-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALMFweWaxgB4sLAPazBb0avgztJfhM+B4/doYq1ziCvrNd7n9h9layHQFV9vKFku JW8iZ479g74qqoqWdo2+Pw== 0000055458-98-000012.txt : 19980330 0000055458-98-000012.hdr.sgml : 19980330 ACCESSION NUMBER: 0000055458-98-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR MCGEE CORP CENTRAL INDEX KEY: 0000055458 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 730311467 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03939 FILM NUMBER: 98575931 BUSINESS ADDRESS: STREET 1: KERR MCGEE CTR STREET 2: 123 ROBERT S KERR CITY: OKLAHOMA CITY STATE: OK ZIP: 73102 BUSINESS PHONE: 4052701313 MAIL ADDRESS: STREET 1: P O BOX 25861 CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: KERR MCGEE OIL INDUSTRIES INC DATE OF NAME CHANGE: 19671227 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended December 31, 1997 Commission file number 1-3939 KERR-MCGEE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 73-0311467 State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) KERR-MCGEE CENTER, OKLAHOMA CITY, OKLAHOMA 73125 (Address of principal executive offices) Registrant's telephone number, including area code: (405)270-1313 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED Common Stock $1 Par Value New York Stock Exchange 8-1/2% Sinking Fund Debentures, Due June 1, 2006 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $3 billion as of February 28, 1998. The number of shares of common stock outstanding as of February 28, 1998, was 47,692,473. DOCUMENTS INCORPORATED BY REFERENCE Specified sections of the Kerr-McGee Corporation 1997 Annual Report to Stockholders, as described herein, are incorporated by reference in Parts I and II of this Form 10-K. The definitive Proxy Statement for the 1998 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1997, is incorporated by reference in Part III of this Form 10-K. KERR-McGEE CORPORATION PART I Items 1. and 2. Business and Properties GENERAL DEVELOPMENT OF BUSINESS Kerr-McGee Corporation, an energy and chemical company, had its beginning in 1929 with the formation of Anderson & Kerr Drilling Company. The company was incorporated in Delaware in 1932. With oil and gas exploration and production as its base, the company has expanded into titanium dioxide pigment manufacturing and marketing and coal and mineral mining and marketing. Kerr-McGee owns a large inventory of natural resources that includes oil, gas and coal reserves and chemical and mineral deposits. For a discussion of recent business developments, reference is made to the "Pending Transactions" section of Management's Discussion and Analysis in the 1997 Annual Report to Stockholders, which discussion is incorporated by reference in Item 7, and the Exploration and Production and Chemicals discussions on pages 8 and 12, respectively. INDUSTRY SEGMENTS For information as to business segments of the company, reference is made to Note 24 to the Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which note is incorporated by reference in Item 8. EXPLORATION AND PRODUCTION Kerr-McGee Corporation manages oil and gas operations worldwide. The company acquires leases and concessions and explores for, develops, produces and markets crude oil and natural gas through its subsidiaries, Kerr-McGee Oil & Gas Corporation, Kerr-McGee Oil (U.K.) PLC, Kerr-McGee China Petroleum Ltd. and various other subsidiaries. The areas of Kerr-McGee's offshore oil and gas exploration and production activities are the Gulf of Mexico, North Sea and China. Onshore exploration and/or production operations are in Indonesia, Thailand and Yemen. - ------------------ Except as indicated under Items 1 through 3, 5 through 8, and 10 through 14, no other information appearing in either the company's 1997 Annual Report to Stockholders or its 1998 Proxy Statement is deemed to be filed as part of this annual report on Form 10-K. Kerr-McGee's average daily proprietary oil production during 1997 was 57,000 barrels, down from 69,000 barrels in 1996. Kerr-McGee's average oil price declined 3% to $18.51 per barrel in 1997, compared with 1996. During 1997, proprietary natural gas sales averaged 184 million cubic feet per day, compared with 281 million cubic feet in 1996. The average natural gas price increased 21% from 1996 prices to $2.56 per thousand cubic feet for 1997. The 1997 proprietary production levels were lower than the prior year due to the December 31, 1996, merger of the company's North American onshore oil and gas properties into Devon Energy Corporation (Devon) and the divestiture of a number of producing properties considered to be nonstrategic. Devon is a publicly traded oil and gas exploration and production company. The company received 9,954,000 shares of Devon common stock representing an ownership interest in Devon of approximately 31%. Kerr-McGee continued to add to its prospect inventory in selected domestic and international areas during 1997. Net acreage acquired in 1997 totaled approximately 11 million acres, at a cost of $31 million. Results of Operations, Sales Prices, Production Costs, Capitalized Costs and Costs Incurred Reference is made to Notes 25, 26 and 29 to the Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which notes are incorporated by reference in Item 8. These notes contain information on the results of operations from crude oil and natural gas activities, average sales prices per unit of crude oil and natural gas and production costs per barrel of oil equivalent (BOE) for each of the past three years; capitalized costs of crude oil and natural gas activities at December 31, 1997 and 1996; and costs incurred in crude oil and natural gas activities for each of the past three years. Reserves Kerr-McGee's estimated proved crude oil, condensate and natural gas reserves at December 31, 1997, and the changes in net quantities of such reserves for the three years then ended are shown in Note 28 to the Consolidated Financial Statements of the 1997 Annual Report to Stockholders, which note is incorporated by reference in Item 8. From time to time reports are filed with the United States Department of Energy relating to the company's reserves. The reserves reported in the Notes to Financial Statements are consistent with other filings pertaining to proved net reserves. Minor differences in gas volumes occur due to different pressure bases being required in the reports. However, the difference in estimates does not exceed 5% of the total estimated reserves. Undeveloped Acreage As of December 31, 1997, the company had interests in undeveloped oil and gas leases in the Gulf of Mexico, the United Kingdom sector of the North Sea, offshore China and onshore in other international areas as follows: Gross Net Location Acreage Acreage Domestic 526,704 318,725 ---------- ---------- North Sea 1,047,941 391,317 ---------- ---------- China 3,232,132 2,183,368 ---------- ---------- Other international - Yemen 9,880,007 9,248,863 Thailand 1,464,840 461,425 Indonesia 1,380,028 414,008 ---------- ---------- 12,724,875 10,124,296 ---------- ---------- Total Undeveloped Acreage 17,531,652 13,017,706 ========== ========== Developed Acreage At December 31, 1997, the company had interests in developed oil and gas acreage in the Gulf of Mexico, the United Kingdom sector of the North Sea, offshore China and onshore Indonesia as follows: Gross Net Location Acreage Acreage Domestic 364,873 154,827 North Sea 139,100 23,963 China 78,332 19,191 Indonesia 345,007 103,502 ------- ------- Total Developed Acreage 927,312 301,483 ======= ======= Net Exploratory and Development Wells Domestic and international exploratory and development wells drilled during the three years ended December 31, 1997, are as follows. Included in 1996 and 1995 are wells drilled on onshore North American properties that were later merged into Devon or divested. 1997 1996 1995 ---- ---- ----- Exploratory Wells - Net(1) Domestic Productive 2.65 4.91 2.00 Dry holes 2.65 .83 6.51 ---- ---- ----- 5.30 5.74 8.51 ---- ---- ----- North Sea Dry holes .40 2.19 .77 ---- ---- ----- China Dry holes 1.07 - .45 ---- ---- ----- Other international Productive - - 1.71 Dry holes .30 .50 1.43 ---- ---- ----- .30 .50 3.14 ---- ---- ----- Total 7.07 8.43 12.87 ==== ==== ===== Development Wells - Net(1) Domestic Productive 5.11 17.26 30.23 Dry holes - 1.00 2.28 ----- ------- ------- 5.11 18.26 32.51 ---- ----- ----- North Sea Productive .55 1.09 1.26 ----- ------- ------- China Productive 1.72 1.72 2.45 ---- ------- ------- Other international Productive 2.40 1.26 6.92 Dry holes - .04 .67 ----- ------- ------- 2.40 1.30 7.59 ---- ------- ------- Total 9.78 22.37 43.81 ==== ===== ===== (1)Net Wells - The total of the company's fractional working interests in "gross wells" expressed as the equivalent number of full-interest wells. Gross and Net Wells The number of productive oil and gas wells in which the company had an interest at December 31, 1997, is shown in the following table. These wells include 156 gross or 13.02 net wells associated with improved recovery projects and 159 gross or 83.46 net wells that have multiple completions but are included as single wells. Substantially all of the domestic wells are in the Gulf of Mexico. Gross Net Location Wells Wells Crude Oil Domestic 237 98.99 North Sea 71 6.47 China 24 5.88 Indonesia 13 3.90 --- ------ 345 115.24 --- ------ Natural Gas Domestic 104 55.14 North Sea 38 2.76 --- ------ 142 57.90 --- ------ Total Wells 487 173.14 === ====== Wells in Process of Drilling At year-end 1997, the company had wells classified as temporarily suspended or in the process of drilling as follows: Gross Net Wells Wells Domestic 13 5.25 North Sea 11 1.11 China 5 2.25 Indonesia 6 1.80 Thailand 1 .32 -- ----- Total Wells 36 10.73 == ===== Crude Oil and Natural Gas Sales The following table summarizes the sales of the company's proprietary crude oil and natural gas production for the past three years: (Millions) 1997 1996 1995 ------ ------ ------ Crude oil and condensate - barrels Domestic 8.8 11.2 10.6 North Sea 8.7 11.2 13.6 China 3.2 1.3 - Other international .2 1.2 1.7 ------ ------ ------ 20.9 24.9 25.9 ====== ====== ====== Crude oil and condensate Domestic $163.8 $216.4 $165.7 North Sea 162.8 213.1 221.9 China 56.4 25.0 - Other international 3.1 21.8 26.4 ------ ------ ------ $386.1 $476.3 $414.0 ====== ====== ====== Natural gas - MCF Domestic 56.5 83.5 82.2 North Sea 10.6 10.2 7.4 Other international - 9.3 16.5 ------ ------ ------ 67.1 103.0 106.1 ====== ====== ====== Natural gas Domestic $145.4 $180.5 $127.8 North Sea 26.7 26.8 19.8 Other international - 10.6 14.1 ------ ------ ------ $172.1 $217.9 $161.7 ====== ====== ====== Sales of Production All of the company's crude oil and natural gas is sold at market prices. Kerr-McGee has formed strategic alliances with two energy marketing companies to sell substantially all proprietary domestic crude oil and natural gas production. Improved Recovery The company continues to initiate and/or participate in improved recovery projects where geological, engineering and economic conditions are favorable. As of December 31, 1997, the company was participating in 12 active improved recovery projects located principally in the United Kingdom sector of the North Sea. Most of the company's operations outside North America incorporate water injection. Pressure-maintenance operations began at or near the time of initial production from these fields. Exploration and Development Activities Gulf of Mexico In 1997, the Gulf of Mexico was the source of 57% of Kerr-McGee's oil and gas production. The company continues an aggressive lease acquisition, exploration and exploitation program in the Gulf of Mexico. In 1997, Kerr-McGee was a successful participant in two government lease sales and was awarded nearly 111,000 net acres. Recent activity includes projects in the Viosca Knoll, Ewing Bank and Garden Banks areas. A summary of the company's key developments in the Gulf of Mexico is as follows: Pompano Field (KM 25%), Viosca Knoll 989 area: This deepwater project, located in 1,300 feet to 1,900 feet of water, averaged gross production of 46,400 barrels of oil per day and 54 million cubic feet of gas per day in 1997. Planned development and well work has been completed and records for gross daily production were set in November 1997. At year-end 1997, 22 platform wells and seven subsea wells were capable of uncurtailed production of about 52,000 barrels of oil per day. Ewing Bank 910 (40%): Production is scheduled to start in late 1998 and peak at 16,000 barrels of oil and 23 million cubic feet of gas per day in mid-1999. The platform, to be installed in 550 feet of water, will be the tallest conventional processing facility operated by Kerr-McGee. The company operates eight surrounding blocks, and additional exploratory drilling will be conducted after the platform is in place. Garden Banks 65 (60%): Plans for development were approved and development activities were under way in 1997. First production is projected for mid-1998 at an expected rate of 60 million cubic feet of gas per day. Kerr-McGee, as operator, entered into an alliance with a pipeline company that will lease the gas production and processing facility to Kerr-McGee, significantly reducing the company's new-field development cost for this project. North Sea North Sea holdings are a core area for Kerr-McGee. As of December 31, 1997, the company had interests averaging 33% in 39 blocks covering 281,900 undeveloped net acres in the United Kingdom area of the North Sea. Kerr-McGee operates 22 of these blocks. The company holds an additional 109,400 net undeveloped acres offshore Ireland and is the designated operator of these blocks. The United Kingdom portfolio includes prospective exploration blocks and quality exploitation opportunities on producing properties. In March 1998, Kerr-McGee announced the signing of a definitive agreement to purchase the United Kingdom North Sea operations of Gulf Canada Resources Limited (Gulf Canada). The transaction is expected to be complete in mid-May subject to regulatory approval. The acquisition of these assets will significantly increase the company's North Sea reserve base and increase current production by 80% to more than 42,000 barrels of crude oil per day. In 1997, the North Sea accounted for 41% of Kerr-McGee's liquids production, primarily from the Gryphon, Scott, Brae area and Ivanhoe/Rob Roy fields. Sales of North Sea natural gas averaged 29 million cubic feet per day in 1997, primarily from the Brae area and Scott field. A summary of the company's key developments in the North Sea is as follows: Janice field, Block 30/17a (50.9%): A floating production unit is being outfitted in the United Kingdom for installation in mid-1998. The field is being developed with horizontal oil-production and water-injection wells. Production is expected to begin in the third quarter of 1998 and peak at about 55,000 barrels of oil per day later in the year. Extra processing capacity will allow use of the Janice facility as a hub for future developments in the area. In February 1998, Kerr-McGee acquired a 55% interest in the adjoining Block 30/22b. Gryphon field, Block 9/18b (25%): Kerr-McGee operates this field, the first to use a permanently moored floating production, storage and offloading vessel (FPSO) and to be developed totally with horizontal production wells. Production averaged 28,700 barrels of oil per day in 1997. An exploration well, drilled in late 1997, encountered oil pay that may indicate a substantial extension to the field. Evaluation of this potential extension is continuing. Interest in this field will increase to 46.5% upon closing of the Gulf Canada transaction discussed above. Scott field (5.2%), blocks 15/21/a and 15/22: Production averaged 116,000 barrels of oil per day in 1997. Brae area, blocks 16/3a, 16/7a (both 8%) and 16/3b (5%): More than 12% of Kerr-McGee's 1997 total net oil production flowed from six fields in the Brae area of the North Sea. China and Other International China: The company acquired two new blocks in the South China Sea. Block 26/06 (100%) covers more than 1.1 million acres. Block 15/35 (38%) covers approximately 234,000 acres. Kerr-McGee is the operator for Block 15/35, and an exploration well is planned for 1998. The company now operates three blocks in this area. Liuhua 11-1 field (24.5%), South China Sea: Located in 1,000 feet of water 130 miles southeast of Hong Kong, the field was developed entirely with horizontal wells. Production began in 1996 and averaged 43,000 barrels per day in 1997. Block 04/36 (45%), Bohai Bay: First discovered in 1996, three successful appraisal wells were drilled in 1997. A 150 square kilometer 3-D seismic survey was started in 1997 and is continuing in 1998. Development options for this area are being evaluated. Indonesia: Jabung Block (30%), Sumatra: The North Geragai field came on stream in August 1997 and averaged more than 6,000 barrels per day at year-end. Production rates are expected to increase in 1998 and reach a peak of about 10,000 barrels per day in 1999. In the Makmur field, approval for a plan of development was received from Indonesian government authorities. Production commenced in January 1998 and, after permanent production facilities are added, peak production is forecast at approximately 10,000 barrels per day later in the year. Appraisal drilling commenced during the year in the Northeast Betara gas field and will continue into 1998. Negotiations are continuing for marketing the production. Thailand: Block 5440/38 (31.5%): An exploration well was spudded in 1997 and is drilling in the first quarter of 1998. Block W7/38 (42.5%), Andaman Sea: Kerr-McGee will be the operator and received formal notification in early 1998 that it was awarded this nearly 4.9 million-acre offshore block. Yemen: Kerr-McGee has signed two production-sharing agreements in Yemen. Acquired were Block 50, Hazar (95%), which covers more than 8 million acres, and Block 51, East Al Hajr (87.5%), covering nearly 2 million acres. Seismic data acquisition commenced during 1997, and the company plans exploratory drilling in 1998. CHEMICALS Kerr-McGee's chemical operations produce and market inorganic industrial and specialty chemicals, heavy minerals and forest products. Many of these products are processed using proprietary technology developed by the company. Industrial chemicals include titanium dioxide pigment, synthetic rutile, manganese products, sodium chlorate and ammonium perchlorate. Specialty chemicals are boron trichloride and elemental boron. Heavy minerals produced are ilmenite, rutile, zircon and leucoxene. Forest products operations treat railroad crossties and other hardwood products and provide other wood-treating services. Pigment The company's primary product is titanium dioxide pigment, which is produced by the company's proprietary chloride-process technology. Kerr-McGee is one of four companies that own chloride technology. The coatings and plastics industries prefer the optical qualities of chloride pigment over pigment produced by the older sulfate process. The company's titanium dioxide pigment plant at Hamilton, Mississippi, has a production capacity of 160,000 tons per year. An expansion of 30,000 tons per year was completed during 1997, and preliminary engineering for another expansion began in early 1998. The feedstock for the Hamilton plant is synthetic rutile, which is produced at the company's plant at Mobile, Alabama. In late 1997, the annual production capacity at Mobile was increased from 162,000 tons to 220,000 tons. Heavy minerals are mined from a 10,350-acre lease in Western Australia. The property's remaining 177 million tons of sand contain 3.7% heavy minerals. The valuable heavy minerals contained within this 6.5 million-ton heavy-mineral deposit are composed of 4.5% rutile, 61.3% ilmenite, 3.3% leucoxene and 11.1% zircon, with the remaining 19.8% of minerals presently having no value. Delineation drilling on the lease during 1997 confirmed additional recoverable heavy minerals, resulting in an upward reserve revision. Additional drilling is required to determine the actual quantities and grade of heavy minerals contained in a second 2,540-acre property and the extent to which it may be feasible to mine this deposit. The company holds a 50% interest in both properties. The heavy minerals are processed at the separation mill, which has a capacity of 559,000 tons per year. The recovered ilmenite is processed into synthetic rutile at a facility adjoining the separation mill. The synthetic rutile facility has a capacity of 200,000 tons per year. Production from the synthetic rutile plant serves as feedstock for the pigment plants in Australia and Saudi Arabia. The annual production capacity of the pigment plants in Australia and Saudi Arabia, in which the company owns interests of 50% and 25%, respectively, is 90,000 and 72,000 tons, respectively. For information regarding heavy-mineral reserves, production and average market prices for each of the years 1993 through 1997, reference is made to Note 30 in the Consolidated Financial Statements of the 1997 Annual Report to Stockholders, which note is incorporated by reference in Item 8. In January 1998, the company announced its intention to acquire an 80% interest in Bayer AG's European titanium dioxide pigment business, including plants at Uerdingen, Germany, and Antwerp, Belgium. The Uerdingen plant has annual capacity of 110,000 tons, and the Antwerp plant's annual capacity is 33,000 tons. This acquisition will increase Kerr-McGee's titanium dioxide pigment production capacity 55%. The company plans to install its chloride technology at the Uerdingen plant. Electrolytic Products In March 1998, Kerr-McGee sold its ammonium perchlorate business. In January 1998, the company signed a letter of intent to negotiate the sale of the remaining electrolytic operations. Facilities at the Hamilton, Mississippi, complex include a sodium chlorate plant with a production capacity of 143,000 tons per year and a manganese metal plant that has capacity of 12,000 tons per year. At Henderson, Nevada, the facilities include electrolytic cells and processing equipment for the manufacture of manganese dioxide and a specialty boron products plant. Annual production capacity for each product is as follows: manganese dioxide - 28,500 tons; boron trichloride - 750,000 pounds and elemental boron - 80,000 pounds. Forest Products In March 1998, the company signed an agreement in principle to sell its forest products operations. The agreement covers marketing and operations at the company's six crosstie-treating plants. The principal forest product is treated railroad crossties. Other products include crossing materials, bridge timbers and utility poles. The six wood-preserving plants are located along major railways in Madison, Illinois; Indianapolis, Indiana; Columbus, Mississippi; Springfield, Missouri; The Dalles, Oregon; and Texarkana, Texas. Marketing Titanium dioxide pigment is the world's preferred white opacifier and is used primarily in coatings, plastics and paper. The company's plant at Hamilton, Mississippi, primarily serves the Americas. Most of the pigment production from the joint venture in Western Australia is sold in the Far East and Australia. The production from the plant located in Saudi Arabia is sold primarily to customers located in the Middle East and Europe. The production from the Uerdingen, Germany, and Antwerp, Belgium, operations will primarily be sold in Europe. The Bayer AG acquisition will increase Kerr-McGee's gross titanium dioxide pigment capacity to about 10% of global capacity. World demand for pigments is expected to increase by an average of more than 3% per year during the next several years. Manganese dioxide is a major component of alkaline batteries. The company's share of the North American manganese dioxide market is approximately one-third. Demand is projected to grow 5% to 8% annually through the year 2000. The demand is driven by the need for alkaline batteries for portable electronic devices. Sodium chlorate is used in the environmentally preferred chlorine dioxide process for bleaching pulp. U.S. demand for sodium chlorate is expected to increase approximately 5% per year in the near term as the pulp and paper industry continues conversion to the chlorine dioxide process. The company has about a 10% share of the U.S. market. Manganese metal is used in aluminum, specialty and stainless steel alloys. The largest use of manganese metal is for alloying aluminum can sheet. The company has a 50% share of the U.S. aluminum industry manganese requirements. Kerr-McGee is the world's largest producer of elemental boron, which is used primarily in automobile airbags. Kerr-McGee is also the largest producer of boron trichloride, which is used to produce boron filament for sports equipment and composites for high-performance aircraft. The company's share of the U.S. railroad crosstie market is in excess of 40%. Domestic crosstie demand is expected to remain relatively flat at about 13 million to 15 million ties per year. COAL In January 1998, the company announced that its board of directors has authorized management to exit the coal business. The timing and manner of exiting the business has not been determined. Coal operations are conducted by Kerr-McGee Coal Corporation, which produces coal from Jacobs Ranch Mine, a surface mine in the Wyoming Powder River Basin, and from Galatia Mine, an underground mine in the Illinois Basin. Most 1997 sales were to electric utilities under long-term sales contracts, with the balance being sold on a spot basis to domestic customers. Reserves and Production The company owns or leases coal reserves in Wyoming and Illinois. As of December 31, 1997, the company's coal reserves were as follows (millions of tons): In-Place Recoverable Demonstrated Demonstrated Classifi- Mining State/Mining Unit Tons Tons cation Method Wyoming - Jacobs Ranch Mine 253 240 Steam Surface Illinois - Galatia Mine - Met./ Under- Harrisburg No. 5 71 52 Steam ground Under- Herrin No. 6 330 214 Steam ground --- --- 654 506 === === Most of the Wyoming reserves are held under Federal leases, with a small portion being leased from the State of Wyoming. The Illinois coal reserves are owned by Kerr-McGee or held under leases with private parties. The Clovis Point Mine, a Wyoming surface mining operation, was sold effective June 1, 1997, resulting in no material gain or loss to the company. The lease area held approximately 290 million recoverable tons of coal reserves. Production from Kerr-McGee mines for 1997 and 1996 was as follows: (Millions of tons) 1997 1996 ---- ---- Jacobs Ranch Mine 27.1 24.5 Galatia Mine 5.0 6.6 Clovis Point Mine - .2 ---- ---- Total production 32.1 31.3 ==== ==== For information regarding coal reserves, production and average market prices for each of the years 1993 through 1997, reference is made to Note 30 to the Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which note is incorporated by reference in Item 8. Jacobs Ranch Mine Jacobs Ranch Mine is located 50 miles southeast of Gillette, Wyoming, in the South Powder River Basin. The company owns coal rights on 8,154 acres, of which 2,759 acres are underlain by 240 million recoverable tons of coal. The company owns surface rights to 14,116 acres in and around the mine block. The mine permit was renewed in August 1994 for a five-year period and expanded to incorporate additional leased acreage and the buffer zone. In February 1995, the Bureau of Land Management approved the consolidation of three Federal coal leases into one logical mining unit to allow use of the most effective mining sequence for the combined leases. In July 1997, the Wyoming State Land Board approved the transfer of a state coal lease adjacent to Jacobs Ranch Mine to Kerr-McGee. This transfer added 5.2 million recoverable tons to the reserves with a favorable royalty rate. A preparation plant expansion was completed in September 1997, which increased the annual plant capacity of Jacobs Ranch Mine by 50% to 39 million tons of low-sulfur coal. Actual production levels will increase as the market dictates. Shipments began in 1978 and, through December 1997, totaled more than 291 million tons. All deliveries were made by rail, with both Burlington Northern Santa Fe and Union Pacific railroads servicing the mine. Jacobs Ranch Mine coal meets Phase II emission requirements of the Clean Air Act Amendments of 1990 and is sold primarily under long-term contracts for ultimate use by electric utilities. Jacobs Ranch Mine is presently the fourth-largest coal mine in the United States. Productivity continues to increase through the use of larger, more efficient equipment and more productive mining operations. Galatia Mine The Galatia Mine is located in southern Illinois near the town of Galatia in Saline County. It produces coal from the Harrisburg No. 5 seam, which can be used as either a high-Btu, relatively low-sulfur steam coal or a semi-soft coking coal. Its use as a steam coal allows utilities to comply with Phase I of the Clean Air Act Amendments of 1990 without installing flue gas desulfurization units or blending with other coals. Shipments from the mine began in January 1984 and totaled more than 47 million tons through December 1997. Shipments are primarily by rail, although the mine loadout is capable of loading trucks, and weighing facilities are onsite. The Illinois Central Railroad is the originating carrier for rail shipments. Within the mine area, Kerr-McGee controls approximately 33,600 acres through leases and mineral ownership. This includes control of the Herrin No. 6 seam. Declining demand for this higher-sulfur content coal led to the cessation of mining in the No. 6 seam in 1994. Galatia Mine has an annual production capacity of 6.6 million tons of high-Btu, relatively low-sulfur coal. Marketing Bituminous and sub-bituminous steam coals are sold under long-term contracts and spot purchase agreements to utilities in 18 states, primarily in the central and southeastern United States. Coal sales include sales of coal produced by third parties. Although developments in 1997 indicate some market firming, coal markets continue to experience competitive pricing. Existing long-term contracts provide stable earnings under these competitive conditions and are the basis for the expansion of business with key domestic electric utilities. Existing production capacity should permit participation in the expected growth in domestic demand for lower-sulfur coal, as well as to make selected export sales. OTHER Research and Development The company's Technical Center in Oklahoma City performs research and development in support of its existing businesses and in the pursuit of new products and processes. These programs continue to concentrate on improvements to chemical plant processes and products. Employees On December 31, 1997, the company had 3,746 employees, none of whom was represented by a collective bargaining agreement. Competitive Conditions In the petroleum industry, competition exists from the initial process of bidding for leases to the sale of crude oil and natural gas. Competitive factors include finding and developing petroleum hydrocarbons, transporting raw materials and developing successful marketing strategies. The volatility of crude oil and natural gas prices during the past several years has placed increased emphasis on all competitive aspects of the petroleum industry. The titanium dioxide pigment business has been very competitive. The number of competitors in the industry is decreasing due to consolidations now under way. Worldwide, the company is one of four companies that own chloride technology to produce titanium dioxide pigment. It is expected that many of the older sulfate plants will be converted to the chloride technology. Demand for pigment is expected to increase by an average of more than 3% per year over the next several years. Most of the company's coal customers are domestic electric utilities, an extremely competitive market. Cost efficiencies, transportation strategies and product quality, such as Btu and sulfur content, are key competitive factors in the coal industry. It is not possible to predict the effect of future competition on Kerr-McGee's operating and financial results. GOVERNMENT REGULATIONS AND ENVIRONMENTAL RESERVES General The company is subject to extensive regulation by Federal, state, local and foreign governments. The production and sale of crude oil and natural gas in the United States are subject to regulation by Federal and state authorities, particularly with respect to allowable rates of production, offshore production and environmental matters. Stringent environmental-protection laws and regulations apply to almost all of the company's operations. In addition, there are special taxes that apply to the oil, gas and coal mining industries. Environmental Matters Federal, state and local laws and regulations relating to environmental protection affect almost all company plants and facilities. During 1997, direct capital and operating expenditures related to environmental protection and cleanup of existing sites totaled $37 million. Additional expenditures totaling $94 million were charged to environmental reserves. While it is extremely difficult to estimate the total direct and indirect costs to the company of government environmental regulations, it is presently estimated that the direct capital and operating expenditures and expenditures charged to reserves will be approximately $145 million in 1998 and $125 million in 1999. Some expenditures to reduce the occurrence of releases to the environment may result in increased efficiency; however, most of these expenditures produce no significant increase in production capacity, efficiency or revenue. Operation of pollution-control equipment installed for these purposes usually entails additional expense. Based on present information, the company believes that it has accrued and is accruing reasonable reserves for expenditures that may have to be paid in the future for environmental matters. Because of continually changing laws and regulations, the nature of the company's businesses and pending proceedings, it is not possible to reliably estimate the amount or timing of all future expenditures relating to environmental matters. The company provides for costs related to environmental contingencies when a loss is probable and the amount is reasonably estimable. Although management believes adequate reserves have been provided for all known environmental contingencies, it is possible, due to the above noted uncertainties, that additional reserves could be required in the future. Also see "Item 3. Legal Proceedings," which follows. Item 3. Legal Proceedings The company continues its efforts to decommission a facility located in West Chicago, Illinois, which processed thorium ores and was closed in 1973. For a discussion of contingencies, including a detailed discussion of the West Chicago matter, reference is made to the Environmental Matters section of Management's Discussion and Analysis and Note 10 to the Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which discussion and note are incorporated by reference in Item 7 and Item 8, respectively. Item 4. Submission of Matters to a Vote of Security Holders None submitted during the fourth quarter of 1997. Executive Officers of the Registrant The following is a list of executive officers, their ages, and their positions and offices as of January 1, 1998:
Name Age Office Luke R. Corbett 50 Chairman of the Board and Chief Executive Officer since 1997. President and Chief Operating Officer from 1995 until 1997. Group Vice President from 1992 until 1995. Tom J. McDaniel 59 Vice Chairman of the Board since 1997. Senior Vice President from 1986 until 1997. Corporate Secretary from 1989 until 1997. John C. Linehan 58 Executive Vice President since 1997. Chief Financial Officer since 1987. Senior Vice President from 1987 until 1997. Kenneth W. Crouch 54 Senior Vice President since 1996. Senior Vice President, Exploration, Kerr-McGee Oil & Gas Corporation since 1996. Senior Vice President, North America and International Exploration, Exploration and Production Division during 1996. Vice President, Gulf of Mexico and International Exploration, Exploration and Production Division from 1995 until 1996. Vice President and Managing Director of Exploration for North Sea Operations, Exploration and Production Division from 1993 until 1995. James F. Guion 52 Senior Vice President since April 1997. Senior Vice President, Production, Kerr-McGee Oil & Gas Corporation since April 1997. Vice President and Managing Director, United Kingdom Operations, Exploration and Production Division from January 1993 until March 1997. William D. Hake 48 Senior Vice President since 1996. Vice President of Operations for Kerr-McGee Coal Corporation from 1991 until 1996. Russell G. Horner, Jr. 58 Senior Vice President and Corporate Secretary since 1997. General Counsel since 1986. Vice President from 1986 until 1997. Michael G. Webb 50 Senior Vice President since 1993. Senior Vice President, Exploration, Exploration and Production Division from 1993 until 1996. Vice President, Exploration from 1992 to 1993. Julius C. Hilburn 47 Vice President, Human Resources since 1996. Manager, Benefits Administration from 1992 until 1996. Deborah A. Kitchens 41 Vice President and Controller since 1996. Controller, Exploration and Production Division from 1992 until 1996. J. Michael Rauh 48 Treasurer since 1996. Vice President since 1987. Controller from 1987 until 1996. Donald F. Schiesz 60 Vice President, Safety and Environment since 1994. Senior Vice President of Kerr-McGee Chemical Corporation from 1991 until 1994. Jean B. Wallace 43 Vice President, General Administration since 1996. Vice President, Human Resources from 1989 until 1996. W. Peter Woodward 49 Senior Vice President since June 1997. Senior Vice President for Kerr-McGee Chemical since June 1997. Senior Vice President Chemical Marketing for Kerr-McGee Chemical Corporation from May 1996 until May 1997. Director Pigment Business Management, Kerr-McGee Chemical Corporation from 1993 until 1996. Vice President Total Quality Management for Kerr-McGee Chemical Corporation from 1992 until 1993.
