AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 333-43003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PENNZOIL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311, 2911 74-159720
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
PENNZOIL PLACE, P.O. BOX 2967
HOUSTON, TEXAS 77252-2967
(713) 546-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LINDA F. CONDIT
CORPORATE SECRETARY
PENNZOIL COMPANY
PENNZOIL PLACE, P.O. BOX 2967
HOUSTON, TEXAS 77252-2967
(713) 546-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
MOULTON GOODRUM, JR. G. MICHAEL O'LEARY
BAKER & BOTTS, L.L.P. ANDREWS & KURTH L.L.P.
3000 ONE SHELL PLAZA 4200 CHASE TOWER
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 229-1234 (713) 220-4200
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
----------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 30, 1998
LOGO
[Logo of Pennzoil Company appears here]
OFFER TO EXCHANGE OFFER TO EXCHANGE
NEWLY ISSUED NEWLY ISSUED
4.90% EXCHANGEABLE 4.95% EXCHANGEABLE SENIOR DEBENTURES DUE 2008
SENIOR DEBENTURES DUE FOR A PORTION OF
2008 OUTSTANDING 4 3/4% EXCHANGEABLE SENIOR DEBENTURES
FOR A PORTION OF DUE 2003
OUTSTANDING 6 1/2%
EXCHANGEABLE SENIOR
DEBENTURES
DUE 2003
----------
EACH OF THE EXCHANGE OFFERS, PRORATION PERIODS AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY, JULY 31, 1998
UNLESS ONE OR BOTH OF THE EXCHANGE OFFERS ARE EXTENDED.
----------
Certain capitalized terms are defined in the Glossary beginning on page 5.
Pennzoil Company hereby offers to issue its new 4.90% exchangeable senior
debentures due August 15, 2008 in exchange for a portion of its $397.1 million
of outstanding 6 1/2% exchangeable senior debentures due 2003 and its new 4.95%
exchangeable senior debentures due August 15, 2008 in exchange for a portion of
its $491.5 million of outstanding 4 3/4% exchangeable senior debentures due
2003. The aggregate principal amount of Old Debentures to be accepted for
exchange and the principal amount of New Debentures to be issued will be
determined as described herein.
The holders of the Old Debentures currently have the option to exchange their
Old Debentures any time prior to maturity, unless previously redeemed, for
shares of common stock of Chevron Corporation beneficially owned by Pennzoil.
Subject to adjustment in certain events, the exchange rates for the Old
Debentures are 23.7741 shares of Chevron Stock per $1,000 principal amount (the
equivalent of $42 1/16 per share) for the 6 1/2% Debentures and 17.0032 shares
of Chevron Stock per $1,000 principal amount (the equivalent of $58 13/16 per
share) for the 4 3/4% Debentures. On June 26, 1998, the reported closing price
of Chevron Stock on the NYSE was $83 5/8 per share. See "Chevron Corporation--
Dividend and Price Range of Chevron Stock."
The 6 1/2% Exchange Offer will be for a principal amount of 6 1/2% Debentures
(the "6 1/2% Target Amount") that is exchangeable into between 4.76 million and
6.00 million shares of Chevron Stock under Existing Exchange Rights (a range of
between $200.17 million and $252.50 million principal amount of 6 1/2%
Debentures). The 6 1/2% Target Amount will be determined by reference to the
Average Chevron Stock Price. See "The Exchange Offers--Target Amounts."
The principal amount of New 4.90% Debentures to be issued in exchange for 6
1/2% Debentures will be equal to the product of (i) 103% of the Average Chevron
Stock Price and (ii) the aggregate number of shares of Chevron Stock for which
the 6 1/2% Debentures validly tendered by a holder and accepted by the Company
for exchange are exchangeable as of the 6 1/2% Acceptance Date (subject to the
payment of cash in lieu of the issuance of a Fractional New 4.90% Debenture).
(continued on next page)
----------
SEE "RISK FACTORS" ON PAGE 18 OF THIS PROSPECTUS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
The Dealer Manager for the Exchange Offers:
PAINEWEBBER INCORPORATED
----------
The date of this Prospectus is July , 1998.
The 4 3/4% Exchange Offer will be for a principal amount of 4 3/4%
Debentures (the "4 3/4% Target Amount") that is exchangeable into between 3.40
million and 4.29 million shares of Chevron Stock under Existing Exchange
Rights (a range of between $200.17 million and $252.50 million principal
amount of 4 3/4% Debentures). The 4 3/4% Target Amount will be determined by
reference to the Average Chevron Stock Price. See "The Exchange Offers--Target
Amounts."
The principal amount of New 4.95% Debentures to be issued in exchange for 4
3/4% Debentures will be equal to the product of (i) 103% of the Average
Chevron Stock Price and (ii) the aggregate number of shares of Chevron Stock
for which the 4 3/4% Debentures validly tendered by a holder and accepted by
the Company for exchange are exchangeable as of the 4 3/4% Acceptance Date
(subject to the payment of cash in lieu of the issuance of a Fractional New
4.95% Debenture).
Pennzoil will issue a press release publicly announcing the Average Chevron
Stock Price, the Target Amounts and the principal amount of New Debentures to
be issued in the Exchange Offers prior to the opening of trading on the second
trading day prior to the respective Expiration Dates. Such information can
also be obtained from D. F. King & Co., Inc., the Information Agent, by
calling 1-800-735-3591 beginning on the second trading day prior to the
respective Expiration Dates.
If holders validly tender, and do not withdraw, more than the 6 1/2% Target
Amount of 6 1/2% Debentures for exchange prior to the 6 1/2% Expiration Date,
the Company will accept 6 1/2% Debentures for exchange on a pro rata basis
from among the 6 1/2% Debentures tendered. If holders validly tender, and do
not withdraw, more than the 4 3/4% Target Amount of 4 3/4% Debentures for
exchange prior to the 4 3/4% Expiration Date, the Company will accept 4 3/4%
Debentures for exchange on a pro rata basis from among the 4 3/4% Debentures
tendered.
