FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission File Number 1-2256
EXXON CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-5409005
_____________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5959 Las Colinas Boulevard, Irving, Texas 75039-2298
__________________________________________________________________
(Address of principal executive offices) (Zip Code)
(972) 444-1000
___________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
Reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No .
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of September 30, 1998
_______________________________ ____________________________________
Common stock, without par value 2,431,229,690
EXXON CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
Number
______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Three and nine months ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheet 4
As of September 30, 1998 and December 31, 1997
Condensed Consolidated Statement of Cash Flows 5
Nine months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial 9 -14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Index to Exhibits 17
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EXXON CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ ________________
REVENUE 1998 1997 1998 1997
_______ _______ _______ _______
Sales and other operating revenue,
including excise taxes $28,254 $32,381 $87,044 $100,780
Earnings from equity interests and other
revenue 525 368 1,589 1,400
______ ______ ______ ______
Total revenue 28,779 32,749 88,633 102,180
______ ______ ______ _______
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 10,973 13,619 34,463 43,457
Operating expenses 2,874 3,186 8,776 9,763
Selling, general and administrative expenses 2,112 2,088 6,306 6,276
Depreciation and depletion 1,337 1,299 4,115 4,068
Exploration expenses, including dry holes 202 174 623 480
Interest expense 42 107 174 289
Excise taxes 3,395 3,616 10,449 10,904
Other taxes and duties 5,699 5,798 16,400 17,182
Income applicable to minority and
preferred interests 84 96 259 299
______ ______ ______ ______
Total costs and other deductions 26,718 29,983 81,565 92,718
______ ______ ______ ______
INCOME BEFORE INCOME TAXES 2,061 2,766 7,068 9,462
Income taxes 661 946 2,158 3,502
______ ______ ______ ______
NET INCOME $ 1,400 $ 1,820 $ 4,910 $ 5,960
====== ====== ====== ======
Net income per common share (dollars) $ 0.58 $ 0.74 $ 2.01 $ 2.40
Net income per common share - assuming
dilution (dollars) $ 0.58 $ 0.73 $ 1.99 $ 2.37
Average number common shares outstanding
(millions) 2,435 2,470 2,443 2,477
Average number common shares outstanding -
assuming dilution (millions) 2,465 2,506 2,473 2,510
Dividends per common share $ 0.410 $ 0.410 $ 1.230 $ 1.215
Net income per common share is based on net income less preferred stock
dividends and the weighted average number of outstanding common shares.
Net income per common share - assuming dilution is based on net income and
the weighted average number of outstanding common shares, including the
additional common shares that would have been outstanding if dilutive
potential common shares (incentive program stock and preferred stock) had
been issued.
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EXXON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars)
Sept. 30, Dec. 31,
1998 1997
______ ______
ASSETS
Current assets
Cash and cash equivalents $ 2,101 $ 4,047
Other marketable securities 108 15
Notes and accounts receivable - net 9,293 10,702
Inventories
Crude oil, products and merchandise 4,704 4,725
Materials and supplies 758 762
Prepaid taxes and expenses 1,113 941
______ ______
Total current assets 18,077 21,192
Property, plant and equipment - net 68,277 66,414
Investments and other assets 8,873 8,458
______ ______
TOTAL ASSETS $95,227 $96,064
====== ======
LIABILITIES
Current liabilities
Notes and loans payable $ 2,639 $ 2,902
Accounts payable and accrued liabilities 14,269 14,683
Income taxes payable 1,857 2,069
______ ______
Total current liabilities 18,765 19,654
Long-term debt 6,912 7,050
Annuity reserves, deferred credits and
other liabilities 25,791 25,700
______ ______
TOTAL LIABILITIES 51,468 52,404
______ ______
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized: 200 million shares
Outstanding: 2 million shares at Sept. 30, 1998 119
3 million shares at Dec. 31, 1997 190
Guaranteed LESOP obligation (125) (225)
Common stock, without par value:
Authorized: 3,000 million shares
Issued: 2,984 million shares 2,323 2,323
Earnings reinvested 54,113 52,214
Cumulative foreign exchange translation adjustment (846) (1,119)
Common stock held in treasury:
553 million shares at Sept. 30, 1998 (11,825)
527 million shares at Dec. 31, 1997 (9,723)
______ ______
TOTAL SHAREHOLDERS' EQUITY 43,759 43,660
______ ______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $95,227 $96,064
====== ======
The number of shares of common stock issued and outstanding at
September 30, 1998 and December 31, 1997 was 2,431,229,690 and
2,456,315,299, respectively.
-4-
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of dollars)
Nine Months Ended
September 30,
_________________
1998 1997
_____ _____
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,910 $ 5,960
Depreciation and depletion 4,115 4,068
Changes in operational working capital, excluding
cash and debt 616 229
All other items - net 3 1,758
_____ _____
Net Cash Provided By Operating Activities 9,644 12,015
_____ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,948) (5,300)
Sales of subsidiaries and property, plant and equipment 304 331
Other investing activities - net (17) (232)
_____ _____
Net Cash Used In Investing Activities (5,661) (5,201)
_____ _____
NET CASH GENERATION BEFORE FINANCING ACTIVITIES 3,983 6,814
_____ _____
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt 145 483
Reductions in long-term debt (116) (220)
Additions/(reductions) in short-term debt - net (415) (294)
Cash dividends to Exxon shareholders (3,014) (3,024)
Cash dividends to minority interests (219) (258)
Changes in minority interests and sales/
(purchases) of affiliate stock (84) (87)
Acquisitions of Exxon shares - net (2,236) (1,555)
_____ _____
Net Cash Used In Financing Activities (5,939) (4,955)
_____ _____
Effects Of Exchange Rate Changes On Cash 10 (29)
_____ _____
Increase/(Decrease) In Cash And Cash Equivalents (1,946) 1,830
Cash And Cash Equivalents At Beginning Of Period 4,047 2,951
_____ _____
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,101 $ 4,781
===== =====
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 1,738 $ 2,502
Cash interest paid $ 618 $ 576
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EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis Of Financial Statement Preparation
These unaudited condensed consolidated financial statements should be read
in the context of the consolidated financial statements and notes thereto
filed with the S.E.C. in the corporation's 1997 Annual Report on Form 10-K.
