means a Nonqualified Stock Option granted to a
Nonemployee Director pursuant to paragraph 9 hereof,
"Directors Deferred Compensation Plan" means the ConocoPhillips
Deferred Compensation Plan for Nonemployee Directors established under the Plan.
"Disability" means, with respect to a Nonemployee Director, the
inability to perform the duties of a member of the Board for a continuous period
of more than three months by reason of any medically determinable physical or
mental impairment.
"Dividend Equivalents" means, with respect to shares of Restricted
Stock that are to be issued at the end of the Restriction Period, an amount
equal to all dividends and other distributions (or the economic equivalent
thereof) that are payable to stockholders of record during the Restriction
Period on a like number of shares of Common Stock.
"DuPont" means E.I. du Pont de Nemours and Company, a Delaware
corporation.
3
"DuPont Award" means an option, stock appreciation right or other
form of stock award granted by DuPont pursuant to the DuPont Stock Performance
Plan, the DuPont Variable Compensation Plan, the DuPont Corporate Sharing Plan
or the Conoco Unit Option Plan.
"Employee" means an employee of the Company or any of its
Subsidiaries and an individual who has agreed to become an employee of the
Company or any of its Subsidiaries and is expected to become such an employee
within the following six months.
"Employee Award" means any Option, SAR, Stock Award, Cash Award or
Performance Award granted, whether singly, in combination or in tandem, to a
Participant who is an Employee pursuant to such applicable terms, conditions and
limitations (including treatment as a Performance Award) as the Committee may
establish in order to fulfill the objectives of the Plan.
"Employee Award Agreement" means a written agreement setting forth
the terms, conditions and limitations applicable to an Employee Award.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if Common Stock is listed on a national securities
exchange, the mean between the highest and lowest sales price per share of such
Common Stock on the consolidated transaction reporting system for the principal
national securities exchange on which shares of Common Stock are listed on that
date, or, if there shall have been no such sale so reported on that date, on the
next succeeding date on which such a sale was so reported, or, at the discretion
of the Committee, the price prevailing on the exchange at the time of exercise,
(ii) if Common Stock is not so listed but is quoted on the Nasdaq National
Market, the mean between the highest and lowest sales price per share of Common
Stock reported by the Nasdaq National Market on that date, or, if there shall
have been no such sale so reported on that date, on the next succeeding date on
which such a sale was so reported or, at the discretion of the Committee, the
price prevailing on the Nasdaq National Market at the time of exercise, (iii) if
Common Stock is not so listed or quoted, the mean between the closing bid and
asked price on that date, or, if there are no quotations available for such
date, on the next succeeding date on which such quotations shall be available,
as reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock
Market, by the National Quotation Bureau Incorporated or (iv) if Common Stock is
not publicly traded, the most recent value determined by an independent
appraiser appointed by the Company for such purpose.
"Grant Date" means the date an Award is granted to a Participant
pursuant to the Plan. The Grant Date for a substituted award is the Grant Date
of the original award.
"Grant Price" means the price at which a Participant may exercise
his or her right to receive cash or Common Stock, as applicable, under the terms
of an Award.
"Incentive Stock Option" means an Option that is intended to comply
with the requirements set forth in Section 422 of the Code.
"Independent Contractor" means a person providing services to the
Company or any of its Subsidiaries, or who will provide such services, except an
Employee or Nonemployee Director.
4
"Independent Contractor Award" means any Nonqualified Stock Option,
SAR, Stock Award, Cash Award or Performance Award granted, whether singly, in
combination or in tandem, to a Participant who is an Independent Contractor
pursuant to such applicable terms, conditions and limitations as the Committee
may establish in order to fulfill the objectives of the Plan.
"Independent Contractor Award Agreement" means a written agreement
setting forth the terms, conditions and limitations applicable to an Independent
Contractor Award.
"IPO" means the first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering by Conoco
of shares of Common Stock is declared effective under that Act and the shares
registered by that registration statement are issued and sold by Conoco
(otherwise than pursuant to the exercise of any over-allotment option).
"IPO Closing Date" means the date on which Conoco first receives
payment for the shares of Common Stock it sells in the IPO.
"IPO Pricing Date" means the date of the execution and delivery of
an underwriting or other purchase agreement among Conoco and the underwriters
relating to the IPO setting forth the price at which shares of Common Stock will
be issued and sold by Conoco to the underwriters and the terms and conditions
thereof.
"Nonemployee Director" means an individual serving as a member of
the Board who is not an Employee of the Company or any of its Subsidiaries.
"Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified Grant Price, which may be an Incentive Stock Option
or a Nonqualified Stock Option.
"Option Program" means a program involving the cancellation of
certain existing DuPont Awards.
"Option Program Award" means an Option, SAR or Stock Award granted
in connection with the Option Program.
"Option Value" means the value of a Director Option as determined on
the basis of a generally accepted valuation methodology as determined by the
Board.
"Participant" means an Employee, Director or Independent Contractor
to whom an Award has been granted under this Plan.
"Performance Award" means an award made pursuant to this Plan to a
Participant who is an Employee or Independent Contractor that is subject to the
attainment of one or more Performance Goals.
5
"Performance Goal" means a standard established by the Committee, to
determine in whole or in part whether a Performance Award shall be earned.
"Restricted Stock" means Common Stock that is restricted or subject
to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the
Grant Date of an Award of Restricted Stock and ending as of the date upon which
the Common Stock subject to such Award is no longer restricted or subject to
forfeiture provisions.
"Stock Appreciation Right" or "SAR" means a right to receive a
payment, in cash or Common Stock, equal to the excess of the Fair Market Value
or other specified valuation of a specified number of shares of Common Stock on
the date the right is exercised over a specified Grant Price, in each case, as
determined by the Committee.
"Stock Award" means an Award in the form of shares of Common Stock
or units denominated in shares of Common Stock, including an award of Restricted
Stock.
"Stock Unit" means a unit equal to one share of Common Stock (as
determined by the Committee) (as adjusted pursuant to Paragraph III.6 of the
Directors Deferred Compensation Plan) granted to a Nonemployee Director.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing 50% or more
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which the Company directly or indirectly owns 50% or
more of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).
4. Eligibility.
(a) Employees. Employees eligible for the grant of Employee Awards
under this Plan are those who hold positions of responsibility and whose
performance, in the judgment of the Committee, can have a significant
effect on the success of the Company and its Subsidiaries.
(b) Directors. Members of the Board eligible for the grant of
Director Awards under this Plan are those who are Nonemployee Directors.
(c) Independent Contractors. All Independent Contractors are
eligible for the grant of Independent Contractor Awards under this Plan.
5. Common Stock Available for Awards.
(a) Subject to the provisions of paragraph 16 hereof, no Award shall
be granted if it shall result in the aggregate number of shares of Common
Stock issued under
6
the Plan plus the number of shares of Common Stock covered by or subject
to Awards then outstanding (after giving effect to the grant of the Award
in question) to exceed 14,684,765. No more than 4,677,000 shares of Common
Stock shall be available for Incentive Stock Options. The number of shares
of Common Stock that are the subject of Awards under this Plan that are
forfeited or terminated, expire unexercised, are settled in cash in lieu
of Common Stock or in a manner such that all or some of the shares covered
by an Award are not issued to a Participant or are exchanged for Awards
that do not involve Common Stock, shall again immediately become available
for Awards hereunder. The Committee may from time to time adopt and
observe such procedures concerning the counting of shares against the Plan
maximum as it may deem appropriate. The Board and the appropriate officers
of the Company shall from time to time take whatever actions are necessary
to file any required documents with governmental authorities, stock
exchanges and transaction reporting systems to ensure that shares of
Common Stock are available for issuance pursuant to Awards.
(b) Option Program Awards and awards assumed under the Plan or
issued as substitute Awards, each pursuant to paragraph 16(b) of the Plan,
(i) are not subject to the limitations in paragraph 8(b) and (ii) do not
count against the limitations on Common Stock available for Awards set
forth in paragraph 5(a).
6. Administration.
(a) This Plan shall be administered by the Committee except as
otherwise provided herein.
(b) Subject to the provisions hereof, the Committee shall have full
and exclusive power and authority to administer this Plan and to take all
actions that are specifically contemplated hereby or are necessary or
appropriate in connection with the administration hereof. The Committee
shall also have full and exclusive power to interpret this Plan and to
adopt such rules, regulations and guidelines for carrying out this Plan as
it may deem necessary or proper, all of which powers shall be exercised in
the best interests of the Company and in keeping with the objectives of
this Plan. The Committee may, in its discretion, provide for the extension
of the exercisability of an Employee Award or Independent Contractor
Award, accelerate the vesting or exercisability of an Employee Award or
Independent Contractor Award, eliminate or make less restrictive any
restrictions applicable to an Employee Award or Independent Contractor
Award, waive any restriction or other provision of this Plan (insofar as
such provision relates to Employee Awards or to Independent Contractor
Awards) or an Employee Award or Independent Contractor Award or otherwise
amend or modify an Employee Award or Independent Contractor Award in any
manner that is either (i) not adverse to the Participant to whom such
Employee Award or Independent Contractor Award was granted or (ii)
consented to by such Participant. The Committee may grant an Award to an
Employee who it expects to become an employee of the Company or any of its
Subsidiaries within the following six months, with such Award being
subject to the individual's actually becoming an employee within such time
period, and subject to such other terms and conditions as may be
established by the Committee. The Committee may correct any defect or
supply any omission or reconcile any inconsistency in this Plan or in
7
any Award in the manner and to the extent the Committee deems necessary or
desirable to further the Plan purposes. Any decision of the Committee in
the interpretation and administration of this Plan shall lie within its
sole and absolute discretion and shall be final, conclusive and binding on
all parties concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to
be done by him or her, by any member of the Committee or by any officer of
the Company in connection with the performance of any duties under this
Plan, except for his or her own willful misconduct or as expressly
provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish. The Committee may engage or authorize the engagement of a third party
administrator to carry out administrative functions under the Plan.
8. Employee and Independent Contractor Awards.
(a) The Committee shall determine the type or types of Employee
Awards to be made under this Plan and shall designate from time to time
the Employees who are to be the recipients of such Awards. Each Employee
Award shall be embodied in an Employee Award Agreement, which shall
contain such terms, conditions and limitations as shall be determined by
the Committee in its sole discretion and, if required by the Committee,
shall be signed by the Participant to whom the Employee Award is granted
and by an Authorized Officer for and on behalf of the Company. Employee
Awards may consist of those listed in this paragraph 8(a) and may be
granted singly, in combination or in tandem. Employee Awards may also be
granted in combination or in tandem with, in replacement of, or as
alternatives to, grants or rights under this Plan or any other employee
plan of the Company or any of its Subsidiaries, including the plan of any
acquired entity. An Employee Award may provide for the grant or issuance
of additional, replacement or alternative Employee Awards upon the
occurrence of specified events, including the exercise of the original
Employee Award granted to a Participant. All or part of an Employee Award
may be subject to conditions established by the Committee, which may
include, but are not limited to, continuous service with the Company and
its Subsidiaries, achievement of specific business objectives, increases
in specified indices, attainment of specified growth rates and other
comparable measurements of performance. Upon the termination of employment
by a Participant who is an Employee, any unexercised, deferred, unvested
or unpaid Employee Awards shall be treated as set forth in the applicable
Employee Award Agreement.
(i) Option. An Employee Award may be in the form of an Option,
which may be an Incentive Stock Option or a Nonqualified Stock
Option. The Grant Price of an Option shall be not less than the Fair
Market Value of the Common Stock subject to such Option on the Grant
Date. Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Options
8
awarded to Employees pursuant to this Plan, including the Grant
Price, the term of the Options and the date or dates upon which they
become exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Rights. An Employee Award may be in
the form of an SAR. The terms, conditions and limitations applicable
to any SARs awarded to Employees pursuant to this Plan, including
the Grant Price, the term of any SARs and the date or dates upon
which they become exercisable, shall be determined by the Committee.
(iii) Stock Award. An Employee Award may be in the form of a
Stock Award. The terms, conditions and limitations applicable to any
Stock Awards granted pursuant to this Plan shall be determined by
the Committee.
(iv) Cash Award. An Employee Award may be in the form of a
Cash Award. The terms, conditions and limitations applicable to any
Cash Awards granted pursuant to this Plan shall be determined by the
Committee.
(v) Performance Award. Without limiting the type or number of
Employee Awards that may be made under the other provisions of this
Plan, an Employee Award may be in the form of a Performance Award. A
Performance Award shall be paid, vested or otherwise deliverable
solely on account of the attainment of one or more pre-established,
objective Performance Goals established by the Committee prior to
the earlier to occur of (x) 90 days after the commencement of the
period of service to which the Performance Goal relates and (y) the
lapse of 25% of the period of service (as scheduled in good faith at
the time the goal is established), and in any event while the
outcome is substantially uncertain. A Performance Goal is objective
if a third party having knowledge of the relevant facts could
determine whether the goal is met. Such a Performance Goal may be
based on one or more business criteria that apply to the Employee,
one or more business units of the Company, or the Company as a
whole, and may include one or more of the following: increased
revenue, net income, stock price, market share, earnings per share,
return on equity, return on assets, decrease in costs, shareholder
value, net cash flow, total shareholder return, return on capital,
return on investors' capital, operating income, funds from
operations, cash flow, cash from operations, after-tax operating
income, reserve addition, proceeds from dispositions, production
volumes, refinery runs, net cash flow before financing activities,
reserve replacement ratio, finding and development costs, refinery
utilizations and total market value. Unless otherwise stated, such a
Performance Goal need not be based upon an increase or positive
result under a particular business criterion and could include, for
example, maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business
criteria). In interpreting Plan provisions applicable to Performance
Goals and Performance Awards, it is the intent of the Plan to
conform with the standards of Section 162(m) of the Code and
Treasury Regulationss.1.162-27(e)(2)(i), and the Committee in
establishing such goals and interpreting the Plan shall be guided by
such provisions. Prior to the payment of any compensation based on
the
9
achievement of Performance Goals, the Committee must certify in
writing that applicable Performance Goals and any of the material
terms thereof were, in fact, satisfied. Subject to the foregoing
provisions, the terms, conditions and limitations applicable to any
Performance Awards made pursuant to this Plan shall be determined by
the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan
excluding paragraph 5(b), the following limitations shall apply to any
Employee Awards made hereunder:
(i) no Participant may be granted, during any calendar year,
Employee Awards consisting of Options or SARs that are exercisable
for more than 2,338,500 shares of Common Stock;
(ii) no Participant may be granted, during any calendar year,
Stock Awards covering or relating to more than 116,925 shares of
Common Stock (the limitation set forth in this clause (ii), together
with the limitation set forth in clause (i) above, being hereinafter
collectively referred to as the "Stock Based Awards Limitations");
and
(iii) no Participant may be granted Employee Awards consisting
of cash or in any other form permitted under this Plan (other than
Employee Awards consisting of options or SARs or Stock Awards) in
respect of any calendar year having a value determined on the Grant
Date in excess of $10,000,000.
(c) Subject to Section 8(e), the Committee shall have the sole
responsibility and authority to determine the type or types of Independent
Contractor Awards to be made under this Plan and the terms, conditions and
limitations applicable to such Awards.
(d) An Option Program Award is generally subject to the same terms
and conditions as the canceled DuPont Award.
(e) Stock Awards, other than those awards which are subject to
specific grant limitations under the Plan, shall be in lieu of, and have a
Fair Market Value on the Grant Date equal to, other compensation that the
Company would otherwise have awarded to the Participant.
9. Director Awards. Each Nonemployee Director of the Company shall be
granted Director Awards in accordance with this paragraph 9 and subject to the
applicable terms, conditions and limitations set forth in this Plan and the
applicable Director Award Agreements. Notwithstanding anything to the contrary
contained herein, Director Awards shall not be granted in any year in which a
sufficient number of shares of Common Stock are not available to make all such
scheduled Awards under this Plan.
(a) Initial Director Options. On the IPO Pricing Date, each
Nonemployee Director, other than the Chairman, and each person who had
agreed to become a Nonemployee Director in connection with the IPO was
automatically granted a Director
10
Option on that number of shares of Class A Common Stock such that the
aggregate Option Value was $30,000, and the Chairman was automatically
awarded a Director Option on that number of shares of Class A Common Stock
such that the aggregate Option Value was $1,300,000, but in the case of a
person who was not a Nonemployee Director on such date, subject to that
person becoming a Nonemployee Director no later than the first regularly
scheduled meeting of the Board following the IPO Pricing Date.
(b) Annual Director Options. On each Annual Director Award Date
before the Director Amendment Date, each Nonemployee Director other than
the Chairman shall automatically be granted a Director Option with an
Option Value equal to $30,000.
(c) Terms of Director Option. Each Director Option shall have a term
of ten years following the Grant Date. The Grant Price of each share of
Common Stock subject to a Director Option shall be equal to the Fair
Market Value of the Common Stock subject to such Option on the Grant Date.
All Director Options shall be fully vested after 6 months of service as a
Nonemployee Director. All Director Options shall become exercisable in
increments of one-third of the total number of shares of Common Stock that
are subject thereto (rounded up to the nearest whole number) on the first
and second anniversaries of the Grant Date and of all remaining shares of
Common Stock that are subject thereto on the third anniversary of the
Grant Date. Notwithstanding the foregoing exercise schedule, all Director
Options held by a Nonemployee Director shall immediately become fully
exercisable if the Nonemployee Director terminates his or her status as a
member of the Board by reason of the director's death or Disability.
(d) Director Option Agreements. Any Award of Director Options shall
be embodied in a Director Award Agreement, which shall contain the terms,
conditions and limitations set forth above and shall be signed by an
Authorized Officer for and on behalf of the Company.
(e) IPO Related Stock Units. On the IPO Pricing Date, each
Nonemployee Director, other than the Chairman, and each person who had
agreed to become a Nonemployee Director in connection with the IPO was
automatically granted that number of Stock Units under the Director's
Deferred Compensation Plan determined by dividing $95,000 by the Fair
Market Value of Class A Common Stock on the IPO Pricing Date, and the
Chairman was automatically granted that number of Stock Units under the
Director's Deferred Compensation Plan determined by dividing $100,000 by
the Fair Market Value of Class A Common Stock on the IPO Pricing Date;
provided, however, that in the case of a person who was not a Nonemployee
Director on such date, the grant under this subparagraph (e) was subject
to that person becoming a Nonemployee Director no later than the first
regularly scheduled meeting of the Board following the IPO Pricing Date.