There is no family relationship between any of the executive officers. FORWARD-LOOKING INFORMATION This report contains forward-looking statements and assumptions concerning Kerr-McGee's future results and prospects. These statements are based on current expectations and are subject to certain events and risks that may be beyond the company's control. In addition, the company may from time to time make oral forward-looking statements. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company is hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the company. Any such statement is qualified by reference to the following cautionary statements. Such events and risks include the success of the oil and gas exploration program, ultimate volume of recoverable oil and gas reserves, success of cost-control efforts, general economic conditions, timely development and market acceptance of customer products for which Kerr-McGee supplies raw materials, and other risk factors discussed in this annual report on Form 10-K and the company's 1997 Annual Report to Stockholders. Actual results and developments may differ from those expressed or implied in this report. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Information relative to the market in which the company's common stock is traded, the high and low sales prices of the common stock by quarters for the past two years, and the approximate number of holders of common stock is furnished in Note 31 to the Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which note is incorporated by reference in Item 8. Quarterly dividends declared totaled $1.80 per share for the year 1997, $1.64 per share for the year 1996 and $1.55 per share for the year 1995. Cash dividends have been paid continuously since 1941 and totaled $85 million in 1997, $83 million in 1996 and $79 million in 1995. Item 6. Selected Financial Data Information regarding selected financial data required in this item is presented in the schedule captioned "Six-Year Financial Summary" in the 1997 Annual Report to Stockholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "Management's Discussion and Analysis" in the 1997 Annual Report to Stockholders is incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosure about Market Risk For information required under this section, reference is made to the "Market Risks" section of Management's Discussion and Analysis in the 1997 Annual Report to Stockholders, which discussion is incorporated by reference above. Item 8. Financial Statements and Supplementary Data The following financial statements and supplementary data included in the 1997 Annual Report to Stockholders are incorporated herein by reference: Report of Independent Public Accountants Consolidated Statement of Income Consolidated Statement of Retained Earnings Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Financial Statements Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant (a) Identification of directors - For information required under this section, reference is made to the "Election of Directors" section of the company's proxy statement for 1998 made in connection with its Annual Stockholders' Meeting to be held on May 12, 1998. (b) Identification of executive officers - The information required under this section is set forth in the caption "Executive Officers of the Registrant" on pages 17, 18 and 19 of this Form 10-K pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) to Form 10-K. (c) Compliance with Section 16(a) of the 1934 Act - For information required under this section, reference is made to the "Compliance with Section 16(a) of the Securities Exchange Act of 1934" section of the company's proxy statement for 1998 made in connection with its Annual Stockholders' Meeting to be held on May 12, 1998. Item 11. Executive Compensation For information required under this section, reference is made to the "Executive Compensation and Other Information" section of the company's proxy statement for 1998 made in connection with its Annual Stockholders' Meeting to be held on May 12, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management For information required under this section, reference is made to the "Security Ownership" portion of the "Election of Directors" section of the company's proxy statement for 1998 made in connection with its Annual Stockholders' Meeting to be held on May 12, 1998. Item 13. Certain Relationships and Related Transactions For information required under this section, reference is made to the "Election of Directors" and "Certain Relationships and Related Transactions" sections of the company's proxy statement for 1998 made in connection with its Annual Stockholders' Meeting to be held on May 12, 1998. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements - The following consolidated financial statements of Kerr-McGee Corporation and its subsidiary companies, included in the company's 1997 Annual Report to Stockholders, are incorporated by reference in Item 8: Report of Independent Public Accountants Consolidated Statement of Income for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statement of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheet at December 31, 1997 and 1996 Consolidated Statement of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Financial Statements (a) 2. Financial Statement Schedules - Report of Independent Public Accountants on Financial Statement Schedule Schedule II - Valuation Accounts and Reserves for the Years Ended December 31, 1997, 1996 and 1995 Schedules I, III, IV and V are omitted as the subject matter thereof is either not present or is not present in amounts sufficient to require submission of the schedules in accordance with instructions contained in Regulation S-X. (a) 3. Exhibits - The following documents are filed under Commission file number 1-3939 as a part of this report. Exhibit No. Exhibit No. 3.1 Restated Certificate of Incorporation of Kerr-McGee Corporation, filed as Exhibit 3.1 to the report on Form 10-Q for the quarter ended June 30, 1987, and incorporated herein by reference. 3.2 Bylaws of Kerr-McGee Corporation as approved March 10, 1998. 4.1 Amended and Restated Rights Agreement dated as of July 9, 1996, filed as Exhibit 1 to the report on Form 8-K dated July 9, 1996, and incorporated herein by reference. 4.2 Indenture dated as of June 1, 1976, between the company and Citibank, N.A., as trustee, relating to the company's 8-1/2% Sinking Fund Debentures due June 1, 2006 filed as Exhibit 2 to Form S-7, effective June 10, 1976, Registration No. 2-53878, and incorporated herein by reference. 4.3 Indenture dated as of November 1, 1981, between the company and United States Trust Company of New York, as trustee, relating to the company's 7% Debentures due November 1, 2011 filed as Exhibit 4 to Form S-16, effective November 16, 1981, Registration No. 2-772987, and incorporated herein by reference. 4.4 Indenture dated as of August 1, 1982 filed as Exhibit 4 to Form S-3, effective August 27, 1982, Registration Statement No. 2-78952, and incorporated herein by reference, and its first supplement dated May 7, 1996, between the company and Citibank, N.A., as trustee, relating to the company's 6.625% notes due October 15, 2007, and 7.125% debentures due October 15, 2027; 4.5 The $325 million Credit Agreement dated as of December 4, 1996, providing for a five-year revolving credit facility with a bullet maturity on the fifth anniversary of the execution of the Credit Agreement; 4.6 The company agrees to furnish to the Securities and Exchange Commission, upon request, copies of each of the following instruments defining the rights of the holders of certain long-term debt of the company: the Note Agreement dated as of November 29, 1989, among the Kerr-McGee Corporation Employee Stock Ownership Plan Trust (the Trust) and several lenders, providing for a loan guaranteed by the company of $125 million to the Trust; the Amended and restated Credit Agreement dated as of April 28, 1997, among Kerr-McGee Corporation, Kerr-McGee Oil (U.K.) PLC, and several banks providing for revolving credit of up to a total of $225 million -- $75 million through April 24, 1998, and $150 million through April 28, 2002; and the Revolving Credit Agreement dated as of February 20, 1997, between Kerr-McGee China Petroleum Ltd., as borrower, and Kerr-McGee Corporation, as guarantor, and several banks providing for revolving credit of up to $105 million through March 6, 2000. The total amount of securities authorized under each of such instruments does not exceed 10% of the total assets of the company and its subsidiaries on a consolidated basis. 4.7 Kerr-McGee Corporation Direct Purchase and Dividend Reinvestment Plan filed on Form S-3 effective August 19, 1993, Registration No. 33-66112, and incorporated herein by reference. 10.1* Deferred Compensation Plan for Non-Employee Directors as amended and restated effective October 1, 1990, filed as Exhibit 10(1) to the report filed on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.2* Kerr-McGee Corporation Stock Deferred Compensation Plan for Non-Employee Directors as amended and restated effective August 1, 1995, filed on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. 10.3* Description of the company's Annual Incentive Compensation Plan, filed on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. 10.4* The Long Term Incentive Program as amended and restated effective May 9, 1995, filed as Exhibit 4.2 on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference. 10.5* Benefits Restoration Plan as amended and restated effective September 13, 1989, filed as Exhibit 10(6) to the report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.6* Kerr-McGee Corporation Executive Deferred Compensation Plan as amended and restated effective January 1, 1996, filed as Exhibit 10.6 to the report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. 10.7* Kerr-McGee Corporation Supplemental Execu-tive Retirement Plan as amended and restated effective May 3, 1994, filed as Exhibit 10.8 on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference. 10.8* Amended and restated Agreement, restated as of December 31, 1992, between the company and John C. Linehan filed as Exhibit 10(10) on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.9* Amended and restated Agreement, restated as of December 31, 1992, between the company and Luke R. Corbett filed as Exhibit 10(11) on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.10* Amended and restated Agreement, restated as of December 31, 1992, between the company and Tom J. McDaniel filed as Exhibit 10.13 on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference. 10.11* Amended and restated Agreement, restated as of December 31, 1992, between the company and Russell G. Horner, Jr. 10.12* Amended and restated Agreement, restated as of December 31, 1992, between the company and Kenneth W. Crouch. 10.13* Consulting agreement, as of February 1997, between the company and Frank A. McPherson filed as Exhibit 10.13 on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. 10.14* Form of agreement, amended and restated as of December 31, 1992, between the company and certain executive officers not named in the Summary Compensation Table contained in the company's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders, filed as Exhibit 10(14) on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 12 Computations of ratio of earnings to fixed charges. 13 1997 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 24 Powers of Attorney. 27 Financial Data Schedule (electronic filing only). *These exhibits relate to the compensation plans and arrangements of the company. (b) Reports on Form 8-K - No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1997. Report of Independent Public Accountant On Financial Statement Schedule To Kerr-McGee Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Kerr-McGee Corporation's 1997 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 20, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule of Valuation Accounts and Reserves is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. (ARTHUR ANDERSEN LLP) ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma, February 20, 1998 SCHEDULE II KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES VALUATION ACCOUNTS AND RESERVES
Additions Balance at Charged to Charged to Deductions Balance at Beginning Profit and Other from End of (Millions of dollars) of Year Loss Accounts Reserves Year Year Ended December 31, 1997 a. Deducted from asset accounts Allowance for doubtful notes and accounts receivable $ 13 $ 2 $ - $ 1 $ 14 Warehouse inventory obsolescence 3 1 - 1 3 ---- ---- ---- --- ---- $ 16 $ 3 $ - $ 2 $ 17 ==== ==== ==== === ==== b. Not deducted from asset accounts Environmental $235 $ 30 $(11)(A)(B) $94 $160 Postretirement benefits 117 11 - 8 120 Oil and gas site dismantlement and coal site reclamation and restoration 110 (3) (11)(B) 5 91 Surface mine stripping cost 15 38 - 34 19 Pension benefits 7 11 5 (A) 13 10 Other 7 1 - 1 7 ---- ---- ---- --- ---- $491 $ 88 $(17) $155 $407 ==== ==== ==== ==== ==== Year Ended December 31, 1996 a. Deducted from asset accounts Allowance for doubtful notes and accounts receivable $ 14 $ 1 $ - $ 2 $ 13 Warehouse inventory obsolescence 3 - - - 3 ---- ---- ---- --- ---- $ 17 $ 1 $ - $ 2 $ 16 ==== ==== ==== === ==== b. Not deducted from asset accounts Environmental $230 $ 55 $ 4 (A) $54 $235 Postretirement benefits 112 11 - 6 117 Oil and gas site dismantlement and coal site reclamation and restoration 103 14 - 7 110 Surface mine stripping cost 16 35 - 36 15 Pension benefits 11 - (4)(A) - 7 Other 6 2 - 1 7 ---- ---- ---- --- ---- $478 $117 $ - $104 $491 ==== ==== ==== ==== ==== Year Ended December 31, 1995 a. Deducted from asset accounts Allowance for doubtful notes and accounts receivable $ 11 $ 3 $ 1 $ 1 $ 14 Warehouse inventory obsolescence 2 1 - - 3 ---- ---- ---- --- ---- $ 13 $ 4 $ 1 $ 1 $ 17 ==== ==== ==== === ==== b. Not deducted from asset accounts Environmental $166 $121 $ 4 (A) $61 $230 Postretirement benefits 108 12 (1)(A) 7 112 Oil and gas site dismantlement and coal site reclamation and restoration 94 12 - 3 103 Surface mine stripping cost 12 37 - 33 16 Pension benefits 9 4 - 2 11 Other 8 1 (2)(A) 1 6 ---- ---- ---- --- ---- $397 $187 $ 1 $107 $478 ==== ==== ==== ==== ==== (A) Transfer (to) from current liabilities. (B) Transfer from reserve for abandonment to environmental.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KERR-McGEE CORPORATION By: Luke R. Corbett* Luke R. Corbett, Chairman of the Board and Chief Executive Officer March 26, 1998 By: (John C. Linehan) Date John C. Linehan, Executive Vice President and Chief Financial Officer By: (Deborah A. Kitchens) Deborah A. Kitchens, Vice President and Controller and Chief Accounting Officer * By his signature set forth below, John C. Linehan has signed this Annual Report on Form 10-K as attorney-in-fact for the officer noted above, pursuant to power of attorney filed with the Securities and Exchange Commission. By: (John C. Linehan) John C. Linehan Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated. By: Paul M. Anderson* Paul M. Anderson, Director By: Bennett E. Bidwell* Bennett E. Bidwell, Director By: Luke R. Corbett* Luke R. Corbett, Director By: Martin C. Jischke* Martin C. Jischke, Director By: Tom J. McDaniel* Tom J. McDaniel, Director By: William C. Morris* William C. Morris, Director March 26, 1998 By: John J. Murphy* Date John J. Murphy, Director By: Leroy C. Richie* Leroy C. Richie, Director By: Richard M. Rompala* Richard M. Rompala, Director By: Farah M. Walters* Farah M. Walters, Director *By his signature set forth below, John C. Linehan has signed this Annual Report on Form 10-K as attorney-in-fact for the directors noted above, pursuant to power of attorney filed with the Securities and Exchange Commission. By: (John C. Linehan) John C. Linehan EX-3.2 2 KERR-MCGEE CORPORATION BYLAWS KERR-McGEE CORPORATION BYLAWS ARTICLE I OFFICES Section 1. The principal place of business of Kerr-McGee Corporation ("Corporation") shall be in Oklahoma City, Oklahoma. Section 2. The Corporation may also have offices at such other places as the Board of Directors may from time to time appoint or the business of the Corporation may require. ARTICLE II SEAL Section 1. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, Delaware". The Corporate Seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced. Section 2. The corporate seal shall be retained under the custody and control of the Secretary or Assistant Secretary except as and to the extent the use of same by others may be expressly authorized by the Board of Directors. ARTICLE III STOCKHOLDERS' MEETINGS Section 1. All meetings of the stockholders for any purpose may be held at such place as shall be stated in the notice of the meeting. Section 2. An annual meeting of the stockholders shall be held within one hundred fifty (150) days after the end of each fiscal year as the Board of Directors may set for a particular year's annual meeting, at which meeting they shall elect by a plurality vote by ballot a board of directors and transact such other business as may properly be brought before the meeting. Section 3. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 4. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy appointed either by an instrument in writing, subscribed by such stockholder or by other means permitted by applicable law. Except as may otherwise be provided in the Certificate of Incorporation of the Corporation, or any amendment thereto, each stockholder shall have one vote for each share of the stock having voting power, registered in his name on the books of the Corporation, and except where the transfer books of the Corporation shall have been closed or a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the Corporation within twenty days preceding such election of directors, or on any other matter respecting which stockholders are entitled to vote if such stock has been so transferred within twenty days prior to action on such matter. Section 5. Except as otherwise provided by law, written notice of the annual meeting of stockholders shall be given at least ten days prior to the meeting, and in accordance with Article XX hereof, to each stockholder so entitled to vote thereat. Section 6. A complete list of the stockholders so entitled to vote at the ensuing election of directors arranged in alphabetical order, with the address of each, and the number of voting shares registered in the name of each, shall be filed in the office where the election is to be held, at least ten days before every election, and shall at all times during the ordinary business hours and during the whole time of said election be open to the examination of any stockholder. Section 7. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, and shall be called by the Chairman of the Board or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority of the number of shares of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 8. Business transacted at all special meetings shall be confined to the objects stated in the notice of the meeting. Section 9. Written notice of a special meeting of stockholders, stating the time and place and object thereof, shall be given at least ten days before such meeting, and in accordance with Article XX hereof, to each stockholder entitled to vote thereat. Section 10. (A) Annual Meeting of Stockholders. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the corporation's notice of meeting delivered pursuant to Article III, Section 5 of these ByLaws, (b) by or at the direction of the Chairman of the Board or (c) by any stockholder of the corporation who is entitled to vote at the meeting, who complied with the notice procedures set forth in subparagraphs (2) and (3) of this paragraph (A) of this ByLaw and who was a stockholder of record at the time such notice is delivered to the Secretary of the corporation. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this ByLaw, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, and, in the case of business other than nominations, such other business must be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not less than seventy days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty days, or delayed by more than seventy days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of the seventieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this ByLaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least eighty days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this ByLaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the corporation. (B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting pursuant to Article III, Section 9 of these ByLaws. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this ByLaw and who is a stockholder of record at the time such notice is delivered to the Secretary of the corporation. Nominations of stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice as required by paragraph (A)(2) of this ByLaw shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventieth day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (C) General. (1) Only persons who are nominated in accordance with the procedures set forth in this ByLaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this ByLaw. Except as otherwise provided by law, the Restated Certificate of Incorporation or these ByLaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this ByLaw and, if any proposed nomination or business is not in compliance with this ByLaw, to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted. (2) For purposes of this ByLaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) For purposes of this ByLaw, no adjournment nor notice of adjournment of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 10, and in order for any notification required to be delivered by a stockholder pursuant to this Section 10 to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting. (4) Notwithstanding the foregoing provisions of this ByLaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this ByLaw. Nothing in this ByLaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE IV DIRECTORS Section 1. The property and business of the Corporation shall be managed by its Board of Directors, the members of which need not be stockholders. Section 2. The number of directors which shall constitute the whole Board of Directors shall be such number, not contrary to law, as shall be determined from time to time by resolution adopted by a vote of a majority of the entire Board of Directors, but shall not be less than three nor more than twenty. Section 3. Directors shall be elected at the annual meeting of the stockholders, and each Director shall be elected to serve until his successor shall be elected and shall qualify by evidence of acceptance of such office and such acceptance shall be presumed in the absence of express rejection thereof by the person elected within ten days after his knowledge of election. In the event of failure to hold the annual meeting, or to hold an election of directors at such meeting, such election may be held at any special meeting of the stockholders called for that purpose. A person who has passed his 64th birthday and who has not theretofore served as a director of the Corporation shall not be eligible to be elected a director, whether pursuant to this Section 3 or to Section 5 of this Article. A person who has passed his 70th birthday, or who has retired as an employee, shall not in any event be eligible for reelection to the Board, irrespective of prior service as a director of the Corporation. Section 4. The Directors may hold their meetings, have one or more offices and keep the books of the Corporation in the City of Oklahoma City, Oklahoma, or at such other places as they may from time to time determine and designate. Section 5. Vacancies in the Board of Directors, however occasioned, and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a majority of the remaining Directors then in office though less than a quorum and the accepting directors so chosen shall hold office until the next annual election and until a successor or successors have been duly elected and qualified unless sooner displaced. Section 6. Subject to provisions of pertinent law and the Certificate of Incorporation, dividends, if any, declared respecting any class of shares of the Corporation's capital stock may be declared by the Board of Directors at any regular meeting thereof and despite any provision of the Bylaws to the contrary at any special meeting thereof, whether or not consideration or action respecting dividends be stated in the notice thereof; and dividends may be paid in cash or, if the declaration thereof so provides, in property, including shares of the Corporation. There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repair or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may abolish any reserve in the manner in which it was created. Section 7. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding sixty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or in connection with obtaining consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books, as aforesaid, the Board of Directors may fix in advance a date not exceeding sixty days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment, thereof, or to receive such allotment of rights, or to exercise such rights or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. Section 8. In addition to the powers and authorities by these Bylaws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 9. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the Board and such written consent is filed with the minutes of proceedings of the Board. ARTICLE V COMMITTEES Section 1. The Board of Directors may appoint an Executive Committee of two or more Directors, which shall consist of the Chairman of the Board, Vice Chairman of the Board or the President, and such other Director or Directors as shall be designated by resolution adopted by the Board of Directors. Such Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation while the Board of Directors is not in session except that it shall not have power or authority in reference to (1) amending the Certificate of Incorporation, (2) adopting an agreement of merger or consolidation under ss.ss.251 or 252 of the Delaware General Corporation Law, (3) recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (4) recommending to the stockholders dissolution of the Corporation or revocation of a dissolution, or (5) amending the Bylaws; nor shall it have any power or authority which the Board of Directors has by resolution withheld from it. Vacancies in the membership of the Committee shall be filled by the Board of Directors at a regular meeting or a special meeting called for that purpose. Section 2. The Committees of the Board shall be governed by Subsection (2) of Section 141(c) of the Delaware General Corporation Law which provides for the designation of committees of the Corporation's Board of Directors and the permissible functions of such committees. Section 3. The Board of Directors by resolution or resolutions adopted by a majority of the Board of Directors may designate other committees, each committee to consist of two or more Directors of the Corporation and to exercise such powers and duties and to have such name as may be designated by resolution adopted by the Board of Directors. Section 4. Each committee of the Board of Directors may meet at such stated times and/or upon call with such notice as said committee may by resolution provide from time to time. At all meetings of each committee, a majority of members thereof shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which there is a quorum shall be the act of the committee. Section 5. Committees of the Board of Directors shall keep regular minutes of their proceedings. Any action required or permitted to be taken at any meeting of the Committee may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the Committee and such written consent is filed with the minutes of proceedings of the Committee. ARTICLE VI COMPENSATION OF DIRECTORS Section 1. Directors may, pursuant to resolution of the Board of Directors, be paid a stated sum with respect to each regular and special meeting of the Board of Directors and be allowed their expenses of attendance, if any, for attending each meeting of the Board of Directors. Directors who are not full-time employees of the Corporation may be paid such additional compensation for their services as Directors as may from time to time be fixed by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 2. Members of the Executive Committee and members of other committees of the Board of Directors who are not full-time employees of the Corporation may, pursuant to resolution of the Board of Directors, be paid a stated sum for attending meetings of such committees. All members of committees of the Board of Directors may, pursuant to resolution of the Board of Directors, be allowed their expenses of attendance, if any, for attending meetings of such committees. ARTICLE VII MEETINGS OF THE BOARD OF DIRECTORS Section 1. Each newly elected Board may meet at such place and time, either within or without the State of Delaware, provided a majority of the whole Board of Directors is present at such place and time, no other notice of or any consent to such meeting shall be necessary in order legally to constitute the meetings; or, failing such, the newly elected board may meet at such place and time as shall be consented to by all the members thereof. Section 2. Regular meetings of the Board of Directors may be held at such time and place, within or without the State of Delaware as shall from time to time be determined by the Board of Directors. After there has been such determination and notice thereof has been once given to each member of the Board of Directors, regular meetings may be held without any further notice being given. Section 3. Special meetings of the Board of Directors may be called by the Chairman of the Board on two days' notice to each Director, either personally or by mail or by telegram; special meetings shall be called by the Chairman of the Board or Secretary in like manner and on like notice on the written request of two Directors. Section 4. At all meetings of the Board, a majority of the Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. ARTICLE VII-A WAR AND NATIONAL EMERGENCY Section 1. The emergency bylaws provided in this Article VII-A shall be operative during any emergency resulting from an attack on the United States, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors cannot readily be convened for action. To the extent not inconsistent with these emergency bylaws, the Bylaws of the Corporation shall remain in effect during any emergency and upon its termination these emergency bylaws shall cease to be operative. Section 2. During any such emergency a meeting of the Board of Directors may be called by any officer or director by giving two days' notice thereof to such of the directors as it may be feasible to reach at the time and by such means as may be feasible at the time. The notice shall specify the time and the place of the meeting, which shall be the head office of the Corporation or any other place specified in the notice. At any such meeting three members of the then existing Board of Directors shall constitute a quorum, which may act by majority vote. Section 3. If the number of Directors who are available to act shall drop below three, additional Directors, in whatever number is necessary to constitute a Board of three Directors, shall be selected automatically from the first available officers or employees in the order provided in the emergency succession list established by the Board of Directors and in effect at the time an emergency arises. Additional Directors, beyond the minimum number of three Directors, but not more than three additional Directors, may be elected from any officers or employees on the emergency succession list. Section 4. The Board of Directors is empowered with the maximum authority possible under the Delaware Corporation Law, and all other applicable law, to conduct the interim management of the affairs of the Corporation in an emergency in what it considers to be in the best interests of the Corporation (including the right to amend this Article) irrespective of the provisions of the Certificate of Incorporation or of the Bylaws. ARTICLE VIII OFFICERS Section 1. The officers of the Corporation shall be chosen by the Directors, and may include a Chairman of the Board, one or more Vice Chairmen of the Board, a President, one or more Executive Vice Presidents, Senior Vice Presidents, and Vice Presidents, respectively, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and a Controller. The Chairman of the Board and the President may be the same person. A Vice Chairman of the Board and the President or any Vice President may be the same person. The Secretary and Treasurer may be the same person; an Assistant Secretary and Assistant Treasurer may be the same person; and any Vice President may hold at the same time the office of Secretary, Assistant Secretary, Treasurer, or Assistant Treasurer. Section 2. Without limiting the right of the Board of Directors to choose officers of the Corporation at any time when vacancies occur or when the number of officers is increased, the newly elected Board of Directors at the first meeting after each annual meeting of stockholders shall choose a Chairman of the Board, a President, one or more Vice Chairmen of the Board, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, respectively, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and a Controller. None of said officers, except the Chairman of the Board, and Vice Chairmen of the Board need be members of the Board. Section 3. The Board of Directors may choose such other officers and agents as it shall deem necessary or advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors, or, in the absence of exact specification or limitation thereof by the Board of Directors, as the Chairman of the Board may determine from time to time. Section 4. The salaries of all officers of the Corporation and of its wholly owned subsidiaries, other than his own salary, shall be determined by the Chief Executive Officer but shall be reviewed from time to time by an Executive Compensation Committee appointed by the Board of Directors from among its members. The Executive Compensation Committee shall recommend to the Board of Directors such changes in the officers' salaries as fixed by the Chief Executive Officer as it may deem appropriate and the Board of Directors shall instruct the Chief Executive Officer to implement those of the recommended changes which it approves. The salary of the Chief Executive Officer shall be determined by the Board of Directors. Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed at any time with or without cause by the affirmative vote of a majority of the whole Board of Directors. ARTICLE IX CHAIRMAN OF THE BOARD Section 1. The Chairman of the Board shall be the Chief Executive Officer of the Corporation. He shall preside at all meetings of stockholders or directors. He shall be a member, ex officio, of all committees, except the Audit, Finance, Stock Option and Executive Compensation committees, shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the Board of Directors and of the committees thereof are carried into effect. Section 2. The Chairman of the Board shall have authority, which he may delegate, to execute certificates of stock, bonds, deeds, powers of attorney, mortgages and other contracts, under the seal of the Corporation, unless required by law to be otherwise signed and executed and unless the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. ARTICLE X VICE CHAIRMEN OF THE BOARD Section 1. In the absence of the Chairman, a Vice Chairman of the Board shall be the Chief Executive Officer of the Corporation and preside at meetings of stockholders and of the Board of Directors. The Vice Chairmen of the Board shall advise and counsel with the Chairman of the Board and with other officers of the Corporation, and each shall do and perform such other duties as may from time to time be assigned to him by the Board of Directors, and as he may undertake at the request of the Chairman of the Board. Section 2. Any Vice Chairman of the Board, to the extent delegated by the Chairman of the Board, may execute certificates of stock, bonds, deeds, powers of attorney, mortgages and other contracts under the seal of the Corporation, unless required by law to be otherwise signed and executed and unless the signing and execution thereof be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. ARTICLE XI PRESIDENT Section 1. The President, in the absence of the Chairman of the Board or Vice Chairmen, shall be the Chief Executive Officer of the Corporation. In the absence of the Chairman of the Board, and the Vice Chairmen of the Board, the President shall preside at all meetings of the Board of Directors and of stockholders and shall have general and active management of the business of the Corporation. Section 2. The President, to the extent delegated by the Chairman of the Board, may execute certificates of stock, bonds, deeds, mortgages and other contracts, unless otherwise required by law to be otherwise signed and executed and unless the signing and execution thereof be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. ARTICLE XII VICE PRESIDENTS Section 1. There may be one or more Executive Vice Presidents, one or more Senior Vice Presidents, and such other Vice Presidents, with or without other such special designations, as may be elected by the Board of Directors from time to time. Section 2. The Executive Vice Presidents and each of the Vice Presidents shall have the power and authority to sign certificates of stock, bonds, deeds, mortgages and other contracts, and perform such duties and exercise such powers as the Chairman of the Board shall prescribe. Instruments executed in the name of, or on behalf of, the Corporation by any Vice President in conformity with his said duties and powers shall be as valid as if executed by the Chairman of the Board. ARTICLE XIII SECRETARY Section 1. The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for all committees of the Board of Directors when required. He shall give, or cause to be given, all required notices of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors and the Chairman of the Board, under whose supervision he shall be. He shall be responsible for keeping in safe custody the seal of the Corporation, and when such is proper, he shall affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of an Assistant Secretary. Section 2. The Assistant Secretaries in the absence or disability of the Secretary shall perform and exercise the powers of the Secretary and shall perform such further duties as may be prescribed by the Secretary or the Chairman of the Board. ARTICLE XIV TREASURER Section 1. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or by the Chairman of the Board. Section 2. The Treasurer shall: (a) endorse or cause to be endorsed in the name of the Corporation for collection the bills, notes, checks or other negotiable instruments received by the Corporation, (b) sign or cause to be signed all bills, notes, checks or other negotiable instruments issued by the Corporation and (c) pay out or cause to be paid out money, as the Corporation may require, taking proper vouchers therefor; provided, however, that the Board of Directors may by resolution delegate, with or without power to re-delegate, any and all of the foregoing duties of the Treasurer to other officers, employees or agents of the Corporation, and to provide that other officers, employees and agents shall have power to sign bills, notes, checks, vouchers, orders, or other instruments on behalf of the Corporation. The Treasurer shall render to the Chairman of the Board and to the Board of Directors, whenever they may require it, an account of his transactions as Treasurer. Section 3. The Treasurer shall give the Corporation a bond if required by the Board of Directors in a sum, and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office and for the restoration of the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 4. The Assistant Treasurers in the absence or disability of the Treasurer shall perform and exercise the powers of the Treasurer and shall perform such further duties as may be prescribed by the Treasurer or by the Chairman of the Board. ARTICLE XV CONTROLLER Section 1. The Controller shall have charge of the Corporation's books of account, records and auditing, and shall be subject in all matters to the control of the Chairman of the Board and the Board of Directors. ARTICLE XVI VACANCIES AND DELEGATION OF DUTIES OF OFFICERS Section 1. If the office of any officer or agent, one or more, becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, the Board of Directors may choose a successor or successors, who shall, unless the Board of Directors otherwise specifies, hold office for the unexpired term in respect of which such vacancy occurred, or until his successor shall be elected. Section 2. In case of the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officers and/or directors; provided a majority of the entire Board of Directors concurs therein. ARTICLE XVII STOCK AND STOCKHOLDERS Section 1. The shares of stock of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate as provided in Article XVII, Section 2 of these ByLaws, or as otherwise permitted by law, representing the number of shares registered in certificate form. Section 2. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chairman of the Board, Vice Chairman of the Board, President or a Vice President, and the Secretary or an Assistant Secretary. Any and all signatures on a stock certificate may be a facsimile. The designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the Corporation shall issue to represent such class or series of stock. Section 3. Upon surrender to the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation will issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of uncertificated shares will be made on the records of the Corporation as may be provided by law. Section 4. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Delaware. Section 5. A new certificate of stock of the Corporation may be issued in place of any certificate theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed. The Board of Directors may from time to time prescribe the terms and conditions under which such new certificates may be issued. Among other things, the Directors may require that the owner of the allegedly lost, stolen or destroyed certificate, or his legal representatives, submit proper evidence in writing and under oath that the alleged loss, theft, or destruction actually occurred, and may require that such owner or representatives give the Corporation a bond, satisfactory to the Corporation as to form and security, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the Directors or of any officer of the Corporation to whom the Directors may delegate appropriate authority, it is proper to waive the bond requirement. ARTICLE XVIII INSPECTION OF BOOKS, CHECKS AND FISCAL YEAR Section 1. The Directors shall determine from time to time whether, and, if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically open to inspection), or any of them, shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be restricted and limited accordingly. Section 2. Checks or demands for money and notes of the Corporation may be signed by such officer or officers or such person or persons other than those herein authorized and in such manner as the Board of Directors or the President may from time to time provide. Section 3. The fiscal year shall begin the first day in January of each year and end the following December 31. ARTICLE XIX DIRECTORS' ANNUAL STATEMENT Section 1. The Board of Directors shall present at each annual meeting a full and clear statement of the business and condition of the Corporation. ARTICLE XX NOTICES Section 1. Whenever under the provisions of the Certificate of Incorporation or of these Bylaws notice (which as herein used shall include also annual reports, proxy statements and solicitations and other communications to holders of the Corporation's securities) is required to be, or may be, given to any Director, officer, stockholder or other person, it may, unless legally controlling provisions prohibit the same, be given in writing, by mail, by depositing the same in any U. S. post office or letter-box, in a postpaid sealed wrapper addressed to such person to whom the notice may be, or is required to be given, at such address as appears on the books of the Corporation, and all notices given in accordance with the provisions of this Article shall be deemed to be given at the time when the same shall be thus mailed. Section 2. Should a person who is a stockholder own shares evidenced by more than one stock certificate, nevertheless only one notice (when any is required to be, or may be, given to holders of shares of any or all classes) shall be, in the sole discretion of the Corporation, required to be mailed and if different addresses as to such person are recorded on the Corporation's stock ledger the notice may be mailed to the address that appears to have been given latest in time unless the stockholders shall have expressly directed otherwise in writing to the Secretary of the Corporation, nor shall variations in the designation of the name or identity of any one stockholder require the mailing of more than one notice to any one stockholder, which may be mailed to any one of the names or designations that may so appear in the Corporation's stock ledger with respect to such stockholder; and, at the sole discretion of the Corporation, the distribution of dividend payments may be, unless a stockholder shall expressly request multiple distributions strictly in accordance with the stock ledger record of his multiple ownerships, handled in accordance with or so as not to be repugnant to the purpose of the above provisions, which is to avoid the expenditure by the Corporation of effort, time and expense in such matters that might have been avoided had the recording of a stockholder's name and/or address incident to his multiple record ownership of shares been effected accurately, uniformly and consistently. Section 3. Any stockholder, director or officer may waive in writing or otherwise any notice required to be given under the provisions of pertinent statutes or of the Certificate of Incorporation or of these Bylaws. A waiver of notice in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. ARTICLE XXI INDEMNIFICATION Section 1. The Corporation shall, to the full extent permitted by the Laws of the State of Delaware as then in effect or, if less stringent, in effect on December 31, 1985 ("Delaware Law"), indemnify any person (the "Indemnitee") made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether or not by or in the right of the Corporation, by reason of the fact that the Indemnitee is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, trustee, partner, or other agent of any other enterprise or legal person (any such action, suit or proceeding being herein referred to as a "Legal Action") against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with such Legal Action or its investigation, defense or appeal (herein called "Indemnified Expenses"), if the Indemnitee has met the standard of conduct necessary under Delaware Law to permit such indemnification. Rights to indemnification shall extend to the heirs, beneficiaries, administrators and executors of any deceased Indemnitee. For purposes of this Section, reference to "any other enterprise or legal person" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. The Indemnified Expenses shall be paid by the Corporation in advance as shall be appropriate to permit Indemnitee to defray such expenses currently as incurred, provided the Indemnitee agrees in writing that in the event it shall ultimately be determined as provided hereunder that Indemnitee was not entitled to be indemnified, then Indemnitee shall promptly repay to the Corporation such amounts so paid. The prepayment of expenses as provided for in this Section 1 shall be authorized by the Board of Directors in the specific case unless the Board of Directors receives within thirty (30) days of the Indemnitee's request for indemnification an opinion of counsel selected in the manner provided for in Section 2 of this Article XXII that there is no reasonable basis for a belief that the Indemnitee's conduct met the requisite standard of conduct. The fees of such counsel and all related expenses shall, in all cases, be paid by the Corporation. Section 2. The determination of whether Indemnitee has met the standard of conduct required to permit indemnification under this Bylaw shall in the first instance be submitted to the Board of Directors of the Corporation. If the Board by a majority vote of a quorum consisting of directors who were not parties to such Legal Action determines Indemnitee has met the required standard of conduct such determination shall be conclusive; but if such affirmative majority vote is not given, then the matter shall be referred to independent legal counsel for determination. Such outside counsel shall be selected by agreement of the Board of Directors and Indemnitee or, if they are unable to agree, then by lot from among those New York City law firms which (i) have more than 100 attorneys, (ii) have a substantial practice in the corporate and securities areas of law, (iii) have not performed any services for the Corporation or any of its subsidiaries or affiliates for at least five (5) years and (iv) have a rating of "av" in the then current Martindale-Hubbell Law Directory. The fees and expenses of counsel in connection with making this determination shall be paid by the Corporation. Notwithstanding the foregoing, if dissatisfied with the determination so made by counsel, Indemnitee may within two (2) years thereafter, petition any court of competent jurisdiction to determine whether Indemnitee is entitled to indemnification under the provisions hereof and such court shall thereupon have the exclusive authority to make such determination. The Corporation shall pay all expenses (including attorneys' fees) actually incurred by Indemnitee in connection with such judicial determination. The termination of any Legal Action by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not meet the requisite standard of conduct; however, a successful defense of a Legal Action by Indemnitee on the merits or otherwise shall conclusively establish Indemnitee did meet such standard of conduct notwithstanding any previous determination to the contrary under this Section 2. Section 3. The indemnification and advance payment of expenses as provided in this Article XXI shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any provision of law, the Certificate of Incorporation, any Bylaw or otherwise. Section 4. If any provision of this Article XXI shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions of this Article XXI shall not in any way be affected or impaired thereby. Section 5. Any amendment, repeal or modification of these Bylaws, the Corporation's Certificate of Incorporation or any applicable provision of Delaware Law, or any other instrument, which eliminates or diminishes the indemnification rights provided for in this Article XXI shall be ineffective as against an Indemnitee with respect to any Legal Action based upon actions taken or not taken by the Indemnitee prior to such repeal or the adoption of such modification or amendment. ARTICLE XXII AMENDMENTS Section 1. These Bylaws may be altered or amended or repealed, in whole or in part: By the affirmative vote of the holders of a majority of the stock issued and outstanding and entitled to a vote thereat, at any regular or special meeting of the stockholders if description of the proposed alteration or amendment or repeal be contained in the notice of such meeting, provided, if such description is not therein contained, the required vote shall be three-fourths; or by the affirmative vote of a majority of the Board of Directors in attendance at any regular or special meeting of the Board of Directors if description of the proposed alteration, amendment or repeal be contained in the notice of such meeting provided, if such description is not therein contained or is not given to all members of the Board of Directors at least ten days prior to such meeting, the required vote shall be three-fourths of the full membership of the Board of Directors. ARTICLE XXIII WRITTEN CONSENT RECORD DATE Section 1. In all cases, the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be fixed by the Board of Directors. In the event the Board of Directors does not fix a record date, the record date shall be the first date on which a signed, written consent setting forth the action to be taken or proposed to be taken is delivered to the Corporation. If the record date falls on a Saturday, Sunday or legal holiday, the record date shall be the next following date which is not a Saturday, Sunday or legal holiday. The solicitation of written consents by the Corporation from its stockholders shall be at the discretion of either the Board of Directors or the Chairman of the Board. Section 2. Upon delivery to the Corporation of a written consent or consents purporting to authorize or take corporate action and/or related revocations (each such written consent and related revocation is referred to in this Section 3 as a "Consent"), the Secretary of the Corporation shall provide for the safe-keeping of such Consent and shall conduct such reasonable investigation as he deems necessary or appropriate for the purpose of ascertaining the validity of such Consent and all matters incident thereto, including, without limitation, whether as of the Consent Date the holders of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent. If the corporate action to which the Consent relates is the removal or replacement of one or more members of the Board, the Secretary of the Corporation shall designate two persons, who shall not be members of the Board, to serve as Inspectors with respect to such Consent, and such Inspectors shall discharge the functions of the Secretary of the Corporation under this Section 3. If after such investigation the Secretary or the Inspectors (as the case may be) shall determine that the Consent is valid, that fact shall be certified on the records of the Corporation kept for the purposes of recording the proceedings of meetings of the stockholders (the "Corporate Records"), and the Consent shall be filed with such Corporate Records. If Consents executed by the holder or holders of shares of the outstanding stock of the Corporation having the requisite voting power to authorize or take the action specified by the Consents have been received by the Corporation and filed with the Corporate Records, the Consents shall become effective as of (1) the Consent Date, (2) the date the requisite Consents have been filed with the Corporate Records or (3) the date specified in the Consents, whichever of such dates is latest. In no event, however, shall such effective date be more than 60 days after the record date. The foregoing notwithstanding, neither the Secretary nor the Inspectors (as the case may be) shall make such certification or filing, and the Consent shall not become effective as stockholder action, until the final termination of any proceedings which may have been commenced in the Court of Chancery of the state of Delaware or any other court of competent jurisdiction for an adjudication of any legal issues incident to determining the validity of the Consent, unless and until such Court shall have determined that such proceedings are not being pursued expeditiously and in good faith. In conducting the investigation required by this Section 3, the Secretary or the Inspectors (as the case may be) may, at the expense of the Corporation, retain special legal counsel and any other necessary or appropriate professional advisors, and such other personnel as they may deem necessary or appropriate, to assist them. CERTIFICATE I, the undersigned, _________________________________, (Assistant) Secretary of KERR-McGEE CORPORATION, a Delaware corporation, do hereby certify that the foregoing is a full, true, and correct copy of the Bylaws of said corporation in effect on the date of this certificate. Given under my hand and seal of the Corporation this ______ day of _________________, 19___. ------------------------------- (Assistant) Secretary (SEAL) EX-4.5 3 $325 MILLION CREDIT AGREEMENT CONFORMED COPY $325,000,000 CREDIT AGREEMENT dated as of August 25, 1994 among Kerr-McGee Corporation Kerr-McGee Credit Corporation The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS* Page ARTICLE I DEFINITIONS SECTION 1.01. Definitions................................. 