The Company will issue the New Debentures on the next calendar day following
the respective Acceptance Dates. Interest on the New Debentures will accrue
from their date of issuance and will be payable in cash semi-annually on
February 15 and August 15 of each year, commencing February 15, 1999. The
Company may not redeem the New Debentures prior to August 15, 2000. See
"Description of New Debentures--Redemption Provisions."
A holder will have the option to exchange the New Debentures at any time
prior to maturity, unless previously redeemed, for shares of Chevron Stock
owned by Pennzoil. Subject to adjustment in certain events, the exchange rate
for the New Debentures will be 0.8230 shares of Chevron Stock for each share
of Chevron Stock into which exchanged Old Debentures were exchangeable as of
the respective Acceptance Dates under Existing Exchange Rights (excluding
shares of Chevron Stock exchangeable for that portion of Old Debentures for
which cash is paid in lieu of the issuance of a Fractional New Debenture). See
"Prospectus Summary--Illustration." In lieu of delivering certificates
representing Chevron Stock in exchange for any New Debentures, Pennzoil may
pay to the holder surrendering such New Debentures an amount in cash equal to
the market price of the Chevron Stock for which the New Debentures are
exchangeable.
The New Debentures will constitute unsecured senior debt obligations of
Pennzoil ranking pari passu with all other present and future unsecured
general obligations of Pennzoil that are not expressly subordinated to senior
indebtedness. Pennzoil currently conducts substantially all of its operations
through subsidiaries, and the holders of the New Debentures will have a junior
position to any creditors of Pennzoil's subsidiaries. As of March 31, 1998,
the aggregate outstanding debt of Pennzoil's subsidiaries was approximately
$63 million, and, on a pro forma basis after giving effect to the Spin-Off,
such subsidiary debt will be zero. See "Prospectus Summary--Recent
Developments."
The Company is making the Exchange Offers only to holders of Old Debentures
in registered form. See "The Exchange Offers--Procedures for Tendering." The
Company will issue the New Debentures only in registered book-entry form and
in denominations of $1,000 and integral multiples thereof. See "Description of
New Debentures." Holders who would otherwise be entitled to receive a
Fractional New Debenture will receive a cash payment in lieu of the issuance
of such Fractional New Debenture. See "The Exchange Offers--Terms of the
Exchange Offers."
2
Pennzoil currently expects to redeem all Old Debentures that remain
outstanding after completion of the Exchange Offers. Pennzoil's Board of
Directors, however, will determine whether to redeem and when to redeem either
or both series of the Old Debentures according to market and other factors
prevailing at the time. If Pennzoil redeems the Old Debentures, Pennzoil
expects that the terms of the Old Debentures and the currently prevailing
market prices for Chevron Stock will cause substantially all holders of Old
Debentures to exercise their Existing Exchange Rights to obtain shares of
Chevron Stock (although Pennzoil has the right to pay cash instead of
delivering shares of Chevron Stock). Although Pennzoil has had the right to
redeem the 6 1/2% Debentures since January 15, 1998, Pennzoil does not intend
to redeem them before August 15, 1998. Pennzoil currently expects to redeem
the 4 3/4% Debentures on October 1, 1998, which is the first date on which the
Company can redeem them.
Application will be made to list the New Debentures for trading on the NYSE.
----------------
3
TABLE OF CONTENTS
PAGE
----
Incorporation of Certain
Documents by Reference. 4
Glossary................ 5
Prospectus Summary...... 7
Risk Factors............ 18
Capitalization.......... 19
Use of Proceeds......... 21
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends.............. 21
Chevron Corporation..... 22
Price Range of Old
Debentures............. 23
The Exchange Offers..... 24
Description of New
Debentures............. 34
Material Federal Income
Tax Consequences....... 47
Dealer Manager.......... 53
Legal Matters........... 53
Experts................. 54
Available Information... 54
Appendix A: Selected
Information Concerning
Chevron................ A-1
Appendix B: Description
of Old 6 1/2%
Debentures............. B-1
Appendix C: Description
of Old 4 3/4%
Debentures............. C-1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Pennzoil with the
Commission (File No. 1-5591) pursuant to the Exchange Act are incorporated in
this Prospectus by reference and shall be deemed to be a part hereof:
(a) Pennzoil's Annual Report on Form 10-K for the year ended December 31,
1997;
(b) Pennzoil's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998; and
(c) Pennzoil's Current Reports on Form 8-K dated March 12, 1998, April
17, 1998, April 20, 1998, May 20, 1998 and May 29, 1998.
All documents filed by Pennzoil pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this
Prospectus, in a supplement to this Prospectus or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed supplement to this
Prospectus or in any document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference that are not presented
herein or delivered herewith. Copies of these documents (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) will be provided by first-class mail without
charge to each person to whom this Prospectus is delivered, upon written or
oral request, to Linda F. Condit, Corporate Secretary, Pennzoil Company,
Pennzoil Place, P.O. Box 2967, Houston, Texas 77252 (telephone number: (713)
546-4000).
No person is authorized in connection with any offering made hereby to give
any information or to make any representation in connection with the Exchange
Offers other than those contained in this Prospectus, and, if given or made,
such information or representation must not be relied upon as having been
authorized by Pennzoil or by the Dealer Manager. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any of the
securities offered hereby by any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that the information contained herein is correct as of any date
subsequent to the date hereof.
4
GLOSSARY
Certain of the capitalized terms used herein are defined below.
4 3/4% ACCEPTANCE DATE: The date Pennzoil accepts 4 3/4% Debentures pursuant
to the 4 3/4% Exchange Offer.
4 3/4% DEBENTURES: Pennzoil's outstanding 4 3/4% exchangeable senior
debentures due August 15, 2003.
4 3/4% EXCHANGE OFFER: The offer by Pennzoil to issue New 4.95% Debentures
in exchange for outstanding 4 3/4% Debentures, upon the terms and subject to
the conditions of this Prospectus and the applicable Letter of Transmittal.