Initial Stock Units related to Class A Common Stock. Stock Units granted
under this paragraph 9(e) cannot be distributed or made available to the
Nonemployee Director before the expiration of three years from the Grant
Date, except by reason of death or Disability of the director.
(f) Other Stock Unit Grants before Director Amendment Date. On the
date of his or her first appointment or election to the Board, provided
such appointment or
11
election occurs on or after the IPO Closing Date and before the Director
Amendment Date, a Nonemployee Director shall automatically be granted that
number of Stock Units determined by dividing $95,000 by the Fair Market
Value of the applicable Common Stock on the date of election to the Board.
In addition, on each Annual Director Award Date before the Director
Amendment Date, each Nonemployee Director other than the Chairman shall
automatically be granted an additional number of Stock Units determined by
dividing $20,000 by the Fair Market Value of the applicable Common Stock
on such date. Stock Units granted under this paragraph 9(f) cannot be
distributed or made available to the Nonemployee Director before the
expiration of three years from the Grant Date, except by reason of death
or Disability of the director.
(g) Initial Stock Unit Grants On or After Director Amendment Date.
On the date of his or her first appointment or election to the Board, if
such appointment or election occurs on or after the Director Amendment
Date, a Nonemployee Director shall automatically be granted that number of
Stock Units determined by dividing $100,000 by the Fair Market Value of
the applicable Common Stock on the date of election to the Board. Stock
Units granted under this paragraph 9(g): (i) shall become vested with
respect to one-fifth of the total number of Stock Units subject to the
initial grant hereunder (rounded up to the nearest whole number) on the
first through fourth anniversaries of the Grant Date and with respect to
all remaining Stock Units subject to the initial grant hereunder on the
fifth anniversary of the Grant Date, subject to the requirement that the
director remain in the continuous service of the Company as a director
through the anniversary on which the additional vesting is scheduled to
occur, provided that all such Stock Units shall immediately vest if the
director terminates his or her status as a member of the Board by reason
of the death or Disability of the director, and (ii) cannot be distributed
or made available to the Nonemployee Director before the expiration of
five years from the Grant Date, except by reason of death or Disability of
the director. Notwithstanding the foregoing, no grants shall be made under
this subparagraph (g) solely as a result of a former Phillips Petroleum
Company director becoming a Nonemployee Director in connection with the
Phillips Merger.
(h) Other Stock Unit Grants On or After Director Amendment Date. On
each Annual Director Award Date occurring on or after the Director
Amendment Date, each Nonemployee Director shall automatically be granted a
number of Stock Units determined by dividing $50,000 by the Fair Market
Value of the applicable Common Stock on such date. Stock Units granted
under this paragraph 9(h): (i) are fully vested upon the Grant Date, and
(ii) cannot be distributed or made available to the Nonemployee Director
before the expiration of three years from the Grant Date, except by reason
of death or Disability of the director.
(i) Terms of Stock Units. Stock Units granted under the foregoing
provisions of this paragraph 9 shall be accounted for and subject to the
terms and conditions of the Directors Deferred Compensation Plan,
including provisions that dividend equivalents shall be accumulated and
reinvested in additional Stock Units.
(j) Stock Unit Agreements. Any Award of Stock Units shall be
embodied in a Director Award Agreement, which shall contain the applicable
terms and conditions and
12
limitations set forth above, and applicable terms and conditions from the
Directors Deferred Compensation Plan.
10. Change of Control. Notwithstanding the provisions of paragraphs
8 and 9 hereof, unless otherwise expressly provided in the applicable
Award Agreement, in the event of a Change of Control during a
Participant's employment (or service as a Nonemployee Director or
Independent Contractor) with the Company or one of its Subsidiaries, (i)
each Award granted under this Plan to the Participant shall be become
immediately vested and fully exercisable (regardless of the otherwise
applicable vesting or exercise schedules or performance goals provided for
under the Award Agreement) and (ii) if the Award is an Option or SAR,
shall remain exercisable until the expiration of the term of the Award or,
if the Participant should die before the expiration of the term of the
Award, until the earlier of (a) the expiration of the term of the Award or
(b) two (2) years following the date of the Participant's death.
11. Payment of Awards.
(a) General. Payment made to a Participant pursuant to an Award may
be made in the form of cash or Common Stock, or a combination thereof, and
may include such restrictions as the Committee shall determine, including,
in the case of Common Stock, restrictions on transfer and forfeiture
provisions. If such payment is made in the form of Restricted Stock, the
applicable Award Agreement relating to such shares shall specify whether
they are to be issued at the beginning or end of the Restriction Period.
In the event that shares of Restricted Stock are to be issued at the
beginning of the Restriction Period, the certificates evidencing such
shares (to the extent that such shares are so evidenced) shall contain
appropriate legends and restrictions that describe the terms and
conditions of the restrictions applicable thereto. In the event that
shares of Restricted Stock are to be issued at the end of the Restricted
Period, the right to receive such shares shall be evidenced by book entry
registration or in such other manner as the Committee may determine.
Payment of Stock Units awarded to Nonemployee Directors shall be governed
by the Directors Deferred Compensation Plan.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards or
any other compensation otherwise payable by the Company in accordance with
procedures established by the Committee and may provide that such deferred
compensation may be payable in shares of Common Stock. Any deferred
payment pursuant to an Award, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may be forfeited if
and to the extent that the Award Agreement so provides.
(c) Dividends, Earnings and Interest. Rights to dividends or
Dividend Equivalents may be extended to and made part of any Stock Award,
subject to such terms, conditions and restrictions as the Committee may
establish. The Committee may also establish rules and procedures for the
crediting of interest or other earnings on deferred cash payments and
Dividend Equivalents for Stock Awards.
13
(d) Substitution of Awards. At the discretion of the Committee, a
Participant who is an Employee or Independent Contractor may be offered an
election to substitute an Employee Award or Independent Contractor Award
for another Employee Award or Independent Contractor Award or Employee
Awards or Independent Contractor Awards of the same or different type..
Subject to Paragraph 16, the Grant Price of any Option shall not be
decreased, including by means of issuance of a substitute Award with a
lower Grant Price.
(e) Cash-out of Awards. At the discretion of the Committee, an Award
that is an Option or SAR may be settled by a cash payment equal to the
difference between the Fair Market Value per share of Common Stock on the
date of exercise and the Grant Price of the Award, multiplied by the
number of shares with respect to which the Award is exercised.
12. Option Exercise. The Grant Price shall be paid in full at the time of
exercise in cash or, if permitted by the Committee and elected by the optionee,
the optionee may purchase such shares by means of tendering Common Stock or
surrendering another Award, including Restricted Stock, valued at Fair Market
Value on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants to tender Common Stock or other
Awards. The Committee may provide for procedures to permit the exercise or
purchase of such Awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an Award. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted Stock are tendered
as consideration for the exercise of an Option, a number of the shares issued
upon the exercise of the Option, equal to the number of shares of Restricted
Stock used as consideration therefor, shall be subject to the same restrictions
as the Restricted Stock so submitted as well as any additional restrictions that
may be imposed by the Committee. The Committee may adopt additional rules and
procedures regarding the exercise of Options from time to time, provided that
such rules and procedures are not inconsistent with the provisions of this
paragraph.
An optionee desiring to pay the Grant Price of an Option by
tendering Common Stock using the method of attestation may, subject to any such
conditions and in compliance with any such procedures as the Committee may
adopt, do so by attesting to the ownership of Common Stock of the requisite
value in which case the Company shall issue or otherwise deliver to the optionee
upon such exercise a number of shares of Common Stock subject to the Option
equal to the result obtained by dividing (a) the excess of the aggregate Fair
Market Value of the shares of Common Stock subject to the Option for which the
Option (or portion thereof) is being exercised over the Grant Price payable in
respect of such exercise by (b) the Fair Market Value per share of Common Stock
subject to the Option, and the optionee may retain the shares of Common Stock
the ownership of which is attested.
13. Taxes. The Company or its designated third party administrator shall
have the right to deduct applicable taxes from any Employee Award payment and
withhold, at the time of delivery or vesting of cash or shares of Common Stock
under this Plan, an appropriate amount of cash or number of shares of Common
Stock or a combination thereof for payment of taxes or other amounts required by
law or to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for withholding of such taxes. The Committee
may also
14
permit withholding to be satisfied by the transfer to the Company of shares of
Common Stock theretofore owned by the holder of the Employee Award with respect
to which withholding is required. If shares of Common Stock are used to satisfy
tax withholding, such shares shall be valued based on the Fair Market Value when
the tax withholding is required to be made. The Committee may provide for loans,
on either a short term or demand basis, from the Company to a Participant who is
an Employee or Independent Contractor to permit the payment of taxes required by
law.
14. Amendment, Modification, Suspension or Termination of the Plan. The
Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is
required by applicable legal requirements. In addition, if an amendment would
(i) materially increase the benefits accruing to Participants under this Plan,
(ii) materially increase the aggregate number of securities that may be issued
under this Plan, or (iii) materially modify the requirements as to eligibility
for participation in this Plan, then to the extent required by applicable law,
or deemed necessary by the Committee, such amendment shall be subject to
shareholder approval.
15. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will, beneficiary
designation or the laws of descent and distribution. In the event that a
beneficiary designation conflicts with an assignment by will, the beneficiary
designation will prevail. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 15
shall be null and void.
16. Adjustments.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock (whether or not such issue is prior
to, on a parity with or junior to the existing Common Stock) or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards, (iii) the Grant Price or other price in
respect of such Awards, (iv) the appropriate Fair Market Value and other
price determinations for such Awards, and (v) the Stock Based Awards
Limitations
15
shall each be proportionately adjusted by the Board as appropriate to
reflect such transaction. In the event of any other recapitalization or
capital reorganization of the Company, any consolidation or merger of the
Company with another corporation or entity, the adoption by the Company of
any plan of exchange affecting Common Stock or any distribution to holders
of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board shall make
appropriate adjustments to (i) the number of shares of Common Stock
covered by Awards, (ii) the Grant Price or other price in respect of such
Awards, (iii) the appropriate Fair Market Value and other price
determinations for such Awards, and (iv) the Stock Based Awards
Limitations to reflect such transaction; provided that such adjustments
shall only be such as are necessary to maintain the proportionate interest
of the holders of the Awards and preserve, without increasing, the value
of such Awards. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized (x) to assume under the Plan
previously issued compensatory awards, or to substitute new Awards for
previously issued compensatory awards, including Awards, as part of such
adjustment or (y) to cancel Awards that are Options or SARs and give the
Participants who are the holders of such Awards notice and opportunity to
exercise for 30 days prior to such cancellation.
17. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. Certificates evidencing shares of Common
Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
18. Unfunded Plan. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants under this Plan, any
such accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets for purposes of this Plan or
Awards hereunder, nor shall the Company, the Board or the Committee be deemed to
be a trustee of any benefit to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to an Award under this
Plan shall be based solely upon any contractual obligations that may be created
by this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
19. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Delaware.
16
20. Effectiveness. The Plan, as approved by the Board, was effective as of
October 16, 1998. This Plan was approved by the stockholders of the Company on
October 19, 1998. The amendments to the Plan to permit the grant of Awards
denominated in Class B Common Stock were effective on May 12, 1999 and were
conditioned upon the approval of the stockholders of the Company prior to
December 31, 1999, which approval was obtained on May 12, 1999. The amendment to
Paragraph 12 of the Plan providing for option exercise payment by the
attestation method was effective on October 28, 1999. The amendments to the Plan
reflecting a change in Nonemployee Director compensation were effective on
October 1, 2000. The Plan, as approved by the Board for amendment and
restatement in connection with the Merger (as defined in the Recitals on page 1
of this Plan) was effective October 8, 2001, and the increase of shares
available for Awards included in the October 8, 2001 amendment and restatement
was separately approved by the stockholders of the Company on September 21,
2001. The amendment and restatement of the Plan to add certain Stock Award and
Plan amendment limitations was approved by the Board of Directors on October 30,
2001. This amendment and restatement of the Plan to reflect the Phillips Merger,
was approved by the Board of Directors on August 16, 2002 and is effective as of
the effective time of the Phillips Merger.
17
ATTACHMENT "A"
"CHANGE IN CONTROL"
The following definitions apply to the Change of Control provision
in paragraph 10 of the foregoing Plan.
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on August 30, 2002.
"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
"Beneficial Owner" shall mean, with reference to any securities, any
Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on August 30, 2002) such securities or
otherwise has the right to vote or dispose of such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subsection (a) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding: (i)
arises solely from a revocable proxy or consent given in response to a
public (i.e., not including a solicitation exempted by Rule 14a-2(b)(2) of
the General Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and
(ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an
event) pursuant to any agreement, arrangement or understanding (whether or
not in writing) or upon the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
"beneficially own," (i) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange or (ii) securities issuable upon exercise of Exempt Rights; or
18
(c) such Person or any of such Person's Affiliates or Associates (i)
has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of a
group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial Owner."
"Board" shall have the meaning set forth in the foregoing Plan.
"Change of Control" shall mean any of the following occurring on or
after August 30, 2002:
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding or 20% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection (a) if
such Person shall become a Beneficial Owner of 20% or more of the shares
of Common Stock or 20% or more of the combined voting power of the Voting
Stock of the Company solely as a result of (i) an Exempt Transaction or
(ii) an acquisition by a Person pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation,
the conditions described in clauses (i), (ii) and (iii) of subsection (c)
of this definition are satisfied;
(b) individuals who, as of August 30, 2002, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to August 30, 2002 whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board;
provided, further, that there shall be excluded, for this purpose, any
such individual whose initial assumption of office occurs as a result of
any
19
actual or threatened election contest that is subject to the provisions of
Rule 14a-11 of the General Rules and Regulations under the Exchange Act;
(c) the shareholders of the Company shall approve a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 70% of the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of
the then outstanding Voting Stock of such corporation beneficially owned,
directly or indirectly, by all or substantially all of the Persons who
were the Beneficial Owners of the outstanding Common Stock immediately
prior to such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common Stock,
(ii) no Person (excluding any Exempt Person or any Person beneficially
owning, immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Common Stock then outstanding
or 20% or more of the combined voting power of the Voting Stock of the
Company then outstanding) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding Voting Stock of such
corporation and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) the shareholders of the Company shall approve (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the assets
of the Company to a corporation with respect to which, following such sale
or other disposition, all of the requirements of clauses (ii)(A), (B) and
(C) of this subsection (d) are satisfied, or (ii) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which, following such sale or
other disposition, (A) more than 70% of the then outstanding shares of
common stock of such corporation and the combined voting power of the
Voting Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 20% or more of the Common Stock
then outstanding or 20% or more of the combined voting power of the Voting
Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 20% or more of the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding
Voting Stock of such corporation and (C) at least a majority of the
members of the board of directors of such corporation were members of
20
the Incumbent Board at the time of the initial agreement or initial action
of the Board providing for such sale or other disposition of assets of the
Company.
"Common Stock" shall have the meaning set forth in the foregoing
Plan.
"Company" shall have the meaning set forth in the foregoing Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exempt Person" shall mean any of the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
"Exempt Rights" shall mean any rights to purchase shares of Common
Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (i.e., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock), except upon the
occurrence of a contingency, whether such rights exist as of August 30, 2002 or
are thereafter issued by the Company as a dividend on shares of Common Stock or
other Voting Securities or otherwise.
"Exempt Transaction" shall mean an increase in the percentage of the
outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Person solely as a result of a reduction in the number of shares of Common Stock
then outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1% or
more of the combined voting power of the then outstanding Voting Stock, or (b)
any other Person (or Persons) who is (or collectively are) the Beneficial Owner
of shares of Common Stock constituting 1% or more of the then outstanding shares
of Common Stock or Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.
"Person" shall mean any individual, firm, corporation, partnership,
association, trust, unincorporated organization or other entity.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
21
Exhibit 10.28
1998 KEY EMPLOYEE STOCK PERFORMANCE PLAN
OF CONOCOPHILLIPS
(AS AMENDED AND RESTATED EFFECTIVE AUGUST 30, 2002)
RECITALS
Conoco Inc. ("Conoco") established the 1998 Key Employee Stock
Performance Plan of Conoco Inc. (the "Plan") effective October 16, 1998.
Paragraph 5 specifies the number of shares of Common Stock with respect to which
Awards may be granted under the Plan. Paragraph 13 reserves to the Board the
right to amend the Plan. Paragraph 15 provides that in the event of certain
transactions, including a reorganization, the Board is authorized to (a) issue
or assume Awards by means of substitution of new Awards, as appropriate, for
previously issued Awards or an assumption of previously issued Awards as part of
such adjustment or (b) cancel Awards that are Options or SARs and give
Participants who are holders of such Awards notice and opportunity to exercise
for 30 days prior to such cancellation.
Effective October 8, 2001, Conoco reclassified its Class A Common
Stock and Class B Common Stock into a single class of new common stock ("Common
Stock") by merging Conoco Delaware I, Inc., a wholly owned subsidiary of Conoco
("Merger Sub"), with and into Conoco (the "Merger"), pursuant to an Agreement
and Plan of Merger, dated as of July 17, 2001, between Conoco and Merger Sub. In
connection with the Merger and pursuant to their authority under Paragraph 13,
the Board authorized the amendment and restatement of the Plan to provide for
the issuance of Awards with respect to the new class of Common Stock, effective
October 8, 2001 (the effective time of the Merger). In addition, in connection
with the Merger and effective October 8, 2001, pursuant to its authority under
Paragraph 15, the Board substituted a new Award for each previously issued
outstanding Award. The new Award applied to a number of shares of Common Stock
equal to the total number of shares of Conoco Class A Common Stock and Class B
Common Stock for which the previously issued outstanding Award had not been
exercised, and provides for the same exercise price and the same other terms and
conditions as those applicable under the previously issued outstanding Award.
On September 21, 2001, the stockholders of Conoco approved a Plan
amendment to increase the number shares of Common Stock available for Awards
under the Plan, which increase was included in the October 8, 2001 amendment and
restatement of the Plan.
On October 30, 2001, the Board of Directors of Conoco approved
certain stock award and Plan amendment limitations to the Plan.