1 SECTION 1.02. Accounting Terms and Determinations......... 14 SECTION 1.03. Types of Borrowings......................... 14 ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend......................... 15 SECTION 2.02. Notice of Committed Borrowings.............. 15 SECTION 2.03. Money Market Borrowings..................... 16 SECTION 2.04. Notice to Banks; Funding of Loans........... 20 SECTION 2.05. Notes....................................... 21 SECTION 2.06. Maturity of Loans........................... 22 SECTION 2.07. Interest Rates.............................. 22 SECTION 2.08. Facility Fees............................... 25 SECTION 2.09. Optional Termination or Reduction of Commitments............................ 26 SECTION 2.10. Scheduled Termination of Commitments........ 26 SECTION 2.11. Optional Prepayments........................ 26 SECTION 2.12. Change of Control........................... 27 SECTION 2.13. General Provisions as to Payments........... 27 SECTION 2.14. Funding Losses.............................. 28 SECTION 2.15. Computation of Interest and Fees............ 28 SECTION 2.16. Regulation D Compensation................... 29 SECTION 2.17. Maximum Interest Rate....................... 30 ARTICLE III CONDITIONS SECTION 3.01. Effectiveness............................... 30 SECTION 3.02. Borrowings.................................. 31 - -------- *The Table of Contents is not a part of this Agreement. -i- Page ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01. Corporate Existence and Power............... 32 SECTION 4.02. Corporate and Governmental Authorization; No Contravention........... 33 SECTION 4.03. Binding Effect.............................. 33 SECTION 4.04. Financial Information....................... 33 SECTION 4.05. Litigation.................................. 33 SECTION 4.06. Compliance with ERISA....................... 34 SECTION 4.07. Environmental Matters....................... 35 SECTION 4.08. Taxes....................................... 35 SECTION 4.09. Subsidiaries................................ 35 ARTICLE V COVENANTS SECTION 5.01. Information................................. 35 SECTION 5.02. Payment of Taxes............................ 38 SECTION 5.03. Insurance................................... 38 SECTION 5.04. Conduct of Business and Maintenance of Existence.............................. 39 SECTION 5.05. Compliance with Laws........................ 39 SECTION 5.06. Compliance with ERISA....................... 39 SECTION 5.07. Negative Pledge............................. 40 SECTION 5.08. Consolidations, Mergers and Sales of Assets................................. 42 SECTION 5.09. Use of Proceeds............................. 42 SECTION 5.10. Transactions with Affiliates................ 42 SECTION 5.11. Ownership of Credit Corporation............. 42 SECTION 5.12. Change in Rating............................ 43 ARTICLE VI DEFAULTS SECTION 6.01. Events of Default........................... 43 SECTION 6.02. Notice of Default........................... 46 ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization............... 46 -ii- Page SECTION 7.02. Agent and Affiliates........................ 46 SECTION 7.03. Action by Agent............................. 46 SECTION 7.04. Consultation with Experts................... 46 SECTION 7.05. Liability of Agent.......................... 46 SECTION 7.06. Indemnification............................. 47 SECTION 7.07. Credit Decision............................. 47 SECTION 7.08. Successor Agent............................. 47 SECTION 7.09. Agent's Fee................................. 48 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair...................... 48 SECTION 8.02. Illegality.................................. 49 SECTION 8.03. Increased Cost and Reduced Return........... 50 SECTION 8.04. Substitute Loans............................ 52 SECTION 8.05. Substitution of Bank........................ 52 ARTICLE IX GUARANTY SECTION 9.01. The Guaranty................................ 53 SECTION 9.02. Guaranty Unconditional...................... 53 SECTION 9.03. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances............................. 54 SECTION 9.04. Waiver by the Company....................... 54 SECTION 9.05. Subrogation................................. 54 SECTION 9.06. Stay of Acceleration........................ 55 ARTICLE X MISCELLANEOUS SECTION 10.01. Notices..................................... 55 SECTION 10.02. No Waivers.................................. 55 SECTION 10.03. Expenses; Documentary Taxes; Indemnification........................... 56 SECTION 10.04. Sharing of Set-Offs......................... 57 SECTION 10.05. Amendments and Waivers...................... 57 SECTION 10.06. Successors and Assigns...................... 58 SECTION 10.07. Collateral.................................. 60 SECTION 10.08. Governing Law............................... 60 SECTION 10.09. Counterparts; Integration................... 60 -iii- Page PRICING SCHEDULE Exhibit A -- Note Exhibit B -- Form of Money Market Quote Request Exhibit C -- Form of Invitation for Money Market Quotes Exhibit D -- Form of Money Market Quote Exhibit E -- Opinion of General Counsel of the Company Exhibit F -- Opinion of Davis Polk & Wardwell, Special Counsel for the Agent Exhibit G -- Form of Auditor's Certificate Exhibit H -- Assignment and Assumption Agreement -iv- CREDIT AGREEMENT AGREEMENT dated as of August 25, 1994 among KERR-McGEE CORPORATION, a Delaware corporation, KERR-McGEE CREDIT CORPORATION, a Delaware corporation, the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Acquiring Person" means any Person (other than the Company or any Subsidiary or any employee benefit plan of the Company or any Subsidiary so long as all such plans in the aggregate hold less than 40% of the Voting Stock of the Company) who or which is the beneficial owner, directly or indirectly, of more than ten percent of the combined voting power of the outstanding shares of Voting Stock of the Company. "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Adjusted Consolidated Tangible Net Worth" means, at any date, an amount equal to the sum of (i) Consolidated Tangible Net Worth at such date plus (ii) the excess (if any) of (A) an amount equal to the excess (if any) of (x) Consolidated Tangible Net Worth as at December 31, 1993 over (y) Consolidated Tangible Net Worth as at such date over (B) the aggregate amount of Restricted Payments declared or made (without duplication) by the Company and its Subsidiaries during the period from and including January 1, 1994 to and including such date. "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Company) duly completed by such Bank. "Affiliate" means a Person (other than the Company or a Subsidiary) which directly or indirectly controls or is controlled by, or is under common control with the Company or any Subsidiary. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock or by contract or otherwise. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Assessment Rate" has the meaning set forth in Section 2.07(b). "Assignee" has the meaning set forth in Section 10.06(c). "Bank" means each bank listed on the signature pages hereof, each substitute bank which becomes a Bank pursuant to Section 8.05, each Assignee which becomes a Bank pursuant to Section 10.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article VIII. "Benefit Liabilities" has the meaning as defined in Section 4001(a)(16) of ERISA. "Borrower" means either of the Company or Credit Corporation, and "Borrowers" means the Company and Credit Corporation. "Borrowing" has the meaning set forth in Section 1.03. 2 "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in accordance with the applicable Notice of Committed Borrowing or Article VIII. "CD Margin" has the meaning set forth in Section 2.07(b). "CD Reference Banks" means Citibank, N.A., The First National Bank of Chicago, Morgan Guaranty Trust Company of New York and each such other bank as may be appointed pursuant to Section 10.06(f). "Change of Control" means (i) the acquisition by any Person or two or more Persons acting as a group (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of greater than 40% of the outstanding Voting Stock of the Company or (ii) any merger or consolidation to which the Company is a party, or the transfer, conveyance or lease of all or substantially all of the assets of the Company to another Person, if immediately following such merger, consolidation, transfer, conveyance or lease a majority of the directors of the surviving corporation (or the corporation which is the beneficial owner of the assets transferred or conveyed or the lessee of the assets leased) are other than Continuing Directors. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.09, or, as the context may require, the obligation of such Bank to make Committed Loans hereunder. "Committed Loan" means a loan to be made by a Bank pursuant to Section 2.01. "Company" means Kerr-McGee Corporation, a Delaware corporation, and its successors. "Company's 1993 Annual Report" means the Company's annual report on Form 10-K for 1993, as filed with the Securities and Exchange Commission. "Consolidated Subsidiary" means, at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of the Company in its consolidated financial statements if such statements were prepared as of such date. 3 "Consolidated Tangible Net Worth" means at any date the consolidated Stockholders' Equity of the Company and its Consolidated Subsidiaries less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to December 31, 1993 in the book value of any asset owned by the Company or a Subsidiary, and (ii) all unamortized debt discount and expense (to the extent, if any, recorded as an unamortized deferred charge), unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses. "Continuing Director" means any member of the Board of Directors of the Company who is unaffiliated with, and not a nominee of, an Acquiring Person and was a member of the Board of Directors of the Company immediately prior to any transaction described in clause (ii) of the definition of Change of Control set forth in this Section 1.01 and also prior to the time that the Acquiring Person became an Acquiring Person, and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, the Acquiring Person and who is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board of Directors. "Credit Corporation" means Kerr-McGee Credit Corporation, a Delaware corporation, and its successors. "Debt" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property, except trade accounts payable arising in the ordinary course of business, (iv) all Debt secured by a Lien on any asset of such Person which is not otherwise an obligation of such Person, to the extent of the lesser of such Debt or the book value of such asset, (v) all Debt of others Guaranteed by such Person to the extent of the amount of such Guarantee, and (vi) all production payment, proceeds production payment or similar obligations of such Person; provided that (a) Debt shall not include any Debt described above with respect to which there shall have been irrevocably deposited in trust, cash, or direct obligations of the United States, or any agency thereof that are backed by the full faith and credit of the United States, as necessary for the timely redemption, payment or satisfaction 4 of such Debt and (b) the Debt of any Subsidiary arising as a result of being a general partner or joint venturer shall not constitute Debt to the extent such obligations exceed the Company's direct or indirect net book investment in such Subsidiary. "Debt Acceleration Threshold" means (i) $5,000,000 in the case of any Debt other than LDC Debt and (ii) $40,000,000 in the case of LDC Debt. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Company and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.01. 5 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Company and the Agent. "Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing or Article VIII. "Euro-Dollar Margin" has the meaning set forth in Section 2.07(c). "Euro-Dollar Reference Banks" means the principal London offices of Citibank, N.A., The First National Bank of Chicago, Morgan Guaranty Trust Company of New York and each such other bank as may be appointed pursuant to Section 10.06(f). "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.16(b). "Event of Default" has the meaning set forth in Section 6.01. "Existing Credit Agreement" means the Credit Agreement dated as of August 15, 1990 among the Borrower, the banks parties thereto and Morgan Guaranty Trust Company of New York, as agent, as amended to the Effective Date. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next 6 succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Agent. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person entered into for the purpose of directly or indirectly guaranteeing any Debt of any other Person including, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), provided that (x) the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business, and (y) in no event shall a Guarantee by the Company or a Subsidiary of the Debt of the Company or a Subsidiary be duplicated for purposes of determining an amount of Debt for purposes hereof. The term "Guarantee" used as a verb has a corresponding meaning. "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and 7 (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) With respect to each CD Borrowing, the period commencing on the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (3) With respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (4) With respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and 8 (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (5) With respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 7 days) as the Borrower may elect in accordance with Section 2.03; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "LDC Country" means any country which is not a member of the Organization for Economic Co-operation and Development. "LDC Debt" means any Debt of a Subsidiary of the Company (whether or not Guaranteed by the Company) incurred to finance the conduct of business in an LDC Country. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset (including any production payment, proceeds production payment or similar financing arrangement with respect to such asset). Without limiting the generality of the foregoing, for the purposes of this Agreement, (i) the Company or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement or other title retention agreement relating to such asset and (ii) the sale or assignment by Credit Corporation or any of its Subsidiaries ("seller") of Receivables shall be deemed to create Debt of the seller (in an amount equal to the proceeds of the sale) secured by a Lien on Receivables of the seller unless either (A) such transaction is a sale without recourse for cash payable on the date of sale in an amount not less than the fair market value of the 9 Receivables sold or (B) such transaction is (or would be, if the Receivables were accounts) excluded from the scope of article 9 of the Uniform Commercial Code (as in effect in the State of New York) by Section 9-104(f) thereof. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Material Financial Obligations" means a principal or face amount of Debt and/or payment obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $10,000,000. "Material Subsidiary" means, at any time, Credit Corporation and any other Subsidiary which as of such time meets the definition of a "significant subsidiary" with respect to the Company contained as of the date hereof in Regulation S-X of the Securities and Exchange Commission. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Company and the Agent; provided that any Bank may from time to time by notice to the Company and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. 10 "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means any employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA or an employee pension benefit plan as to which the Company or any of its Related Persons would be treated as a contributing employer under Section 4212(c) of ERISA if it were to be terminated. "Notes" means promissory notes of a Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans made to it, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Parent" means, with respect to any Bank, any Person, other than an individual, controlling such Bank. "Participant" has the meaning set forth in Section 10.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means an "employee pension benefit plan" (as defined in Section 3 of ERISA) (other than a Multiemployer Plan) which is or has been established and maintained, or to which contributions are or have been made, by the Company, or an employee pension benefit plan as to which the Company or any of its Related Persons would be treated as a contributory sponsor under Section 4069 of ERISA if it were to be terminated. "Pricing Schedule" means the Schedule attached hereto identified as such. 11 "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Receivable" means any right to payment of money, whether for goods sold or leased or to be sold or leased, services rendered or to be rendered, money lent or other credit extended, or otherwise, whether or not evidenced by an instrument. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Refunding Borrowing" means a Committed Borrowing or that portion thereof which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Committed Loans made by any Bank to either Borrower. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Related Person" means any trade or business (whether or not incorporated) which, together with the Company (and other Related Persons), is treated as a single employer under Section 414 of the Internal Revenue Code. "Required Banks" means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing more than 50% of the aggregate unpaid principal amount of the Loans. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Company's capital stock (except dividends or other distributions payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Company's capital stock or (b) any option, warrant or other right to acquire shares of the Company's capital stock; provided that payments in respect of employee stock options, stock appreciation rights and other stock based employee compensation arrangements in the ordinary course of business shall not constitute Restricted Payments. 12 "Restricted Property", to the extent of the Company's direct or indirect interest therein, means: (a) any property interest owned by the Company or any Consolidated Subsidiary in reserves of oil, gas, coal lignite, uranium, copper or other minerals which are "proved reserves", as defined in the regulations promulgated by the Securities and Exchange Commission or, in the absence of an applicable definition, reserves which geological, geophysical and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs or deposits under existing economic and operating conditions; and (b) any refining or manufacturing property or any drilling rigs and related equipment of the Company or any Consolidated Subsidiary. "Revolving Credit Period" means the period from and including the Effective Date to but not including the Termination Date. "S&P" means Standard & Poor's Corporation. "Stockholders' Equity" means, at any date, the consolidated stockholders' equity of the Company and its Consolidated Subsidiaries as would be shown on a balance sheet prepared in accordance with generally accepted accounting principles as of such date. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company. "Substitute Loan" means a Loan made by a Bank pursuant to Section 8.02, 8.03 or 8.04(a). "Termination Date" means August 25, 1999, or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "Unfunded Benefit Liabilities" means the "amount of unfunded benefit liabilities" as defined in Section 4001(a) (18) of ERISA. 13 "Voting Stock" means capital stock of any class or classes (however designated) having ordinary voting power for the election of directors of the Company, other than stock having such power only by reason of the happening of a contingency. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Company's independent public accountants) with the most recent audited consolidated financial statements of the Company and its Consolidated Subsidiaries delivered to the Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to a single Borrower pursuant to Article II (and not, in any event, pursuant to Article VIII) on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to either Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding to both Borrowers shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with 14 Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, a Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.02. Notice of Committed Borrowings. (a) The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (iv) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) The provisions of subsection (a) above notwithstanding, if the Borrower shall not have given a Notice of Borrowing not later than 10:30 A.M. (New York City time) on the last day of the Interest Period applicable to an outstanding Committed Borrowing, then, unless the Borrower notifies the Agent before such time that it elects not to borrow on such date, the Agent shall be deemed to have received a Notice of Committed Borrowing specifying (i) that the date of the proposed Borrowing shall be the last day of the Interest Period applicable to such outstanding Borrowing, (ii) that the aggregate amount of the proposed Borrowing shall be the amount of such outstanding Borrowing, and (iii) that the Loans comprising the proposed Borrowing are to be Base Rate Loans. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, either Borrower may, as set forth in this Section, request the 27008/958/CA/ca.conf 15 Banks during the Revolving Credit Period to make offers to make Money Market Loans to such Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When a Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote request. No Money Market Quote request shall be given within five Euro-Dollar Business Days (or such other number of days as the Company and the Agent may agree) of any other Money Market Quote request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote request, the Agent shall send to the Banks by telex or facsimile transmission an invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an 16 invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 10.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 1:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than, equal to or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested, and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, 17 (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, 18 so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Company and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote request, (ii) the principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the 19 amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt (or deemed receipt) of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower giving (or deemed to have given) such Notice of Borrowing. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address specified in or pursuant to Section 10.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder to a Borrower on a day on which such Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed by such Borrower and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b) of this Section, or remitted by such Borrower to the Agent as provided in Section 2.13, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at a rate per annum equal to the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall 20 constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. Notes. (a) The Loans of each Bank to each Borrower shall be evidenced by a single Note of such Borrower payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans to such Borrower. (b) Each Bank may, upon at least two Domestic Business Days' notice to a Borrower and the Agent, request that its Loans of a particular type to such Borrower be evidenced by a separate Note of such Borrower in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to a "Note" or the "Notes" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Notes pursuant to Section 3.01(b), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it to each Borrower and the date and amount of each payment of principal made with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note of either Borrower, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan to such Borrower then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of either Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by each Borrower so to endorse its Notes and to attach to and make a part of any Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear 21 interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to the Interest Period for such Loan and (ii) the rate applicable to Base Rate Loans for such day. "CD Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of 22 recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. ss. 327.3(e) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the applicable London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London 23 interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day at a rate per annum equal to the higher of (i) the sum of 1% plus the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to the Interest Period for such Loan and (ii) the sum of 1% plus the Euro- Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 1% plus the rate applicable to Base Rate Loans for such day). (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day. 24 (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated hereby. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.08. Facility Fees. The Company shall pay to the Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. Accrued fees under this Section shall be payable quarterly on each March 31, June 30, September 30 and December 31 and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.09. Optional Termination or Reduction of Commitments. The Company may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $1,000,000 or any larger multiple thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. SECTION 2.10. Scheduled Termination of Commitments. The Commitments shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.11. Optional Prepayments. (a) Either Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay any Base Rate Borrowing (or any 25 Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts which, when added to the principal amounts of other Loans to it maturing and being paid at the time of such prepayment, equals in the aggregate $1,000,000 or any larger multiple thereof, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Either Borrower may, upon at least three Domestic Business Days' notice to the Agent, in the case of a CD Borrowing, or upon at least three Euro-Dollar Business Days' notice to the Agent, in the case of a Euro-Dollar Borrowing, subject to Section 2.14, prepay any such Borrowing by it in whole or in part in amounts aggregating $1,000,000 or any larger multiple thereof, on any Domestic Business Day, in the case of a CD Borrowing, or any Euro-Dollar Business Day, in the case of a Euro-Dollar Borrowing, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the outstanding CD Loans or Euro-Dollar Loans of the several Banks included in such Borrowing, subject to Article VIII. (c) Except as provided in Section 2.11(a), neither Borrower may prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (d) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. Change of Control. If a Change of Control shall occur (i) the Company will, within ten days after the occurrence thereof, give each Bank notice thereof and shall describe in reasonable detail the facts and circumstances giving rise thereto and (ii) each Bank may, at any time at its option by notice to the Borrowers and the Agent given not later than 60 days after such Change of Control, (x) terminate its Commitment, which shall thereupon be terminated, and (y) by three Domestic Business Days' notice to the Borrowers and the Agent declare the Notes held by it (together with accrued interest thereon) and any other amounts payable hereunder for its account to be, and such Notes and such other amounts shall thereupon become, immediately due and payable without presentment, demand, 26 protest or othe notice of any kind, all of which are hereby waived by the Borrowers. SECTION 2.13. General Provisions as to Payments. (a) The Borrowers shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 10.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. In any case where, and for so long as, the date for any payment of principal by either Borrower hereunder is extended by operation of law or otherwise, interest thereon shall be payable for such extended time and the affected payment shall not be deemed past due if the payment date is not extended as a result of any action or failure to act by such Borrower. (b) Unless the Agent shall have received notice from a Borrower prior to the date on which any payment is due from such Borrower to the Banks hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that such Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.14. Funding Losses. If a Borrower makes any payment of principal with respect to any Fixed 27 Rate Loan (pursuant to Section 2.11(b), Article VI or VIII) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.07(d), or if a Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a) or 2.11(d), the Company shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or contractually committed prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, provided that such Bank shall have delivered to the Company a certificate as to the amount of such loss or expense, setting forth in reasonable detail the calculation thereof, which certificate shall be presumed correct unless and until it is shown to be in error. SECTION 2.15. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.16. Regulation D Compensation. (a) Each Bank may require either Borrower to pay, contemporaneously with each payment of interest thereon, additional interest on each Euro-Dollar Loan of such Bank to such Borrower at a rate per annum equal to the excess of (i)(A) the applicable London Interbank Offered Rate (or other base rate determined pursuant to Section 2.07(d)) divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the rate specified in clause (i)(A). Any Bank wishing to require payment of such additional interest (x) shall so notify such Borrower and the Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank to such Borrower shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least four Euro-Dollar Business Days after the giving of such notice and (y) shall notify such Borrower at least three Euro-Dollar Business Days prior to each date on which interest is payable thereon of the amount then due it under this Section. Any Bank which has given notice under clause (x) above that such additional interest is payable shall notify such Borrower and the Agent, for so long as such additional interest is 28 payable, annually, not later than each January 15th that such additional interest is payable, and, as soon as practicable after such additional interest has ceased to be payable, that it is no longer payable. In the event a Bank shall fail to notify the Borrowers and the Agent annually of the continuing requirements for such additional interest by the applicable January 15th, such Bank shall not be entitled to additional interest until such Bank has provided the notice required by (x) above. (b) "Euro-Dollar Reserve Percentage" means for any day for any Bank that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the effective reserve requirement for such Bank as determined in good faith by such Bank in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). SECTION 2.17. Maximum Interest Rate. (a) Nothing contained in this Agreement or the Notes shall require either Borrower to pay interest at a rate exceeding the maximum rate permitted by applicable law. (b) If the amount of interest payable by either Borrower for the account of any Bank on any interest payment date in respect of the immediately preceding interest computation period, computed pursuant to Section 2.07, would exceed the maximum amount permitted by applicable law to be charged by such Bank, the amount of interest payable by such Borrower for its account on such interest payment date shall be automatically reduced to such maximum permissible amount. (c) If the amount of interest payable by either Borrower for the account of any Bank in respect of any interest computation period is reduced pursuant to clause (b) of this Section and the amount of interest payable by either Borrower for the account of such Bank in respect of any subsequent interest computation period, computed pursuant to Section 2.07, would be less than the maximum amount permitted by applicable law to be charged by such Bank, then the amount of interest payable for its account in respect of such subsequent interest computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid by both Borrowers for the account of any Bank has been increased pursuant to this clause (c) exceed the aggregate amount by which interest paid by both 29 Borrowers for its account has theretofore been reduced pursuant to clause (b) of this Section. ARTICLE III CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 10.05): (a) receipt by the Agent of counterparts hereof signed by each of the Company, Credit Corporation, the Banks and the Agent (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent for the account of each Bank of duly executed Notes of the Company and Credit Corporation dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of an opinion of the General Counsel of the Company, substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of evidence satisfactory to it of the payment of all amounts payable under the Existing Credit Agreement; and (f) receipt by the Agent of all documents it may reasonably request relating to the existence of the Company and Credit Corporation, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; 30 provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than August 31, 1994. The Agent shall promptly notify the Company and the Banks of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. The Banks that are parties to the Existing Credit Agreement and each of the Borrowers agree that the commitments under the Existing Credit Agreement shall terminate in their entirety simultaneously with and subject to the effectiveness of this Agreement and that the Borrowers shall be obligated to pay the accrued commitment and facility fees thereunder to but excluding the date of such effectiveness. SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately after such Borrowing, (i) in the case of a Refunding Borrowing, no Event of Default and (ii) in the case of any other Borrowing, no Default shall have occurred and be continuing; (d) the fact that the representations and warranties of the Company contained in this Agreement (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Section 4.05 as to any matter which has theretofore been disclosed in writing by the Company to the Banks) shall be true on and as of the date of such Borrowing; and (e) the fact that, immediately after such Borrowing, (i) in the case of a Refunding Borrowing, Adjusted Consolidated Tangible Net Worth and (ii) in the case of any other Borrowing, Consolidated Tangible Net Worth shall be greater than $800,000,000. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of 31 such Borrowing as to the facts specified in clauses (b), (c), (d) and (e) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants that: SECTION 4.01. Corporate Existence and Power. Each of the Company and Credit Corporation is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted which, if not obtained, could reasonably be expected to have a material adverse effect on the business or operations of the Company and its Subsidiaries considered as a whole. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Company and Credit Corporation of this Agreement and the Notes are within such Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no approval of or filing with any governmental body, agency or official and do not contravene or constitute a default under any provision of applicable law or regulation or of the certificate of incorporation or by-laws of such Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Borrower or result in the creation or imposition of any mortgage, security interest or other lien or encumbrance on any asset of such Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of each of the Company and Credit Corporation, and each Note of each Borrower, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of such Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. The consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 1993 and the related consolidated statements of income, retained earnings and cash flows for the year then ended, reported on by Arthur Andersen & Co. and set forth in the Company's 1993 Annual Report, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally 32 accepted accounting principles, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such year. SECTION 4.05. Litigation. Except as set forth in the Company's 1993 Annual Report, there is no action, suit or proceeding pending, or to the knowledge of the Company threatened, against or affecting the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, which involves any substantial risk of an adverse decision which would result in any material adverse effect on the business, consolidated financial position or consolidated results of operations of the Company and its Consolidated Subsidiaries considered as a whole, or which involves any material risk of an adverse decision which would draw into question the validity of the obligations of either Borrower under this Agreement or the Notes of such Borrower. SECTION 4.06. Compliance with ERISA. (a) Neither the Company nor any Related Person has failed to comply in any material respect with the applicable provisions of ERISA and the Internal Revenue Code and the regulations promulgated thereunder (including, without limitation, sections 4068, 4069 and 4212 of ERISA), where such failure could reasonably be expected to be materially adverse to the Company and its Subsidiaries taken as a whole. (b) Other than premiums to the PBGC due in the normal course, no liability to the PBGC (with respect to which the Company or any Related Person is delinquent) has been incurred and remains unsatisfied or is expected by the Company to be incurred with respect to any Plan by the Company or any Related Person which is or would be materially adverse to the Company and its Subsidiaries taken as a whole. (c) Neither the Company nor any Related Person is obligated to contribute to, or has incurred a withdrawal liability with respect to, any Multiemployer Plan in an amount that would be materially adverse to the Company and its Subsidiaries taken as a whole. (d) Full payment has been made of all amounts that the Company or any Related Person is required under the terms of each Plan to have paid as contributions to such Plan as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof (or will be made within the period described in Section 404 of the Internal 33 Revenue Code) and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived exists with respect to any Plan. Each Plan satisfies the minimum funding standard of Section 412 of the Internal Revenue Code. (e) The amount of Benefit Liabilities under each Plan, determined as of the end of the Company's most recently ended fiscal year (on the basis of assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA) did not exceed the current value of the assets of such Plans determined as of such date in an amount that, individually or in the aggregate with such amount for all Plans, exceeds $25,000,000. SECTION 4.07. Environmental Matters. The Company and each of its Material Subsidiaries is in compliance with, or has obtained waivers or variances from, all applicable requirements of all federal, state, local and foreign governmental authorities with respect to environmental protection, including, without limitation, regulations relating to pollution control or establishing quality criteria and standards for air, water and land ("Environmental Laws"), in all jurisdictions where such Persons are presently doing business and which, if not obtained or complied with, could reasonably be expected to have a material adverse effect on the business or operations of the Company and its Subsidiaries considered as a whole. SECTION 4.08. Taxes. United States Federal income tax returns of the Company and its Subsidiaries have been examined through the year ended December 31, 1989. The Company and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries, except such taxes or assessments, if any, as are being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes are, in the opinion of the Company, adequate. SECTION 4.09. Subsidiaries. Each of the Material Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers required to carry on its business as now conducted. Each Material Subsidiary has all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and which, if not obtained, 34 could reasonably be expected to have a material adverse effect on the business or operations of the Company and its Subsidiaries considered as a whole. ARTICLE V COVENANTS The Company covenants and agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Company will deliver to each of the Banks: (a) to the extent not already delivered pursuant to another clause of this Section 5.01, as soon as available and in any event within 120 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, retained earnings and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Arthur Andersen & Co. or other independent public accountants of nationally recognized standing and an unaudited consolidated balance sheet of Credit Corporation and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, retained earnings and cash flows for such fiscal year, setting forth in the case of such statements of income and cash flows in comparative form the figures for the previous fiscal year, accompanied by (x) the report thereon of independent public accountants or (y) if such financial statements are not otherwise reported on by independent public accountants, a certificate of the chief accounting officer of Credit Corporation as to fairness of presentation, generally accepted accounting principles and consistency; (b) to the extent not already delivered pursuant to another clause of this Section 5.01, as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Company, (x) a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such 35 quarter, (y) the related consolidated statements of income for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter and (z) the related consolidated statement of cash flows for the portion of the Company's fiscal year ended at the end of such quarter, setting forth in the case of such statements of income and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief accounting officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above or clause (g) below, a certificate of the chief accounting officer of the Company stating whether to the knowledge of such officer, there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of audited year-end financial statements referred to in clauses (a) or (g), a statement substantially in the form attached hereto as Exhibit G of the firm of independent public accountants which reported on such statements stating whether anything has come to their attention to cause them to believe that there existed on the date of such statements any Default; (e) forthwith upon any executive officer (meaning any member of the executive management committee, the treasurer, the chief financial officer, the general counsel or the chief accounting officer) of the Company obtaining knowledge of the occurrence of any Default, a certificate of the chief accounting officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Company generally, copies of 36 all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, a copy of each registration statement (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) which the Company shall have filed with the Securities and Exchange Commission, and, within 15 days after the filing thereof, a copy of each annual, quarterly or other report (other than the exhibits thereto) which the Company shall have filed with the Securities and Exchange Commission; (h) if and when the Company or any Related Person (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of or appoint a trustee to administer any Plan, a copy of such notice; and (i) from time to time, upon receiving from the Banks such assurances of confidential treatment as the Company may reasonably request, such additional information regarding the financial position or business of the Company as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Payment of Taxes. The Company covenants that it will, and will cause each of its Subsidiaries to, pay all material taxes, assessments and other governmental charges imposed upon it or any of its Properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all material claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and 37 which by law have or might become a Lien upon any of its Properties or assets, non-payment of which could have a material and adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole or on the ability of the Company to comply with its obligations under this Agreement or the Notes, provided that no such tax, assessment, charge or claim need be paid if being contested in good faith by appropriate proceedings promptly initiated and diligently conducted. SECTION 5.03. Insurance. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its Properties and business and the Properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations; provided, however, that in lieu of any such insurance, the Company or any such Subsidiary may maintain a system or systems of self-insurance which are in accord with sound practices of similarly situated corporations of established reputation maintaining such systems and with respect to which the Company or such Subsidiary shall maintain adequate insurance reserves in accordance with generally accepted accounting principles and in accordance with sound actuarial and insurance principles. SECTION 5.04. Conduct of Business and Maintenance of Existence. Except as permitted by Section 5.08, the Company will at all times preserve and keep in full force and effect and will cause each Material Subsidiary to preserve and keep in full force and effect its corporate existence, and rights and franchises deemed material to the Properties, business, prospects, profits, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole, except that such rights and franchises and the corporate existence of any Material Subsidiary (other than Credit Corporation) may be terminated if, in the good-faith judgment of the Board of Directors of the Company, such termination is in the best interest of the Company and is not disadvantageous to the Banks. SECTION 5.05. Compliance with Laws. The Company will, and will use its best efforts to cause each Subsidiary to, comply with all applicable laws, rules and regulations and orders of any governmental authority, non-compliance with which could have a material and adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole or on 38 the ability of the Company to comply with its obligations under this Agreement or the Notes. SECTION 5.06. Compliance with ERISA. The Company will not, and will not permit any Subsidiary to (i) engage in any transaction in connection with which the Company or any Subsidiary could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA, a tax imposed by Section 4975 of the Internal Revenue Code, or a lien pursuant to Section 412(n) of the Internal Revenue Code, (ii) terminate any Plan in a manner, or take any other action with respect to any such Plan (including, without limitation, a substantial cessation of operations within the meaning of Section 4068(f) of ERISA), which could result in any liability of the Company or any Subsidiary to the PBGC or to a trustee appointed pursuant to Section 4042(b) or (c) of ERISA, or incur any liability to the PBGC on account of a termination of a Plan under Section 4064 of ERISA, (iii) fail to make full payment when due of all amounts which, under the provisions of any Plan or Section 412(m) of the Internal Revenue Code, the Company or any Subsidiary is required to pay as contributions thereto, (iv) incur any complete or partial withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan, or (v) permit to exist any accumulated funding deficiency, whether or not waived, with respect to any Plan, if, in the aggregate, such penalty or tax or such liability, or the failure to make such payment, or the existence of such deficiency, as the case may be, exceeds $25,000,000. SECTION 5.07. Negative Pledge. Neither the Company nor any Consolidated Subsidiary will create, assume or suffer to exist any Lien securing Debt on any Restricted Property now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Consolidated Subsidiary and not created in contemplation of such event and which does not extend to any other assets of the Company or its Consolidated Subsidiary; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring, constructing or improving such asset, provided that such Lien attaches to such asset concurrently with or within 24 months after the acquisition or completion of construction or improvement thereof, and provided further that the Debt 39 secured by such Lien shall not exceed the cost of acquiring, constructing or improving such asset; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Company or a Consolidated Subsidiary and not created in contemplation of such event and which does not extend to any other assets of the Company or its Consolidated Subsidiaries; (e) any Lien existing on any asset prior to the acquisition thereof by the Company or a Consolidated Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings; (g) Liens to secure indebtedness of the pollution control or industrial revenue bond type and Liens in favor of the United States or any state thereof, or any department, agency, instrumentality, or political subdivision of any such jurisdiction, to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or cost of constructing or improving the property subject thereto; (h) any Lien (including Liens in respect of production payments) to secure the payment of all or any part of the cost of exploration, drilling, mining, or development of property which had prior to December 31, 1993, produced no material volumes of hydrocarbons, coal, minerals, timber or other products or by-products produced or extracted from such property, provided that the Debt secured by such Lien shall not exceed the cost of exploring, drilling, mining or development of such property; and provided further that such Lien shall not extend to any property other than the property being explored, drilled, mined or developed; (i) Lien securing Debt incurred by Kerr-McGee Oil (U.K.) Limited to pay all or any part of the cost of exploration, drilling or development of any North Sea properties within the territorial waters of the United Kingdom, provided that the Debt secured by such liens shall not exceed the cost of such exploration, drilling, or development; and provided further that 40 such Lien shall not extend to any property other than the property being explored, drilled or developed; (j) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this section, provided that the amount of such Debt is not increased and is not secured by any additional assets; and (k) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal amount at any time outstanding not exceeding 5% of Stockholders' Equity of the Company. SECTION 5.08. Consolidations, Mergers and Sales of Assets. The Company will not be a party to any merger or consolidation or sell, lease or otherwise transfer all or substantially all of its Property, provided that the Company may merge or consolidate with another corporation and may sell, lease or otherwise transfer all or substantially all of its Property as an entirety to another corporation if (i) the surviving or acquiring corporation (if other than the Company) (A) is organized under the laws of the United States or a jurisdiction thereof and (B) expressly assumes the covenants and obligations in this Agreement and (ii) immediately after giving effect to such transaction, no condition or event shall exist which constitutes an Event of Default and Consolidated Tangible Net Worth is not less than $800,000,000. SECTION 5.09. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrowers for general corporate purposes, which includes the use by the Borrowers of such proceeds to support the issuance by it of domestic commercial paper notes, and will not, in any event, be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock, within the meaning of Regulation U. SECTION 5.10. Transactions with Affiliates. The Company will not directly or indirectly engage in any transaction (including, without limitation, the purchase, sale or exchange of assets or the rendering of any service) with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Affiliate's business and upon fair and reasonable terms that are substantially the same as those which might be obtained in an arm's length transaction at the time from Persons which are not such an Affiliate or upon terms which would not materially and adversely affect the ability of the Company to comply with its obligations under this Agreement; 41 provided, however, that taxes may be allocated among the Company and its Affiliates in any manner consistent with Section 1552 (or any successor provision) of the Internal Revenue Code and the regulations thereunder, general and administrative expenses may be allocated among the Company and its Affiliates in any manner consistent with Section 482 (or any successor provision) of the Internal Revenue Code and the regulations thereunder, and interest may be charged or credited to Affiliates in any reasonable manner not inconsistent with the Internal Revenue Code and the regulations thereunder. SECTION 5.11. Ownership of Credit Corporation. The Company will at all times own, directly or indirectly, all outstanding capital stock of Credit Corporation, free and clear of any Lien. SECTION 5.12. Change in Rating. Promptly upon becoming aware of any actual or proposed change in the rating by S&P or Moody's of the Company's outstanding senior unsecured long-term debt securities, the Company shall give notice to the Agent of such actual or proposed change. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) a Borrower shall fail to pay when due any principal of any Loan or, within five days of the due date thereof, any interest on any Loan, any fees or any other amount payable hereunder; (b) the Company shall fail to observe or perform any covenant contained in Sections 5.07 through 5.11 inclusive; (c) the Company shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clauses (a) or (b) above) for 30 days after notice thereof has been given in accordance with Section 10.01 to the Company by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made or deemed, pursuant to the terms hereof, to have been made by the Company in this Agreement or in any certificate, financial statement or 42 other notice delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made or deemed to have been made; (e) the Company or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition (other than an event or condition which renders it unlawful for any Person to make, maintain or fund extensions of credit comprising any Debt described in this subsection (f)) shall occur which results in the acceleration of the maturity of any Debt (which term shall, for purposes of this subsection (f), exclude (1) clause (vi) of the definition of Debt set forth in Section 1.01 and (2) Debt of any Person that is not a Subsidiary of the Company and which is Guaranteed by the Company or a Subsidiary, so long as neither the Company nor such Subsidiary is in default with respect thereto) of the Company or any Subsidiary greater than the Debt Acceleration Threshold in aggregate principal amount; (g) the Company or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its Property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Company or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered 43 against the Company or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) the Company or any Related Person shall fail to pay when due (and not being contested in good faith) an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay to the PBGC, the Internal Revenue Service or the Department of Labor or to a Multiemployer Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Benefit Liabilities in excess of $50,000,000 (collectively, a "Material Plan") shall be filed under Title IV of ERISA by the Company or any Related Person, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of or to cause a trustee to be appointed to administer any Material Plan; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which would cause the Company or any Related Person to incur a current payment obligation in excess of $50,000,000; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or (j) a final judgment or order for the payment of money in excess of $10,000,000 not covered by insurance (as to which insurance coverage there is delivered to the Agent an opinion of counsel reasonably satisfactory to the Agent that such coverage applies to such judgment or order and that the applicable insurance carrier has not contested the payment thereof) shall be rendered against the Company or any Material Subsidiary and such judgment or order shall continue unsatisfied and not stayed, bonded, vacated or suspended by agreement with the beneficiary thereof for a period of 60 days; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Company terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Company declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, 44 protest or other notice of any kind, all of which are hereby waived by each Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to either Borrower, without any notice to either Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. SECTION 6.02. Notice of Default. The Agent shall give notice to the Company under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with either Borrower or any Subsidiary or Affiliate of either Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for either Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. 45 SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it or them in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its or their own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of either Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrowers) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by giving notice thereof in accordance with Section 10.01 to the Banks and the Company. Upon any 46 such resignation, the Borrowers, with the written consent of the Required Banks, which consent shall not be unreasonably withheld, shall have the right to appoint a successor Agent, which shall be one of the Banks. If no successor Agent shall have been so appointed by the Borrowers, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing (except a Money Market Absolute Rate Borrowing): (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, 47 the Agent shall forthwith give notice thereof to the Company and the Banks, whereupon until the Agent notifies the Company that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing pursuant to Article II and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans to either Borrower and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Company, whereupon until such Bank notifies the Company and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans to such Borrower shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to such Borrower to maturity and shall so specify in such notice, such Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, such Borrower shall borrow a Base Rate Loan (or, if such Borrower so elects by at least one Domestic Business Day's notice to the Agent and such Bank, such Borrower shall borrow a CD Loan) in an equal 48 principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan or CD Loan, as the case may be. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject any Bank (or its Applicable Lending Office) to any tax, duty or other charge with respect to its Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans, or shall change the basis of taxation of payments to any Bank (or its Applicable Lending Office) of the principal of or interest on its Fixed Rate Loans or any other amounts due under this Agreement in respect of its Fixed Rate Loans or its obligation to make Fixed Rate Loans (except for changes in the rate of tax on the overall net income of such Bank or its Applicable Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Applicable Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit, insurance assessment or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (A) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage or Assessment Rate and (B) with respect to any Euro-Dollar Loan any such requirement with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.16) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States 49 market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Notes or its obligation to make Fixed Rate Loans; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, on or after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Company and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder shall be presumed correct unless and until it is shown to be in error. In determining such amount, such Bank may use any reasonable averaging and attribution 50 methods. If any Bank demands compensation under Section 8.03(a), the affected Borrower may at any time, upon at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, prepay in full each then outstanding CD Loan or Euro-Dollar Loan, as the case may be, of such Bank, together with accrued interest thereon to the date of prepayment. Concurrently with prepaying each such CD Loan or Euro-Dollar Loan, as the case may be, of such Bank, such Borrower shall borrow a Base Rate Loan (or, if such Borrower shall so elect in its notice of prepayment, such Borrower shall borrow (i) if the Loan being prepaid is a CD Loan, a Euro-Dollar Loan and (ii) if the Loan being prepaid is a Euro-Dollar Loan, a CD Loan) in an equal principal amount from such Bank for an Interest Period coinciding with the remaining term of the Interest Period applicable to such CD Loan or Euro-Dollar Loan being prepaid, and such Bank shall make such a Base Rate Loan, CD Loan or Euro-Dollar Loan, as the case may be. SECTION 8.04. Substitute Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans to either Borrower has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Company that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans to such Borrower which would otherwise be made by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate Loans, or if such Borrower shall so elect in the Notice of Borrowing, CD Loans or Euro-Dollar Loans (whichever type is not affected by such circumstances) for an Interest Period coincident with the related Fixed Rate Borrowing, and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, to such Borrower has been repaid, all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Substitute Loans instead. SECTION 8.05. Substitution of Bank. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03, the Company shall have the right, with the assistance of the Agent, to seek a 51 mutually satisfactory substitute bank or banks (which may be one or more of the Banks) to purchase the Notes and assume the Commitment of such Bank. The purchase price for such Notes shall be an amount equal to the principal amount thereof together with accrued interest thereon, accrued amounts (if any) for the account of such Bank pursuant to Sections 2.16 and 8.03 and such amount (if any) as such Bank would be entitled to pursuant to Section 2.14 in respect of the prepayment of its Notes on such date. ARTICLE IX GUARANTY SECTION 9.01. The Guaranty. The Company hereby unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by Credit Corporation pursuant to this Agreement, and the full and punctual payment of all other amounts payable by Credit Corporation under this Agreement. Upon failure by Credit Corporation to pay punctually any such amount, the Company shall forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement. SECTION 9.02. Guaranty Unconditional. The obligations of the Company hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of Credit Corporation under this Agreement or any Note, by operation of law or otherwise; (ii) any modification or amendment of or supplement to this Agreement or any Note; (iii) any release, non-perfection or invalidity of any direct or indirect security for any obligation of Credit Corporation under this Agreement or any Note; (iv) any change in the corporate existence, structure or ownership of Credit Corporation, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Credit Corporation or its assets or any resulting release or discharge of any obligation of Credit 52 Corporation contained in this Agreement or any Note; (v) the existence of any claim, set-off or other rights which the Company may have at any time against Credit Corporation, the Agent, any Bank or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against Credit Corporation for any reason of this Agreement or any Note, or any provision of applicable law or regulation purporting to prohibit the payment by Credit Corporation of the principal of or interest on any Note or any other amount payable by it under this Agreement; or (vii) any other act or omission to act or delay of any kind by Credit Corporation, the Agent, any Bank or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Company's obligations hereunder. SECTION 9.03. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances. The Company's obligations hereunder shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the Company and Credit Corporation under this Agreement shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by Credit Corporation under this Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Credit Corporation or otherwise, the Company's obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. SECTION 9.04. Waiver by the Company. The Company irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against Credit Corporation or any other Person. 53 SECTION 9.05. Subrogation. The Company irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against Credit Corporation with respect to such payment or otherwise to be reimbursed, indemnified or exonerated by Credit Corporation in respect thereof, in any bankruptcy, insolvency or similar proceeding involving Credit Corporation as debtor commencing within one year after the making of any payment by Credit Corporation under this Agreement or its Notes. SECTION 9.06. Stay of Acceleration. In the event that acceleration of the time for payment of any amount payable by Credit Corporation, under this Agreement or its Notes is stayed upon insolvency, bankruptcy or reorganization of Credit Corporation, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Company hereunder forthwith on demand by the Agent made at the request of the Required Banks. ARTICLE X MISCELLANEOUS SECTION 10.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of either Borrower or the Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Company. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, upon receipt or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be effective until received. 54 SECTION 10.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 10.03. Expenses; Documentary Taxes; Indemnification. (a) The Company shall pay (i) all reasonable out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including (without duplication) the fees and disbursements of outside counsel and the reasonably allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. The Company shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement, or any Note. (b) The Company agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be reasonably incurred by any Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement; provided that no Indemnitee shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. It is understood (except as provided below) that the Company shall not, in connection with any such claim, or separate but substantially similar or related claims in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys for all such Indemnitees which firm shall be designated by the Agent. Any Indemnitees shall have the right to retain its own counsel, but the fees and expenses of such counsel (other than the firm designated by the Agent as aforesaid) shall be at the expense of such Indemnitee unless (i) the 55 Company on the one hand, and such Indemnitee on the other shall have mutually agreed to the retention of such counsel or (ii) the representation of such Indemnitee by the same counsel representing the Agent, the Banks or any other party would in the reasonable view of such Indemnitee be inconsistent with or adverse to the interests of such Indemnitee. The Company shall not be liable for any settlement of any such claim effected without its written consent, which shall not be unreasonably withheld. SECTION 10.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of a Borrower other than its indebtedness hereunder. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of such Borrower in the amount of such participation. SECTION 10.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrowers and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) postpone the date fixed for termination of any Commitment, or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or 56 the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. Neither an assignment pursuant to Section 10.06 nor a substitution pursuant to Section 8.05 constitutes an amendment subject to the provisions of this Section 10.05. SECTION 10.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither Borrower may assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Money Market Loans or, upon notice to the Company, in its Committed Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrowers and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrowers and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 10.05 without the consent of the Participant. The Borrowers agree that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Section 2.16 with respect to its participating interest to the same extent as a Bank. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) With the prior written consent of the Company and the Agent, any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000 and not exceeding, together with all other assignments by such transferor Bank and its affiliate transferees to non-affiliates, 50% of its initial Commitment, except in any case as the Company and the Agent 57 may otherwise agree) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit H hereto executed by such Assignee and such transferor Bank; provided that if an Assignee is an affiliate of such transferor Bank, no such consent shall be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrowers shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) (i) No Assignee or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (ii) No Bank shall be entitled to additional interest under Section 2.16 on any portion of any Euro-Dollar Loan with respect to which it has granted a participation pursuant to subsection (b) above. (f) If any Reference Bank assigns its Note to an unaffiliated institution, or if the Commitment of any Reference Bank is terminated pursuant to Section 2.12 or 8.05, the Agent shall, with the consent of the Company and 58 the Required Banks, appoint another Bank to act as a Reference Bank hereunder. SECTION 10.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 10.08. Governing Law. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. SECTION 10.09. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. 59 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. KERR-McGEE CORPORATION By /s/ John C. Linehan Title: Senior Vice President and Chief Financial Officer By /s/ Thomas B. Stephens Title: Vice President and Treasurer Kerr-McGee Center Oklahoma City, Oklahoma 73102 Attn: Treasurer Telex No.: 747128 Telecopy No.: 405-270-3029 (automatic) 405-270-3129 (manual) KERR-McGEE CREDIT CORPORATION By /s/ Thomas B. Stephens Title: Vice President and Treasurer Kerr-McGee Center Oklahoma City, Oklahoma 73102 Attn: Treasurer Telex No.: 747128 Telecopy No.: 405-270-3029 (automatic) 405-270-3129 (manual) Commitments $50,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Vernon M. Ford, Jr. Title: Vice President 60 $35,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ J. Stephen Mernick Title: Senior Vice President $35,000,000 CITIBANK, N.A. By /s/ Barbara A. Cohen Title: Vice President $35,000,000 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Dale S. Hurd Title: Senior Vice President $35,000,000 THE FIRST NATIONAL BANK OF CHICAGO By /s/ Helen A. Carr Title: Vice President $25,000,000 MELLON BANK, N.A. By /s/ A. Gary Chace Title: Senior Vice President $25,000,000 NATIONSBANK OF TEXAS, N.A. By /s/ William D. Clift Title: Senior Vice President 61 $25,000,000 ROYAL BANK OF CANADA By /s/ Everett M. Harner Title: Manager $20,000,000 THE BANK OF NEW YORK By /s/ Raymond J. Palmer Title: Vice President $20,000,000 THE FIRST NATIONAL BANK OF BOSTON By /s/ Frank T. Smith, Jr. Title: Director $20,000,000 WACHOVIA BANK OF GEORGIA, N.A. By /s/ Terry L. Akins Title: Senior Vice President Total Commitments $325,000,000 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Vernon M. Ford, Jr. Title: Vice President 60 Wall Street New York, New York 10260-0060 Attn: Loan Department Telex number: 177615 MGT UT Telecopy No.: 212-648-5014 62 PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: ==================================================================== Level Level Level Level Status I II III IV ==================================================================== Euro-Dollar Margin If Utiliza- tion is less than 50% 0.200% 0.235% 0.275% 0.500% If Utiliza- tion equals or exceeds 50% 0.250% 0.285% 0.325% 0.500% - -------------------------------------------------------------------- CD Margin If Utiliza- tion is less than 50% 0.325% 0.360% 0.400% 0.625% If Utiliza- tion equals or exceeds 50% 0.375% 0.410% 0.450% 0.625% - -------------------------------------------------------------------- Facility Fee Rate 0.100% 0.115% 0.175% 0.375% ==================================================================== For purposes of this Schedule, the following terms have the following meanings: "Level I Status" exists at any date if, at such date, the Company's long-term debt is rated A+ or higher by S&P and A1 or higher by Moody's. "Level II Status" exists at any date if, at such date, (i) the Company's long-term debt is rated A- or higher by S&P and A3 or higher by Moody's and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, (i) the Company's long-term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if, at such date, no other Status exists. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status or Level IV Status exists at any date. "Utilization" means at any date the percentage equivalent of a fraction (i) the numerator of which is the aggregate outstanding principal amount of the Loans at such date, after giving effect to any borrowing or payment on such date, and (ii) the denominator of which is the aggregate amount of the Commitments at such date, after giving effect to any reduction of the Commitments on such date. For purposes of this Schedule, if for any reason any Loans remain outstanding after termination of the Commitments, the Utilization for each date on or after the date of such termination shall be deemed to be greater than 50%. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Company without third-party credit enhancement, and any rating assigned to any other debt security of the Company shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If the Company's debt securities are rated by only one of Moody's and S&P, Status shall be determined based on the rating assigned by that rating agency. 2 EXHIBIT A NOTE New York, New York August 25, 1994 For value received, [KERR-McGEE CORPORATION] [KERR-McGEE CREDIT CORPORATION], a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of August 25, 1994 among Kerr- McGee Corporation, Kerr-McGee Credit Corporation, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. [Kerr-McGee Corporation has, pursuant to the provisions of the Credit Agreement, unconditionally guaranteed the payment in full of the principal of and interest on this note.]** [KERR-McGEE CORPORATION] [KERR-McGEE CREDIT CORPORATION] By________________________ Title: - -------- **To be deleted in the case of Notes executed and delivered by Kerr-McGee Corporation. 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------ Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ 3 EXHIBIT B Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: [Kerr-McGee Corporation] [Kerr-McGee Credit Corporation] Re: Credit Agreement (the "Credit Agreement") dated as of August 25, 1994 among Kerr-McGee Corporation, Kerr-McGee Credit Corporation, the Banks listed on the signature pages thereof and the Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount*** Interest Period**** $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - -------- ***Amount must be $10,000,000 or a larger multiple of $1,000,000. ****Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Terms used herein have the meanings assigned to them in the Credit Agreement. [KERR-McGEE CORPORATION] [KERR-McGEE CREDIT CORPORATION] By________________________ Title: 2 EXHIBIT C Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to [Kerr- McGee Corporation] [Kerr-McGee Credit Corporation] (the "Borrower") Pursuant to Section 2.03 of the Credit Agreement dated as of August 25, 1994 among Kerr-McGee Corporation, Kerr-McGee Credit Corporation, the Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By______________________ Authorized Officer EXHIBIT D Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to [Kerr-McGee Corporation] [Kerr-McGee Credit Corporation] (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: ----------------------------- 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** - ---------- * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of August 25, 1994 among Kerr-McGee Corporation, Kerr-McGee Credit Corporation, the Banks listed on the signature pages thereof and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer - ---------- *** Not less than one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). 2 EXHIBIT E OPINION OF GENERAL COUNSEL OF THE COMPANY To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I am General Counsel of Kerr-McGee Corporation (the "Company") and am familiar with the Credit Agreement (the "Credit Agreement") dated as of August 25, 1994 among the Company, Kerr-McGee Credit Corporation ("Credit Corporation") (each of the Company and Credit Corporation singly, a "Borrower" and, collectively, "Borrowers"), the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of the Borrowers pursuant to Section 3.01(c) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. Each of the Borrowers is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers required to carry on its business as now conducted. 2. Each of the Borrowers has all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and which, if not obtained, could reasonably be expected to have a material adverse effect on the business or operations of the Company and its Subsidiaries, considered as a whole. 3. The execution, delivery and performance by each Borrower of the Credit Agreement and its Notes are within the corporate powers of such Borrower, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of either Borrower or, to the best of my knowledge, of any agreement, judgment, injunction, order, decree or other instrument binding upon either Borrower or result in the creation or imposition of any Lien on any asset of either Borrower or any of its Subsidiaries. 4. The Credit Agreement constitutes a valid and binding agreement of each of the Company and Credit Corporation, and the Notes of each Borrower constitute its valid and binding obligations in each case enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 5. Except as may have been disclosed in writing to the Banks prior to the signing of the Credit Agreement, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, which involves any substantial risk of an adverse decision which would result in any material adverse effect on the business, consolidated financial position or consolidated results of operations of the Company and its Consolidated Subsidiaries, considered as a whole, or which involves any material risk of an adverse decision which would draw into question the validity of the obligations of either Borrower under the Credit Agreement or the Notes of such Borrower. 6. Each of the Material Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers required to carry on its business as now conducted. Each Material Subsidiary has all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and which, if not obtained, could reasonably be expected to have a material adverse 2 effect on the business or operations of the Company and its Subsidiaries considered as a whole. I am a member of the Bar of the State of Oklahoma, and the foregoing opinion is limited to the laws of the State of Oklahoma, the General Corporation Law of the State of Delaware and the Federal laws of the United States of America. Inasmuch as the Credit Agreement and the Notes are governed by the law of the State of New York, I have assumed for purposes of the foregoing opinion that such law is the same as the law of the State of Oklahoma. I have not been called upon to, and accordingly do not, express any opinion on the effect (if any) of any law of any jurisdiction (except the State of Oklahoma) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. Very truly yours, 3 EXHIBIT F OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of August 25, 1994 among Kerr-McGee Corporation, a Delaware corporation, Kerr-McGee Credit Corporation, a Delaware corporation, the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by each Borrower of the Credit Agreement and its Notes are within such Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of each of the Company and Credit Corporation, and each Note of each Borrower constitutes a valid and binding obligation of such Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, 2 EXHIBIT G FORM OF AUDITOR'S CERTIFICATE To Kerr-McGee Corporation: We have examined the consolidated balance sheet of Kerr-McGee Corporation (a Delaware corporation), and subsidiary companies as of December 31, 19__ and 19__, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 19__, and have issued our report thereon dated February __, 19__. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We have read the credit agreement (the "Credit Agreement") dated as of August 25, 1994 among Kerr-McGee Corporation (the "Company"), Kerr-McGee Credit Corporation, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent, particularly Articles V and VI. These articles contain certain covenants of the Company relative to certain financial conditions and describe events of default relative to such covenants. We have also read the accompanying officer's certificate prepared by your chief accounting officer described in Section 5.01(c) of the Credit Agreement. In connection with our examination, nothing came to our attention that caused us to believe that you were in default with any of the provisions of Article VI of the Credit Agreement insofar as they pertain to accounting matters. It should be noted that our examination was not directed primarily toward obtaining knowledge of noncompliance. Very truly yours, EXHIBIT H ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), [KERR-McGEE CORPORATION (the "Company") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent")]. W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of August 25, 1994 among the Company, Kerr-McGee Credit Corporation, the Assignor and the other Banks party thereto, as Banks, and the Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans in an aggregate principal amount at any time outstanding not to exceed $______________; WHEREAS, Committed Loans made by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Company and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.***** It is understood that commitment and/or facility fees in respect of the Assigned Amount accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Company and the Agent. This Agreement is conditioned upon the consent of the Company and the Agent pursuant to Section 10.06(c) of the Credit Agreement. The execution of this Agreement by the Company and the Agent is evidence of this consent. Pursuant to Section 10.06(c) the Company agrees to execute and deliver a Note and to cause Credit Corporation to execute - -------- ***** Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 2 and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any Borrower, or the validity and enforceability of the obligations of any Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrowers. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________ Title: [ASSIGNEE] By_________________________ Title: 3 KERR-McGEE CORPORATION By__________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By__________________________ Title: 4 CONFORMED COPY AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 4, 1996 among KERR-McGEE CORPORATION, KERR-McGEE CREDIT CORPORATION, the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, certain of the parties hereto have heretofore entered into a Credit Agreement dated as of August 25, 1994 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement as set forth herein and to restate the Agreement in its entirety to read as set forth in the Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended and restated hereby. The term "Notes" defined in the Agreement shall include from and after the date hereof the New Note (as defined below). SECTION 2. Amendment of Termination Date. The definition of "Termination Date" in Section 1.01 of the Agreement is amended to read in its entirety as follows: "Termination Date" means December 4, 2001, or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day, unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. SECTION 3. Amendment of Sections 4.04 and 4.05. Each reference to "1993" in Sections 4.04 and 4.05 of the Agreement is amended to read "1995." SECTION 4. Changes in Commitments. With effect from and including the date this Amendment and Restatement becomes effective in accordance with Section 8 hereof, (i) each Person listed on the signature pages hereof which is not a party to the Agreement (a "New Bank") shall become a Bank party to the Agreement and (ii) the Commitment of each Bank shall be the amount set forth opposite the name of such Bank on the signature pages hereof. Any Bank whose Commitment is changed to zero shall upon such effectiveness cease to be a Bank party to the Agreement, and all accrued fees and other amounts payable under the Agreement for the account of such Bank shall be due and payable on such date; provided that the provisions of Sections 8.03 and 9.03 of the Agreement shall continue to inure to the benefit of each such Bank. SECTION 5. Amendment of Pricing Schedule. The Pricing Schedule is amended to read in its entirety as set forth in Exhibit I to this Amendment and Restatement. SECTION 6. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Agreement is true and correct as though made on and as of this date. SECTION 7. Governing Law. This Amendment and Restatement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Counterparts; Effectiveness. This Amendment and Restatement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and Restatement shall become effective as of the date hereof when (i) the Agent shall have received duly executed counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) the Agent shall have received a duly executed Note for each of the New Banks (a "New Note"), dated on or before the date of effectiveness hereof and otherwise in compliance with Section 2.05 of the Agreement; (iii) the Agent shall have received an opinion of the General Counsel of the Borrower (or such other counsel for the Borrower as may be acceptable to the Agent), substantially in the form of Exhibit E to the Agreement with reference to the New Notes, this Amendment and Restatement and the Agreement as amended and restated hereby; and (iv) the Agent shall have received all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Agreement as amended and restated hereby the New Notes and any other matters relevant hereto, all in form and substance satisfactory to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. KERR-McGEE CORPORATION By /s/ John C. Linehan Title: Senior Vice President and Chief Financial Officer By /s/ John M. Rauh Title: Vice President and Treasurer KERR-McGEE CREDIT CORPORATION By /s/ John C. Linehan Title: Senior Vice President and Chief Financial Officer Commitments $55,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ John Kowalczuk Title: Vice President $40,000,000 THE FIRST NATIONAL BANK OF CHICAGO By /s/ Leo Loughead Title: Corporate Banking Officer $35,000,000 CITIBANK, N.A. By /s/ Arezod Jafari Title: Assistant Vice President $35,000,000 NATIONSBANK OF TEXAS, N.A. By /s/ Dale T. Wilson Title: Vice President $35,000,000 ROYAL BANK OF CANADA By /s/ Linda M. Stephens Title: Manager $35,000,000 TEXAS COMMERCE BANK NATIONAL By /s/ Donna J. Berman Title: Senior Vice President $25,000,000 THE BANK OF NEW YORK By /s/ Raymond J. Palmer Title: Vice President $25,000,000 MELLON BANK, N.A. By /s/ E. Marc Culnod Jr. Title: First Vice President $20,000,000 UMB, OKLAHOMA BANK By /s/ David Schaefer Title: Senior Vice President $20,000,000 WACHOVIA BANK OF GEORGIA, N.A. By /s/ Joel K. Wood Title: Vice President $0 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ Richard D. Bluth Title: Vice President $0 THE FIRST NATIONAL BANK OF BOSTON By /s/ Frank T. Smith Title: Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ John Kowalczuk Title: Vice President EXHIBIT I PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: Level Level Level Level Level Level Level Status I II III IV V VI VII - ----------- -------- --------- -------- --------- --------- -------- ------- Euro-Dollar 0.13% 0.15% 0.17% 0.20% 0.225% 0.30% 0.50% Margin - ----------- -------- --------- -------- --------- --------- -------- ------- CD Margin 0.255% 0.275% 0.295% 0.325% 0.35% 0.425% 0.625% - ----------- -------- --------- -------- --------- --------- -------- ------- Facility 0.07% 0.075% 0.08% 0.10% 0.125% 0.15% 0.25% Fee Rate - ----------- -------- --------- -------- --------- --------- -------- ------- For purposes of this Schedule, the following terms have the following meanings, subject to the concluding paragraph of this schedule: "Level I Status" exists at any date if, at such date, the Company's long-term debt is rated A+ or higher by S&P or A1 or higher by Moody's. "Level II Status" exists at any date if, at such date, (i) the Company's long-term debt is rated A or higher by S&P or A2 or higher by Moody's and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, (i) the Company's long-term debt is rated A- or higher by S&P or A3 or higher by Moody's and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if, at such date, (i) the Company's long-term debt is rated BBB+ or higher by S&P and Baa1 or higher by Moody's and (ii) none of Level I Status, Level II Status or Level III Status exists. "Level V Status" exists at any date if, at such date, (i) the Company's long-term debt is rated BBB or higher by S&P and Baa2 or higher by Moody's and (ii) none of Level I Status, Level II Status, Level III Status or Level IV Status exists. "Level VI Status" exists at any date if, at such date, (i) the Company's long-term debt is rated BBB- by S&P and Baa3 by Moody's and (ii) none of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists. "Level VII Status" exists at any date if, at such date, no other Status exists. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status, Level VI Status or Level VII Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Company without third-party credit enhancement, and any rating assigned to any other debt security of the Company shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If the Company's debt securities are rated by only one of Moody=s and S&P, Status shall be determined based on the rating assigned by that rating agency. For purposes of determining if Level I Status, Level II Status or Level III Status exists, if the Company is split-rated and the ratings differential is one level, the higher of the two ratings will apply (e.g., A-/Baa1 results in Level III Status, but A-/Baa2 results in Level V Status). If the Company is split-rated and the ratings differential is more than one level, the rating at the midpoint (or the higher of the two intermediate ratings if there is no midpoint) will apply (e.g., A+/A3 results in Level II Status). CONFORMED COPY WAIVER AND AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT WAIVER AND AMENDMENT NO. 1 dated as of January 1, 1998 to the Amended and Restated Credit Agreement (the "Restated Agreement") dated as of December 4, 1996 among Kerr-McGee Corporation (the "Company"), Kerr-McGee Credit Corporation ("Credit Corporation"), the Banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, Credit Corporation desires to consummate a merger, effective as of the date hereof, with Kerr-McGee Credit LLC, a Delaware limited liability company ("Credit LLC"), in which Credit LLC will be the surviving company and will assume all of Credit Corporation=s obligations, including, without limitation, all obligations under the Restated Agreement (the "Merger"); WHEREAS, in connection with such Merger, the parties hereto desire to waive and amend certain provisions of the Restated Agreement as set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Restated Agreement shall have the meaning assigned to such term in the Restated Agreement. Each reference to Ahereof", Ahereunder", Aherein" and Ahereby" and each other similar reference and each reference to Athis Agreement" and each other similar reference contained in the Restated Agreement shall from and after the date hereof refer to the Restated Agreement as amended hereby. The term ANotes@ defined in the Restated Agreement shall include from and after the date hereof the LLC Notes (as defined below). SECTION 2. Waiver. Notwithstanding that Section 5.04 of the Restated Agreement requires each Material Subsidiary to preserve and keep in full force and effect its corporate existence, each of the Banks hereby agrees to waive such requirement insofar as, and only to the extent that, such requirement applies to Credit Corporation. The parties hereto agree that the occurrence of the Merger shall not result in a Default under the Restated Agreement. SECTION 3. Amendment of Section 1.01. (a) The following new definitions are added in alphabetical order to Section 1.01 of the Restated Agreement: "Credit LLC" means Credit Corporation, together with its successors (including Kerr-McGee Credit LLC, a Delaware limited liability company, upon consummation of the Merger). "Merger" means the merger of Credit Corporation with and into Kerr-McGee Credit LLC (with Kerr-McGee Credit LLC as the surviving Person) pursuant to the Merger Agreement, effective as of January 1, 1998. "Merger Agreement" means the Agreement of Merger dated as of December 29, 1997 between Credit Corporation and Kerr-McGee Credit LLC. (b) The definition of "Credit Corporation" set forth in Section 1.01 of the Restated Agreement is amended by deleting the phrase ", and its successors." (c) Each reference to "Credit Corporation" in the definitions of "Borrower", "Lien" and "Material Subsidiary" set forth in Section 1.01 of the Restated Agreement is amended to read "Credit LLC." SECTION 4. Amendment of Section 4.01. Section 4.01 of the Restated Agreement is amended to read in its entirety as follows: SECTION 4.01. Corporate and Limited Liability Company Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and Credit LLC is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware. Each of the Company and Credit LLC has all corporate or limited liability company power, as the case may be, and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted which, if not obtained, could reasonably be expected to have a material adverse effect of the business or operations of the Company and its Subsidiaries considered as a whole. SECTION 5. Amendment of Section 4.02. Section 4.02 of the Restated Agreement is amended to read in its entirety as follows: SECTION 4.02. Corporate, Limited Liability Company and Governmental Authorization; No Contravention. The execution, delivery and performance by the Company and Credit LLC of this Agreement and the Notes are within such Borrower=s corporate or limited liability company powers, as the case may be, have been duly authorized by all necessary corporate or limited liability company action, as the case may be, require no approval of or filing with any governmental body, agency or official and do not contravene or constitute a default under any provision of applicable law or regulation or of the certificate of incorporation or by-laws or certificate of formation or limited liability company agreement of such Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Borrower or result in the creation or imposition of any mortgage, security interest or other lien or encumbrance on any asset of such Borrower or any of its Subsidiaries. SECTION 6. Amendment of Section 4.03. The reference to "Credit Corporation" in Section 4.03 of the Restated Agreement is amended to read "Credit LLC." SECTION 7. Amendment of Section 4.09. Section 4.09 of the Restated Agreement is amended to read in its entirety as follows: SECTION 4.09. Subsidiaries. Each of the Material Subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all corporate or limited liability company powers, as the case may be, required to carry on its business as now conducted. Each Material Subsidiary has all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and which, if not obtained, could reasonably be expected to have a material adverse effect on the business or operations of the Company and its Subsidiaries considered as a whole. SECTION 8. Amendment of Section 5.01 (a). Each reference to "Credit Corporation" in Section 5.01(a) of the Restated Agreement is amended to read "Credit LLC." SECTION 9. Amendment of Section 5.03. Each reference to "corporations" in Section 5.03 of the Restated Agreement is amended to read "companies." SECTION 10. Amendment of Section 5.04. Section 5.04 of the Restated Agreement is amended by (i) deleting the parenthetical "(other than Credit Corporation)" and substituting therefor "(other than Credit LLC)"; and (ii) amending each reference to "corporate existence" to read "corporate or limited liability company existence, as the case may be." SECTION 11. Amendment of Section 5.11. Section 5.11 of the Restated Agreement is amended to read in its entirety as follows: SECTION 5.11. Ownership of Credit LLC. The Company will at all times (i) be the sole member of Credit LLC and (ii) own, directly or indirectly, all outstanding limited liability company interests and other equity securities of Credit LLC, free and clear of any Lien. SECTION 12. Amendment of Sections 9.01, 9.02, 9.03, 9.04, 9.05 and 9.06. Each reference to "Credit Corporation" in Sections 9.01, 9.02, 9.03, 9.04, 9.05 and 9.06 of the Restated Agreement is amended to read "Credit LLC." SECTION 13. Assumption of Obligations by Credit LLC. With effect from and including the date this Waiver and Amendment No. 1 becomes effective in accordance with Section 17 hereof, (i) Credit LLC shall be a party to the Restated Agreement and (ii) Credit LLC expressly assumes, and agrees to perform and discharge, all of the obligations and liabilities of Credit Corporation under the Restated Agreement. SECTION 14. Representations and Warranties. Each Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of such Borrower set forth in the Restated Agreement is true and correct as though made on and as of this date. SECTION 15. Governing Law. This Waiver and Amendment No. 1 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 16. Effect of Waiver and Amendment. Except as expressly set forth herein, this Waiver and Amendment No. 1 shall not constitute a waiver or amendment of any term or condition of the Restated Agreement, and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects. SECTION 17. Counterparts; Effectiveness. This Waiver and Amendment No. 1 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Waiver and Amendment No. 1 shall become effective as of the date hereof when (i) the Agent shall have received duly executed counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) the Agent shall have received a Note duly executed by Credit LLC for each of the Banks (collectively, the "LLC Notes"), dated on or before the date of effectiveness hereof and otherwise in compliance with Section 2.05 of the Restated Agreement; (iii) the Agent shall have received an opinion of the General Counsel of the Company (or such other counsel for the Borrower as may be acceptable to the Agent), substantially in the form of Exhibit E to the Restated Agreement (and expressly including an opinion under the Delaware Limited Liability Company Act) with reference to Credit LLC, the LLC Notes, this Waiver and Amendment No. 1 and the Restated Agreement as amended hereby; and (iv) the Agent shall have received all documents it may reasonably request relating to the existence of Credit LLC, the corporate and limited liability company authority for and the validity of the Restated Agreement as amended hereby, the LLC Notes and any other matters relevant hereto, all in form and substance satisfactory to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Waiver and Amendment No. 1 to be duly executed by their respective authorized officers as of the day and year first above written. KERR-McGEE CORPORATION By /s/ John C. Linehan Title: Executive Vice President By /s/ John M. Rauh Title: Vice President KERR-McGEE CREDIT LLC, as successor in interest to Kerr-McGee Credit Corporation By /s/ John C. Linehan Title: Executive Vice President 123 Robert S. Kerr Avenue Oklahoma City, Oklahoma 73102 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ James S. Finch Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By /s/ Ronald L. Dierker Title: Authorized Agent CITIBANK, N.A. By /s/ Mark Stanfield Packard Title: Assistant Vice President NATIONSBANK OF TEXAS, N.A. By /s/ Dale T. Wilson Title: Vice President ROYAL BANK OF CANADA By /s/ Linda M. Stephens Title: Manager TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Donna J. German Title: Senior Vice President THE BANK OF NEW YORK By /s/ Raymond J. Palmer Title: Vice President MELLON BANK, N.A. By /s/ Richard A. Matthews Title: Vice President UMB OKLAHOMA BANK By /s/ David Schaefer Title: Executive Vice President WACHOVIA BANK, N.A. By /s/ Mariel C. Albrecht Title: Assistant Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ James S. Finch Title: Vice President EX-10.11 4 AGREEMENT - THE COMPANY AND RUSSEL G. HORNER AGREEMENT AMENDED AND RESTATED AGREEMENT, restated as of December 31, 1992 (the "Agreement") between KERR-McGEE CORPORATION, a Delaware corporation having its executive offices at Oklahoma City, Oklahoma (the "Company"), and Russell G. Homer, Jr., residing in Oklahoma City, Oklahoma (the "Executive"). Unless otherwise indicated, terms used herein and defined in Schedule A and Schedule I-A to Annexure 1 shall have the meanings assigned to them in said Schedules, as applicable. WHEREAS, the Executive is currently employed by the Company and/or its Subsidiaries pursuant to an amended and restated agreement, restated as of February 1, 1988 (the "Existing Agreement"); and WHEREAS, the Executive and the Company's Board of Directors believe that such Existing Agreement, which is a three-year self-renewing employment agreement, should be amended and restated as of December 31, 1992; and WHEREAS, the Company's Board of Directors has determined that it wishes to continue the employment of the Executive and that it is appropriate to reinforce the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a Change of Control of the Company; and WHEREAS, the Company and the Executive now wish to amend and restate the Existing Agreement. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the Company and the Executive agree as follows: 1. Operation of Agreement: From the effective date of this Agreement through and including January 31, 1996, or the occurrence of a Change of Control as defined in Schedule A, whichever occurs earlier (the earlier of such dates being referred to as the "Annexure 1 Effective Date"), the operative provisions of this Agreement shall be as set forth in Sections 2 through 19 below and Schedule A hereto. Beginning the Annexure 1 Effective Date, the operative provisions of this Agreement shall be as set forth in Annexure 1 hereto, including Schedule I-A thereto (the "Annexure 1 Provisions"). When used in Annexure 1, the term "Agreement" shall refer to and mean Annexure 1. Beginning the Annexure 1 Effective Date, the operative provisions of this Agreement as set forth in Sections 2 through 19 and Schedule A shall be superseded and replaced by the Annexure 1 Provisions. 2. Employment: The Company agrees to continue to employ the Executive and he agrees to continue to serve the Company and its Subsidiaries, upon the terms and conditions stated herein, for the term of employment commencing on the date hereof and ending on January 31, 1996, unless such employment is (i) prior to a Change of Control, involuntarily terminated hereunder for Reason or as a result of the Executive's death or disability or (ii) subsequent to a Change of Control, involuntarily terminated hereunder for Cause or as a result of the Executive's death or Disability or terminated hereunder by the Executive for Good Reason. Following a Change of Control any involuntary termination of the Executive's employment hereunder for any reason other than death shall be communicated by a Notice of Termination. The Executive will be employed in an executive capacity and will perform the duties of Vice President and General Counsel or such other duties as may be assigned to him from time to time by the Company. The Executive shall devote substantially all of his business time, attention, skill and efforts to the business of the Company and its Subsidiaries while employed hereunder and shall perform the duties of his position and any other duties assigned to him by the Company to the best of his ability. 3. Compensation: As compensation for his services, the Company agrees to pay the Executive, so long as he shall be employed hereunder, a salary determined from time to time by the Company, but at a rate not less than $175,000. per annum, payable either biweekly or in equal semimonthly installments on the fifteenth and last day of the month, provided that if at any time while the Executive is employed hereunder he should receive an increase in the annual base salary being paid him by the Company, the above specified minimum salary rate shall thereupon increase by a corresponding amount. The Executive shall also be eligible for participation in any employee benefit plans and compensation programs available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive. 4. Noncompetition: The Executive agrees that at any time while employed hereunder he will not engage in any activity competitive with any business carried on by the Company or its Subsidiaries and Affiliates, without obtaining the specific prior written consent of the Company. He, however, shall be free without the consent of the Company to purchase stocks or other securities of any corporation listed on a national securities exchange or included in a published "over the counters" list. 5. Compensation During Illness: If while employed hereunder the Executive shall become unable to perform his duties hereunder due to illness or other incapacity, compensation during such period shall be provided in accordance with the sick leave policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive, or if applicable, under an income protection insurance plan for salaried employees and employees generally of the Company or any Subsidiary that employs the Executive. Subject to the other terms of this Agreement, no other compensation shall be provided during the period of such illness or incapacity. 6. Death: In the event of the Executive's death while employed hereunder, his spouse, or personal representative if such spouse shall have died, shall be entitled to receive his salary at the rate then in effect through the date of his death plus one additional pay period as provided under the Company's pay policy, as well as any amounts previously earned and not paid for the periods of service prior to his date of death. 7. Successors: Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation or the sale by the Company of all or substantially all of its properties or assets, or the assignment by the Company of this Agreement in connection with any of the above mentioned actions; provided that the Company will require any successor (whether direct or indirect, by merger, consolidation or otherwise) to all or substantially all of the properties or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession has taken place. This Agreement shall not be assignable by the Executive or by the Company or its successors except as provided herein. 8. Retirement: Notwithstanding the Executive's agreement herein to serve for the term of his employment under this Agreement, the Executive may retire under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive when entitled to do so, except that he may elect early retirement under any such plan only upon giving the Company (or a Subsidiary employing the Executive) six months' written notice; and upon his retirement his term of employment hereunder shall terminate. Notwithstanding the foregoing, following a Change of Control, (i) the Executive may elect early retirement under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive upon giving the Company (or a Subsidiary employing the Executive) two days' written notice and (ii) any retirement under such plan that is coincident with or subsequent to an involuntary termination of the Executive's employment for any reason other than Cause, death or Disability or the Executive's termination of his employment hereunder for Good Reason, will not preclude payments under this Agreement to which the Executive is entitled in respect of such termination. 9. Compensation Upon Termination Following a Change of Control: In addition to the rights and benefits accruing to the Executive as otherwise described in this Agreement, in the event that (a) a Change of Control shall have occurred while the Executive is employed hereunder and (b) the Executive's employment hereunder shall be involuntarily terminated for any reason other than Cause, death or Disability or the Executive shall terminate his employment hereunder for Good Reason, then the Company shall make a lump sum payment in cash to the Executive as severance pay on the fifth day following the Date of Termination equal to three times the Executive's annual base salary (including for these purposes any amounts previously deferred under any qualified or nonqualified deferred compensation plan, program or arrangement) in effect immediately prior to the date that either a Change of Control shall occur or such termination, whichever salary is higher; provided, however, that if all or any portion of the payments or benefits provided under this Section 9, either alone or together with other payments and benefits which the Executive receives or is then entitled to receive from the Company or any Subsidiary, would constitute a "parachute payment" within the meaning of Section 280G of the Code, then the payments and benefits provided to the Executive under this Section 9 shall be reduced but only to the extent necessary that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code; but only if, by reason of such reduction, the Executive's Net After Tax Benefit shall exceed the Net After Tax Benefit if such reduction were not made. The foregoing calculations (and any calculations required under the definition of Net After Tax Benefit) shal1 be made, at the Company's expense, by the Company and the Executive. If no agreement on the calculations is reached within five days of the Date of Termination then the Executive and the Company will agree to the selection of an accounting firm to make the calculations. If no agreement can be reached regarding the selection of an accounting firm, the Company shall select a "big six" accounting firm which has no current or recent business relationship with the Company or with the Executive. The determination of any such firm selected will be conclusive and binding on all parties. 10. Acceleration and Vesting of Stock Plans. Stock Options and SAR'S Following a Change of Control: In the event a Change of Control of the Company shall have occurred while the Executive is employed hereunder, then, notwithstanding the terms and conditions of any benefit plan or compensation program of the Company or any Subsidiary that employs the Executive including but not limited to any purchase plan, stock grant plan, stock option plan, employee stock ownership plan or similar plan or program (excluding any plan qualified under Section 401(a) of the Code), the Company agrees (i) to accelerate, vest, and make immediately exercisable in full (to the extent not already provided for under the terms of such applicable plans or programs) all unexercisable installments of all options to acquire securities of the Company and any accompanying stock appreciation rights, which are Beneficially Owned by the Executive on the date of such Change of Control, and (ii) to waive any applicable restrictions, including resale restrictions or rights of repurchase, relating to or imposed on securities granted by the Company to the Executive pursuant to such plans or programs which securities are Beneficially Owned by the Executive on such date. 11. Benefits Restoration Plan Following Change of Control: To the extent that the Executive is or becomes a participant in the Benefits Restoration Plan, the Company shall amend or have amended the Benefits Restoration Plan, which amendment shall thereafter remain in effect, to provide that in the event a Change of Control shall have occurred while the Executive is employed hereunder and the Executive's employment hereunder shall be involuntarily terminated for any reason other than Cause, death or Disability or the Executive shall terminate his employment hereunder for Good Reason, then the Executive shall be entitled to a nonforfeitable right to all benefits credited to such Executive to such additional years of credit for purposes of calculating the years of service and age of such Executive under the terms of the Benefits Restoration Plan equal to the lesser of (i) five years or (ii) the number of years necessary to bring the Executive to age 65 under the terms of the Benefits Restoration Plan. 12. Mitigation: If at any time the Executive's employment hereunder shall be terminated for any reason, then all payments and benefit to which the Executive is entitled under this Agreement shall be made and provided without offset, deduction or mitigation on account of income the Executive could or may receive from other employment or otherwise; provided, however, that if the Executive is involuntarily terminated for any reason other than Reason, prior to the Change of Control, then, until the term of this Agreement ends, the amount payable under this Agreement shall be reduced by any compensation actually received by the Executive from comparable employment (as to position, compensation and responsibility) with any person or entity that is engaged in a business that is competitive with the Company or its Subsidiaries and Affiliates. 13. Legal Expenses: The Company shall pay (at least monthly) all costs and expenses, including reasonable attorneys' fees and disbursements, which the Executive may incur in connection with any litigation, arbitration or similar proceeding, whether instituted by the Company or the Executive, with respect to the interpretation or enforcement of any provision under this Agreement. 14. Accommodations and Travel Expenses: The Company agrees that while the Executive is employed hereunder he shall be furnished office space and accommodations suitable to the character of his position and adequate for the performance of his duties. Reasonable traveling expenses incurred by him in traveling on business of the Company and its Subsidiaries will be reimbursed in accordance with the established traveling expense policy of the Company or any Subsidiary that employs the Executive. 15. Notices: Any notices required under the terms of this Agreement shall be effective when mailed, postage prepaid, by certified mail, addressed: If to Kerr-McGee: Frank A. McPherson Chairman of the Board and Chief Executive Officer Kerr-McGee Corporation Kerr-McGee Center Oklahoma City, Oklahoma 73102 If to the Executive: Russell G. Homer, Jr. 3224 Rock Hollow Road Oklahoma City, Oklahoma 73120 16. Entire Agreement: This Agreement comprises the entire agreement between the Company and its Subsidiaries and the Executive and shall supersede any and all previous contracts, agreements or understandings between the Company and its Subsidiaries and the Executive with respect to the subject matter hereof. This Agreement may not be modified except by written agreement between the parties. Subject to Section 1 hereof, any inconsistency between Sections 9, 10, 11, 12, 13, 16, 17, 18 and 19 of this Agreement and any other provisions of this Agreement shall be resolved in favor of such Sections. 17. Arbitration: Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Oklahoma City, Oklahoma, or, at the option of the Executive, in the county where the Executive resides, in accordance with the Rules of the American Arbitration Association then in effect; provided, however, that if the Executive institutes an action relating to this Agreement the Executive may, at his option, bring such action in an Oklahoma court of competent jurisdiction. Judgment may be entered on the arbitrator's award in any such court having jurisdiction. 18. Separability: Any provision of this Agreement which is held to be unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without affecting the remaining provisions hereof, which shall continue in full force and effect. The enforceability or invalidity of a provision of this Agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. Section and Other Headings: The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement on the 31st day of March, 1993. KERR-McGEE CORPORATION By (F. A. McPherson) F. A. McPherson (Russell G. Horner, Jr.) Chairman of the Board and Russell G. Horner, Jr. Chief Executive Officer Schedule A Certain Definitions As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Benefits Restoration Plan" means the Company's Benefits Restoration Plan, effective September 12, 1989, as amended. "Cause" means willful and gross misconduct on the part of the Executive that has a materially adverse effect on the Company and its Subsidiaries, taken as a whole, or the conviction of the Executive of a felony under United States federal, state or local criminal law, as determined in good faith by a written resolution duly adopted by the affirmative vote of not less than 2/3 of all of the directors who are not employees, officers, or otherwise Affiliates of the Company. "Change of Control" means any one of the following: (a) a change in any two year period in a majority of the members of the Board of Directors of the Company resulting from the election of directors who were not directors at the beginning of such period (other than the election of directors to fill vacancies created by death or Disability, or the election of a director to replace a director who by virtue of his age is not eligible for election under the By-laws of the Company as in effect on the date of this Agreement); (b) any Person or Group, together with its Affiliates, becomes the Beneficial Owner, directly or indirectly, of 25% or more of the Company's then outstanding Common Stock or 25% or more of the voting power of the Company's then outstanding securities entitled to vote generally for the election of the Company's directors; (c) the approval by the Company's stockholders of (i) the merger or consolidation of the Company with any other corporation (other than a merger or consolidation of the Company and a wholly-owned subsidiary in which the holders of the Company's Common Stock immediately prior to such merger or consolidation have the same proportionate ownership of common stock of the surviving corporation immediately after the merger or consolidation), (ii) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company or (iii) the liquidation or dissolution of the Company; or (d) a majority of the members of the Board of Directors in office immediately prior to a proposed transaction, if determined by written resolution that such proposed transaction, if taken, will be deemed a Change of Control and such proposed transaction is effected. "Code" means the Internal Revenue Code of 1986, as amended. "Date of Termination" means (i) if the Executive's employment is terminated under this Agreement due to Disability, thirty days after Notice of Termination is given to the Executive (provided the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty-day period) or (ii) if the Executive's employment is involuntarily terminated under this Agreement for any other reason, the date on which a Notice of Termination is given; provided, however, that if within thirty days after any Notice of Termination is given to the Executive, the Executive notifies the Company or the Subsidiary that employs the Executive that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). "Disability" means that (i) a person has been totally incapacitated by bodily injury or physical or mental disease so as to be prevented thereby from engaging in a comparable occupation or employment for remuneration or profit, (ii) such person will be subject to such total incapacity for a period of at least eighteen consecutive months and (iii) such person is disabled for purposes of any and all of the plans or programs of the Company or any Subsidiary that employs the Executive under which benefits, compensation or awards are contingent upon a finding of disability. The determination with respect to whether the Executive is suffering from a Disability will be determined by a mutually acceptable physician or, if there is no physician mutually acceptable to the Company and the Executive, by a physician selected by the Dean of the University of Oklahoma Medical School. "Good Reason" means (a) without the Executive's express written consent, (i) (A) the assignment to the Executive of any duties, or any limitation of the Executive's responsibilities, inconsistent with the Executive's positions, duties, responsibilities and status with the Company or any Subsidiary that employs the Executive immediately prior to the date of the Change of Control, or (B) any removal of the Executive from, or any failure to re-elect the Executive to, any of the Executive's positions with the Company or any Subsidiary that employs the Executive immediately prior to the Change of Control, except in connection with the involuntary termination of the Executive's employment hereunder for Cause or as a result of the Executive's death or Disability or the termination of the Executive's employment on the Executive's normal retirement date; (b) any failure by the Company to pay, or any reduction by the Company of, the Executive's base annual salary or bonus compensation in effect immediately prior to the Change of Control; (c) any failure by the Company or any Subsidiary that employs the Executive to (i) continue to provide the Executive with the opportunity to participate, on terms no less favorable than those in effect immediately prior to the Change of Control, in any benefit plans and compensation programs in which the Executive was participating immediately prior to the Change of Control, or their equivalent, including but not limited to participation in pension, profit sharing, stock grants, stock option, savings, employee stock ownership, incentive compensation, group insurance plans or similar plans or programs or (ii) provide the Executive with all other fringe benefits (or their equivalent), including paid vacation, from time to time in effect for the benefit of any executive, management or administrative group which customarily includes a person holding the employment position with the Company or its Subsidiaries then held by the Executive; (d) without the Executive's express written consent, the relocation of the Company's headquarters or of the principal place of the Executive's employment to a location that is more than 35 miles further from the Executive's principal residence than such principal place of employment immediately prior to the Change of Control; (e) any change in the sick leave policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive which has an adverse effect on the Executive's rights and benefits pursuant to such policy; (f) any reduction in the benefits provided to the Executive pursuant to Section 14 of this Agreement; (g) any reduction to the extent applicable in benefits offered under an income protection insurance plan for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive; (h) any change in the pay policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive which has an adverse effect on the Executive's rights and benefits pursuant to such policy; (i) with respect to a Subsidiary that employs the Executive, the sale by the Company of 25% or more of such Subsidiary's common stock or 25% or more of the Subsidiary's then outstanding securities entitled to vote generally for the election of the Subsidiary's directors, or the sale by the Company of all or substantially all of the assets of such Subsidiary; (j) the breach of any provision of this Agreement by the Company or (k) the failure of any successor company to the Company to expressly assume this Agreement. "Group" has the meaning set forth in Rule 13d-5 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Net After Tax Benefit" means the sum of (i) the total amounts payable to the Executive under Section 9 of this Agreement, plus (ii) all other payments and benefits which the Executive receives or is then entitled to receive from the Company or any Subsidiary that would constitute a "parachute payment" within the meaning of Section 280G of the Code, less (iii) the amount of federal income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to the Executive (based upon the rate in effect for such year as set forth in the Code at the time of termination of his employment), less (iv) the amount of excise taxes imposed with respect to the payments and benefits described in (i) and (ii) above by Section 4999 of the Code. "Notice of Termination" means a written notice which shall indicate those specific provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. "Person" means any individual, firm, corporation, group (as such term is used in Rule 13d of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended) or other entity. "Reason" means (a) action by the Executive involving willful malfeasance, (b) failure to act by the Executive involving material nonfeasance having a material adverse effect on the Company or the Subsidiary that employs the Executive, (c) the Executive being convicted of a felony under United States federal, state, or local criminal law, or (d) the material breach of any provision of this Agreement by the Executive. "Subsidiary" with respect to the Company has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. Annexure 1 Operative Provisions beginning the Annexure 1 Effective Date 1. OPERATION OF AGREEMENT The operative provisions of this Agreement shall become effective February 1, 1996, or immediately upon a Change of Control occurring after December 31, 1992, whichever occurs earlier, provided that the Executive is employed by the Company immediately prior to such Change of Control. Once the provisions become effective, this Agreement shall not terminate until the third anniversary of the Change of Control. Notwithstanding the termination of this Agreement, the Company shall remain liable for any rights or payments arising prior to such termination to which the Executive is entitled under this Agreement. 2. SERVICE AFTER CHANGE OF CONTROL Following a Change of Control, the Company will not terminate the Executive's employment with the Company except on account of Cause prior to the third anniversary of the Change of Control. Upon any termination of employment of the Executive, other than for Cause or upon death, a Notice of Termination shall be provided by the party causing such termination of employment. 3. BENEFITS UPON CHANGE OF CONTROL (a) Stock Plans. Notwithstanding the terms and conditions of any benefit plan or compensation program of the Company or any Subsidiary that employs the Executive including but not limited to any purchase plan, stock grant plan, stock option plan, employee stock ownership plan or similar plan or program (excluding any plan qualified under Section 401(a) of the Code), the Company shall, upon the occurrence of the Change of Control which causes this Agreement to become effective (i) accelerate, vest and make immediately exercisable in full (to the extent not already provided for under the terms of such applicable plans or programs) all unexercisable installments of all options to acquire securities of the Company and any accompanying stock appreciation rights, of which the Executive is the Beneficial Owner on the date of such Change of Control and (ii) waive any applicable restrictions including resale restrictions or rights of repurchase, relating to or imposed on securities granted by the Company to the Executive pursuant to such plans or programs which securities the Executive is the Beneficial Owner of on the date of such Change of Control. (b) Pension Plan. Following a Change of Control, the Executive may elect early retirement under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive upon giving the Company (or a Subsidiary employing the Executive) two days' written notice. (c) Benefits Restoration Plan. To the extent that the Executive is or becomes a participant in the Benefits Restoration Plan, the Company shall amend or have amended the Benefits Restoration Plan, which amendment shall thereafter remain in effect, to provide in the event of an Executive's Termination for the benefits specified in Section 4(b) hereof. (d) Death of an Executive. In the event of the Executive's death prior to Termination, but while employed by the Company or any Subsidiary, as the case may be, his spouse or personal representative, if such spouse shall have died, shall be entitled to receive his salary at the rate then in effect through the date of his death, plus one additional pay period, as provided under the Company's pay policy, as well as any amounts previously earned and not paid for the periods of service prior to his date of death. 4. PAYMENTS AND BENEFITS UPON TERMINATION The Executive shall be entitled to the following payments and benefits following Termination: (a) Termination Payment. In recognition of past services to the Company by the Executive and in consideration for the undertaking by the Executive to provide services to the Company, pursuant to Section 2 hereof, the Company shall make a lump sum payment in cash to the Executive as severance pay on the fifth day following the Date of Termination equal to three times the Executive's annual base salary (including for these purposes any amounts previously deferred under any qualified or nonqualified deferred compensation plan, program or arrangement) in effect immediately prior to the date that either a Change of Control shall occur or such Date of Termination, whichever salary is higher. Notwithstanding the foregoing, if all or any portion of the payments or benefits provided under this Section 4(a), either alone or together with other payments and benefits which the Executive receives or is then entitled to receive from the Company or any Subsidiary, would constitute a Parachute Payment, then the payments and benefits provided to the Executive under this Section 4(a) shall be reduced but only to the extent necessary to ensure that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code; but only if, by reason of such reduction, the Executive's Net After Tax Benefit shall exceed the Net After Tax Benefit if such reduction were not made. The foregoing calculations (and any calculations required under the definition of Net After Tax Benefit) shall be made, at the Company's expense, by the Company and the Executive. If no agreement on the calculations is reached within five days of the Date of Termination, then the Executive and the Company will agree to the selection of an accounting firm to make the calculations. If no agreement can be reached regarding the selection of an accounting firm, the Company shall select a "big six" accounting firm which has no current or recent business relationship with the Company or with the Person or Group responsible for the Change of Control. The determination of any such firm selected will be conclusive and binding on all parties. (b) Benefits Restoration Plan. The Executive shall be entitled to additional years of credit for purposes of calculating the years of service and age of such Executive under the terms of the Benefits Restoration Plan equal to the lesser of (i) five years or (ii) the number of years necessary to bring the Executive to age 65 under the terms of the Benefits Restoration Plan, and the Executive shall have a nonforfeitable right to any and all benefits credited to such Executive under the Benefits Restoration Plan. (c) Death of the Executive. In the event of the Executive's death subsequent to Termination, all payments and benefits required by this Agreement shall be paid to the Executive's designated beneficiary or beneficiaries or, if he has not designated a beneficiary or beneficiaries, to his estate. 5. CONFIDENTIALITY The Executive agrees to hold in confidence any and all confidential information known to him concerning the Company and its Subsidiaries and their respective businesses so long as such information is not otherwise publicly disclosed. 6. ARBITRATION Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Oklahoma City, Oklahoma, or, at the option of the Executive, in the county where the Executive resides, in accordance with the Rules of the American Arbitration Association then in effect; provided, however, that if the Executive institutes an action relating to this Agreement the Executive may, at his option, bring such action in an Oklahoma court of competent jurisdiction. Judgment may be entered on the arbitrator's award in any such court having jurisdiction. 7. CONFLICT IN BENEFITS This Agreement is not intended to and shall not adversely affect, limit or terminate any other agreement or arrangement between the Executive and the Company presently in effect or hereafter entered into' including any employee benefit plan under which the Executive is entitled to benefits. 8. MISCELLANEOUS (a) No Mitigation. All payments and benefits to which the Executive is entitled under this Agreement shall be made and provided without offset, deduction or mitigation on account of income the Executive could or may receive from other employment or otherwise. (b) Legal Expenses. The Company shall pay all costs and expenses, including reasonable attorneys' fees and disbursements, of the Executive, at least monthly, in connection with any litigation, arbitration or similar proceeding, whether or not instituted by the Company or the Executive, with respect to the interpretation or enforcement of any provision of this Agreement. (c) Notices. Any notices required under the terms of this Agreement shall be effective when mailed, postage prepaid, by certified mail and addressed to, in the case of the Company: Frank A. McPherson Chairman of the Board and Chief Executive Officer Kerr-McGee Corporation Kerr-McGee Center Oklahoma City, Oklahoma 73102 and to, in the case of the Executive: Russell G. Homer, Jr. 3224 Rock Hollow Road Oklahoma City, Oklahoma 73120 Either party may designate a different address by giving written notice of change of address in the manner provided above. (d) Waiver. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. (e) Binding Effect; Successors. Subject to the provisions hereof, nothing in the Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation or the sale by the Company of all or substantially all of its properties and assets, or the assignment of this Agreement by the Company in connection with any of the foregoing actions. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and the Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this Section 8(e) shall continue to apply to each subsequent employer of the Executive hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. (f) Separability. Any provision of this Agreement which is held to be unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without affecting the remaining provisions hereof, which shall continue in full force and effect. The enforceability or invalidity of a provision of this Agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (g) Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma applicable to contracts made and to be performed therein. (h) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (i) Entire Agreement. This Agreement comprise the entire agreement between the Company and its Subsidiaries and the Executive and shall supersede any and all previous contracts, agreements or understandings between the Company and its Subsidiaries and the Executive with respect to the subject matter hereof. Schedule I-A to Annexure 1 CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Benefits Restoration Plan" means the Company's Benefits Restoration Plan, As Amended and Restated Effective September 12, 1989, as amended. "Cause" means willful and gross misconduct on the part of the Executive that has a materially adverse effect on the Company and its Subsidiaries, taken as a whole, or the conviction of the Executive of a felony under United States federal, state or local criminal law, as determined in good faith by a written resolution duly adopted by the affirmative vote of not less than two-thirds of all of the directors who are not employees, officers, or otherwise Affiliates of the Company. "Change of Control" means any one of the following: (a) a change in any two year period in a majority of the members of the Board of Directors of the Company resulting from the election of directors who were not directors at the beginning of such period (other than the election of directors to fill vacancies created by death or Disability, or the election of a director to replace a director who by virtue of his age is not eligible for election under the by-laws of the Company as in effect on the date of this Agreement); (b) any Person or Group, together with its Affiliates, become the Beneficial Owner, directly or indirectly, of 25% or more of the Company's then outstanding Common Stock or 25% or more of the voting power of the Company's then outstanding securities entitled to vote generally for the election of the Company's directors; (c) the approval by the Company's stockholders of (i) the merger or consolidation of the Company with any other corporation (other than a merger or consolidation of the Company and a wholly-owned Subsidiary in which the holders of the Company's Common Stock immediately prior to such merger or consolidation have the same proportionate ownership of common stock of the surviving corporation immediately after the merger or consolidation), (ii) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company; or (d) a majority of the members of the Board of Directors in office immediately prior to a proposed transaction determined by written resolution that such proposed transaction, if taken, will be deemed a Change of Control and such proposed transaction is affected. "Code" means the Internal Revenue Code of 1986, as amended. "Date of Termination" means if the Executive's employment is terminated during the term of this Agreement, the date on which a Notice of Termination is given; provided, however, that if within thirty days after any Notice of Termination is given to the Executive, the Executive notifies the Company or the Subsidiary that employs the Executive that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). "Disability" means that (i) a person has been totally incapacitated by bodily injury or physical or mental disease so as to be prevented thereby from engaging in a comparable occupation or employment for remuneration or profit, (ii) such person will be subject to such total incapacity for a period of at least eighteen consecutive months and (iii) such person is disabled for purposes of any and all of the plans or programs of the Company or any Subsidiary that employs the Executive under which benefits, compensation or awards are contingent upon a finding of disability. The determination with respect to whether the Executive is suffering from a Disability will be determined by a mutually acceptable physician or, if there is no physician mutually acceptable to the Company and the Executive, by a physician selected by the Dean of the University of Oklahoma Medical School. "Good Reason" means (a) without the Executive's express written consent, (i) the assignment to the Executive of any duties, or any limitation of the Executive's responsibilities, inconsistent with the Executive's positions, duties, responsibilities and status with the Company or any Subsidiary that employs the Executive immediately prior to the date of the Change of Control, or (ii) any removal of the Executive from, or any failure to re-elect the Executive to, any of the Executive's positions with the Company or any Subsidiary that employs the Executive immediately prior to the Change of Control, except in connection with the involuntary termination of the Executive's employment by the Company for Cause or as a result of the Executive's death or Disability; (b) any failure by the Company to pay, or any reduction by the Company of, the Executive's base annual salary or bonus compensation in effect immediately prior to the Change of Control; (c) any failure by the Company or any Subsidiary that employs the Executive to (i) continue to provide the Executive with the opportunity to participate, on terms no less favorable than those in effect immediately prior to the Change of Control, in any benefit plans and compensation programs in which the Executive was participating immediately prior to the Change of Control or their equivalent, including, but not limited to, participation in pension, profit-sharing, stock grants, stock option, savings, employee stock ownership, incentive compensation, group insurance plans or similar plans or programs, or (ii) provide the Executive with all other fringes benefits (or their equivalent) including paid vacation, from time to time in effect for the benefit of any executive, management or administrative group which customarily includes a person holding the employment position with the Company or its Subsidiaries then held by the Executive; (d) without the Executive's express written consent, the relocation of the Company's headquarters or of the principal place of the Executive's employment to a location that is more than 35 miles further from the Executive's principal residence than such principal place of employment immediately prior to the Change of Control; (e) any change in the sick leave policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive which has an adverse effect on the Executive's rights and benefits pursuant to such policy; (f) any reduction to the extent applicable in benefits offered under an income protection insurance plan for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive; (g) any change in the pay policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive which has an adverse effect on the Executive's rights and benefits pursuant to such policy; (h) with respect to a Subsidiary that employs the Executive, the sale by the Company of 25% or more of such Subsidiary's common stock or 25% or more of the Subsidiary's then outstanding securities entitled to vote generally for the election of the Subsidiary's directors, or the sale by the Company of all or substantially all of the assets of such Subsidiary; (i) the breach of any provision of this Agreement by the Company or (j) the failure of any successor company to the Company to expressly assume this Agreement. "Group" has the meaning set forth in Rule 13d-5 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Net After Tax Benefit" means the sum of (i) the total amounts payable to the Executive under Section 4(a) of this Agreement, plus (ii) all other payments and benefits which the Executive receives or is then entitled to receive from the Company or any Subsidiary that would constitute a Parachute Payment, less (iii) the amount of federal income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to the Executive (based upon the rate in effect for such year as set forth in the Code at the time of termination of his employment), less (iv) the amount of excise taxes imposed with respect to the payments and benefits described in (i) and (ii) above by Section 4999 of the Code. "Notice of Termination" means a written notice to the Executive or to the Company, as the case may be, which shall indicate those specific provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination of the Executive's employment constituting a Termination under the provision so indicated. "Parachute Payment" means any payment deemed to constitute a "parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986, as amended. "Person" means any individual, firm, corporation, group (as such term is used in Rule 13d of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended) or other entity. "Subsidiary" with respect to the Company has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Termination" means following the occurrence of any Change of Control by the Company (i) the involuntary termination of the employment of the Executive for any reason other than for Cause, death or Disability, or (ii) the termination of employment by the Executive for Good Reason; provided, however, that any retirement under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive that is coincident with or subsequent to a Termination, will not preclude payments under this Agreement to which the Executive is entitled in respect of such Termination. EX-10.12 5 AGREEMENT - THE COMPANY AND KENNETH W. CROUCH AGREEMENT AMENDED AND RESTATED AGREEMENT, restated as of December 31, 1992 (the "Agreement") between KERR-McGEE CORPORATION, a Delaware corporation having its executive offices at Oklahoma City, Oklahoma (the "Company"), and K. W. Crouch residing in Oklahoma City, Oklahoma (the "Executive"). Unless otherwise indicated, terms used herein are defined in Schedule A. WHEREAS, the Executive is currently employed by the Company and/or its Subsidiaries pursuant to an amended and restated agreement, restated as of February 1, 1988 (the "Existing Agreement"); and WHEREAS, the Executive and the Company's Board of Directors believe that such Existing Agreement, which is a three-year self-renewing employment agreement, should be amended and restated as of December 31, 1992; and WHEREAS, the Company's Board of Directors has determined that it wishes to continue the employment of the Executive and that it is appropriate to reinforce the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a Change of Control of the Company; and WHEREAS, the Company and the Executive now wish to amend and restate the Existing Agreement. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the Company and the Executive agree as follows: 1. Employment: The Company agrees to continue to employ the Executive and he agrees to continue to serve the Company and its Subsidiaries, upon the terms and conditions stated herein, for the term of employment commencing on the date hereof and ending on January 31, 1996, unless prior to a Change of Control such employment is involuntarily terminated hereunder for Reason or as a result of the Executive's death or disability. The Company further agrees that if a Change of Control occurs either before, on or after January 31, 1996, and the Executive is employed by the Company immediately prior to such Change of Control, the Company will not, prior to the third anniversary of the Change of Control, terminate the Executive's employment with the Company except for Cause or as a result of the Executive's death or Disability. Following a Change of Control any involuntary termination of the Executive's employment hereunder for any reason other than death shall be communicated by a Notice of Termination. The Executive will be employed in an executive capacity and will perform the duties of Vice President and Managing Director, Exploration, United Kingdom Exploration Division or such other duties as may be assigned to him from time to time by the Company. The Executive shall devote substantially all of his business time, attention, skill and efforts to the business of the Company and its Subsidiaries while employed hereunder and shall perform the duties of his position and any other duties assigned to him by the Company to the best of his ability. 2. Compensation: As compensation for his services, the Company agrees to pay the Executive, so long as he shall be employed hereunder, a salary determined from time to time by the Company, but at a rate not less than $158,760 per annum, payable either biweekly or in equal semimonthly installments on the fifteenth and last day of the month, provided that if at any time while the Executive is employed hereunder he should receive an increase in the annual base salary being paid him by the Company, the above specified minimum salary rate shall thereupon increase by a corresponding amount. The Executive shall also be eligible for participation in any employee benefit plans and compensation programs available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive. 3. Noncompetition: The Executive agrees that at any time while employed hereunder he will not engage in any activity competitive with any business carried on by the Company or its Subsidiaries and Affiliates, without obtaining the specific prior written consent of the Company. He, however, shall be free without the consent of the Company to purchase stocks or other securities of any corporation listed on a national securities exchange or included in a published "over the counter" list. 4. Compensation During Illness: If while employed hereunder the Executive shall become unable to perform his duties hereunder due to illness or other incapacity, compensation during such period shall be provided in accordance with the sick leave policy for salaried employees or employees generally of the Company or any Subsidiary that employs the Executive, or if applicable, under an income protection insurance plan for salaried employees and employees generally of the Company or any Subsidiary that employs the Executive. Subject to the other terms of this Agreement, no other compensation shall be provided during the period of such illness or incapacity. 5. Death: In the event of the Executive's death while employed hereunder, his spouse, or personal representative if such spouse shall have died, shall be entitled to receive his salary at the rate then in effect through the date of his death plus one additional pay period as provided under the Company's pay policy, as well as any amounts previously earned and not paid for the periods of service prior to his date of death. 6. Successors: Nothing in this Agreement shall prevent the consolidation of the Company with, or its merger into, any other corporation or the sale by the Company of all or substantially all of its properties or assets, or the assignment by the Company of this Agreement in connection with any of the above mentioned actions; provided that the Company will require any successor (whether direct or indirect, by merger, consolidation or otherwise) to all or substantially all of the properties or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession has taken place. This Agreement shall not be assignable by the Executive or by the Company or its successors except as provided herein. 7. Retirement: Notwithstanding the Executive's agreement herein to serve for the term of his employment under this Agreement, the Executive may retire under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive when entitled to do so, except that he may elect early retirement under any such plan only upon giving the Company (or a Subsidiary employing the Executive) six months' written notice; and upon his retirement his term of employment hereunder shall terminate. Nothwithstanding the foregoing, following a Change of Control, (i) the Executive may elect early retirement under a retirement plan available to salaried employees or employees generally of the Company or any Subsidiary that employs the Executive upon giving the Company (or a Subsidiary employing the Executive) two days' written notice; and (ii) any retirement under such plan that is coincident with or subsequent to an involuntary termination of the Executive's employment for any reason other than Cause, death or Disability will not preclude payments under this Agreement to which the Executive is entitled in respect of such termination. 