In the opinion of the corporation, the information furnished herein reflects
all known accruals and adjustments necessary for a fair statement of the
results for the periods reported herein. All such adjustments are of a
normal recurring nature. The corporation's exploration and production
activities are accounted for under the "successful efforts" method.
During the third quarter of 1997, the corporation increased its ownership in
General Sekiyu K.K. (GSK) from 49.0% to 50.1%. These financial statements
reflect the consolidation of GSK retroactive to the beginning of 1997.
GSK was previously accounted for as an equity company. The January 1, 1997
balance sheet of GSK had total assets of $3.9 billion and total liabilities
of $3.2 billion. Consolidated net income was unchanged as a result of the
restatement of prior quarter statements of income.
2. Recently Issued Statements Of Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board released Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement requires disclosure of certain information
about operating segments and geographic areas of operation. This statement,
which will be adopted in 1998, will not have any effect upon the
corporation's consolidated financial condition or operations.
In June 1998, the Financial Accounting Standards Board released Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement, which must be adopted beginning no later than 2000,
establishes accounting and reporting standards for derivative instruments.
The statement requires that an entity recognize all derivatives as either
assets or liabilities in the financial statements and measure those
instruments at fair value, and it defines the accounting for changes in the
fair value of the derivatives depending on the intended use of the
derivative. No decision has been made as to whether the corporation will
adopt this standard before 2000. The effect on the corporation's operating
results subsequent to adoption is not expected to be material. Liquidity and
cash flow will not be affected.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." The statement requires that
costs of start-up activities and organizational costs be expensed as
incurred. The statement is effective no later than 1999, with earlier
application permitted. The corporation expects that this new requirement
will not materially affect its consolidated financial condition or
operations.
3. Litigation and Other Contingencies
A number of lawsuits, including class actions, were brought in various
courts against Exxon Corporation and certain of its subsidiaries relating to
the accidental release of crude oil from the tanker Exxon Valdez in 1989.
Essentially all of these lawsuits have now been resolved or are subject to
appeal.
-6-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On September 24, 1996, the United States District Court for the District of
Alaska entered a judgment in the amount of $5.058 billion in the Exxon
Valdez civil trial that began in May 1994. The District Court awarded
approximately $19.6 million in compensatory damages to fisher plaintiffs,
$38 million in prejudgment interest on the compensatory damages and $5
billion in punitive damages to a class composed of all persons and entities
who asserted claims for punitive damages from the corporation as a result
of the Exxon Valdez grounding. The District Court also ordered that these
awards shall bear interest from and after entry of the judgment. The
District Court stayed execution on the judgment pending appeal based on a
$6.75 billion letter of credit posted by the corporation. Exxon has appealed
the judgment. Exxon has also appealed the District Court's recent denial of
its renewed motion for new trial. The corporation continues to believe that
the punitive damages in this case are unwarranted and that the judgment
should be set aside or substantially reduced by the appellate courts.
The ultimate cost to the corporation from the lawsuits arising from the
Exxon Valdez grounding is not possible to predict and may not be resolved
for a number of years.
German and Dutch affiliated companies are the concessionaires of a natural
gas field subject to a treaty between the governments of Germany and the
Netherlands under which the gas reserves in an undefined border or common
area are to be shared equally. Entitlement to the reserves is determined by
calculating the amount of gas which can be recovered from this area. Based
on the final reserve determination, the German affiliate has received more
gas than its entitlement. Arbitration proceedings, as provided in the
agreements, have been underway to determine the manner of resolving the
issues between the German and Dutch affiliated companies.
On July 8, 1996, an interim ruling was issued establishing a provisional
compensation payment for the excess gas received. Additional compensation,
if any, remains subject to further arbitration proceedings or negotiation.
Other substantive matters remain outstanding, including recovery of
royalties paid on such excess gas and the taxes payable on the final
compensation amount. The net financial impact on the corporation is not
possible to predict at this time given these outstanding issues. However,
the ultimate outcome is not expected to have a materially adverse effect
upon the corporation's consolidated financial condition or operations.
The U.S. Tax Court has decided the issue with respect to the pricing of
crude oil purchased from Saudi Arabia for the years 1979-1981 in favor of
the corporation. This decision is subject to appeal. Certain other issues
for the years 1979-1988 remain pending before the Tax Court. The ultimate
resolution of these issues is not expected to have a materially adverse
effect upon the corporation's operations or financial condition.
Claims for substantial amounts have been made against Exxon and certain of
its consolidated subsidiaries in other pending lawsuits, the outcome of
which is not expected to have a materially adverse effect upon the
corporation's consolidated financial condition or operations.
The corporation and certain of its consolidated subsidiaries are directly
and indirectly contingently liable for amounts similar to those at the prior
year-end relating to guarantees for notes, loans and performance under
contracts, including guarantees of non-U.S. excise taxes and customs duties
of other companies, entered into as a normal business practice, under
reciprocal arrangements.
-7-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Additionally, the corporation and its affiliates have numerous long-term
sales and purchase commitments in their various business activities, all of
which are expected to be fulfilled with no adverse consequences material to
the corporation's operations or financial condition.
The operations and earnings of the corporation and its affiliates throughout
the world have been, and may in the future be, affected from time to time in
varying degree by political developments and laws and regulations, such as
forced divestiture of assets; restrictions on production, imports and
exports; price controls; tax increases and retroactive tax claims;
expropriation of property; cancellation of contract rights and environmental
regulations. Both the likelihood of such occurrences and their overall
effect upon the corporation vary greatly from country to country and are not
predictable.
4. Nonowner Changes in Shareholders' Equity
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," was implemented in January 1998. This statement
establishes standards for reporting and display of total nonowner changes in
shareholders' equity. For the corporation, total nonowner changes in
shareholders' equity include net income and the change in the cumulative
foreign exchange translation adjustment component of shareholders' equity.
The total nonowner changes in shareholders' equity for the three months
ended September 30, 1998 and 1997 were $1,978 million and $1,163 million,
respectively. The total nonowner changes in shareholders' equity for the
nine months ended September 30, 1998 and 1997 were $5,183 million and
$4,234 million, respectively. This statement did not have any effect on
the corporation's consolidated financial condition or operations.