Effective November 18, 2001, Conoco entered into the Agreement and
Plan of Merger by and among Phillips Petroleum Company, Corvette Porsche Corp.,
Porsche Merger Corp., Corvette Merger Corp. and Conoco (the "Phillips Merger
Agreement"), which provides for a series of transactions including the formation
of ConocoPhillips, a Delaware corporation, and the merger of Conoco into and
with a subsidiary of ConocoPhillips (collectively, the "Phillips Merger"). In
connection with and effective upon the closing of the Phillips Merger, the Board
of Directors of Conoco approved the amendment and restatement of the Plan to
reflect the
transfer of sponsorship to ConocoPhillips, the renaming of the Plan as the "1998
Key Employee Stock Performance Plan of ConocoPhillips," and to make certain
changes related thereto.
1. Plan. The Plan was adopted by the Company to reward certain Employees
of the Company by enabling them to acquire shares of Common Stock of the Company
or receive payments determined by reference to such Common Stock.
2. Objectives. The purpose of this Amended and Restated 1998 Key Employee
Stock Performance Plan of ConocoPhillips is to further the interests of the
Company, its Subsidiaries and its shareholders by providing incentives in the
form of Awards to Employees and to provide for issuance of Awards in connection
with the "Option Program" under which certain existing DuPont awards were
canceled at the election of the holder. Such Awards will give Participants in
the Plan an interest in the Company parallel to that of the shareholders, thus
enhancing the proprietary and personal interest of such Participants in the
Company's continued success and progress.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Authorized Officer" means the Chief Executive Officer of the
Company (or any other senior officer of the Company to whom either of them shall
delegate the authority to execute any Award Agreement, where applicable).
"Award" means any Option or SAR granted to a Participant pursuant to
such applicable terms, conditions and limitations as the Committee may establish
in order to fulfill the objectives of the Plan.
"Award Agreement" means a written agreement setting forth the terms,
conditions and limitations applicable to an Award.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Attachment A.
"Class A Common Stock" means the Class A Common Stock, par value
$.01 per share, of Conoco.
"Class B Common Stock" means the Class B Common Stock, par value
$.01 per share, of Conoco.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee of the Board or such
other committee of the Board as is designated by the Board to administer the
Plan.
"Common Stock" means, from and after the effective time of the
Phillips Merger (as defined in the Recitals), ConocoPhillips common stock, par
value $.01 per share. Prior to the effective time of the Phillips Merger and
after the Merger (as defined in the Recitals), "Common
2
Stock" means Conoco common stock, par value $.01 per share. Prior to the
effective time of the Merger, "Common Stock" means Class A Common Stock or Class
B Common Stock, as appropriate.
"Company" means ConocoPhillips, a Delaware corporation. Prior to the
effective time of the Phillips Merger, "Company" means Conoco.
"Conoco" means Conoco Inc., a Delaware corporation.
"Director" means an individual serving as a member of the Board.
"DuPont" means E.I. du Pont de Nemours and Company, a Delaware
corporation.
"DuPont Award" means an option or stock appreciation right granted
by DuPont pursuant to the DuPont Stock Performance Plan, the DuPont Variable
Compensation Plan, the DuPont Corporate Sharing Plan or the Conoco Unit Option
Plan.
"Employee" means an employee of the Company or any of its
Subsidiaries and an individual who has agreed to become an employee of the
Company or any of its Subsidiaries and is expected to become such an employee
within the following six months.
"Fair Market Value" of a share of Common Stock means, as of a
particular date, (i) if Common Stock is listed on a national securities
exchange, the mean between the highest and lowest sales price per share of such
Common Stock on the consolidated transaction reporting system for the principal
national securities exchange on which shares of Common Stock are listed on that
date, or, if there shall have been no such sale so reported on that date, on the
next succeeding date on which such a sale was so reported, or, at the discretion
of the Committee, the price prevailing on the exchange at the time of exercise,
(ii) if Common Stock is not so listed but is quoted on the Nasdaq National
Market, the mean between the highest and lowest sales price per share of Common
Stock reported by the Nasdaq National Market on that date, or, if there shall
have been no such sale so reported on that date, on the next succeeding date on
which such a sale was so reported, or, at the discretion of the Committee, the
price prevailing on the Nasdaq National Market at the time of exercise, (iii) if
Common Stock is not so listed or quoted, the mean between the closing bid and
asked price on that date, or, if there are no quotations available for such
date, on the next succeeding date on which such quotations shall be available,
as reported by the Nasdaq Stock Market, or, if not reported by the Nasdaq Stock
Market, by the National Quotation Bureau Incorporated or (iv) if Common Stock is
not publicly traded, the most recent value determined by an independent
appraiser appointed by the Company for such purpose.
"Grant Date" means the date an Award is granted to a Participant
pursuant to the Plan. The Grant Date for a substituted award is the Grant Date
of the original award.
"Grant Price" means the price at which a Participant may exercise
his or her right to receive cash or Common Stock, as applicable, under the terms
of an Award.
"Incentive Stock Option" means an Option that is intended to comply
with the requirements set forth in Section 422 of the Code.
3
"Nonqualified Stock Option" means an Option that is not an Incentive
Stock Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a specified Grant Price, which may be an Incentive Stock Option
or a Nonqualified Stock Option.
"Option Program" means a program involving the cancellation of
certain existing DuPont Awards.
"Option Program Award" means an Option or SAR granted in connection
with the Option Program.
"Participant" means an Employee to whom an Award has been granted
under this Plan.
"Stock Appreciation Right" or "SAR" means a right to receive a
payment, in cash or in Common Stock, equal to the excess of the Fair Market
Value or other specified valuation of a specified number of shares of Common
Stock on the date the right is exercised over a specified Grant Price, in each
case, as determined by the Committee.
"Subsidiary" means (i) in the case of a corporation, any corporation
of which the Company directly or indirectly owns shares representing 50% or more
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the case
of a partnership or other business entity not organized as a corporation, any
such business entity of which the Company directly or indirectly owns 50% or
more of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).
4. Eligibility. All Employees are eligible for the grant of Awards under
this Plan.
5. Common Stock Available for Awards.
(a) Subject to the provisions of paragraph 15 hereof, no Award shall
be granted if it shall result in the aggregate number of shares of Common
Stock issued under the Plan plus the number of shares of Common Stock
covered by or subject to Awards then outstanding (after giving effect to
the grant of the Award in question) to exceed 17,576,459. No more than
5,612,400 shares of Common Stock shall be available for Incentive Stock
Options. The number of shares of Common Stock that are the subject of
Awards under this Plan that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner
such that all or some of the shares covered by an Award are not issued to
a Participant, shall again immediately become available for Awards
hereunder. The Committee may from time to time adopt and observe such
procedures concerning the counting of shares against the Plan maximum as
it may deem appropriate. The Board and the appropriate officers of the
Company shall from time to time take whatever actions are necessary to
file any required documents with
4
governmental authorities, stock exchanges and transaction reporting
systems to ensure that shares of Common Stock are available for issuance
pursuant to Awards.
(b) Option Program Awards and awards assumed under the Plan or
issued as substitute Awards, each pursuant to paragraph 15(b) of the Plan,
(i) are not subject to the limitations in paragraph 8(b) and (ii) do not
count against the limitations on Common Stock available for Awards set
forth in paragraph 5(a).
6. Administration.
(a) The Plan shall be administered by the Committee.
(b) The Committee shall have full and exclusive power and authority
to administer this Plan and to take all actions that are specifically
contemplated hereby or are necessary or appropriate in connection with the
administration hereof. The Committee shall also have full and exclusive
power to interpret this Plan and to adopt such rules, regulations and
guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the
Company and in keeping with the objectives of this Plan. The Committee
may, in its discretion, provide for the extension of the exercisability of
an Award, accelerate the vesting or exercisability of an Award, eliminate
or make less restrictive any restrictions applicable to an Award, waive
any restriction or other provision of this Plan or otherwise amend or
modify an Award in any manner that is either (i) not adverse to the
Participant to whom such Award was granted or (ii) consented to by such
Participant. The Committee may grant an Award to an Employee who it
expects to become an employee of the Company or any of its Subsidiaries
within the following six months, with such Award being subject to the
individual's actually becoming an employee within such time period, and
subject to such other terms and conditions as may be established by the
Committee. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any Award in the manner and
to the extent the Committee deems necessary or desirable to further the
Plan purposes. Any decision of the Committee in the interpretation and
administration of this Plan shall lie within its sole and absolute
discretion and shall be final, conclusive and binding on all parties
concerned.
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to
be done by him or her, by any member of the Committee or by any officer of
the Company in connection with the performance of any duties under this
Plan, except for his or her own willful misconduct or as expressly
provided by statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish. The Committee may engage or authorize the engagement of a third party
administrator to carry out administrative functions under the Plan.
5
8. Awards.
(a) The Committee shall determine the type or types of Awards to be
made under this Plan and shall designate from time to time the Employees
who are to be the recipients of Awards. Each Award shall be embodied in an
Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion
and, if required by the Committee, shall be signed by the Participant to
whom the Award is granted and by an Authorized Officer for and on behalf
of the Company. Awards may consist of those listed in this paragraph 8(a)
and may be granted singly, in combination or in tandem. Awards may also be
granted in combination or in tandem with, in replacement of, or as
alternatives to, grants or rights under this Plan or any other employee
plan of the Company or any of its Subsidiaries, including the plan of any
acquired entity. An Award may provide for the grant or issuance of
additional, replacement or alternative Awards upon the occurrence of
specified events, including the exercise of the original Award granted to
a Participant. All or part of an Award may be subject to conditions
established by the Committee, which may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attainment
of specified growth rates and other comparable measurements of
performance. Upon the termination of employment by a Participant, any
unexercised, deferred, unvested or unpaid Awards shall be treated as set
forth in the applicable Award Agreement.
(i) Options. An Award may be in the form of an Option, which
may be an Incentive Stock Option or a Nonqualified Stock Option. The
Grant Price of an Option shall be not less than the Fair Market
Value of the Common Stock subject to such Option on the Grant Date.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Options awarded to Employees pursuant
to this Plan, including the Grant Price, the term of the Options and
the date or dates upon which they become exercisable, shall be
determined by the Committee.
(ii) Stock Appreciation Rights. An Award may be in the form of
an SAR. The terms, conditions and limitations applicable to any SARs
awarded to Employees pursuant to this Plan, including the Grant
Price, the term of any SARs and the date or dates upon which they
become exercisable, shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan
excluding paragraph 5(b), no Participant may be granted, during any
calendar year, Awards that are exercisable for more than 93,540 shares of
Common Stock.
(c) Stock Awards, other than those awards which are subject to
specific grant limitations under the Plan, shall be in lieu of, and have a
Fair Market Value on the Grant Date equal to, other compensation that the
Company would otherwise have awarded to the Participant.
6
9. Change of Control. Notwithstanding the provisions of paragraph 8
hereof, unless otherwise expressly provided in the applicable Award Agreement,
in the event of a Change of Control during a Participant's employment with the
Company or one of its Subsidiaries, (i) each Award granted under this Plan to
the Participant shall be become immediately vested and fully exercisable
(regardless of the otherwise applicable vesting or exercise schedules or
performance goals provided for under the Award Agreement) and (ii) if the Award
is an Option or SAR, shall remain exercisable until the expiration of the term
of the Award or, if the Participant should die before the expiration of the term
of the Award, until the earlier of (a) the expiration of the term of the Award
or (b) two (2) years following the date of the Participant's death.
10. Payment of Awards.
(a) General. Payment made to a Participant pursuant to an Award may
be made in the form of cash or Common Stock, or a combination thereof, and
may include such restrictions as the Committee shall determine, including,
in the case of Common Stock, restrictions on transfer and forfeiture
provisions.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Awards may be deferred and paid either in the form of
installments or as a lump-sum payment. The Committee may permit selected
Participants to elect to defer payments of some or all types of Awards or
any other compensation otherwise payable by the Company in accordance with
procedures established by the Committee and may provide that such deferred
compensation may be payable in shares of Common Stock. Any deferred
payment pursuant to an Award, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may be forfeited if
and to the extent that the Award Agreement so provides.
(c) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type. Subject to Paragraph 15,
the Grant Price of any Option shall not be decreased, including by means
of issuance of a substitute Award with a lower Grant Price.
(d) Cash-out of Awards. At the discretion of the Committee, an Award
may be settled by a cash payment equal to the difference between the Fair
Market Value per share of Common Stock on the date of exercise and the
Grant Price of the Award, multiplied by the number of shares with respect
to which the Award is exercised.
11. Option Exercise. The Grant Price shall be paid in full at the time of
exercise in cash or, if permitted by the Committee and elected by the optionee,
the optionee may purchase such shares by means of tendering Common Stock or
surrendering another Award valued at Fair Market Value on the date of exercise,
or any combination thereof. The Committee shall determine acceptable methods for
Participants to tender Common Stock or other Awards. The Committee may provide
for procedures to permit the exercise or purchase of such Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant to an
Award. The Committee may adopt additional rules and procedures regarding the
exercise of Options from time to time, provided that such rules and procedures
are not inconsistent with the
7
provisions of this paragraph. An optionee desiring to pay the Grant Price of an
Option by tendering Common Stock using the method of attestation may, subject to
any such conditions and in compliance with any such procedures as the Committee
may adopt, do so by attesting to the ownership of Common Stock of the requisite
value, in which case the Company shall issue or otherwise deliver to the
optionee upon such exercise a number of shares of Common Stock subject to the
Option equal to the result obtained by dividing (a) the excess of the aggregate
Fair Market Value of the shares of Common Stock subject to the Option for which
the Option (or portion thereof) is being exercised over the Grant Price payable
in respect of such exercise by (b) the Fair Market Value per share of Common
Stock subject to the Option, and the optionee may retain the shares of Common
Stock the ownership of which is attested.
12. Taxes. The Company or its designated third party administrator shall
have the right to deduct applicable taxes from any payment hereunder and
withhold, at the time of delivery of cash or shares of Common Stock under this
Plan, an appropriate amount of cash or number of shares of Common Stock or a
combination thereof for payment of taxes or other amounts required by law or to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for withholding of such taxes. The Committee may also
permit withholding to be satisfied by the transfer to the Company of shares of
Common Stock theretofore owned by the holder of the Award with respect to which
withholding is required. If shares of Common Stock are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value when the
tax withholding is required to be made. The Committee may provide for loans, on
either a short term or demand basis, from the Company to a Participant to permit
the payment of taxes required by law.
13. Amendment, Modification, Suspension or Termination of the Plan. The
Board may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law, except that (i) no amendment or alteration that would
adversely affect the rights of any Participant under any Award previously
granted to such Participant shall be made without the consent of such
Participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is
required by applicable legal requirements. In addition, if an amendment would
(i) materially increase the benefits accruing to Participants under this Plan,
(ii) materially increase the aggregate number of securities that may be issued
under this Plan, or (iii) materially modify the requirements as to eligibility
for participation in this Plan, then to the extent required by applicable law,
or deemed necessary by the Committee, such amendment shall be subject to
shareholder approval.
14. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
shall be assignable or otherwise transferable except by will, beneficiary
designation or the laws of descent and distribution. In the event that a
beneficiary designation conflicts with an assignment by will, the beneficiary
designation will prevail. The Committee may prescribe and include in applicable
Award Agreements other restrictions on transfer. Any attempted assignment of an
Award or any other benefit under this Plan in violation of this paragraph 14
shall be null and void.
8
15. Adjustments.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock (whether or not such issue is prior
to, on a parity with or junior to the existing Common Stock) or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of
Common Stock or other stock split, then (i) the number of shares of Common
Stock reserved under this Plan, (ii) the number of shares of Common Stock
covered by outstanding Awards, (iii) the Grant Price in respect of such
Awards, (iv) the appropriate Fair Market Value and other price
determinations for such Awards, and (v) the Award limitations shall each
be proportionately adjusted by the Board as appropriate to reflect such
transaction. In the event of any other recapitalization or capital
reorganization of the Company, any consolidation or merger of the Company
with another corporation or entity, the adoption by the Company of any
plan of exchange affecting any Common Stock or any distribution to holders
of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stock), the Board shall make
appropriate adjustments to (i) the number of shares of Common Stock
covered by Awards, (ii) the Grant Price in respect of such Awards, (iii)
the appropriate Fair Market Value and other price determinations for such
Awards, and (iv) the Award limitations to reflect such transaction;
provided that such adjustments shall only be such as are necessary to
maintain the proportionate interest of the holders of the Awards and
preserve, without increasing, the value of such Awards. In the event of a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board shall be authorized
(x) to assume under the Plan previously issued compensatory awards, or to
substitute new Awards for previously issued compensatory awards, including
Awards as part of such adjustment or (y) to cancel Awards that are Options
or SARs and give the Participants who are the holders of such Awards
notice and opportunity to exercise for 30 days prior to such cancellation.
16. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. Certificates evidencing shares of Common
Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
9
17. Unfunded P1an. This Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants under this Plan, any
such accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets for purposes of this Plan or
Awards hereunder, nor shall the Company, the Board or the Committee be deemed to
be a trustee of any benefit to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to an Award under this
Plan shall be based solely upon any contractual obligations that may be created
by this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
18. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of Delaware.
19. Effectiveness. The Plan, as approved by the Board, was effective as of
October 16, 1998. This Plan was approved by the stockholders of the Company on
October 19, 1998. The amendments to the Plan to permit the grant of Awards
denominated in Class B Common Stock became effective on May 12, 1999 and were
conditioned upon the approval of the stockholders of the Company prior to
December 31, 1999, which approval was obtained on May 12, 1999. The amendment to
paragraph 11 of the Plan providing for option exercise payment by the
attestation method was effective on October 28, 1999. The Plan, as approved by
the Board for amendment and restatement in connection with the Merger (as
defined in the Recitals on page 1 of this Plan) was effective October 8, 2001,
and the increase of shares available for Awards included in the October 8, 2001
amendment and restatement was separately approved by the stockholders of the
Company on September 21, 2001. The amendment and restatement of the Plan to add
certain stock award and Plan limitations was approved by the Board of Directors
on October 30, 2001. This amendment and restatement of the Plan to reflect the
Phillips Merger, was approved by the Board of Directors on August 16, 2002 and
is effective as of the effective time of the Phillips Merger.
10
ATTACHMENT "A"
"CHANGE IN CONTROL"
The following definitions apply to the Change of Control provision
in paragraph 9 of the foregoing Plan.
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on August 30, 2002.