4 3/4% EXPIRATION DATE: 5:00 p.m. New York City time, on Friday, July 31,
1998 unless the 4 3/4% Exchange Offer is extended.
6 1/2% ACCEPTANCE DATE: The date Pennzoil accepts 6 1/2% Debentures pursuant
to the 6 1/2% Exchange Offer.
6 1/2% DEBENTURES: Pennzoil's outstanding 6 1/2% exchangeable senior
debentures due August 15, 2003.
6 1/2% EXCHANGE OFFER: The offer by Pennzoil to issue New 4.90% Debentures
in exchange for outstanding 6 1/2% Debentures, upon the terms and subject to
the conditions of this Prospectus and the applicable Letter of Transmittal.
6 1/2% EXPIRATION DATE: 5:00 p.m. New York City time, on Friday, July 31,
1998 unless the 6 1/2% Exchange Offer is extended.
ACCEPTANCE DATES: The 6 1/2% Acceptance Date and the 4 3/4% Acceptance Date,
together.
AVERAGE CHEVRON STOCK PRICE: The average of the closing prices of Chevron
Stock on the NYSE on the two trading days immediately preceding the second
trading day prior to the respective Expiration Dates (i.e., if an Expiration
Date is on a Friday, the Average Chevron Stock Price will be the average of
the closing prices of Chevron Stock on the NYSE on the Monday and Tuesday of
the same week).
CHEVRON: Chevron Corporation.
CHEVRON STOCK: Shares of common stock of Chevron.
COMMISSION: Securities and Exchange Commission.
EXCHANGE ACT: Securities Exchange Act of 1934, as amended.
EXCHANGE OFFERS: The 6 1/2% Exchange Offer and the 4 3/4% Exchange Offer,
together.
EXISTING EXCHANGE RIGHTS: The option of holders of Old Debentures to
exchange Old Debentures at any time prior to maturity, unless previously
redeemed, for Chevron Stock beneficially owned by Pennzoil at exchange rates
of 23.7741 shares and 17.0032 shares per $1,000 principal amount of the 6 1/2%
Debentures and the 4 3/4% Debentures, respectively (the principal amount
equivalents of $42 1/16 per share and $58 13/16 per share, respectively),
subject to adjustment in certain events.
EXPIRATION DATES: The 6 1/2% Expiration Date and the 4 3/4% Expiration Date,
together.
5
FRACTIONAL NEW DEBENTURES: The Fractional New 4.90% Debentures and
Fractional New 4.95% Debentures, together.
FRACTIONAL NEW 4.90% DEBENTURES: A New 4.90% Debenture in a principal amount
of less than $1,000.
FRACTIONAL NEW 4.95% DEBENTURES: A New 4.95% Debenture in a principal amount
of less than $1,000.
NEW DEBENTURES: The New 4.90% Debentures and New 4.95% Debentures, together.
NEW 4.90% DEBENTURES: New 4.90% exchangeable senior debentures due August
15, 2008, to be issued by Pennzoil in exchange for 6 1/2% Debentures.
NEW 4.95% DEBENTURES: New 4.95% exchangeable senior debentures due August
15, 2008, to be issued by Pennzoil in exchange for 4 3/4% Debentures.
NYSE: New York Stock Exchange, Inc.
OLD DEBENTURES: The 6 1/2% Debentures and the 4 3/4% Debentures, together.
PENNZOIL or the COMPANY: Pennzoil Company, a Delaware corporation.
PRODUCTS GROUP: Pennzoil's motor oil, refined products and franchise
operations (which generally includes Pennzoil Products Company, Jiffy Lube
International, Inc. and their respective subsidiaries).
REGISTRATION STATEMENT: The Registration Statement on Form S-4 filed by
Pennzoil with the Commission under the Securities Act with respect to the
offering of the New Debentures.
SECURITIES ACT: Securities Act of 1933, as amended.
SPIN-OFF: The pro rata distribution of Downstream to the holders of Pennzoil
common stock.
6
PROSPECTUS SUMMARY
This general summary is provided solely for the convenience of holders of the
Old Debentures and is qualified in its entirety by reference to the full text
of and the more specific details contained in the Exchange Offers, the related
Letters of Transmittal and any amendments hereto and thereto. Capitalized terms
used in this summary without definition shall have the respective meanings
ascribed to such terms in the Exchange Offers.
PENNZOIL COMPANY
Pennzoil is an energy company engaged primarily in oil and gas exploration
and production, in processing, refining and marketing of oil and motor oil and
refined products and in fast automotive oil change operations. Pennzoil's
operations are conducted primarily through subsidiaries. Pennzoil Exploration
and Production Company ("PEPCO") conducts the majority of Pennzoil's oil and
gas exploration and production operations. The refining of oil and the
processing and marketing of motor oil, refined products and industrial
specialities are conducted by Pennzoil Products Company ("PPC"). Jiffy Lube
International, Inc. ("Jiffy Lube") franchises, owns and operates automotive
fast lubrication and fluid maintenance service centers.
As of March 31, 1998, Pennzoil beneficially owned approximately 17.8 million
shares of Chevron Stock (which have been deposited with exchange agents for
possible exchange of the Old Debentures). At the current dividend rate,
Pennzoil receives approximately $43.4 million annually in dividends on its
current investment in Chevron Stock.
RECENT DEVELOPMENTS
On April 15, 1998, Pennzoil announced a comprehensive restructuring that will
result in the separation of Products Group (Pennzoil's motor oil, refined
products and franchise operations (which generally include PPC, Jiffy Lube and
their respective subsidiaries)) from Pennzoil's exploration and production
operations. The restructuring includes the pro rata distribution, or Spin-Off,
of Products Group (i.e., the common stock of PPC (which will at such time hold
the motor oil and refined products operations of PPC and the common stock of
Jiffy Lube)) to holders of Pennzoil common stock. After the Spin-Off, Pennzoil
will be primarily an exploration and production company and will no longer be
engaged in the processing, refining and marketing of motor oil and refined
products or in fast automotive oil change and franchise operations.