-8-
EXXON CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FUNCTIONAL EARNINGS SUMMARY
Third Quarter First Nine Months
_________________ _________________
1998 1997 1998 1997
______ ______ ______ ______
(millions of dollars)
Petroleum and natural gas
Exploration and production
United States $ 211 $ 326 $ 625 $1,215
Non-U.S. 274 569 1,454 2,079
Refining and marketing
United States 142 182 468 401
Non-U.S. 439 345 1,347 1,024
_____ _____ _____ _____
Total petroleum and natural gas 1,066 1,422 3,894 4,719
Chemicals
United States 181 214 579 652
Non-U.S. 120 135 391 400
Other operations 102 111 294 366
Corporate and financing (69) (62) (248) (177)
_____ _____ _____ _____
NET INCOME $1,400 $1,820 $4,910 $5,960
===== ===== ===== =====
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
Exxon Corporation estimated third quarter 1998 net income of $1,400 million,
down 23 percent from the record $1,820 million in third quarter 1997. On a per
share basis, net income declined 22 percent to $0.58 in the third quarter of
1998, reflecting the ongoing share repurchase program.
Exxon's net income of $1.4 billion was down $420 million or 23 percent,
reflecting weaker crude oil prices which on average were about $6 per barrel or
33 percent lower than last year. Earnings were also adversely affected by
lower natural gas prices and lower industry refining margins in the U.S. and
Asia-Pacific.
Crude oil prices continued to be weak and on average were at their lowest level
since the third quarter of 1986. Exxon's U.S. and European natural gas
realizations also declined to the lowest quarterly level in nearly three years.
Natural gas production was up slightly from the third quarter of 1997, while
liquids volumes were essentially flat. In the downstream, earnings were up 10
percent, reflecting improved marketing margins in the U.S. and Europe and
higher lubes earnings. Total petroleum product sales volumes were just below
the record levels of last year's third quarter as continued growth in most
markets offset weakness in Asia-Pacific. Chemical earnings were down 14 percent
from last year as a result of lower margins. Worldwide commodity prices
continued to decline due to excess industry capacity and the slowdown in Asian
economies. Earnings from other operations were essentially flat as lower coal
and copper prices were offset by record quarterly production volumes in both
businesses.
During the quarter, Exxon continued its active investment program, spending
$2.6 billion on capital and exploration projects.
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EXXON CORPORATION
OTHER COMMENTS ON THIRD QUARTER COMPARISON
Exploration and production earnings were adversely affected by substantially
lower crude oil prices which have fallen significantly since early in the
fourth quarter of 1997. Third quarter crude prices averaged about $6 per barrel
less than the third quarter of last year. Natural gas prices were also below
third quarter 1997 levels in the U.S. and Europe.
Liquids production of 1,553 kbd (thousand barrels per day) was flat versus last
year as production increases from new developments in the U.K. and Azerbaijan
and higher Canadian and Asia-Pacific output were offset by natural field
declines in mature areas. Natural gas production of 5,219 mcfd (million cubic
feet per day) was 1 percent higher due to stronger European volumes.
Earnings from U.S. exploration and production were $211 million compared with
$326 million last year. Outside the U.S., earnings from exploration and
production were $274 million, versus $569 million in the third quarter 1997.
Petroleum product sales of 5,413 kbd were just below last year's record third
quarter with higher volumes in Europe offsetting lower volumes in Asia-Pacific.
Downstream earnings benefited from higher marketing margins in the U.S.,
Europe, and Latin America, improved lubes earnings and positive foreign
exchange effects. Industry refining profitability was mixed with better
European and Latin American margins offset by weakness in Asia-Pacific and the
U.S.
In the U.S., refining and marketing earnings were $142 million, down $40
million from the prior year. Refining and marketing operations outside the U.S.
earned $439 million, an increase of $94 million from 1997.
Chemical earnings were $301 million compared with $349 million in the same
period last year. Margins were lower as chemical commodity prices declined
further. Prime product sales volumes remained strong in most areas except
Asia-Pacific.
Earnings from other operations, including coal, minerals and power, totaled
$102 million, compared to $111 million in the third quarter of 1997. Lower
copper and coal prices were offset by record production volumes. Corporate and
financing expenses of $69 million compared with $62 million in the third
quarter of last year.
During the third quarter of 1998, Exxon purchased 8.9 million shares of its
common stock for the treasury at a cost of $621 million, representing a
continuation of purchases to offset shares issued in conjunction with the
Company's benefit plans and programs, as well as the increased share
repurchases announced in the first quarter of 1997. Shares outstanding were
reduced from 2,438.4 million at the end of the second quarter of 1998 to
2,431.2 million at the end of the third quarter. Purchases are made in the open
market and through negotiated transactions and may be discontinued at any time.
-10-
EXXON CORPORATION
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997
Net income was $4,910 million for the first nine months of 1998, a decrease of
18 percent from the $5,960 million earned in 1997. On a per share basis, net
income was $2.01 for the first nine months of 1998 compared to $2.40 last year.
Exploration and production earnings declined primarily due to lower crude oil
prices which decreased by about $6 per barrel versus the same period in 1997.
Earnings were also negatively impacted by lower U.S. and international natural
gas prices. Liquids production of 1,595 kbd was up compared to 1,589 kbd last
year. Worldwide natural gas production of 5,990 mcfd was down 114 mcfd from the
first nine months of 1997, reflecting warmer weather in Europe.
Earnings from U.S. exploration and production operations for the first nine
months were $625 million, down from $1,215 million in 1997. Outside the U.S.,
exploration and production earnings of $1,454 million declined $625 million
from last year.
Petroleum product sales of 5,412 kbd increased 22 kbd over last year, with
higher sales in all major markets except Asia-Pacific. Earnings from U.S.
refining and marketing operations were $468 million, up $67 million from 1997,
reflecting improved marketing and lubes margins. Outside the U.S., 1998
refining and marketing earnings for the first nine months increased $323
million to $1,347 million with stronger marketing and refining margins in
Europe and Latin America more than offsetting weakness in Asia-Pacific.
Earnings also benefited from net positive foreign exchange effects.
Chemical earnings totaled $970 million in the first nine months of 1998
compared with $1,052 million last year. Margins were weaker versus last year,
primarily as a result of lower industry commodity prices. Despite the weaker
Asian markets, prime product sales volumes of 13,024 kt (thousand metric tons)
were up 1 percent from last year's record levels.
