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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 Commission file number 1-27
Texaco Inc.
(Exact name of the registrant as specified in its charter)
Delaware 74-1383447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Westchester Avenue
White Plains, New York 10650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 253-4000
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Texaco Inc. (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, and
(2) has been subject to such filing requirements for the past 90 days.
As of July 30, 1999, there were outstanding 552,731,443 shares of Texaco
Inc. Common Stock - par value $3.125.
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PART I - FINANCIAL INFORMATION
TEXACO INC.
STATEMENT OF CONSOLIDATED INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
---------------------------------------------------------
(Millions of dollars, except as noted)
(Unaudited)
------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES
Sales and services $15,030 $15,651 $ 8,116 $ 7,729
Equity in income of affiliates, interest,
asset sales and other 429 540 153 315
------- ------- ------- -------
15,459 16,191 8,269 8,044
------- ------- ------- -------
DEDUCTIONS
Purchases and other costs 11,806 12,086 6,356 5,972
Operating expenses 1,109 1,225 550 645
Selling, general and administrative expenses 601 572 311 296
Exploratory expenses 210 231 80 90
Depreciation, depletion and amortization 726 763 365 375
Interest expense 245 234 124 116
Taxes other than income taxes 148 225 72 109
Minority interest 35 30 16 15
------- ------- ------- -------
14,880 15,366 7,874 7,618
------- ------- ------- -------
Income before income taxes and cumulative
effect of accounting change 579 825 395 426
Provision for income taxes 107 224 122 84
------- ------- ------- -------
Income before cumulative effect of
accounting change 472 601 273 342
Cumulative effect of accounting change - (25) - -
------- ------- ------- -------
NET INCOME $ 472 $ 576 $ 273 $ 342
======= ======= ======= =======
Preferred stock dividend requirements $ 23 $ 27 $ 10 $ 13
------- ------- ------- -------
Net income available for common stock $ 449 $ 549 $ 263 $ 329
======= ======= ======= =======
Per common share (dollars)
Basic net income $ 0.85 $ 1.03 $ 0.50 $ 0.62
Diluted net income $ 0.85 $ 1.03 $ 0.50 $ 0.61
Cash dividends paid $ 0.90 $ 0.90 $ 0.45 $ 0.45
Average shares outstanding for computation
of earnings per share (thousands)
Basic 526,965 531,232 527,700 530,550
Diluted 529,640 550,598 530,236 549,775
See accompanying notes to consolidated financial statements.
- 1 -
TEXACO INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
-----------------------------------------
(Millions of dollars)
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
-----------
ASSETS
Current Assets
Cash and cash equivalents $ 323 $ 249
Short-term investments - at fair value 26 22
Accounts and notes receivable, less allowance for doubtful
accounts of $27 million in 1999 and $28 million in 1998 3,593 3,955
Inventories 1,366 1,154
Deferred income taxes and other current assets 285 256
------- -------
Total current assets 5,593 5,636
Investments and Advances 6,671 7,184
Properties, Plant and Equipment - at cost 35,499 35,494
Less - accumulated depreciation, depletion and amortization 20,604 20,733
------- -------
Net properties, plant and equipment 14,895 14,761
Deferred Charges 1,036 989
------- -------
Total $28,195 $28,570
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 590 $ 939
Accounts payable and accrued liabilities
Trade liabilities 2,247 2,302
Accrued liabilities 1,121 1,368
Estimated income and other taxes 701 655
------- -------
Total current liabilities 4,659 5,264
Long-Term Debt and Capital Lease Obligations 6,787 6,352
Deferred Income Taxes 1,476 1,644
Employee Retirement Benefits 1,272 1,248
Deferred Credits and Other Noncurrent Liabilities 1,487 1,550
Minority Interest in Subsidiary Companies 700 679
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Total 16,381 16,737
Stockholders' Equity
Market Auction Preferred Shares 300 300
ESOP Convertible Preferred Stock - 428
Unearned employee compensation and benefit plan trust (320) (334)
Common stock (authorized: 700,000,000 shares, $3.125 par value;
567,576,504 shares issued in 1999; 567,606,290 shares issued in 1998) 1,774 1,774
Paid-in capital in excess of par value 1,302 1,640
Retained earnings 9,536 9,561
Other accumulated nonowner changes in equity
Currency translation adjustment (107) (107)
Minimum pension liability adjustment (24) (24)
Unrealized net gain on investments 8 30
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Total other accumulated nonowner changes in equity (123) (101)
------- -------
12,469 13,268
Less - Common stock held in treasury, at cost 655 1,435
------- -------
Total stockholders' equity 11,814 11,833
------- -------
Total $28,195 $28,570
======= =======
See accompanying notes to consolidated financial statements.
-2-
TEXACO INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
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(Millions of dollars)
(Unaudited)
-----------------------
For the six months
ended June 30,
-----------------------
1999 1998
---- ----
OPERATING ACTIVITIES
Net income $ 472 $ 576
Reconciliation to net cash provided by (used in)
operating activities
Cumulative effect of accounting change -- 25
Depreciation, depletion and amortization 726 763
Deferred income taxes (96) (21)
Exploratory expenses 210 231
Minority interest in net income 35 30
Dividends from affiliates, greater (less) than
equity in income 58 (116)
Gains on asset sales (62) (58)
Changes in working capital (267) (316)
Other - net (23) 9
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Net cash provided by operating activities 1,053 1,123
INVESTING ACTIVITIES
Capital and exploratory expenditures (1,109) (1,503)
Proceeds from asset sales 219 113
Purchases of investment instruments (283) (405)
Sales/maturities of investment instruments 606 458
Collection of note/formation payments from U.S. affiliate 101 463
Other - net -- 25
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Net cash used in investing activities (466) (849)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 1,843 967
Repayments (298) (454)
Net increase (decrease) in other borrowings (1,522) 201
Purchases of common stock -- (404)
Dividends paid to the company's stockholders
Common (474) (479)
Preferred (23) (28)
Dividends paid to minority stockholders (15) (35)
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Net cash used in financing activities (489) (232)
CASH AND CASH EQUIVALENTS
Effect of exchange rate changes (24) (8)
------- -------
Increase during period 74 34
Beginning of year 249 311
------- -------
End of period $ 323 $ 345
======= =======
See accompanying notes to consolidated financial statements.
-3-
TEXACO INC.
CONDENSED STATEMENT OF CONSOLIDATED NONOWNER CHANGES IN EQUITY
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------------
(Millions of dollars)
(Unaudited)
-------------------------------------------------
For the six months For the three months
ended Jurne 30, ended June 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 472 $ 576 $ 273 $ 342
Other nonowner changes in equity (net of tax)
Currency translation adjustment - (2) - -
Minimum pension liability adjustment - 2 - -
Unrealized net gain (loss) on investments (22) 7 (2) 2
------- ------- ------- --------
(22) 7 (2) 2
------- ------- ------- --------
Total nonowner changes in equity $ 450 $ 583 $ 271 $ 344
======= ======= ======= ========
TEXACO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Segment Information
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For the six months ended June 30,
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1999 1998
-------------------------------------- -------------------------------------
Sales and Services After Sales and Services After
Inter- Tax Inter- Tax
Outside Segment Total Profit (Loss) Outside Segment Total Profit (Loss)
------- ------- ----- ------------- ------- ------- ----- -------------
(Millions of dollars)
(Unaudited)
Exploration and production
United States $ 826 $ 666 $ 1,492 $ 186 $ 926 $ 905 $ 1,831 $208
International 1,022 724 1,746 56 1,027 663 1,690 109
Refining, marketing and distribution
United States 1,440 7 1,447 87 1,358 78 1,436 111
International 9,856 74 9,930 371 9,883 26 9,909 376
Global gas marketing 1,854 51 1,905 13 2,430 44 2,474 1
------- ------ ------ ---- ------- ------ ------ ----
Segment totals $14,998 $1,522 16,520 713 $15,624 $1,716 17,340 805
======= ====== ======= ======
Other business units 45 (5) 44 --
Corporate/Non-operating 4 (236) 2 (204)
Intersegment eliminations (1,539) -- (1,735) --
------ ---- ------ ----
Consolidated, before
cumulative effect of
accounting change $15,030 $ 472 $15,651 $601
======= ===== ======= ====
- 4 -
For the three months ended June 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
Sales and Services After Sales and Services After
Inter- Tax Inter- Tax
Outside Segment Total Profit (Loss) Outside Segment Total Profit (Loss)
------- ------- ----- ------------- ------- ------- ----- -------------
(Millions of dollars)
(Unaudited)
Exploration and production
United States $ 477 $370 $ 847 $148 $ 438 $451 $ 889 $100
International 577 485 1,062 76 498 367 865 61
Refining, marketing and distribution
United States 835 4 839 24 642 23 665 64
International 5,304 35 5,339 151 4,929 15 4,944 194
Global gas marketing 906 27 933 1 1,213 25 1,238 10
------ ---- ----- ---- ------- ---- ----- ----
Segment totals $8,099 $921 9,020 400 $ 7,720 $881 8,601 429
====== ==== ======= ====
Other business units 22 1 18 (2)
Corporate/Non-operating 3 (128) -- (85)
Intersegment eliminations (929) -- (890) --
----- ---- ----- ---
Consolidated $8,116 $273 $7,729 $342
====== ==== ====== ====
Assets as of
--------------------------------------------
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
(Millions of dollars)
Exploration and production
United States $ 8,681 $ 8,699
International 4,561 4,352
Refining, marketing and distribution
United States 3,666 4,095
International 8,745 8,306
Global gas marketing 822 879
------- -------
Segment totals 26,475 26,331
Other business units 557 506
Corporate/Non-operating 1,486 1,945
Intersegment eliminations (323) (212)
------- -------
Consolidated $28,195 $28,570
======= =======
- 5 -
Note 2. Inventories
- -------------------
The inventory accounts of Texaco are presented below (in millions of dollars):
As of
--------------------------------------
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
Crude oil $ 203 $ 116
Petroleum products and petrochemicals 932 799
Other merchandise 37 40
Materials and supplies 194 199
------ -------
Total $1,366 $ 1,154
====== =======
Note 3. Redemption of Series B and Series F ESOP Convertible Preferred Stock
- ----------------------------------------------------------------------------
On June 30, 1999, each share of Series B ESOP Convertible Preferred Stock was
converted into 25.736 shares, or 15.1 million shares in total, of Common Stock
of Texaco Inc., after we called the Series B for redemption.
On February 16, 1999, each share of Series F ESOP Convertible Preferred Stock
was converted into 20 shares, or 1.1 million shares in total, of Common Stock of
Texaco Inc., after we called the Series F for redemption.
These noncash financing activities for the first six months of 1999 resulted in
reductions of $391 million in preferred stock outstanding and $308 million in
paid-in capital. This was offset by a $699 million reduction in the cost of
shares held in treasury.
Note 4. Other Financial Information, Commitments and Contingencies
- ------------------------------------------------------------------
Information relative to commitments and contingent liabilities of Texaco is
presented in Note 16, pages 67-68, of our 1998 Annual Report and in Note 4,
pages 5 and 6, of our first quarter, 1999 Form 10-Q.
It is impossible for us to ascertain the ultimate legal and financial liability
with respect to contingencies and commitments. However, we do not anticipate
that the aggregate amount of such liability in excess of accrued liabilities
will be materially important in relation to our consolidated financial position
or results of operations.
Note 5. Investments in Significant Equity Affiliates
- ----------------------------------------------------
U.S. Downstream Alliances
Summarized unaudited financial information for Equilon, formed January 1, 1998
and jointly owned 44% by Texaco and 56% by Shell Oil Company, is presented below
on a 100% Equilon basis (in millions of dollars):
For the six months For the three months
ended June 30, ended June 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Gross revenues $13,787 $12,095 $8,008 $6,070
Income (loss) before income taxes $ 48 $ 310 $ (123) $ 198
- 6 -
Summarized unaudited financial information for Motiva, formed July 1, 1998 and
jointly owned 32.5% each by Texaco and Saudi Refining, Inc. (a corporate
affiliate of Saudi Aramco) and 35% by Shell Oil Company, is presented below on a
100% Motiva basis (in millions of dollars):
For the six months For the three months
ended June 30, 1999 ended June 30, 1999
------------------- -------------------
Gross revenues $5,315 $3,073
Income (loss) before income taxes $ 20 $ (21)
We account for our interests in Equilon and Motiva using the equity method of
accounting. Under this method, we record our share of Equilon's and Motiva's
results of operations on a one-line basis to Equity in Income of Affiliates in
the Statement of Consolidated Income. Additionally, since Equilon and Motiva are
limited liability companies, we record the provision and related liability for
income taxes applicable to our share of Equilon's and Motiva's pre-tax income in
our consolidated financial statements.
Caltex Group of Companies
Summarized unaudited financial information for the Caltex Group of Companies,
owned 50% by Texaco and 50% by Chevron Corporation, is presented below on a 100%
Caltex Group basis (in millions of dollars):
For the six months For the three months
ended June 30, ended June 30,
--------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Gross revenues $8,666 $8,555 $4,706 $4,249
Income before income taxes and cumulative
effect of accounting change $ 518 $ 590 $ 229 $ 270
Income before cumulative effect
of accounting change $ 343 $ 427 $ 140 $ 222
Net income $ 343 $ 377 $ 140 $ 222
Effective January 1, 1998, Caltex adopted a new accounting standard, Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities," issued by the
American Institute of Certified Public Accountants. This resulted in a change in
accounting for start-up costs at Caltex' Thailand refinery. Caltex' first
quarter 1998 results included a $50 million charge (no tax benefit) associated
with this accounting change.
Note 6. Subsequent Events
- -------------------------
In July 1999, the Governing Council of the United Nations Compensation
Commission (UNCC) approved an award to Saudi Arabian Texaco Inc. (SAT), a
wholly-owned subsidiary of Texaco Inc., of about $505 million, plus unspecified
interest, for damages sustained as a result of Iraq's invasion of Kuwait in
1990. Payments to SAT are subject to income tax in Saudi Arabia at an applicable
tax rate of 85%. SAT is party to a concession agreement with the Kingdom of
Saudi Arabia covering the Partitioned Neutral Zone in Southern Kuwait and
Northern Saudi Arabia.
UNCC funds compensation awards by retaining 30% of Iraqi oil sales revenue under
an agreement with Iraq. We do not know when we will receive this award since the
timing of payments by UNCC depends on several factors, including the total
amount of all compensation awards, the ability of Iraq to produce and sell oil,
the price of Iraqi oil and the duration of U.N. trade sanctions on Iraq. This
award will be recognized in income when collection is assured.
- 7 -
Caltex Corporation, our 50% owned affiliate, announced on July 28, 1999 that it
had entered into a non-binding, written understanding with Nippon Mitsubishi Oil
Corporation (NMOC) relating to a public tender offer for shares of Koa Oil Co.
Ltd. (Koa), a Japanese refining enterprise. Caltex currently owns 72,600,000
shares, or 50 percent, of Koa. The understanding sets forth conditions under
which NMOC would undertake a public tender in Japan for 72,600,000 shares of Koa
at 360 Yen (about $3.10) per share. If formalized, the public tender would
commence in late August and run until mid-September. The public tender offer is
subject to pricing, market conditions and due-diligence reviews by NMOC. Caltex
has not committed to tendering its shares to NMOC. There are numerous
uncertainties surrounding the ultimate outcome of the tender offer. If Caltex
were to tender its shares to NMOC for the equivalent of $3.10 per share, the
impact on us from this transaction would be a loss in the third quarter.
* * * * * * * * * * *
We have consistently applied the accounting policies we used in preparing the
financial statements we issued in our 1998 Annual Report to our unaudited
financial statements for the six and three-month periods ended June 30, 1999 and
1998. In our opinion, we have made all adjustments and disclosures necessary to
present fairly our results of operations for such periods. These adjustments
include normal recurring adjustments. The information is subject to year-end
audit by independent public accountants. We make no forecasts or representations
with respect to the level of net income for the year 1999.
* * * * * * * * * * *
SUPPLEMENTAL MARKET RISK DISCLOSURES
We are exposed to the following types of market risks:
o The price of crude oil, natural gas and petroleum products
o The value of foreign currencies in relation to the U.S. dollar
o Interest rates
We use derivative financial instruments, such as futures, forwards, options and
swaps, in managing these risks. There were no material changes during the first
six months of 1999 in our exposure to losses from possible future changes in the
price of crude oil, natural gas and petroleum products, or from possible future
changes in the value of foreign currencies in relation to the U. S. dollar.
The Liquidity and Capital Resources section of the MD&A appearing on page 14 of
this Form 10-Q describes financing and related hedging transactions we entered
into during the first six months of 1999. As a result of those transactions, our
variable rate debt, before the effects of interest rate swaps, now totals $2.2
billion, as compared with $2.7 billion at year-end 1998. The notional amount of
interest rate swaps increased $850 million and now totals $1.6 billion. Based on
our present interest rate exposure on variable rate debt and interest rate
swaps, a hypothetical increase or decrease in interest rates of 200 basis points
would not materially affect our consolidated financial position, net income or
cash flows.
- 8 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Texaco's net income for the second quarter of 1999 was $273 million, or $0.50
per share, as compared with $342 million, or $0.61 per share, for the second
quarter of 1998. Net income for the first six months of 1999 was $472 million,
or $0.85 per share, as compared with $576 million, or $1.03 per share, for the
first six months of 1998. Both the 1999 and 1998 periods included special items.
Income before special items for the second quarter of 1999 was $286 million, or
$0.52 per share, as compared with $335 million, or $0.60 per share, for the
second quarter of 1998. For the first six months of 1998, income before special
items was $391 million, or $0.70 per share, as compared with $594 million, or
$1.06 per share, for the first six months of 1998.
Our second quarter earnings, while below last year, showed marked improvement
over this year's first quarter as we benefited from the recovery in crude oil
and natural gas prices. The benchmark price for crude has risen into the $19 to
$20 per barrel range signaling higher upstream earnings in the months ahead.
Refining margins, however, remain at historically low levels in most areas of
the world. A bright spot in our downstream was the solid performance of our
Western U.S. operations. Also, our Latin American operations continue to grow
led by solid earnings in the Caribbean and Central American areas.
While we maintain our focus on strategic growth opportunities, our accelerated
$650 million cost reduction program continues to produce benefits. Expenses per
barrel declined nine percent versus a year ago, the U.S. downstream alliances
are ahead of schedule in capturing synergy benefits and the cost reduction and
restructuring programs by Caltex should enhance its returns as the Asian
economies recover.
Recent successes in our pursuit of high-impact exploration and production
opportunities include:
o June start-up production from the Gemini project in the Gulf of Mexico;
o The acquisition of an additional 10 percent equity ownership in the Hamaca
oil project in Venezuela, raising our ownership share to 30 percent;
o An agreement with Petrobras, Brazil's national oil company, to become an
equity partner in the Campos exploration and the Frade development areas
offshore Brazil; and
o A successful bid on three high potential offshore exploration blocks in
Brazil's First License Round.
Results for 1999 and 1998 are summarized in the table on the following page.
Details on special items are included in the segment analysis which follows this
table.
- 9 -
(Unaudited)
-------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1999 1998 1999 1998
---- ---- ---- ----
(Millions of Dollars)
Income before special items $ 391 $ 594 $ 286 $ 335
------- ------- ------ -----
Inventory valuation adjustments 138 - 55 -
Write-down of assets (76) - (76) -
Tax issues 65 19 54 19
Gains on major asset sales 21 20 21 20
Reorganization, restructuring and employee separation costs (67) (32) (67) (32)
------- ------- ------ -----
Special items 81 7 (13) 7
------- ------- ------ -----
Adoption of new accounting standard
Cumulative effect of accounting change - (25) - -
------- ------- ------ -----
Net income $ 472 $ 576 $ 273 $ 342
======= ======= ====== =====
Effective January 1, 1998, our affiliate, Caltex, adopted a new accounting
standard, Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," issued by the American Institute of Certified Public Accountants.
This resulted in a change in accounting for start-up costs at its Thailand
refinery. Our first quarter 1998 results included a $25 million charge
associated with this accounting change.
OPERATING RESULTS
EXPLORATION AND PRODUCTION
United States
Exploration and production earnings in the U.S. for the second quarter of 1999
were $148 million, as compared with $100 million for the second quarter of 1998.
For the first six months of 1999 and 1998, earnings were $186 million and $208
million. Results for 1999 included a second quarter special gain of $21 million
from the sale of our interest in six California onshore and offshore fields, and
a special charge of $11 million for employee separation costs. See the section
entitled, Reorganizations, Restructurings and Employee Severance Programs
beginning on page 14 of this Form 10-Q for additional information. Results for
the first six months of 1999 also included a first quarter special benefit of
$11 million for a production tax refund. Excluding these special items, results
for the second quarter and first six months of 1999 totaled $138 million and
$165 million.
U.S. exploration and production earnings in the second quarter of 1999 were
above last year's levels mostly due to higher crude oil prices. Prices continued
to rise in the second quarter as there was high compliance by OPEC and several
non-OPEC countries with previously announced production cutbacks leading to a
decline in worldwide inventory levels. Average realized crude oil prices for the
second quarter 1999 were $12.80 per barrel, a 40 percent increase over the first
quarter and 19 percent above last year. Average natural gas prices were $2.05
per MCF in the second quarter, the same as last year.
Earnings for the first six months of 1999 were below last year due to lower
production and depressed natural gas prices during the first quarter. Average
natural gas prices were $1.92 per MCF, nine percent below last year. Also,
average realized crude oil prices were $10.95 per barrel, three percent below
last year.
- 10 -
Production decreased 12 percent for the second quarter and first half of 1999
due to natural field declines and asset sales. Focusing on capital efficiency,
Texaco and our operating partners reduced developmental activities such as
infill drilling, recompletions and secondary recovery projects, normally
undertaken to offset production declines within mature fields.
Expenses were lower for the second quarter and first half of 1999 as a result of
cost savings from the restructuring of our worldwide upstream organization.
Exploratory expenses for the second quarter and first half of 1999 were $38
million and $92 million before tax, $13 million and $55 million below the same
periods of 1998.