"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
"Beneficial Owner" shall mean, with reference to any securities, any
Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on August 30, 2002) such securities or
otherwise has the right to vote or dispose of such securities, including
pursuant to any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subsection (a) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding: (i)
arises solely from a revocable proxy or consent given in response to a
public (i.e., not including a solicitation exempted by Rule 14a-2(b)(2) of
the General Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act and
(ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an
event) pursuant to any agreement, arrangement or understanding (whether or
not in writing) or upon the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
"beneficially own," (i) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange or (ii) securities issuable upon exercise of Exempt Rights; or
11
(c) such Person or any of such Person's Affiliates or Associates (i)
has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of a
group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial Owner."
"Board" shall have the meaning set forth in the foregoing Plan.
"Change of Control" shall mean any of the following occurring on or
after August 30, 2002:
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding or 20% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection (a) if
such Person shall become a Beneficial Owner of 20% or more of the shares
of Common Stock or 20% or more of the combined voting power of the Voting
Stock of the Company solely as a result of (i) an Exempt Transaction or
(ii) an acquisition by a Person pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation,
the conditions described in clauses (i), (ii) and (iii) of subsection (c)
of this definition are satisfied;
(b) individuals who, as of August 30, 2002, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to August 30, 2002 whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board;
provided, further, that there shall be excluded, for this purpose, any
such individual whose initial assumption of office occurs as a result of
any actual or threatened election contest that is
12
subject to the provisions of Rule 14a-11 of the General Rules and
Regulations under the Exchange Act;
(c) the shareholders of the Company shall approve a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 70% of the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of
the then outstanding Voting Stock of such corporation beneficially owned,
directly or indirectly, by all or substantially all of the Persons who
were the Beneficial Owners of the outstanding Common Stock immediately
prior to such reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the outstanding Common Stock,
(ii) no Person (excluding any Exempt Person or any Person beneficially
owning, immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Common Stock then outstanding
or 20% or more of the combined voting power of the Voting Stock of the
Company then outstanding) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding Voting Stock of such
corporation and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
initial agreement or initial action by the Board providing for such
reorganization, merger or consolidation; or
(d) the shareholders of the Company shall approve (i) a complete
liquidation or dissolution of the Company unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the assets
of the Company to a corporation with respect to which, following such sale
or other disposition, all of the requirements of clauses (ii)(A), (B) and
(C) of this subsection (d) are satisfied, or (ii) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which, following such sale or
other disposition, (A) more than 70% of the then outstanding shares of
common stock of such corporation and the combined voting power of the
Voting Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the outstanding Common Stock, (B) no Person (excluding any Exempt Person
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 20% or more of the Common Stock
then outstanding or 20% or more of the combined voting power of the Voting
Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 20% or more of the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding
Voting Stock of such corporation and (C) at least a majority of the
members of the board of directors of such corporation were members of the
Incumbent Board at
13
the time of the initial agreement or initial action of the Board providing
for such sale or other disposition of assets of the Company.
"Common Stock" shall have the meaning set forth in the foregoing
Plan.
"Company" shall have the meaning set forth in the foregoing Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exempt Person" shall mean any of the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan.
"Exempt Rights" shall mean any rights to purchase shares of Common
Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (i.e., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock), except upon the
occurrence of a contingency, whether such rights exist as of August 30, 2002 or
are thereafter issued by the Company as a dividend on shares of Common Stock or
other Voting Securities or otherwise.
"Exempt Transaction" shall mean an increase in the percentage of the
outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of the Company beneficially owned by any
Person solely as a result of a reduction in the number of shares of Common Stock
then outstanding due to the repurchase of Common Stock or Voting Stock by the
Company, unless and until such time as (a) such Person or any Affiliate or
Associate of such Person shall purchase or otherwise become the Beneficial Owner
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or additional Voting Stock representing 1% or
more of the combined voting power of the then outstanding Voting Stock, or (b)
any other Person (or Persons) who is (or collectively are) the Beneficial Owner
of shares of Common Stock constituting 1% or more of the then outstanding shares
of Common Stock or Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock shall become an Affiliate or
Associate of such Person.
"Person" shall mean any individual, firm, corporation, partnership,
association, trust, unincorporated organization or other entity.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).
14
Exhibit 10.29
AMENDED BY CORPORATE APPROVAL
FEBRUARY 27, 2003
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
CONOCOPHILLIPS
Section 1. Purpose of the Plan
The amount of total compensation which is paid to the Non-Employee Director for
services rendered as a Non-Employee Director is set by resolution of the Board
of Directors and is comprised of a portion paid in cash ("Cash Compensation")
and a portion paid in Restricted Stock and/or Restricted Stock Units ("Stock
Compensation") of ConocoPhillips common stock $.01 par value ("CP Common
Stock"). The "Cash Compensation" shall also include any portion of the
compensation that is paid to a Continuing Director (as defined in Section 12) in
cash (including, without limitation, any cash compensation payable pursuant to
any restricted stock unit) by ConocoPhillips for services as a member of the
ConocoPhillips Board (as defined in Section 12), and "Stock Compensation" shall
also include any portion of the compensation that is paid to a Continuing
Director by ConocoPhillips in ConocoPhillips common stock $.01 par value ("CP
Common Stock") for services as a member of the ConocoPhillips Board. "Common
Stock" shall mean Phillips Common Stock or CP Common Stock, as the context may
require.
The purpose of the Deferred Compensation Plan for Non-Employee Directors
("Plan") is to provide a program whereby a member of the Board of Directors of
ConocoPhillips ("Company")
-1-
who is not an officer or present employee of the Company or any of its
subsidiaries ("Non-Employee Director") may elect to:
1) defer the payment of part or all of the Cash Compensation payable to the
Non-Employee Director ("Cash Payment"),
2) receive part or all of the Cash Compensation payable to the Non-Employee
Director in shares of Unrestricted Stock under the terms of the 1998 Stock
and Performance Incentive Plan of ConocoPhillips ("Unrestricted Stock
Award"),
3) receive part or all of the Cash Compensation in shares of Restricted Stock
under the terms of the 1998 Stock and Performance Incentive Plan of
ConocoPhillips ("Restricted Stock Award"),
4) delay the lapsing of restrictions on Restricted Stock or delay the
settlement of Restricted Stock Units issued prior to January 1, 2003 due
to the attainment of certain ages under the terms of the Phillips
Petroleum Company Stock Plan for Non-Employee Directors ("Restricted Stock
Lapsing"), and to delay the lapsing on any Restricted Stock issued after
January 1, 2003 under the terms of the 1998 Stock and Performance
Incentive Plan of ConocoPhillips, or to delay the settlement of Restricted
Stock Units issued after January 1, 2003.
5) defer the value of shares of unrestricted Common Stock which would
otherwise be delivered to the Non-Employee Director as a result of
restrictions being lapsed on shares of Restricted Stock or when Restricted
Stock Units or similar Awards are settled due to the attainment of certain
ages or at Retirement under the terms of the Phillips Petroleum Company
Stock Plan for Non-Employee Directors and/or the 1998 Stock and
Performance Incentive Plan of
-2-
ConocoPhillips or under the terms of the grant of such Awards ("Value of
Restricted Stock, Restricted Stock Units or Awards").
Section 2. Elections
(a) Cash Payment. For each calendar year, a Non-Employee Director may elect to
have payment of part or all of the Non-Employee Director's Cash
Compensation deferred. On or before December 20 of each year, the election
to defer Cash Compensation that would otherwise be paid in the next
calendar year may be made by giving written notice thereof in the manner
prescribed by the Company, except that such election may be made by the
end of the month in which a Non-Employee Director is first elected to the
Board of Directors. The election becomes irrevocable after the date for
making such election.
(b) Unrestricted Stock Award. For each calendar year, a Non-Employee Director
may elect to receive Unrestricted Stock for part or all of the Cash
Compensation that would otherwise be paid in the next calendar year. On or
before December 20 of each year, such election to receive Unrestricted
Stock instead of cash may be made by giving written notice thereof in the
manner prescribed by the Company, except that such election may be made by
the end of the month in which a Non-Employee Director is first elected to
the Board of Directors. Such election to receive Unrestricted Stock
becomes irrevocable after the date for making such election.
-3-
(c) Restricted Stock Award. For each calendar year, a Non-Employee Director
may elect to receive Restricted Stock for part or all of the Cash
Compensation that would otherwise be paid in the next calendar year. On or
before December 20 of each year, such election to receive Restricted Stock
instead of cash may be made by giving written notice thereof in the manner
prescribed by the Company, except that such election may be made by the
end of the month in which a Non-Employee Director is first elected to the
Board of Directors. Such election to receive Restricted Stock becomes
irrevocable after the date for making such election.
(d) Restricted Stock Lapsing or Restricted Stock Units Settled.
(i) For Restricted Stock and/or Restricted Stock Units issued prior to
January 1, 2003, Non-Employee Directors who are or will become 65 years of
age prior to the end of that calendar year may elect to delay the lapsing
of restrictions on Restricted Stock and that would otherwise be lapsed,
and to delay the receipt of shares of Common Stock that would otherwise be
delivered in settlement of restricted stock units or similar awards, in
either case based on their age under the terms of the Phillips Petroleum
Company Stock Plan for Non-Employee Directors until the day the Director
retires from the Board of Directors.
(ii) For Restricted Stock and/or Restricted Stock Units issued after
January 1, 2003, Non-Employee Directors may elect to delay the lapsing of
restrictions on Restricted Stock that would otherwise be lapsed in January
of the year following the next calendar year based on the terms of any
Restricted Stock Awards granted under the 1998 Stock and Performance
Incentive Plan of ConocoPhillips, and to delay the receipt of shares of
-4-
Common Stock or the cash value that would otherwise be delivered in
settlement of Restricted Stock Units or similar Awards until the day the
Director retires from the Board of Directors.
(iii) The Non-Employee Director must make the elections specified in
Section 2 (d) (i) and (ii) herein by giving written notice thereof in the
manner prescribed by the Company on or before December 20 of that year.
Such election to delay the lapsing of restrictions on Restricted Stock or
the settlement of Restricted Stock Units or Awards becomes irrevocable
after the date for making such election Such election shall apply to any
Restricted Stock Units granted in exchange for shares of Restricted Stock
pursuant to the Exchange offer initiated by the Company on December 17,
2001.
(e) Value of Restricted Stock and Restricted Stock Units.
(i) Each year Non-Employee Directors who are or will become 65 years of
age prior to the end of that calendar year may make an election concerning
the deferral of the receipt of the value of all or part of the Common
Stock which would otherwise be delivered to the Non-Employee Director as a
result of restrictions being lapsed on shares of Restricted Stock or and
the settlement of Restricted Stock Units or similar Awards issued prior to
January 1, 2003 based on their age under the terms of the Phillips
Petroleum Company Stock Plan for Non-Employee Directors.
(ii) If the Non-Employee Director has previously elected to delay the
lapsing of restrictions on Restricted Stock or the settlement of
Restricted Stock Units or similar Awards until the Director retires from
the Board of Directors or if restrictions are to lapse on any Restricted
Stock or if Restricted Stock Units or similar Awards are to be
-5-
settled at the time the Director retires from the Board of Directors, or
if the Non-Employee Director Retires from the Board prior to being given
an opportunity to make such election, such Non-Employee Director may make
an election concerning the deferral of the receipt of the value of all or
part of the Common Stock or the cash payment that would otherwise be
delivered to the Non-Employee Director as a result of restrictions being
lapsed on shares of Restricted Stock or the settlement of Restricted Stock
Units or Awards when the Director retires from the Board of Directors.
(iii) The Non-Employee Director must make the election specified in
Sections 2 (e) (i) and (ii) herein by giving written notice on or before
December 20 of the applicable year, or as soon as practicable prior to the
Director's Retirement from the Board if such Director would receive shares
of Common Stock or a cash payment as a result of restrictions being lapsed
on shares of Restricted Stock or the settlement of Restricted Stock Units
or Awards under the terms of the Phillips Petroleum Company Stock Plan for
Non-Employee Directors or the 1998 Stock and Performance Incentive Plan of
ConocoPhillips or the terms of the Award. Such election to defer the value
of Restricted Stock or Restricted Stock Units or Awards becomes
irrevocable after the date for making such election.
Section 3. Deferred Compensation Accounts
(a) Credit for Deferral. The Company will establish and maintain an account
for each Non-Employee Director who defers Cash Compensation and/or the
Value of Restricted Stock
-6-
or Restricted Stock Units or Awards in which will be credited the amounts
deferred. Amounts deferred shall be credited as soon as practicable but
not later than 30 days after the date the payment would otherwise have
been made. The value of the underlying Restricted Stock or Restricted
Stock Units or Awards i) for any Restricted Stock or Restricted Stock
Units issued prior to January 1, 2003 shall be the higher of (a) the
average of the high and low selling prices of the Common Stock on the date
the restrictions lapse or the shares are to be delivered, as applicable,
or the last trading day before such date, if such date is not a trading
day, or (b) the average of the high three monthly Fair Market Values of
the Common Stock during the twelve calendar months preceding the month in
which the restrictions lapse or the shares are to be delivered, as
applicable and ii) for any Restricted Stock or Restricted Stock Units
issued, including all dividends that are reinvested, on or after January
1, 2003 shall be the monthly average Fair Market Value of the calendar
month preceding the month in which the restrictions lapse or the cash
payment or shares are to be delivered as applicable. The monthly average
Fair Market Value of the Common Stock is the average of the daily Fair
Market Value of the Common Stock for each trading day of the month. The
daily Fair Market Value of the Common Stock shall be deemed equal to the
average of the reported highest and lowest sales prices per share of such
Common Stock as reported on the composite tape of the New York Stock
Exchange transactions.
(b) Designation of Investments. The amount in each Non-Employee Director's
Deferred Compensation Account shall be deemed to have been invested and
reinvested from time to time, in such "eligible securities" as the
Non-Employee Director shall designate. Prior to
-7-
or in the absence of a Non-Employee Director's designation, the Company
shall designate an "eligible security" in which the Non-Employee
Director's Deferred Compensation Account shall be deemed to have been
invested until designation instructions are received from the Non-Employee
Director. Eligible securities are those securities designated by the Chief
Financial Officer of the Company. The Chief Financial Officer of the
Company may include as eligible securities, stocks listed on a national
securities exchange, and bonds, notes, debentures, corporate or
governmental, either listed on a national securities exchange or for which
price quotations are published in The Wall Street Journal and shares
issued by investment companies commonly known as "mutual funds". The
Non-Employee Director's Deferred Compensation Account will be adjusted to
reflect the deemed gains, losses and earnings as though the amount
deferred was actually invested and reinvested in the eligible securities
for the Non-Employee Director's Deferred Compensation Account.
Notwithstanding anything to the contrary in this Section 3(b), in the
event the Company actually purchases or sells such securities in the
quantities and at the times the securities are deemed to be purchased or
sold for a Non-Employee Director's Deferred Compensation Account, the
Account shall be adjusted accordingly to reflect the price actually paid
or received by the Company for such securities after adjustment for all
transaction expenses incurred (including without limitation brokerage fees
and stock transfer taxes).
In the case of any deemed purchase not actually made by the Company, the
Deferred
-8-
Compensation Account shall be charged with a dollar amount equal to the
quantity and kind of securities deemed to have been purchased multiplied
by the fair market value of such security on the date of reference and
shall be credited with the quantity and kind of securities so deemed to
have been purchased. In the case of any deemed sale not actually made by
the Company, the account shall be charged with the quantity and kind of
securities deemed to have been sold, and shall be credited with a dollar
amount equal to the quantity and kind of securities deemed to have been
sold multiplied by the fair market value of such security on the date of
reference. As used herein "fair market value" means in the case of a
listed security the closing price on the date of reference, or if there
were no sales on such date, then the closing price on the nearest
preceding day on which there were such sales, and in the case of an
unlisted security the mean between the bid and asked prices on the date of
reference, or if no such prices are available for such date, then the mean
between the bid and asked prices to the nearest preceding day for which
such prices are available.
The Treasurer may also designate a Fund Manager to provide services which
may include recordkeeping, Non-Employee Director accounting, Non-Employee
Director communication, payment of installments to the Non-Employee
Director, tax reporting and any other services specified by the Company in
agreement with the Fund Manager.
(c) Payments. A Non-Employee Director's Deferred Compensation Account shall be
debited with respect to payments made from the account pursuant to this
Plan as of the date such payments are made from the account. The payment
shall be made as soon as practicable,
-9-
but no later than 30 days, after the installment payment date.
-10-
If any person to whom a payment is due hereunder is under legal disability
as determined in the sole discretion of the Chief Executive Officer, the
Company shall have the power to cause the payment due such person to be
made to such person's guardian or other legal representative for the
person's benefit, and such payment shall constitute a full release and
discharge of the Company and any fiduciary of the Plan.
(d) Statements. At least one time per year the Company or the Company's
designee will furnish each Non-Employee Director a written statement
setting forth the current balance in the Non-Employee Director's Deferred
Compensation Account, the amounts credited or debited to such account
since the last statement and the payment schedule of deferred amounts and
deemed gains, losses and earnings accrued thereon as provided by the
deferred payment option selected by the Non-Employee Director.
Section 4. Deferred Payment Options
(a) Payment Options for Cash Compensation and the Value of Restricted Stock or
Restricted Stock Units or Awards. A Non-Employee Director, at the time an
election to defer Cash Compensation or the Value of Restricted Stock or
Restricted Stock Units or Awards is made, shall also specify in writing
whether the Cash Compensation or the Value of Restricted Stock or
Restricted Stock Units or Awards deferred by such election and any deemed
gains, losses and earnings accrued thereon is to be paid in one lump sum
or in annual installments of not less than 5 nor more than 10. The lump
sum payment will be made or the first installment will begin as soon as
practicable after the first day of the
-11-
calendar quarter which is on or after the Non-Employee Director's
retirement, or the Director may specify that the lump sum be paid the
first day of any calendar quarter following retirement from the Board
except that the date must be at least one year from the date the election
is made. After a Non-Employee Director first selects a payment option, all
subsequent deferrals of Cash Compensation and/or the value of Restricted
Stock or Restricted Stock Units or Awards will have the same payment
option.