Earnings from other operations totaled $294 million, a decrease of $72 million
from the first nine months of 1997, reflecting significantly lower copper
prices, as well as lower international coal prices. 1998 year-to-date coal and
copper production volumes were both at record levels. Corporate and financing
expenses increased $71 million to $248 million, reflecting higher tax-related
charges. However, the company's operating segments continued to benefit from
the impact of lower effective tax rates and the favorable resolution of tax
related issues.
-11-
EXXON CORPORATION
Net cash generation before financing activities was $3,983 million in the first
nine months of 1998 versus $6,814 million in the same period last year.
Operating activities provided net cash of $9,644 million, a decrease of $2,371
million from the prior year, influenced by lower net income and the absence of
an insurance related settlement received during the prior year. Investing
activities used net cash of $5,661 million or $460 million more than a year
ago, reflecting a higher level of capital investment.
Net cash used in financing activities was $5,939 million in the first nine
months of 1998 versus $4,955 million for the year-ago period. The increase of
$984 million reflects higher purchases of shares of Exxon common stock and debt
reductions. During the first nine months of 1998, a total of 37.5 million
shares of Exxon common stock were acquired for the treasury at a cost of $2,537
million. Purchases are made in the open market and through negotiated
transactions. These purchases reflect both the increased repurchases announced
in the first quarter of 1997, as well as purchases to offset shares issued in
conjunction with the Company's benefit plans and programs. Purchases may be
discontinued at any time.
Capital and exploration expenditures in this year's first nine months were
$7,079 million versus $6,279 million a year ago. Capital and exploration
expenditures in 1998, excluding foreign exchange rate fluctuations, are
anticipated to increase about 10 percent over 1997, as attractive investment
opportunities continue to be developed in each of the major business segments.
Total debt of $9.6 billion at September 30, 1998 decreased $0.4 billion from
year-end 1997. The corporation's debt to capital ratio was 17.2 percent at the
end of the first nine months of 1998, down from 17.8 percent at year-end 1997.
Over the twelve months ended September 30, 1998, return on average
shareholders' equity was 17.0 percent. Return on average capital employed,
which includes debt, was 14.5 percent over the same time period.
Although the corporation issues long-term debt from time to time and maintains
a revolving commercial paper program, internally generated funds cover the
majority of its financial requirements.
Litigation and other contingencies are discussed in note 3 to the unaudited
condensed consolidated financial statements. There are no events or
uncertainties known to management beyond those already included in reported
financial information that would indicate a material change in future operating
results or future financial condition.
The corporation, as part of its ongoing asset management program, continues to
evaluate its mix of assets for potential upgrade. Because of the ongoing nature
of this program, dispositions will continue to be made from time to time which
will result in either gains or losses.
-12-
EXXON CORPORATION
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions to various activities and
operations.
The corporation initiated assessments in prior years to identify the work
efforts required to assure that systems supporting the business successfully
operate beyond the turn of the century. The scope of this work effort
encompasses business information systems, infrastructure, and technical and
field systems, including systems utilizing embedded technology, such as
microcontrollers.
Plans for achieving Year 2000 compliance were finalized during 1997, and
implementation work was underway at year-end. The initial phases of this work,
an inventory and assessment of potential problem areas, have been essentially
completed. Modification and testing phases continue, with most required system
modifications to mission critical systems planned for completion by year-end
1998. Attention has also been focussed on compliance attainment efforts of
vendors and others, including key system interfaces with customers and
suppliers. Most key suppliers and business partners have been contacted for
clarification of their Year 2000 plans.
Notwithstanding the substantive work efforts described above, the corporation
could potentially experience disruptions to some operations or supplies as a
result of Year 2000 issues, particularly in the first few weeks of the year
2000. Such disruptions could include impacts from potentially non-compliant
systems utilized by suppliers, customers or government entities. The potential
impact of such disruptions cannot be reasonably estimated. Work is underway to
develop business contingency plans in order to attempt to mitigate the extent
of potential disruption to business operations. This work is targeted to be
essentially complete by mid-1999.
Through September 30, 1998, about $130 million of costs had been incurred in
the corporation's efforts to achieve Year 2000 compliant systems. The ultimate
total cost to the corporation of achieving Year 2000 compliant systems is
currently estimated to be $250 to $275 million, primarily over the 1997-1999
timeframe, and is not expected to be a material incremental cost impacting
Exxon's operations, financial condition or liquidity.
ECONOMIC AND MONETARY UNION IN EUROPE
The European Union is moving toward economic and monetary union in Europe with
an ultimate goal of introducing a single currency called the "euro." Eleven of
the fifteen member countries of the European Union will begin conversion of
their currencies to the "euro" on January 1, 1999. Based on work to date, this
conversion is not expected to have a material effect on the corporation's
operations, financial condition or liquidity.
FORWARD-LOOKING STATEMENTS
Statements in this report regarding future events or conditions are forward-
looking statements. Actual results, including capital expenditures and the
impact of the Year 2000 Issue, could differ materially due to, among other
things, factors discussed in this report and in Item 1 of the corporation's
most recent annual report on Form 10-K.
-13-
EXXON CORPORATION
SPECIAL ITEMS
_____________
Third Quarter First Nine Months
_____________ _________________
1998 1997 1998 1997
____ ____ ____ ____
(millions of dollars)
TOTAL 0 0 0 0
==== ==== ==== ====
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EXXON CORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the nine months ended
September 30, 1998 does not differ materially from that
discussed under Item 7A of the registrant's Annual Report
on Form 10-K for 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The United States, at the request of the United States Environmental
Protection Agency ("EPA"), filed suit against the registrant in the
United States District Court, Southern District of the State of
Texas, on February 11, 1998. The EPA alleged violations of the Clean
Air Act at the registrant's Baytown refinery, primarily relating to
the registrant's failure to test and comply with notification
requirements with respect to flares at the refinery. The EPA is
seeking civil penalties and injunctive relief requiring the
registrant to conduct performance testing. Exxon has agreed to pay a
civil penalty of $250,000 to settle this matter. Although the
settlement is not yet final, the amount of the penalty is not
expected to change.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10(iii)(a) - Registrant's 1993 Incentive Program, as amended
September 30, 1998.
Exhibit 27 - Financial Data Schedule (included only in the
electronic filing of this document).
b) Reports on Form 8-K
The registrant has not filed any reports on Form 8-K during the
quarter.