8. Acceleration and Vesting of Stock Plans, Stock Options and SAR's Following a Change of Control: In the event a Change of Control of the Company shall have occurred while the Executive is employed hereunder, then, notwithstanding the terms and conditions of any benefit plan or compensation program of the Company or any Subsidiary that employs the Executive including but not limited to any purchase plan, stock bonus plan, stock incentive plan, stock option plan, employee stock ownership plan or similar plan or program (excluding any plan qualified under Section 401(a) of the Code), the Company agrees (i) to accelerate, vest, and make immediately exercisable in full (to the extent not already provided for under the terms of such applicable plans or programs) all unexercisable installments of all options to acquire securities of the Company and any accompanying stock appreciation rights, which are Beneficially Owned by the Executive on the date of such Change of Control, and (ii) to waive any applicable restrictions, including resale restrictions or rights of repurchase, relating to or imposed on securities granted by the Company to the Executive pursuant to such plans or programs which securities are Beneficially Owned by the Executive on such date. 9. Mitigation: If at any time the Executive's employment hereunder shall be terminated for any reason, then all payments and benefits to which the Executive is entitled under this Agreement shall be made and provided without offset, deduction or mitigation on account of income the Executive could or may receive from other employment or otherwise; provided, however, that if the Executive is involuntarily terminated for any reason other than Reason prior to a Change of Control, then, until the term of this Agreement ends, the amount payable under this Agreement shall be reduced by any compensation actually received by the Executive from comparable employment (as to position, compensation and responsibility) with any person or entity that is engaged in a business that is competitive with the Company or its Subsidiaries and Affiliates. 10. Legal Expenses: The Company shall pay (at least monthly) all costs and expenses, including reasonable attorneys' fees and disbursements, which the Executive may incur in connection with any litigation, arbitration or similar proceeding, whether instituted by the Company or the Executive, with respect to the interpretation or enforcement of any provision under this Agreement. 11. Accommodations and Travel Expenses: The Company agrees that while the Executive is employed hereunder, he shall be furnished office space and accommodations suitable to the character of his position and adequate for the performance of his duties. Reasonable traveling expenses incurred by him in traveling on business of the Company and its Subsidiaries will be reimbursed in accordance with the established traveling expense policy of the Company or any Subsidiary that employs the Executive. 12. Notices: Any notices required under the terms of this Agreement shall be effective when mailed, postage prepaid, by certified mail, address: If to Kerr-McGee: R. G. Horner, Jr. Vice President and General Counsel Kerr-McGee Corporation Kerr-McGee Center Oklahoma City, Oklahoma 73102 If to the Executive: K. W. Crouch Kerr-McGee Corporation Kerr-McGee Center Oklahoma City, Oklahoma 73102 13. Entire Agreement: This Agreement comprises the entire agreement between the Company and its Subsidiaries and the Executive and shall supersede any and all previous contracts, agreements or understandings between the Company and its Subsidiaries and the Executive with respect to the subject matter hereof. This Agreement may not be modified except by written agreement between the parties. Any inconsistency between Sections 8, 9, 10, 13, 14, 15 and 16 of this Agreement and any other provisions of this Agreement shall be resolved in favor of such Sections. 14. Arbitration: Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Oklahoma City, Oklahoma, or, at the option of the Executive, in the county where the Executive resides, in accordance with the Rules of the American Arbitration Association then in effect; provided, however, that if the Executive institutes an action relating to this Agreement the Executive may, at his option, bring such action in an Oklahoma court of competent jurisdiction. Judgment may be entered on the arbitrator's award in any such court having jurisdiction. 15. Separability: Any provision of this Agreement which is held to be unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without affecting the remaining provisions hereof, which shall continue in full force and effect. The enforceability or invalidity of a provision of this Agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 16. Section and Other Headings: The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement on the 31st day of March, 1993. KERR-McGEE CORPORATION By______________________________ F. A. McPherson Chairman of the Board and Chief Executive Officer _____________________ K. W. Crouch Schedule A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Beneficial Owner" has the meaning set forth in Rules 13d-3 and 13d-5 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Cause" means willful and gross misconduct on the part of the Executive that has a materially adverse effect on the Company and its Subsidiaries, taken as a whole, or the conviction of the Executive of a felony under United States federal, state or local criminal law, as determined in good faith by a written resolution duly adopted by the affirmative vote of not less than 2/3 of all of the directors who are not employees, officers, or otherwise Affiliates of the Company. "Change of Control" means any one of the following: (a) a change in any two year period in a majority of the members of the Board of Directors of the Company resulting from the election of directors who were not directors at the beginning of such period (other than the election of directors to fill vacancies created by death or Disability, or the election of a director to replace a director who by virtue of his age is not eligible for election under the By-laws of the Company as in effect on the date of this Agreement); (b) any Person or Group, together with its Affiliates, becomes the Beneficial Owner, directly or indirectly, of 25% or more of the Company's then outstanding Common Stock or 25% or more of the voting power of the Company's then outstanding securities entitled to vote generally for the election of the Company's directors; (c) the approval by the Company's stockholders of (i) the merger or consolidation of the Company with any other corporation (other than a merger or consolidation of the Company and a wholly-owned subsidiary in which the holders of the Company's Common Stock immediately prior to such merger or consolidation have the same proportionate ownership of common stock of the surviving corporation immediately after the merger or consolidation), (ii) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company or (iii) the liquidation or dissolution of the Company; or (d) a majority of the members of the Board of Directors in office immediately prior to a proposed transaction determined by written resolution that such proposed transaction, if taken, will be deemed a Change of Control and such proposed transaction is effected. "Code" means the Internal Revenue Code of 1986, as amended. "Date of Termination" means (i) if the Executive's employment is terminated under this Agreement due to Disability, thirty days after Notice of Termination is given to the Executive (provided the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such thirty-day period) or (ii) if the Executive's employment is involuntarily terminated under this Agreement for any other reason, the date on which a Notice of Termination is given; provided, however, that if within thirty days after any Notice of Termination is given to the Executive, the Executive notifies the Company or the Subsidiary that employs the Executive that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement by the parties or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). "Disability" means that (i) a person has been totally incapacitated by bodily injury or physical or mental disease so as to be prevented thereby from engaging in a comparable occupation or employment for remuneration or profit, (ii) such person will be subject to such total incapacity for a period of at least eighteen consecutive months and (iii) such person is disabled for purposes of any and all of the plans or programs of the Company or any Subsidiary that employs the Executive under which benefits, compensation or awards are contingent upon a finding of disability. The determination with respect to whether the Executive is suffering from a Disability will be determined by a mutually acceptable physician or, if there is no physician mutually acceptable to the Company and the Executive, by a physician selected by the Dean of the University of Oklahoma Medical School. "Group" has the meaning set forth in Rule 13d-5 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. "Notice of Termination" means a written notice which shall indicate those specific provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. "Person" means any individual, firm, corporation, group (as such term is used in Rule 13d of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended) or other entity. "Reason" means (a) action by the Executive involving willful malfeasance, (b) failure to act by the Executive involving material nonfeasance having a material adverse effect on the Company or the Subsidiary that employs the Executive, (c) the Executive being convicted of a felony under United States federal, state, or local criminal law, or (d) the material breach of any provision of this Agreement by the Executive. "Subsidiary" with respect to the Company has the meaning set forth in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. EX-12 6 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1) (Millions of dollars) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Income (loss) from continuing operations $194 $220 $(24) $69 $95 Add - Provision (benefit) for income taxes 83 103 (45) 30 54 Interest expense 46 52 61 58 45 Rental expense representa- tive of interest factor 5 5 4 4 4 ------ ------ ----- ----- ----- Earnings $328 $380 $ (4) $161 $198 ==== ==== ==== ==== ==== Fixed Charges - Interest expense $ 46 $ 52 $ 61 $ 58 $ 45 Rental expense representa- tive of interest factor 5 5 4 4 4 Interest capitalized 8 9 11 10 20 ------ ------ ----- ----- ----- Total fixed charges $ 59 $ 66 $ 76 $ 72 $ 69 ==== ==== ==== ==== ==== Ratio of earnings to fixed charges 5.6 5.8 -(2) 2.2 2.9 ==== ==== ===== ==== ==== (1)The computation of the ratio of earnings to fixed charges has been restated to conform with the current year's presentation. (2)Earnings were inadequate to cover fixed charges by $80 million in 1995. EX-13 7 1997 ANNUAL REPORT TO STOCKHOLDERS Management's Discussion and Analysis Results of Consolidated Operations Net income (loss) and per-share amounts for each of the three years in the period ended December 31, 1997, were as follows: (Millions of dollars, except per-share amounts) 1997 1996 1995 Net income (loss) $194 $220 $(31) Income from continuing operations excluding special items 184 230 137 Earnings (loss) per share - Net income (loss) - Basic 4.06 4.45 (.60) Diluted 4.04 4.43 (.60) Income from continuing operations excluding special items - Basic 3.85 4.65 2.65 Diluted 3.83 4.63 2.63 Net income (loss) was affected by a number of special items in each of the years. In 1997, special items were principally nonoperating that increased net income by $10 million. The 1996 special items resulted in a charge to net income of $10 million and were both operating and nonoperating. In 1995, special items related primarily to the company's adoption of Statement of Financial Accounting Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The following table reconciles income from continuing operations excluding special items to net income: (Millions of dollars) 1997 1996 1995 Net income from continuing operations excluding special items $184 $230 $137 ---- ---- ---- Special items, net of income taxes - Gains on the sale of equity securities 12 15 -- Settlements with insurance carriers 8 44 -- Gains on the sale of nonstrategic oil and gas properties 4 8 -- Net provision for environmental reclamation and remediation of inactive sites (13) (28) (16) Pending/settled litigation (1) (21) -- Asset impairment -- (16) (140) Restructuring (1) (7) (4) Other, net 1 (5) (1) ---- ---- ---- Total 10 (10) (161) ---- ---- ---- Loss from discontinued operations, net of income taxes -- -- (7) ---- ---- ---- Net income (loss) $194 $220 $(31) ==== ==== ==== The merger of the company's North American onshore properties into Devon Energy Corporation (Devon) was effective December 31, 1996. This merger affects the comparability of the periods presented since the company's approximate 31% investment in Devon is accounted for by the equity method (see Note 4). In 1995, the company completed the sale of substantially all of its refining and marketing operations and completed the sale of the remaining assets in 1996. Therefore, all 1995 amounts related to refining and marketing are shown in the Consolidated Statement of Income as discontinued operations. Income from continuing operations excluding special items for 1997 declined $46 million from the prior year, due to declines in operating profit for each of the business units. Excluding special items, exploration and production operating profit for 1997 was 25% lower than the prior year, while chemical and coal results were lower by 7% and 41%, respectively. The $93 million increase in 1996 income from continuing operations excluding special items, compared with 1995, was primarily due to oil and gas exploration and production results that more than doubled the prior year's results and a 14% increase from coal operations, partially offset by a 26% decline in earnings from the chemical unit. Operating profit excluding special items was $309 million, $408 million and $298 million for 1997, 1996 and 1995, respectively. Following is a discussion of the major changes in various items shown in the Consolidated Statement of Income. Certain amounts for 1996 and 1995 have been reclassified to conform with the 1997 presentation (see Note 1). Consolidated sales from continuing operations were $1.7 billion, compared with $1.9 billion for 1996 and $1.8 billion for 1995. Sales for 1997 were less than the prior year due to lower crude oil prices and volumes, lower natural gas volumes and lower average prices for titanium dioxide pigment and coal. Primary contributors to the decline in oil and gas volumes were the merger of the North American onshore properties into Devon, divestitures of nonstrategic properties and significantly lower sales of natural gas purchased from third parties. Lower average sales prices for coal were due primarily to lower sales from the Galatia, Illinois, mine, which produces a higher-priced, higher-Btu coal than the Jacobs Ranch Mine in Wyoming. Partially offsetting these declines were higher prices for natural gas and increased pigment volumes. The increase in 1996 sales over 1995 resulted primarily from higher crude oil and natural gas prices and higher sales of purchased third-party natural gas, partially offset by declines in titanium dioxide pigment sales prices and lower crude oil volumes. Costs and operating expenses were $949 million, $1 billion and $960 million for 1997, 1996 and 1995, respectively. The 1997 amount was lower than the prior year, primarily due to the absence of North American onshore and divested oil and gas properties and significantly lower volumes of natural gas purchased for resale, partially offset by higher production costs for pigment. Costs and operating expenses for 1996 were higher than 1995, primarily due to increased purchases of natural gas for resale and higher feedstock and utility costs for titanium dioxide pigment. Following are general and administrative expenses for 1997, 1996 and 1995: (Millions of dollars) 1997 1996 1995 General and administrative expenses excluding special items $121 $118 $123 ---- ---- ---- Special items - Net provision for environmental reclamation and remediation of inactive sites 20 43 27 Pending/settled litigation 2 29 -- Restructuring 2 10 7 Other, net 3 9 -- Total 27 91 34 ---- ---- ---- General and administrative expenses $148 $209 $157 ==== ==== ==== Net provisions for environmental reclamation and remediation of inactive sites primarily represent additional provisions established for the removal of low-level radioactive materials from the company's inactive facility and offsite areas in West Chicago, Illinois. Restructuring represents charges for the relocation of the exploration and production unit to Houston, Texas, and severance associated with the divestiture program and the Devon merger. Asset impairments totaled $25 million in 1996 and related principally to certain exploration and production properties in the Gulf of Mexico. This compares with $227 million in 1995, which resulted from the company's adoption of FAS 121 and the writedowns associated with the oil and gas divestiture program (see Note 11). Exploration costs for 1997, 1996 and 1995 were $65 million, $75 million and $82 million, respectively. Lower dry hole costs in the North Sea, offset in part by higher costs in China, were the primary reason for the reduced 1997 costs. Also contributing to the reduction was lower undeveloped lease amortization, partially offset by higher geophysical cost. In 1996, the company had lower Gulf of Mexico undeveloped lease amortization and lower geological and geophysical costs, partially offset by higher dry hole expense, compared with 1995. Interest and debt expense totaled $46 million in 1997, $52 million in 1996 and $61 million in 1995. Decreased debt was the principal reason for the lower 1997 expense, compared with the prior year. The decrease in 1996 expense was due to both lower debt and lower average borrowing costs. Other income was as follows for each of the years in the three-year period ended December 31, 1997: (Millions of dollars) 1997 1996 1995 Other income excluding special items $47 $29 $27 --- --- --- Special items - Gains on sales of equity securities 18 23 -- Settlements with insurance carriers 12 67 -- Gains on the sale of nonstrategic oil and gas properties 6 13 -- Other, net 7 -- 2 --- --- --- Total 43 103 2 --- --- --- Other income $90 $132 $29 === ==== === Equity income from Devon was the primary reason for the increase in other income excluding special items for 1997 compared with the prior year. Also contributing were lower foreign currency transaction losses and higher interest income. Pending Transactions The company continuously reviews each business unit in an effort to find innovative ways to maximize shareholder value through existing operations and/or new opportunities worldwide. In a strategy approved by the Board of Directors, the company's future efforts will be concentrated on oil and gas exploration and production and titanium dioxide pigments, the principal chemical business. The company intends to exit the coal business as announced in January 1998. The manner and timing in which the operations will be discontinued has not yet been determined. Proceeds and the gain on disposal will vary depending on the manner selected. Therefore, coal operations are not presented as discontinued operations. Presentation in future reports will depend on the ultimate method and timing of the disposal. Since the company has not yet determined the manner and timing of the exit from the coal business, the effect on consolidated operating profit, cash flow and liquidity is not yet determinable. Over the three-year period ended December 31, 1997, coal contributed operating profit excluding special items and net cash flow (after-tax cash flow less cash capital expenditures) of $185 million and $150 million, respectively. In order to focus on the pigments business, the company will dispose of its electrolytic operations. The sale of the ammonium perchlorate operation is pending and expected to close in the first half of 1998. The gain on the sale will be immaterial. In January 1998, the company signed a letter of intent to negotiate the sale of substantially all of the remaining electrolytic and specialty-chemical businesses. Pigment production capacity will be significantly expanded with the acquisition of an initial 80% interest in Bayer AG's European pigment operations. The company will have the option to acquire the remaining 20% interest over a two-year period beginning in 2001. This transaction is also expected to close before June 30, 1998. The effect of these chemical transactions on the consolidated financial statements is expected to be initially neutral, as the near-term operating profit and cash flow from electrolytics will essentially be replaced by the European pigment operations. Each of these transactions are independent steps in an ongoing strategic plan. Management anticipates that these transactions will have positive long-term impacts on operating profit, cash flow and liquidity that will enhance shareholder value. Segment Operations Operating profit (loss) from each of the company's segments is summarized in the following table: (Millions of dollars) 1997 1996 1995 Operating profit (loss) excluding special items - Exploration and production $178 $236 $113 Chemicals 84 90 122 Coal 44 75 66 Other 3 7 (3) ---- ---- ---- Total 309 408 298 Special items (5) (37) (234) ---- ---- ---- Operating profit $304 $371 $ 64 ==== ==== ==== Exploration and Production The company merged its North American onshore exploration and production assets into Devon effective December 31, 1996, and accounts for the investment on the equity basis. Therefore, income from Devon is not included in 1997 operating profit, and the company's proportionate interest in Devon's volumes is not included in the 1997 production and sales shown in the following table. (Millions of dollars, except per-unit amounts) 1997 1996 1995 Sales $628 $874 $690 ==== ==== ==== Operating profit excluding special items $178 $236 $113 Special items (3) (32) (210) ---- ---- ---- Operating profit (loss) $175 $204 $(97) ==== ==== ==== Proprietary crude oil and condensate produced (thousands of barrels per day) 57 69 70 Average price of crude oil sold (per barrel) $18.51 $19.16 $15.99 Proprietary natural gas sold (MMCF per day) 184 281 291 Average price of natural gas sold (per MCF) $ 2.56 $2.12 $1.52 Special items in 1997 consisted primarily of additional costs for the unit's restructuring and relocation to Houston. The 1996 special items were $22 million for asset impairments and $10 million for restructuring, due to the December 1996 merger of the North American onshore properties into Devon and the announcement of the relocation to Houston. The 1995 special items related to FAS 121 asset impairments and writedowns associated with the program to divest nonstrategic and marginal properties and restructuring charges. Equity accounting for the merged properties and lower average sales prices for crude oil, partially offset by increased sales prices for natural gas and lower exploration expenses, were the primary reasons for lower 1997 operating profit excluding special items. Improvement in 1996 operating profit excluding special items, compared with 1995, resulted primarily from increases of 20% and 39% in the company's average sales prices for crude oil and natural gas, respectively, and a decrease in exploration expenses. Chemicals Chemical operating profit and sales were as follows. Special items in 1997 were primarily for the writeoff of obsolete equipment and in 1996 for impairments and shutdown costs for a crosstie-treating facility and the elimination of a product line at a specialty plant. (Millions of dollars) 1997 1996 1995 Sales $760 $692 $707 ==== ==== ==== Operating profit excluding special items $ 84 $ 90 $122 Special items (3) (5) -- ---- ---- ---- Operating profit $81 $85 $122 ==== ==== ==== The increase in 1997 sales, compared with 1996, was due to increased titanium dioxide pigment and ammonium perchlorate sales volumes. Partially offsetting these increases were lower average pigment prices. Although prices strengthened considerably in the last half of the year, average prices received in 1997 were less than those received in the prior year. The higher 1997 pigment volumes resulted from the completion of the expansion at the Hamilton, Mississippi, plant and a full year's production from the 1996 expansion in Western Australia. The decrease in 1996 sales from 1995 resulted from lower pigment sales prices. Operating profit in both 1997 and 1996 was also adversely affected by higher per-unit production costs for pigment than in the respective prior years. The company has announced plans to exit the electrolytic business and concentrate on its pigment operations. See "Pending Transactions" on page 21. Coal Operating profit and sales for coal are shown in the following table. Operating profit in 1995 included a special item for FAS 121 impairments. (Millions of dollars) 1997 1996 1995 Sales $323 $365 $353 ==== ==== ==== Operating profit excluding special items $ 44 $ 75 $ 66 Special items -- -- (23) ---- ---- ---- Operating profit $ 44 $ 75 $ 43 ==== ==== ==== Both operating profit and sales for the year were negatively impacted by an April 1997 underground ignition and adverse operating conditions at the Galatia, Illinois, mine. These conditions continued until the fourth quarter, resulting in fewer tons produced at Galatia and higher per-ton costs. However, operating profit benefited from lower per-ton costs and higher volumes at the Jacobs Ranch mine. Sales prices were $1.43 per ton lower on average for 1997, compared with 1996, since a higher portion of tonnage sold was the lower-priced Powder River Basin coal. Higher operating profit and sales in 1996, compared with 1995, were the result of $.12 per-ton higher average sales prices on slightly higher volumes. The company has announced its intention to exit the coal business. See "Pending Transactions" on page 21. Financial Condition (Millions of dollars) 1997 1996 1995 Current ratio 1.3 1.7 1.3 Working capital $ 166 $ 320 $ 189 Total debt 579 663 735 Total debt less cash 396 542 648 Stockholders' equity $1,440 $1,367 $1,416 Total debt to total capitalization 29% 33% 34% Floating-rate debt to total debt 11 66 64 Cash Flow Net cash provided by operating activities was $569 million in 1997, compared with $645 million in 1996 and $369 million in 1995. The decrease in 1997 resulted primarily from lower net income, lower noncash charges, higher cash environmental expenditures and lower deferred income taxes, partially offset by working capital and other changes that increased net cash provided by operating activities. Cash flow provided by operating activities in 1997 was also adversely affected by the company's merger of its North American onshore oil and gas properties into Devon, as undistributed earnings from equity affiliates represent a noncash item. The increase in 1996 net cash provided by operating activities, compared with 1995, was primarily attributable to the company's record net income and temporary changes in working capital and other, which decreased 1995 net cash provided by operating activities by $211 million. Although a net loss of $31 million was incurred in 1995, the special charges, totaling $260 million before income taxes, were all noncash and did not adversely affect net cash provided by operations. In each of the years 1997, 1996 and 1995, cash provided by operating activities was supplemented by other sources of cash that were used primarily to reduce debt and purchase the company's common stock (see Note 14). In 1997, cash available increased $21 million from the sale of equity securities, $18 million from the sale of nonstrategic and marginal exploration and production properties, $17 million from the sale of other assets and $21 million related to insurance settlements. During 1996, the company received cash proceeds of $48 million from the divestiture of nonstrategic, marginal and other exploration and production properties; $43 million related to insurance settlements; $29 million from the sale of equity securities; $13 million from the sale of the remaining refining and marketing assets; and $11 million from the sale of other assets, including the company's West Virginia coal mining operation. Proceeds from the sale of substantially all of the company's refining and marketing operations increased cash available by $419 million in 1995. Total debt declined to $579 million at year-end 1997 from $735 million at year-end 1995. In 1995, the company's Board of Directors authorized a stock purchase program of up to $300 million. The program was completed in August 1997. Expenditures were $60 million in 1997, $195 million in 1996 and $45 million in 1995, with a total of 4.8 million shares purchased through the program. On January 14, 1997, the company's Board of Directors approved an increase in the quarterly dividend payable April 1, 1997, to $.45 per share from $.41 per share. In 1995, the Board increased the quarterly dividend payable January 2, 1996, to $.41 per share from $.38 per share. Liquidity The company's strong balance sheet reflects a solid working capital position and low debt to capitalization. The company's debt has been rated "A" or "A-" by various rating agencies, resulting in low debt costs. At December 31, 1997, the company's net working capital position was $166 million, a decline from the 1996 year-end position. The merger of the company's North American onshore exploration and production properties contributed to the lower working capital position since certain components of working capital were converted into the Devon equity investment. The 1996 net working capital position of $320 million was an increase of $131 million from the prior year. This increase was the result of the other cash inflows discussed previously, which were used primarily to repay short-term borrowings and fund the company's stock purchase program. The percentage of total debt to total capitalization was 29% at December 31, 1997, 33% at December 31, 1996, and 34% at year- end 1995. This improvement is the direct result of the company's repayment of debt, which more than offset the effect of the stock purchase program on total capitalization. In October 1997, the company replaced the majority of its then outstanding floating-rate debt with $300 million of fixed-rate securities. The company issued $150 million of 7.125% (effective rate 7.01%) debentures due October 15, 2027, and $150 million of 6.625% (effective rate 6.54%) notes due October 15, 2007. Additionally, the company and/or its subsidiaries have several revolving credit agreements. At year-end 1997, $37 million was outstanding under one of the agreements with interest payable at varying rates. At December 31, 1997, the company had unused lines of credit and revolving credit facilities of $714 million. Of this amount, $340 million and $265 million can be used to support the commercial paper borrowings of Kerr-McGee Credit Corporation and Kerr-McGee Oil (U.K.) PLC, respectively, both wholly owned subsidiaries. Two revolving credit agreements were amended in 1997. The $105 million revolving credit agreement between the company's wholly owned subsidiary Kerr-McGee China Petroleum Ltd. and several banks was extended to March 6, 2000. The $37 million outstanding at year-end 1997 was under this agreement. The revolving credit agreement among the company, its wholly owned subsidiary Kerr-McGee Oil (U.K.) PLC and several banks was amended from $230 million to $225 million and separated into two loan facilities. Under one arrangement, $150 million may be borrowed through April 28, 2000. Under the other, $75 million is available through April 28, 1998, with the provision that one-year extensions may be requested. Interest is payable at varying rates for all of the revolving credit agreements. The company finances capital expenditures through internally generated funds and various borrowings. Cash capital expenditures were $341 million in 1997, $392 million in 1996 and $484 million in 1995, a total of $1.2 billion. During this same period, $1.7 billion of net cash was provided by operating activities (exclusive of working capital and other changes), which was approximately $200 million in excess of cash capital expenditures and dividends paid during the period. Management anticipates that 1998 cash capital requirements, currently estimated at $520 million (including $60 million for the coal business), and the capital expenditures programs for the next several years can continue to be provided through internally generated funds and selective short-term and/or long-term borrowings. Market Risks The company is exposed to a variety of market risks, including the effects of movements in foreign currency exchange rates, interest rates and certain commodity prices. The company addresses its risks through a controlled program of risk management that includes the use of derivative financial instruments. The company does not hold or issue derivative financial instruments for trading purposes. See Notes 1 and 16 to the Consolidated Financial Statements for additional discussion of the company's financial instruments and hedging activities. Foreign Currency Exchange The U.S. dollar is the functional currency for all of the company's operations. It is the company's intent to hedge a portion of its monetary assets, liabilities and commitments denominated in foreign currencies. Periodically, the company purchases foreign currency forward contracts to provide funds for operating and capital expenditure requirements that will be denominated in foreign currencies, primarily Australian dollars and British pounds sterling. These contracts generally have durations of less than three years. The company also enters into forward contracts to sell various foreign currencies as hedges, principally for accounts receivable generated from titanium dioxide pigment sales denominated in foreign currencies. These contracts are principally for European currencies and generally have durations of less than a year. Since these contracts qualify as hedges and correlate to currency movements, any gains or losses resulting from exchange rate changes are deferred and recognized as adjustments of the transaction when the hedged item occurs. At year-end 1997, the company's derivative financial instruments were comprised only of foreign currency forward contracts. Following are the notional amounts at the contract exchange rates, weighted-average contractual exchange rates and estimated fair value by contract maturity for open foreign currency contracts at year-end 1997. All amounts are U.S. dollar equivalents.
Dec. 31, 1997 Notional Weighted-Average Estimated Fair (Millions of dollars, except average contract rate) Amount Contract Rate Value Forward contracts to purchase (sell) currencies - Maturing in 1998 - Australian dollar $63 .7507 $55 British pound sterling 12 1.5897 12 German mark (3) 1.7721 (3) British pound sterling (1) .6137 (1) Belgian franc (1) 36.0382 (1) Maturing in 1999 - Australian dollar 39 .7377 35
Interest Rates The company's exposure to changes in interest rates relates primarily to long-term debt obligations. At year-end 1997, the company's long-term debt was comprised of 93% fixed-rate instruments, which minimize earnings volatility related to interest expense. The company does not currently participate in interest rate-related derivative financial instruments. The table below presents principal amounts and related weighted-average interest rates by maturity date for the company's long-term debt obligations. All borrowings are in U.S. dollars.
There- Fair Value (Millions of dollars) 1998 1999 2000 2001 2002 after Total 12/31/97 Fixed-rate debt - Principal amount $2 $8 $10 $12 $10 $475 $517 $632 Weighted-average interest rate 9.49% 9.00% 9.61% 9.61% 9.61% 7.05% 7.25% Variable-rate debt - Principal amount -- -- $37 -- -- -- $37 $37 Weighted-average interest rate -- -- 6.04% -- -- -- 6.04%
Commodity Prices Although no such contracts were entered into during 1997, the company has periodically used commodity futures and option contracts to hedge a portion of its crude oil and natural gas sales and natural gas purchased for operations in order to minimize the price risks associated with the production and marketing of crude oil and natural gas. These contracts generally had maturities of one year or less. Since the contracts qualified as hedges and correlated to price movements of crude oil and natural gas, any gain or loss from these contracts was explicitly deferred and recognized as part of the hedged transaction. In 1997, approximately 70% of the company's coal sales resulted from contracts with durations of at least three years. At year-end 1997, the average contract price was in excess of spot prices. Other As a global energy and inorganic chemical company, Kerr-McGee is subject to the volatility of crude oil, natural gas and titanium dioxide pigment prices and risks associated with operations outside the United States. The company has announced its intention to concentrate on two primary businesses - oil and natural gas exploration and production and the production and marketing of titanium dioxide pigments. Early 1998 oil and gas prices are below those received in 1997. Company management continuously monitors the underlying global pricing fundamentals of these commodities and factors those conditions into its projections and economic forecasts. In addition, more than 15% of the company's year-end 1997 proprietary oil production was from Southeast Asia, which is in the midst of a currency crisis. The company is taking steps to provide reasonable assurance that its level of risk remains manageable, such as requiring letters of credit from buyers when management deems appropriate. Pigment prices have increased from 1997 levels, and the industry continues to consolidate. Management anticipates that the consolidation trends will continue in the near future and that the company's status as one of only four companies that own the preferred chloride technology, along with its low cost position, will benefit operating profit, cash flow and liquidity. Environmental Matters The company's operations are subject to various environmental laws and regulations. Under these laws, the company is subject to possible obligations to remove or mitigate the effects on the environment of the disposal or release of certain chemical, petroleum or low-level radioactive substances at various sites, including sites that have been designated Superfund sites by the U.S. Environmental Protection Agency (EPA) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended. At December 31, 1997, the company had received notices that it has been named a potentially responsible party (PRP) with respect to the remediation of 16 existing EPA Superfund sites and may share liability at certain of these sites. In 1996, the company signed a Consent Decree with respect to a site at Slidell, Louisiana. In addition, the company and/or its subsidiaries have executed consent orders, operate under a license or have reached agreements to perform or have performed remediation or remedial investigations and feasibility studies on sites not included as EPA Superfund sites. The company does not consider the number of sites for which it has been named a PRP to be a relevant measure of liability. Because of continually changing environmental laws and regulations, the nature of the company's businesses, the large number of other PRPs, the present state of the law, which imposes joint and several liability on all PRPs under CERCLA, and pending legal proceedings, the company is uncertain as to its involvement in many of the sites. Therefore, the company is unable to reliably estimate the potential liability and the timing of future expenditures that may arise from many of these environmental sites. Reserves have been established for the remediation and reclamation of active and inactive sites where it is probable that future costs will be incurred and the liability is estimable. In 1997, $41 million was added to the reserve for active and inactive sites. At December 31, 1997, the company's reserve for these sites totaled $243 million. In addition, at year-end 1997, the company had reserves of $68 million for the future costs for the abandonment and removal of offshore well and production facilities at the end of their productive lives and $23 million for the decommissioning and reclamation of coal mining locations. In the Consolidated Balance Sheet, $251 million of the total reserve is classified as a deferred credit, and the remaining $83 million is included in current liabilities. Expenditures for the environmental protection and cleanup of existing sites for each of the last three years and for the three-year period ended December 31, 1997, are as follows: (Millions of dollars) 1997 1996 1995 Total Charges to environmental reserves $ 94 $ 56 $ 61 $ 211 Recurring expenses 20 19 23 62 Capital expenditures 17 15 20 52 ---- --- ---- ---- Total $131 $90 $104 $325 ==== === ==== ==== The company has not recorded in the financial statements potential reimbursements from governmental agencies or other third parties (see Notes 10 and 13). The following table reflects the company's portion of the known estimated cost of investigation and/or remediation that is probable and estimable. The table includes all EPA Superfund sites where the company has been notified it is a PRP under CERCLA and other sites for which the company believes it had some ongoing financial involvement in investigation and/or remediation at year-end 1997.
Total Known Total Estimated Expenditures Total Number Cost Through 1997 of Identifiable Location of Site Stage of Investigation/Remediation (Millions of dollars) PRPs EPA Superfund sites Milwaukee, Wis. Executed consent decree to remediate the site of a former wood-treating facility. Awaiting approval of proposed remedy; installed and operating a free- product recovery system. $ 19 $ 7 3 West Chicago, Ill., two sites Began cleanup of a portion of one site in 1995, and outside the facility cleanup of the second site began in 1997 (see Note 10). 43 29 1 Slidell, La., Chicago, Ill., and 11 sites individually not material Various stages of investigation/remediation. 30 26 492 -- -- --- 92 62 496 === Non-EPA Superfund sites under consent order, license or agreement West Chicago, Ill., facility Reached agreement with the City of West Chicago. Decommissioning is in progress under State of Illinois supervision while awaiting state license amendment (see Note 10). Began shipments to a permanent disposal facility in 1994. 348 185 Cleveland/Cushing, Okla. Began cleanup in 1996. 48 36 Cimarron, Okla. Remediation is complete, and monitoring continues. 36 34 --- --- 432 255 --- --- Non-EPA Superfund sites individually not material 154 118 --- --- Total for all sites $678 $435 ==== ====
Although management believes adequate reserves have been provided for environmental and all other known contingencies, it is possible, due to the previously noted uncertainties, that additional reserves could be required in the future. Other The use by many existing computer systems of a two-digit year date format rather than four digits - the Year 2000 issue - impacts the company's business systems and facilities. In 1996, a formal program was initiated and a number of project teams were formed and charged with the responsibility of identifying areas of potential concern and ensuring that timely corrective actions are taken. At year-end 1997, the implementation of new or modification of existing business systems was approximately two-thirds complete, and the review of plant and facility process controls was under way. Management anticipates modification or replacement of systems will be essentially complete by year-end 1998. The company is also working with key suppliers, vendors and customers to ensure Year 2000 compliance. The ultimate outcome of the Year 2000 project cannot be guaranteed; however, the company believes that the program under way will provide a smooth transition into the year 2000 and reduces risk to a manageable level. The cost of addressing the Year 2000 issue is not material to the consolidated results of operations or financial condition of the company. During 1997 and early 1998, the Financial Accounting Standards Board issued several pronouncements related to financial statement disclosure that will affect the company's 1998 financial statement presentation. There will be no effect on net income as a result of these pronouncements. Following is a discussion of the new standards. FAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components as a part of the basic financial statements. At the beginning of 1998, the company had no significant items to be reported as other comprehensive income. However, prior years' information will be presented. The disclosures will be required for the 1998 year-end financial statements, and abbreviated information will be required for the first quarter. FAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for determining segments and reporting information about a company's business segments in annual financial statements. Also required is selected information about operating segments in interim financial reports issued to shareholders. The company does not foresee any material change to the operating segments currently reported in Note 24, "Reporting by Business Segments." However, the financial information presented will differ. Quarterly information will be presented in the first 1998 quarter, and prior periods will be restated. FAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," was issued in February 1998. This statement, effective for year-end 1998 financial statements, revises disclosures about pensions and other postretirement benefit plans. It does not change the measurement or recognition of costs associated with those plans. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Amounts capitalized or expensed by the company for internal-use software projects are not expected to differ materially as a result of the SOP, since the prescribed accounting treatment is fairly consistent with the company's current accounting policy. The SOP, the effect of which is to be recognized prospectively, is effective for 1999 financial statements. Responsibility for Financial Reporting The company's management is responsible for the integrity and objectivity of the financial data contained in the financial statements. These financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances and, where necessary, reflect informed judgments and estimates of the effects of certain events and transactions based on currently available information at the date the financial statements were prepared. The company's management depends on the company's system of internal accounting controls to assure itself of the reliability of the financial statements. The internal control system is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and transactions are executed in accordance with management's authorizations and are recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Periodic reviews are made of internal controls by the company's staff of internal auditors, and corrective action is taken if needed. The Board of Directors reviews and monitors financial statements through its audit committee, which is composed solely of directors who are not officers or employees of the company. The audit committee meets with the independent public accountants, internal auditors and management to review internal accounting controls, auditing and financial reporting matters. The independent public accountants are engaged to provide an objective and independent review of the company's financial statements and to express an opinion thereon. Their audits are conducted in accordance with generally accepted auditing standards, and their report is included below. Report of Independent Public Accountants To the Stockholders and Board of Directors of Kerr-McGee Corporation: We have audited the accompanying consolidated balance sheet of Kerr-McGee Corporation (a Delaware corporation) and subsidiary companies as of December 31, 1997 and 1996, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kerr-McGee Corporation and subsidiary companies as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Oklahoma City, Oklahoma, February 20, 1998 ARTHUR ANDERSEN LLP Consolidated Statement of Income
(Millions of dollars, except per-share amounts) 1997 1996 1995 Sales $1,711 $1,931 $1,754 ------ ------ ------ Costs and Expenses Costs and operating expenses 949 1,016 960 General and administrative expenses 148 209 157 Depreciation and depletion 263 297 304 Asset impairment -- 25 227 Exploration, including dry holes and amortization of undeveloped leases 65 75 82 Taxes, other than income taxes 53 66 61 Interest and debt expense 46 52 61 ------ ------ ------ Total Costs and Expenses 1,524 1,740 1,852 ------ ------ ------ 187 191 (98) Other Income 90 132 29 ------ ------ ------ Income (Loss) from Continuing Operations before Income Taxes 277 323 (69) Provision (Benefit) for Income Taxes 83 103 (45) ------ ------ ------ Income (Loss) from Continuing Operations 194 220 (24) Loss from Discontinued Operations, net of income tax benefit of $4 -- -- (7) ------ ------ ------ Net Income (Loss) $ 194 $ 220 $ (31) ====== ====== ====== Earnings (Loss) per Common Share Basic - Continuing operations $ 4.06 $ 4.45 $ (.47) Discontinued operations -- -- (.13) ------ ------ ------ Total $ 4.06 $ 4.45 $ (.60) ====== ====== ====== Diluted - Continuing operations $ 4.04 $ 4.43 $ (.47) Discontinued operations -- -- (.13) ------ ------ ------ Total $ 4.04 $ 4.43 $ (.60) ====== ====== ======
Consolidated Statement of Retained Earnings
(Millions of dollars, except per-share amounts) 1997 1996 1995 Balance at Beginning of Year $1,348 $1,209 $1,320 Net income (loss) 194 220 (31) Dividends declared (per common share - $1.80 in 1997, $1.64 in 1996 and $1.55 in 1995) (86) (81) (80) ------ ------ ------ Balance at End of Year $1,456 $1,348 $1,209 ====== ====== ====== The accompanying notes are an integral part of these statements.
Consolidated Balance Sheet
(Millions of dollars) 1997 1996 ASSETS Current Assets Cash $ 183 $ 121 Accounts receivable, net of allowance for doubtful accounts of $5 in both 1997 and 1996 274 375 Inventories 172 218 Deposits and prepaid expenses 60 91 ------ ------ Total Current Assets 689 805 Investments Equity affiliates 273 244 Other assets 60 74 Property, Plant and Equipment - Net 1,998 1,948 Deferred Charges 76 53 ------ ------ Total Assets $3,096 $3,124 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 247 $ 262 Short-term borrowings 25 37 Long-term debt due within one year 2 -- Taxes on income 36 5 Taxes, other than income taxes 17 26 Accrued liabilities 196 155 ------ ------ Total Current Liabilities 523 485 ------ ------ Long-Term Debt 552 626 ------ ------ Deferred Credits and Reserves Income taxes 159 131 Other 422 515 ------ ------ Total Deferred Credits and Reserves 581 646 ------ ------ Stockholders' Equity Common stock, par value $1.00 - 150,000,000 shares authorized, 54,120,747 shares issued in 1997 and 53,862,347 shares issued in 1996 54 54 Capital in excess of par value 346 334 Preferred stock purchase rights 1 1 Retained earnings 1,456 1,348 Unrealized gain on available-for-sale securities -- 12 Common stock in treasury, at cost - 6,434,465 shares in 1997 and 5,568,815 shares in 1996 (363) (306) Deferred compensation (54) (76) ------ ------ Total Stockholders' Equity 1,440 1,367 ------ ------ Total Liabilities and Stockholders' Equity $3,096 $3,124 ====== ====== The "successful efforts" method of accounting for oil and gas exploration and production activities has been followed in preparing this balance sheet. The accompanying notes are an integral part of this balance sheet.
Consolidated Statement of Cash Flows
(Millions of dollars) 1997 1996 1995 Cash Flow from Operating Activities Net income (loss) $ 194 $ 220 $ (31) Adjustments to reconcile to net cash provided by operating activities - Deferred income taxes 36 68 (51) Depreciation, depletion and amortization 271 307 334 Asset impairment -- 25 227 Provision for environmental reclamation and remediation of inactive sites 20 43 54 Realized gain on available-for-sale securities (18) (23) -- Gain on sale of refining and marketing operations, net of income taxes -- -- (2) Gain on sale of exploration and production properties (6) (21) -- Retirements and gain on sale of other assets (4) (3) (1) Noncash items affecting net income 1 18 50 Changes in current assets and liabilities and other, net of effects of discontinued operations sold - Decrease in accounts receivable 132 48 75 (Increase) decrease in inventories 40 1 (1) (Increase) decrease in deposits and prepaids 13 59 (50) Decrease in accounts payable and accrued liabilities (16) (37) (121) Increase (decrease) in taxes payable 31 (22) (56) Other (125) (38) (58) ----- ----- ----- Net cash provided by operating activities 569 645 369 ----- ----- ----- Cash Flow from Investing Activities Capital expenditures (341) (392) (484) Proceeds from sale of available-for-sale securities 21 29 -- Proceeds from sale of refining and marketing operations -- 13 419 Proceeds from sale of exploration and production properties 18 48 -- Proceeds from sale of other assets 17 11 17 Proceeds from sale of long-term investments 13 17 61 Purchase of long-term investments (14) (6) (8) ----- ----- ----- Net cash provided by (used in) investing activities (286) (280) 5 ----- ----- ----- Cash Flow from Financing Activities Decrease in short-term borrowings (12) (57) (218) Repayment of long-term debt (375) (36) (35) Issuance of long-term debt 299 24 -- Issuance of common stock 12 16 9 Dividends paid (85) (83) (79) Purchase of treasury stock (60) (195) (45) ----- ----- ----- Net cash used in financing activities (221) (331) (368) ----- ----- ----- Net Increase in Cash and Cash Equivalents 62 34 6 Cash and Cash Equivalents at Beginning of Year 121 87 81 ----- ----- ----- Cash and Cash Equivalents at End of Year $ 183 $ 121 $ 87 ===== ===== ===== The accompanying notes are an integral part of this statement.