The Old Debentures are, and the New Debentures to be issued in the Exchange
Offers will be, obligations of Pennzoil, and not obligations of Products Group,
and the Exchange Offers are not conditioned on the occurrence or non-occurrence
of the Spin Off. At the time of the Spin-Off, Products Group will be
capitalized with approximately $500 million of net indebtedness, approximately
$380 million of which will be used to repay indebtedness owed from Products
Group to Pennzoil. Pennzoil intends to use the proceeds from Products Group's
repayment primarily to reduce indebtedness under its variable rate credit
arrangements. In June 1998, Pennzoil completed the offering of $150 million of
6.49% Cumulative Preferred Stock, Series A. The net proceeds of approximately
$147 million were used to repay borrowings consisting of commercial paper and
lines of credit with banks. See "Capitalization" for the pro forma consolidated
capitalization of Pennzoil and its subsidiaries after giving effect to (i) the
Exchange Offers and the related transactions described herein, (ii) the
issuance by Pennzoil of $150 million of 6.49% Cumulative Preferred Stock,
Series A, in June 1998 and the application of the net proceeds thereof, and
(iii) the Spin-Off and related transactions.
Pennzoil intends that James L. Pate will become Chairman and Chief Executive
Officer of Products Group and continue as a non-executive Chairman of the Board
of Pennzoil after the Spin-Off, and Steven D. Chesebro', President and Chief
Operating Officer of Pennzoil, and Donald A. Frederick, Group Vice President--
Oil and Gas of Pennzoil, will continue as senior executive officers of Pennzoil
after the Spin-Off.
Pennzoil has been informally notified by the Internal Revenue Service (the
"IRS") that Pennzoil will receive a revenue agent's report that will propose to
disallow the timing of $310.4 million in deductions claimed by Pennzoil in its
1994 federal income tax return. Under the IRS position, this amount would be
allowed as a deduction against taxable income in years after 1994. Pennzoil
strongly disagrees with the IRS position as informally communicated, and
Pennzoil intends to contest the issues involved, which will not likely be
resolved for a number of years. However, if the issues were assumed to be
resolved completely in the IRS's favor during 1998, the effect of the IRS's
position would be to increase 1998 after-tax interest expense by $30.2 million
and to reduce Pennzoil's 1998 cash flow by $127.7 million, with an increase in
Pennzoil's cash flow in future years when the deductions could be taken against
taxable income.
7
THE EXCHANGE OFFERS
Purpose of the Exchange The purpose of the Exchange Offers is to replace
Offers..................... a portion of Pennzoil's outstanding Old
Debentures with the New Debentures. The Company
is undertaking the Exchange Offers to take
advantage of what it believes to be favorable
conditions in the equity-linked securities
markets. In addition, the Company will use the
net tax loss created by the Exchange Offers to
offset (at least in part) gains recognized by
Pennzoil (1) from the expected exercise of
Existing Exchange Rights on unexchanged Old
Debentures and (2) on any sale or exchange of
shares of Chevron Stock that may be released
(from deposit with exchange agents for possible
exchange of Old Debentures as a result of the
Exchange Offers) and sold by Pennzoil.
The Exchange Offers......... Pennzoil is offering to issue the New Debentures
in exchange for the Target Amounts of the Old
Debentures. The Target Amounts of Old Debentures
to be accepted for exchange and the principal
amount of New Debentures to be issued will be
determined as described herein.
Target Amounts..............
The Target Amounts will be determined by
reference to the Average Chevron Stock Price. See
"The Exchange Offers--Target Amounts." However,
Pennzoil reserves the right to accept more than
the Target Amounts of Old Debentures for exchange
(such higher amount will then become the "Target
Amount" for purposes of proration). On June 26,
1998, the reported closing price of Chevron Stock
on the NYSE was $83 5/8 per share. See "Chevron
Corporation--Dividend and Price Range of Chevron
Stock" for the recent trading prices of Chevron
Stock.
6 1/2% Target Amount........
The 6 1/2% Exchange Offer will be for the 6 1/2%
Target Amount, which is a principal amount of 6
1/2% Debentures that is exchangeable into between
4.76 million and 6.00 million shares of Chevron
Stock under Existing Exchange Rights (a range of
between $200.17 million and $252.50 million
principal amount of 6 1/2% Debentures).
4 3/4% Target Amount........
The 4 3/4% Exchange Offer will be for the 4 3/4%
Target Amount, which is a principal amount of 4
3/4% Debentures that is exchangeable into between
3.40 million and 4.29 million shares of Chevron
Stock under Existing Exchange Rights (a range
between $200.17 million and $252.50 million
principal amount of 4 3/4% Debentures).
Minimum Number of New
Debentures................. The Company will not accept for exchange any 6
1/2% Debentures if the 6 1/2% Exchange Offer
would result in less than $100 million in
principal amount of New 4.90% Debentures being
issued. The Company will not accept for exchange
any 4 3/4% Debentures if the 4 3/4% Exchange
Offer would result in less than $100 million in
principal amount of New 4.95% Debentures being
issued.
Market Price of Old
Debentures................. There are currently $397.1 million aggregate
principal amount of 6 1/2% Debentures outstanding
and $491.5 aggregate principal amount of 4 3/4%
Debentures outstanding. The NYSE currently lists
8
the 6 1/2% Debentures for trading under the
symbol PZL.F and the 4 3/4% Debentures for
trading under the symbol PZM.F. On June 26, 1998,
the closing prices for the 6 1/2% Debentures and
the 4 3/4% Debentures on the NYSE Composite Tape
were $190 and $142 5/8, respectively. Trades of
small amounts of Old Debentures typically take
place on the NYSE, while trades of larger amounts
generally take place in the over-the-counter
market. Because the Old Debentures may trade in
small amounts and sometimes infrequently on the
NYSE, the most recently reported NYSE trading
price may or may not be indicative of the current
market value. See "Price Range of Old Debentures"
for the recent trading prices of the Old
Debentures.
Consideration Offered.......