(b) Payment Option Revision. The Non-Employee Director may at any time during
a period beginning 365 days prior to and ending no later than December 20
prior to the date the Non-Employee Director terminates Board service due
to (a) not being nominated for election to the Board; or (b) not being
reelected to Board service after being so nominated; or (c) resignation
from Board service as a result of the Director's disability or any reason
acceptable to a majority of the remaining members of the Board of
Directors ("Retires" or "Retirement"), or as soon as practicable prior to
Retirement in the manner prescribed by the Company, revise such payment
option and select one of the following payment options in place of such
payment option:
(i) a lump sum,
(ii) annual installments of not less than 5 nor more than 10,
(iii) semi-annual installments of not less than 10 nor more than 20, or
(iv) quarterly installments of not less than 20 nor more than 40,
-12-
with the lump sum to be paid or first installment to commence, as soon as
practicable following any date specified by the Non-Employee Director so
long as such date is the first day of a calendar quarter, is on or after
the Non-Employee Director's Retirement Date, is at least one year from the
date the payment option was revised and is no later than five (5) years
after the Non-Employee Director's Retirement Date.
(c) Installment Amount. The amount of each installment shall be determined by
dividing the balance in the Non-Employee Director's Deferred Compensation
Account as of the date the installment is to be paid, by the number of
installments remaining to be paid (inclusive of the current installment)
or such other installment option that may be offered.
Section 5. Death of Non-Employee Director
Upon the death of a Non-Employee Director, the Non-Employee Director's
beneficiary or beneficiaries designated in accordance with Section 6 of this
Plan, or, in the absence of an effective beneficiary designation, the surviving
spouse, or the Estate of the deceased Non-Employee Director, in that order of
priority, shall receive the beneficiary's or beneficiaries' portion of the
payments in accordance with the deferred payment schedule selected by the
Non-Employee Director, whether the Non-Employee Director's death occurred before
or after such payments have commenced; provided, however, such payments may be
made in a different manner if the beneficiary or beneficiaries entitled to
receive such payments, due to an unanticipated emergency caused by an event
beyond the control of the beneficiary or
-13-
beneficiaries that results in financial hardship to the beneficiary or
beneficiaries, so requests and the Vice President Human Resources gives written
consent to the method of payment requested.
Section 6. Designation of Beneficiary
Each Non-Employee Director who defers under this Plan shall designate a
beneficiary or beneficiaries to receive the entire balance of the Non-Employee
Director's Deferred Compensation Account by giving signed written notice of such
designation in the manner prescribed by the Company. The Non-Employee Director
may from time to time change or cancel any previous beneficiary designation in
the same manner. The last written beneficiary designation received by the
Company shall be controlling over any prior designation and over any
testamentary or other disposition. After receipt by the Company of such written
designation, it shall take effect as of the date on which it was signed by the
Non-Employee Director, whether the Non-Employee Director is living at the time
of such receipt, but without prejudice to the Company on account of any payment
made under this Plan before receipt of such designation.
Section 7. Nonassignability
The right of a Non-Employee Director or beneficiary or other person who becomes
entitled to receive payments under this Plan shall not be pledged, assigned or
subject to garnishment, attachment or any other legal process by the creditors
of or other claimants against the Non-Employee Director, beneficiary, or other
such person.
-14-
Section 8. Administration, Interpretation and Amendment
The Plan shall be administered by the Chief Executive Officer of the Company or
his designee. The decision of the Chief Executive Officer with respect to any
questions arising as to the interpretation of this Plan, including the
severability of any and all of the provisions thereof, shall be final,
conclusive and binding. The Company reserves the right to amend this Plan from
time to time or to terminate the Plan entirely, provided, however, that no
amendment may affect the balance in a Non-Employee Director's account on the
effective date of the amendment. In the event of termination of the Plan, the
Chief Executive Officer in the Chief Executive Officer's sole discretion, may
elect to pay in one lump sum as soon as practicable after termination of the
Plan, the balance then in the Non-Employee Director's account.
Section 9. Nonsegregation
Amounts deferred pursuant to this Plan and the crediting of amounts to a
Non-Employee Director's Deferred Compensation Account shall represent the
Company's unfunded and unsecured promise to pay compensation in the future. With
respect to said amounts, the relationship of the Company and a Non-Employee
Director shall be that of debtor and general unsecured creditor. While the
Company may make investments for the purpose of measuring and meeting its
obligations under this Plan such investments shall remain the sole property of
the Company subject to claims of its creditors generally, and shall not be
deemed to form or be included in any part of the Deferred Compensation Account.
-15-
Section 10. Funding
All amounts payable under the Plan are unfunded and unsecured benefits and shall
be paid solely from the general assets of the Company and any rights accruing to
the Non-Employee Director or the beneficiary under this Plan shall be those of
an unsecured general creditor; provided, however, that the Company may establish
a grantor trust to pay part or all of its Plan payment obligations so long as
the Plan remains unfunded for federal tax purposes.
Section 11. Miscellaneous
(a) Except as otherwise provided herein, the Plan shall be binding upon the
Company, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of the Company's
assets and business or with or into which the Company may be consolidated
or merged.
(b) This Plan shall be construed, regulated, and administered in accordance
with the laws of the State of Delaware except to the extent that said laws
have been preempted by the laws of the United States.
Section 12. Continuing Directors and Noncontinuing Directors
Notwithstanding anything contained in this Plan to the contrary:
-16-
(a) Elections made by a Non-Employee Director who is a member of the board of
directors (the "ConocoPhillips Board") of ConocoPhillips (a "Continuing
Director") immediately following the closing (the "Closing") of the
transactions (the "Merger") contemplated by the Agreement and Plan of
Merger dated as of November 18, 2001 by and among Phillips Petroleum
Company, CorvettePorsche Corp., Porsche Merger Corp., Corvette Merger
Corp., and Conoco Inc. (the "Merger Agreement") shall be effective for the
following compensation received from ConocoPhillips with respect to
service as a Continuing Director for the portion of calendar year 2002
that follows the Closing, without any action on the part of such
Continuing Director, Phillips Petroleum Company or ConocoPhillips: (i) the
deferral of the receipt of Cash Compensation, (ii) the receipt of
Unrestricted Stock in lieu of Cash Compensation or Stock Compensation,
(iii) the receipt of Restricted Stock in lieu of Cash Compensation or
Stock Compensation, (iv) the deferral of the lapsing of restrictions on
Restricted Stock that would otherwise lapse, (v) the deferral of receipt
of the value of all or part of the Common Stock which would otherwise be
delivered to the Continuing Director as a result of restrictions being
lapsed; and (vi) the deferral of receipt of a lump sum payment from the
Non-employee Director Retirement Plan; and
(b) ConocoPhillips shall be the co-sponsor of this Plan and shall be the
obligor hereunder with respect to compensation of Continuing Directors for
services on the ConocoPhillips Board that is deferred hereunder;
(c) A Continuing Director shall not be deemed to have "retired" or otherwise
terminated service as a Non-Employee Director for any purpose of this Plan
solely as a result of such director's ceasing to be a director of Phillips
Petroleum Company in connection with the
-17-
Merger, and no distributions of the Continuing Directors' account balances
under the Plan shall be made solely as a result of the consummation of the
transactions contemplated by the Merger Agreement. For any Continuing
Director, service as a member of the ConocoPhillips Board shall be treated
as service as a Non-Employee Director, and "retirement" or any other
termination of service from the ConocoPhillips Board shall be deemed to be
a retirement or termination of service (as applicable) as a Non-Employee
Director for all purposes of this Plan.
(d) Each individual who ceases to be a Non-Employee Director in connection
with the Merger who is not a Continuing Director shall be deemed to have
retired as of the Closing Date for purposes of this Plan (including,
without limitation, for purposes of Section 4).
Section 13. Effective Date of the Plan
This Plan is amended and restated effective as of October 22, 2002.
-18-
Exhibit 10.31
AMENDED AND RESTATED
CONOCO INC.
SALARY DEFERRAL & SAVINGS RESTORATION PLAN
I. PURPOSE
The purpose of the Salary Deferral & Savings Restoration Plan (Plan) is to
provide eligible employees with the opportunity to defer, until
termination of employment, receipt of salary that, because of compensation
limits imposed by law, is ineligible to be considered in calculating
benefits within the Company's tax-qualified defined contribution plans and
thereby recover benefits lost because of that restriction.
II. ADMINISTRATION
The administration of this Plan is vested in the Employee Benefit Plans
Board (EBPB). The EBPB may adopt such rules as it may deem necessary for
the proper administration of the Plan, and may appoint such persons or
groups as may be judged necessary to assist in the administration of the
Plan. The EBPB's decision in all matters involving the interpretation and
application of this Plan shall be final. The EBPB shall have the
discretionary right to determine eligibility for benefits hereunder and to
construe the terms and conditions of this Plan.
III. ELIGIBILITY
An employee of the Company who is eligible to participate in the Thrift
Plan for Employees of Conoco Inc. (the Thrift Plan) and whose annual base
compensation exceeds the amount prescribed in Internal Revenue Code
Section 401(a)(17) shall be eligible to participate in this Plan
(hereinafter "Participant"). Participant shall also include any individual
who continues to have a Participant Account under this Plan.
For purposes of this Plan, the term "Company" means ConocoPhillips
Services Inc., Conoco Pipe Line Inc., or Louisiana Gas Systems Inc. Prior
to January 1, 2003, Company included Conoco Inc.
Participation in this Plan is entirely voluntary.
IV. PARTICIPANT ACCOUNTS
A. PARTICIPANT CONTRIBUTIONS
A Participant may elect to defer receipt of a percentage of annual
base compensation in excess of the amount prescribed in Internal
Revenue Code Section 401 (a)( 17), and have the dollar equivalent of
the deferral percentage credited to a Participant Account under this
Plan. The deferral percentage elected under this Plan shall not
exceed that allowed in total in the tax-qualified defined
contribution plans of the Company in which (s)he participates.
Except as provided below, such deferral election will be made prior
to the beginning of each calendar year and will be irrevocable for
that calendar year.
For purposes of a Participant's first year of participation in this
Plan, the compensation
deferral election must be made no later than 30 days prior to the
first day of the month for which compensation is deferred and will
be irrevocable for the remainder of that calendar year.
B. COMPANY CONTRIBUTIONS
1. To the extent that a Participant makes a deferral election
under the terms of subparagraph (A) above, the Company will
credit to that Participant's Account in this Plan an amount
equivalent to the Company matching contributions that would be
provided to that Participant under the terms of the Company's
tax-qualified defined contribution plans in which (s)he is
participating.
2. The Company will credit to the Participant's Account in this
Plan an amount equivalent to the value of the Semiannual
Allocation or Supplemental Allocation under the Stock Savings
Feature of the ConocoPhillips Savings Plan (the CPSP) as those
terms are used in the CPSP that would be provided to that
Participant on his or her annual base compensation in excess
of the amount prescribed in Internal Revenue Code Section 401
(a)(7) under the terms of the CPSP.
C. EARNINGS EQUIVALENTS
Credits for Participant Contributions and Company Contributions
shall be treated as having been invested in one or more of the
investment options available in the Company's tax-qualified defined
contribution plan in which (s)he is participating. Additional credit
(or debit) amounts will be posted to the Participant's Account in
this Plan based on the performance of those investment options.
The Participant shall have the right to:
I. Designate which investment options are to be used in valuing
his/her Account under this Plan, subject to the rules
governing investment direction in the Thrift Plan; and/or
2. Change the designated investment options used in valuing
his/her Account under this Plan, subject to the rules
governing investment direction and/or transfers among funds in
the Thrift Plan.
D. CREDITS TO ACCOUNTS
I. Participant Contributions, Company Contributions, and Earnings
Equivalents shall be credited (or debited) to the
Participant's Account under this Plan as unfunded book entries
stated as cash balances, and will not be payable to a
Participant until such time as employment with the Company
terminates. The cash balances in Participant Accounts shall be
unfunded general obligations of the Company, and no
Participant shall have any claim to or security interest in
any asset of the Company on account thereof.
2. For each employee who was participating in the DuPont Salary
Deferral & Savings Restoration Plan (DuPont Plan) immediately
prior to January 1, 1999, an amount equivalent to Participant
Contributions, Company Contributions, and Earnings Equivalents
under the DuPont Plan credited (or debited) to the
Participant's Account under the DuPont Plan shall be credited
to the Participant's Account under this Plan as unfunded book
entries stated as cash balances, and will not be payable to
such Participant until such time as employment with the
Company terminates. The cash balances in Participant Accounts
shall be unfunded general obligations of the Company and no
Participant shall have any claim to or security interest in
any asset of the Company on account thereof.
V. VESTING
Participant Contributions and Company Contributions and Earnings
Equivalents shall be vested at the time such amounts are credited to the
Participant's Account.
VI. PAYMENT OF BENEFITS
Amounts payable under this Plan shall be delivered in a cash lump sum as
soon as practicable after termination of employment unless the Participant
irrevocably elects under rules prescribed by the EBPB to receive payments
in a series of annual installments. All payments under this Plan shall be
made by, and all expenses of administering this Plan shall be borne by,
the Company.
VII. RIGHT TO MODIFY
The Company reserves the right, at any time, to amend, suspend, terminate,
change, or discontinue this Plan in its discretion by action of the Board
of Directors or its delegee. Notwithstanding the preceding sentence, no
such amendment, suspension, termination, discontinuation, or change shall
deprive any person of his accrued benefit under the terms of the Plan or a
lump sum distribution payable as soon as practicable upon termination of
employment, including termination for retirement, with respect to his
accrued benefit.
WITNESS MY HAND to this Conoco Inc. Salary Deferral & Savings Restoration Plan,
as restated effective January 1, 2003.
/s/ Joseph C. High
- --------------------------------------------------
Joseph C. High, Vice President, Human Resources
Exhibit 10.32
CONOCO INC.
DIRECTORS' CHARITABLE GIFT PLAN
1. PURPOSE OF THE PLAN
The purpose of the Directors' Charitable Gift Plan (the "Plan") is to
acknowledge the service of members of the Board of Directors (the "Board")
of Conoco Inc. (the "Company"); recognize the mutual interest of the
Company and its Directors in support of eligible educational and
charitable organizations; and enhance the Directors' total compensation
package.
Each eligible Director of the Company will recommend that the Company make
a donation of up to $1,000,000 to the eligible tax-exempt organization(s)
(the "Organization(s)") designated by the Director. The donation will be
made in the Director's name in five equal annual installments, with the
first installment to be made as soon as practicable after the death of the
Director or former Director.
2. ELIGIBILITY
Each member of the Board of Directors who serves for a minimum of one year
shall be eligible to participate in the Plan. The Plan will not be
effective for a Director until he or she completes all required enrollment
procedures for the Plan.
3. DIRECTOR'S RECOMMENDATION
Each eligible Director shall make a written recommendation to the Company,
on a form approved by the Company for this purpose, designating the
Organization(s) which he or she intends to be the recipient(s) of the
Company's donation to be made in the Director's name. A Director may
revise or revoke such recommendation prior to his or her death by signing
a new recommendation form and submitting it to the Company.
4. ORGANIZATIONS
In order to be eligible to a receive a donation, an Organization must
initially, and at the time a donation is to be made in whole or in part,
qualify to receive tax-deductible donations under the Internal Revenue
Code and be reviewed and approved by the Company. An Organization will be
approved by the Company unless it determines, in the exercise of good
faith judgment, that a donation to the Organization would be detrimental
to the best interests of the Company. Private foundations are not eligible
to receive donations under the Plan.
Non-U.S. Directors may designate qualified educational and charitable
organizations in their countries of citizenship, provided that each
designated organization has a tax exempt status that is similar to
comparable U.S.-based organizations under section 501(c)(3) of the
Internal Revenue Code.
5. AMOUNT AND TIMING OF DONATION
Each Director may recommend one Organization to receive a Company donation
of $1,000,000, or two or more Organizations to receive donations
aggregating $1,000,000. Each Organization must
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be recommended to receive a donation of at least $100,000. The donation
will be made by the Company in five equal annual installments, with the
first installment to be made as soon as practicable after the death of the
Director or former Director. If a Director recommends more than one
Organization to receive a donation, each will receive a prorated portion
of each annual installment. Each annual installment payment will be
divided among the Organizations in the same proportion as the total
donation amount has been allocated among the Organizations by the
Director.
6. VESTING
Each Director will be fully vested in the Plan upon completion of one year
of service as a Director.
The Board has authority not to make a donation if it determines that a
Former Director has willfully engaged in activity which is harmful to the
Company's interest.
7. FUNDING AND PLAN ASSETS
The Company may fund the Plan, or it may choose not to fund the Plan. If
the Company elects to fund the Plan in any manner, neither the Directors
nor their recommended Organization(s) shall have any rights or interests
in any assets of the Company identified for such purpose. Nothing
contained in the Plan shall create, or be deemed to create, a trust,
actual or constructive, for the benefit of a Director or any organization
recommended by a Director to receive a donation, or shall give, or be
deemed to give, any Director or recommended Organization any interest in
any assets of the Plan or the Company. If the Company elects to fund the
Plan through life insurance policies, a participating Director agrees to
cooperate and fulfill the enrollment requirements necessary to obtain
insurance on his or her life.
8. AMENDMENT OR TERMINATION
The Board of Directors may amend, suspend, or terminate this Plan at any
time without the consent of the Directors or former Directors
participating in the Plan.
9. ADMINISTRATION
Except as otherwise specifically provided, the Plan shall be administered
by the Company. The Company's determination with respect to any questions
arising as to interpretation of the Plan shall be final, conclusive, and
binding on all interested parties.
Amended by Board Resolution
July 16, 2002
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Exhibit 10.33
PHILLIPS PETROLEUM COMPANY DIRECTOR CHARITABLE CONTRIBUTION PROGRAM
A) The program shall be called the "Phillips Petroleum Company
Director Charitable Contribution Program" (the "Program").
B) All members of the Phillips Petroleum Company Board of
Directors who were Directors on February 6, 1997, and any
newly elected Director who becomes a Director after January 1,
1997, and who completes five consecutive years of Board
service is a participant in the Program.
C) Upon the death of a participating Director, payment shall be
made to the charity or charities designated by such Director
in the total amount of $100,000 per year for ten years.
Payments to the charities designated by a participating
Director shall commence in the year of the Director's death if
possible, and in no event later than 180 days of the
Director"s death, and shall be funded by the Company.
D) Charities designated by Directors must be tax-exempt under
Section 501(c)(3) of the Internal Revenue Code. Contributions
paid by the Company under the Program are conditioned upon the
contributions being deductible from taxable income for
purposes of federal and other income taxes payable by the
Company.