-15-
EXXON CORPORATION
FORM 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXXON CORPORATION
Date: November 12, 1998 /s/DONALD D. HUMPHREYS
_______________________________________________
Donald D. Humphreys, Vice President, Controller
and Principal Accounting Officer
-16-
EXXON CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX TO EXHIBITS
10(iii)(a). Registrant's 1993 Incentive Program, as amended
September 30, 1998.
27. Financial Data Schedule (included only in the electronic
filing of this document).
-17-
5
1,000,000
9-MOS
DEC-31-1998
SEP-30-1998
2,101
108
6,597
103
5,462
18,077
133,160
64,883
95,227
18,765
6,912
0
119
2,323
41,317
95,227
87,044
88,633
34,463
34,463
13,514
0
174
7,068
2,158
4,910
0
0
0
4,910
2.01
1.99
Exhibit 10(iii)(a)
EXXON CORPORATION
1993 INCENTIVE PROGRAM
Adopted by shareholders April 28, 1993
(as last amended September 30, 1998)
GENERAL PROVISIONS
I. Purpose.
The 1993 Incentive Program is intended to help maintain and develop strong
management through ownership of shares of the Corporation by key employees of
the Corporation and certain of its affiliates and through incentive awards for
recognition of efforts and accomplishments which contribute materially to the
success of the Corporation's business interests.
II. Definitions.
In this Program, except where the context otherwise indicates, the
following definitions apply:
(1) 'Administrative authority' means one of the following, as
appropriate in accordance with Section III: the Board; any committee to
which the Board delegates authority to administer this Program; or, in
individual cases, the Chairman of the Board or persons acting under his
direction.
(2) 'Affiliate' means (a) any subsidiary and (b) any other corporation,
partnership, joint venture, or other entity in which the Corporation,
directly or indirectly, owns an equity interest and which the
administrative authority deems to be an affiliate for purposes of this
Program (including, without limitation, for purposes of determining
whether a change of employment constitutes a termination).
(3) 'Award' means a stock option, stock appreciation right ('SAR'),
restricted stock, performance award, incentive share, dividend equivalent
right ('DER'), or other award under this Program.
(4) 'Board' means the Board of Directors of the Corporation.
(5) 'Board Compensation Committee,' hereinafter sometimes called the
'BCC,' means the committee of the Board so designated in accordance with
Section IV.
(6) 'By the grant' means by the action of the granting authority at the
time of the grant of an award hereunder, or at the time of an amendment of
the grant, as the case may be.
(7) 'Code' means the Internal Revenue Code, as in effect from time to
time.
(8) 'Corporation' means Exxon Corporation, a New Jersey corporation.
(9) 'Designated beneficiary' means the person designated by the grantee
of an award hereunder to be entitled, on the death of the grantee, to any
remaining rights arising out of such award. Such designation must be made
in writing and in accordance with such regulations as the administrative
authority may establish.
(10) 'Detrimental activity' means activity that is determined in
individual cases by the administrative authority to be detrimental to the
interests of the Corporation or any affiliate.
(11) 'Dividend equivalent right,' herein sometimes called a 'DER,' means
the right of the holder thereof to receive, pursuant to the terms of the
DER, credits based on the cash dividends that would be paid on the shares
specified in the DER if such shares were held by the grantee, as more
particularly set forth in Section XIV(1).
(12) 'Effectively granted' means, for purposes of determining the number
of shares subject to an outstanding award under this Program, the number
of shares subject to such award or the number of shares with respect to
which the value of such award is measured, as applicable. An option that
includes an SAR shall be considered a single award for this purpose.
(13) 'Effectively issued' means the gross number of shares purchased,
issued, delivered, or paid free of restrictions upon the exercise,
settlement, or payment of an award, or lapse of restrictions thereon, as
the case may be.
(14) 'Eligible employee' means an employee of the Corporation or a
subsidiary who is a director or officer, or in a managerial, professional,
or other key position as determined by the granting authority.
(15) 'Employee' means an employee of the Corporation or an affiliate.
(16) 'Exchange Act' means the Securities Exchange Act of 1934, as
amended from time to time.
(17) 'Fair market value' in relation to a share as of any specific time
shall mean such value as reported for stock exchange transactions
determined in accordance with any applicable regulations of the
administrative authority in effect at the relevant time.
(18) 'Grantee' means a recipient of an award under this Program.
2
(19) 'Granting authority' means the Board or any appropriate committee
authorized to grant and amend awards under this Program in accordance with
Section V and to exercise other powers of the granting authority
hereunder.
(20) 'Incentive shares' means an award of shares granted pursuant to
Section XIII.
(21) 'Incentive Stock Option,' herein sometimes called an 'ISO,' means a
stock option meeting the requirements of Section 422 of the Code or any
successor provision.
(22) 'Performance award' means an award of shares, or of units or rights
based on, payable in, or otherwise related to shares, granted pursuant to
Section XII.
(23) 'Performance period' means any period specified by the grant of a
performance award during which specified performance criteria are to be
measured.
(24) 'Reporting person' means a person subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to equity
securities of the Corporation.
(25) 'Restricted stock' means any share issued with the restriction that
the holder may not sell, transfer, pledge, or assign such share and such
other restrictions (which may include, but are not limited to,
restrictions on the right to vote or receive dividends) which may expire
separately or in combination, at one time or in installments, all as
specified by the grant.
(26) 'Rule 16b-3' means Rule 16b-3 (or any successor thereto) under the
Exchange Act that exempts transactions under employee benefit plans, as in
effect from time to time.
(27) 'Share' means a share of Common Stock of the Corporation issued and
reacquired by the Corporation or previously authorized but unissued.
(28) 'Shareholder-approved plan' means any of the plans constituting
parts of any of the Incentive Programs previously approved by shareholders
of the Corporation.
(29) 'Stock appreciation right,' herein sometimes called an 'SAR,' means
the right of the holder thereof to receive, pursuant to the terms of the
SAR, a number of shares or cash or a combination of shares and cash, based
on the increase in the value of the number of shares specified in the SAR,
as more particularly set forth in Section X.
(30) 'Subsidiary' means a corporation, partnership, joint venture, or
other entity in which the Corporation, directly or indirectly, owns a 50%
or greater equity interest.
3
(31) 'Terminate' means cease to be an employee, except by death, but a
change of employment from the Corporation or one affiliate to another
affiliate or to the Corporation shall not be considered a termination. For
purposes of this Program, the administrative authority may determine that
the time or date of termination is the day an employee resigns, accepts
employment with another employer or otherwise indicates an intent to
resign, which time or date need not necessarily be the last day on the
payroll.