The principal amount of New 4.90% Debentures to
be issued in exchange for 6 1/2% Debentures will
be equal to the product of (i) 103% of the
Average Chevron Stock Price and (ii) the
aggregate number of shares of Chevron Stock for
which the 6 1/2% Debentures validly tendered by a
holder and accepted by the Company for exchange
are exchangeable as of the 6 1/2% Acceptance Date
(subject to the payment of cash in lieu of the
issuance of a Fractional New 4.90% Debenture).
The principal amount of New 4.95% Debentures to
be issued in exchange for 4 3/4% Debentures will
be equal to the product of (i) 103% of the
Average Chevron Stock Price and (ii) the
aggregate number of shares of Chevron Stock for
which the 4 3/4% Debentures validly tendered by a
holder and accepted by the Company for exchange
are exchangeable as of the 4 3/4% Acceptance Date
(subject to the payment of cash in lieu of the
issuance of a Fractional New 4.95% Debenture).
Proration................... If holders validly tender, and do not withdraw,
more than the 6 1/2% Target Amount of 6 1/2%
Debentures for exchange prior to the Expiration
Date, the Company will accept 6 1/2% Debentures
for exchange on a pro rata basis from among the 6
1/2% Debentures validly tendered. (All validly
tendering holders will be prorated if more than
the 6 1/2% Target Amount is tendered.) If holders
validly tender, and do not withdraw, more than
the 4 3/4% Target Amount of 4 3/4% Debentures for
exchange prior to the Expiration Date, the
Company will accept 4 3/4% Debentures for
exchange on a pro rata basis from among the 4
3/4% Debentures validly tendered. (All validly
tendering holders will be prorated if more than
the 4 3/4% Target Amount is tendered.)
Public Announcement......... Pennzoil will issue a press release publicly
announcing the Average Chevron Stock Price, the
Target Amounts and the principal amount of New
Debentures to be issued in the Exchange Offers
prior to the opening of trading on the second
trading day prior to the respective Expiration
Dates. Such information can also be obtained from
D. F. King & Co., Inc., the Information Agent, by
calling 1-800-735-3591 beginning on the second
trading day prior to the respective Expiration
Dates.
Expiration Dates............
5:00 p.m., New York City time, on Friday, July
31, 1998, unless the Exchange Offers are extended
as provided herein, in which case the term "4
3/4% Expiration Date" means the latest date and
time to
9
which the 4 3/4% Exchange Offer is extended, and
the term "6 1/2% Expiration Date" means the
latest date and time to which the 6 1/2% Exchange
Offer is extended. Pennzoil may extend or
terminate either of the Exchange Offers as
provided herein independently of the other
Exchange Offer.
Conditions to the Exchange
Offers; Termination;
Waiver; Amendment..........
The Company expressly reserves the right, prior
to the respective Expiration Dates, to (i)
withdraw or terminate either or both of the
Exchange Offers and promptly return all Old
Debentures, at any time, (a) if either or both of
the Exchange Offers would result in less than
$100 million in principal amount of the
respective series of New Debentures being issued
or upon the failure of any of the conditions
specified in "The Exchange Offers--Procedures for
Tendering," (b) if the Average Chevron Stock
Price is less than $76.00 per share or is more
than $89.00 per share or (c) upon the occurrence
of any of the other events listed in "The
Exchange Offers--Conditions of the Exchange
Offers," (ii) waive any condition to the Exchange
Offers and accept all the Old Debentures
previously tendered, (iii) extend the Expiration
Date of either or both of the Exchange Offers for
any reason and retain all Old Debentures tendered
until the Expiration Date, subject, however, to
all withdrawal rights of holders (see "The
Exchange Offers--Withdrawal of Tenders") or (iv)
amend or modify the terms of either or both of
the Exchange Offers in any manner for any reason,
including (without limitation) the form of the
consideration, the formula for calculating the
amount of the consideration to be paid pursuant
to the Exchange Offers or the coupon for either
series of New Debentures. Any amendment
applicable to either or both of the Exchange
Offers will apply to all Old Debentures tendered
pursuant to the respective Exchange Offer or the
Exchange Offers. If the Company materially
changes the terms of either or both of the
Exchange Offers or if it waives a material
condition of either or both of the Exchange
Offers, the Company will extend the Expiration
Date of respective Exchange Offer or the Exchange
Offers. The minimum period that the Company will
extend either or both of the Exchange Offers
following a material change in the terms of
either or both of the Exchange Offers or a waiver
by the Company of a material condition of either
or both of the Exchange Offers, other than a
change in the Target Amounts or in the formula
for calculating the consideration offered, will
depend upon the facts and circumstances,
including the relative materiality of the change
or waiver. See "The Exchange Offers--Expiration
Date; Extensions; Amendments; Termination."
Procedures for Tendering
Old Debentures.............
The Company is making the Exchange Offers only to
holders of Old Debentures in registered form. If
holders of Old Debentures in bearer form desire
to participate in the Exchange Offers, they must
first exchange their Old Debentures in bearer
form for Old Debentures in registered form. In
order to exchange Old Debentures
10
in bearer form for Old Debentures in registered
form, a holder must surrender the Old Debentures
in bearer form at the office or agency of the
Trustee (as defined under "Description of New
Debentures--General") with all unmatured coupons
and all matured coupons in default thereto
appertaining. Each holder of registered Old
Debentures desiring to accept either of the
Exchange Offers must either (1) properly
complete, sign and date the appropriate Letter of
Transmittal or a photocopy thereof (all
references in this Prospectus to a Letter of
Transmittal shall be deemed to include a
photocopy thereof) and mail or otherwise deliver
such Letter of Transmittal and any other required
documents to Chase Bank of Texas, National
Association (the "Exchange Agent") and either
deliver the Old Debentures to the Exchange Agent
along with the Letter of Transmittal or deliver
such Old Debentures pursuant to the procedure for
book-entry transfer set forth herein or (2)
request his or her broker, dealer, commercial
bank, trust company or nominee to effect the
transaction for him or her.