Notes to Financial Statements 1 Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of all subsidiary companies that are more than 50% owned and the proportionate share of joint ventures in which the company has an undivided interest. Investments in affiliated companies that are 20% to 50% owned are carried as Investments - Equity affiliates in the Consolidated Balance Sheet at cost adjusted for equity in undistributed earnings. Except for dividends, changes in equity in undistributed earnings are included in the Consolidated Statement of Income. All material intercompany transactions have been eliminated. In connection with the restructuring of the exploration and production operations, certain operating and exploration expenses for 1996 and 1995 have been reclassified to general and administrative expense in order to conform with the current year's presentation. This reclassification had no effect on exploration and production operating profit or consolidated net income (loss) for either period. Certain information in Note 24, "Reporting by Business Segments," and in the supplemental oil and gas information shown in Notes 25 through 29 has also been adjusted to reflect this reclassification. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates as additional information becomes known. Foreign Currencies As the U.S. dollar has been adopted as the functional currency for each of the company's international operations, foreign currency transaction gains or losses are recognized in the period incurred. The company recorded net foreign currency transaction losses of $9 million in 1996. The net foreign currency transaction losses in 1997 and 1995 were immaterial. Earnings (Loss) per Common Share Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period and common stock equivalents. The weighted-average number of shares used to compute basic earnings per share was 47,807,916 in 1997, 49,419,993 in 1996 and 51,669,285 in 1995. After adding the dilutive effect of the conversion of options to the weighted-average number of shares outstanding, the shares used to compute diluted earnings per share were 48,000,082 in 1997 and 49,657,890 in 1996. For 1995, there was no dilution since the company incurred a loss from continuing operations. Not included in the calculation of the denominator for diluted earnings per share were 157,000 and 153,000 employee stock options outstanding at year-end 1997 and 1996, respectively. The inclusion of these options would have been anti-dilutive since they were not "in the money" at the end of the respective years. See Note 18, "Employee Stock Option Plans," for a discussion of transactions that occurred after year-end 1997. Cash Equivalents The company considers all investments purchased with a maturity of three months or less to be cash equivalents. Cash includes time deposits, certificates of deposit and U.S. government securities, all of which totaled $132 million in 1997 and $89 million in 1996. Inventories The costs of the company's product inventories are determined by the first-in, first-out (FIFO) method. Inventory carrying values include material costs, labor and indirect manufacturing expenses associated therewith. Materials and supplies are valued at average cost. Property, Plant and Equipment Oil and Gas - Exploration expenses, including geological and geophysical costs, rentals and exploratory dry holes, are charged against income as incurred. Costs of successful wells and related production equipment and developmental dry holes are capitalized and amortized by field using the unit-of-production method as the oil and gas are produced. Undeveloped acreage costs are capitalized and amortized at rates that provide full amortization on abandonment of unproductive leases. Costs of abandoned leases are charged to the accumulated amortization accounts, and costs of productive leases are transferred to the developed property accounts. Other - Property, plant and equipment is stated at cost less reserves for depreciation, depletion and amortization. Maintenance and repairs are expensed as incurred, except that costs of replacements or renewals that improve or extend the lives of existing properties are capitalized. Costs of nonproducing mineral acreage surrendered or otherwise disposed of are charged to expense at the time of disposition. Depreciation and Depletion - Property, plant and equipment is depreciated or depleted over its estimated life by application of the unit-of-production or the straight-line method. In arriving at rates under the unit-of-production method, the quantities of recoverable oil, gas and other minerals are established based on estimates made by the company's geologists and engineers. Retirements and Sales - The costs and related depreciation, depletion and amortization reserves are removed from the respective accounts upon retirement or sale of property, plant and equipment. The resulting gain or loss is included in other income. Interest Capitalized - The company capitalizes interest costs on major projects that require a considerable length of time to complete. Interest capitalized in 1997, 1996 and 1995 was $8 million, $9 million and $11 million, respectively. Impairment of Long-Lived Assets The company adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," during the 1995 third quarter. Proved oil and gas properties are reviewed for impairment on a field-by-field basis when facts and circumstances indicate that their carrying amount may not be recoverable. In performing this review, future cash flows are estimated by applying estimated future oil and gas prices to estimated future production, less estimated future expenditures to develop and produce the reserves. If the sum of these estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, an impairment loss is recognized for the excess of the carrying amount over the estimated fair value of the property. Prior to the third quarter of 1995, proved properties were evaluated on an area-of-interest basis and impaired when capitalized costs exceeded estimated future revenues, computed by applying current oil and gas prices to estimated future production, less estimated future expenditures to develop and produce the reserves. Chemical, coal and other assets are reviewed for impairment by asset group for which the lowest level of independent cash flows can be identified and impaired in the same manner as proved oil and gas properties. Prior to the third quarter of 1995, individual properties were written down when impairments were deemed to have occurred. Income Taxes Deferred income taxes are provided to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Site Dismantlement, Reclamation and Remediation Costs The company provides for the estimated cost at current prices of final reclamation and land restoration at coal mining locations and the dismantlement and removal of oil and gas production and related facilities. Such costs are accumulated over the estimated lives of the facilities by the use of the unit-of-production method. As sites of environmental concern are identified, the company assesses the existing conditions, claims and assertions, generally related to former operations, and records an estimated undiscounted liability when environmental assessments and/or remedial efforts are probable and the associated costs can be reasonably estimated. Gas-Balancing Arrangements Gas-balancing arrangements with partners in natural gas wells are accounted for by the entitlements method. At December 31, 1997 and 1996, both the quantity and dollar amount of such arrangements recorded in the Consolidated Balance Sheet were immaterial. Lease Commitments The company utilizes various leased properties in its operations, principally for office space. Net lease rental expense was $15 million in 1997, $14 million in 1996 and $12 million in 1995. The aggregate minimum annual rentals under noncancelable leases in effect on December 31, 1997, totaled $59 million, of which $11 million is due in 1998, $9 million in 1999, $17 million in the period 2000 through 2002 and $22 million thereafter. Employee Stock Option Plans The company accounts for its employee stock option plans using the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Futures, Forward and Option Contracts The company hedges a portion of its monetary assets, liabilities and commitments denominated in foreign currencies. Periodically, the company purchases foreign currency forward contracts to provide funds for operating and capital expenditure requirements that will be denominated in foreign currencies and sells foreign currency forward contracts to convert receivables that will be paid in foreign currencies to U.S. dollars. Since these contracts qualify as hedges and correlate to currency movements, any gain or loss resulting from market changes will be offset by gains or losses on the hedged receivable, capital item or operating cost. In 1996 and 1995, the company also entered into foreign currency forward contracts to sell various foreign currencies in anticipation of titanium dioxide pigment sales denominated in foreign currencies. These contracts were marked-to-market with the resulting gain or loss reflected in income in the period in which the change occurred. There were no open contracts at year-end 1997. Open contracts at year-end 1996 matured between January and December 1997. Net gains and losses on these contracts in 1997, 1996 and 1995 were immaterial. Although no such contracts were entered into during 1997, the company has periodically used commodities futures and option contracts to hedge a portion of its crude oil and natural gas sales and natural gas purchased for operations in order to minimize the price risks associated with the production and marketing of crude oil and natural gas. These contracts generally have had maturities of one year or less. Since the contracts qualified as hedges and correlated to price movements of crude oil and natural gas, any gain or loss from these contracts was explicitly deferred and recognized as part of the hedged transaction. Prior to the sale of the refining and marketing operations, the company also hedged a portion of its refined-product sales and crude oil purchased for the refineries. Management of price risks must consider market conditions and availability. As these factors change, the company adjusts its hedging strategy and modifies its futures, forward and option contract positions. 2 Cash Flow Information Net cash provided by operating activities reflects cash payments for interest and income taxes as follows: (Millions of dollars) 1997 1996 1995 Interest paid $47 $60 $68 Income taxes paid 15 17 75 Noncash transactions not reflected in the Consolidated Statement of Cash Flows include capital expenditures for which payment will be made in the subsequent year totaling $19 million, $4 million and $24 million at year-end 1997, 1996 and 1995, respectively; transactions during 1997 associated with the assignments of interest of certain North Sea oil and gas properties; the revaluation of certain investments to fair value and transactions affecting deferred compensation associated with the Employee Stock Ownership Plan in each of the three years. See Notes 16 and 20. Effective December 31, 1996, the company merged its North American onshore exploration and production operations into Devon Energy Corporation (Devon) in exchange for 9,954,000 shares of Devon common stock (see Note 4). This transaction was not reflected in the Consolidated Statement of Cash Flows due to its noncash nature. The effect of foreign currency exchange rate fluctuations on cash and cash equivalents was immaterial. 3 Inventories Major categories of inventories at year-end 1997 and 1996 are: (Millions of dollars) 1997 1996 Chemicals and other products $119 $163 Materials and supplies 48 49 Crude oil 5 6 ---- ---- Total $172 $218 ==== ==== 4 Investments - Equity Affiliates At December 31, 1997 and 1996, investments in equity affiliates are as follows: (Millions of dollars) 1997 1996 Devon Energy Corporation $217 $193 Javelina Company 32 27 National Titanium Dioxide Company Limited 12 12 Other 12 12 ---- ---- Total $273 $244 ==== ==== Effective December 31, 1996, the company merged its North American onshore exploration and production operations into Devon, a publicly traded oil and gas exploration and production company. The company received 9,954,000 shares of Devon common stock representing an ownership interest in Devon of approximately 31%. This initial investment in Devon was recorded at the value of the assets given up in accordance with APB No. 29, "Accounting for Nonmonetary Transactions." The market value of the company's investment in Devon was $383 million at December 31, 1997, based on the closing price of Devon's common stock as reported in The Wall Street Journal. Javelina Company and National Titanium Dioxide Company Limited represent the company's investment of 40% and 25%, respectively, in non-exploration and production joint ventures or partnerships. Following are financial summaries of the company's equity affiliates. Financial information related to investments that are shown as Other in the preceding table has been excluded. (Millions of dollars) 1997 1996 1995 Results of operations - Net sales(1) $570 $207 $250 Total costs and expenses 413 183 171 Net income 105 22 66 Financial position - Current assets 198 153 Property, plant and equipment - net 990 962 Total assets 1,215 1,135 Current liabilities 123 130 Total liabilities 470 484 Stockholders' equity 745 651 (1) Includes net sales to the company of $26 million, $44 million and $47 million for 1997, 1996 and 1995, respectively. 5 Investments - Other Assets Investments in other assets consist of the following at December 31, 1997 and 1996: (Millions of dollars) 1997 1996 Net deferred tax asset $22 $23 U.S. government obligations 19 -- Patents 6 5 Long-term notes receivable, net of $9 allowance for doubtful notes in both 1997 and 1996 5 17 Equity securities 2 24 Other 6 5 --- --- Total $60 $74 === === 6 Property, Plant and Equipment Fixed assets and related reserves by business segment at December 31, 1997 and 1996, are as follows:
Reserves for Depreciation and Gross Property Depletion Net Property(1) (Millions of dollars) 1997 1996 1997 1996 1997 1996 Exploration and production $2,888 $3,192 $1,677 $2,005 $1,211 $1,187 Chemicals 1,020 946 506 459 514 487 Coal 547 546 331 327 216 219 Other 147 153 90 98 57 55 ------ ------ ------ ------ ------ ------ Total $4,602 $4,837 $2,604 $2,889 $1,998 $1,948 ====== ====== ====== ====== ====== ====== (1) Includes net assets held for sale of $126 million for chemicals at December 31, 1997, and $9 million for exploration and production at December 31, 1996. The company also intends to dispose of the coal segment. See Note 11.
7 Deferred Charges Deferred charges are as follows at year-end 1997 and 1996: (Millions of dollars) 1997 1996 Pension plan prepayment $42 $33 Preoperating and startup costs 8 4 Intangible assets 6 3 Other 20 13 --- --- Total $76 $53 === === 8 Debt Lines of Credit and Short-Term Borrowings At year-end 1997, the company had available unused bank lines of credit and revolving credit facilities of $714 million. Of this amount, $340 million and $265 million can be used to support commercial paper borrowing arrangements of Kerr-McGee Credit Corporation and Kerr-McGee Oil (U.K.) PLC, respectively. The company has arrangements to maintain compensating balances with certain banks that provide credit. At year-end 1997, the aggregate amount of such compensating balances was immaterial, and the company was not legally restricted from withdrawing all or a portion of such balances at any time during the year. Short-term borrowings at year-end 1997 consisted of a note payable of $25 million (5.98% interest rate). Outstanding at year-end 1996 were notes payable totaling $15 million (5.97% average interest rate) and commercial paper totaling $22 million (5.84% average interest rate). Long-Term Debt The company's policy is to classify certain borrowings under revolving credit facilities and commercial paper as long-term debt since the company has the ability under certain revolving credit agreements and the intent to maintain these obligations for longer than one year. At year-end 1997 and 1996, debt totaling $37 million and $400 million, respectively, was classified as long-term consistent with this policy. Long-term debt consisted of the following at year-end 1997 and 1996:
(Millions of dollars) 1997 1996 Debentures - 7.125% Debentures due October 15, 2027 (7.01% effective rate) $150 $ -- 7% Debentures due November 1, 2011, net of unamortized debt discount of $108 million in 1997 and $111 million in 1996 (14.25% effective rate) 142 139 8-1/2% Sinking fund debentures due June 1, 2006 22 34 Commercial paper -- 266 Guaranteed Debt of Employee Stock Ownership Plan - 9.61% Series B notes due in installments through January 2, 2005 51 51 Notes payable - 6.625% Notes due October 15, 2007 (6.54% effective rate) 150 -- Variable interest rate revolving credit agreements with banks due March 6, 2000 (6.04% average rate at December 31, 1997) 37 114 Other 2 22 ---- ---- 554 626 Long-term debt due within one year (2) -- ---- ---- Total $552 $626 ==== ====
Maturities of long-term debt due after December 31, 1997, are $2 million in 1998, $8 million in 1999, $47 million in 2000, $12 million in 2001, $10 million in 2002 and $475 million thereafter. At year-end 1997, the company guaranteed no debt or other liabilities of its unconsolidated equity affiliates. However, at year-end 1996, the company guaranteed its ratable portion of the debt of unconsolidated equity affiliates totaling $7 million. These borrowings, which are not included in the preceding table, were paid in full by the unconsolidated equity affiliates during 1997, and the company was released as the guarantor. Additional information regarding the major changes in debt during the periods and unused commitments for financing is included in the Financial Condition discussion in Management's Discussion and Analysis. 9 Other Financial Information Condensed financial information relating to the company's previously unconsolidated, wholly owned finance subsidiary is summarized below: (Millions of dollars) 1997 1996 1995 Results of operations - Interest income $17 $25 $25 Net income 4 6 5 1997 1996 Financial position - Assets $116 $367 Liabilities (3) (258) ---- ---- Stockholder's equity $113 $109 ==== ==== 10 Contingencies West Chicago In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation (KMCC), closed the facility located in West Chicago, Illinois, that processed thorium ores. Operations resulted in some low-level radioactive contamination at the site, and in 1979, KMCC filed a plan with the Nuclear Regulatory Commission (NRC) to decommission the facility. The NRC transferred jurisdiction of this site to the State of Illinois (the State) in 1990. The following discusses the current status of various matters associated with the West Chicago site. Closed Facility - In 1994, KMCC, the City of West Chicago (the City) and the State reached agreement on Phase I of the decommissioning plan for the closed West Chicago facility, and KMCC began shipping material from the site to a licensed permanent disposal facility. In February 1997, KMCC executed an agreement with the City as to the terms and conditions for completing the final phase of decommissioning work, the bulk of which is expected to be completed about four to six years after receiving the necessary license amendment. The State has indicated approval of this agreement, and KMCC expects the State to issue a license amendment that will enable KMCC to complete the final phase of decommissioning work. In 1992, the State enacted legislation imposing an annual storage fee equal to $2 per cubic foot of byproduct material located at the closed facility. The storage fee cannot exceed $26 million per year, and any storage fee payments must be reimbursed to KMCC as decommissioning costs are incurred. KMCC has been fully reimbursed for all storage fees paid pursuant to this legislation. In June 1997, the legislation was amended to provide that future storage fee obligations are to be offset against decommissioning costs incurred but not yet reimbursed. Offsite Areas - The U.S. Environmental Protection Agency (EPA) has listed four areas in the vicinity of the West Chicago facility on the National Priority List that the EPA promulgates under authority of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and has designated KMCC as a potentially responsible party in these four areas. The EPA issued unilateral administrative orders for two of these areas (referred to as the residential area and Reed-Keppler Park), which require KMCC to conduct removal actions to excavate contaminated soils and ship the soils elsewhere for disposal. Without waiving any of its rights or defenses, KMCC has begun the cleanup of these two sites. Judicial Proceedings - In December 1996, a lawsuit was filed against the company and its subsidiary, KMCC, in Illinois state court on behalf of a purported class of present and former West Chicago residents. The lawsuit seeks damages for alleged diminution in property values and the establishment of a medical monitoring fund to benefit those allegedly exposed to thorium wastes originating from the former facility. The case was removed to federal court and is being vigorously defended. Government Reimbursement - Pursuant to Title X of the Energy Policy Act of 1992 (Title X), the U.S. Department of Energy is obligated to reimburse KMCC for certain decommissioning and cleanup costs in recognition of the fact that much of the facility's production was dedicated to United States government contracts. Title X was amended in 1996 to increase the amount authorized to $65 million plus inflation adjustments. As of December 31, 1997, KMCC has been reimbursed approximately $40 million under Title X. Other Matters The plants and facilities of the company and its subsidiaries are subject to various environmental laws and regulations. The company or its subsidiaries have been notified that they may be responsible in varying degrees for a portion of the costs to clean up certain waste disposal sites and former plant sites. As of December 31, 1997, the company's estimate for the cost to investigate and/or remediate all presently identified sites of former or current operations, based on currently known facts and circumstances, totaled $243 million, which includes $163 million for the former West Chicago facility and $14 million for the residential area and Reed-Keppler Park. Reserves have been established based on these estimates. Actual costs will be reduced by the amounts recoverable under Title X and other government programs. Expenditures from inception through December 31, 1997, totaled $435 million for currently known sites. In addition to the environmental issues previously discussed, the company or its subsidiaries are also a party to a number of other legal proceedings pending in various courts or agencies in which the company or a subsidiary appears as plaintiff or defendant. The ultimate costs to decommission presently known sites are difficult to estimate because of the numerous contingencies, which include continually changing laws and regulations, the nature of the company's businesses and pending legal proceedings. Actual costs could differ from those currently estimated as information becomes available for sites that are not now included in the reserve, if contamination is not as expected, or field conditions or other variables differ significantly from those that are now assumed. Therefore, it is not possible to reliably estimate the amount or timing of all future expenditures relating to environmental and other contingencies. The company provides for costs related to contingencies when a loss is probable and the amount or range of amounts is reasonably estimable. Management believes, after consultation with general counsel, that adequate reserves have been provided for all known contingencies. However, the ultimate cost will depend on the outcomes of the previously-noted uncertainties. Therefore, it is possible that additional reserves could be required in the future. 11 Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of Assets to Be Held and Used In 1996 and 1995, certain oil and gas fields in the United States and Canada and certain coal and other assets were deemed to be impaired because the assets were not expected to recover their entire carrying value through future cash flows. The impairment loss is included in the Consolidated Statement of Income as Asset impairment and was determined as the difference between the carrying value and the estimated fair value. The fair value for these impaired assets was generally determined based on the estimated present value of future cash flows. No impairments were recognized during 1997. The impairment loss by segment for 1996 and 1995 was as follows. (Millions of dollars) 1996 1995 Exploration and production $22 $99 Coal -- 23 Other -- 1 --- ---- Total $22 $123 === ==== Assets to Be Disposed Of The company intends to withdraw from the electrolytic chemical business by mid-1998 (see Management's Discussion and Analysis). The sale of the ammonium perchlorate operations is pending, and a letter of intent to negotiate the sale of substantially all the remaining electrolytic operations has been signed. The carrying value of these assets was approximately $126 million at year-end 1997, which does not exceed fair value. The gain on the sale is expected to be immaterial. During 1997 the company's exploration and production operating unit completed the program to divest a number of crude oil and natural gas producing properties considered to be nonstrategic. The majority of these properties were located onshore in the United States; however, certain of these properties were located in the Gulf of Mexico, Canada and the North Sea. Net gains recognized on the sales of properties included in the divestiture program totaled $6 million in 1997 and $13 million in 1996. The divestiture program properties did not constitute a material portion of the company's year-end 1996 oil and gas reserves or oil and gas production or cash flows from operations for 1997 or 1996. At year-end 1995, these properties comprised approximately 10% of the company's oil and gas reserves, 10% of oil and gas production volumes and 5% of the company's 1995 cash flows from operations. As a result of the divestiture program, these nonstrategic oil and gas properties were reduced in 1995 to their estimated fair value less the cost to sell if the carrying value of the property exceeded such fair value net of the estimated cost of selling the property. The carrying value of the divestiture program properties was $172 million prior to the recognition of the impairment loss on the properties for which a loss was indicated. The impairment loss totaled $104 million and has been included in the Consolidated Statement of Income as Asset impairment. There were no subsequent revisions to the estimated fair values of these properties. Certain chemical facilities were closed during 1996. A $3 million impairment loss was recognized in 1996, which reduced the carrying value of the assets to nil. Also held for sale at December 31, 1995, were the net long-term assets totaling $5 million of a wholly owned coal mining operation in West Virginia. This sale was completed in February 1996. The gain on the sale was immaterial. Following are the sales and pretax income (loss) for assets to be disposed of at December 31, 1997, 1996 and 1995, as included in the Consolidated Statement of Income in each of the last three years. Any impairment loss is included in the pretax amounts. (Millions of dollars) 1997 1996 1995 Sales - Exploration and production $ -- $42 $ 64 Chemicals 166 160 158 Coal -- -- 18 ---- ---- ----- Total $166 $202 $ 240 ==== ==== ===== Income (Loss) - Exploration and production $ -- $ 9 $(108) Chemicals 22 17 23 Coal -- -- (7) ---- ---- ----- Total $ 22 $ 26 $ (92) ==== ==== ===== In January 1998, the company announced that it would exit the coal business (see Management's Discussion and Analysis). The timing and method of disposal have not yet been determined; therefore, the coal segment has not been presented as a discontinued operation nor are sales and pretax income included above. See Note 24, "Reporting by Business Segments," for coal financial information. 12 Income Taxes The taxation of a company that has operations in several countries involves many complex variables, such as differing tax structures from country to country and the effect on U.S. taxation of international earnings. These complexities do not permit meaningful comparisons between the domestic and international components of income before income taxes and the provision for income taxes, and disclosures of these components do not provide reliable indicators of relationships in future periods. Income (loss) from continuing operations before income taxes is composed of the following: (Millions of dollars) 1997 1996 1995 Domestic $177 $216 $(125) International 100 107 56 ---- ---- ----- Total $277 $323 $ (69) ==== ==== ===== Effective April 1, 1997, the corporate tax rate in the United Kingdom decreased from 33% to 31%. Effective January 1, 1995, the income tax rate in Australia increased from 33% to 36%. The deferred income tax liability and asset balances were adjusted to reflect these revised rates, which decreased the 1997 and 1995 international deferred provision for income taxes by $8 and $2 million, respectively. The 1997, 1996 and 1995 provision (benefit) for income taxes on income from continuing operations is summarized below: (Millions of dollars) 1997 1996 1995 U.S. Federal - Current $15 $ 37 $ (4) Deferred 35 25 (63) --- ---- ---- 50 62 (67) --- ---- ---- International - Current 32 5 9 Deferred (1) 32 9 --- ---- ---- 31 37 18 --- ---- ---- State 2 4 4 --- ---- ---- Total $83 $103 $(45) === ==== ==== At December 31, 1997, the net deferred tax asset includes the benefit for $80 million in net operating loss carryforwards that have no expiration dates. At December 31, 1997, the company had additional foreign net operating loss carryforwards totaling $12 million that expire in 2001. These loss carryforwards offset a portion of the foreign net deferred tax liability. Realization of net operating loss carryforwards is dependent on generating sufficient taxable income. Although realization is not assured, the company believes it is more likely than not that all of the net deferred tax asset will be realized. The net deferred tax asset, which is classified as Investments - Other assets in the Consolidated Balance Sheet, represents the net deferred taxes in certain foreign jurisdictions. Deferred tax liabilities and assets at December 31, 1997 and 1996, are composed of the following: (Millions of dollars) 1997 1996 Net deferred tax liability - Accelerated depreciation $240 $259 Exploration and development 72 65 Undistributed earnings of foreign subsidiaries 28 23 Postretirement benefits (47) (46) Dismantlement, reclamation, remediation and other reserves (69) (113) Foreign operating loss carryforward (4) (10) Other (61) (47) ---- ---- 159 131 ---- ---- Net deferred tax asset - Accelerated depreciation 13 16 Foreign operating loss carryforward (29) (36) Other (6) (3) ---- ---- (22) (23) ---- ---- Total $137 $108 ==== ==== In the following table, the U.S. Federal income tax rate is reconciled to the company's effective tax rates for income from continuing operations as reflected in the Consolidated Statement of Income. 1997 1996 1995 U.S. statutory rate 35.0% 35.0% (35.0)% Increases (decreases) resulting from - Statutory depletion in excess of cost depletion (1.5) (2.6) (10.4) Taxation of foreign operations 2.1 .9 (2.0) State income taxes 1.2 .9 (2.2) Adjustment of prior years' accruals (1.6) .2 (2.0) Federal income tax credits -- (.2) (4.1) Dividends paid on Employee Stock Ownership Plan (.6) (.5) (2.0) Foreign equity income -- -- (2.6) Contribution of appreciated equity securities (.4) (1.4) -- Adjustment of deferred tax balances due to tax rate changes (2.9) -- (3.1) Other - net (1.3) (.4) (1.6) ---- ---- ----- Total 30.0% 31.9% (65.0)% ==== ==== ===== The Internal Revenue Service has examined the company's Federal income tax returns for all years through 1994, and the years have been closed through 1992, except for a refund claim pending for the years 1984-1992. The company believes that it has made adequate provision for income taxes that may become payable with respect to open tax years. 13 Other Deferred Credits and Reserves Other deferred credits and reserves consist of the following at year-end 1997 and 1996: (Millions of dollars) 1997 1996 Reserves for site dismantlement, reclamation and remediation $251 $345 Postretirement benefit obligations 120 117 Other 51 53 ---- ---- Total $422 $515 ==== ==== The company provided for environmental reclamation and remediation of former plant sites, net of reimbursements received, during each of the years 1997, 1996 and 1995 as follows: (Millions of dollars) 1997 1996 1995 Provision, net of reimbursements $18 $43 $54 Reimbursements received 12 10 11 The reimbursements, which pertain to the former facility in West Chicago, Illinois, were received pursuant to the Energy Policy Act of 1992 (see Note 10). An additional $49 million was provided in 1995 for refining and marketing-related sites and included in the discontinued operations (see Note 21). 14 Stockholders' Equity Changes in common stock, capital in excess of par value and treasury stock for 1997, 1996 and 1995 are as follows:
Common Stock Treasury Stock Capital in Shares Par Excess of (Millions of dollars and thousands of shares) Issued Value Par Value Shares Cost Balance December 31, 1994 53,304 $53 $309 1,610 $ 63 Exercise of stock options and stock appreciation rights 210 1 9 -- -- Stock purchase program -- -- -- 835 48 ------ --- ---- ----- ---- Balance December 31, 1995 53,514 54 318 2,445 111 Exercise of stock options and stock appreciation rights 348 -- 16 -- -- Issuance of shares for achievement awards -- -- -- (3) -- Stock purchase program -- -- -- 3,127 195 ------ --- ---- ----- ---- Balance December 31, 1996 53,862 54 334 5,569 306 Exercise of stock options and stock appreciation rights 259 -- 12 -- -- Issuance of shares for achievement awards -- -- -- (2) -- Stock purchase program -- -- -- 867 57 ------ --- ---- ----- ---- Balance December 31, 1997 54,121 $54 $346 6,434 $363 ====== === ==== ===== ====
The company has 40 million shares of preferred stock without par value authorized, and none is issued. During 1995, the Board of Directors authorized management to purchase up to $300 million of the common stock of the company. The program was completed in August 1997 with a total of 4,829,000 shares acquired at a cost of $300 million. In 1996, the company's Board of Directors replaced the existing stockholder-rights plan, which expired in July 1996, with a new rights plan dated July 9, 1996. Such rights were distributed as a dividend at the rate of one right for each share of the company's common stock. Generally, the rights become exercisable the earlier of 10 days after a public announcement that a person or group has acquired, or a tender offer has been made for, 15% or more of the company's then-outstanding stock. If either of these events occur, each right would entitle the holder (other than the 15% holder) to buy the number of shares of the company's common stock having a market value two times the exercise price. The exercise price is $215. Generally, the rights may be redeemed at $.01 per right until a person or group has acquired 15% or more of the company's stock. The rights expire in July 2006. 15 Other Income Other income is as follows during each of the years in the three-year period ended December 31, 1997: (Millions of dollars) 1997 1996 1995 Income from unconsolidated affiliates $32 $ 14 $12 Gain on sale of available-for-sale securities 18 23 -- Settlements with insurance carriers 12 67 -- Interest 12 9 15 Gain on sale of assets 10 24 2 Other 6 (5) -- --- ---- --- Total $90 $132 $29 === ==== === 16 Financial Instruments and Hedging Activities Investments in Certain Debt and Equity Securities The company has certain investments that are considered to be available for sale. These financial instruments are carried in the Consolidated Balance Sheet at fair value, which is based on quoted market prices. The company held no securities classified as held to maturity or trading at December 31, 1997 and 1996. At December 31, 1997 and 1996, available-for-sale securities for which fair value can be estimated were as follows:
1997 1996 Fair Gross Unrealized Fair Gross Unrealized (Millions of dollars) Value Cost Holding Gains Value Cost Holding Gains U.S. government obligations - Maturing within one year $ 8 $ 8 $-- $26 $26 $-- Maturing between one year and four years 19 19 -- -- -- -- Equity securities -- -- -- 22 3 19 --- --- --- --- --- --- Total $27 $27 $-- $48 $29 $19 === === === === === ===
U.S. government obligations are carried in the Consolidated Balance Sheet as Current Assets or as Investments - Other assets, depending upon their maturity. Equity securities are carried as Investments - Other assets. During 1997 and 1996, the company sold available-for-sale equity securities. Proceeds from the sales totaled $21 million in 1997 and $29 million in 1996. The average cost of the securities was used in the determination of the realized gains, which totaled $18 million in 1997 and $23 million in 1996 before income taxes. Also during 1997 and 1996, the company donated a portion of its available-for-sale equity securities to Kerr-McGee Foundation Corporation, a tax-exempt entity whose purpose is to contribute to not-for-profit organizations. The fair value of these donated shares totaled $3 million in 1997 and $16 million in 1996, which included appreciation of $3 million and $13 million before income taxes, respectively. The change in unrealized holding gains, net of income taxes, as shown in the separate component of stockholders' equity during the three-year period ended December 31, 1997, is as follows: (Millions of dollars) 1997 1996 1995 Beginning balance $12 $26 $12 Net unrealized holding gains 2 9 14 Net realized gains (12) (15) -- Net appreciation of donated securities (2) (8) -- --- --- --- Ending balance $-- $12 $26 === === === Financial Instruments for Other than Trading Purposes In addition to the investments previously discussed, the company holds or issues financial instruments for other than trading purposes. At December 31, 1997 and 1996, the carrying amount and estimated fair value of such financial instruments for which fair value can be determined are as follows: 1997 1996 Carrying Fair Carrying Fair (Millions of dollars) Amount Value Amount Value Cash and cash equivalents $183 $183 $121 $121 Long-term notes receivable 5 5 17 17 Contracts to sell foreign currencies -- 8 13 33 Contracts to purchase foreign currencies -- 102 -- 29 Short-term borrowings 25 25 37 37 Total long-term debt 554 669 626 737 The carrying amount of cash and cash equivalents approximates fair value of those instruments due to their short maturity. The fair value of notes receivable is based on discounted cash flows or the fair value of the note's collateral. The fair value of the company's short-term and long-term debt is based on the quoted market prices for the same or similar debt issues or on the current rates offered to the company for debt with the same remaining maturity. The fair value of foreign currency forward contracts represents the aggregate replacement cost based on financial institutions' quotes. Hedging Activities Most of the company's foreign currency contracts are hedges principally for chemicals' accounts receivable generated from titanium dioxide pigment sales denominated in foreign currencies ($65 million hedged in 1997 and $68 million in 1996) and the operating costs and capital expenditures of international chemical operations ($50 million hedged in 1997 and $28 million in 1996). The purpose of these foreign currency hedging activities is to protect the company from the risk that the eventual U.S. dollar amounts from sales to foreign customers and purchases from foreign suppliers could be adversely affected by changes in foreign currency exchange rates. The company recognized net foreign currency hedging gains of $4 million in 1997, $3 million in 1996 and $8 million in 1995. At December 31, 1997, the company had foreign currency contracts maturing between January 1998 and December 1999 to purchase $137 million Australian and 8 million British pounds sterling for $102 million and $12 million, respectively. Additionally, at December 31, 1997, the company had contracts to sell for $8 million various foreign currencies, principally European, which mature between January and April 1998. At December 31, 1996, the company had foreign currency contracts that matured between January and December 1997 to purchase $36 million Australian for $25 million. Additionally, at December 31, 1996, the company had contracts to sell for $34 million various foreign currencies, principally European, which matured between January and December 1997. This included contracts totaling $14 million for anticipated pigment sales that were marked-to-market. Net unrealized losses on foreign currency contracts totaled $13 million at year-end 1997. Net unrealized gains on foreign currency contracts totaled $4 million at year-end 1996 and $3 million at year-end 1995. Although no oil or natural gas futures or option contracts were entered into during 1997, the company has periodically used these types of contracts to reduce the effect of the price volatility of crude oil, natural gas and, prior to the sale of the refining and marketing operations, refined products. The futures contracts permitted settlement by delivery of commodities. During 1996, the company sold forward 10 million barrels of crude oil and 37 billion cubic feet of natural gas representing approximately 40% and 36% of its worldwide crude oil and natural gas production, respectively. Net hedging losses on crude oil and natural gas recognized in 1996 totaled $37 million. The effect of the losses was to reduce the company's 1996 average gross margin for crude oil and natural gas by $1.04 per barrel and $.11 per MCF, respectively. At year-end 1996, there were no open crude oil or natural gas contracts. During 1995, the company sold forward 13 million barrels of crude oil and 19 billion cubic feet of natural gas representing approximately 49% and 18% of its worldwide crude oil and natural gas production, respectively, and 35% of the refined-product sales of the discontinued refining and marketing operations. Hedging gains and losses recognized for 1995 were immaterial. At year-end 1995, open crude oil and natural gas contracts had an aggregate value of $151 million, and the unrecognized loss on these contracts totaled $14 million. Contract amounts do not quantify risk or represent assets or liabilities of the company but are used in the calculation of cash settlements under the contracts. These financial instruments limit the company's market risks, are with major financial institutions, expose the company to credit risks and may at times be concentrated with certain institutions or groups of institutions. However, the credit worthiness of these institutions is subject to continuing review, and full performance is anticipated. Additional information regarding market risk is included in the quantitative and qualitative disclosure in Management's Discussion and Analysis. Year-end hedge positions and activities during a particular year are not necessarily indicative of future activities and results. 17 Taxes, Other than Income Taxes Taxes, other than income taxes, during the years ended December 31, 1997, 1996 and 1995, are composed of the following: (Millions of dollars) 1997 1996 1995 Production/severance $19 $25 $22 Payroll 16 15 14 Property 5 10 10 Other 13 16 15 --- --- --- Total $53 $66 $61 === === === 18 Employee Stock Option Plans The 1987 Long Term Incentive Program (1987 Program) authorized the issuance of shares of the company's common stock through December 31, 2002, in the form of stock options, restricted stock or long-term performance awards. The options may be accompanied by stock appreciation rights. The 1987 Program was amended in May 1995 to restore the number of shares available to be granted to 1,000,000, bringing the total number of shares authorized to be granted through the program to 2,740,000. The company's employee stock options are fixed-price options granted at the fair market value of the underlying common stock on the date of the grant. Generally, one-third of each grant vests and becomes exercisable over a three-year period immediately following the grant date and expires 10 years after the grant date. The 1984 Employee Stock Option Plan authorized the granting of options over a 10-year period for up to 1,000,000 shares of common stock and accompanying stock appreciation rights. The 1984 plan was terminated on May 3, 1988. After that date, no further options could be granted under this plan, although options and any accompanying stock appreciation rights outstanding at that time could be exercised prior to their respective expiration dates. Transactions during the past three years under these plans are summarized below:
1987 Incentive Program 1984 Stock Option Plan Weighted-Average Weighted-Average Exercise Price Exercise Price Options per Option Options per Option Balance outstanding December 31, 1994 1,178,403 $45.11 33,000 $27.58 Options granted 409,000 49.31 -- -- Options exercised (206,821) 43.81 (3,000) 27.06 Options surrendered upon exercise of stock appreciation rights (6,850) 39.80 (20,000) 27.91 Options forfeited (49,369) 45.87 -- -- --------- ------- Balance outstanding December 31, 1995 1,324,363 46.61 10,000 27.06 Options granted 310,800 63.56 -- -- Options exercised (333,594) 46.40 -- -- Options surrendered upon exercise of stock appreciation rights (48,634) 43.63 (10,000) 27.06 Options forfeited (6,469) 53.00 -- -- --------- ------- Balance outstanding December 31, 1996 1,246,466 50.98 -- -- Options granted 325,200 68.90 -- -- Options exercised (256,986) 45.93 -- -- Options surrendered upon exercise of stock appreciation rights (5,000) 32.38 -- -- Options forfeited (6,703) 57.46 -- -- Options expired (400) 54.06 -- -- --------- ------- Balance outstanding December 31, 1997 1,302,577 56.48 -- -- ========= ======= Options exercisable - December 31, 1995 626,759 44.87 10,000 27.06 December 31, 1996 623,461 46.44 -- -- December 31, 1997 750,894 50.87 -- --
Following is the range of exercise prices and weighted-average remaining life of all stock options outstanding at December 31, 1997, and the weighted-average price within each price range of those options outstanding and those options exercisable at year-end 1997.