International
Exploration and production earnings outside the U.S. for the second quarter of
1999 were $76 million, as compared with $61 million for the second quarter of
1998. For the first six months of 1999 and 1998, earnings were $56 million and
$109 million. Results for 1999 included second quarter special charges of $2
million for employee separation costs. See the section entitled,
Reorganizations, Restructurings and Employee Severance Programs beginning on
page 14 of this Form 10-Q for additional information. Excluding the special
charges, results for the second quarter and first six months of 1999 totaled $78
million and $58 million.
International exploration and production operating results for the second
quarter of 1999 were above last year's levels mostly due to higher crude oil
prices. Crude oil prices for the second quarter of 1999 continued to rise due to
worldwide production cutbacks and inventory declines. Average realized crude oil
prices for the second quarter of 1999 were $13.73 per barrel, a 39 percent
increase over the prior quarter and 20 percent above last year.
Operating results for the first six months of 1999 were below last year mostly
due to higher exploratory expenses. Also, average realized crude oil prices were
$11.60 per barrel, slightly lower than last year and average natural gas prices
were $1.37 per MCF, 15 percent below last year.
Daily production in the second quarter and first six months of 1999 was flat
with last year. During the first half of 1999 production declines from the U.K.
North Sea, due to temporary operating problems in the first quarter, and lower
gas production in Latin America were offset by increased production in the
Partitioned Neutral Zone, Indonesia and Karachaganak. Expenses were lower for
the second quarter of 1999 as a result of cost savings from the restructuring of
our worldwide upstream organization. Exploratory expenses for the second quarter
of 1999 were $42 million before taxes, slightly higher than last year.
Exploratory expenses for the first six months of 1999 were $118 million before
taxes, $34 million higher than last year due to an unsuccessful first quarter
exploratory well in a new offshore area of Trinidad.
Looking Forward in the Worldwide Upstream
We intend to cost-effectively explore for, develop and produce crude oil and
natural gas reserves. Our areas of focus include the U.S. Gulf of Mexico, the
U.K. North Sea, Kazakhstan, Latin America and West Africa, where we recently
announced two major oil discoveries offshore Nigeria.
We have begun to capture the expected $200 million in annual pre-tax cash
expense savings from our worldwide upstream restructuring program announced in
November, 1998. The program is designed to place greater emphasis on our
long-term production and reserve growth, and to address the need for
streamlining costs and improving competitiveness. These savings include lower
people-related and operating expenses.
- 11 -
REFINING, MARKETING AND DISTRIBUTION
United States
We conduct our U.S. downstream activities primarily through Equilon, our western
alliance with Shell Oil Company, and Motiva, our eastern alliance with Shell Oil
Company and Saudi Refining, Inc.
Our share of refining, marketing and distribution earnings in the U.S. for the
second quarter of 1999 were $24 million, as compared with $64 million for the
second quarter of 1998. For the first six months of 1999 and 1998, earnings were
$87 million and $111 million. Results for 1999 included second quarter special
charges of $76 million for asset write-downs to their estimated sales values due
to the pending sales by Equilon of its El Dorado and Wood River refineries and
$11 million for alliance reorganization, restructuring and employee separation
costs. Results for 1999 included a first quarter special benefit of $8 million
due to higher inventory values on March 31, 1999. This follows a fourth-quarter
1998 charge of $34 million to reflect lower prices on December 31, 1998 for
inventories of crude oil and refined products. We value inventories at the lower
of cost or market, after initial recording at cost. Inventory valuation
adjustments are reversed when the associated physical units of inventory are
sold. Excluding these special items, results for the second quarter and first
six months of 1999 were $111 million and $166 million. The second quarter of
1998 included a special charge of $32 million, mainly for alliance employee
separation costs. Excluding this special charge, results for the second quarter
and first six months of 1998 were $96 million and $143 million.
During the second quarter and first half of 1999, Equilon's earnings benefited
from improved West Coast refining and marketing margins, although operational
problems at the Puget Sound refinery and scheduled maintenance at the Los
Angeles refinery had a negative impact on earnings. Margins on the West Coast
remained strong as a result of refinery outages leading to industry supply
disruptions.
Motiva continued to experience weak refining margins during the second quarter
due to high industry wide inventory levels. These effects were partially offset
by higher gasoline volumes.
The second quarter and first half of 1999 also benefited from the realization of
synergies for Equilon and Motiva, which included higher utilization of
proprietary pipelines, marketing staff and function consolidations, reduced
additive costs, and hydrotreater realignment at the Convent refinery.
International
Refining, marketing and distribution earnings outside the U.S. for the second
quarter of 1999 were $151 million, as compared with $194 million for the second
quarter of 1998. For the first six months of 1999 and 1998, earnings were $371
million and $376 million. Results for 1999 included first and second quarter
special benefits of $75 million and $55 million to reflect higher prices for
crude oil and refined products. This follows a fourth-quarter 1998 special
charge of $108 million to reflect lower prices on December 31, 1998, as well as
additional charges previously recorded. We value inventories at the lower of
cost or market, after initial recording at cost. Inventory valuation adjustments
are reversed when the associated physical units of inventory are sold. Results
for the second quarter of 1999 also included a Korean tax benefit of $54
million, as well as Caltex restructuring charges of $25 million and employee
separation costs in Europe and Latin America of $9 million. See the section
entitled, Reorganizations, Restructurings and Employee Severance Programs
beginning on page 14 of this Form 10-Q for additional information. Excluding
these special items, results for the second quarter and first six months of 1999
were $76 million and $221 million.
International refining and marketing operating results for the second quarter of
1999 declined significantly from 1998. The decline was due to the protracted
weakness of international refining margins in both the Caltex and European areas
of operation. Results in Latin America declined due to weak economic conditions
in Brazil and poor refining margins in Panama.
- 12 -
Results for the first half of 1999 were similarly affected by lower refining
margins and intensified competitive pressures. Improved economic conditions in
Asia, resulting in higher sales volumes and reduced currency volatility, were
more than offset by lower margins in the Caltex region. Results in Latin America
and Europe were down due to the economic situation in Brazil and poor refining
margins in the U.K., Netherlands and Panama. In the Caribbean and Central
American areas, marketing results increased due to lower acquisition costs and
increased sales in the industrial sector.
Looking Forward in the Worldwide Downstream
Our U.S. joint ventures with Shell and Saudi Refining, Inc. will continue to
lower costs and capture synergies. We expect that our share of these annual
pre-tax cost reductions will be over $300 million. These savings include lower
people-related expenses and reductions in cash operating expenses due to
efficiencies. We will continue to expand our operations in Latin America. We
have begun to capture the expected $25 million in annual pre-tax cost savings
from our international downstream operations' announced restructuring,
representing lower people-related expenses. In addition, we expect that our
share of the annual pre-tax cost savings from the Caltex reorganization will be
over $25 million, representing lower people-related expenses.
Global Gas Marketing
Global gas marketing earnings for the second quarter of 1999 were $1 million, as
compared with $10 million for the second quarter of 1998. For the first six
months of 1999 and 1998, earnings were $13 million and $1 million. Results for
1999 included a second quarter special charge of $3 million for employee
separation costs. See the section entitled, Reorganizations, Restructurings and
Employee Severance Programs beginning on page 14 of this Form 10-Q for
additional information. Excluding this special charge, results for the second
quarter and first six months of 1999 were $4 million and $16 million. Results
for 1998 included a second quarter special gain of $20 million from the sale of
a partial interest in a pipeline. Excluding this special gain, results for the
second quarter and first six months of 1998 were losses of $10 million and $19
million.
Global gas marketing operating results for the second quarter of 1999 benefited
from the continued improvement of natural gas margins. Results for the first
half of 1999 reflected gains on normal asset sales including our interest in a
U.K. retail gas marketing operation and the sale of a U.S. gas gathering
pipeline.
We have begun to capture over $20 million in annual pre-tax cost savings from
the global gas marketing restructuring announced in November 1998. These savings
include lower people-related expenses and benefits from our exiting the United
Kingdom gas marketing business.
Other Business Units
Results for the second quarter of 1999 were $1 million, as compared with a loss
of $2 million for the second quarter of 1998. Results for the first six months
of 1999 were a loss of $5 million, while there were no earnings for the first
six months of 1998. Our other business units include insurance activity and
power generation and gasification operations.
CORPORATE/NON-OPERATING
Corporate/Non-operating charges for the second quarter of 1999 were $128
million, as compared with charges of $85 million for the second quarter of 1998.
For the first six months of 1999 and 1998, charges were $236 million and $204
million. Results for 1999 included a second quarter special charge of $6 million
for employee separation costs. See the section entitled, Reorganizations,
Restructurings and Employee Severance Programs beginning on page 14 of this Form
10-Q for additional information. Excluding this special charge, charges for the
second quarter and first six months of 1999 were $122 million and $230 million.
Results for 1998 included a second quarter special tax benefit of $19 million
attributable to the sale of an interest in a subsidiary. Excluding this special
gain, charges for the second quarter and first six months of 1998 were $104
million and $223 million.
- 13 -
Corporate/Non-operating results for the second quarter and first half of 1999
reflect higher net interest expense due to decreased interest income from
investments and higher interest expense due to increased debt. First half
results this year included gains on the first quarter sales of marketable
securities.
We have begun to capture the expected $60 million in annual pre-tax cost savings
as a result of the fourth quarter 1998 corporate center reorganization and other
cost-cutting initiatives, mainly lower people-related expenses and operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash, cash equivalents and short-term investments were $349 million at June
30, 1999, as compared with $271 million at year-end 1998.
During 1999, our operations provided cash of $1,053 million. We also had cash
inflows of $219 million from asset sales, $323 million from net sales of
investment instruments and $23 million from net borrowings. Early collection of
a note receivable from our affiliate Equilon provided another $101 million. We
spent $1,109 million on our capital and exploratory program and paid $512
million in common, preferred and minority interest dividends.
At June 30, 1999, our ratio of total debt to total borrowed and invested capital
was 37.1%, as compared with 36.8% at year-end 1998. At June 30, 1999, our
long-term debt included $2.05 billion of debt scheduled to mature within one
year, which we have both the intent and ability to refinance on a long-term
basis. During the first six months of 1999, our debt activity included a $400
million borrowing due 2009, $1,242 million issued under our medium-term note
program and a $100 million borrowing associated with one of our producing
interests located in the U.K. North Sea. In addition, we reduced our commercial
paper by $1,568 million, to $49 million at June 30, 1999, while decreasing other
debt obligations by $151 million. During the first six months of 1999, we
entered into $850 million of floating rate pay interest rate swaps. All floating
rate swaps entered into to date in 1999 are indexed to LIBOR. We maintain $2.05
billion in revolving credit facilities, which were unused at June 30, 1999, to
provide additional support for liquidity and our commercial paper program.
Subsequent to June 30, 1999, we established a new "shelf" registration for $1.5
billion, bringing our total capacity under this program to $2.0 billion.
We consider our financial position to be sufficiently strong to meet our
anticipated future financial requirements.
REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEVERANCE PROGRAMS
- ---------------------------------------------------------------
In the fourth quarter of 1998, we announced that we were reorganizing several of
our operations and implementing other cost-cutting initiatives. The principal
units affected were our worldwide upstream operations; our international
downstream operations, principally our marketing operations in the United
Kingdom and Brazil and our refining operations in Panama; our global gas
marketing operations; and our corporate center. The reorganizations were
substantially completed by the end of the first quarter of 1999. We accrued $115
million ($80 million, net of tax) for employee separations, curtailment costs
and special termination benefits associated with these announced restructurings
in the fourth quarter of 1998. During the second quarter of 1999, we expanded
the employee severance programs and recorded an additional provision of $48
million ($31 million, net of tax). For the most part, severance accruals are
shown as operating expenses in the Statement of Consolidated Income.
The table on the following page, which identifies each of our four restructuring
initiatives, provides the provision recorded in the fourth quarter of 1998 and
the additional provision recorded in the second quarter of 1999, along with the
payments made through June 30, 1999 and the remaining obligations as of June 30,
1999. We will pay the remaining obligations in future periods in accordance with
plan provisions.
- 14 -
Provision Recorded in the
------------------------- Payments Remaining
Fourth Quarter, Second Quarter, Made Through Obligations as of
1998 1999 June 30, 1999 June 30, 1999
--------------- --------------- ------------- -----------------
(Millions of Dollars)
Worldwide upstream $ 56 $20 $(30) $ 46
International downstream 25 13 (18) 20
Global gas marketing 5 4 (2) 7
Corporate center 29 11 (13) 27
----- --- ---- ----
Total $ 115 $48 $(63) $100
===== === ==== ====
At the time we initially announced these programs, we estimated that over 1,400
employee reductions would result. Employee reductions of 800 in our worldwide
upstream operations, 300 in our international downstream areas, 100 in our
global gas marketing operations and 200 in our corporate center were expected.
During the second quarter of 1999, we expanded the program by almost 1,100
employees, comprised of 600 employees in our worldwide upstream operations, 250
employees in our international downstream areas, 100 employees in our global gas
marketing operations and 150 employees in our corporate center. Through June 30,
1999, employee reductions totaled 1,232 in our worldwide upstream operations,
339 in our international downstream areas, 144 in our global gas marketing
operations and 349 in our corporate center. Almost all of the remaining
reductions will occur during the third quarter of this year.
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures were $1,458 million for the first half of
1999, compared with $1,881 million for 1998.
Upstream expenditures in the U.S. for the first six months of 1999 were
significantly below 1998 levels due to reductions and deferrals of exploratory
and developmental spending related to market conditions. Continuing areas of
focus included platform development in deepwater Gulf of Mexico projects and
developmental drilling in California.
Internationally, expenditures increased slightly as we raised our ownership
interest in the Venezuelan Hamaca project and continued to focus spending for
Nigerian lease acquisitions and developmental work in the U.K. North Sea -
Captain B field. These increases were offset by decreased spending in Eurasia
where a significant investment in the Karachaganak project was made in the first
half of 1998. Exploratory expenditures increased due to activity in offshore
Trinidad.
Downstream capital expenditures decreased following refinery project completions
in the U.S. and the slowing of re-imaging and brand initiatives in the U.S. and
Caltex areas of operation. There was also lower spending on a gas pipeline
project which incurred peak expenditures in 1998. Other operations showed an
increase in spending for Indonesia, California and Philippines cogeneration
facilities.
NEW ACCOUNTING STANDARD
- -----------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new accounting rules
and disclosure requirements for most derivative instruments and hedge
transactions. In July 1999, the FASB issued SFAS 137, which deferred the
effective date of SFAS 133. We will adopt SFAS 133 effective January 1, 2001 and
are currently assessing the initial effects of adoption.
- 15 -
EURO CONVERSION
- ---------------
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing legacy currencies and
one common currency--the euro. The euro began trading on world currency
exchanges and may be used in business transactions. On January 1, 2002, new
euro-denominated bills and coins will be issued, and legacy currencies will be
completely withdrawn from circulation by June 30 of that year.
Prior to introduction of the euro, our operating subsidiaries affected by the
euro conversion completed computer systems upgrades and fiscal and legal due
diligence to ensure our euro readiness. Computer systems have been adapted to
ensure that all our operating subsidiaries have the capability to comply with
necessary business requirements and customer/supplier preferences. Legal due
diligence was conducted to ensure post-euro continuity of contracts, and fiscal
reviews were completed to ensure compatibility with our banking relationships.
We, therefore, experienced no major impact to our current business operations.
We continue to review our marketing and operational policies and procedures to
ensure our ability to continue to successfully conduct all aspects of our
business in this new, price-transparent market. We believe that the euro
conversion will not have a material adverse impact on our financial condition or
results of operations.
YEAR 2000
- ---------
On pages 39 and 40 of our 1998 Annual Report, we discussed our state of
readiness and our costs, risks and contingency plans for dealing with potential
Year 2000 (Y2K) date change problems. We reported that approximately 95% of the
computers and computer software involved in corporate financial applications,
and about 5% of our industrial automation systems used in refineries, lubricant
and gas plants and oil well operations needed modification or upgrade. Since
that time, we have not identified any additional material Y2K risks. We continue
to believe that the worst case scenario we described in our 1998 Annual Report
is not likely to occur. However, if it occurs, Y2K failures, if not corrected on
a timely basis or otherwise mitigated by our contingency plans, could have a
material adverse effect on our results of operations, liquidity and overall
financial condition.
As of the end of the second quarter of 1999, we completed modifying or upgrading
99% of the corporate financial applications and 99% of the industrial automation
systems that required such work. We are not able to complete a small percentage
of upgrades until our vendors provide the required equipment. We expect to
complete the last of these upgrades by September 1, 1999. If these upgrades are
delayed beyond that date, we will use contingency plans to work around any
noncompliant systems or seek alternative vendors, as appropriate. We are
approximately 99% through our review of our critical suppliers and customers,
and the development of contingency plans, as required. If we cannot satisfy
ourselves that these critical suppliers and customers will be able to operate in
2000, we will seek alternatives and/or utilize contingency plans.
We have identified over 45,000 systems for assessment of potential Y2K issues.
These were categorized as: Applications, Telecommunications, Computer Systems or
Embedded Systems (Industrial Automation). We assessed each system and
prioritized them as Critical, Essential or Important. Critical systems are those
related to Safety, Health and Environment, including monitoring and regulatory
reporting systems. Essential systems are those required to accomplish business
objectives. Important systems are those used in a support role and are not
required for day-to-day operations. As of July 1, 1999, we have 129 Critical and
Essential systems pending upgrades, which are all scheduled for completion
during the third quarter.
We are also evaluating the business resumption plans of all our business units
for any Year 2000 issues, and we have begun implementing end-of-year rollover
plans. This effort is part of our Contingency Planning project, and is 99%
complete.
- 16 -
During the second quarter of 1999, we spent $5 million in readying our systems
for Y2K, bringing our total spent through June 30, 1999 to $49 million. We
estimate that we will spend about $11 million during the second half of 1999,
most in December as we implement our Early Alert System.
FORWARD-LOOKING STATEMENTS
- --------------------------
Portions of the foregoing discussion of RESULTS OF OPERATIONS; REORGANIZATIONS,
RESTRUCTURINGS AND EMPLOYEE SEVERANCE PROGRAMS; EURO CONVERSION; and, YEAR 2000
contain "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.
These statements are based on our current expectations, estimates and
projections. Therefore, they could ultimately prove to be inaccurate. Factors
which could affect our expectations for worldwide crude oil production, upstream
earnings and downstream margins in 1999 are changes in business conditions, such
as energy prices, world economic conditions, demand growth and inventory levels.
The extent and timing of our anticipated cost savings and reorganization
programs will depend upon worldwide and industry economic conditions. Factors
that could alter the financial impact of our euro conversion include: changes in
current governmental regulations and interpretations of such regulations;
unanticipated implementation costs; and the effect of the euro conversion on
product prices and margins. Factors that could affect our ability to be Year
2000 compliant by the end of 1999 include: the failure of our customers,
suppliers, governmental entities and others to achieve compliance and the
inaccuracy of certifications received from them; our inability to identify and
remediate every possible problem; and a shortage of necessary programmers,
hardware and software. For a further discussion of additional factors that could
cause actual results to materially differ from those in the forward-looking
statements, please refer to the section entitled "Forward-Looking Statements and
Factors That May Affect Our Business" in our 1998 Annual Report on Form 10-K.
- 17 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
We have provided information about legal proceedings pending against Texaco
in Note 4 to the Consolidated Financial Statements of this Form 10-Q, in Item 1
of our first quarter, 1999 Form 10-Q and in Item 3 of our 1998 Annual Report on
Form 10-K. Note 4 of this Form 10-Q, Item 1 of our first quarter 1999 Form 10-Q
and Item 3 of our 1998 Form 10-K are incorporated here by reference.
The Securities and Exchange Commission ("SEC") requires us to report
proceedings that were instituted or contemplated by governmental authorities
against us under laws or regulations relating to the protection of the
environment. None of these proceedings is material to our business or financial
condition. Following is a brief description of a proceeding that was resolved
during the second quarter of 1999.
o We previously reported that the U.S. Department of Justice filed suit in
U.S. District Court in Nevada against our affiliates, Nevada Cogeneration
Associates #1 and Nevada Cogeneration Associates #2. The suit sought
penalties under the Clean Air Act for alleged excess emissions from
cogeneration facilities in Clark County, Nevada. The defendants have
installed emission control equipment at each facility and agreed to pay a
fine of $100,000 for each facility, pursuant to a Consent Decree settling
the lawsuit, expected to be approved by the Court later this month.