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old Debentures are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender for exchange should
contact such broker, dealer, commercial bank,
trust company or nominee promptly and instruct
such registered holder to tender on such
beneficial owner's behalf.
Guaranteed Delivery Each holder of Old Debentures who desires to
Procedures................. accept either of the Exchange Offers and tender
Old Debentures for exchange and whose Old
Debentures are not immediately available, or who
cannot comply in a timely manner with the
procedure for book-entry transfer, should tender
such Old Debentures by following the procedures
for the guaranteed delivery set forth under "The
Exchange Offers-- Guaranteed Delivery
Procedures."
Withdrawal Rights........... Holders may withdraw their tenders of Old
Debentures at any time prior to the respective
Expiration Dates. See "The Exchange Offers--
Withdrawal of Tenders."
Delivery of New Debentures;
Payment of Cash............
The Company expects to deliver certificates
representing New Debentures to be issued in the
Exchange Offers, certificates representing
portions of Old Debentures not accepted for
exchange and checks in payment of the cash to be
paid in lieu of the issuance of Fractional New
Debentures and accrued and unpaid interest due on
Old Debentures accepted for exchange as soon as
practicable after the respective Expiration
Dates. See "The Exchange Offers--Terms of the
Exchange Offers."
Interest on the Old Pennzoil will pay accrued interest on Old
Debentures................. Debentures accepted for exchange through the
respective Acceptance Dates. Payment of such
accrued interest on the Old Debentures will
accompany delivery of the New Debentures.
11
Redemption of the Old
Debentures................. Pennzoil currently expects to redeem all Old
Debentures that remain outstanding after
completion of the Exchange Offers. Pennzoil's
Board of Directors, however, will determine
whether to redeem and when to redeem either or
both series of the Old Debentures according to
market and other factors prevailing at the time.
If Pennzoil redeems the Old Debentures, Pennzoil
expects that the terms of the Old Debentures and
the currently prevailing market prices for
Chevron Stock will cause substantially all
holders of Old Debentures to exercise their
Existing Exchange Rights to obtain shares of
Chevron Stock (although Pennzoil has the right to
pay cash instead of delivering shares of Chevron
Stock). Although Pennzoil has had the right to
redeem the 6 1/2% Debentures since January 15,
1998, Pennzoil does not intend to redeem them
before August 15, 1998 and intends to pay accrued
interest through that date. Pennzoil currently
expects to redeem 4 3/4% Debentures on October 1,
1998, which is the first date on which the
Company can redeem them.
Dealer Manager; Exchange
Agent; Information Agent...
The Company has retained PaineWebber Incorporated
to act as Dealer Manager and solicit exchanges of
Old Debentures for New Debentures. See "Dealer
Manager." Chase Bank of Texas, National
Association is serving as Exchange Agent in
connection with the Exchange Offers. D.F. King &
Co., Inc. is serving as Information Agent in
connection with the Exchange Offers. See "The
Exchange Offers--Exchange Agent; Information
Agent."
Use of Proceeds............. The Company will not receive any proceeds from
the Exchange Offers. Successful completion of the
Exchange Offers will allow the Company to release
a portion of the shares of Chevron Stock that
have been deposited with exchange agents for
possible exchange of Old Debentures under
Existing Exchange Rights. See "Use of Proceeds."
The Company will pay all of its expenses incident
to the Exchange Offers.
Denominations............... The Company will issue the New Debentures only in
registered form and in denominations of $1,000.
See "Description of New Debentures." Holders who
would otherwise be entitled to receive a
Fractional New Debenture will receive a cash
payment in lieu of such Fractional New Debenture.
See "The Exchange Offers--Terms of the Exchange
Offers." The New Debentures will be issued only
in book-entry form. See "Description of New
Debentures--Book-Entry Issuance Only."
Material Federal Income Tax
Considerations Relating to
the Exchange Offers........
Based on the position taken by Pennzoil pursuant
to proposed Treasury regulations outstanding at
the time the Old Debentures were issued, an
exchange by a holder of Old Debentures for New
Debentures will constitute two separate exchanges
for federal income tax purposes: a Deemed Debt
Exchange, in which the right of the holder to
payments of stated principal and interest is
exchanged for a portion of the New Debentures
received by the
12
holder, and a Deemed Option Exchange, in which
the right of the holder to exchange the Old
Debentures for Chevron Stock is exchanged for the
balance of the New Debentures received by the
holder (all capitalized terms not defined above
are defined below in "Material Federal Income Tax
Consequences"). For federal income tax purposes,
the Deemed Debt Exchange probably will be a
"recapitalization" of Pennzoil, so a holder
generally will not recognize loss, if any, on
such exchange, and probably will recognize gain,
if any, to the extent of the "boot" received in
such exchange. The Deemed Option Exchange will
not be pursuant to a "recapitalization," so a
holder will recognize any gain or loss on such
exchange. See "Material Federal Income Tax
Consequences--Treatment of Exchange Offers."
Appraisal Rights............ Holders of the Old Debentures do not have any
appraisal or dissenters' rights under the
Delaware General Corporation Law or the Indenture
(as defined under "Description of New
Debentures--General") in connection with the
Exchange Offers. The Company intends to conduct
the Exchange Offers in accordance with the
applicable requirements of the Exchange Act and
the rules and regulations of the Commission
promulgated thereunder.
No Recommendation........... Neither the Board of Directors of Pennzoil nor
Pennzoil makes any recommendation to holders of
the Old Debentures as to whether to tender in the
Exchange Offers. The Company urges holders of the
Old Debentures to consult their financial and tax
advisors on what action to take.
SUMMARY DESCRIPTION OF THE NEW DEBENTURES
Issuer...................... Pennzoil Company
Securities..................
4.90% Exchangeable Senior Debentures Due August
15, 2008 4.95% Exchangeable Senior Debentures Due
August 15, 2008.
Maturity Date...............
August 15, 2008
Interest Payment Dates......
February 15 and August 15, commencing February
15, 1999.