(32) 'Terminate normally' for purposes of this Program means terminate
(a) at normal retirement time for that employee, or
(b) with written approval of the administrative authority given in
the context of recognition that all or a specified portion of the
outstanding awards to that employee will not expire or be forfeited or
annulled because of such termination
and, in each such case, without being terminated for cause.
(33) 'Year' means calendar year.
III. Administration.
(1) The Board is the ultimate administrative authority for this Program,
with the power to conclusively interpret its provisions and decide all
questions of fact arising in its application. The Board may delegate its
authority pursuant to any provision of this Program to a committee which,
except in the case of the BCC, need not be a committee of the Board. Subject to
the authority of the Board or an authorized committee and excluding cases
involving the Chairman as grantee, the Chairman of the Board and persons acting
under his direction may serve as the administrative authority under this
Program for purposes of making determinations and interpretations in individual
cases.
(2) The Board and any committee acting as the administrative authority
under this Program can act by regulation, by making individual determinations,
or by both. The Chairman of the Board and persons designated by him can act as
the administrative authority under this Program only by making individual
determinations.
(3) All determinations and interpretations pursuant to the provisions of
this Program shall be binding and conclusive upon the individuals involved and
all persons claiming under them.
(4) With respect to reporting persons, transactions under this Program are
intended to comply with all applicable conditions of Rule 16b-3. To the extent
any provision of this Program or any action by an authority under this Program
fails to so comply, such provision or action shall, without further action by
any person, be deemed to be automatically amended to the extent necessary to
effect compliance with Rule 16b-3, provided that if such provision or action
cannot be amended to effect such compliance, such provision or action shall be
deemed null and void, to the extent
4
permitted by law and deemed advisable by the appropriate authority. Each award
to a reporting person under this Program shall be deemed issued subject to the
foregoing qualification.
(5) An award under this Program is not transferable except, as provided in
the award, by will or the laws of descent and distribution, and is not subject
to attachment, execution, or levy of any kind. The designation by a grantee of
a designated beneficiary shall not constitute a transfer.
(6) Any rights with respect to an award granted under this Program
existing after the grantee dies are exercisable by the grantee's designated
beneficiary or, if there is no designated beneficiary, by the grantee's
personal representative.
(7) Except as otherwise provided herein, a particular form of award may be
granted to an eligible employee either alone or in addition to other awards
hereunder. The provisions of particular forms of award need not be the same
with respect to each recipient.
(8) If the administrative authority believes that a grantee (a) may have
engaged in detrimental activity or (b) may have accepted employment with
another employer or otherwise indicated an intent to resign, the authority may
suspend the exercise, vesting or settlement of all or any specified portion of
such grantee's outstanding awards pending an investigation of the matter.
(9) This Program and all action taken under it shall be governed by the
laws of the State of New York.
(10) Any award which was granted under a shareholder-approved plan and is
still outstanding shall be interpreted and administered in accordance with the
definitions and administrative provisions of this Program, including, without
limitation, Sections II through V hereof.
IV. Board Compensation Committee (BCC).
The Board shall appoint a BCC. The BCC shall consist of two or more
members of the Board, each of whom is a 'nonemployee director' within the
meaning of Rule 16b-3. No award may be granted to a member of the BCC.
V. Right to Grant Awards; Reserved Powers.
The Board is the ultimate granting authority for this Program, with the
power to select eligible employees for participation in this Program and to
make all decisions concerning the grant or amendment of awards. The Board may
delegate such authority in whole or in part (1) in the case of reporting
persons, to the BCC and (2) in the case of eligible employees who are not
reporting persons, to any committee.
VI. Term.
The term of this Program begins on the date shareholder approval of this
Program is obtained and ends on the tenth anniversary of that date.
5
VII. Awards Grantable.
(1) Subject to the provisions of this Program, an award is grantable if,
should it be granted, the total number of shares effectively granted during the
year of the grant would not exceed seven tenths of one percent (0.7%) of the
total number of shares of Common Stock of the Corporation outstanding
(excluding shares held by the Corporation) on December 31 of the preceding
year.
(2) If the total number of shares effectively issued with respect to an
award is less than, or exceeds, the number of shares deemed effectively granted
with respect to such award, the balance of such shares shall be, respectively,
added to, or subtracted from, the maximum number of shares that may be
effectively granted as awards thereafter.
(3) If the total number of shares effectively granted as awards in any
year is less than the maximum number of shares that could have been so granted
pursuant to the provisions of this Program, the balance of such unused shares
shall be added to the maximum number of shares that may be effectively granted
as awards in the following year.
(4) In addition to the foregoing, shares surrendered to the Corporation in
payment of the exercise price or applicable taxes upon exercise or settlement
of an award may also be used thereafter for additional awards.
(5) Notwithstanding the foregoing provisions of this Section VII, the
total number of shares that may be effectively granted under stock options or
stock appreciation rights to any one grantee in any one calendar year may not
exceed two tenths of one percent (0.2%) of the total number of shares of Common
Stock of the Corporation outstanding (excluding shares held by the Corporation)
on December 31, 1996; provided, that such number of shares is doubled in
accordance with Section VIII to reflect a two-for-one split of the shares on
March 14, 1997.
VIII. Adjustments.
Whenever a stock split, stock dividend, or other relevant change in
capitalization which the administrative authority determines to be dilutive to
outstanding awards occurs,
(1) the number of shares that can thereafter be obtained under
outstanding awards and the purchase price per share, if any, under such
awards, and
(2) every number of shares used in determining whether a particular
award is grantable thereafter,
shall be appropriately adjusted.
6
IX. Stock Options.
One or more grantable stock options can be granted to any eligible
employee. Each stock option so granted shall be subject to such terms and
conditions as the granting authority shall impose, which shall include the
following:
(1) The exercise price per share shall be specified by the grant,
but shall in no instance be less than 100 percent of fair market value at
the time of grant. Payment of the exercise price shall be made in cash,
shares, or other consideration in accordance with the terms of this
Program and any applicable regulations of the administrative authority in
effect at the time and valued at fair market value on the date of exercise
of the stock option.