- 18 -
Item 5. Other Information
- -------------------------
(Unaudited)
------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1999 1998 1999 1998
---- ---- ---- ----
(Millions of dollars)
CAPITAL AND EXPLORATORY EXPENDITURES
Exploration and production
United States $ 463 $ 816 $ 207 $ 374
International 568 551 346 261
------ -------- ------ ------
Total 1,031 1,367 553 635
------ -------- ------ ------
Refining, marketing and distribution
United States 158 183 85 95
International 176 228 99 129
------ -------- ------ ------
Total 334 411 184 224
------ -------- ------ ------
Global gas marketing 25 83 14 49
------ -------- ------ ------
Total operating segments 1,390 1,861 751 908
Other business units 68 20 38 6
------ -------- ------ ------
Total $1,458 $1,881 $ 789 $ 914
====== ====== ====== ======
Exploratory expenses included above
United States $ 92 $ 147 $ 38 $ 51
International 118 84 42 39
------ -------- ------ ------
Total $ 210 $ 231 $ 80 $ 90
====== ======== ====== ======
- 19 -
(Unaudited)
--------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1999 1998 1999 1998
---- ---- ---- ----
OPERATING DATA
- --------------
Exploration and Production
- --------------------------
United States
- -------------
Net production of crude oil and natural
gas liquids (000 BPD) 404 449 399 447
Net production of natural gas - available
for sale (000 MCFPD) 1,483 1,721 1,479 1,703
------ ------ ------ ------
Total net production (000 BOEPD) 651 736 646 731
Natural gas sales (000 MCFPD) 3,295 3,908 3,015 3,934
Average U.S. crude (per bbl) $10.95 $11.26 $12.80 $10.72
Average U.S. natural gas (per mcf) $ 1.92 $ 2.10 $ 2.05 $ 2.05
Average WTI (Spot) (per bbl) $15.44 $15.26 $17.66 $14.62
Average Kern (Spot) (per bbl) $ 9.49 $ 8.31 $11.26 $ 7.75
International
- -------------
Net production of crude oil and natural
gas liquids (000 BPD)
Europe 136 154 143 149
Indonesia 165 155 150 156
Partitioned Neutral Zone 119 106 121 105
Other 67 69 69 67
------ ------ ------ ------
Total 487 484 483 477
Net production of natural gas - available
for sale (000 MCFPD)
Europe 265 251 244 245
Colombia 157 196 160 185
Other 111 118 112 112
------ ------ ------ ------
Total 533 565 516 542
------ ------ ------ ------
Total net production (000 BOEPD) 576 578 569 567
Natural gas sales (000 MCFPD) 557 721 549 665
Average International crude (per bbl) $11.60 $11.68 $13.73 $11.42
Average International natural gas (per mcf) $ 1.37 $ 1.61 $ 1.23 $ 1.59
Average U.K. natural gas (per mcf) $ 2.39 $ 2.64 $ 2.17 $ 2.64
Average Colombia natural gas (per mcf) $ 0.62 $ 0.91 $ 0.59 $ 0.92
Worldwide
- ---------
Total worldwide net production (000 BOEPD) 1,227 1,314 1,215 1,298
- 20 -
(Unaudited)
-----------
For the six months For the three months
ended June 30, ended June 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
OPERATING DATA
- --------------
Refining, marketing and distribution
- ------------------------------------
United States
- -------------
Refinery input (000 BPD)
Equilon area 369 377 373 396
Motiva area 307 323 313 333
----- ----- ----- -----
Total 676 700 686 729
Refined product sales (000 BPD)
Equilon area 669 561 741 590
Motiva area 378 337 376 341
Other 299 234 291 234
----- ----- ----- -----
Total 1,346 1,132 1,408 1,165
International
- -------------
Refinery input (000 BPD)
Europe 367 371 368 367
Caltex area 427 428 416 419
Latin America/West Africa 73 64 72 70
----- ----- ----- -----
Total 867 863 856 856
Refined product sales (000 BPD)
Europe 619 582 601 602
Caltex area 667 589 663 586
Latin America/West Africa 489 444 501 460
Other 93 51 82 56
----- ----- ----- -----
Total 1,868 1,666 1,847 1,704
- 21 -
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
-- (3.1) Copy of Restated Certificate of Incorporation of Texaco Inc.,
as amended to and including August 4, 1999, including
Certificate of Designations, Preferences and Rights of
Series D Junior Participating Preferred Stock and Series
G, H, I and J Market Auction Preferred Shares.
-- (11) Computation of Earnings Per Share of Common Stock.
-- (12) Computation of Ratio of Earnings to Fixed Charges of Texaco on
a Total Enterprise Basis.
-- (20) Copy of Texaco Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (including portions of
Texaco Inc.'s Annual Report to Stockholders for the year 1998)
and a copy of Texaco Inc.'s Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999, as previously filed
by the Registrant with the Securities and Exchange Commission,
File No. 1-27.
-- (27) Financial Data Schedule.
(b) Reports on Form 8-K:
During the second quarter of 1999, the Registrant filed Current Reports on
Form 8-K for the following events:
1. April 27, 1999
Item 5. Other Events -- reported that Texaco issued an Earnings Press
Release for the first quarter 1999.
2. April 28, 1999
Item 5. Other Events -- provided a description of an Officers'
Certificate dated April 28, 1999 executed by Texaco Capital Inc., a
wholly-owned subsidiary of the Registrant, which established the terms
and provisions of a series of securities designated "Series 1999
Medium-Term Notes," for up to $1.5 billion.
- 22 -
SIGNATURES
----------
Pursuant to the requirements 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.
Texaco Inc.
---------------------
(Registrant)
By: G.J. Batavick
---------------------
(Comptroller)
By: R.E. Koch
---------------------
(Assistant Secretary)
Date: August 12, 1999
---------------
- 23 -
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TEXACO INC.
(as amended to and including August 4, 1999)
A Restated Certificate of Incorporation was duly adopted by the Board of
Directors of Texaco Inc. on April 27, 1990, pursuant to Section 245 of the
General Corporation Law of the State of Delaware and was amended on December 22,
1992, November 9, 1994, September 10, 1997, March 2, 1999, April 27, 1999 and
August 4, 1999. This document only restates and integrates the provisions of the
Company's Restated Certificate of Incorporation as heretofore amended or
supplemented.
The Company was incorporated under the laws of Delaware on August 26,
1926, as The Texas Corporation.
I.
The name of this Company is TEXACO INC.
II.
Its principal office in the State of Delaware is located at 32 Loockerman
Square, Suite L-100, in the City of Dover, County of Kent, and the name of its
resident agent is The Prentice-Hall Corporation System, Inc., whose address is
32 Loockerman Square, Suite L-100, Dover, Delaware.
III.
The objects or purposes for which the Company is formed and the nature of
the business to be carried on, any one or all of which it may pursue in the
United States of America and the states, districts, territories and possessions
thereof and in foreign countries, are as follows:
A. to engage in and carry on the petroleum business and the various
branches thereof, including the extraction, production, storage, transportation,
purchase and sale of oil and gas, natural gas liquids, shale and other
hydrocarbon substances and their products and by-products, and refining,
treating, applying, compounding, processing and otherwise preparing them for
market;
B. to engage in and carry on any other business, without limit as to kind
and whether or not related to, similar to or different from, the petroleum
business, including but not limited to, the businesses of mining, manufacturing,
processing, storage, construction, service, transportation and merchandising;
C. to acquire, own, hold, enjoy, lease, deal in, operate, dispose of and
convey real and personal property of every kind and description, rights and
interests therein, and the business, property, assets and good will of any
person, partnership, association, firm, corporation or other entity;
D. to acquire, own, hold, enjoy, deal in and sell, transfer or otherwise
dispose of stock, bonds, notes and other securities, as well as accounts,
contracts and evidences of indebtedness of any person, partnership, association,
firm, corporation or other entity, in whatsoever business or activity engaged
and whether private or public in character, and to exercise all rights in
respect thereto;
1
E. to make secured and unsecured loans, with or without interest, to
assume or guarantee the stock, bonds, and obligations of, or otherwise to
assist, any person, partnership, association, firm, corporation or other entity,
in whatsoever business or activity engaged and whether public or private in
character, when so doing, in the opinion of the Board of Directors, would tend
to promote the business of this Company;
F. to acquire, own, hold, enjoy, grant, deal in, transfer, sell or
otherwise dispose of intangible property of every kind and description,
including, without limitation, patents, patent rights, trademarks, trade names,
copyrights, licenses, formulae and chooses in action of any kind;
G. to do all and everything useful in or incidental to the accomplishment
of the objects and purposes herein stated, as principal, agent, contractor,
trustee, or otherwise, either alone or in association with others, to the same
extent and as fully as could natural persons.
No enumeration of specific objects, purposes or powers, or particular
description of business in this article shall be held to limit or restrict in
any manner those enumerations or descriptions which are general in their
character, and the objects, powers and descriptions of one section shall in no
wise be limited or restricted by reference to or inference from the terms of any
other section.
IV.
The total number of shares of all classes of stock which the Company shall
have authority to issue is 880,000,000 shares, consisting of 30,000,000 shares
of Preferred Stock of the par value of $1.00 each and 850,000,000 shares of
Common Stock of the par value of $3.125 each.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Preferred Stock and the
Common Stock are as follows:
(A) The Preferred Stock may be issued from time to time in one or more
series. Subject to the limitations set forth herein and any limitations
prescribed by law, the Board of Directors is expressly authorized, prior to
issuance of any series of Preferred Stock, to fix by resolution or resolutions
providing for the issue of any series the number of shares included in such
series and the designation, relative powers, preferences and rights, and the
qualifications, limitations or restrictions of such series. Pursuant to the
foregoing general authority vested in the Board of Directors, but not in
limitation of the powers conferred on the Board of Directors thereby and by the
General Corporation Law of the State of Delaware, the Board of Directors is
expressly authorized to determine with respect to each series of Preferred
Stock:
1. the designation or designations of such series and the number of
shares (which number from time to time may be decreased by the Board of
Directors, but not below the number of such shares of such series then
outstanding, or may be increased by the Board of Directors unless
otherwise provided in creating such series) constituting such series;
2. the rate or amount and times at which, and the preferences and
conditions under which, dividends shall be payable on shares of such
series, the status of such dividends as cumulative or non-cumulative, the
date or dates from which dividends, if cumulative, shall accumulate, and
the status of such as participating or non-participating after the payment
of dividends as to which such shares are entitled to any preference;
2
3. the rights and preferences, if any, of the holders of shares of
such series upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Company, which amount
may vary depending upon whether such liquidation, dissolution or winding
up is voluntary or involuntary and, if voluntary, may vary at different
dates, and the status of the shares of such series as participating or
non-participating after the satisfaction of any such rights and
preferences;
4. the full or limited voting rights, if any, to be provided for
shares of such series, in addition to the voting rights provided by law;
5. the times, terms and conditions, if any, upon which shares of
such series shall be subject to redemption, including the amount the
holders of shares of such series shall be entitled to receive upon
redemption (which amount may vary under different conditions or at
different redemption dates) and the amount, terms, conditions and manner
of operation of any purchase, retirement or sinking fund to be provided
for the shares of such series;
6. the rights, if any, of holders of shares of such series to
convert such shares into, or to exchange such shares for, shares of any
other class or classes or of any other series of the same class, the
prices or rates of conversion or exchange, and adjustments thereto, and
any other terms and conditions applicable to such conversion or exchange;
7. the limitations, if any, applicable while such series is
outstanding on the payment of dividends or making of distributions on, or
the acquisition or redemption of, Common Stock or any other class of
shares ranking junior, either as to dividends or upon liquidation, to the
shares of such series;
8. the conditions or restrictions, if any, upon the issue of any
additional shares (including additional shares of such series or any other
series or of any other class) ranking on a parity with or prior to the
shares of such series either as to dividends or upon liquidation; and
9. any other relative powers, preferences and participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of shares of such series;
in each case, so far as not inconsistent with the provisions of this Certificate
of Incorporation or the General Corporation Law of the State of Delaware as then
in effect. All shares of Preferred Stock shall be identical and of equal rank
except in respect to the particulars that may be fixed by the Board of Directors
as provided above, and all shares of each series of Preferred Stock shall be
identical and of equal rank except as to the times from which cumulative
dividends, if any, thereon shall be cumulative.
B. Pursuant to the authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation, the Board of Directors has created the
following series of Preferred Stock, with the following voting powers,
preferences and relative, participating, optional or other special rights, and
the following qualifications, limitations or restrictions.
3
Series D Junior Participating Preferred Stock
SECTION 1. Designation and Amount.
The shares of such series shall be designated as "Series D Junior
Participating Preferred Stock" and the number of shares constituting such series
shall be 3,000,000.
SECTION 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series D Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series D Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the 15th day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series D Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $5.00
or (b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of common stock, par value
$6.25 per share, of the Company (the "Common Stock") or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series D Junior
Participating Preferred Stock. In the event the Company shall at any time after
March 16, 1989 (the "Rights Declaration Date") (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series D Junior Participating Preferred Stock were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the Series D
Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $5.00 per share on the
Series D Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series D Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
D Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series D Junior Participating Preferred Stock entitled to receive a quarterly
dividend and
4
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series D Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series D Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 45 days prior to the
date fixed for the payment thereof.
SECTION 3. Voting Rights.
The holders of shares of Series D Junior Participating Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series D Junior Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Company. In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series D Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series D Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Company.
(C) If at the time of any annual meeting of stockholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of preferred stock are in default,
the number of directors constituting the Board of Directors of the Company shall
be increased by two. The holders of record of the Series D Junior Participating
Preferred Stock, voting separately as a class with the holders of shares of any
one or more other series of preferred stock upon which like voting rights have
been conferred, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears have
been paid or declared and set apart for payment prior thereto, to vote for the
election of two directors of the Company, the holders of any Series D Junior
Participating Preferred Stock being entitled to cast 100 votes per share of
Series D Junior Participating Preferred Stock, with the remaining directors of
the Company to be elected by the holders of shares of any other class or classes
or series of stock entitled to vote therefor. Until the default in payments of
all dividends which permitted the election of said directors shall cease to
exist, any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares at the time entitled
to cast a majority of the votes entitled to be cast for the election of any such
director at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders. If and when
such default shall cease to exist, the holders of the Series D Junior
Participating Preferred Stock and the holders of shares of any one or more
series of preferred stock upon which like voting rights have been conferred
shall be divested of the foregoing special voting rights, subject to revesting
in the event of each and every subsequent like default in payments of dividends.
Upon the termination of the foregoing special
5
voting rights, the terms of office of all persons who may have been elected
directors pursuant to said special voting rights shall forthwith terminate, and
the number of directors constituting the Board of Directors shall be reduced by
two.
(D) Except as set forth herein, holders of Series D Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
SECTION 4. Certain Restrictions.
(A) In the event that full cumulative dividends on the Series D Junior
Participating Preferred Stock have not been declared and paid or set apart for
payment when due, the Company shall not declare or pay or set apart for payment
any dividends or make any other distributions on, or make any payment on account
of the purchase, redemption or other retirement of any other class of stock or
series thereof of the Company ranking, as to dividends or as to distributions in
the event of a liquidation, dissolution or winding-up of the Company, junior to
the Series D Junior Participating Preferred Stock until full cumulative
dividends on the Series D Junior Participating Preferred Stock shall have been
paid or declared and set apart for payment; provided, however, that the
foregoing shall not apply to (i) any dividend payable solely in any shares of
any stock ranking, as to dividends and as to distributions in the event of a
liquidation, dissolution or winding-up of the Company, junior to the Series D
Junior Participating Preferred Stock or (ii) the acquisition of shares of any
stock ranking, as to dividends or as to distributions in the event of a
liquidation, dissolution or winding-up of the Company, junior to the Series D
Junior Participating Preferred Stock in exchange solely for shares of any other
stock ranking, as to dividends and as to distributions in the event of a
liquidation, dissolution or winding-up of the Company, junior to the Series D
Junior Participating Preferred Stock.
(B) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company unless
the Company could, under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
SECTION 5. Reacquired Shares.
Any shares of Series D Junior Participating Preferred Stock purchased or
otherwise acquired by the Company in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
SECTION 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Company, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series D Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series D Junior Participating Preferred Stock
shall have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series D Liquidation Preference"). Following the payment of
the full amount of the Series D Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series D Junior
Participating Preferred Stock unless, prior thereto, the
6
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series D
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii) immediately above being referred to as the "Adjustment Number"). Following
the payment of the full amount of the Series D Liquidation Preference and the
Common Adjustment in respect of all outstanding shares of Series D Junior
Participating Preferred Stock and Common Stock, respectively, holders of Series
D Junior Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to one (1) with respect to
such Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series D Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series D Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
SECTION 7. Consolidation, Merger, etc.
In case the Company shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Series D Junior Participating
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Company
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series D Junior
Participating Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
7
SECTION 8. Redemption.
The outstanding shares of Series D Junior Participating Preferred Stock
may be redeemed at the option of the Board of Directors as a whole, or in part,
at any time, or from time to time, at a cash price per share equal to the
product of the Adjustment Number times the Average Market Value (as such term is
hereinafter defined) of the Common Stock on the date of mailing of the notice of
redemption, plus all dividends which on the redemption date have accrued on the
shares to be redeemed and have not been paid, or declared and a sum sufficient
for the payment thereof set apart, without interest. The "Average Market Value"
as of a particular date is the average of the closing sale prices of the Common
Stock during the 10 consecutive Trading Day period immediately preceding such
date on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York Stock Exchange,
or, if such stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934, as
amended, on which such stock is listed, or, if such stock is not listed on any
such exchange, the average of the closing sale prices with respect to a share of
Common Stock during such 10-day period, as quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market value of the Common
Stock as determined by the Board of Directors in good faith. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in the State of New York are
not authorized or obligated by law or executive order to close.
SECTION 9. Ranking.
The Series D Junior Participating Preferred Stock shall rank junior to the
Company's Series B ESOP Convertible Preferred Stock, and shall rank junior to
all other series of the Company's Preferred Stock unless the terms of any such
other series shall provide otherwise, as to the payment of dividends and the
distribution of assets.
SECTION 10. Amendment.
The Restated Certificate of Incorporation of the Company shall not be
further amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series D Junior Participating Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of a majority or more of the outstanding shares of Series D Junior Participating
Preferred Stock, voting separately as a class.
SECTION 11. Fractional Shares.
Series D Junior Participating Preferred Stock may be issued in fractions
of a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series D
Junior Participating Preferred Stock.
8
Market Auction Preferred Shares
SECTION 1. Designation; Amount and Series.
The Preferred Stock authorized hereby consists of 1,200 shares (each share
a series) designated as "Market Auction Preferred Shares" (referred to as the
"Auction Preferred", the "Preferred Stock" or the "Remarketing Preferred")
issuable in the following groups of series (each group a "Series"): 300 shares
designated "Market Auction Preferred Shares, Series G-1 through G-300" (the
"Series G Preferred Stock"), 300 shares designated "Market Auction Preferred
Shares, Series H-1 through H-300" (the "Series H Preferred Stock"), 300 shares
designated "Market Auction Preferred Shares, Series I-1 through I-300" (the
"Series I Preferred Stock") and 300 shares designated "Market Auction Preferred
Shares, Series J-1 through J-300" (the "Series J Preferred Stock"). Except as
expressly provided herein, each share of each separate Series of Auction
Preferred shall be identical and equal in all aspects to every other share of
such Series, and the shares of all of the Series shall be identical and equal in
all respects.
SECTION 2. Definitions.
Any references to Sections or subsections that are made in this part of
Article IV(B) shall be to Sections or subsections contained in this part of
Article IV(B). Unless the context or use indicates another or different meaning
or intent, the following terms shall have the following meanings when used in
this part of Article IV(B), whether used in the singular or plural:
"Act" means the Securities Act of 1933, as amended.
"Additional Payments" means an amount equal to the product of (i) the
Default Rate on the date on which such Failure to Deposit occurred (or, if such
Failure to Deposit relates to a failure to pay dividends other than at the end
of a Dividend Period, the Default Rate computed using the Percentage applicable
to the rating category below "baa3" or "BBB-" as of the Business Day immediately
preceding the Auction Date or the date of the immediately preceding Remarketing
for such shares), times (ii) a fraction, the numerator of which will be the
number of days during which such failure existed and was not cured as described
in Section 3(i)(B) (including the day such failure occurs and excluding the day
such failure is cured) and the denominator of which will be 360, times (iii) the
full amount of the dividends required to be paid on the Dividend Payment Date
with respect to which such failure occurred.
"Affiliate" means any Person controlled by, in control of, or under common
control with, the Corporation.
"Applicable `AA' Composite Commercial Paper Rate", on any date, means, in
the case of any Dividend Period of (1) 1 to 48 days, the interest equivalent of
the 30-day rate, (2) 49 days or more but less than 70 days, the interest
equivalent of the 60-day rate, (3) 70 days or more but less than 85 days, the
arithmetic average of the interest equivalent of the 60-day and 90-day rates,
(4) 85 days or more but less than 120 days, the interest equivalent of the
90-day rate, (5) 120 days or more but less than 148 days, the arithmetic average
of the interest equivalent of the 90-day and 180-day rates, (6) 148 days or more
but less than 184 days, the interest equivalent of the 180-day rate, in each
case, on commercial paper placed on behalf of issuers whose corporate bonds are
rated "AA" by S&P or "Aa" by Moody's, or the equivalent of such rating by
another rating agency, as made available on a discount basis or otherwise by the
Federal Reserve Bank of New York for the Business Day immediately preceding such
9
date. In the event that the Federal Reserve Bank of New York does not make
available any of the foregoing rates, then such rates shall be the 30-day,
60-day, 90-day or 180-day rate or arithmetic average of such rates, as the case
may be, as quoted on a discount basis or otherwise, by the Commercial Paper
Dealers to the Auction Agent or the applicable Remarketing Agent as of the close
of business on the Business Day next preceding such date. If any Commercial
Paper Dealer does not quote a rate required to determine the Applicable "AA"
Composite Commercial Paper Rate, the Applicable "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or quotations furnished
by the remaining Commercial Paper Dealer (if any) and any Substitute Commercial
Paper Dealer or Substitute Commercial Paper Dealers selected by the Corporation
to provide such rate or rates or, if the Corporation does not select any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer (if any). For purposes of this definition,
the "interest equivalent" means the equivalent yield on a 360-day basis of a
discount-basis security to an interest-bearing security.
"Applicable Determining Rate" means (i) for any Dividend Period from 1 to
48 days, Standard Dividend Period or Short-Dividend Period of 183 days or less,
the Applicable "AA" Composite Commercial Paper Rate, (ii) for any Short Dividend
Period of 184 to 364 days, the Applicable Treasury Bill Rate and (iii) for any
Long Dividend Period, the Applicable Treasury Note Rate.
"Applicable Rate" means the dividend rate payable on a share of Preferred
Stock for any Dividend Period subsequent to the Initial Dividend Period for such
share established pursuant to Section 3 below.
"Applicable Treasury Bill Rate" for any Short Dividend Period in excess of
183 days and "Applicable Treasury Note Rate" for any Long Dividend Period, on
any date, means the interest equivalent of the rate for direct obligations of
the United States Treasury having an original maturity which is equal to, or
next lower than, the length of such Short Dividend Period or Long Dividend
Period, as the case may be, as published weekly by the Federal Reserve Board in
"Federal Reserve Statistical Release H.15(519)-Selected Interest Rates", or any
successor publication by the Federal Reserve Board, within 5 Business Days
preceding such date. In the event that the Federal Reserve Board does not
publish such rate, or if such release is not available, the Applicable Treasury
Bill Rate or Applicable Treasury Note Rate will be the arithmetic mean of the
secondary market bid rates as of approximately 3:30 P.M., New York City time, on
the Business Day next preceding such date of the U.S. Government Securities
Dealers furnished to the Auction Agent or the applicable Remarketing Agent for
the issue of direct obligations of the United States Treasury, in an aggregate
principal amount of at least $250,000 with a remaining maturity equal to, or
next lower than, the length of such Short Dividend Period or Long Dividend
Period, as the case may be. If any U.S. Government Securities Dealer does not
quote a rate required to determine the Applicable Treasury Bill Rate or the
Applicable Treasury Note Rate, the Applicable Treasury Bill Rate or Applicable
Treasury Note Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining U.S. Government Securities Dealer (if any)
or any Substitute U.S. Government Securities Dealer or Dealers selected by the
Corporation to provide such rate or rates or, if the Corporation does not select
any such Substitute U.S. Government Securities Dealer, by the remaining U.S.