Dates of Issuance........... The Company will issue the respective New
Debentures on the next calendar day following the
respective Acceptance Dates. Interest on the New
Debentures will accrue from their dates of
issuance.
Book-Entry Issuance......... The New Debentures will be issued only in book-
entry form. See "Description of New Debentures--
Book-Entry Issuance Only."
Exchange Rights.............
A holder will have the option to exchange the New
Debentures at any time prior to maturity, unless
previously redeemed, for shares of Chevron Stock
owned by Pennzoil. Subject to adjustment in
certain events, the exchange rate for the New
Debentures will be 0.8230 shares of Chevron Stock
for each share of Chevron Stock into which
exchanged Old Debentures were exchangeable as of
the respective Acceptance Dates under Existing
Exchange Rights
13
(excluding shares of Chevron Stock exchangeable
for that portion of Old Debentures for which cash
is paid in lieu of the issuance of a Fractional
New Debenture). See "--Illustration." In lieu of
delivering certificates representing Chevron
Stock in exchange for any New Debentures,
Pennzoil may pay to the holder surrendering such
New Debentures an amount in cash equal to the
market price of the Chevron Stock for which the
New Debentures are exchangeable.
Repurchase Rights........... Holders of New Debentures may exercise rights to
cause Pennzoil to repurchase the New Debentures
if Pennzoil takes certain action as described
under "Description of New Debentures--Repurchase
Rights."
Optional Redemption.........
The Company may not redeem the New Debentures
prior to August 15, 2000. Thereafter, the Company
has the option to redeem all or part of the New
Debentures at the redemption prices set forth
herein plus accrued and unpaid interest to the
date of redemption.
Ranking..................... The New Debentures will constitute unsecured
senior debt obligations of Pennzoil ranking pari
passu with all other present and future unsecured
general obligations of Pennzoil that are not
expressly subordinated to senior indebtedness.
Pennzoil currently conducts substantially all of
its operations through subsidiaries, and the
holders of the New Debentures will have a junior
position to any creditors of Pennzoil's
subsidiaries. As of March 31, 1998, the aggregate
outstanding debt of Pennzoil's subsidiaries was
approximately $63 million, and, on a pro forma
basis after giving effect to the Spin-Off, such
subsidiary debt will be zero.
Listing..................... Application will be made to list the New
Debentures for trading on the NYSE.
Proposed Trading Symbols....
PZL AO8 and PZL BO8 for the New 4.90% Debentures
and the New 4.95% Debentures, respectively.
Material Federal Income Tax
Considerations Relating to
the New Debentures.........
A holder will be required to include original
issue discount in gross income for federal income
tax purposes on a constant yield basis over the
term of the New Debentures. Original issue
discount will accrue at the interest rate at
which the New Debentures would have been issued
if they were not exchangeable for shares of
Chevron Stock. This rate will exceed the stated
interest rates on the New 4.90% Debentures and
the New 4.95% Debentures. An exchange of the New
Debentures for shares of Chevron Stock will
constitute a taxable sale or exchange of the New
Debentures. Any gain on the sale, exchange or
redemption of the New Debentures will be ordinary
interest income (rather than capital gain); any
loss generally will be ordinary loss to the
extent of the net amount of ordinary income the
holder has previously realized on the New
Debentures and capital loss as to the balance. In
the case of New Debentures retired or exchanged
for shares of Chevron Stock on the maturity date
of the New Debentures, the amount and character
of income and loss of the holder will be the same
as described above, but will be determined in
part through certain original issue discount
"adjustments." See "Material Federal Income Tax
Consequences--Treatment of New Debentures."
14
COMPARISON OF OLD DEBENTURES TO NEW DEBENTURES
The following table presents a comparison of material differences between the
6 1/2% Debentures and the New 4.90% Debentures and the 4 3/4% Debentures and
the New 4.95% Debentures. Except as set forth below, the terms of the Old
Debentures and New Debentures are materially similar.
6 1/2% EXCHANGE OFFER 4 3/4% EXCHANGE OFFER
---------------------------------------- -----------------------------------------
NEW 4.90% NEW 4.95%
6 1/2% DEBENTURES DEBENTURES 4 3/4% DEBENTURES DEBENTURES
----------------- ---------- ----------------- ----------
AGGREGATE PRINCIPAL
AMOUNT OUTSTANDING. $397.1 million Determined as $491.5 million Determined as
described herein described herein
(see "The Exchange (see "The Exchange
Offers--Terms of Offers--Terms of
the Exchange the Exchange
Offers") Offers")
INTEREST RATE........... 6 1/2% 4.90% 4 3/4% 4.95%
MATURITY DATE........... January 15, 2003 August 15, 2008 October 1, 2003 August 15, 2008
EXCHANGE RATE........... 23.7741 shares per Determined as 17.0032 shares per Determined as
$1,000 principal described herein $1,000 principal described herein
amount (the (see "Description amount (the (see "Description
equivalent of 42 of New Debentures-- equivalent of $58 of New Debentures--
1/16 per share) Exchange Rights") 13/16 per share) Exchange Rights")
DATE ON AND AFTER
WHICH DEBENTURES MAY BE
REDEEMED................ January 15, 1998(1) August 15, 2000 October 1, 1998(2) August 15, 2000
FORM OF DEBENTURES...... Bearer or registered Registered Bearer or registered Registered
book-entry only book-entry only
ACCRUED INTEREST UPON
EXERCISE OF EXCHANGE
RIGHTS.................. Holders who exercise Holders who exer- Holders who exercise Holders who exer-
their cise their cise
exchange rights do their exchange exchange rights do their exchange
not rights will not rights will
receive accrued and not receive accrued receive accrued and not receive accrued
unpaid and unpaid and
interest. unpaid interest, interest. unpaid interest,
except except
that, subsequent to that, subsequent to
any any
call for redemption call for redemption
by the by the
Company of the New Company of the New
4.90% 4.95%
Debentures, holders Debentures, holders
who who
exercise exchange exercise exchange
rights rights
will receive ac- will receive ac-
crued and crued and
unpaid interest unpaid interest
through through
the date of ex- the date of ex-
change. change.