(2) The stock option shall become exercisable, if at all, at the
time or times specified by the grant. If the grantee has terminated other
than normally before a stock option or portion thereof becomes
exercisable, that stock option or portion thereof shall be forfeited and
shall never become exercisable. Except as otherwise specified by the
grant, a stock option shall become immediately exercisable in full upon
the death of the grantee.
(3) Any stock option or portion thereof that is exercisable is
exercisable for the full amount or for any part thereof, except as
otherwise provided by the grant.
(4) Each stock option ceases to be exercisable, as to any share,
when the stock option is exercised to purchase that share, or when a
related SAR is exercised either by the holder or automatically in
accordance with its terms, or when the stock option expires. To the extent
an SAR included in a stock option is exercised, such stock option shall be
deemed to have been exercised and shall not be deemed to have expired.
(5) A stock option or portion thereof that is exercisable shall
expire in the following situations:
(a) unless clauses (b), (c) or (d) below apply, it shall
expire at the earlier of:
(i) ten years after it is granted, or
(ii) any earlier time specified by the grant;
(b) if the grantee terminates, but does not terminate
normally, it shall expire at the time of termination;
(c) if the grantee is determined to have engaged in
detrimental activity, it shall expire as of the date of such
determination; or
(d) if the grantee dies, it shall expire at the earlier of:
7
(i) five years after the grantee's death, or
(ii) any earlier time specified by the grant;
but, in any case, no later than ten years after it is granted.
(6) If a grantee terminates other than normally, (a) the
administrative authority may refuse to deliver shares in settlement of any
pending stock option exercise and (b) the granting authority may require the
grantee to repay to the Corporation an amount equal to the spread on any stock
option exercised by the grantee during the six-month period immediately
preceding such termination. For purposes of the foregoing subsection (6)(b),
'spread' means the difference between the aggregate stock option exercise price
and the fair market value of the underlying shares on the date such option is
exercised.
(7) All stock options granted hereunder are hereby designated as
ISOs except to the extent otherwise specified by the grant and except to the
extent otherwise specified in this Section IX(7). To the extent that the
aggregate fair market value of shares with respect to which stock options
designated as ISOs are exercisable for the first time by any grantee during any
year (under all plans of the Corporation and any affiliate thereof) exceeds
$100,000, such stock options shall be treated as not being ISOs. The foregoing
shall be applied by taking stock options into account in the order in which
they were granted. For the purposes of the foregoing, the fair market value of
any share shall be determined as of the time the stock option with respect to
such share is granted. In the event the foregoing results in a portion of a
stock option designated as an ISO exceeding the above $100,000 limitation, only
such excess shall be treated as not being an ISO.
For each year in which this Program is in effect, the number of
shares that may be effectively granted as ISOs may not exceed seven tenths of
one percent (0.7%) of the total number of shares of Common Stock of the
Corporation outstanding (excluding shares held by the Corporation) on the
December 31 preceding the date on which shareholder approval of this Program is
obtained; provided, that beginning with the year 1998, the annual number of
shares determined as aforesaid shall be doubled in accordance with Section VIII
to reflect a two-for-one split of the shares on March 14, 1997. If the number
of shares effectively granted as ISOs in any year is less than the number of
shares that could have been so granted pursuant to this paragraph, the balance
of such unused shares may be added to the maximum number of shares that may be
effectively granted as ISOs the following year.
A stock option designated as an ISO, or portion thereof, that fails
or ceases to qualify as such under the Code shall otherwise remain valid
according to its terms as a non-ISO under this Program.
X. Stock Appreciation Rights.
(1) An SAR may be granted to an eligible employee as a separate award
hereunder. Any such SAR shall be subject to such terms and conditions as the
granting authority shall impose, which shall
8
include provisions that (a) such SAR shall entitle the holder thereof, upon
exercise thereof in accordance with such SAR and the regulations of the
administrative authority, to receive from the Corporation that number of shares
having an aggregate value equal to the excess of the fair market value, at the
time of exercise of such SAR, of one share over the exercise price per share
specified by the grant of such SAR (which shall in no instance be less than 100
percent of fair market value at the time of grant) times the number of shares
specified in such SAR, or portion thereof, which is so exercised; and (b) such
SAR shall be exercisable, or be forfeited or expire, upon the same conditions
set forth for freestanding options in Section IX, paragraphs (2),(3),(4),(5),
and (6).
(2) Any stock option granted under this Program may include an SAR,
either at the time of grant or by amendment. An SAR included in a stock option
shall be subject to such terms and conditions as the granting authority shall
impose, which shall include provisions that (a) such SAR shall be exercisable
to the extent, and only to the extent, the stock option is exercisable; and (b)
such SAR shall entitle the optionee to surrender to the Corporation unexercised
the stock option in which the SAR is included, or any portion thereof, and to
receive from the Corporation in exchange therefor that number of shares having
an aggregate value equal to the excess of the fair market value, at the time of
exercise of such SAR, of one share over the exercise price specified in such
stock option times the number of shares specified in such stock option, or
portion thereof, which is so surrendered.
(3) In lieu of the right to receive all or any specified portion of such
shares, an SAR may entitle the holder thereof to receive the cash equivalent
thereof as specified by the grant.
(4) An SAR may provide that such SAR shall be deemed to have been
exercised at the close of business on the business day preceding the expiration
of such SAR or the related stock option, if any, if at such time such SAR has
positive value and would have expired in accordance with the conditions set
forth in Section IX(5)(a).
XI. Restricted Stock.
(1) An award of restricted stock may be granted hereunder to an eligible
employee, for no cash consideration, for such minimum consideration as may be
required by applicable law, or for such other consideration as may be specified
by the grant. The terms and conditions of restricted stock shall be specified
by the grant.
(2) Any restricted stock issued hereunder may be evidenced in such
manner as the administrative authority in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of restricted stock awarded hereunder, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such award.
(3) Except as otherwise specified by the grant, if a holder of record of
restricted stock terminates, but does not terminate normally, all shares of
restricted stock (whether or not stock certificates have been issued) then held
by such holder and then subject to restriction shall be forfeited by such
holder and reacquired by the Corporation. Except as otherwise specified by the
9
grant, if a holder of record of restricted stock terminates normally or dies,
any and all remaining restrictions with respect to such restricted stock shall
expire. Notwithstanding the foregoing, if a holder of record of restricted
stock is determined to have engaged in detrimental activity, all shares of
restricted stock (whether or not stock certificates have been issued) then held
by such holder and then subject to restriction shall be forfeited by such
holder as of the date of such determination and shall be reacquired by the
Corporation.