Government Securities Dealer (if any); provided that, if the Corporation is
unable to cause such quotations to be furnished to the Auction Agent or the
applicable Remarketing Agent by such sources, the Corporation may cause such
rates to be furnished to the Auction Agent or the applicable Remarketing Agent
by such alternative source as the Corporation in good faith deems to be
reliable. For purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis shall be equal to the quotient of (A) the discount
rate divided by (B) the difference between 1.00 and the discount rate.
10
"Articles of Incorporation" means the Restated Certificate of
Incorporation, as amended, of the Corporation.
"Auction" means each periodic implementation of the Auction Procedures.
"Auction Agent" means The Bank of New York, unless or until another bank
or trust company has been appointed as such by the Corporation.
"Auction Agent Agreement" has the meaning set forth in Section 8 below.
"Auction Date" means, for any Series of Auction Preferred, the first
Business Day preceding the first day of each Dividend Period for such Series
other than the Initial Dividend Period for such Series.
"Auction Method" means a method of determining Dividend Periods and
dividend rates for the Auction Preferred of a Series pursuant to the Auction
Procedures.
"Auction Preferred" means the Auction Preferred, including the Converted
Remarketing Preferred, being auctioned pursuant to the Auction Procedures.
"Auction Procedures" means the procedures for conducting Auctions set
forth in Section 7 below.
"Board of Directors" means the Board of Directors of the Corporation or
any duly authorized committee of the Board of Directors acting on behalf
thereof.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in these Auction
Procedures, that has been selected by the Corporation and has entered into a
Broker-Dealer Agreement with the Auction Agent that remains effective.
"Business Day" means a day on which the New York Stock Exchange is open
for trading and which is not a day on which banks in The City of New York are
authorized or obliged by law to close.
"Certificate of Designations" or "Certificate" means the Certificate of
Designations, Preferences and Rights of Market Auction Preferred Shares of the
Corporation dated and filed with the Delaware Secretary of State on December 22,
1992.
"Chief Financial Officer" has the meaning set forth in Section 3(g)(ii)
below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Morgan Stanley and First Boston or, in
lieu thereof, their respective affiliates or successors.
"Converted Auction Preferred" means shares of Auction Preferred which, by
reason of an election by the Method Selection Agent of a different Dividend
Determination Method, will become Remarketing Preferred at the end of the
then-current Dividend Period applicable thereto.
"Converted Remarketing Preferred" means shares of Remarketing Preferred
which, by reason of an election by the Method Selection Agent of a different
Dividend Determination Method, will become Auction Preferred at the end of the
then-current Dividend Period applicable thereto.
11
"Corporation" means Texaco Inc., a Delaware corporation, or its successor.
"Date of Original Issue", with respect to any share of Preferred Stock,
means the date on which the Corporation originally issued such share of
Preferred Stock.
"Default Period" has the meaning set forth in Section 6(b)(i) below.
"Default Rate" means the higher of (A) the Maximum Applicable Rate
obtained by multiplying the Applicable Determining Rate, determined as of the
Business Day next preceding the date of the Failure to Deposit that, pursuant to
Section 3(i), caused the application of such Default Rate, by the Percentage for
the rating category below "baa3" or "BBB-", and (B) (i) if the Corporation has
failed timely to pay dividends, the dividend rate in effect for the Dividend
Period in respect of which such Failure to Deposit occurred, or (ii) if the
Corporation has failed timely to pay the redemption price (including accumulated
and unpaid dividends) of shares of any Series of Preferred Stock called for
redemption, the dividend rate in effect on the date such redemption price was to
have been paid. The Percentage used to determine the Default Rate for any shares
of Preferred Stock shall be the Percentage for the rating category below "baa3"
or "BBB-" (i) in effect on the immediately preceding Auction Date or the date of
the immediately preceding Remarketing, in the case of a Default Rate that
applies to the portion of a Dividend Period occurring after a failure to pay
dividends and (ii) in effect on the date of determination, in all other cases.
"Depository Agreement" means each agreement among the Corporation, the
Remarketing Depository and a Remarketing Agent.
"Dividend Determination Method" or "Method" shall mean either the Auction
Method or the Remarketing Method.
"Dividend Payment Date" has the meaning set forth in Section 3(b)(iii)
below.
"Dividend Period" has the meaning set forth in Section 3(b)(v) below.
"Dividend Quarter" has the meaning set forth in Section 3(b)(iii) below.
"Dividends-Received Deduction" has the meaning set forth in Section
3(f)(v) below.
"Existing Holder" means a Person who has signed a Master Purchaser's
Letter and is listed as the beneficial owner of any shares of Auction Preferred
in the records of the Auction Agent.
"Failure to Deposit" means the failure by the Corporation to pay to the
Paying Agent by 11:00 A.M., New York City Time, in immediately available funds,
(i) on a Dividend Payment Date, the full amount of any dividend (whether or not
earned or declared) to be paid on such Dividend Payment Date on any shares of
Preferred Stock or (ii) on any redemption date, the full redemption price
(including accumulated and unpaid dividends), to be paid on such redemption date
for any shares of Preferred Stock.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"First Boston" means The First Boston Corporation.
"Holder" means an Existing Holder or any beneficial owner of Preferred
Stock acquired pursuant to a Remarketing.
12
"Initial Auction Date" means the Business Day immediately preceding the
first day of a Dividend Period for Auction Preferred.
"Initial Dividend Rate" has the meaning set forth in Section 3(g)(i)
below.
"Initial Dividend Period" means the periods commencing on the Date of
Original Issue and ending on the respective days immediately preceding the
Initial Dividend Payment Dates for each Series of Preferred Stock.
"Initial Dividend Payment Date" has the meaning set forth in Section 3(b)
below.
"Long Dividend Period" has the meaning set forth in Section 3(b)(v) below.
"Marketing Conditions" means the following factors: (i) short-term and
long-term market rates and indices of such short-term and long-term rates, (ii)
market supply and demand for short-term and long-term securities, (iii) yield
curves for short-term and long-term securities comparable to the Preferred
Stock, (iv) industry and financial conditions which may affect the Preferred
Stock, (v) the number of shares of Preferred Stock to be sold pursuant to an
Auction or a Remarketing, as the case may be, (vi) the number of potential
purchasers of Preferred Stock, (vii) the Dividend Periods and dividend rates at
which current and potential holders would remain or become holders, (viii)
current tax laws and administrative interpretations with respect thereto and
(ix) the Corporation's current and projected funding requirements based on its
asset and liability position, tax position and current financing objectives. If
Marketing Conditions are being assessed by the Chief Financial Officer, such
officer's evaluation of the factors described in clauses (vi) and (vii) above
may be based on discussions with one or more Broker-Dealers or Remarketing
Agents.
If Marketing Conditions are being assessed by the Term Selection Agent or
the Method Selection Agent, such agent's evaluation of the factor described in
clause (ix) above may be based on discussions with representatives of the
Corporation.
"Maximum Applicable Rate", as of any date, means the rate obtained by
multiplying the Applicable Determining Rate then in effect for a Dividend Period
by the Percentage (as it may be adjusted from time to time based on certain
factors by the Chief Financial Officer in accordance with the provisions hereof)
determined as set forth below based on the lower of the credit ratings assigned
to the Preferred Stock by Moody's and S&P.
Credit Rating
- ------------------------------------------------------------------------------
Moody's S & P Percentage
"aa3" or Above AA- or Above 150%
"a3" to "a1" A- to A+ 200%
"baa3" to "baa1" BBB- to BBB+ 225%
Below "baa3" Below BBB 275%
The Corporation will take all reasonable action necessary to enable
Moody's and S&P to provide ratings for the Preferred Stock. If either Moody's or
S&P does not make such rating available or neither Moody's nor S&P shall make
such a rating available, the Corporation will designate a rating agency or
rating agencies as a substitute rating agency or substitute rating agencies, as
the case may be, subject to the approval of Morgan Stanley and First Boston,
such approval not to be unreasonably withheld, and the Corporation will take all
reasonable action to enable such rating agency or rating agencies to provide a
rating or ratings for each Series of Preferred Stock. If either Moody's or S&P
shall change its
13
rating categories for preferred stock, or if one or more substitute rating
agencies are designated, then the determination set forth above will be made
based upon the substantially equivalent new rating categories for preferred
stock of such rating agency or substitute rating agency.
"Memorandum" means the Private Placement Memorandum dated December 16,
1992 relating to the Corporation and the placement of the shares of Preferred
Stock.
"Method Selection Agent" means any entity appointed by the Corporation to
act on its behalf in selecting Dividend Determination Methods for a Series of
Preferred Stock, provided that if the Corporation shall appoint more than one
entity to so act with respect to a Series, "Method Selection Agent" shall mean,
unless the context otherwise requires, all entities so appointed.
"Method Selection Agreement" means an agreement between the Corporation
and the Method Selection Agent pursuant to which the Method Selection Agent
agrees to determine the Method applicable to a Series of Preferred Stock.
"Minimum Holding Period" has the meaning set forth in Section 3(f)(v)
below.
"Moody's" means Moody's Investors Service, Inc., or its successor, so long
as such agency (or successor) is in the business of rating securities of the
type of the Preferred Stock and, if such agency is not in such business, then a
Substitute Rating Agency.
"Morgan Stanley" means Morgan Stanley & Co. Incorporated.
"Normal Dividend Payment Date" has the meaning set forth in Section
3(b)(ii) below.
"Notice of Change in Dividend Period" has the meaning set forth in Section
3(d)(ii) below.
"Notice of Method Revocation" has the meaning set forth in Section
3(C)(ii) below.
"Notice of Method Selection" has the meaning set forth in Section 3(C)(i)
below.
"Notice of Percentage Increase" has the meaning set forth in Section
3(h)(i) below.
"Notice of Removal" has the meaning set forth in Section 3(C)(iii) below.
"Notice of Revocation" has the meaning set forth in Section 3(d)(ii)
below.
"Outstanding" means, as of any date, shares of Preferred Stock theretofore
issued except, without duplication, (i) any shares of Preferred Stock
theretofore cancelled, delivered to the Corporation for cancellation or redeemed
and (ii) as of any Auction Date or Remarketing Date, any shares of Preferred
Stock subject to redemption on the next following Business Day.
"Participant" means the member of the Securities Depository that will act
on behalf of an Existing Holder or a Potential Holder, in the case of Auction
Preferred, or the beneficial owner, in the case of Remarketing Preferred, and
that is identified as such in such Holder's or Potential Holder's Master
Purchaser's Letter.
"Paying Agent" means the Auction Agent unless another bank or trust
company has been appointed to act as the paying agent for the shares of
Preferred Stock by resolution of the Board of Directors.
14
"Percentage" has the meaning set forth in Section 3(h)(i) below.
"Person" means and includes an individual, a partnership, a corporation, a
trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Purchaser's Letter" means a Master Purchaser's Letter substantially in
the form of Appendix E to the Memorandum delivered to the initial purchasers of
the Preferred Stock which each prospective purchaser of Preferred Stock will be
required to sign as a condition to purchasing Preferred Stock or participating
in an Auction or Remarketing.
"Redemption Agent" means the Auction Agent unless another bank or trust
company has been appointed to act as the redemption agent for the shares of
Preferred Stock by resolution of the Board of Directors.
"Remarketing" means the implementation of Remarketing Procedures.
"Remarketing Agent" means, at any time, the entity or entities appointed
by the Corporation to act on its behalf in establishing dividend rates and
Dividend Periods for Remarketing Preferred and to act on behalf of holders of
Remarketing Preferred in remarketing such Remarketing Preferred as provided in
the Remarketing Procedures.
"Remarketing Depository" means The Bank of New York, and its successors or
any other depository selected by the Corporation which agrees to follow the
procedures required to be followed by such depository in connection with shares
of Remarketing Preferred with a Dividend Period of less than 7 days.
"Remarketing Method" means a method of determining Dividend Periods and
dividend rates for the Preferred Stock.
"Remarketing Preferred" means the Preferred Stock, including the Converted
Auction Preferred for which the dividend rate and Dividend Period are to be
determined pursuant to the Remarketing Method.
"Remarketing Procedures" means the procedures for remarketing shares of
Remarketing Preferred as set forth in Section 9.
"Securities Depository" means The Depository Trust Company or any other
securities depository selected by the Corporation that agrees to follow the
procedures required to be followed by such securities depository in connection
with the Preferred Stock.
"Series" means any of the Series G, Series H, Series I or Series J of the
Preferred Stock authorized by this Certificate.
"Short Dividend Period" has the meaning set forth in Section 3(b)(v)
below.
"Standard Dividend Period" has the meaning set forth in Section 3(b)(v)
below.
"Standard & Poor's" or "S&P" means Standard & Poor's Corporation, or its
successor, so long as such agency (or successor) is in the business of rating
securities of the type of the Preferred Stock and, if such agency is not in such
business, then a Substitute Rating Agency.
15
"Stock Books" means the stock transfer books of the Corporation maintained
by the Paying Agent.
"Substitute Commercial Paper Dealer" means Goldman, Sachs & Co., Shearson
Lehman Brothers Inc. or Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
their respective affiliates or successors or, if none of such firms furnishes
commercial paper quotations, a leading dealer in the commercial paper market
selected by the Corporation in good faith.
"Substitute Rating Agency" means a nationally recognized statistical
rating organization (as that term is used in the rules and regulations of the
Securities Exchange Act of 1934) selected by the Corporation, subject to
approval by Morgan Stanley and First Boston, which approval is not to be
unreasonably withheld.
"Substitute U.S. Government Securities Dealers" means Goldman, Sachs &
Co., Shearson Lehman Brothers Inc. or Merrill Lynch, Pierce, Fenner & Smith
Incorporated, or their respective affiliates or successors or, if none of such
firms provides quotes in U.S. government securities, a leading dealer in the
government securities market selected by the Corporation in good faith.
"Tender Agent" means, at any time, the bank or the organization (initially
The Bank of New York) appointed by the Corporation to perform the duties of
Tender Agent as provided in the Remarketing Procedures.
"Term Selection Agent" means any entity appointed by the Corporation to
act on its behalf in establishing the length of any Dividend Period other than
the Standard Dividend Period, the Dividend Payment Dates for any Short Dividend
Period and, in the case of any Long Dividend Period, additional redemption
provisions, if any, for a Series of Auction Preferred, provided that if the
Corporation shall appoint more than one entity to so act with respect to a
Series, "Term Selection Agent" shall mean, unless the context otherwise
requires, all entities so appointed.
"U.S. Government Securities Dealers" means Morgan Stanley and First Boston
or, in lieu thereof, their respective affiliates or successors.
SECTION 3. Dividends.
(a) Holders of shares of Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative cash dividends at the Applicable Rate per annum,
determined as set forth in Section 3(f) below, and no more, payable on the
respective dates set forth below.
(b) (i) Dividends on the shares of Preferred Stock of each Series shall
accumulate (whether or not declared) from the Date of Original Issue.
(ii) Dividends on each Series of Preferred Stock shall be payable on
the Initial Dividend Payment Date for such Series. After the Initial
Dividend Periods, dividends on any shares of Preferred Stock with (a) a
Dividend Period of 1 to 48 days (which, in the case of Auction Preferred,
shall be a period of days divisible by 7) will be payable on the day
following the last day of such Dividend Period, (b) a Standard Dividend
Period will be payable on the day following the last day of such Standard
Dividend Period (which last day of such Standard Dividend Period will
normally be each seventh Wednesday following the preceding Dividend
Payment Date for such Series), (c) a Short Dividend Period, on the day
following the last day of such Short Dividend Period and on such other
Dividend Payment Dates as established at the time such Short Dividend
16
Period is determined and (d) a Long Dividend Period, on the day following
the last day of such Long Dividend Period and on the March 31, June 30,
September 30 and December 31 of each year during such dividend period.
Each day on which dividends on shares of Preferred Stock of each Series
would be payable as determined as set forth in this clause (ii) but for
adjustments set forth in Section 3(f)(v) below, other than adjustments to
reflect changes in the Minimum Holding Period, is referred to herein as a
"Normal Dividend Payment Date".
(iii) Each date on which dividends for each share of Preferred Stock
shall be payable as set forth herein is referred to herein as a "Dividend
Payment Date". If applicable, the period from the preceding Dividend
Payment Date to the next Dividend Payment Date for any share of Preferred
Stock with a Long Dividend Period is herein referred to as a "Dividend
Quarter". Although any particular Dividend Payment Date may not occur on
the originally scheduled Normal Dividend Payment Date because of the
adjustments set forth in Section 3(f)(v) below, each succeeding Dividend
Payment Date shall be, subject to such adjustments, the date determined as
set forth in clause (ii) above as if each preceding Dividend Payment Date
had occurred on the respective originally scheduled Normal Dividend
Payment Date.
(iv) Dividend Periods may be of any duration (including perpetual
duration) and not less than (i) seven days in the case of Auction
Preferred (other than Converted Remarketing Preferred) and (ii) one day in
the case of Remarketing Preferred (other than Converted Auction
Preferred). The duration of each subsequent Dividend Period following the
Initial Dividend Period for each Series and the Applicable Rate for such
subsequent Dividend Period will be determined by either the Auction Method
or the Remarketing Method.
(v) The Initial Dividend Payment Date for the Initial Dividend Period
for Series G Preferred Stock shall be February 11, 1993, for Series H
Preferred Stock shall be February 18, 1993, for Series I Preferred Stock
shall be February 25, 1993 and for Series J Preferred Stock shall be March
4, 1993. After the Initial Dividend Period for each Series of Preferred
Stock, each subsequent Dividend Period for any shares of Preferred Stock
shall (except for the adjustments for non-Business Days described in
Section 3(f)(v) below) be 49 days (each such 49-day period, subject to any
adjustment as a result of a change in law adjusting the Minimum Holding
Period as described in Section 3(f)(v) below, being referred to herein as
a "Standard Dividend Period"), unless as provided in clause (d) below, the
Term Selection Agent or the applicable Remarketing Agent, as the case may
be, specifies that any such subsequent Dividend Period for a particular
share of Preferred Stock shall be (A) a Dividend Period of 1 to 48 days
(which in the case of Auction Preferred, shall be a period of days
divisible by 7), (B) a Dividend Period of 50 to 364 days and consisting of
a whole number of weeks (a "Short Dividend Period") or (C) a Dividend
Period of 365 days or longer and consisting of a whole number of weeks (a
"Long Dividend Period"). Each such Dividend Period of 1 to 48 days,
Standard Dividend Period, Short Dividend Period and Long Dividend Period
(together with (i) any Initial Dividend Periods and (ii) any period
commencing on a redemption date on which there is a Failure to Deposit and
ending on the date the redemption price for such shares is paid to the
Paying Agent) being referred to herein as a "Dividend Period").
(c) (i) Subject to certain limitations set forth in clause (v) below,
either Dividend Determination Method may be selected by the Method
Selection Agent for a Series of Preferred Stock for any subsequent
Dividend Period with respect to all shares of such Series, provided that
such Method Selection Agent determines at the time of such selection that
a change in the Dividend Determination Method will be the most favorable
financing alternative for the Corporation based upon the then-current
Marketing Conditions. If more than one entity is serving
17
as Method Selection Agent for a Series, such entities shall act in concert
in performing their duties, provided that notices referred to herein may
be given by one entity on behalf of all such entities. The Method
Selection Agent for any Series of Preferred Stock will make such selection
in a notice (a "Notice of Method Selection") sent by such Method Selection
Agent to the Corporation, the Term Selection Agent, the Auction Agent, the
Securities Depository, the Remarketing Depository, the Tender Agent and
any applicable Remarketing Agent by telephone (with confirmation in
writing), and to any other record holders of the shares of Preferred Stock
of such Series by first-class mail, postage prepaid, not less then seven
Business Days prior to the first day of such subsequent Dividend Period.
Each Notice of Method Selection will state the Method selected by the
Method Selection Agent. If the Method Selection Agent for a Series which
is then a Series of Remarketing Preferred selects the Auction Method for
any subsequent Dividend Period, the Remarketing Agent for such Series will
establish Dividend Periods and Applicable Rates for shares of such Series
until the Initial Auction Date in a manner that will best promote an
orderly transition to the Auction Method. Any Dividend Determination
Method so selected by the Method Selection Agent for a Series shall
continue in effect for such Series until the Method Selection Agent
selects the other Method in the aforesaid manner. Until a Method Selection
Agent for any Series has been appointed, the Dividend Determination Method
will be the Auction Method.
(ii) A Notice of Method Selection may be revoked (a "Notice of Method
Revocation") by the Method Selection Agent on or prior to 10:00 A.M. on
the second Business Day preceding the first day of the sub-sequent
Dividend Period by giving a Notice of Method Revocation to the
Corporation, the Term Selection Agent, the Securities Depository, the
Remarketing Depository, the Auction Agent, the Tender Agent, any
applicable Remarketing Agent and any other record holders of the shares
of Preferred Stock of such Series.