E) Subject to Section D, contributions to the charities
designated by a Director and requested to be irrevocable, will
become irrevocable upon the earliest of (a), (b) or (c) below,
and contributions to all charities designated by a Director
will become irrevocable upon the earlier of (a) or (b) below:
(a) The election by the Company, in its sole discretion,
within one year of the date of the request by the
Director that the Company make an irrevocable commitment
of a future contribution to the designated charity,
(b) The death of the Director, or
(c) The occurrence of any of the events listed in the
definition of "Coverage Date" under the Workforce
Stabilization Plan of Phillips Petroleum Company.
F) The Company is authorized to obtain life insurance on each
Director as a source of funding for the Program. The amount of
insurance to be obtained on each Director shall be $1 million.
If any Director is not insurable, sufficient insurance will be
obtained on the remaining insurable Directors to obtain an
aggregate amount of insurance equal to $1 million on all
Directors.
G) Phillips Petroleum Company shall be the owner and beneficiary
of all policies obtained under the Program.
H) Insurance shall be underwritten by companies with a minimum
A.M. Best rating of A++ or Standard and Poors rating of AAA.
I) The Program shall be administered by the Executive Officer
responsible for Human Resources.
Exhibit 10.34
CONOCOPHILLIPS
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), made and entered
into as of the 1st day of March, 2003, by and between ConocoPhillips, a Delaware
corporation originally incorporated under the name ConocoPhillips (the
"Company"), and [*Name of Director*] ("Indemnitee").
W I T N E S S E T H:
WHEREAS, Indemnitee is currently serving or is about to begin
serving as a Director of the Company and in the future may serve in some other
Corporate Status, and Indemnitee is willing, subject to, among other things, the
Company's execution and performance of this Agreement, to continue in or assume
such capacity or capacities; and
WHEREAS, the By-laws of the Company provide that the Company shall
indemnify and advance expenses to all directors of the Company in the manner set
forth therein and to the fullest extent permitted by applicable law, and the
Company's Certificate of Incorporation provides for limitation of liability for
directors; and
WHEREAS, in order to induce Indemnitee to provide services as
contemplated hereby, the Company has deemed it to be in its best interest to
enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's agreement to
provide services to the Company and/or certain of its affiliates as contemplated
hereby, the mutual agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto stipulate and agree as follows:
ARTICLE I
Certain Definitions
As used herein, the following words and terms shall have the
following respective meanings (whether singular or plural):
"Change of Control" means a change in control of the Company after
the date Indemnitee acquired his or her Corporate Status, which shall be deemed
to have occurred in any one of the following circumstances occurring after such
date: (i) there shall have occurred an event required to be reported with
respect to the Company in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item or any similar schedule or form)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), regardless of whether the Company is then subject to such reporting
requirement; (ii) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) shall have become the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 15% or more of the combined voting power of the Company's
then outstanding voting securities; (iii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, and
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
of the Company or the ultimate parent entity resulting from or
1
after such transaction or event; or (iv) individuals who at the beginning of
such period constituted the Board of Directors (including, for this purpose, any
new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors.
"Corporate Status" describes the status of Indemnitee as a Director
of the Company, or as a person who is or was serving at the request of the
Company as a director, officer, employee, agent or fiduciary of another company
or of a partnership, limited liability company, association, joint venture,
trust or employee benefit plan maintained or sponsored by the Company, or other
enterprise or as a person who consented to be nominated to any of the forgoing
positions.
"Court" means the Court of Chancery of the State of Delaware.
"Director" means a non-employee director of the Company.
"DGCL" means the Delaware General Corporation Law.
"Expenses" shall include all attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
"Independent Counsel" means a law firm, or a member of a law firm,
or an independent practicing attorney that is experienced in matters of
corporate law, and who or which, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the Company or the claimant in an action to determine the claimant's
rights under this Agreement.
"Matter" is a claim, an inquiry, an issue, or other substantial
request for relief.
"Proceeding" includes any threatened, pending or completed action,
claim, suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding arising from or in any way
related to the Corporate Status of Indemnitee (whether or not at the time of
such Proceeding Indemnitee has such Corporate Status), whether civil (including
intentional and unintentional tort claims), criminal, administrative or
investigative and whether instituted by or on behalf of the Company or any other
party, or any inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit or other proceedings
hereinabove listed, except such as is initiated by Indemnitee pursuant to
Section 6.1 of this Agreement to enforce Indemnitee's rights under this
Agreement.
ARTICLE II
Services by Indemnitee
Section 2.1. Services by Indemnitee. Indemnitee agrees to serve or
continue to serve in his or her current capacity a Director of the Company.
Indemnitee may also agree to serve (the agreement so to serve being in the sole
discretion of Indemnitee), as the Company may request from time to time, as a
director, officer, employee, agent or fiduciary of any other company,
partnership, limited liability company, association, joint venture, trust or
other
2
enterprise in which the Company has an interest. Indemnitee and the Company each
acknowledge that they have entered into this Agreement as a means of inducing
Indemnitee to serve (or continue to serve) the Company in such capacities.
Indemnitee may at any time and for any reason resign from such position or
positions (subject to any other contractual obligation or any obligation imposed
by operation of law). The Company shall have no obligation under this Agreement
to continue Indemnitee in any such position for any period of time and shall not
be precluded by the provisions of this Agreement from removing Indemnitee from
any such position at any time.
ARTICLE III
Indemnification
Section 3.1. General. Subject to Articles IV and V, if Indemnitee
was or is a party or is threatened to be made a party to any Proceeding, the
Company shall, to the fullest extent permitted by applicable law, indemnify and
hold Indemnitee harmless from and against any and all losses, liabilities,
claims, damages, judgments, fines, penalties, amounts paid in settlement
(subject to Section 7.2) and Expenses (including all interest, assessments and
other charges paid or payable in connection with or in respect of such listed
items), whatsoever incurred in connection with such Proceeding.
Section 3.2. Claims Initiated by Indemnitee. Notwithstanding
anything to the contrary set forth herein, prior to a Change of Control,
Indemnitee shall not be entitled to indemnification (including any advancement
of Expenses) pursuant to this Agreement in connection with any Proceeding
initiated or claim made by Indemnitee, unless either (i) the Board of Directors
has authorized or consented to the initiation of such Proceeding or the making
of such claim or (ii) such Proceeding or claim seeks to enforce Indemnitee's
rights under this Agreement.
ARTICLE IV
Advancement of Expenses
Section 4.1. Advances. In the event of any threatened or pending
Proceeding in which Indemnitee is a party or is involved and that may give rise
to a right of indemnification under this Agreement, following written request to
the Company by Indemnitee, the Company shall pay to Indemnitee, within 10 days
of such request, amounts to cover Expenses incurred by Indemnitee in such
Proceeding in advance of its final disposition upon the receipt by the Company
of (i) a written undertaking executed by or on behalf of Indemnitee providing
that Indemnitee will repay the advance if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as provided in this
Agreement and (ii) satisfactory evidence as to the amount of such Expenses.
Section 4.2. Repayment of Advances or Other Expenses. Indemnitee
agrees that Indemnitee shall reimburse the Company for all Expenses advanced by
the Company pursuant to Section 4.1 in the event and only to the extent that it
shall be determined pursuant to the provisions of this Agreement or by final
judgment or other final adjudication under the provisions of any applicable law
(as to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee is not entitled to be indemnified by the Company for such Expenses.
Section 4.3. Reimbursement for Non-Party Expenses. To the extent
that the Indemnitee is a witness in any Proceeding in which the Indemnitee is
not a party or threatened to
3
be made a party, Indemnitee shall be indemnified against all Expenses actually
and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
therewith.
ARTICLE V
Procedure for Determination of Entitlement
to Indemnification
Section 5.1. Request for Indemnification. To obtain indemnification,
Indemnitee shall submit to the Secretary of the Company a written claim or
request. The Secretary of the Company shall promptly advise the Board of
Directors of such request. All determinations and payments with respect to
indemnification shall be made as promptly as practicable.
Section 5.2. Determination of Entitlement; No Change of Control. If
there has been no Change of Control at the time the request for indemnification
is submitted, Indemnitee's entitlement to indemnification shall be determined in
accordance with clauses (1), (2), or (3) of Section 145(d) of the DGCL. If
entitlement to indemnification is to be determined by Independent Counsel
pursuant to Section 145(d) of the DGCL, the Company shall furnish written notice
to Indemnitee within 10 days after receipt of the request for indemnification,
specifying the identity and address of Independent Counsel. The Indemnitee may,
within 10 days after such written notice of selection shall have been given,
deliver to the Company a written objection to such selection; provided, however,
that such objection may be asserted only on the ground that the Independent
Counsel so selected does not meet the requirements of "Independent Counsel" as
defined in Article I, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If (i) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to this Section
and (ii) within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 5.1, no Independent Counsel shall have been
selected and not objected to, the Company or Indemnitee may petition the Court
for resolution of any objection which shall have been made by Indemnitee to the
Company's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the petitioned Court or by such
other person as the petitioned Court shall designate, and the person with
respect to whom all objections are so resolved or the person so appointed shall
act as Independent Counsel under this Section. If (i) Independent Counsel does
not make any determination respecting Indemnitee's entitlement to
indemnification hereunder within 90 days after receipt by the Company of a
written request therefor and (ii) any judicial proceeding pursuant to Section
6.1 is then commenced, Independent Counsel shall be discharged and relieved of
any further responsibility in such capacity (subject to the applicable standards
of professional conduct then prevailing).
Section 5.3. Determination of Entitlement; Change of Control. If
there has been a Change of Control at the time the request for indemnification
is submitted, Indemnitee's entitlement to indemnification shall be determined in
a written opinion by Independent Counsel selected by Indemnitee. Indemnitee
shall give the Company written notice advising of the identity and address of
the Independent Counsel so selected. The Company may, within 10 days after such
written notice of selection shall have been given, deliver to the Indemnitee a
written objection to such selection; provided, however, that such objection may
be asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Article I, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and substantiated, the
Independent Counsel so selected may not serve as Independent Counsel unless and
until such objection is
4
withdrawn or a court has determined that such objection is without merit. If (i)
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to this Section and (ii) within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 5.1, no
Independent Counsel shall have been selected and not objected to, the Company or
the Indemnitee may petition the Court for resolution of any objection which
shall have been made by the Company to Indemnitee's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the petitioned Court or by such other person as the petitioned Court shall
designate, and the person with respect to whom all objections are so resolved or
the person so appointed shall act as Independent Counsel under this Section. If
(i) Independent Counsel does not make any determination respecting Indemnitee's
entitlement to indemnification hereunder within 90 days after receipt by the
Company of a written request therefor and (ii) any judicial proceeding or
arbitration pursuant to Section 6.1 is then commenced, Independent Counsel shall
be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
Section 5.4. Presumptions and Burden of Proof; Procedures of
Independent Counsel. In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 5.2 to determine entitlement to indemnification shall
not have made and furnished to Indemnitee in writing a determination within 60
days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification. The termination
of any Proceeding or of any Matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner that
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful. A person who
acted in good faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan of
the Company shall be deemed to have acted in a manner not opposed to the best
interests of the Company.
For purposes of any determination hereunder, a person shall be
deemed to have acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company, or, with respect
to any criminal action or Proceeding, to have had no reasonable cause to believe
his or her conduct was unlawful, if his or her action is based on good faith
reliance on the records or books of account of the Company or another enterprise
or on information supplied to him or her by the officers of the Company or
another enterprise in the course of their duties or on the advice of legal
counsel for the Company or another enterprise or on information or records given
or reports made to the Company or another enterprise by an independent
accountant or by an appraiser or other expert selected with reasonable care by
the Company or another enterprise. The term "another enterprise" as used in this
Section shall mean any other corporation or any partnership, limited liability
company, association, joint venture, trust, employee benefit plan or other
enterprise of which such person is or was serving at the request of the Company
as a director, officer, employee or agent. The provisions of this
5
paragraph shall not be deemed to be exclusive or to limit in any way the
circumstances in which an Indemnitee may be deemed to have met the applicable
standards of conduct for determining entitlement to rights under this Agreement.
Section 5.5. Independent Counsel Expenses. The Company shall pay any
and all reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this Article and in any proceeding to which it is a party or witness
in respect of its investigation and written report and shall pay all reasonable
fees and expenses incident to the procedures in which such Independent Counsel
was selected or appointed. No Independent Counsel may serve if a timely
objection has been made to his or her selection until a court has determined
that such objection is without a reasonable basis.
ARTICLE VI
Certain Remedies of Indemnitee
Section 6.1. Adjudication. In the event that (i) a determination is
made pursuant to Section 5.2 or 5.3 that Indemnitee is not entitled to
indemnification under this Agreement; (ii) advancement of Expenses is not timely
made pursuant to Section 4.1; (iii) Independent Counsel is to determine
Indemnitee's entitlement to indemnification hereunder, but does not make that
determination within 90 days after receipt by the Company of the request for
that indemnification; or (iv) payment of indemnification is not made within 10
days after a determination of entitlement to indemnification has been made or
deemed to have been made pursuant to Section 5.2, 5.3 or 5.4, Indemnitee shall
be entitled to an adjudication in an appropriate court of the State of Delaware,
or in any other court of competent jurisdiction, of Indemnitee's entitlement to
such indemnification or advancement of Expenses. In the event that a
determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 6.1
shall be conducted in all respects as a de novo trial on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding commenced pursuant to this Section 6.1, the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be. If a
determination shall have been made or deemed to have been made that Indemnitee
is entitled to indemnification, the Company shall be bound by such determination
in any judicial proceeding commenced pursuant to this Section 6.1, or otherwise.
The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 6.1 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable, and shall
stipulate in any such proceeding that the Company is bound by all provisions of
this Agreement. In the event that Indemnitee, pursuant to this Section 6.1,
seeks a judicial adjudication to enforce Indemnitee's rights under, or to
recover damages for breach of, this Agreement, (i) Indemnitee shall be entitled
to recover from the Company, and shall be indemnified by the Company against,
any and all Expenses actually and reasonably incurred by Indemnitee in such
judicial adjudication, regardless of whether Indemnitee prevails therein, and
(ii) any determination made pursuant to Section 5.2 or 5.3 that Indemnitee is
not entitled to indemnification under this Agreement shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expenses
advanced pursuant to Section 4.1 until it shall be determined by final judgment
or other final adjudication under the provisions of any applicable law (as to
which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee is not entitled to be indemnified by the Company for such Expenses.
6
ARTICLE VII
Participation by the Company
Section 7.1. Participation by the Company; No Change of Control. If
there has been no Change of Control at the time Indemnitee notifies the Company
of the commencement of a Proceeding, the Company will be entitled to participate
therein at its own expense and, except as otherwise provided below, to the
extent that it may wish, the Company (jointly with any other indemnifying party
similarly notified) will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After receipt of notice from the Company
to Indemnitee of the Company's election so to assume the defense thereof, the
Company will not be liable to Indemnitee under this Agreement for any legal or
other Expenses subsequently incurred by Indemnitee in connection with the
defense thereof other than reasonable costs of investigation, Expenses incurred
in being or preparing to be a witness or in assisting, at the request of the
Company, with the defense, and as otherwise provided below. At the request of
the Company, Indemnitee agrees to use Indemnitee's reasonable efforts to assist
in such defense. Indemnitee shall have the right to employ Indemnitee's own
counsel in such Proceeding but the fees and expenses of such counsel incurred
after notice from the Company of its assumption of the defense thereof shall be
at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee
has been authorized by the Company, (ii) Indemnitee shall have reasonably
concluded that there is a conflict of interest between the Company and
Indemnitee in the conduct of the defense of such action or (iii) the Company
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel employed by Indemnitee
shall be subject to indemnification pursuant to the terms of this Agreement. The
Company shall not be entitled to assume the defense of any Proceeding brought in
the name of or on behalf of the Company or as to which Indemnitee shall have
made the conclusion provided for in (ii) above.
Section 7.2. Settlements. Prior to a Change of Control, the Company
shall not be liable to indemnify Indemnitee under this Agreement for any amounts
paid in settlement of any action or claim effected without its written consent,
which consent shall not be unreasonably withheld. The Company shall not settle
any action or claim in any manner that would impose any limitation or
unindemnified penalty on Indemnitee without Indemnitee's written consent, which
consent shall not be unreasonably withheld.
ARTICLE VIII
Miscellaneous
Section 8.1. Nonexclusivity of Rights. The rights of indemnification
and advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled to
under applicable law, the Company's Certificate of Incorporation, the Company's
By-laws, any agreement, a vote of stockholders or a resolution of directors, or
otherwise. No amendment, alteration or repeal of this Agreement or any provision
hereof shall be effective as to any Indemnitee for acts, events and
circumstances that occurred, in whole or in part, before such amendment,
alteration or repeal. The provisions of this Agreement shall continue as to an
Indemnitee whose Corporate Status has ceased for any reason.
Section 8.2. Insurance and Subrogation. The Company shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if, but only to the extent that, Indemnitee has
otherwise actually received such payment under any insurance policy, contract,
agreement or otherwise.
7
In the event of any payment hereunder, the Company shall be
subrogated to the extent of such payment to all the rights of recovery of
Indemnitee, who shall execute all papers required and take all action reasonably
requested by the Company to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
Section 8.3. Acknowledgment of Certain Matters. Both the Company and
Indemnitee acknowledge that in certain instances, applicable law or public
policy may prohibit indemnification of Indemnitee by the Company under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake, by the Securities
and Exchange Commission, to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
Section 8.4. Amendment. This Agreement may not be modified or
amended except by a written instrument executed by or on behalf of each of the
parties hereto.
Section 8.5. Waivers. The observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party entitled to enforce such term only
by a writing signed by the party against which such waiver is to be asserted.
Unless otherwise expressly provided herein, no delay on the part of any party
hereto in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
Section 8.6. Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto
with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are superseded by this Agreement.
Section 8.7. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 8.8. Notices. Promptly after receipt by Indemnitee of notice
of the commencement of any action, suit or proceeding, Indemnitee shall, if
Indemnitee anticipates or contemplates making a claim for expenses or an advance
pursuant to the terms of this Agreement, notify the Company of the commencement
of such action, suit or proceeding; provided, however, that any delay in so
notifying the Company shall not constitute a waiver or release by Indemnitee of
rights hereunder and that any omission by Indemnitee so to notify the Company
shall not relieve the Company from any liability that it may have to Indemnitee
otherwise than under this Agreement. Any communication required or permitted to
the Company shall be addressed to the Secretary of the Company and any such
communication to Indemnitee shall be addressed to Indemnitee's address as shown
on the Company's records unless Indemnitee specifies otherwise and shall be
personally delivered or delivered by overnight mail delivery. Any such notice
shall be effective upon receipt.