Options Outstanding at December 31, 1997 Options Exercisable at December 31, 1997 Range of Weighted-Average Weighted-Average Weighted-Average Exercise Prices Remaining Exercise Price Exercise Price Options per Option Contractual Life per Option Options per Option 38,900 $32.38-$39.57 2.7 $38.00 38,900 $38.00 418,518 40.81- 49.25 5.6 45.49 385,183 45.56 230,657 50.56- 54.50 6.9 53.14 170,169 52.77 457,502 61.00- 64.88 8.7 63.96 138,642 63.96 157,000 73.50- 73.50 9.0 73.50 18,000 73.50 ------- ------ 1,302,577 32.38- 73.50 7.2 56.48 750,894 50.87 ========= =======
FAS No. 123, "Accounting for Stock-Based Compensation," prescribes a fair-value method of accounting for employee stock options under which compensation expense is measured based on the estimated fair value of stock options at the grant date and recognized over the period that the options vest. The company, however, chooses to account for its stock option plan under the optional intrinsic value method of APB No. 25, "Accounting for Stock Issued to Employees," whereby no compensation expense is recognized for fixed-price stock options. Compensation cost for stock appreciation rights, which is recognized under both accounting methods, was immaterial for 1997, 1996 and 1995. Had compensation expense been determined in accordance with FAS No. 123, the estimated weighted-average, grant-date fair value would have been $14.37, $13.17 and $14.54 per option for those options granted in 1997, 1996 and 1995, respectively. Use of the fair-value method of accounting for employee stock options would result in net income and earnings per share that are not materially different from the amounts reported in the financial statements. This may not be representative of compensation expense that might be expected to result in future years using the fair-value method of accounting for employee stock options, as the number of options granted in a particular year may not be indicative of the number of options granted in future years, and the fair-value method of accounting has not been applied to options granted prior to January 1, 1995. The fair value of each option granted in 1997, 1996 and 1995 was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions. 1997 1996 1995 Expected life (years) 5.8 5.8 10.0 Risk-free interest rate 6.3% 6.1% 7.1% Expected dividend yield 3.1 3.1 3.1 Expected volatility 17.5 17.9 19.4 The number of the company's common shares issued upon exercise of options after year-end 1997 was not material. In January 1998, the Board of Directors approved a broad-based stock option plan (BSOP) that provides for the granting of options to purchase the company's common stock to all full-time employees, except officers. A total of 1,500,000 shares of common stock is authorized to be issued under the BSOP, and approximately 465,000 options were granted in January 1998. The Board of Directors, subject to stockholder ratification, also approved the 1998 Long Term Incentive Plan (the 1998 Plan) to be effective January 1, 1998. This plan provides for the granting of options, restricted stock and other awards to key employees. Stock appreciation rights may be associated with the options. A total of 2,300,000 shares of the company's common stock is authorized to be issued under the 1998 Plan, and in January 1998, 185,000 options were granted. These options will be granted under the 1987 Program if the 1998 Plan is not ratified by the stockholders. The 1987 Program will terminate upon stockholder ratification of the 1998 Plan. No further options can be granted under the 1987 Program after its termination, although options and any accompanying stock appreciation rights outstanding at that time may be exercised prior to their respective expiration dates. Options under either the BSOP or the 1998 Plan are granted at prices equal to the fair market value of the underlying common stock at the time of grant. Also in January 1998, the Board of Directors approved provisions to amend and restate the Executive Deferred Compensation Plan (EDCP). The amendment of the EDCP adds the company's common stock as an investment alternative, allows stock option gains to be deferred pretax and implements certain administrative changes. A total of 500,000 shares of common stock is authorized to be issued through the EDCP and periodically transferred from the company's treasury stock or purchased in open-market transactions. Earnings per share for 1997 would have been lower had these plans been in existence and had shares been transferred to the EDCP prior to year-end 1997 or if any options granted under the BSOP or the 1998 Plan had been "in the money" at year-end. The impact on basic and diluted earnings per share would have been dependent on the number of shares transferred to the EDCP, while diluted earnings per share would have been further impacted by the number of incremental shares included in the denominator of the diluted earnings-per-share computation. 19 Restructuring Charges Restructuring of the exploration and production operating unit continued during 1997 with the relocation of the unit to Houston, Texas. This, in conjunction with the unit's merger of its North American onshore properties into Devon (see Note 4) and the 1995 reorganization, resulted in approximately 300 employees terminating their employment, most of whom were terminated by year-end 1997. During the three-year period ended December 31, 1997, the company accrued a total of $19 million for the cost of special termination benefits for retiring employees to be paid from retirement plan assets, future compensation, relocation, lease cancellation and outplacement. The $2 million reserve at December 31, 1997, primarily represents remaining severance costs, which are expected to be paid and charged to the reserve during 1998. The accruals, expenditures and reserve balances are set forth below: (Millions of dollars) 1997 1996 Beginning balance $10 $ 5 Accruals 2 10 Retirement benefits to be paid from plan assets -- (2) Payments (10) (3) --- --- Ending balance $ 2 $10 === === 20 Employee Stock Ownership Plan In 1989, the company's Board of Directors approved a leveraged Employee Stock Ownership Plan (ESOP) into which is paid the company's matching contribution for the employees' contributions to the Kerr-McGee Corporation Savings Investment Plan (SIP). Most of the company's employees are eligible to participate in both the ESOP and the SIP. Although the ESOP and the SIP are separate plans, matching contributions to the ESOP are contingent upon participants' contributions to the SIP. In 1989, the ESOP trust borrowed $125 million from a group of lending institutions and used the proceeds to purchase 2.7 million shares of the company's treasury stock. The company used the $125 million in proceeds from the sale of the stock to acquire shares of its common stock in open-market and privately negotiated transactions. In 1996, a portion of the third-party borrowings was replaced with a note payable to the company (sponsor financing). The third-party borrowings are guaranteed by the company and are reflected in the Consolidated Balance Sheet as Long-Term Debt, while the sponsor financing does not appear in the company's balance sheet. Deferred compensation, representing the unallocated ESOP shares discussed in the following paragraph, is reflected as a reduction of stockholders' equity. The company stock acquired by the ESOP trust is held in a loan suspense account. The company's matching contribution and dividends on the shares held by the ESOP trust are used to repay the loan, and stock is released from the loan suspense account as the principal and interest are paid. The stock is then allocated to participants' accounts at market value as the participants' contributions are made to the SIP. Deferred compensation reflected in the company's Consolidated Balance Sheet is reduced as shares are allocated to participants' accounts. Long-term debt is reduced as payments are made on the third-party financing. Dividends paid on the common stock held in participants' accounts are also used to repay the loans, and stock with a market value equal to the amount of dividends is allocated to participants' accounts. At December 31, 1997 and 1996, the ESOP trust held shares of stock allocated to participants' accounts and in the loan suspense account as follows: (Thousands of shares) 1997 1996 Participants' accounts 1,343 1,251 Loan suspense account 1,110 1,290 The shares allocated to participants at December 31, 1997, included approximately 15,000 shares released in January 1998. The shares allocated to participants at December 31, 1996, included approximately 14,000 shares released in January 1997. All ESOP shares are considered outstanding for earnings-per-share calculations. Dividends on ESOP shares are charged to retained earnings. Compensation expense is recognized using the cost method and is reduced for dividends paid on the unallocated ESOP shares. The company recognized ESOP-related expense of $10 million, $12 million and $14 million in 1997, 1996 and 1995, respectively. These amounts include interest expense incurred on the third-party ESOP debt of $5 million, $6 million and $8 million in 1997, 1996 and 1995, respectively. The company contributed $1 million, $9 million and $15 million to the ESOP in 1997, 1996 and 1995, respectively. The cash contributions are net of $4 million for the dividends paid on the company stock held by the ESOP trust in each of the years 1997, 1996 and 1995. 21 Discontinued Operations During 1995, the company disposed of substantially all of its refining and marketing operations, which had been conducted by wholly owned subsidiaries, Kerr-McGee Refining Corporation and Cato Oil and Grease Co. The 1995 gain on the sale was $2 million, net of $1 million for income taxes. The operating results of the discontinued refining and marketing operations are reported separately in the Consolidated Statement of Income. Revenues applicable to the discontinued operations totaled $1.1 billion in 1995. All of the crude oil and refined-product inventories of the discontinued refining and marketing operations were valued using the last-in, first-out (LIFO) method until sold during 1995. LIFO reserves of $12 million were reversed at the time of the sale of these inventories. The sales of the remaining assets were completed during 1996, and the resulting gains and losses were immaterial. 22 Postretirement Benefits The company sponsors contributory plans to provide certain health care and life insurance benefits for retired employees. Substantially all the company's employees may become eligible for these benefits if they reach retirement age while working for the company; however, benefits available and costs to individual employees vary depending on the employee's date of retirement and date of employment with the company. At December 31, 1997 and 1996, the actuarial and recorded liabilities for postretirement benefits, none of which has been funded, are as follows:
1997 1996 (Millions of dollars) Health Life Health Life Actuarial present value of accumulated postretirement benefit obligations - Retirees $ (77) $(19) $(69) $(18) Fully eligible active participants (9) (2) (11) (1) Other active participants (21) (3) (18) (4) ----- ---- ---- ---- Total (107) (24) (98) (23) Unrecognized net (gain) loss 6 (3) -- (4) ----- ---- ---- ---- Accrued postretirement expense $(101) $(27) $(98) $(27) ===== ==== ==== ====
For the years ended December 31, 1997, 1996 and 1995, the components of net periodic expense for postretirement benefits were as follows:
1997 1996 1995 (Millions of dollars) Health Life Health Life Health Life Service cost - benefits earned during the period $1 $1 $1 $1 $1 $1 Interest cost on accumulated postretirement benefit obligations 8 1 8 1 8 1 -- -- -- -- -- -- Net postretirement expense $9 $2 $9 $2 $9 $2 == == == == == ==
The following assumptions were used in estimating the actuarial present value of the accumulated postretirement benefit obligations and net periodic postretirement benefit expense: 1997 1996 1995 Future compensation increases 5.0% 5.0% 5.00% Discount rate 7.0 7.5 7.25 The health care cost trend rate used to determine the year-end 1997 accumulated postretirement benefit obligation was 8% in 1998, gradually declining to 5% in the year 2009 and thereafter. A 1% increase in the assumed health care cost trend rate for each future year would increase the accumulated postretirement benefit obligation by $13 million at December 31, 1997. In addition, the aggregate of the service and interest cost components of net periodic postretirement expense for 1997 would increase by $1 million. 23 Retirement Plans Most of the company's employees are covered under noncontributory retirement plans of the company and certain of its subsidiaries. The benefits of these plans are based primarily on years of service and employees' remuneration near retirement. The company's policy is to fund the minimum amounts as permitted by the Employee Retirement Income Security Act of 1974 (ERISA). The funded status of plans with assets in excess of accumulated benefits at December 31, 1997 and 1996, is as follows:
(Millions of dollars) 1997 1996 Plan assets at fair value $639 $538 ---- ---- Actuarial present value of accumulated benefit obligations - Vested (354) (322) Nonvested (16) (13) ---- ---- Total (370) (335) ---- ---- Plan assets in excess of accumulated benefit obligations $269 $203 ==== ==== Plan assets at fair value $639 $538 ---- ---- Projected benefit obligations - Actuarial present value of accumulated benefit obligations (370) (335) Projected salary increases (54) (46) ---- ---- Total (424) (381) Plan assets in excess of projected benefit obligations 215 157 Unrecognized net asset at January 1, 1987 (13) (17) Unrecognized prior service costs 11 12 Unrecognized net gain (171) (119) ---- ---- Pension prepayment at end of year $ 42 $ 33 ==== ====
The net periodic pension credit, excluding charges of $2 million in 1996 and $1 million in 1995 related to the restructuring program (see Note 19), for each of the past three years is summarized as follows: (Millions of dollars) 1997 1996 1995 Service cost - benefits earned during the period $ 10 $ 9 $ 8 Interest cost on projected benefit obligations 28 27 27 Return on plan assets (126) (70) (115) Net amortization and deferral 79 27 71 ---- --- ---- Net pension credit $ (9) $(7) $ (9) ==== === ==== The amount of benefits that can be covered by the funded plans is limited by ERISA and the Internal Revenue Code. Therefore, the company has unfunded supplemental plans designed to maintain benefits for all employees at the plan formula level and to provide senior executives with benefits equal to a specified percentage of their final average compensation. The projected benefit obligation for these unfunded plans totaled $14 million and $19 million at December 31, 1997 and 1996, respectively. To reflect the amount by which the accumulated benefit obligation exceeded the accrued pension expense for these plans, an additional liability is recorded in the Consolidated Balance Sheet at both December 31, 1997 and 1996. Offsetting is an intangible asset (see Note 7). Although not considered plan assets, a grantor trust was established from which payments for certain of these supplemental plans are made. The trust had a balance of $7 million and $12 million at December 31, 1997 and 1996, respectively. Excluding $6 million in 1997 related to the settlement of a significant portion of the liabilities of the unfunded supplemental plans, net periodic pension expense for these plans was $3 million for 1997 and $4 million for each of the years 1996 and 1995. The following assumptions were used in estimating the actuarial present value of the projected benefit obligation and net periodic pension costs: 1997 1996 1995 Future compensation increases 5.0% 5.0% 5.00% Discount rate 7.0 7.5 7.25 Long-term rate of return on plan assets 9.0 9.0 9.00 24 Reporting by Business Segments The company is an international energy and chemical company. The principal areas of oil and gas exploration and production are the Gulf of Mexico, the United Kingdom sector of the North Sea, China, Southeast Asia, Yemen and, prior to December 31, 1996, onshore in North America. The company has domestic coal and chemical operations and interests in chemical operations in Western Australia and Saudi Arabia.
(Millions of dollars) 1997 1996 1995 Sales - Exploration and production(1) $ 628 $ 874 $ 690 Chemicals 760 692 707 Coal 323 365 353 Other -- -- 4 ------ ------ ------ Total $1,711 $1,931 $1,754 ====== ====== ====== Operating profit (loss)(2) - Exploration and production $ 175 $ 204 $ (97) Chemicals 81 85 122 Coal 44 75 43 Other 4 7 (4) ------ ------ ------ Total $ 304 $ 371 $ 64 ====== ====== ====== Net operating profit (loss)(2) - Exploration and production $ 107 $ 136 $ (56) Chemicals 52 53 81 Coal 33 57 35 Other 2 5 (2) - - -- Total 194 251 58 Net interest expense (24) (30) (29) Net nonoperating income (expense)(2) 24 (1) (53) Loss from discontinued operations, net of income tax benefit -- -- (7) ------ ------ ------ Net income (loss) $ 194 $ 220 $ (31) ====== ====== ====== Sales - U.S. operations(3) $1,212 $1,391 $1,237 ------ ------ ------ International operations(4) - North Sea - exploration and production 215 289 272 China - exploration and production 56 25 -- Australia - chemicals 185 151 158 Other 43 75 87 -- -- -- 499 540 517 ------ ------ ------ Total $1,711 $1,931 $1,754 ====== ====== ====== Operating profit (loss)(2) - U.S. operations $ 207 $ 256 $ (5) ------ ------ ------ International operations - North Sea - exploration and production 80 93 108 China - exploration and production 4 2 (5) Australia - chemicals 13 9 24 Other -- 11 (58) ------ ------ ------ 97 115 69 ------ ------ ------ Total $ 304 $ 371 $ 64 ====== ====== ======
(1) Includes primarily crude oil sales to the discontinued refining and marketing operations of $112 million in 1995. (2) Includes special items. Refer to Management's Discussion and Analysis. (3) Includes U.S. crude oil sales to the discontinued refining and marketing operations of $105 million in 1995. (4) Includes international crude oil sales to the discontinued refining and marketing operations of $7 million in 1995.
(Millions of dollars) 1997 1996 1995 Depreciation, depletion and amortization expense - Exploration and production $ 186 $ 218 $ 231 Chemicals 55 55 52 Coal 25 30 29 Other 5 4 6 Discontinued operations -- -- 16 ------ ------ ------ Total $ 271 $ 307 $ 334 ====== ====== ====== Cash capital expenditures - Exploration and production $ 213 $ 239 $ 371 Chemicals 91 118 69 Coal 27 29 36 Other 10 6 2 Discontinued operations -- -- 6 - Total 341 392 484 ====== ====== ====== Exploration expenses - Petroleum exploration and production - Dry hole costs 25 37 34 Amortization of undeveloped leases 8 10 14 Other 30 25 31 -- -- -- Total 63 72 79 Minerals and other 2 3 3 - - - Total exploration expenses 65 75 82 Less - Amortization of oil and gas and minerals leases and other noncash expenses (8) (14) (19) ------ ------ ------ 57 61 63 ------ ------ ------ Total cash capital expenditures and cash exploration expenses $ 398 $ 453 $ 547 ====== ====== ====== Identifiable assets - Exploration and production $1,681 $1,667 $1,748 Chemicals 875 886 802 Coal 270 276 327 Other 38 39 36 -- -- -- Total 2,864 2,868 2,913 Corporate assets 232 256 261 Discontinued operations -- -- 39 ------ ------ ------ Total $3,096 $3,124 $3,213 ====== ====== ====== Identifiable assets - U.S. operations $1,654 $1,684 $1,663 ------ ------ ------ International operations - North Sea - exploration and production 699 651 669 China - exploration and production 183 180 149 Australia - chemicals 243 268 260 Other 85 85 172 -- -- --- 1,210 1,184 1,250 ------ ------ ------ Total $2,864 $2,868 $2,913 ====== ====== ======
(Millions of dollars) 1997 1996 1995 Net assets - U.S. operations $ 617 $ 582 $ 623 ------ ------ ------ International operations - North Sea - exploration and production 475 413 409 China - exploration and production 134 109 106 Australia - chemicals 152 211 199 Other 62 52 79 -- -- -- 823 785 793 ------ ------ ------ Total $1,440 $1,367 $1,416 ====== ====== ======
25 Results of Operations from Crude Oil and Natural Gas Activities The results of operations from crude oil and natural gas activities for the three years ended December 31, 1997, consist of the following:
Proportional Interest Results of in Equity Production Other Depreciation Income Tax Operations, Affiliate's Gross (Lifting) Related Exploration and Depletion Asset Expenses Producing Results of (Millions of dollars) Revenues(1) Costs Costs(2) Expenses(2) Expenses Impairment (Benefits) Activities Operations(3) 1997 - Domestic $309 $ 50 $25 $25 $105 $ -- $ 39 $ 65 $25 North Sea 190 49 7 13 53 -- 27 41 -- China 56 11 6 16 19 -- -- 4 -- Other international 3 1 6 9 1 -- (4) (10) 3 ---- ---- --- --- ---- ---- ---- ---- --- Total crude oil and natural gas activities 558 111 44 63 178 -- 62 100 28 Other(4) 70 55 2 -- -- -- 6 7 -- -- ---- ---- --- --- ---- ---- ---- ---- --- Total $628 $166 $46 $63 $178 $ -- $ 68 $107 $28 ==== ==== === === ==== ==== ==== ==== === 1996 - Domestic $397 $ 83 $31 $26 $127 $ 22 $ 35 $ 73 -- North Sea 240 57 8 36 57 -- 30 52 -- China 25 8 5 2 8 -- 1 1 -- Other international 32 10 6 8 15 -- (2) (5) -- ---- ---- --- --- ---- ---- ---- ---- --- Total crude oil and natural gas activities 694 158 50 72 207 22 64 121 -- Other(4) 180 159 1 -- 1 -- 4 15 -- -- ---- ---- --- --- ---- ---- ---- ---- --- Total $874 $317 $51 $72 $208 $ 22 $ 68 $136 -- ==== ==== === === ==== ==== ==== ==== === 1995 - Domestic $294 $92 $17 $57 $128 $144 $(58) $(86) -- North Sea 242 57 8 15 66 -- 32 64 -- Other international 40 11 12 7 20 53 (20) (43) -- ---- ---- --- --- ---- ---- ---- ---- --- Total crude oil and natural gas activities 576 160 37 79 214 197 (46) (65) -- Other(4) 114 88 3 -- 3 6 5 9 -- -- ---- ---- --- --- ---- ---- ---- ---- --- Total $690 $248 $40 $79 $217 $203 $(41) $(56) -- ==== ==== === === ==== ==== ==== ==== ===
(1) Gross revenues for1995 include sales to affiliated entities totaling $112 million. Of this amount, $97 million and $7 million were applicable to Domestic and North Sea gross revenues, respectively, and $8 million was from other activities. (2) Includes restructuring charges of $2 million, $10 million and $7 million in 1997, 1996 and 1995, respectively. These charges are classified as Other Related Costs, with the exception of $1 million classified as Exploration Expenses in 1995 (see Note 19). (3) The equity affiliate follows the "full cost" method of accountingfor oil and gas exploration and production activities. (4) Includes gas marketing, gas processing plants, pipelines and other items that do not fit the definition of crude oil and natural gas activities but have been included above to reconcile to the segment presentations. The table below presents the company's average per-unit sales price of proprietary crude oil and natural gas and production costs per barrel of oil equivalent for each of the past three years. Natural gas production has been converted to a barrel of oil equivalent based on approximate relative heating value (6 MCF equals 1 barrel). 1997 1996 1995 Average sales price - Crude oil (per barrel) Domestic $18.53 $19.36 $15.69 North Sea 18.77 19.08 16.31 China 17.71 19.53 -- Other international 18.59 17.69 15.21 Average 18.51 19.16 15.99 Natural gas (per MCF) Domestic 2.57 2.16 1.56 North Sea 2.52 2.64 2.66 Other international -- 1.14 .85 Average 2.56 2.12 1.52 Production costs - (Per barrel of oil equivalent) Domestic 2.75 3.32 3.78 North Sea 4.70 4.33 3.91 China 3.50 5.92 -- Other international 4.55 3.41 2.39 Average 3.48 3.72 3.68 26 Capitalized Costs of Crude Oil and Natural Gas Activities Capitalized costs of crude oil and natural gas activities and the related reserves for depreciation, depletion and amortization at the end of 1997 and 1996 are set forth in the table below. Not included in the amounts shown are $221 million and $209 million that represent the company's proportional interest in an equity affiliate's net capitalized costs at December 31, 1997 and 1996, respectively (see Note 4). The equity affiliate follows the "full cost" method of accounting for oil and gas exploration and production activities. (Millions of dollars) 1997 1996 Capitalized costs - Proved properties $2,709 $3,054 Unproved properties 134 104 Other 45 34 ------ ----- 2,888 3,192 ====== ===== Reserves for depreciation, depletion and amortization - Proved properties 1,623 1,953 Unproved properties 30 29 Other 24 23 ------ ------ 1,677 2,005 ------ ------ Net capitalized costs $1,211 $1,187 ====== ====== 27 Standardized Measure of and Reconciliation of Changes in Discounted Future Net Cash Flows (Unaudited) The standardized measure of future net cash flows presented in the following table was computed using year-end prices and costs and a 10% discount factor. The future income tax expense was computed by applying the appropriate year-end statutory rates, with consideration of future tax rates already legislated, to the future pretax net cash flows less the tax basis of the properties involved. However, the company cautions that actual future net cash flows may vary considerably from these estimates. Although the company's estimates of total reserves, development costs and production rates were based upon the best information available, the development and production of the oil and gas reserves may not occur in the periods assumed. Actual prices realized and costs incurred may vary significantly from those used. Therefore, such estimated future net cash flow computations should not be considered to represent the company's estimate of the expected revenues or the current value of existing proved reserves.
Standardized Proportional Future Measure of Interest in Equity Future Development Future 10% Discounted Affiliate's Cash and Production Income Future Net Annual Future Net Standardized (Millions of dollars) Inflows Costs Taxes Cash Flows Discount Cash Flows(1) Measure 1997 - Domestic $1,407 $ 403 $ 290 $ 714 $242 $ 472 $205 North Sea 1,807 813 266 728 266 462 -- China 401 171 42 188 45 143 -- Other international 304 153 55 96 42 54 19 ------ ------ ------ ------ ---- ------ ---- Total $3,919 $1,540 $ 653 $1,726 $595 $1,131 $224 ====== ====== ====== ====== ==== ====== ==== 1996 - Domestic $2,217 $435 $ 552 $1,230 $411 $819 $336 North Sea 2,610 841 638 1,131 382 749 -- China 658 248 95 315 91 224 -- Other international 246 147 38 61 26 35 28 ------ ------ ------ ------ ---- ------ ---- Total $5,731 $1,671 $1,323 $2,737 $910 $1,827 $364 ====== ====== ====== ====== ==== ====== ==== 1995 - Domestic $2,320 $910 $ 350 $1,060 $339 $721 $ -- North Sea 1,494 418 328 748 254 494 -- China 551 179 96 276 81 195 -- Other international 297 94 62 141 54 87 -- ------ ------ ------ ------ ---- ------ ---- Total $4,662 $1,601 $ 836 $2,225 $728 $1,497 $ -- ====== ====== ====== ====== ==== ====== ====
(1) Includes $(8) million in 1996 and $51 million in 1995 from properties held for sale (see Note 11). The changes in the standardized measure of future net cash flows are presented below for each of the past three years:
(Millions of dollars) 1997 1996 1995 Net change in sales, transfer prices and production costs $(1,121) $ 847 $ 451 Changes in estimated future development costs (64) 45 (165) Sales and transfers less production costs (446) (516) (402) Purchases of reserves in place -- 1 62 Changes due to extensions, discoveries, etc. 108 474 58 Changes due to revisions in quantity estimates 37 116 17 Changes due to sales of reserves in place (8) (139) (86) Changes due to reserves merged into equity affiliate -- (511) -- Current period development costs 152 155 243 Accretion of discount 261 199 167 Changes in income taxes 384 (289) (124) Timing and other 1 (52) (19) ------ ------ ------ Net change (696) 330 202 Total at beginning of year 1,827 1,497 1,295 ------ ------ ------ Total at end of year $1,131 $1,827 $1,497 ====== ====== ======
28 Crude Oil, Condensate and Natural Gas Net Reserves (Unaudited) The estimates of proved reserves have been prepared by the company's geologists and engineers. Such estimates include reserves on certain properties that are partially undeveloped and reserves that may be obtained in the future by improved recovery operations now in operation or for which successful testing has been demonstrated. The company has no proved reserves attributable to long-term supply agreements with governments or consolidated subsidiaries in which there are significant minority interests. At December 31, 1996, the company merged its North American onshore properties into an equity affiliate (see Note 4). The following table summarizes the changes in the estimated quantities of the company's crude oil and condensate and natural gas reserves for the three years ended December 31, 1997.
Crude Oil and Condensate Natural Gas (Millions of barrels) (Billions of cubic feet) Other Other North Interna- North Interna- Domestic Sea China tional Total Domestic Sea tional Total Proved developed and undeveloped reserves - Balance December 31, 1994 77 75 26 13 191 568 199 82 849 Revisions of previous estimates 2 1 4 1 8 (6) -- 3 (3) Purchases of reserves in place 1 -- -- -- 1 45 -- -- 45 Sales of reserves in place (5) -- -- -- (5) (31) -- (1) (32) Extensions, discoveries and other additions 1 -- -- -- 1 25 -- 1 26 Production (10) (14) -- (2) (26) (82) (8) (16) (106) --- --- -- -- --- --- -- --- ---- Balance December 31, 1995(1) 66 62 30 12 170 519 191 69 779 Revisions of previous estimates 12 (1) -- (1) 10 (1) (10) (1) (12) Purchases of reserves in place -- -- -- -- -- 1 -- -- 1 Sales of reserves in place (10) -- -- (1) (11) (28) -- (18) (46) Reserves merged into equity affiliate (16) -- -- (9) (25) (122) -- (41) (163) Extensions, discoveries and other additions 3 39 -- 7 49 27 2 39 68 Production (11) (11) (2) (1) (25) (84) (11) (9) (104) --- --- -- -- --- --- --- -- ---- Balance December 31, 1996(1) 44 89 28 7 168 312 172 39 523 Revisions of previous estimates 5 1 -- 1 7 (1) 29 3 31 Sales of reserves in place -- (1) -- -- (1) (27) -- -- (27) Extensions, discoveries and other additions 7 -- -- 4 11 37 -- 4 41 Production (9) (8) (3) (1) (21) (56) (12) -- (68) -- -- -- -- --- --- --- -- --- Balance December 31, 1997 47 81 25 11 164 265 189 46 500 == == == == === === === == === Proportional interest in equity affiliate's reserves December 31, 1996 22 -- -- 3 25 172 -- 13 185 December 31, 1997 22 -- -- 3 25 175 -- 15 190 == == == = == === == == === Proved developed reserves - December 31, 1995(1) 45 50 -- 12 107 329 156 65 550 December 31, 1996(1) 26 45 20 -- 91 183 161 -- 344 December 31, 1997 28 33 25 11 97 166 147 -- 313 Proportional interest in equity affiliate's reserves December 31, 1996 20 -- -- 3 23 164 -- 13 177 December 31, 1997 20 -- -- 2 22 142 -- 14 156
(1) Includes 1 million barrels of oil and 3 billion cubic feet of natural gas held for sale at December 31, 1996, and 12 million barrels of oil and 57 billion cubic feet of natural gas held for sale at December 31, 1995 (see Note 11). The following presents the company's barrel of oil equivalent proved developed and undeveloped reserves based on approximate relative heating value (6 MCF equals 1 barrel).
North Other (Millions of equivalent barrels) Domestic Sea China International Total December 31, 1995(1) 152 94 30 24 300 December 31, 1996(1) 96 118 28 14 256 December 31, 1997 91 112 25 19 247 Proportional interest in equity affiliate's reserves December 31, 1996 51 -- -- 5 56 December 31, 1997 52 -- -- 5 57
(1) Includes 2 million barrels of oil equivalent and 21 million barrels of oil equivalent held for sale at December 31, 1996 and 1995, respectively (see Note 11). 29 Costs Incurred in Crude Oil and Natural Gas Activities Total expenditures, both capitalized and expensed, for crude oil and natural gas property acquisition, exploration and development activities for the three years ended December 31, 1997, are reflected in the following table:
Property Acquisition Exploration Development (Millions of dollars) Costs(1) Costs(2) Costs(3) 1997 - Proprietary costs - Domestic $29 $ 31 $ 45 North Sea -- 15 86 China -- 26 8 Other international 2 13 13 --- ---- ---- Total $31 $ 85 $152 === ==== ==== Proportional interest in equity affiliate's costs - Domestic $ 6 $ 6 $ 25 Other international -- -- 2 --- ---- ---- Total $ 6 $ 6 $ 27 === ==== ==== 1996 - Proprietary costs - Domestic $ 6 $ 53 $ 99 North Sea -- 49 21 China 1 6 25 Other international -- 9 10 --- ---- ---- Total $ 7 $117 $155 === ==== ==== 1995 - Proprietary costs - Domestic $84 $ 58 $128 North Sea 7 28 23 China 1 2 82 Other international 1 11 10 --- ---- ---- Total $93 $ 99 $243 === ==== ====
(1) Includes $29 million applicable to purchases of reserves in place in 1995. (2) Exploration costs include delay rentals, exploratory dry holes, dry hole and bottom hole contributions, geological and geophysical costs, costs of carrying and retaining properties, etc., and capital expenditures, such as costs of drilling and equipping successful exploratory wells, etc. (3) Development costs include costs incurred to obtain access to proved reserves (surveying, clearing ground, building roads, etc.), to drill and equip development wells and to acquire, construct and install production facilities and improved recovery systems. Development costs also include costs of developmental dry holes. 30 Supplementary Mineral Ore Reserve and Price Data (Unaudited) The following table presents selected statistics related to the company's mineral operations. Mineral reserves presented in the following table represent those estimated quantities of proved and probable ore that, under presently anticipated conditions, may be profitably recovered and processed for the extraction of their mineral content. Future production of these resources is dependent on many factors, including market conditions and governmental regulations.
(Thousands of tons) 1997 1996 1995 1994 1993 Proved and probable (demonstrated) reserves, December 31 - Coal(1) 506,000 810,400 833,700 864,200 887,900 Heavy minerals 6,500(2) 5,500 5,700 6,000 8,000 Production - Coal 32,100 31,300 31,100 25,600 23,300 Heavy minerals 234 149 238 268 263 Average market price (per ton) - Coal $ 8.93 $ 10.48 $ 10.12 $ 10.73 $ 13.78 Heavy minerals 127.20 142.60 104.40 85.43 69.47
(1) See Management's Discussion and Analysis and Note 11. (2) Represents 177 million tons of sand containing 3.7% heavy minerals in Western Australia. The percentages of valuable heavy minerals within the heavy-mineral concentrate are 4.5% rutile, 61.3% ilmenite, 3.3% leucoxene and 11.1% zircon. 31 Quarterly Financial Information (Unaudited) A summary of quarterly consolidated results for 1997 and 1996 is presented below. Refer to Management's Discussion and Analysis for information about 1997 and 1996 special items.
Diluted Operating Net Earnings per (Millions of dollars, except per-share amounts) Sales Profit Income Common Share 1997 Quarter Ended - March 31 $ 468 $100 $ 70 $1.45 June 30 412 60 42 .87 September 30 402 65 37 .77 December 31 429 79 45 .95 ------ ---- ---- ----- Total $1,711 $304 $194 $4.04 ====== ==== ==== ===== 1996 Quarter Ended - March 31 $ 455 $85 $ 48 $ .94 June 30 470 83 51 1.01 September 30 488 89 62 1.27 December 31 518 114 59 1.21 ------ ---- ---- ----- Total $1,931 $371 $220 $4.43 ====== ==== ==== =====
The company's common stock is listed for trading on the New York Stock Exchange and was held by approximately 11,300 stockholders of record at year-end 1997. The ranges of sales prices and dividends declared during the last two years are as follows: Market Prices Dividends 1997 1996 per Share High Low High Low 1997 1996 Quarter Ended - March 31 75 61 7/8 65 3/4 59 3/8 $.45 $.41 June 30 67 1/4 55 1/2 67 3/8 56 5/8 .45 .41 September 30 69 15/16 59 13/16 63 3/8 55 3/4 .45 .41 December 31 71 1/2 60 1/8 74 1/8 60 5/8 .45 .41 Six-Year Financial Summary
(Millions of dollars, except per-share amounts) 1997 1996 1995 1994 1993 1992 Summary of Net Income (Loss) Sales $1,711 $1,931 $1,754 $1,566 $1,445 $1,379 ------ ------ ------ ------ ------ ------ Operating costs and expenses 1,478 1,688 1,791 1,436 1,267 1,397 Interest and debt expense 46 52 61 58 45 64 ------ ------ ------ ------ ------ ------ Total costs and expenses 1,524 1,740 1,852 1,494 1,312 1,461 ------ ------ ------ ------ ------ ------ 187 191 (98) 72 133 (82) Other income 90 132 29 27 16 47 Provision (benefit) for income taxes 83 103 (45) 30 54 (23) ------ ------ ------ ------ ------ ------ Income (loss) from continuing operations before extraordinary charge and cumulative effect of accounting changes 194 220 (24) 69 95 (12) Income (loss) from discontinued operations -- -- (7) 21 (18) (14) Extraordinary charge -- -- -- -- -- (5) Cumulative effect of accounting changes -- -- -- -- -- (70) ------ ------ ------ ------ ------ ------ Net income (loss) $ 194 $ 220 $ (31) $ 90 $ 77 $ (101) ====== ====== ====== ====== ====== ====== Common Stock Information, per Share Diluted earnings (loss) per common share - Continuing operations $ 4.04 $ 4.43 $ (.47) $ 1.33 $ 1.93 $ (.25) Discontinued operations -- -- (.13) .41 (.36) (.28) Extraordinary charge -- -- -- -- -- (.10) Cumulative effect of accounting changes -- -- -- -- -- (1.45) ------ ------ ------ ------ ------ ------ Total $ 4.04 $ 4.43 $ (.60) $ 1.74 $1.57 $(2.08) Dividends declared 1.80 1.64 1.55 1.52 1.52 1.52 Stockholders' equity 30.09 28.10 27.52 29.82 29.24 27.93 Market high for the year 75.00 74.13 64.00 51.00 56.00 46.38 Market low for the year 55.50 55.75 44.00 40.00 41.75 35.63 Market price at year-end $63.31 $72.00 $63.50 $46.25 $45.25 $45.00 Shares outstanding at year-end (thousands) 47,686 48,294 51,069 51,694 51,655 48,284 Balance Sheet Information Working capital $ 166 $ 320 $ 189 $ 52 $ 102 $ 204 Property, plant and equipment - net 1,998 1,948 2,210 2,489 2,446 2,351 Total assets 3,096 3,124 3,213 3,696 3,506 3,482 Long-term debt 552 626 632 673 590 756 Total debt 579 663 735 993 859 930 Stockholders' equity 1,440 1,367 1,416 1,543 1,512 1,350 Cash Flow Information Net cash provided by operating activities 569 645 369 356 427 275 Cash capital expenditures 341 392 484 410 449 372 Dividends paid 85 83 79 78 73 73 Purchase of treasury stock $ 60 $ 195 $ 45 $ -- $ -- $ -- Ratios and Percentage Current ratio 1.3 1.7 1.3 1.1 1.1 1.3 Average price/earnings ratio 16.2 14.7 NM 26.1 31.1 NM Total debt to total capitalization 29% 33% 34% 39% 36% 41% Employees Total wages and benefits $ 285 $ 289 $ 314 $ 319 $ 319 $ 326 Number of employees at year-end 3,746 3,851 3,976 5,524 5,812 5,866
Six-Year Operating Summary
1997 1996 1995 1994 1993 1992 Exploration and Production Net proprietary production of crude oil and condensate - (thousands of barrels per day) Domestic 24.2 30.6 28.9 25.5 27.8 25.5 North Sea 23.4 30.9 36.7 34.3 16.7 16.0 China 8.8 3.7 -- -- -- -- Other international .5 3.4 4.8 7.5 8.7 9.0 ------ ------ ------ ------ ------ --- Total 56.9 68.6 70.4 67.3 53.2 50.5 Average price of crude oil sold (per barrel) - Domestic $18.53 $19.36 $15.69 $14.64 $15.76 $ 18.17 North Sea 18.77 19.08 16.31 15.15 15.90 18.71 China 17.71 19.53 -- -- -- -- Other international 18.59 17.69 15.21 13.79 14.80 16.83 Average $18.51 $19.16 $15.99 $14.81 $15.64 $ 18.11 Proprietary natural gas sales (MMCF per day) 184 281 291 271 286 296 Average price of natural gas sold (per MCF) $ 2.56 $ 2.12 $ 1.52 $ 1.76 $ 1.92 $ 1.56 Net exploratory wells drilled - Productive 2.65 4.91 3.71 9.61 2.22 2.59 Dry 4.42 3.52 9.16 8.47 10.09 5.53 ------ ------ ------ ------ ------ ---- Total 7.07 8.43 12.87 18.08 12.31 8.12 Net development wells drilled - Productive 9.78 21.33 40.86 22.27 43.90 27.26 Dry -- 1.04 2.95 4.63 2.33 3.05 ------ ------ ------ ------ ------ ---- Total 9.78 22.37 43.81 26.90 46.23 30.31 Undeveloped net acreage (thousands) - Domestic 319 265 472 499 523 620 North Sea 391 428 358 363 243 184 China 2,184 925 341 282 -- -- Other international 10,124 927 1,424 1,463 2,087 401 ------ ------ ------ ------ ------ --- Total 13,018 2,545 2,595 2,607 2,853 1,205 Developed net acreage (thousands) - Domestic 155 209 537 542 539 549 North Sea 24 33 22 21 21 18 China 19 19 19 19 19 -- Other international 104 104 159 165 180 187 ------ ------ ------ ------ ------ --- Total 302 365 737 747 759 754 Estimated proved reserves (millions of equivalent barrels) 247 256 300 332 317 302 Chemicals Industrial and specialty chemical sales (thousands of tons) 488 446 445 381 331 314 Coal Sales (millions of tons) 36.2 35.3 34.5 27.5 23.5 20.8 Recoverable reserves (millions of tons) 506 810 834 864 888 906
EX-21 8 SIGNIFICANT SUBSIDIARIES EXHIBIT 21 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES SUBSIDIARIES State or Country Percent Name of Subsidiary of Incorporation Owned Kerr-McGee Chemical Corporation Delaware 100% Kerr-McGee China Petroleum Ltd. Bahamas 100% Kerr-McGee Coal Corporation Delaware 100% Kerr-McGee Oil & Gas Corporation Delaware 100% Kerr-McGee Oil (U.K.) PLC England 100% A number of additional subsidiaries are omitted since, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as of December 31, 1997. Effective January 1, 1998, Kerr-McGee Chemical Corporation was merged into Kerr-McGee Chemical LLC, a wholly owned Delaware limited liability company. EX-23 9 CONSENT OF ACCOUNTANT EXHIBIT 23 Consent of Independent Public Accountant As independent public accountants, we hereby consent to the incorporation of our reports dated February 20, 1998, included in the company's 1997 Annual Report to Stockholders and incorporated by reference in this Form 10-K and on page 27 of this Form 10-K, into the company's previously filed Registration Statements on Form S-8 File Nos. 33-24274, 33-50949 and 333-28235, and the company's previously filed Registration Statements on Form S-3 File Nos. 33-5473 and 33-66112. (ARTHUR ANDERSEN LLP) ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma March 26, 1998 EX-24 10 POWER OF ATTORNEY KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Paul M. Anderson) -------------------------------- Paul M. Anderson, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Bennett E. Bidwell) -------------------------------- Bennett E. Bidwell, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director or Officer or both, as the case may be, of the Company, does hereby appoint Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director or Officer or both, as the case may be, of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Luke R. Corbett) -------------------------------------- Luke R. Corbett, Chairman of the Board, Chief Executive Officer and Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Martin C. Jischke) -------------------------------- Martin C. Jischke, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director or Officer or both, as the case may be, of the Company, does hereby appoint Luke R. Corbett and John C. Linehan his true and lawful attorney-in-fact and agent with power to act and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director or Officer or both, as the case may be, of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Tom J. McDaniel) -------------------------------- Tom J. McDaniel Vice Chairman of the Board and Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (William C. Morris) -------------------------------- William C. Morris, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (John J. Murphy) -------------------------------- John J. Murphy, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Leroy C. Richie) -------------------------------- Leroy C. Richie, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in his capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, his true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for him and in his name, place and stead, in his capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Richard M. Rompala) -------------------------------- Richard M. Rompala, Director KERR-McGEE CORPORATION POWER OF ATTORNEY WHEREAS, Kerr-McGee Corporation, a Delaware corporation ("Company"), intends to file with the Securities and Exchange Commission ("Commission") under the Securities Exchange Act of 1934, as amended ("ACT"), an Annual Report on Form 10-K for the year ended December 31, 1997 ("Form 10-K") with such amendment or amendments thereto as may be necessary or appropriate from time to time, together with any and all exhibits and other relevant or associated documents. NOW, THEREFORE, the undersigned in her capacity as a Director of the Company, does hereby appoint Luke R. Corbett, Tom J. McDaniel and John C. Linehan, and each of them severally, her true and lawful attorneys or attorney-in-fact and agents or agent with power to act with or without the other and with full power of substitution and resubstitution, to execute for her and in her name, place and stead, in her capacity as a Director of the Company, the Form 10-K and any and all amendments thereto, as said attorneys or each of them shall deem necessary or appropriate, together with all instruments necessary or incidental in connection therewith, and to file the same or cause the same to be filed with the Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, each act whatsoever necessary or desirable to be done in the premises, as fully and to all intents and purposes as the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorney or attorneys. IN WITNESS WHEREOF, the undersigned has executed this instrument effective March 2, 1998. (Farah M. Walters) ------------------------------------- Farah M. Walters, Director EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1997, 1996, and 1995, and the Consolidated Statement of Income for the years then ended and is qualified in its entirety by reference to such Form 10-K. 1,000,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 183 121 87 0 0 0 279 380 339 5 5 5 172 218 221 689 805 764 4602 4837 5767 2604 2889 3557 3096 3124 3213 523 485 575 0 0 0 0 0 0 0 0 0 54 54 54 1386 1313 1362 3096 3124 3213 1711 1931 1754 1711 1931 1754 949 1016 960 1524 1740 1852 0 0 0 0 0 0 46 52 61 277 323 (69) 83 103 (45) 194 220 (24) 0 0 (7) 0 0 0 0 0 0 194 220 (31) 4.06 4.45 (.60) 4.04 4.43 (.60)
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