(iii) Any Notice of Method Selection with respect to any subsequent
Dividend Period for any Series of Preferred Stock shall be deemed to have
been withdrawn if on or prior to the second Business Day preceding the
first day of such subsequent Dividend Period the Corporation shall have
removed the Method Selection Agent for such Series, provided that the
Corporation shall have given a notice (a "Notice of Removal") to the Term
Selection Agent, the Securities Depository, the Remarketing Depository,
the Auction Agent, the Tender Agent, any applicable Remarketing Agent and
any other record holders of shares of Preferred Stock of such Series no
later than 3:00 P.M., New York City time, on such second Business Day. If
more than one entity has been appointed and is acting as Method Selection
Agent for that Series, such Notice of Method Selection shall be deemed to
have been withdrawn only if the Corporation shall have removed all such
entities; and the removal at any time by the Corporation of one or more
but not all such entities shall not effect a deemed withdrawal of a Notice
of Method Selection and in any such event no Notice of Removal need be
given. If the Method Selection Agent for any Series of Preferred Stock
resigns or is removed (or, in either case, if more than one entity has
been appointed and is acting as Method Selection Agent for that Series
then all such entities), the Dividend Determination Method applicable to
such Series in effect at the time of such resignation or removal will
continue in effect until the Corporation appoints a successor Method
Selection Agent for such Series and such Method Selection Agent sends a
Notice of Method Selection. If, as a result of the resignation or removal
of the Method Selection Agent, the Dividend Determination Method for any
Series will continue to be the Auction Method, then the duration of the
next succeeding Dividend Period for such Series will be the Standard
Dividend Period.
(iv) Any Method for a Series of Preferred Stock selected by the Method
Selection Agent for such Series pursuant to a Notice of Method Selection
(except a Notice of Method Selection that is
18
revoked or deemed to have been withdrawn) shall be conclusive and binding
on the Corporation and the holders of Preferred Stock of such Series. If
the Notice of Method Selection is not revoked or deemed to have been
withdrawn, any Method so selected by the Method Selection Agent for a
Series will continue in effect for that Series until such Method Selection
Agent or any successor selects the other Method in the aforesaid manner.
No defect in the Notice of Method Selection, the Notice of Method
Revocation or the Notice of Removal of the Method Selection Agent or in
the mailing thereof shall affect the validity of any change in the
Dividend Determination Method or any withdrawal, revocation or removal.
(v) Notwithstanding the foregoing, the Method Selection Agent
shall not be entitled to change the Dividend Determination Method then
applicable to a Series if (i) at the time of an election that the
Remarketing Method apply to a Series, the Corporation has not appointed
(and given notice or taken such other action as may be necessary for the
timely effectiveness of such appointment) a Remarketing Agent, a Tender
Agent, a Securities Depository and a Remarketing Depository for such
Series, (ii) at the time of an election that the Auction Method apply to a
Series, the Corporation has not appointed (and given notice or taken such
other action as aforesaid) an Auction Agent, a Securities Depository and
at least one Broker-Dealer for such Series, or such election would result
in more than one Dividend Period for the shares of Preferred Stock of such
Series or (iii) at the time of any such election, a Failure to Deposit has
occurred and is continuing. Once the Method Selection Agent has selected a
Dividend Determination Method for a Series in the aforesaid manner, such
selection shall become effective on the last day of the Dividend Period(s)
then applicable to shares of Preferred Stock of such Series
notwithstanding any Failure to Deposit for such Series which may occur
after the delivery of the Notice of Method Selection by such Method
Selection Agent, the failure to remarket tendered shares of Remarketing
Preferred of such Series, in the case of the selection of the emarketing
Method, or the lack of Sufficient Clearing Bids in the Auction for such
Series, in the case of the selection of the Auction Method.
(d) (i) With respect to shares of Auction Preferred, each successive
Dividend Period shall commence on the Dividend Payment Date for the
preceding Dividend Period for such Series and shall end (A) in the case of
a Dividend Period of 7 to 48 days or a Standard Dividend Period, on the
day preceding the next Dividend Payment Date and (B) in the case of a
Short Dividend Period or a Long Dividend Period, on the last day of the
Short Dividend Period or Long Dividend Period, as the case may be,
specified by the Term Selection Agent, in the related Notice of Change in
Dividend Period.
(ii) The Term Selection Agent will give telephonic and written notice,
not less than 10 and not more than 30 days prior to an Auction Date and
based on the then-current Marketing Conditions, to the Corporation, the
Auction Agent, the Method Selection Agent, the Securities Depository and
any other record holders of a Series of Auction Preferred if it determines
that the next succeeding Dividend Period for such Series will be a
Dividend Period of 7 to 48 days, a Short Dividend Period or a Long
Dividend Period (any such notice, a "Notice of Change in Dividend
Period"); provided, that if the then-current Dividend Period is less than
10 days, the Term Selection Agent will give such Notice of Change in
Dividend Period no less than 5 days prior to an Auction Date. Each such
Notice of Change in Dividend Period shall be in substantially the form of
Exhibit D to the Auction Agent Agreement and shall specify the following
terms, (A) the next succeeding Dividend Period for such Series as a
Dividend Period of 7 to 48 days, a Short Dividend Period or a Long
Dividend Period; provided that a Dividend Period of 7 to 48 days shall
only be established so long as corporate holders of such Series of
Preferred Stock shall not lose entitlement to the Dividends-Received
Deduction as a result of the length of such Dividend Period,
19
(B) the term thereof, (C) in the case of a Short Dividend Period, the
Dividend Payment Dates with respect thereto and (D) in the case of a Long
Dividend Period, additional redemption provisions or restrictions on
redemption, if any, as authorized in Section 4(b)(ii) hereof. However, for
any Auction occurring after the initial Auction, the Term Selection Agent
may not give a Notice of Change in Dividend Period (and any such Notice of
Change in Dividend Period shall be null and void) unless Sufficient
Clearing Bids were made in the last occurring Auction for any Series and
full cumulative dividends, if any, for all Series of Auction Preferred
payable prior to the date of such notice have been paid in full. The Term
Selection Agent may establish a Dividend Period of 7 to 48 days, a Short
Dividend Period or a Long Dividend Period for any Series of Preferred
Stock, if the Term Selection Agent determines that such Dividend Period
and, in the case of a Long Dividend Period, additional redemption
provisions or restrictions on redemption, provide the Corporation with the
most favorable financing alternative based upon the then-current Marketing
Conditions. A Notice of Change in Dividend Period may be revoked by the
Term Selection Agent on or prior to 10:00 A.M. New York City time on the
related Auction Date by telephonic and written notice (a "Notice of
Revocation"), in substantially the form of Exhibit E to the Auction Agent
Agreement, to the Corporation, the Auction Agent, the Method Selection
Agent, the Securities Depository and any other record holders of the
shares of such Series, specifying that the Term Selection Agent has
determined that because of subsequent changes in such Marketing
Conditions, such Dividend Period would not result in the most favorable
financing alternative for the Corporation. Notices of Revocation given by
the Term Selection Agent will be conclusive and binding upon the
Corporation and the holders of shares of Auction Preferred and, except as
set forth below in clause (iv), a Notice of Change in Dividend Period
given by the Term Selection Agent will be conclusive and binding upon the
Corporation and the holder of shares of Auction Preferred.
(iii) Any Notice of Change in Dividend Period with respect to any
subsequent Dividend Period for any Series of Auction Preferred will be
deemed to have been withdrawn if on or prior to the second Business Day
preceding an Auction Date the Corporation shall have removed the Term
Selection Agent, provided that the Corporation shall have given Notice of
Removal to the Auction Agent, the Method Selection Agent and the
Securities Depository and any other record holders of the shares of such
Series, no later than 3:00 P.M., New York City time, on such second
Business Day. If the Term Selection Agent resigns or is removed, the
Dividend Period for each Series of Auction Preferred shall be a Standard
Dividend Period until the Corporation appoints a successor Term Selection
Agent for such Series and such Term Selection Agent sends a Notice of
Change in Dividend Period.
(iv) If the Term Selection Agent does not give a Notice of Change in
Dividend Period with respect to the next succeeding Dividend Period for
any Series of Auction Preferred or has given such a Notice of Change in
Dividend Period and gives a Notice of Revocation with respect thereto or
such Notice of Change in Dividend Period is deemed to be withdrawn, such
next succeeding Dividend Period shall be a Standard Dividend Period with
respect to such Series. In addition, in the event the Term Selection Agent
has given a Notice of Change in Dividend Period with respect to the next
succeeding Dividend Period for a Series of Preferred Stock and such notice
has not been revoked or deemed to be withdrawn, but Sufficient Clearing
Bids are not made in the related Auction or such Auction is not held for
any reason, such next succeeding Dividend Period for such Series will,
notwithstanding such Notice of Change in Dividend Period, be a Standard
Dividend Period and the Term Selection Agent may not again give a Notice
of Change in Dividend Period (and any such Notice of Change in Dividend
Period shall be null and void) for such Series until Sufficient Clearing
Bids have been made in an Auction for such Series.
20
(e) (i) With respect to shares of Remarketing Preferred, the duration of
each subsequent Dividend Period and the Applicable Rate for each such
subsequent Dividend Period shall be established by the Remarketing Agent
for such shares of Remarketing Preferred and will be conclusive and
binding on the Corporation and the holders of such shares.
(ii) For each Dividend Period the applicable Remarketing Agent shall
establish a dividend rate, not in excess of the Maximum Applicable Rate,
which it determines shall be the lowest rate at which tendered shares of
Remarketing Preferred would be remarketed at $250,000 per share. In
establishing each Dividend Period and dividend rate, each Remarketing
Agent will establish Dividend Periods and dividend rates which it
determines will result in the most favorable financing alternative for the
Corporation based on the then-current Marketing Conditions.
(iii) Each Holder will be deemed to have tendered its shares of
Remarketing Preferred for sale by Remarketing on the Business Day
immediately preceding the first day of each subsequent Dividend Period
applicable thereto, unless it gives irrevocable notice otherwise.
Consequently, a Holder will hold shares of Remarketing Preferred only for
a Dividend Period and at a dividend rate accepted by that holder, except
for one or more successive Dividend Periods of one day resulting from a
Failure to Deposit or the failure to remarket such shares as described
below. At any time, any or all shares of Remarketing Preferred of a Series
may have Dividend Periods of various lengths. Depending on Marketing
Conditions at the time of Remarketing, any or all shares of Remarketing
Preferred of a Series may have different Applicable Rates, including those
set on the same day for Dividend Periods of equal length.
(f) (i) Not later than 11:00 A.M. New York City time on the Dividend
Payment Date (except as provided in Section 3(f)(v) below) for each share
of Preferred Stock, the Corporation is required to deposit with the Paying
Agent sufficient immediately available funds for the payment of declared
dividends.
(ii) Each dividend shall be payable to the holder or holders of
record of such shares of Preferred Stock as such holders' names appear on
the Stock Books on the Business Day next preceding the applicable Dividend
Payment Date. Subject to Section 3(i) below, dividends in arrears
(including any Additional Payments) for any past Dividend Payment Date may
be declared by the Board of Directors and paid at any time, without
reference to any regular Dividend Payment Date, to the holder or holders
of record as such holders appear on the Stock Books as of the Business Day
next preceding such Dividend Payment Date. Any dividend payment made on
any shares of Preferred Stock shall first be credited against the
dividends accumulated with respect to the earliest Dividend Payment Date
for which dividends have not been paid with respect to such shares.
(iii) So long as the shares of Preferred Stock are held of record by
the nominee of the Securities Depository or the Remarketing Depository, as
the case may be, dividends will be paid to the nominee of the Securities
Depository or the Remarketing Depository, on each Dividend Payment Date.
Dividends on shares of Preferred Stock held through the Securities
Depository will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures.
(iv) Dividends on any shares of Preferred Stock held by the Remarketing
Depository will be paid through the Remarketing Depository on each
Dividend Payment Date by wire or other transfer of immediately available
funds to a Holder's account with a commercial bank in the United States so
long as such Holder has provided the Remarketing Depository with the
necessary
21
information to effect such transfer. Any payments not made by wire or
other transfer will be made by check to the Holder of such Preferred
Stock.
(v) In the case of dividends payable with respect to a share of
Preferred Stock with a Dividend Period of 7 to 48 days, a Standard
Dividend Period or a Short Dividend Period, if:
(A) (x) The Securities Depository shall continue to make
available to Participants the amounts due as dividends on such
shares of Preferred Stock in next-day funds on the dates on which
such dividends are payable and (y) a Normal Dividend Payment Date is
not a Business Day, or the day next succeeding such Normal Dividend
Payment Date is not a Business Day, then dividends shall be payable
on the first Business Day preceding such Normal Dividend Payment
Date that is next succeeded by a Business Day; or
(B) (x) The Securities Depository shall make available to
Participants the amounts due as dividends on such shares of
Preferred Stock in immediately available funds on the dates on which
such dividends are payable (and the Securities Depository shall have
so advised the Auction Agent) and (y) a Normal Dividend Payment Date
is not a Business Day, then dividends shall be payable on the first
Business Day following such Normal Dividend Payment Date.
(C) In the case of dividends payable with respect to shares of
Preferred Stock with a Long Dividend Period, if:
(I) (x) The Securities Depository shall continue to make
available to its Participants the amounts due as dividends on
such shares of Preferred Stock in next-day funds on the dates
on which such dividends are payable and (y) a Normal Dividend
Payment Date is not a Business Day, or the day next succeeding
such Normal Dividend Payment Date is not a Business Day, then
dividends shall be payable on the first Business Day following
such Normal Dividend Payment Date that is next succeeded by a
Business Day; or
(II) (x) The Securities Depository shall make available to its
Participants the amounts due as dividends on such shares of
Preferred Stock in immediately available funds on the dates on
which such dividends are payable (and the Securities
Depository shall have so advised the Auction Agent) and (y) a
Normal Dividend Payment Date is not a Business Day, then
dividends shall be payable on the first Business Day following
such Normal Dividend Payment Date.
(D) Notwithstanding the foregoing, in case of payment in
next-day funds, if the date on which dividends on shares of
Preferred Stock would be payable as determined as set forth in
clauses (A), (B) and (C) above is a day that would result, due to
such procedures, in the number of days between successive Auction
Dates or Remarketing Dates for such shares (determined by excluding
the first Auction Date or Remarketing Date, as the case may be, and
including the second Auction Date and the second Remarketing Date,
as the case may be), not being at least equal to the then-current
minimum holding period (currently set forth in Section 246(c) of the
Code) (the "Minimum Holding Period") required for corporate
taxpayers to be entitled to the dividends- received deduction on
preferred stock held by nonaffiliated corporations (currently set
forth in Section 243(a) of the Code) (the "Dividends-Received
Deduction"), then dividends on such shares shall be payable on the
first Business Day following such date on which dividends would be
so payable that is next succeeded by a
22
Business Day that results in the number of days between such
successive Auction Dates or Remarketing Dates, as the case may be
(determined as set forth above), being at least equal to the then
current Minimum Holding Period.
(E) In addition, notwithstanding the foregoing, in the event
of a change in law altering the Minimum Holding Period, the period
of time between Dividend Payment Dates shall automatically be
adjusted so that there shall be a uniform number of days in
subsequent Dividend Periods (such number of days without giving
effect to the adjustments referred to above being referred to herein
as "Subsequent Dividend Period Days") commencing after the date of
such change in law equal to or, to the extent necessary, in excess
of the then current Minimum Holding Period; provided that the number
of Subsequent Dividend Period Days shall not exceed by more than
nine days the length of such then-current Minimum Holding Period and
shall be evenly divisible by seven, and the maximum number of
Subsequent Dividend Period Days, as adjusted pursuant to this
provision, in no event shall exceed 119 days.
(F) If a Normal Dividend Payment Date for shares of
Remarketing Preferred with Dividend Periods of less than 7 days is
not a Business Day, then dividends shall be payable on the first
Business Day following such Normal Dividend Payment Date.
(g) (i) For the Initial Dividend Periods dividends will accumulate at a
rate per annum of 3.25% for Series G Preferred Stock, 3.25% for Series H
Preferred Stock, 3.25% for Series I Preferred Stock, and 3.25% for Series J
Preferred Stock (in each case, the "Initial Dividend Rate"). The dividend rate
for each share of Preferred Stock for each subsequent Dividend Period shall be
the Applicable Rate determined by either the Auction Method or the Remarketing
Method.
(ii) Notwithstanding the application of either the Auction Method or the
Remarketing Method, the dividend rate on each share of Preferred Stock
shall not exceed the Maximum Applicable Rate per annum for any Dividend
Period; provided, however, that the Chief Financial Officer of the
Corporation (the "Chief Financial Officer") based on certain factors may
increase the Percentage used to calculate the Maximum Applicable Rate at
any time up to certain amounts set forth below in Section 3(h)(ii). The
provisions of the immediately preceding sentence notwithstanding, at any
time that the application of the provisions with respect to a Failure to
Deposit would, but for the provisions of the immediately preceding
sentence, result in a dividend rate on a share of Preferred Stock being in
excess of the Maximum Applicable Rate per annum, the maximum dividend rate
applicable to such share of Preferred Stock shall be such higher dividend
rate as provided below.
(h) (i) Not later than 10:00 A.M., New York City time, on the related
Auction Date or Remarketing Date, as the case may be, and based on the criteria
set forth below, the Chief Financial Officer may, upon telephonic and written
notice, to the Auction Agent, each applicable Remarketing Agent, the Securities
Depository, the Remarketing Depository and any other record holder of shares of
Preferred Stock affected thereby, increase the percentage (the "Percentage")
used to calculate the Maximum Applicable Rate for any shares of Preferred Stock
(a "Notice of Percentage Increase"). Such Notice of Percentage Increase shall
specify the new Percentages to be used to calculate the Maximum Applicable Rate
and shall be in substantially the form of Exhibit G to the Auction Agent
Agreement.
The Chief Financial Officer may increase such Percentages if the Chief
Financial Officer determines that supervening considerations make the
Percentages then in effect inimical to the financial interests of the
Corporation and that such increase is necessary to enable the operation of the
then-
23
applicable Method to provide the Corporation with the most favorable financing
alternatives based on then-current Marketing Conditions. The Chief Financial
Officer may not revoke a Notice of Percentage Increase and the Percentages
specified therein will be the applicable Percentages for the determination of
the Maximum Applicable Rate with respect to such shares for subsequent Dividend
Periods, except as described below, until a new Notice of Percentage Increase
shall be delivered in accordance with the terms thereof.
(ii) Except as described below, the Chief Financial Officer may not
increase the Percentage used to calculate the Maximum Applicable Rate to
above the Percentages set forth in the third column of the table below
corresponding to the applicable credit ratings set forth in the first two
columns of the table below.
Credit Rating Maximum Percentage
Permitted to be
Used to Calculate
Maximum Applicable
Moody's Standard & Poor's Rate
------- ----------------- ------------------
"aa3" or Above AA- or Above 175%
"a3" to "a1" A- to A+ 225%
"baa3" to "baa1" +BBB- to BBB 250%
Below "baa3" Below BBB 275%
The maximum percentages set forth in the third column of the above
table may be increased by the Chief Financial Officer, upon receipt
of an opinion of counsel addressed to the Corporation to the effect
that the use of such higher percentages to calculate the Maximum
Applicable Rate will not adversely affect the tax treatment of the
Preferred Stock.
(iii) The Chief Financial Officer may only raise the Percentage
applicable to a Series of Auction Preferred if the Chief Financial Officer
raises such Percentage for all the shares of such Series. The Chief
Financial Officer may, however, only raise the Percentage applicable to
shares of Remarketing Preferred with respect to those shares of
Remarketing Preferred being remarketed on the same date, and shall not be
required to raise the Percentage applicable to any other shares of
Remarketing Preferred. However, if the Percentage applicable to a share of
Remarketing Preferred is less than the Percentage applicable to any other
share of Remarketing Preferred of the same Series, the lower Percentage
applicable to such share shall, at the end of the current Dividend Period
for such share, automatically be increased to the highest Percentage then
applicable to any share of Remarketing Preferred of such Series, unless
the Chief Financial Officer elects to increase further the Percentage
applicable to such share.
(i) (A) In the event a Failure to Deposit occurs and any such Failure to
Deposit shall not have been cured within three Business Days after such
occurrence, then until such time as the full amount due shall have been
paid to the Paying Agent, the Auction Procedures and the Remarketing
Procedures will be suspended. The Applicable Rate for each Dividend Period
commencing on or after any such Dividend Payment Date (or redemption date,
as the case may be) on which there has been a Failure to Deposit and such
Failure to Deposit has not been cured within three Business Days shall be
equal to the Default Rate for such Dividend Period. In addition, if any
such Dividend Payment Date was not the last day of a Dividend Period, the
Applicable Rate for the portion of such Dividend Period commencing on such
Dividend Payment Date and ending on the day preceding the next succeeding
Dividend Payment Date shall be the Default Rate for
24
such period, computed as if such period were a "Dividend Period". If there
has been a failure to pay dividends on the last day of a Dividend Period,
the Dividend Period to which such Default Rate will apply shall be a
Standard Dividend Period in the case of Auction Preferred and successive
one day periods in the case of Remarketing Preferred. If there has been a
failure to pay the redemption price of shares of Preferred Stock called
for redemption, the Dividend Period to which such Default Rate will apply
shall be the period commencing on, and including, the redemption date and
ending on, but excluding, the date the redemption price is paid to the
Paying Agent. The suspension of the Auction Procedures and the Remarketing
Procedures shall continue in effect until there shall occur a Dividend
Payment Date at least one Business Day prior to which the full amount of
any dividends (whether or not earned or declared) payable on each Dividend
Payment Date prior to and including such Dividend Payment Date along with
any Additional Payments then due, and the full amount of any redemption
price (including accumulated and unpaid dividends) then due shall have
been paid to the Paying Agent, and thereupon application of the Auction
Procedures and the Remarketing Procedures shall resume for any Outstanding
shares on the terms stated herein for Dividend Periods commencing with
such Dividend Payment Date. If a Failure to Deposit is cured within three
Business Days, then the Applicable Rate will be the dividend rate
established in connection with any Auction or Remarketing relating to such
shares of Preferred Stock conducted immediately preceding the Failure to
Deposit, provided that the Applicable Rate shall be the Default Rate for
each day (excluding the date of deposit) until the Failure to Deposit is
cured. Such Default Rate shall be computed using the Dividend Period
established in connection with any Auction or Remarketing relating to such
shares of Preferred Stock conducted immediately preceding the Failure to
Deposit.