8
Section 8.9. Binding Effect. The provisions of this Agreement shall
be binding upon all successors and assigns of the Company (including any
transferee of all or substantially all of the company's assets and any successor
by merger or operation of law) and shall inure to the benefit of the personal
representatives and estate of the Indemnitee.
Section 8.10. Governing Law. Jurisdiction. This Agreement shall be
construed in accordance with and governed by the laws of the State of Delaware
without regard to any principles of conflict of laws that, if applied, might
permit or require the application of the laws of a different jurisdiction. The
Company agrees to the jurisdiction of the Court, and agrees that it is a
convenient forum, for the adjudication of any dispute with Indemnitee under this
Agreement.
Section 8.11. Headings. The Article and Section headings in this
Agreement are for convenience of reference only, and shall not be deemed to
alter or affect the meaning or interpretation of any provisions hereof.
Section 8.12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
Section 8.13. Use of Certain Terms. As used in this Agreement, the
words "herein," "hereof," and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular paragraph,
subparagraph, section, subsection, shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered to be effective as of the date first above written.
CONOCOPHILLIPS
By: ________________________________
Rick A. Harrington
Senior Vice President, Legal,
and General Counsel
INDEMNITEE
____________________________________
[Name of Director]
9
EXHIBIT 10.36.1
[LETTERHEAD OF CONOCO INC.]
July 22, 2002
Archie W. Dunham
600 N. Dairy Ashford
Houston, Texas 77070
RE: Employment Agreement of November 18, 2001
Dear Mr. Dunham:
Please refer to the Employment Agreement, dated as of November 18,
2001, between you, Conoco Inc. and ConocoPhillips. The capitalized terms in the
Agreement will have the same meaning here, unless otherwise specified.
Under your Employment Agreement, ConocoPhillips (called "New Parent" in
the Agreement) has agreed to provide you the compensation and benefits described
in Section 2(b) of the Agreement, beginning on the Agreement Effective Date. By
signing this letter, you acknowledge and agree that ConocoPhillips will satisfy
this obligation by causing its wholly owned subsidiary administering the payroll
for former employees of Conoco Inc., to provide you the compensation and
benefits described in Section 2(b) of the Agreement.
Sincerely,
/s/ R. A. Harrington
--------------------------------
R. A. Harrington
/s/ Archie W. Dunham
- ----------------------------------
Archie W. Dunham
Exhibit 10.39.1
AMENDMENT
TO
RABBI TRUST AGREEMENT
This Amendment to the Trust Agreement (the "Trust Agreement")
between U.S. Trust Company, National Association (the "Trustee") and Conoco Inc.
(the "Company") is hereby entered into this 25th day of February, 2002 and shall
become effective March 1, 2002.
WHEREAS, the Trust Agreement may be amended with respect to certain
matters pursuant to Section 12;
NOW, THEREFORE, effective as of the date specified above, the
Company and Trustee hereby amend Section 15 of the Trust Agreement by adding the
following sentence to the end of the definition of "Change in Control" to read
as follows:
"Notwithstanding any provision to the contrary, neither the transactions
contemplated by the Agreement and Plan of Merger dated as of November 18,
2001 to which Phillips Petroleum Company and the Company are parties, nor
the approval of such transactions by the shareholders of either Phillips
Petroleum Company or the Company, shall constitute a Change of Control for
purposes of any provision of this Trust Agreement."
IN WITNESS WHEREOF, the Company and the Trustee have signed this
amendment to the Trust Agreement as of the date first written above.
CONOCO INC.
By: /s/ R. W. Goldman
------------------------------------------
R. W. Goldman
Senior Vice President, Finance
and Chief Financial Officer
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
By: /s/ Charles E. Wert
------------------------------------------
Title: Executive Vice President
---------------------------------------
1
Exhibit 12
CONOCOPHILLIPS AND CONSOLIDATED SUBSIDIARIES
TOTAL ENTERPRISE
Computation of Ratio of Earnings to Fixed Charges
Millions of Dollars
----------------------------------------------------
Years Ended December 31
----------------------------------------------------
2002 2001 2000 1999 1998
-------- ----- ----- ----- ----
(Unaudited)
EARNINGS AVAILABLE FOR FIXED CHARGES
Income from continuing operations before income taxes $ 2,164 3,255 3,748 1,178 407
Distributions less than equity in earnings of
fifty-percent-or-less-owned companies 2 58 (30) (7) (19)
Fixed charges, excluding capitalized interest* 850 501 481 396 314
- ---------------------------------------------------------------------------------------------------------------------
$ 3,016 3,814 4,199 1,567 702
=====================================================================================================================
FIXED CHARGES
Interest and expense on indebtedness, excluding capitalized
interest $ 566 338 369 279 200
Capitalized interest 232 231 174 49 48
Preferred dividend requirements of subsidiary and capital
trusts 38 53 53 53 53
Interest portion of rental expense 181 90 42 47 45
Interest expense relating to guaranteed debt of
fifty-percent-or-less-owned companies 16 - - - -
Interest expense relating to guaranteed debt of greater than
fifty-percent-owned companies 3 - - - -
- ---------------------------------------------------------------------------------------------------------------------
$ 1,036 712 638 428 346
=====================================================================================================================
RATIO OF EARNINGS TO FIXED CHARGES 2.9 5.4 6.6 3.7 2.0
- ---------------------------------------------------------------------------------------------------------------------
*Includes amortization of capitalized interest totaling approximately $46
million in 2002, $20 million in 2001, $17 million each in 2000 and 1999, and $16
million in 1998.
Earnings available for fixed charges include, if any, the company's equity in
losses of companies owned less than fifty percent and having debt for which the
company is contingently liable. Fixed charges include the company's
proportionate share, if any, of interest relating to the contingent debt.
Earnings available for fixed charges include, if any, 100 percent of the losses
of companies owned greater than fifty percent that have debt for which the
company is contingently liable. Fixed charges include 100 percent of interest
and capitalized interest, if any, relating to the contingent debt.
Exhibit 21
LIST OF SUBSIDIARIES OF CONOCOPHILLIPS
Listed below are subsidiaries of the registrant at December 31, 2002. Certain
subsidiaries are omitted since such subsidiaries considered in the aggregate do
not constitute a significant subsidiary.
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Alpine Pipeline Company Delaware
Armadillo Investors LLC Delaware
Asamera Algeria Limited Alberta
Asamera Minerals (U.S.) Inc. Colorado
Asamera Oil (U.S.) Inc. Montana
Asamera Resources Inc. Nevada
Ashford Energy Capital S.A. Luxembourg
AZL Resources, Inc. Arizona
Aztec Catalyst Company Delaware
Bantry Terminal Ltd Ireland
Bayway Refining Company Delaware
Border Resources Ltd. England
Brandywine Industrial Gas Inc. Delaware
BVLC, Inc. California
C.S. Land, Inc. California
Calcasieu Properties L.L.C. Delaware
Calcasieu Shipping Corporation Delaware
CGP Servicios Energeticos de Altamira, S. de R. L. de C. V. Mexico
Circle K Enterprises Inc. Delaware
Circle K Stores Inc. Texas
Clearwater Ltd. Bermuda
Cliffe Storage Limited England
Clyde Netherlands B.V. Netherlands
Clyde Petroleum (Investments) Limited England
Clyde Petroleum (Management) Limited England
Clyde Petroleum Exploratie B.V. Netherlands
Clyde Petroleum Limited Scotland
Comap, Inc. Delaware
Conoco (Thailand) Company Limited Thailand
Conoco A.G. Switzerland
Conoco Africa Inc. Delaware
Conoco Arctic Inc. Delaware
Conoco Asia Ltd. Bermuda
Conoco Asia Pacific Ltd. Delaware
Conoco Asia Pacific Sdn. Bhd. Malaysia
Conoco Asia Ventures Pte. Ltd. Singapore
Conoco Austria Mineraloel GmbH Austria
Conoco Brunei Ltd. Bermuda
Conoco Capital Inc. Delaware
Conoco Carbon and Minerals, Inc. Delaware
1
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Conoco Carbon Fibers Japan, KK Japan
Conoco Center Inc. Delaware
Conoco Central and Eastern Europe Holdings BV Netherlands
Conoco Central Europe Inc. Delaware
Conoco Cevolution Europe B.V. Netherlands
Conoco Cevolution Germany GmbH Germany
Conoco Colombia Ltd Bermuda
Conoco Continental Holding GmbH Germany
Conoco Coral Inc. Delaware
Conoco Corporate Holdings L.P. Delaware
Conoco Czech Republic s.r.o. Czech Republic
Conoco Denmark Inc. Delaware
Conoco Development Company Delaware
Conoco Development II Inc. Delaware
Conoco Development Services Inc. Delaware
Conoco do Brazil Ltda. Brazil
Conoco Drilling Inc. Delaware
Conoco Egypt Inc. Delaware
Conoco Energy Holdings Nigeria Ltd. Bermuda
Conoco Energy Nigeria Limited Nigeria
Conoco Energy Services Company Delaware
Conoco Enterprises Inc. Delaware
Conoco Equity Investments Inc. Delaware
Conoco Este Pipeline Company Delaware
Conoco EurAsia Inc. Delaware
Conoco Exploration & Production Nigeria Limited Nigeria
Conoco Finance Inc. Delaware
Conoco Finance Services Inc. Delaware
Conoco Foreign Sales Corporation Barbados
Conoco Funding Company Novas Scotia
Conoco Geisum Inc. Delaware
Conoco Global Energy Company Delaware
Conoco Global Power Assets Inc. Delaware
Conoco Global Power Assets Sabine Inc. Delaware
Conoco Global Power de Mexico, S. de R. L. de C. V. Mexico
Conoco Global Power Development Deutschland GmbH Germany
Conoco Global Power Development Espana SRL Spain
Conoco Global Power Developments Inc. Delaware
Conoco Global Power Development-Sabine Inc. Delaware
Conoco Global Power Inc. Delaware
Conoco Hungary Kft. Hungary
Conoco Indonesia Holding Company Ltd. British Virgin Islands
Conoco Indonesia Inc. Ltd. Bermuda
Conoco International Petroleum Company Delaware
Conoco Investment AG Switzerland
Conoco Investments Norge A/S Norway
2
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Conoco Jet (Malaysia) Sdn. Bhd. Malaysia
Conoco Jet Danmark A/S Denmark
Conoco Jet Finland Oy Finland
Conoco Jet Nordic AB Sweden
Conoco Jet Norge A/S Norway
Conoco Kuwait Services Inc. Delaware
Conoco Lagia Offshore, Inc. Delaware
Conoco Limited England
Conoco Lubricant (India) Private Limited India
Conoco Lubricants (Malaysia) Sdn. Bhd. Malaysia
Conoco Mexico Servicios, S.A. de C.V. Mexico
Conoco Mexico, S.A. de C.V. Mexico
Conoco Middle East Gas Co. N.V. Netherland Antilles
Conoco Middle East Ltd. Delaware
Conoco Mineraloel GmbH Germany
Conoco Mont Belvieu Holdings Inc. Delaware
Conoco Nila Ltd. Bermuda
Conoco Nordic Holding LLC Delaware
Conoco Nordic Holdings AB Sweden
Conoco Nordic Investment LP Delaware
Conoco Nordic Limited Bermuda
Conoco Norway Inc. Delaware
Conoco Norway Properties Inc. Delaware
Conoco NW Natuna Exploration & Production Ltd. Bermuda
Conoco Offshore Pipe Line Company Delaware
Conoco Operations (QLD) Pty Ltd. Australia
Conoco Orinoco Inc. Delaware
Conoco Peru Ltd. Bermuda
Conoco Petcoke Far East Ltd. Delaware
Conoco Petroleum Nigeria Limited Nigeria
Conoco Petroleum Operations Inc. Delaware
Conoco Phillips (96-20) Pty Ltd Western Australia
Conoco Pipe Line Company Delaware
Conoco Poland Sp. z.o.o. Poland
Conoco Power Marketing Inc Delaware
Conoco Sabah Ltd. Bermuda
Conoco Services Company Delaware
Conoco Services Ltd. Bermuda
Conoco Shale Oil Inc. Delaware
Conoco Shipping & Marine Development L.L.C. Marshall Islands
Conoco Shipping Company Liberia
Conoco Shipping Norge A/S Norway
Conoco Shipping Norge Nr. 2 AS Norway
Conoco Shipping Norge Nr. 3 AS Norway
Conoco Shtokman Inc. Delaware
Conoco Singapore Operations Pte. Limited Singapore
3
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Conoco Slovakia s.r.o. Slovic Republic
Conoco South Sokang Holding Ltd. British Virgin Islands
Conoco South Sokang Ltd. Bermuda
Conoco Specialty Products Limited England
Conoco Syria DEZ Gas Ltd. Bermuda
Conoco Syria Ltd. Bermuda
Conoco Timan-Pechora Ltd. Delaware
Conoco Tobong Holding Ltd. British Virgin Islands
Conoco Trading Company Delaware
Conoco Trinidad (4a) B.V. Netherlands
Conoco Trinidad (4b) B.V. Netherlands
Conoco Trinidad Inc. Delaware
Conoco U.K. Properties Inc. Delaware
Conoco Venezuela B.V. Netherlands
Conoco Venezuela C.A. Venezuela
Conoco Venezuela E&P Ltd. Bermuda
Conoco Venezuela Holding C.A. Venezuela
Conoco Venezuela Ltd. Bermuda
Conoco Venezuela Services B.V. Netherlands
Conoco Warim B.V. Netherlands
ConocoPhillips (00-21) Pty Ltd Western Australia
ConocoPhillips (91-12) Pty Ltd Australia
ConocoPhillips (91-13) Pty Ltd Western Australia
ConocoPhillips (95-19) Pty Ltd Australia
ConocoPhillips (96-16) Pty Ltd Australia
ConocoPhillips (Aceh) Ltd. Bermuda
ConocoPhillips (AIB) Ltd. Bermuda
ConocoPhillips (GIB) Ltd. Bermuda
ConocoPhillips (Glen) Limited England
ConocoPhillips (Grissik) Ltd. Bermuda
ConocoPhillips (Kakap) Ltd. Bermuda
ConocoPhillips (Ketapang) Ltd. Bermuda
ConocoPhillips (Pangkah) Ltd. Bermuda
ConocoPhillips (Ramba) Ltd. Bermuda
ConocoPhillips (Sakakemang) Ltd. Bermuda
ConocoPhillips (South Jambi) Ltd. Bermuda
ConocoPhillips (Tungkal) Ltd. Bermuda
ConocoPhillips (U.K.) Alpha Limited England
ConocoPhillips (U.K.) Beta Limited England
ConocoPhillips (U.K.) Eta Limited England
ConocoPhillips (U.K.) Gama Limited England
ConocoPhillips (U.K.) Lambda Limited Ireland
ConocoPhillips (U.K.) Limited England
ConocoPhillips (U.K.) Theta Limited England
ConocoPhillips (U.K.) Zeta Limited England
4
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
ConocoPhillips Alaska, Inc. Delaware
ConocoPhillips Australia Gas Holdings Pty Ltd Western Australia
ConocoPhillips Australia Pty Ltd Western Australia
ConocoPhillips Aviation Services LLC Texas
ConocoPhillips Banyumas Holding Ltd. British Virgin Islands
ConocoPhillips Canada (East) Limited Canada
ConocoPhillips Canada (North) Limited Canada
ConocoPhillips Canada Energy Partnership Alberta
ConocoPhillips Canada Limited New Brunswick
ConocoPhillips Canada Resources Corp. Nova Scotia
ConocoPhillips Communications Inc. Delaware
ConocoPhillips Company Delaware
ConocoPhillips Developments Limited England
ConocoPhillips Energy Asia Inc. Delaware
ConocoPhillips Energy Marketing Corp. Delaware
ConocoPhillips European Power Limited England
ConocoPhillips Holding Company Delaware
ConocoPhillips Holdings Limited England
ConocoPhillips International Inc. Delaware
ConocoPhillips JPDA Pty Ltd Western Australia
ConocoPhillips Nila Holding Ltd. British Virgin Islands
ConocoPhillips Norge Delaware
ConocoPhillips Oil (GB) Limited United Kingdom
ConocoPhillips Oil Trading Limited United Kingdom
ConocoPhillips Oilsands Partnership Alberta
ConocoPhillips Oilsands Partnership II Alberta
ConocoPhillips Petroleum Chemicals U.K. Limited United Kingdom
ConocoPhillips Petroleum Company U.K. Limited United Kingdom
ConocoPhillips Petroleum International Corporation Denmark Cayman Islands
ConocoPhillips Petroleum Limited England
ConocoPhillips Petroleum UK Investment Corporation Delaware
ConocoPhillips Pipeline Australia Pty Ltd Western Australia
ConocoPhillips Power Operations Limited England
ConocoPhillips Sakakemang Holding Ltd. British Virgin Islands
ConocoPhillips Services Inc. Delaware
ConocoPhillips Specialty Products Inc. Delaware
ConocoPhillips STL Pty Ltd Western Australia
ConocoPhillips Surmont Partnership Canada
ConocoPhillips Tobong Ltd. Bermuda
ConocoPhillips Treasury Limited England
ConocoPhillips WA-248 Pty Ltd Western Australia
ConocoPhillips Western Canada Partnership Alberta
Cono-Services Inc. Delaware
Conoven Holding Ltd. British Virgin Islands
Continental Mid Delta Petroleum Company Delaware
Continental Netherlands Oil Company B.V. Netherlands
5
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Continental Oil Company Delaware
Continental Oil Company (Nederland) B.V. Netherlands
Continental Oil Company of Italy Delaware
Continental Oil Company of Niger Delaware
Continental Oil Company of Nigeria Delaware
Continental Pipe Line Company Delaware
COP Holdings Limited England
Crestar Energy Holdings Ltd. Bermuda
CRS Resources (Ecuador) LDC Cayman Islands
Crusader (Ireland) Pty. Ltd. Australia
Crusader Inc. Delaware
CSPL Holdings Limited England
Danube Insurance Ltd. Bermuda
Darwin LNG Pty Ltd Australia
Douglas Oil Company of California California
Du Pont E&P No. 1 B.V. Netherlands
Dubai Petroleum Company Delaware
Eagle Sun Company Limited Liberia
East Boston Terminal Company Delaware
Emerald Shipping Corporation Delaware
Emet Pty Ltd Australia
F.P.S.O. Development Ltd. Bermuda
Four Star Beverage Company Inc. Texas
Four Star Holding Company, Inc. Texas
Frontier Deepwater Drilling Inc. Delaware
Gas Natural del Guasare Ltd Liberia
GCRL Energy Ltd. Colorado
GCRL Holdings Inc. Delaware
GCRL Marketing Ltd. Delaware
Golden Valley Pipeline Company California
Gulf Canada Tunisia Ltd. Alberta
Gulf Energy Asia Pte Ltd. Singapore
Gulf Expro Limited Scotland
Gulf Petroleum (Australia) Pty Ltd. Australia
Gulf Resources (Calik) Ltd. Alberta
Gulf Resources (Halmahera) Ltd. Alberta
Gulf Resources (Jambieor) Ltd. Barbados
Gulf Resources (Merangin) Ltd. Alberta
Gulf Resources (NW Natuna) Ltd. Alberta
Gulf Resources (Sakala Timur) Ltd. Alberta
Gulf Resources (Sebuku) Ltd. Alberta