XII. Performance Awards.
(1) Performance awards may be granted hereunder to an eligible employee,
for no cash consideration, for such minimum consideration as may be required by
applicable law, or for such other consideration as may be specified by the
grant. The terms and conditions of performance awards, which may include
provisions establishing performance periods, performance criteria to be
achieved during a performance period, and maximum or minimum settlement values,
shall be specified by the grant.
(2) Performance awards may be valued by reference to the value of Common
Stock of the Corporation or according to any other formula or method.
Performance awards may be paid in cash, shares, or other consideration, or any
combination thereof. The extent to which any applicable performance criteria
have been achieved shall be conclusively determined by the administrative
authority. Performance awards may be payable in a single payment or in
installments and may be payable at a specified date or dates or upon attaining
performance criteria.
(3) Except as otherwise specified by the grant, if the grantee
terminates, but does not terminate normally, any performance award or
installment thereof not payable prior to the grantee's termination shall be
annulled as of the date of termination. If the grantee is determined to have
engaged in detrimental activity, any performance award or installment thereof
not payable prior to the date of such determination shall be annulled as of
such date.
XIII. Incentive Shares.
(1) An incentive award may be granted hereunder in the form of shares.
Incentive shares may be granted to an eligible employee for no cash
consideration, for such minimum consideration as may be required by applicable
law, or for such other consideration as may be specified by the grant. The
terms and conditions of incentive shares shall be specified by the grant.
(2) Incentive shares may be paid to the grantee in a single installment
or in installments and may be paid at the time of grant or deferred to a later
date or dates. Each grant shall specify the time and method of payment as
determined by the granting authority, provided that no such determination shall
authorize delivery of shares to be made later than the tenth anniversary of the
grantee's date of termination. The granting authority, by amendment of the
grant prior to delivery, can modify the method of payment for any incentive
shares, provided that the delivery of any incentive shares shall be completed
not later than the tenth anniversary of the grantee's date of termination.
10
(3) If any incentive shares are payable after the grantee dies, such
shares shall be payable (a) to the grantee's designated beneficiary or, if
there is no designated beneficiary, to the grantee's personal representative,
and (b) either in the form specified by the grant or otherwise, as may be
determined by the administrative authority.
(4) Any grant of incentive shares is provisional, as to any share, until
delivery of the certificate representing such share. If, while the grant is
provisional,
(a) the grantee terminates, but does not terminate normally, or
(b) the grantee is determined to have engaged in detrimental
activity,
the grant shall be annulled as of the date of termination, or the date of such
determination, as the case may be.
XIV. Dividend Equivalent Rights; Interest Equivalents.
(1) A DER may be granted hereunder to an eligible employee, as a
component of another award or as a separate award. The terms and conditions of
DERs shall be specified by the grant. Dividend equivalents credited to the
holder of a DER may be paid currently or may be deemed to be reinvested in
additional shares (which may thereafter accrue additional dividend
equivalents). Any such reinvestment shall be at fair market value at the time
thereof. DERs may be settled in cash or shares or a combination thereof, in a
single installment or installments. A DER granted as a component of another
award may provide that such DER shall be settled upon exercise, settlement, or
payment of, or lapse of restrictions on, such other award, and that such DER
shall expire or be forfeited or annulled under the same conditions as such
other award. A DER granted as a component of another award may also contain
terms and conditions different from such other award.
(2) Any award under this Program that is settled in whole or in part in
cash on a deferred basis may provide by the grant for interest equivalents to
be credited with respect to such cash payment. Interest equivalents may be
compounded and shall be paid upon such terms and conditions as may be specified
by the grant.
XV. Other Awards.
Other forms of award based on, payable in or otherwise related in whole or
in part to shares may be granted to an eligible employee under this Program if
the granting authority determines that such awards are consistent with the
purposes and restrictions of this Program. The terms and conditions of such
awards shall be specified by the grant. Such awards shall be granted for no
cash consideration, for such minimum consideration as may be required by
applicable law, or for such other consideration as may be specified by the
grant.
11
XVI. Amendments to This Program.
The Board can from time to time amend or terminate this Program, or any
provision hereof, except that approval of the shareholders of the Corporation
shall be required for any amendment (1) to increase the maximum number of
shares that may be effectively granted as awards hereunder; (2) to decrease the
minimum exercise price per share of a stock option or SAR; or (3) for which
such approval is otherwise necessary to comply with any applicable law,
regulation, or listing requirement, or to qualify for an exemption or
characterization that is deemed desirable by the Board.
XVII. Amendments to Awards.
Any award which was granted under a shareholder-approved plan and is still
outstanding may, subject to any requirements of applicable law or regulation,
be amended by action of the granting authority so as to incorporate in that
award any terms that might have been incorporated in an award under this
Program.
XVIII. Withholding Taxes.
The Corporation shall have the right to deduct from any cash payment made
under this Program any federal, state or local income or other taxes required
by law to be withheld with respect to such payment. It shall be a condition to
the obligation of the Corporation to deliver shares or securities of the
Corporation upon exercise of a stock option or SAR, upon settlement of a
performance award or DER, upon delivery of restricted stock or incentive
shares, or upon exercise, settlement, or payment of any other award under this
Program, that the grantee of such award pay to the Corporation such amount as
may be requested by the Corporation for the purpose of satisfying any liability
for such withholding taxes. Any award under this Program may provide by the
grant that the grantee of such award may elect, in accordance with any
applicable regulations of the administrative authority, to pay a portion or all
of the amount of such minimum required or additional permitted withholding
taxes in shares. The grantee shall authorize the Corporation to withhold, or
shall agree to surrender back to the Corporation, on or about the date such
withholding tax liability is determinable, shares previously owned by such
grantee or a portion of the shares that were or otherwise would be distributed
to such grantee pursuant to such award having a fair market value equal to the
amount of such required or permitted withholding taxes to be paid in shares.
XIX. Grant of Awards to Employees Who are Foreign Nationals.
Without amending this Program, but subject to the limitations specified in
Sections III(4) and XVI, the granting authority can grant or amend, and the
administrative authority can administer, annul, or terminate, awards to
eligible employees who are foreign nationals on such terms and conditions
different from those specified in this Program as may in its judgment be
necessary or desirable to foster and promote achievement of the purposes of
this Program.
12