(B) Any Failure to Deposit with respect to any share of Preferred
Stock shall be deemed to be cured if, with respect to a Failure to Deposit
relating to (a) the payment of dividends on such shares of Preferred
Stock, the Corporation deposits with the Paying Agent by 11:00 A.M., New
York City time, all accumulated and unpaid dividends on such shares of
Preferred Stock, including the full amount of any dividends to be paid
with respect to the Dividend Period or portion thereof with respect to
which the Failure to Deposit occurred, plus Additional Payments, and (b)
the redemption of such shares, the Corporation deposits with the Paying
Agent by 11:00 A.M., New York City time, funds sufficient for the
redemption of such shares (including accumulated and unpaid dividends) and
gives irrevocable instructions to apply such funds and, if applicable, the
income and proceeds therefrom, to the payment of the redemption price
(including accumulated and unpaid dividends) for such shares. If the
Corporation shall have cured such Failure to Deposit by making timely
payment to the Paying Agent, either the Auction Agent or the Remarketing
Agent, as the case may be, will give telephonic and written notice of such
cure to each Holder of shares of Preferred Stock at the telephone number
and address specified in such Holder's Master Purchaser's Letter and to
each Broker-Dealer, in the case of the Auction Agent, as promptly as
practicable after such cure is effected. Additional Payments paid to the
Paying Agent with respect to a Failure to Deposit will be payable to the
Holders of shares of Preferred Stock on the Record Date for the Dividend
Payment Date with respect to which such Failure to Deposit occurred.
(j) If an Auction or Remarketing for any shares of Preferred Stock is not
held on an Auction Date or Remarketing Date for any reason (other than because
of the suspension of Auctions or Remarketing due to a Failure to Deposit as
described above), the dividend rate for such shares shall be the Maximum
Applicable Rate (calculated assuming a Standard Dividend Period) determined as
of such Auction Date or Remarketing Date and the Dividend Period shall be a
Standard Dividend Period, in the case of Auction Preferred, and successive
Dividend Periods of one day, in the case of Remarketing Preferred, until such
shares of Remarketing Preferred are remarketed.
25
(k) The amount of dividends per share payable on any Dividend Payment Date
on a share of Preferred Stock having a Dividend Period of up to 364 days shall
be computed by multiplying the Applicable Rate for each Dividend Period by a
fraction the numerator of which shall be the number of days between Dividend
Payment Dates (calculated by counting the date of the preceding Dividend Payment
Date as the first day and the day preceding the current Dividend Payment Date as
the last day) and the denominator of which shall be 360, and multiplying the
amount so obtained by $250,000. During any Dividend Period of 365 days or
longer, the amount of dividends accumulated on each share will be computed on
the basis of a 360-day year consisting of twelve 30-day months.
(l) (i) Holders of shares of each Series of Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends. So long as any shares of Preferred
Stock are Outstanding, the Corporation shall not declare or pay or set
apart for payment any dividends or make any other distributions on, or
payment on account of the purchase, redemption or other retirement of the
common stock of the Corporation or any other capital stock of the
Corporation ranking junior to the Preferred Stock as to dividends or as to
distributions upon liquidation, dissolution or winding-up of the
Corporation unless (i) full cumulative dividends on the Preferred Stock
have been paid (or declared and a sum sufficient for the payment thereof
set apart for such payment) for all Dividend Periods terminating on or
prior to the date of such payment, distribution, purchase, redemption or
other retirement with respect to such junior capital stock and (ii) the
Corporation is not in default with respect to any obligation to redeem or
retire shares of the Preferred Stock; provided, however, that the
foregoing shall not apply to (i) any dividend payable solely in any shares
of any stock ranking, as to dividends and as to distributions in the event
of a liquidation, dissolution or winding-up of the Corporation, junior to
the Preferred Stock or (ii) the acquisition of shares of any stock
ranking, as to dividends or as to distributions in the event of a
liquidation, dissolution or winding-up of the Corporation, junior to the
Preferred Stock in exchange solely for shares of any other stock ranking,
as to dividends and as to distributions in the event of a liquidation,
dissolution or winding-up of the Corporation, junior to the Preferred
Stock.
(ii) Each dividend will be payable to the holder or holders of record
of shares of Preferred stock as they appear on the Stock Books on the
Business Day next preceding the applicable Dividend Payment Date.
Dividends in arrears for any past Dividend Period (and for any past
Dividend Payment Date occurring prior to the end of a Long Dividend
Period or a Short Dividend Period) may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to the record
holders of such shares. Any dividend payment made on any shares of
Preferred Stock shall first be credited against the dividends accumulated
with respect to the earliest Dividend Payment Date for which dividends
have not been paid with respect to such shares. So long as the shares of
Preferred stock are held of record by the nominee of the Securities
Depository or the Remarketing Depository, as the case may be, dividends
will be paid to the nominee of the Securities Depository or the
Remarketing Depository, on each Dividend Payment Date.
(iii) Unless otherwise provided for in the Restated Certificate of
Incorporation, as the same may be amended, of the Corporation, all
payments in the form of dividends made upon shares of Preferred Stock and
any other stock ranking on a parity with the Preferred Stock with respect
to such dividend shall be pro rata, so that amounts paid per share on the
Preferred Stock and such other stock shall in all cases bear to each other
the same ratio that the required dividends then payable per share on the
shares of Preferred Stock and such other stock bear to each other.
SECTION 4. Optional Redemption.
26
(a) At the option of the Corporation, by resolution of the Board of
Directors, the shares of a Series of Preferred Stock may be redeemed, in whole
or in part, out of funds legally available therefor, on the Business Day
immediately preceding any Dividend Payment Date for such shares, upon at least
15 but not more than 45 days notice, at a redemption price per share equal to
the sum of $250,000 plus premium thereon, if any, and an amount equal to accrued
and unpaid dividends thereon (whether or not earned or declared) to the date
that the Corporation pays the full amount payable upon redemption of such
shares; provided that such redemption date shall be the Dividend Payment Date
for such shares if the payment on the Business Day preceding such date would
reduce the holding period for such shares since the Auction Date or Remarketing
Date preceding such payment below the Minimum Holding Period. Pursuant to such
right of optional redemption, the Corporation may elect to redeem some or all of
the shares of Preferred Stock of any Series without redeeming shares of any
other Series.
(b) (i) Notwithstanding the foregoing, if any dividends on shares of any
Series of Preferred Stock are in arrears, (i) no shares of such Series of
Preferred Stock or of any other Series of Preferred Stock shall be
redeemed unless all outstanding shares of each Series of Preferred Stock
are simultaneously redeemed and (ii) the Corporation shall not purchase or
otherwise acquire any shares of Preferred Stock; provided, however, that
the foregoing shall not prevent the purchase or acquisition of shares of
Preferred Stock pursuant to an otherwise lawful purchase or exchange offer
made on the same terms to all Holders of Outstanding shares of Preferred
Stock.
(ii) In connection with the selection of a Long Dividend Period, the
Term Selection Agent or the applicable Remarketing Agent, as the case may
be, may restrict the Corporation's ability to redeem shares of Preferred
Stock by providing for the payment of a redemption premium or fixing a
period of time during which such shares of Preferred Stock may not be
redeemed if the Term Selection Agent or the applicable Remarketing Agent,
as the case be, determines, based on the then-current Marketing
Conditions, that adding such terms will result in the most favorable
financing alternative for the Corporation.
(c) (i) If shares of Preferred Stock are to be redeemed, the Redemption
Agent will, at the direction of the Corporation, cause to be sent, by
first-class or air mail, postage prepaid, telex or facsimile, a notice of
redemption to each holder of record (initially Cede & Co., as nominee of
the Securities Depository) of shares of Preferred Stock to be redeemed.
Such notice of redemption shall be sent not fewer than fifteen nor more
than 45 days prior to the redemption date. Each notice of redemption will
identify the Preferred Stock to be redeemed by CUSIP number and will state
(a) the redemption date, (b) the redemption price, (c) the place where the
redemption price is to be paid and (d) the number of shares of Preferred
Stock and the Series thereof to be redeemed. The notice will also be
published in The Wall Street Journal.
(ii) No defect in the notice of redemption or in the mailing or
publication thereof will affect the validity of the redemption
proceedings, except as required by applicable law. A notice of redemption
will be deemed given on the day that it is mailed in accordance with the
foregoing description.
(iii) The Corporation may elect to redeem some or all of the shares
of each Series of Preferred Stock.
(iv) In the case of shares of a Series of Auction Preferred, so long
as the Securities Depository's nominee is the record holder of such
shares, the Redemption Agent will give notice to the Securities
Depository, and the Securities Depository will determine the number of
shares of each such Series to be redeemed from the accounts of each of its
Participants. A Participant may
27
determine to redeem shares from certain of the beneficial holders holding
through such Participant (which may include a Participant holding shares
for its own account) without redeeming shares from the accounts of other
beneficial owners.
Any such redemption will be made in accordance with applicable laws and
rules.
(v) In the case of shares of Remarketing Preferred, notice of such
redemption shall be given to the Securities Depository or the Remarketing
Depository, as the case may be, and any other record holders of the
Remarketing Preferred to be redeemed. The Corporation shall identify by
CUSIP number the shares of Remarketing Preferred to be redeemed. To the
extent less than all of the shares of Remarketing Preferred represented by
a certificate with a particular CUSIP number are to be redeemed, the
applicable Depository shall determine the shares represented by such
certificate to be redeemed. In the case of the Securities Depository, the
shares to be redeemed shall be determined as described in the preceding
paragraph, and in the case of the Remarketing Depository, the Remarketing
Depository shall determine the number of shares represented by such
certificate to be redeemed from each Holder thereof.
(vi) If any shares of Preferred Stock to be redeemed are not held
of record by a nominee for the Securities Depository or the Remarketing
Depository, the particular shares of Preferred Stock to be redeemed shall
be selected by the Corporation by lot or by such other method as the
Corporation shall deem fair and equitable.
(vii) Upon any date fixed for redemption (unless a Failure to
Deposit occurs), all rights of the Holders of shares of Preferred Stock
called for redemption will cease and terminate, except the right of such
Holders to receive the amounts payable in respect of such redemption
therefor, but without interest, and such shares of Preferred Stock will be
deemed no longer outstanding and, upon the taking of any action required
by applicable law, shall have the status of authorized and unissued shares
of preferred stock and may be reissued by the Corporation at any time as
shares of any series of preferred stock other than as shares of Preferred
Stock.
28
SECTION 5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the shares of the Preferred Stock shall be entitled to receive, out
of the assets of the Corporation, whether such assets are capital or surplus and
whether or not any dividends as such are declared but before any payment or
distribution of assets is made to holders of common stock of the Corporation or
any other class of stock or series thereof ranking junior to the Preferred Stock
with respect to the distribution of assets, a preferential liquidation
distribution in the amount of $250,000 per share of Preferred Stock plus an
amount equal to accumulated and unpaid dividends on each such share (whether or
not declared) to and including the date of such distribution and no more.
Neither the merger or consolidation of the Corporation with or into any other
corporation, nor the merger or consolidation of any other corporation with or
into the Corporation, nor the sale, lease, exchange or other transfer of all or
any portion of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 5.
(b) If upon any liquidation, dissolution or winding up of the affairs of
the Corporation, whether voluntary or involuntary, the assets of the Corporation
available for distribution to the holders of Preferred Stock and any other
series of capital stock of the Corporation ranking on a parity with the
Preferred Stock are insufficient to pay the holders of the Preferred Stock the
full amount of the preferential liquidation distributions to which they are
entitled, then such assets of the Corporation shall be distributed ratably among
the holders of Preferred Stock and any other series of capital stock of the
Corporation ranking on a parity with the Preferred Stock based upon the ratio of
(x) the aggregate amount available for distribution on all shares of Preferred
Stock and such parity stock to (y) the total amount distributable on all shares
of Preferred Stock and such parity stock upon liquidation.
SECTION 6. Voting Rights.
(a) Holders of the Preferred Stock will have no voting rights except as
hereinafter described or as otherwise provided by the General Corporation Law of
the State of Delaware; provided, however, that the affirmative vote of the
holders of record of at least 66 2/3% of the Outstanding shares of Preferred
Stock, voting separately as one class, shall be necessary to adopt any
alteration, amendment or repeal of any provision of the Articles of
Incorporation or this Certificate of Designations (including any such
alteration, amendment or repeal effected by any merger or consolidation), if
such alteration, amendment or repeal would alter or change the powers,
preferences or special rights of the shares of Preferred Stock so as to affect
them adversely.
(b) (i) If at any time the equivalent of six or more full quarterly
dividends (whether or not consecutive) payable on the Preferred Stock
shall be in arrears (to any extent) (a "Default Period"), the number of
directors constituting the Board of Directors of the Corporation shall be
increased by two (2), and the holders of record of the Preferred Stock
shall have the exclusive right, voting as a class with any other shares of
preferred stock of the Corporation so entitled to vote thereon, to elect
the directors to fill such newly created directorships. This right shall
remain vested until all dividends in arrears on the Preferred Stock have
been paid or declared and set apart for payment, at which time (A) the
right shall terminate (subject to revesting), (B) the term of the
directors then in office elected in accordance with the foregoing shall
terminate, and (C) the number of directors constituting the Board of
Directors of the Corporation shall be reduced by the number of directors
whose term has been terminated pursuant to clause (B) above. For purposes
of the foregoing, default in the payment of dividends for the equivalent
of six quarterly dividends
29
means, in the case of Preferred Stock which pays dividends either more or
less frequently than every quarter, default in the payment of dividends in
respect of one or more Dividend Periods containing not less than 540 days.
(ii) Whenever such right shall vest, it may be exercised initially
by the vote of the holders of record of a majority of the shares of
Preferred Stock present and voting, in person or by proxy, at a special
meeting of holders of record of the Preferred Stock or at the next annual
meeting of stockholders. A special meeting for the exercise of such right
shall be called by the Secretary of the Corporation as promptly as
possible, and in any event within 10 days after receipt of a written
request signed by the holders of record of at least 25% of the Outstanding
shares of the Preferred Stock, subject to any applicable notice
requirements imposed by law. Notwithstanding the provisions of this
paragraph, no such special meeting shall be held during the 30-day period
preceding the date fixed for the annual meeting of stockholders of the
Corporation.
(iii) So long as a Default Period continues, any director who shall
have been elected by holders of record of Preferred Stock entitled to vote
in accordance herewith shall hold office for a term expiring at the next
annual meeting of stockholders and during such term may be removed at any
time, without cause by, and only by, the affirmative vote of the holders
of record of a majority of the shares of Preferred Stock present and
voting, in person or by proxy, at a special meeting of such stockholders
of record called for such purpose, and any vacancy created by such removal
may also be filled at such meeting. A meeting for the removal of a
director elected by the holders of record of Preferred Stock and the
filling of the vacancy created thereby shall be called by the Secretary of
the Corporation as promptly as possible and in any event within 10 days
after receipt of request therefor signed by the holders of record of not
less than 25% of the Outstanding shares of Preferred Stock, subject to any
applicable notice requirements imposed by law. Such meeting shall be held
at the earliest practicable date thereafter. Notwithstanding the
provisions of this paragraph, no such meeting shall be held during the
30-day period preceding the date fixed for the annual meeting of
stockholders of the Corporation.
(iv) Any vacancy caused by the death, resignation or expiration of
the term of office of a director who shall have been elected in accordance
with these provisions may be filled by the remaining director so elected
or, if not so filled, by a vote of holders of record of a majority of the
shares of Preferred Stock present and voting, in person or by proxy, at a
meeting called for such purpose (or, in the case of expiration of the term
of office of such director, at the annual meeting of stockholders of the
Corporation). Unless such vacancy shall have been filled by the remaining
director or by vote at the annual meeting of stockholders, such special
meeting shall be called by the Secretary of the Corporation at the
earliest practicable date after such death, resignation or expiration of
term of office, and in any event within 10 days after receipt of a written
request signed by the holders of record of at least 25% of the Outstanding
shares of Preferred Stock. Notwithstanding the provisions of this
paragraph, no such special meeting shall be held during the 30-day period
preceding the date fixed for the annual meeting of stockholders of the
Corporation.
(v) If any meeting of the holders of the Preferred Stock required
above to be called shall not have been called within 10 days after
personal service of a written request therefor upon the Secretary of the
Corporation or within 15 days after mailing the same by registered mail
addressed to the Secretary of the Corporation at his principal office,
subject to any applicable notice requirements imposed by law, then the
holders of record of at least 25% of the Outstanding shares of Preferred
Stock may designate in writing a holder of Preferred Stock to call such
meeting at the expense of the Corporation, and such meeting may be called
by such person so designated upon the notice required for annual meetings
of stockholders or such shorter notice (but in no event
30
shorter than permitted by law) as may be acceptable to the holders of a
majority of the total number of shares of Preferred Stock. Any holder of
Preferred Stock so designated shall have access to the stock books of the
Corporation for the purpose of causing such meeting to be called pursuant
to these provisions. Such meeting shall be held at the earliest
practicable date thereafter. Notwithstanding the provisions of this
paragraph, no such meeting shall be held during the 30-day period
preceding the date fixed for the annual meeting of stockholders of the
Corporation.
(vi) At any meeting of the holders of record of the Preferred Stock
called in accordance with the above provisions for the election or removal
of directors, the presence in person or by proxy of the holders of record
of one-third of the total number of Outstanding shares of Preferred Stock
shall be required to constitute a quorum; in the absence of a quorum, a
majority of the holders of record present in person or by proxy shall have
power to adjourn the meeting from time to time without notice, other than
announcement at the meeting, until a quorum shall be present.
SECTION 7. Auction Procedures.
(a) Certain Definitions. Capitalized terms not defined in this Section 7
shall have the respective meanings specified elsewhere in this part of Article
IV(B). As used in this Section 7, the following terms shall have the following
meanings, unless the context otherwise requires:
(i) "Available Shares of Auction Preferred" has the meaning set
forth in subsection (d)(i) below.
(ii) "Bid" has the meaning set forth in subsection (b)(i) below.
(iii) "Bidder" has the meaning set forth in subsection (b)(i) below.
(iv) "Broker-Dealer Agreement" means an agreement between the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in these Auction Procedures.
(v) "Hold Order" has the meaning set forth in subsection (b)(i)
below.
(vi) "Order" has the meaning set forth in subsection (b)(i) below.
(vii) "Potential Holder" means any Person, including any Existing
Holder, (A) who shall have executed a Purchaser's Letter and (B) who may
be interested in acquiring shares of Auction Preferred (or, in the case of
an Existing Holder, additional shares of Auction Preferred).
(viii) "Sell Order" has the meaning set forth in subsection (b)(i)
below.
(ix) "Submission Deadline" means 1:00 P.M., New York City time, on
any Auction Date, or such other time on any Auction Date as may be
specified from time to time by the Auction Agent as the time prior to
which each Broker-Dealer must submit to the Auction Agent in writing all
Orders obtained by it for the Auction to be conducted on such Auction
Date.
(x) "Submitted Bid" has the meaning set forth in subsection (C)(i)
below.
(xi) "Submitted Hold Order" has the meaning set forth in subsection
(C)(i) below.
(xii) "Submitted Order" has the meaning set forth in subsection
(C)(i) below.
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(xiii) "Submitted Sell Order" has the meaning set forth in
subsection (C)(i) below.
(xiv) "Sufficient Clearing Bids" has the meaning set forth in
subsection (d)(i) below.
(xv) "Winning Bid Rate" has the meaning set forth in subsection
(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) Prior to the Submission Deadline on each Auction Date for any
Series of Auction Preferred:
(A) each Existing Holder may submit to a Broker-Dealer
information as to:
(1) the number of Outstanding shares of Auction
Preferred, if any, held by such Existing Holder that such
Existing Holder desires to continue to hold without regard to
the Applicable Rate for the next succeeding Dividend Period;
(2) the number of Outstanding shares of Auction
Preferred, if any, held by such Existing Holder that such
Existing Holder desires to sell, provided that the Applicable
Rate for the next succeeding Dividend Period is less than the
rate per annum specified by such Existing Holder; and/or
(3) the number of Outstanding shares of Auction
Preferred, if any, held by such Existing Holder that such
Existing Holder desires to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Holders that
shall be maintained in accordance with the provisions set forth in
the Broker-Dealer Agreement for the purpose of conducting a
competitive Auction, shall contact both Existing Holders and
Potential Holders, including Existing Holders with respect to an
offer by any such Existing Holder to purchase additional shares of
Auction Preferred, on such list to notify such Existing Holders and
Potential Holders as to the length of the next Dividend Period and
(i) with respect to any Short Dividend Period or Long Dividend
Period, the Dividend Payment Date(s) and (ii) with respect to any
Long Dividend Period, any dates before which shares of Auction
Preferred may not be redeemed and any redemption premium applicable
in an optional redemption and to determine the number of Outstanding
shares of Auction Preferred, if any, with respect to which each such
Existing Holder and each Potential Holder desires to submit an Order
and each such Potential Holder offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (A) or (B) of this Subsection (b)(i) is
hereinafter referred to as an "Order" and each Existing Holder and each
Potential Holder placing an Order is hereinafter referred to as a "Bidder;" an
Order containing the information referred to in clause (A)(1) of this Subsection
(b)(i) is hereinafter referred to as a "Hold Order;" an Order containing the
information referred to in clause (A)(2) or (B) of this Subsection (b)(i) is
hereinafter referred to as a "Bid;" and an Order containing the information
referred to in clause (A)(3) of this Subsection (b)(i) is hereinafter referred
to as a "Sell Order".
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
32
(1) the number of Outstanding shares of Auction
Preferred specified in such Bid if the Applicable Rate
determined on such Auction Date shall be less than the rate
per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares
of Auction Preferred to be determined as set forth in
Subsections (e)(i)(D) and (e)(iii) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per
annum specified therein; or
(3) a lesser number of Outstanding shares of Auction
Preferred to be determined as set forth in Subsections
(e)(ii)(C) and (e)(iii) if such specified rate per annum shall
be higher than the Maximum Applicable Rate and Sufficient
Clearing Bids do not exist.
(B) a Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of Auction
Preferred specified in such Sell Order; or
(2) such number or a lesser number of Outstanding shares
of Auction Preferred to be determined as set forth in
Subsections (e)(ii)(C) and (e)(iii) if Sufficient Clearing
Bids do not exist.