Gulf Resources (West Natuna) Ltd. Alberta
Hotel Phillips Mgmt. Company Oklahoma
Immingham CHP LLP England
Immingham Energy Limited England
Interkraft Handel GmbH Germany
6
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
International Colin Energy Corporation Alberta
International Energy Insurance Limited Bermuda
International Energy Limited Bahamas
International Petroleum Sales Inc. Panama
Irish Petroleum Company Limited Ireland
Irish Refining Limited Ireland
Jet Tankstellen-Betriebs-GmbH Germany
Jet/Jiffy Shops Limited Thailand
Kayo Oil Company Delaware
Kenai LNG Corporation Delaware
Kenai Tankers LLC Delaware
Kuparuk Pipeline Company Delaware
Lantri Investments B.V. Netherlands
Leland Energy Partnership Alberta
Linden Urban Renewal Limited Partnership New Jersey
Lobo Inc. Delaware
Lobo Pipeline Company L.P. Delaware
Longhorn Pipeline Company Delaware
Louisiana Gas System Inc. Delaware
Lubricantes 76 Mexico, S.A. de C.V. Mexico
Manassas Terminal Company Delaware
Marcus Hook Refining Company Delaware
Maspher Investments B.V. Netherlands
Norske Conoco A/S Norway
North Gillette Coal Company Nevada
NW Natuna Holding Company British Virgin Islands
Oliktok Pipeline Company Delaware
Pacific Pipelines, Inc Delaware
Peerless Insurance Company Limited Barbados
Petco Enterprises Ltd. Japan
Petroleum Transmission Co Calgary
Petroz (International) Pty Ltd Australia
Petroz (Timor Sea) Pty Ltd Australia
Petroz (ZOCA 91-08) Pty Ltd Australia
Petroz Bentu LDC Cayman Islands
Petroz Korinci Baru LDC Cayman Islands
Petroz N.L. Australia
Phillips 66 Capital I Delaware
Phillips 66 Capital II Delaware
Phillips Africa Exploration, Ltd. Liberia
Phillips Alaska Holdings, Inc. Delaware
Phillips Alaska Natural Gas Corporation Delaware
Phillips Alaska Receivables Company, LLC Delaware
Phillips Alpine Alaska, LLC Delaware
Phillips Angola Offshore Ltd. Cayman Islands
Phillips Australasia Exploration Co. Liberia
7
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Phillips Caspian, Ltd. Liberia
Phillips Chemical Holdings Company Delaware
Phillips China Inc. Liberia
Phillips Coal Company Nevada
Phillips Deepwater Exploration Nigeria Limited Nigeria
Phillips Expatriate Services Company Delaware
Phillips Exploration Angola, Ltd. Liberia
Phillips Exploration Azerbaijan, Ltd. Cayman Islands
Phillips Exploration Nigeria Limited Nigeria
Phillips Gas Company Delaware
Phillips Gas Company Shareholder, Inc. Delaware
Phillips Gas Investment Company Delaware
Phillips Gas Marketing Company Delaware
Phillips Gas Pipeline Company Delaware
Phillips Gas Supply Corporation Delaware
Phillips Indonesia Inc. Delaware
Phillips International Investments, Inc. Delaware
Phillips Investment Company Nevada
Phillips LNG Middle East Ltd. Cayman Islands
Phillips LNG Ventures Limited Liberia
Phillips Mexico LNG, LLC Delaware
Phillips New Ventures, Ltd. Cayman Islands
Phillips Oil Company (Nigeria) Ltd. Nigeria
Phillips Oil Company Australia Liberia
Phillips Petroleum (96-16) Pty Ltd Australia
Phillips Petroleum (96-20) Pty Ltd Western Australia
Phillips Petroleum (BTC) Ltd. Cayman Islands
Phillips Petroleum Africa, Ltd. Liberia
Phillips Petroleum Arabia (CV1) Limited Cayman Islands
Phillips Petroleum Arabia, Ltd. Liberia
Phillips Petroleum Argentina S.A. Argentina
Phillips Petroleum Asia Ventures, Ltd. Liberia
Phillips Petroleum Bohai Limited Bahamas
Phillips Petroleum Borneo, Ltd. Liberia
Phillips Petroleum Canada Ltd. New Brunswick
Phillips Petroleum Company Algeria Delaware
Phillips Petroleum Company Andes Delaware
Phillips Petroleum Company Cameroon Delaware
Phillips Petroleum Company Indonesia Delaware
Phillips Petroleum Company Ireland Delaware
Phillips Petroleum Company Kuwait Cayman Islands
Phillips Petroleum Company Niugini Delaware
Phillips Petroleum Company Western Hemisphere Delaware
Phillips Petroleum Do Brasil Ltda. Brazil
Phillips Petroleum Eurasia, Ltd. Liberia
8
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Phillips Petroleum Europe Exploration Ltd. Liberia
Phillips Petroleum Greenland A/S Greenland
Phillips Petroleum International Corporation Delaware
Phillips Petroleum International Corporation Italy Liberia
Phillips Petroleum International Corporation Somalia Liberia
Phillips Petroleum International Investment Company Delaware
Phillips Petroleum International, Limited Japan
Phillips Petroleum Kazakhstan, Ltd. Liberia
Phillips Petroleum Kuwait, Ltd. Liberia
Phillips Petroleum Latin America, Ltd. Liberia
Phillips Petroleum Middle East, Ltd. Liberia
Phillips Petroleum Mudayy, Ltd. Liberia
Phillips Petroleum Norsk A/S Norway
Phillips Petroleum Oman, Ltd. Liberia
Phillips Petroleum Pension Trustees Limited United Kingdom
Phillips Petroleum Peru Ltd. Liberia
Phillips Petroleum Resources, Ltd. Delaware
Phillips Petroleum Russia, Ltd. Delaware
Phillips Petroleum Sisimiut A/S Greenland
Phillips Petroleum South Africa, Ltd. Liberia
Phillips Petroleum T&T, Ltd. Liberia
Phillips Petroleum Timor Sea Inc. Delaware
Phillips Petroleum Timor Sea Pty Ltd New South Wales
Phillips Petroleum Worldwide Gas, Ltd. Cayman Islands
Phillips Petroluem International Corporation Venezuela Liberia
Phillips Pipe Line Company Delaware
Phillips Pt. Arguello Production Company Delaware
Phillips Receivables Company II, LLC Delaware
Phillips Receivables Company, LLC Oklahoma
Phillips Retail Marketing Company Delaware
Phillips Singapore Private Limited Singapore
Phillips STL Ventures Inc. Delaware
Phillips Texas Pipeline Company, Ltd. Texas
Phillips Transportation Alaska, Inc. Delaware
Phillips Utility Gas Corporation Delaware
Phillips-New Mexico Partners, L.P. Delaware
Phillips-San Juan Partners, L.P. Delaware
Polar Tankers Spill Response Company Delaware
Polar Tankers, Inc Delaware
Pontoon (Timor Sea) Pty Ltd Australia
Pontoon N.L. Australia
Projet Malaysia Sdn. Bhd. Malaysia
R.A.Z. Properties, Inc. California
Raptor Facilities Inc. Delaware
Raptor Gas Transmission LLC Delaware
Raptor Natural Pipeline LLC New Mexico
9
State or Jurisdiction in
Which Subsidiary Was
Name of Company Incorporated or Organized
- --------------- -------------------------
Raptor Natural Plains Marketing LLC Delaware
Rocky Mountain Investment & Antique Company Wyoming
Ronany Limited North Ireland
San Jacinto Service Company Delaware
Seagas Pipeline Company Delaware
Seminole Fertilizer Corporation Delaware
Siam Conoco Land Ltd. Thailand
Siam Conoco Terminal Co., Ltd. Thailand
Smile Loyalty Limited England
Societe Europeenne Des Carburants (SECA) Belgium
Sooner Insurance Brokers Limited Bermuda
Sooner Insurance Company Vermont
SRW Cogeneration Limited Partnership Delaware
Stampeder Acquisition (No. 2) Ltd. Canada
Stampeder Acquisition Ltd. Canada
Stampeder Energy (U.S.) Inc. Delaware
Stampeder Exploration Ltd. Canada
Statoil Vietnam AS Norway
Sweeny Coker Investor Sub, Inc. Delaware
The Circle K Corporation Delaware
The Largo Company Delaware
The Oil Shale Corporation Delaware
The Standard Shale Products Company Colorado
TMC Franchise Corporation Arizona
Tosco Canada Ltd. Yukon Territory
Tosco Corporation Nevada
Tosco Europe Limited United Kingdom
Tosco Operating Company, Inc. Delaware
Tosco Pipeline Company Delaware
Tosco Trading, Transportation and Supply, Inc. Delaware
TPC Pipe Line Company Delaware
TS, Inc. Georgia
Union Pipeline Company (California) California
Wabiskaw Explorations Ltd. Canada
WesTTex 66 Pipeline Company Delaware
World Wide Transport, Inc. Liberia
3067047 Novia Scotia Company Nova Scotia
362084 Alberta Inc. Alberta
3793885 Canada Ltd. Canada
534404 Alberta Ltd. Alberta
66 Pipe Line Company Delaware
758350 Alberta Inc. Alberta
942819 Alberta ltd. Alberta
10
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated March 24, 2003,
with respect to the consolidated financial statements, condensed consolidating
financial information and schedule of ConocoPhillips included in the Annual
Report (Form 10-K) for the year ended December 31, 2002, in the following
registration statements and related prospectuses.
ConocoPhillips Form S-3 File No. 333-101187
ConocoPhillips Form S-8 File No. 333-98681
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Houston, Texas
March 24, 2003
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ConocoPhillips (the company) on
Form 10-K for the period ending December 31, 2002, as filed with the U.S.
Securities and Exchange Commission on the date hereof (the Report), I, J. J.
Mulva, President and Chief Executive Officer of ConocoPhillips, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Sections 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the company.
Date: March 24, 2003
/s/ J. J. Mulva
-------------------------------------
J. J. Mulva
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to ConocoPhillips and will be retained by ConocoPhillips and furnished
to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ConocoPhillips (the company) on
Form 10-K for the period ending December 31, 2002, as filed with the U.S.
Securities and Exchange Commission on the date hereof (the Report), I, John A.
Carrig, Executive Vice President, Finance, and Chief Financial Officer of
ConocoPhillips, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Sections 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the company.
Date: March 24, 2003
/s/ John A. Carrig
--------------------------------------------
John A. Carrig
Executive Vice President, Finance, and Chief
Financial Officer
A signed original of this written statement required by Section 906 has been
provided to ConocoPhillips and will be retained by ConocoPhillips and furnished
to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.3
CONOCOPHILLIPS
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
Basis of Presentation
The following Unaudited Pro Forma Combined Statement of Operations has been
prepared to illustrate the estimated effect of the merger between ConocoPhillips
Company (formerly Phillips Petroleum Company (Phillips)) and ConocoPhillips
Holding Company (formerly Conoco Inc. (Conoco)). The Unaudited Pro Forma
Combined Statement of Operations for the year ended December 31, 2002, was
prepared assuming the merger occurred January 1, 2002.
This pro forma financial information is not intended to reflect the results of
operations which would have actually resulted had the merger been effective on
the date indicated. Moreover, this pro forma information is not intended to be
indicative of the results of operations which may be achieved by ConocoPhillips
in the future. The pro forma adjustments use estimates and assumptions based on
currently available information. Management believes that the estimates and
assumptions are reasonable, and that the significant effects of the transactions
are properly reflected. However, actual results may materially differ from this
pro forma financial information.
The preliminary purchase price allocation is subject to revision as more
detailed analysis is completed and additional information on the fair value of
Conoco's assets and liabilities becomes available. Final purchase accounting
adjustments may therefore differ from the pro forma adjustments presented here.
1
- ----------------------------------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Combined ConocoPhillips
Statement of Operations
Millions of Dollars
-----------------------------------------------------------------------------------------------
Eight Pro Forma
Historical Adjusted Months Purchase
ConocoPhillips Non-Recurring Historical Historical Accounting Pro Forma
Year Ended December 31, 2002 As Reported, Charges* ConocoPhillips Conoco** Adjustments ConocoPhillips
-------------- ------------- -------------- ---------- ----------- --------------
REVENUES
Sales and other operating
revenues $ 56,748 - 56,748 23,844 (16)(b) 80,576
Equity in earnings of affiliates 261 - 261 212 (21)(c) 452
Other income 215 - 215 190 - 405
- ----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 57,224 - 57,224 24,246 (37) 81,433
- ----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Purchased crude oil and products 37,823 - 37,823 14,013 (8)(b) 51,828
Production and operating expenses 4,988 (381) 4,607 1,924 (15)(b) 6,516
Selling, general and
administrative expenses 1,660 (379) 1,281 546 - 1,827
Exploration expenses 592 - 592 273 - 865
Depreciation, depletion and
amortization 2,223 - 2,223 1,203 (110)(c) 3,380
64(d)
Impairments 177 - 177 - - 177
Taxes other than income taxes 6,937 - 6,937 5,187 - 12,124
Accretion on discounted
liabilities 22 - 22 - 10(e) 32
Interest and debt expense 566 - 566 341 (66)(f) 841
Foreign currency transaction
(gains) losses 24 - 24 18 - 42
Preferred dividend requirements
of capital trusts and minority
interests 48 - 48 29 - 77
- ----------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 55,060 (760) 54,300 23,534 (125) 77,709
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before income taxes 2,164 760 2,924 712 88 3,724
Provision for income taxes 1,450 203 1,653 550 44(g) 2,247
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING
OPERATIONS (a) $ 714 557 1,271 162 44 1,477
==================================================================================================================================
INCOME FROM CONTINUING
OPERATIONS PER SHARE
Basic $ 1.48 2.64 2.18
Diluted 1.47 2.62 2.17
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING
(IN THOUSANDS)
Basic 482,082 482,082 677,482
Diluted 485,505 485,505 681,616
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Unaudited Pro Forma Financial Statement.
*Adjusted to exclude non-recurring charges directly related to the merger,
including the write-down of acquired in-process research and development
costs ($246 million both before and after tax, excluded from production and
operating expenses), and work force reduction and other charges ($514 million
before tax, $311 million after tax-- $135 million before tax excluded from
production and operating expenses and $379 million before tax excluded from
selling, general and administrative expenses).
**Certain amounts have been reclassified to conform to ConocoPhillips'
presentation.
2
- --------------------------------------------------------------------------------
NOTES TO UNAUDITED PRO FORMA CONOCOPHILLIPS
COMBINED STATEMENT OF OPERATIONS
(a) On August 30, 2002, the U.S. Federal Trade Commission (FTC) accepted for
public comment an Agreement Containing Consent Orders (Consent
Agreement) that permitted Conoco and Phillips to close the merger. This
Consent Agreement included a proposed Decision and Order that required,
among other things, the divestiture of specified Conoco and Phillips
assets. These assets include:
o Phillips' Woods Cross business unit, which includes the Woods
Cross, Utah, refinery and associated Phillips motor fuel marketing
operations (both retail and wholesale) in Utah, Idaho, Wyoming,
and Montana, as well as Phillips' 50 percent interests in two
refined products terminals in Boise and Burley, Idaho;
o Conoco's Commerce City, Colorado, refinery;
o Phillips' Colorado motor fuel marketing operations (both retail
and wholesale);
o Phillips' refined products terminal in Spokane, Washington;
o Phillips' propane terminal assets at Jefferson City, Missouri, and
East St. Louis, Illinois, which include the propane portions of
these terminals and the customer relationships and contracts for
the supply of propane therefrom;
o Certain of Conoco's midstream natural gas gathering and processing
assets in southeast New Mexico; and
o Certain of Conoco's midstream natural gas gathering assets in West
Texas.
These operations are excluded from income from continuing operations. No
pro forma adjustments have been made to reflect any earnings benefit
from the reinvestment of any proceeds which might be recovered, or
reduction of debt which may arise as a consequence of the asset
dispositions required under the consent agreement.
(b) Primarily reflects the elimination of a deferred credit arising from a
prior year settlement for future price modifications to a U.K. long-term
natural gas sales contract, as well as the revaluation of certain other
long-term contracts to their fair value.
(c) Reflects the estimated effects of depreciating and amortizing purchase
accounting adjustment balances in properties, plants and equipment;
equity method investments; and identifiable intangible assets with
definite lives, over their estimated useful lives.
(d) Under ConocoPhillips' accounting policy and current prevalent industry
practice for the acquisition of oil and gas businesses, ConocoPhillips
did not record an initial liability for the estimated costs of removing
Conoco's properties, plants and equipment at the end of their useful
lives. Instead, currently estimated total undiscounted removal costs are
accrued as an additional component of depreciation, building the
liability for removal over the remaining useful lives of the properties,
plants and equipment on a unit-of-production basis.
(e) Includes the impact of conforming accounting policies and discounting
Conoco's environmental liabilities and recording the corresponding
accretion.
(f) Reflects the restatement of Conoco's fixed-rate debt to fair value and
the corresponding reduction in interest expense as the resulting premium
is amortized. Also reflects the capitalization of interest based on the
estimated fair value of Conoco's qualifying assets using a
weighted-average interest rate of 5.3 percent.
3
(g) Reflects the estimated federal and state income tax effects of the pro
forma adjustments to Conoco's pretax income using an approximate blended
statutory rate of 50 percent.
4