(C) a Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of Auction
Preferred specified in such Bid if the Applicable Rate
determined on such Auction Date shall be higher than the rate
per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares
of Auction Preferred to be determined as set forth in
Subsections (e)(i)(E) and (e)(iv) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per
annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date for any Series of
Auction Preferred all Orders obtained by such Broker-Dealer specifying
with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of Outstanding shares of Auction
Preferred that are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares of Auction
Preferred, if any, subject to any Hold Order placed by such
Existing Holder;
(2) the number of Outstanding shares of Auction
Preferred, if any, subject to any Bid placed by such Existing
Holder and the rate per annum specified in such Bid; and
33
(3) the number of Outstanding shares of Auction
Preferred, if any, subject to any Sell Order placed by such
Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(Each "Hold Order", "Bid" or "Sell Order" as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order", a "Submitted Bid" or a
"Submitted Sell Order", as the case may be, or as a "Submitted
Order".)
(ii) If any rate per annum specified in any Submitted Bid contains
more than three figures to the right of the decimal point, the Auction
Agent shall round such rate up to the next highest one-thousandth (.001)
of 1%.
(iii) If one or more Orders covering in the aggregate all of the
Outstanding shares of Auction Preferred held by an Existing Holder are not
submitted to the Auction Agent prior to the Submission Deadline for any
reason (including the failure of a Broker-Dealer to contact such Existing
Holder or to submit such Existing Holder's Order or Orders), such Existing
Holder shall be deemed to have submitted a Hold Order covering the number
of Outstanding shares of Auction Preferred held by such Existing Holder
that are not subject to Orders submitted to the Auction Agent.
(iv) A Submitted Order or Submitted Orders of an Existing Holder
that cover in the aggregate more than the number of Outstanding shares of
Auction Preferred held by such Existing Holder will be considered valid in
the following order of priority:
(A) any Submitted Hold Order of such Existing Holder will be
considered valid up to and including the number of Outstanding
shares of Auction Preferred held by such Existing Holder, provided
that, if there is more than one such Submitted Hold Order and the
aggregate number of shares of Auction Preferred subject to such
Submitted Hold Orders exceeds the number of Outstanding shares of
Auction Preferred held by such Existing Holder, the number of shares
of Auction Preferred subject to each of such Submitted Hold Orders
will be reduced pro rata so that such Submitted Hold Orders in the
aggregate will cover exactly the number of Outstanding shares of
Auction Preferred held by such Existing Holder;
(B) any Submitted Bids of such Existing Holder will be
considered valid (in the ascending order of their respective rates
per annum if there is more than one Submitted Bid of such Existing
Holder) for the number of Outstanding shares of Auction Preferred
held by such Existing Holder equal to the difference between (i) the
number of Outstanding shares of Auction Preferred held by such
Existing Holder and (ii) the number of Outstanding shares of Auction
Preferred subject to any Submitted Hold Order of such Existing
Holder referred to in clause (iv)(A) above (and, if more than one
Submitted Bid of such Existing Holder specifies the same rate per
annum and together they cover more than the remaining number of
shares of Auction Preferred that can be the subject of valid
Submitted Bids of such Existing Holder after application of clause
(iv)(A) above and of the foregoing portion of this clause (iv)(B) to
any Submitted Bid or Submitted Bids of such Existing Holder
specifying a lower rate or rates per annum, the number of shares of
Auction Preferred subject to each of such Submitted Bids specifying
the same rate per annum will be reduced pro rata so that such
Submitted Bids, in the aggregate, cover exactly such remaining
number of Outstanding shares of Auction Preferred of such Existing
Holder).
34
(C) any Submitted Sell Order of an Existing Holder will be
considered valid up to and including the excess of the number of
Outstanding shares of Auction Preferred held by such Existing Holder
over the sum of (a) the number of shares of Auction Preferred
subject to Submitted Hold Orders by such Existing Holder referred to
in clause (iv)(A) above and (b) the number of shares of Auction
Preferred subject to valid Submitted Bids by such Existing Holder
referred to in clause (iv)(B) above; provided that, if there is more
than one Submitted Sell Order of such Existing Holder and the number
of shares of Auction Preferred subject to such Submitted Sell Orders
is greater than such excess, the number of shares of Auction
Preferred subject to each of such Submitted Sell Orders will be
reduced pro rata so that such Submitted Sell Orders, in the
aggregate, will cover exactly the number of shares of Auction
Preferred equal to such excess.
The number of Outstanding shares of Auction Preferred, if any, subject to
Submitted Bids of such Existing Holder not valid under clause (iv)(B) above
shall be treated as the subject of a Submitted Bid by a Potential Holder at the
rate per annum specified in such Submitted Bids.
(v) If there is more than one Submitted Bid by any Potential Holder
in any Auction, each such Submitted Bid shall be considered a separate
Submitted Bid with respect to the rate per annum and number of shares of
Auction Preferred specified therein.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date
for any Series of Auction Preferred, the Auction Agent shall assemble all
Orders submitted or deemed submitted to it by the Broker-Dealers and shall
determine:
(A) the excess of the total number of Outstanding shares of
Auction Preferred over the number of shares of Auction Preferred
that are the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Shares of Auction
Preferred");
(B) from the Submitted Orders, whether the number of
Outstanding shares of Auction Preferred that are the subject of
Submitted Bids by Potential Holders specifying one or more rates per
annum equal to or lower than the Maximum Applicable Rate exceeds or
is equal to the sum of:
(1) the number of Outstanding shares of Auction Preferred
that are the subject of Submitted Bids by Existing Holders
specifying one or more rates per annum higher than the Maximum
Applicable Rate, and
(2) the number of Outstanding shares of Auction Preferred
that are subject to Submitted Sell Orders.
(if such excess or such equality exists (other than because
the number of Outstanding shares of Auction Preferred in
clauses (1) and (2) above are each zero because all of the
Outstanding shares of Auction Preferred are the subject of
Submitted Hold Orders), there shall exist "Sufficient Clearing
Bids" and such Submitted Bids by Potential Holders shall be
hereinafter referred to collectively as "Sufficient Clearing
Bids"); and
(C) if Sufficient Clearing Bids exist, the winning bid rate
(the "Winning Bid Rate"), which shall be the lowest rate per annum
specified in the Submitted Bids that if:
35
(1) each Submitted Bid from Existing Holders specifying
the Winning Bid Rate and all other Submitted Bids from
Existing Holders specifying lower rates per annum
were accepted, thus entitling such Existing Holders to
continue to hold the shares of Auction Preferred that are the
subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying
the Winning Bid Rate and all other submitted Bids from
Potential Holders specifying lower rates per annum were
accepted, thus entitling such Potential Holders to purchase
the shares of Auction Preferred that are the subject of such
Submitted Bids, would result in such Existing Holders
described in subclause (C)(1) continuing to hold an aggregate
number of Outstanding shares of Auction Preferred that, when
added to the number of Outstanding shares of Auction Preferred
to be purchased by such Potential Holders described in
subclause (C)(2), would equal or exceed the number of
Available Shares of Auction Preferred.
(ii) In connection with any Auction and promptly after the Auction
Agent has made the determinations pursuant to Subsection (d)(i), the
Auction Agent shall advise the Corporation of the Maximum Applicable Rate
and, based on such determinations, the Applicable Rate for the next
succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Dividend Period shall be equal to the
Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of Auction Preferred are the
subject of Submitted Hold Orders), that the next succeeding Dividend
Period will be a Standard Dividend Period and the Applicable Rate
for the next succeeding Dividend Period determined shall be equal to
the Maximum Applicable Rate for a Standard Dividend Period
determined on the Business Day immediately preceding such Auction;
or
(C) if all of the Outstanding shares of Auction Preferred are
the subject of Submitted Hold Orders, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to 58% of the
Applicable "AA" Composite Commercial Paper Rate, in the case of
Auction Preferred with a Dividend Period of 7 to 48 days, a Standard
Dividend Period or a Short Dividend Period of 183 days or less, 58%
of the Applicable Treasury Bill Rate in the case of Auction
Preferred with a Short Dividend Period of 184 to 364 days, or 58% of
the Applicable Treasury Note Rate, in the case of Auction Preferred
with a Long Dividend Period, in effect on the Auction Date.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares of Auction Preferred. Based on the determinations made
pursuant to Subsection (d)(i), the Submitted Bids and Submitted Sell Orders
shall be accepted or rejected and the Auction Agent shall take such other action
as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of Subsections (e)(iii) and (e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order
of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the
36
Winning Bid Rate shall be rejected, thus requiring each such
Existing Holder to sell the Outstanding shares of Auction Preferred
that are the subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning Bid
Rate shall be accepted, thus entitling each such Existing Holder to
continue to hold the Outstanding shares of Auction Preferred that
are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning Bid
Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid Rate
shall be accepted, thus entitling each such Existing Holder to
continue to hold the Outstanding shares of Auction Preferred that
are the subject of such Submitted Bid, unless the number of
Outstanding shares of Auction Preferred subject to all such
Submitted Bids shall be greater than the number of Outstanding
shares of Auction Preferred ("Remaining Shares of Auction
Preferred") equal to the excess of the Available Shares of Auction
Preferred over the number of Outstanding shares of Auction Preferred
subject to Submitted Bids described in Subsections (e)(i)(B) and
(e)(i)(C), in which event the Submitted Bids of each such Existing
Holder shall be rejected, and each such Existing Holder shall be
required to sell Outstanding shares of Auction Preferred, but only
in an amount equal to the difference between (1) the number of
Outstanding shares of Auction Preferred then held by such Existing
Holder subject to such Submitted Bid and (2) the number of shares of
Auction Preferred obtained by multiplying (x) the number of
Remaining Shares of Auction Preferred by (y) a fraction, the
numerator of which shall be the number of Outstanding shares of
Auction Preferred held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of Auction Preferred subject to such
Submitted Bids made by all such Existing Holders that specified a
rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid Rate
shall be accepted, but only in an amount equal to the number of
Outstanding shares of Auction Preferred obtained by multiplying (x)
the difference between the Available Shares of Auction Preferred and
the number of Outstanding shares of Auction Preferred subject to
Submitted Bids described in Subsections (e)(i)(B), (e)(i)(C) and
(e)(i)(D) by (y) a fraction, the numerator of which shall be the
number of Outstanding shares of Auction Preferred subject to such
Submitted Bid and the denominator of which shall be the sum of the
number of Outstanding shares of Auction Preferred subject to such
Submitted Bids made by all such Potential Holders that specified
rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding shares of Auction Preferred are subject to
Submitted Hold Orders), subject to the provisions of Subsection (e)(iii),
Submitted Orders shall be accepted or rejected as follows in the following
order of priority and all other Submitted Bids of Potential Holders shall
be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus entitling such
37
Existing Holder to continue to hold the Outstanding shares of
Auction Preferred that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus requiring such Potential Holder to
purchase the Outstanding shares of Auction Preferred that are the
subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall
be rejected, thus requiring each such Existing Holder to sell the
Outstanding shares of Auction Preferred that are the subject of such
Submitted Bid, and the Submitted Sell Orders of each Existing Holder
shall be accepted, in both cases only in an amount equal to the
difference between (1) the number of Outstanding shares of Auction
Preferred then held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and (2) the number of shares
of Auction Preferred obtained by multiplying (x) the difference
between the Available Shares of Auction Preferred and the aggregate
number of Outstanding shares of Auction Preferred subject to
Submitted Bids described in Subsections (e)(ii)(A) and (e)(ii)(B) by
(y) a fraction, the numerator of which shall be the number of
Outstanding shares of Auction Preferred held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the aggregate number of Outstanding
shares of Auction Preferred subject to all such Submitted Bids and
Submitted Sell Orders
(iii) If, as a result of the procedures described in Subsections
(e)(i) or (e)(ii), any Existing Holder would be entitled or required to
sell or any Potential Holder would be entitled or required to purchase, a
fraction of a share of Auction Preferred on any Auction Date, the Auction
Agent shall, in such manner as in its sole discretion it shall determine,
round up or down the number of shares of Auction Preferred to be purchased
or sold by any Existing Holder or Potential Holder on such Auction Date so
that only whole shares of Auction Preferred will be entitled or required
to be sold or purchased.
(iv) If, as a result of the procedures described in Subsection
(e)(i), any Potential Holder would be entitled or required to purchase
less than a whole share of Auction Preferred on any Auction Date, the
Auction Agent shall, in such manner as in its sole discretion it shall
determine, allocate shares of Auction Preferred for purchase among
Potential Holders so that only whole shares of Auction Preferred are
purchased on such Auction Date by any Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any shares of Auction Preferred on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of Outstanding shares of Auction Preferred to be purchased and the
aggregate number of Outstanding shares of Auction Preferred to be sold by
such Potential Holders and Existing Holders and, to the extent that such
aggregate number of Outstanding shares of Auction Preferred to be
purchased and such aggregate number of Outstanding shares of Auction
Preferred to be sold differ, the Auction Agent shall determine to which
other Broker-Dealer or Broker-Dealers acting for one or more purchasers
such Broker-Dealer shall deliver, or from which other Broker-Dealer or
Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Outstanding shares of Auction Preferred.
38
SECTION 8. Auction Agent.
The Corporation shall use its best efforts to maintain, pursuant to a
written agreement (the "Auction Agent Agreement"), an Auction Agent with respect
to each Series of Auction Preferred, to act in accordance with the provisions
set forth herein with respect to such Series.
SECTION 9. Remarketing Procedures.
(a) Determination of Dividend Periods and Dividend Rates for Remarketing
MAPS. Subject to Section 3 hereof, the duration of each subsequent Dividend
Period and the dividend rate for each subsequent Dividend Period with respect to
any share of Remarketing Preferred will be established by a Remarketing Agent
and will be conclusive and binding on the Corporation and the Holder of such
share of Remarketing Preferred. Each Remarketing Agent will establish dividend
rates, not in excess of the Maximum Applicable Rate, for each Dividend Period
which it determines will be the lowest rate at which tendered Shares of
Remarketing Preferred would be remarketed at $250,000 per share. In establishing
each Dividend Period and dividend rate, each Remarketing Agent will establish
Dividend Periods and dividend rates which it determines will result in the most
favorable financing alternative for the Corporation based on the then-current
Marketing Conditions.
(b) Remarketing; Tender for Remarketing. The following procedures shall be
applicable to each share of Remarketing Preferred:
(i) The Remarketing Agent. Each Remarketing Agent shall use its best
efforts, on behalf of the Holders thereof, to remarket all shares of
Remarketing Preferred tendered for sale by Remarketing for which it is
acting as Remarketing Agent without charge to such Holder, only at
$250,000 per share, provided that no such Remarketing Agent shall be
obligated to remarket such Remarketing Preferred if there shall be a
material misstatement or omission in any disclosure document provided by
the Corporation and used in connection with the Remarketing of such
Remarketing Preferred or at any time such Remarketing Agent shall have
determined that it is not advisable to remarket Remarketing Preferred by
reason of: (i) a pending or proposed change in applicable tax laws, (ii) a
material adverse change in the financial condition of the Corporation,
(iii) a banking moratorium, (iv) domestic or international hostilities,
(v) an amendment of the provisions hereof which materially and adversely
changes the nature of the shares of Remarketing Preferred or the
Remarketing Procedures or (vi) a Failure to Deposit. Any Remarketing Agent
may, but shall not be obligated to, purchase tendered Remarketing
Preferred for its own account. Should the Remarketing Agent for any share
of Remarketing Preferred not succeed in Remarketing all such shares of
Remarketing Preferred so tendered for Remarketing on any date, such
Remarketing Agent shall select the shares of such Remarketing Preferred to
be sold from those tendered pro rata. Payments in the amount of $250,000
per share of Remarketing Preferred remarketed shall be made by the Tender
Agent by crediting such payments to the accounts of the Holders thereof
maintained by the Tender Agent or, to the extent duly requested of the
Tender Agent by Holders, by wire or other transfer in immediately
available funds to their accounts with commercial banks in the United
States. If for any reason a share of Remarketing Preferred is not
remarketed on the date of tender, such share will be retained by its
Holder. Until remarketed, each such share of Remarketing Preferred will
have successive Dividend Periods of one day and will be entitled to
dividends, payable on each succeeding Business Day at the Maximum
Applicable Rate.
(ii) Notice of Shares of Remarketing Preferred to be Retained. Each
share of Remarketing Preferred will be deemed to have been tendered for
sale by Remarketing on the last day of each Dividend Period, unless the
Holder thereof gives irrevocable notice to the contrary to the
39
Remarketing Agent for such share of Remarketing Preferred or if so
instructed by such Remarketing Agent, to the Tender Agent. Such notice,
which may be telephonic or written, must be delivered, prior to 3:00 P.M.,
New York City time, on the Business Day immediately preceding the last day
of a Dividend Period or on the earlier day specified in a notice, if any,
mailed by the Tender Agent at the direction of such Remarketing Agent to
such record holder at its address as the same appears on the Stock Books
of the Corporation, which day will be a Business Day at least four
Business Days after the mailing of such notice. The notice from such
Holder of an election to retain shares of Remarketing Preferred shall
state:
(A) the number of shares of such Remarketing Preferred held by
the Securities Depository or the Remarketing Depository, and
(B) the number of such shares of Remarketing Preferred which
shall be deemed not to have been so tendered.
(iii) Shares Deemed to Have Been Tendered. The failure to give
notice of an election to retain any shares of Remarketing Preferred as
provided in (b)(ii) above will constitute the irrevocable tender for sale
by Remarketing of such shares of Remarketing Preferred. Certificates
representing shares of Remarketing Preferred remarketed will be issued to
the Securities Depository or the Remarketing Depository, as the case may
be, irrespective of whether the certificates formerly representing such
shares of Remarketing Preferred have been delivered to the Tender Agent. A
Holder which has not given notice that it will retain its shares of
Remarketing Preferred shall have no further rights with respect to such
shares of Remarketing Preferred upon the Remarketing of such shares of
Remarketing Preferred, except the right to receive any declared but unpaid
dividends thereon and the proceeds of the Remarketing of such shares.
(iv) Funds for Purchase of Shares. Payments to Holders of shares of
Remarketing Preferred remarketed will be made solely from the proceeds
received from the purchasers of such shares in a Remarketing. Neither the
Corporation, the Tender Agent nor any Remarketing Agent shall be obligated
to provide funds to make payment to the holders of shares of Remarketing
Preferred tendered for Remarketing.
40
(c) The Remarketing Process. The Remarketing process will be
conducted on the following schedule and in the following manner (all times
are New York City time):
The Last Business Day of a Dividend Period:*
Beginning Not Later Than
1:00 P.M ........................................ The Remarketing Agent for the shares of Remarketing
Preferred will determine and, upon request, make
available to all interested persons non-binding
indications of Dividend Periods and dividend rates
based upon then current Marketing Conditions. Each
Holder may obtain a binding commitment as to the
specific Dividend Period or Dividend Periods and the
related Applicable Rate or Applicable Rates which will
be applicable to such Holder's shares should such
Holder elect to retain them.
At 3:00 P.M ..................................... Holders of shares of Remarketing Preferred will be
deemed to have tendered shares of Remarketing Preferred
for sale by Remarketing at $250,000 per share unless
they have given contrary instructions to the
Remarketing Agent for such shares of Remarketing
Preferred or, if so instructed by such Remarketing
Agent, to the Tender Agent.
After 3:00 P.M .................................. The applicable Remarketing Agent will solicit and
receive orders from prospective investors to purchase
tendered shares of Remarketing Preferred. A purchaser,
at the time of its agreement to purchase shares of
Remarketing Preferred, may obtain a binding commitment
as to the specific Dividend Period or Dividend Periods
and the related Applicable Rate or Applicable Rates for
such shares of Remarketing Preferred based upon
then-current Marketing Conditions.
- --------
* Or such other time and day as may have been specified in a notice mailed
to the holders of Remarketing Preferred.
41
First Business Day of Next Dividend Period:
Opening of Business The applicable Remarketing Agent will continue, if
necessary, remarketing shares of Remarketing Preferred
as described above.
By 1:00 P.M ..................................... The applicable Remarketing Agent will have completed
Remarketing and will advise the Tender Agent as to the
Applicable Rate and Dividend Period applicable to each
share of Remarketing Preferred commencing a Dividend
Period on that day and of any failure to remarket.
By 2:30 P.M ..................................... New Holders must deliver the purchase price as
instructed by the applicable Remarketing Agent. Former
Holders will be paid the proceeds of the Remarketing of
their shares by the Tender Agent (upon surrender of
their certificates, if applicable).
SECTION 10. The Remarketing Agent.
The Corporation will take all reasonable action necessary so that, at all
times, at least one investment bank, broker, dealer or other organization
qualified to remarket shares of Remarketing Preferred and to establish Dividend
Periods and Applicable Rates is acting as Remarketing Agent for each share of
Remarketing Preferred.
SECTION 11. Book Entry System.
(a) Shares of Preferred Stock with Dividend Periods of 7 days or longer
shall be represented by a global certificate or certificates registered in the
name of a nominee of the Securities Depository, as depository for such shares of
Preferred Stock. Shares of Remarketing Preferred with Dividend Periods of less
than 7 days shall be represented by a global certificate or certificates
registered in the name of a nominee of the Remarketing Depository, as depository
for such shares of Remarketing Preferred.
(b) All of the Outstanding shares of Auction Preferred of each Series
shall be represented by a single certificate for each Series registered in the
name of the nominee of the Securities Depository unless otherwise required by
law or unless there is no Securities Depository. If there is no Securities
Depository, shares of Auction Preferred shall be registered in the Stock Books
in the name of the Existing Holder thereof and such Existing Holder thereupon
will be entitled to receive a certificate therefor and be required to deliver a
certificate therefor upon transfer or exchange thereof.
(c) Each Series of Remarketing Preferred shall be represented by a
separate global security or global securities and shares of Remarketing
Preferred having different Dividend Payment Dates, dividend rates, redemption
provisions or Percentages, if any, shall be represented by a separate global
security.
(d) Interests in shares of Preferred Stock represented by a global
security will be shown on, and transfers thereof will be effected only through,
records maintained by the respective depository.
42
(e) If the Securities Depository should resign and the Corporation not
select a substitute securities depository, physical delivery of certificates
shall be made in the names of designated transferees in exchange for the global
security or securities held for the account of the Securities Depository.
SECTION 12. Miscellaneous.
(a) So long as the dividend rate is based on the results of an Auction or
Remarketing, a Holder (i) may sell, transfer or otherwise dispose of shares of
Auction Preferred only pursuant to a Bid or Sell Order in accordance with the
Auction Procedures or to or through a Broker-Dealer or to a Person that has
delivered a signed copy of a Purchaser's Letter to a Broker-Dealer, and in the
case of all transfers other than pursuant to Auctions, such Existing Holder of
the shares of Auction Preferred, its Broker-Dealer or its Participant advises
the Auction Agent of such transfer, (ii) may transfer shares of Remarketing
Preferred only pursuant to a tender of such shares to the Tender Agent or to a
person that has delivered a signed copy of a Purchaser's Letter to a Remarketing
Agent, and in the case of all transfers of shares of Remarketing Preferred other
than pursuant to a tender of such shares, the holder of the shares so
transferred advises a Remarketing Agent of such transfer and (iii) unless
otherwise required by law, shall have its ownership of shares of Preferred Stock
maintained in book entry form by the Securities Depository or, in the case of
shares of Remarketing Preferred with a Dividend Period of less than 7 days, the
Remarketing Depository.
(b) Each Remarketing Agent will be required to register on a list
maintained pursuant to a Remarketing Agreement a transfer of shares of
Remarketing Preferred for which it is the Remarketing Agent from a holder to
another person only if such transfer is made to a person that has delivered a
signed copy of a Purchaser's Letter to such Remarketing Agent and if (i) such
transfer is pursuant to a Remarketing or (ii) such Remarketing Agent has been
notified in writing (A) by such holder of such transfer or (B) by any person
that purchased or sold such Remarketing Preferred in a Remarketing of the
failure of such Remarketing Preferred to be delivered or paid for, as the case
may be, in connection with such Remarketing. A Remarketing Agent is not required
to register a transfer of Remarketing Preferred pursuant to clause (ii) above on
or prior to the Business Day immediately preceding the first day of a subsequent
Dividend Period for such Remarketing Preferred unless it receives the written
notice required by such clause (ii) by 3:00 P.M., New York City time, on the
second Business Day preceding the first day of such subsequent Dividend Period.
Such Remarketing Agent will rescind a transfer registered on such list as a
result of a Remarketing if the Remarketing Agent is notified in writing of the
failure of shares of Remarketing Preferred to be delivered or paid for as
required. Any transfer of shares of Remarketing Preferred made in violation of
the terms of a Purchaser's Letter may affect the right of the Person acquiring
such shares to participate in Remarketings.
(c) (i) If the Method of determining the Dividend Rate for some or all of
the Series of Preferred Stock is the Auction Method, the Corporation or
any Affiliate of the Corporation may not submit for its own account a Bid
or Hold Order in an Auction. If the Corporation or any Affiliate holds
shares of Auction Preferred for its own account, it must submit a Sell
Order in the next auction with respect to such shares. Any Broker-Dealer
that is an Affiliate of the Corporation may not submit for its own account
Bid Orders or Hold Orders in Auctions. If such affiliated Broker-Dealer
holds shares of Auction Preferred for its own account, it must submit a
Sell Order in the next Auction with respect to such shares of Auction
Preferred.
(ii) The Corporation or any Affiliate of the Corporation may acquire,
hold or dispose of shares of Remarketing Preferred. Subject to such
limitations as the Corporation and the Remarketing Agent may agree, it and
its Affiliates will purchase shares of Remarketing Preferred,
43
if any, during Remarketings only after 3:00 P.M. on the Business Day
immediately preceding the first day of each subsequent Dividend Period and
only at Applicable Rates and for Dividend Periods established by the
Remarketing Agents without regard to such offers by the Corporation or its
Affiliates and will tender shares of Remarketing Preferred for Remarketing
only upon at least 10 days' prior notice to the Remarketing Agents;
provided, however, that if the then current Dividend Period is less than
10 days, the Corporation will give notice to the Remarketing Agent on the
day such Dividend Period of less than 10 days commences. In the event that
the Corporation or its Affiliates purchase shares of Remarketing Preferred
for their respective accounts, all shares of Remarketing Preferred
tendered by other holders, including any such Remarketing Preferred owned
by a Remarketing Agent, will be remarketed before the Remarketing of any
such Remarketing Preferred owned by the Corporation or its Affiliates. If
any shares of Remarketing Preferred tendered for Remarketing are not sold,
any shares of Remarketing Preferred tendered for Remarketing by the
Corporation or an Affiliate of the Corporation, up to the number of such
shares not so sold, will be deemed not to have been so tendered.
(d) The purchase price of each share of Preferred Stock which is sold
either through the Auction Procedures or the Remarketing Procedures shall be
$250,000.
(e) If a holder of Converted Auction Preferred fails to give irrevocable
notice otherwise to the Remarketing Agent for such Remarketing Preferred (or, if
so instructed by such Remarketing Agent, to the Tender Agent) by no later than
3:00 P.M., New York City time, on the Business Day immediately preceding the
first day of the subsequent Dividend Period applicable thereto, or such other
day as is specified in a notice delivered in the manner set forth in Section
9(b)(ii), such holder will be deemed to have tendered such Converted Auction
Preferred for sale by Remarketing on such Business Day.
(f) An Auction will be held in respect of each Series of Converted
Remarketing Preferred on the Initial Auction Date. If a holder of Converted
Remarketing Preferred does not submit an Order in such Auction, such holder will
be deemed to have submitted a Sell Order in such Auction.
SECTION 13. Exclusive Remedy.
In the event that dividends are not timely declared on the shares of
Preferred Stock, the exclusive remedy of Holders against the Corporation shall
be as set forth in this part of Article IV (B) and in no event shall Holders of
such shares have a specifically enforceable right to the declaration of
dividends.
SECTION 14. Additional Terms.
(a) The Board of Directors may interpret the provisions of this part of
Article IV (B) to resolve any inconsistency or ambiguity or remedy any formal
defect.
(b) The headings of the various subdivisions of this part of Article IV
(B) are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
----------
(C) Except as otherwise provided by the General Corporation Law of the
State of Delaware or by any resolution heretofore or hereafter adopted by the
Board of Directors fixing the relative powers, preferences and rights and the
qualifications, limitations or restrictions of any additional series of
Preferred Stock, the entire voting power of the shares of the Company for the
election of directors and for all other purposes, as well as all other rights
appertaining to shares of the Company, shall be vested
44
exclusively in the Common Stock. Each share of Common Stock shall have one vote
upon all matters to be voted on by the holders of the Common Stock, and shall be
entitled to participate equally in all dividends payable with respect to the
Common Stock and to share ratably, subject to the rights and preferences of any
Preferred Stock, in all assets of the Company in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, or upon any distribution of the assets of the Company.
(D) The Company shall not, without either the prior approval of a majority
of the total number of shares then issued and outstanding and entitled to vote
or the receipt by the Company of a favorable opinion issued by a nationally
recognized investment banking firm designated by the Committee of Equity
Security Holders of Texaco Inc. appointed in the Company's jointly administered
Chapter 11 case in the United States Bankruptcy Court for the Southern District
of New York or its last chairman (or his designee) to the effect that the
proposed issuance is fair from a finance point of view to the stockholders of
the Company issue to its stockholders generally (i) any warrant or other right
to purchase any security of the Company, any successor thereto or any other
person or entity or (ii) any security of the Company containing any such right
to purchase, which warrant, right or security (a) is exercisable, exchangeable
or convertible, based or conditioned in whole or in part on (I) a change of
control of the Company or (II) the owning or holding of any number or percentage
of outstanding shares or voting power or any offer to acquire any number of
shares or percentage of voting power by any entity, individual or group of
entities and/or individuals or (b) discriminates among holders of the same class
of securities (or the class of securities for which such warrant or right is
exercisable or exchangeable) of the Company or any successor thereto.
V.
The Company is to have perpetual existence.
VI.
The private property of the stockholders is not to be subject to the
payment of corporate debts to any extent whatever.
VII.
No holder of stock of the Company shall have any preferential right of
subscription to any share of any class of stock of the Company issued or sold,
or to any obligations convertible into stock of the Company, or any right of
subscription to any thereof other than such, if any, as the Board of Directors
in its discretion may determine, and at such prices as the Board of Directors
may fix.
VIII.
The Company may use its surplus earnings or accumulated profits in the
purchase or acquisition of its own capital stock from time to time as its Board
of Directors shall determine, and such capital stock so purchased may, if the
directors so determine, be held in the treasury of the Company as treasury
stock, to be thereafter disposed of in such manner as the directors shall deem
proper.
45
IX.
(A) Number, Election and Terms of Directors. Except as otherwise fixed by
or pursuant to the provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having preference over the Common Stock
as to dividends or upon liquidation to elect additional directors under
specified circumstances, the number of the directors of the Company shall be
fixed from time to time by or pursuant to the by-laws. The directors, other than
those who may be elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, as shall be provided in
the manner specified in the by-laws, one class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1985, another
class to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1986, and another class to be originally elected for
a term expiring at the annual meeting of stockholders to be held in 1987, with
each class to hold office until its successor is elected and qualified. At each
annual meeting of the stockholders of the Company, the successors of the class
of directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
(B) Stockholder Nomination of Director Candidates. Advance notice of
stockholder nominations for the election of directors shall be given in the
manner provided in the by-laws.
(C) Newly Created Directorships and Vacancies. Except as otherwise
provided for or fixed by or pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation or disqualification, or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors. Any
director so elected shall stand for election (for the balance of his term) at
the next annual meeting of stockholders, unless his term expires at such annual
meeting. Any vacancy on the Board of Directors resulting from removal by
stockholder vote shall be filled only by the vote of a majority of the voting
power of all shares of the Company entitled to vote generally in the election of
directors, voting together as a single class.
(D) Removal. Subject to the rights of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, any director may be removed from
office, with or without cause, only by the affirmative vote of the holders of 66
2/3% of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors, voting together as a
single class.
(E) Amendment, Repeal, Etc. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66 2/3% of the voting power of all shares of the Company
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article IX.
46
X.
In furtherance, and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(A) to fix in the by-laws from time to time the number of directors of the
Company, none of whom need be stockholders;
(B) to fix the amount to be reserved as working capital over and above its
capital stock paid in;
(C) to borrow money and to make and issue notes, bonds, debentures,
obligations and evidence of indebtedness of all kinds, with or without the
privilege of conversion into stock of the Company; and also to authorize and
cause to be executed mortgages and liens upon the real and personal property of
the Company and conveyances of its real estate;
(D) from time to time to determine whether and to what extent, and at what
times and places, and under what conditions and regulations, the accounts and
books of the Company (other than the stock ledger), or any of them, shall be
open to inspection of stockholders; and no stockholder shall have any right of
inspecting any account book or document of the Company except as conferred by
statute, unless authorized by a resolution of the stockholders or directors; and
(E) if the by-laws so provide, to designate by resolution three or more of
its number to constitute an executive committee, which committee shall, for the
time being, have and exercise such of the powers of the Board of Directors in
the management of the business and affairs of the Company, and have power to
authorize the seal of the Company to be affixed to all papers which may require
it.
The Company may in its by-laws confer powers upon its directors in
addition to the foregoing and in addition to the powers and authorities
expressly conferred upon them by statute.
Both stockholders and directors shall have power, if the by-laws so
provide, to hold their meeting and to have one or more offices within or without
the State of Delaware, and to keep the books of the Company (subject to the
provisions of applicable laws), outside of the State of Delaware at such places
as may be from time to time designated by the Board of Directors.
XI.
Any action required or permitted to be taken by the stockholders of the
Company must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law and subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of stockholders of the Company
may be called only by the Board of Directors pursuant to a resolution approved
by a majority of the entire Board of Directors. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 66 2/3% of the voting power of all shares of the
Company entitled to vote generally in the election of directors, voting together
as a single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article XI.
47
XII.
The Board of Directors shall have power to make, alter, amend and repeal
the by-laws (except so far as the by-laws adopted by the stockholders shall
otherwise provide). Any by-laws made by the directors under the powers conferred
hereby may be altered, amended or repealed by the directors or by the
stockholders. Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, Section 2 of Article I and
Sections 1,2,3 and 4 of Article II of the by-laws shall not be altered, amended
or repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
the shares of the Company entitled to vote generally in the election of
directors, voting together as a single class. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 66 2/3% of the voting power of all shares of the Company
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article XII.
XIII.
(A) Vote Required for Certain Business Combinations.
(1) Higher Vote for Certain Business Combinations. In addition to
any affirmative vote required by law or this Certificate of Incorporation,
and except as otherwise expressly provided in Section B of this Article
XIII:
(a) any merger or consolidation of the Company or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other Company
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the Company or any
Subsidiary having an aggregate Fair Market Value of $100 million or
more; or
(c) the issuance or transfer by the Company or any Subsidiary
(in one transaction or a series of transactions) of any securities
of the Company or any Subsidiary to any Interested Stockholder or
any Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value of $100 million or more or;
(d) the adoption of any plan or proposal for the liquidation
or dissolution of the Company proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly
or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Company or any Subsidiary which is directly or indirectly
owned by any Interested
48
Stockholder or any Affiliate of any Interested Stockholder; shall
require the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the
Company entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class (it being
understood that for purposes of this Article XIII, each share of the
Voting Stock shall have the number of votes granted to it pursuant
to Article IV of this Certificate of Incorporation). Such
affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified,
by law or in any agreement with any national securities exchange or
otherwise.
(2) Definition of "Business Combination." The term "Business
Combination" as used in this Article XIII shall mean any transaction which
is referred to in any one or more of clauses (a) through (e) of paragraph
(1) of this Section (A).
(B) When Higher Vote is Not Required. The provisions of Section A of this
Article XIII shall not be applicable to any particular Business Combination, and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of this Certificate of Incorporation, if
all of the conditions specified in either of the following paragraphs (1) and
(2) are met:
(1) Approval by Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors (as
hereinafter defined).
(2) Price and Procedure Requirements. All of the following
conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the
Business Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(i)(if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of Common Stock acquired by it (a) within the
two-year period immediately prior to the first publication
announcement of the proposal of the Business Combination (the
"Announcement Date") or (b) in the transaction in which it
became an Interested Stockholder, whichever is higher; and
(ii) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date
is referred to in this Article XIII as the "Determination
Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock shall be at
least equal to the highest of the following (it being intended that
the requirements of this paragraph 2(b) shall be required to be met
with respect to every class of outstanding Voting Stock, whether or
not the Interested Stockholder has previously acquired any shares of
a particular class of Voting Stock):
49
(i)(if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it
(a) within the two-year period immediately prior to the
Announcement Date or (b) in the transaction in which it became
an Interested Stockholder, whichever is higher;
(ii) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Company; and
(iii) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration, the form
of consideration for such class of Voting Stock shall be either cash
or the form used to acquire the largest number of shares of such
class of Voting Stock previously acquired by it. The price
determined in accordance with paragraph 2(a) and 2(b) of this
Section B shall be subject to appropriate adjustment in the event of
any stock dividend, stock split, combination of shares or similar
event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on the outstanding Preferred Stock; (ii)
there shall have been (A) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors, and (B) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Common Stock unless the failure so to increase such annual rate is
approved by a majority of the Disinterested Directors; and (iii)
such Interested Stockholder shall have not become the beneficial
owner of any additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Company, whether in anticipation of or in connection
with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to public stockholders of the
Company at least 30 days prior to
50
the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to
such Act or subsequent provisions).
(C) Vote Required for Certain Stock Repurchases. In addition to any other
requirement of this Certificate of Incorporation, the affirmative vote of the
holders of at least 50% of the Voting Stock (other than Voting Stock
beneficially owned by a Selling Stockholder (as hereinafter defined)), shall be
required before the Company purchases any outstanding shares of Common Stock at
a price above the Market Price (as hereinafter defined) from a person actually
known by the Company to be a Selling Stockholder, unless the purchase is made by
the Company (i) on the same terms and as a result of an offer made generally to
all holders of Common Stock or (ii) pursuant to statutory appraisal right.
(D) Certain Definitions. For the purposes of this Article XIII:
(1) A "person" shall mean any individual, firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean any person (other than the
Company or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than 20% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Company and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 20% or more of the
voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the Securities
Act of 1933.
(3) A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns directly or indirectly;
or
(b) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(4) For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph 2 of this Section C, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of paragraph 3 of this Section C
but shall
51
not include any other shares which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on March 1, 1984.
(6) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Company;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the Company.
(7) "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with the Interested Stockholder
and is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
(8) "Fair Market Value" means: (a) in the case of the stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for
New York Stock Exchange-Listed Stocks, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock
is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during
the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as
determined by the Board of Directors in good faith; and (b) in the case of
property other than cash or stock, the fair market value of such property
on the date in question as determined by the Board of Directors in good
faith.
(9) "Selling Stockholder" means any person who or which is the
beneficial owner of in the aggregate more than 1% of the outstanding
shares of Common Stock and who or which has purchased or agreed to
purchase any of such shares within the most recent two-year period and who
sells or proposes to sell Common Stock in a transaction requiring the
affirmative vote provided for in Section C of this Article XIII.
(10) "Market Price" means the highest sale price on or during the
period of five trading days immediately preceding the date in question of
a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or if such stock is not quoted on the Composite
Tape on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock
is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of stock on or
during the period of five trading days immediately preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Disinterested Directors.
52
(E) Powers of the Board of Directors. A majority of the directors shall
have the power and duty to determine for the purposes of this Article XIII, on
the basis of information known to them after reasonable inquiry, (1) whether a
person is an Interested Stockholder, (2) the number of shares of Voting Stock
beneficially owned by any person, (3) whether a person is an Affiliate or
Associate of another, (4) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Company or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $100 million or more. A
majority of the directors shall have the further power to interpret all of the
terms and provisions of this Article XIII.
(F) No Effect on Fiduciary Obligations of Interested Stockholders. Nothing
contained in this Article XIII shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
(G) Amendment, Repeal, etc. Notwithstanding any other provisions of this
Certificate of Incorporation or the by-laws (and notwithstanding the fact that a
lesser percentage may be specified by law, this Certificate of Incorporation or
the by-laws) the affirmative vote of the holders of 80% or more of the
outstanding Voting Stock, voting together as a single class, shall be required
to amend or repeal, or adopt any provisions inconsistent with this Article XIII.
XIV.
A director of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the Delaware General Corporation Law as the same exists or may
hereafter be amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Company shall not adversely affect any right or protection of a director
of the Company existing at the time of such repeal or modification.
53
XV.
The Company reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by this Certificate of Incorporation or statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
54
EXHIBIT 11
TEXACO INC.
COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE OF COMMON STOCK
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------------
(millions of dollars, except as noted)
(Unaudited)
--------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Basic Earnings Per Common Share:
Income before cumulative effect of accounting change
less preferred stock dividend requirements $ 449 $ 574 $ 263 $ 329
======= ======= ======= =======
Average shares outstanding (thousands) 526,965 531,232 527,700 530,550
======= ======= ======= =======
Basic income before cumulative effect of accounting
change per common share (dollars) $ 0.85 $ 1.08 $ 0.50 $ 0.62
======= ======= ======= =======
Diluted Earnings Per Common Share:
Income before cumulative effect of accounting change
less preferred stock dividend requirements $ 449 $ 574 $ 263 $ 329
Adjustments, mainly ESOP preferred stock dividends
in 1998 2 17 1 8
------- ------- ------- -------
Income before cumulative effect of accounting change
for diluted earnings per share $ 451 $ 591 $ 264 $ 337
======= ======= ======= =======
Average shares outstanding (thousands) 526,965 531,232 527,700 530,550
Adjustments, mainly ESOP preferred stock in 1998 2,675 19,366 2,536 19,225
------- ------- ------- -------
Shares outstanding for diluted computation (thousands) 529,640 550,598 530,236 549,775
======= ======= ======= =======
Diluted income before cumulative effect of accounting
change per common share (dollars) $ 0.85 $ 1.07 $ 0.50 $ 0.61
======= ======= ======= =======
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
OF TEXACO ON A TOTAL ENTERPRISE BASIS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1998
--------------------------------------------------
(Millions of dollars)
For the Six Years Ended December 31,
Months Ended- ------------------------
-----------
June 30, 1999 1998 1997 1996 1995 1994
------------- ---- ---- ---- ---- ----
Income from continuing operations, before provision or
benefit for income taxes and cumulative effect of
accounting changes effective 1-1-98 and 1-1-95.......... $ 770 $ 892 $3,514 $3,450 $1,201 $1,409
Dividends from less than 50% owned companies
more or (less) than equity in net income................ 160 -- (11) (4) 1 (1)
Minority interest in net income............................ 35 56 68 72 54 44
Previously capitalized interest charged to
income during the period................................ 7 22 25 27 33 29
------ ------ ------ ------ ------ ------
Total earnings..................................... 972 970 3,596 3,545 1,289 1,481
------ ------ ------ ------ ------ ------
Fixed charges Items charged to income:
Interest charges...................................... 288 664 528 551 614 594
Interest factor attributable to operating
lease rentals.................................... 43 120 112 129 110 118
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc......................... 15 33 33 35 36 31
------ ------ ------ ------ ------ ------
Total items charged to income...................... 346 817 673 715 760 743
Interest capitalized.................................... 15 26 27 16 28 21
Interest on ESOP debt guaranteed by Texaco Inc.......... -- 3 7 10 14 14
------ ------ ------ ------ ------ ------
Total fixed charges................................ 361 846 707 741 802 778
------ ------ ------ ------ ------ ------
Earnings available for payment of fixed charges............ $1,318 $1,787 $4,269 $4,260 $2,049 $2,224
(Total earnings + Total items charged to income) ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges of Texaco
on a total enterprise basis............................. 3.65 2.11 6.04 5.75 2.55 2.86
====== ====== ====== ====== ====== ======
5
1,000,000
6-MOS
JUN-30-1999
JAN-1-1999
JUN-30-1999
323
26
3,620
27
1,366
5,593
35,499
20,604
28,195
4,659
6,787
0
259
2,142
9,413
28,195
15,030
15,459
11,806
12,915
1,720
0
245
579
107
472
0
0
0
472
0.85
0.85
EPS-PRIMARY REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT
OF FINANCIAL ACCOUNTING STANDARD 128.