- -------
(1) Although Pennzoil has had the right to redeem the 6 1/2% Debentures since
January 15, 1998, Pennzoil does not intend to redeem them before
August 15, 1998, subject to a final determination by Pennzoil's Board of
Directors.
(2) Subject to a final determination by Pennzoil's Board of Directors, Pennzoil
currently expects to redeem the 4 3/4% Debentures on October 1, 1998, which
is the first date on which the Company can redeem them.
15
ILLUSTRATION
The following illustrates the effect of the Exchange Offers (i) on a holder
of $1,000 principal amount of 6 1/2% Debentures, (ii) on a holder of $1,000,000
principal amount of 6 1/2% Debentures (1,000 6 1/2% Debentures, each at $1,000
principal amount), (iii) on a holder of $1,000 principal amount of 4 3/4%
Debentures, (iv) on a holder of $1,000,000 principal amount of 4 3/4%
Debentures (1,000 4 3/4% Debentures, each at $1,000 principal amount), and (v)
per share of Chevron Stock for which each series of Old Debentures are
exchangeable, assuming in each case that the respective Average Chevron Stock
Price is $84 per share and assuming the holder's tender of Old Debentures is
accepted for exchange. This chart is for illustrative purposes only. Changes in
the respective Average Chevron Stock Price will affect the illustration set
forth below. See "The Exchange Offers--Target Amounts."
EITHER SERIES
OF OLD
DEBENTURES
EXCHANGE OF NEW 4.90% EXCHANGE OF NEW 4.95% PER UNDERLYING
DEBENTURES FOR OLD 6 DEBENTURES FOR OLD 4 SHARE OF
CURRENT HOLDINGS 1/2% DEBENTURES 3/4% DEBENTURES CHEVRON STOCK
- ---------------- ------------------------ ------------------------ --------------
Principal amount........ $1,000 $1,000,000 $1,000 $1,000,000 N/A
Annual Cash Coupon
Payments............... $65.00 $65,000 $47.50 $47,500 N/A
Number of shares of
Chevron Stock for which
Old Debentures are
exchangeable at current
exchange rate ......... 23.7741 23,774.1 17.0032 17,003.2 N/A
NEW DEBENTURES RECEIVED
IN EXCHANGE OFFERS
- -----------------------
(a) Average Chevron
Stock Price............ $84 $84 $84 $84 $84
(b) Multiple............ 103% 103% 103% 103% 103%
(c) Number of shares of
Chevron Stock for which
Old Debentures are
exchangeable at current
exchange rate.......... 23.7741 23,774.1 17.0032 17,003.2 1
Product ((a) x (b) x
(c))................... $2,056.94 $2,056,935.13 $1,471.12 $1,471,116.86 $86.52
Principal amount of New
Debentures............ $2,000.00 $2,056,000.00 $1,000.00 $1,471,000.00 N/A
Annual Cash Coupon
Payments.............. $98.00 $100,744.00 $49.50 $72,814.50 N/A
Cash in Lieu of
Issuance of Fractional
New Debentures........ $56.94 $935.13 $471.12 $116.86 N/A
- --------------------------------------------------------------------------------
AMOUNTS PER $1,000
PRINCIPAL AMOUNT OF
RESPECTIVE NEW
DEBENTURES(1)
- -------------------
Exchange Rate (in shares
of Chevron Stock)(2)... 0.8230
Principal Amount of New
Debentures per share of
underlying Chevron
Stock ($86.52/0.8230).. $105.13
New exchange ratio per
$1,000 principal amount
of New Debentures (in
shares of Chevron
Stock)
($1,000/$105.13)....... 9.5123
- --------
(1) Gives effect to the multiple (103%) used in determining the principal
amount of New Debentures in the Exchange Offers.
(2) The New Debentures will be exchangeable at the option of the holder at any
time prior to maturity, unless previously redeemed, for shares of Chevron
Stock owned by Pennzoil at an exchange rate of 0.8230 shares of Chevron
Stock for each share of Chevron Stock into which exchanged Old Debentures
were exchangeable as of the respective Acceptance Dates under Existing
Exchange Rights (excluding shares of Chevron Stock exchangeable for that
portion of Old Debentures for which cash is paid in lieu of the issuance of
a Fractional New Debenture), subject to adjustment in certain events. See
"Description of New Debentures--Exchange Rights."
16
By effecting the Exchange Offers, certain holders of Old Debentures will be
allowed to exchange from (1) a security that has the near-term prospect of
being called into (2) a new security with (a) higher effective interest income
and principal and enhanced call protection, but also (b) fewer underlying
shares and an extended maturity. Both series of Old Debentures mature in 2003
and are redeemable by the Company in 1998, while the New Debentures mature in
2008 and are not redeemable by the Company until 2000.
The prospective increase in effective interest income and principal for
exchanging holders of Old Debentures is portrayed in the Illustration assuming
an Average Chevron Share Price of $84. In the illustration, $1,000,000
principal amount of 6 1/2% Debentures producing $65,000 in annual interest
income would be exchanged for $2,056,000 principal amount of New 4.90%
Debentures (plus $935.13 in cash in lieu of Fractional New Debentures)
producing $100,744.00 in annual interest income. Similarly, in the
illustration, $1,000,000 principal amount of 4 3/4% Debentures producing
$47,500 in annual interest income would be exchanged for $1,471,000 principal
amount of New 4.95% Debentures (plus $116.86 in cash in lieu of Fractional New
Debentures) producing $72,814.50 in annual interest income. In the same
examples (and net of cash for Fractional New Debentures), exchanging holders of
$1,000,000 principal amount of 6 1/2% Debentures currently exchangeable into
23,774 shares of Chevron Stock would receive New 4.90% Debentures exchangeable
into 19,557 shares of Chevron Stock (9.5123 shares of Chevron Stock per $1,000
principal amount of New 4.90% Debentures). Likewise, exchanging holders of
$1,000,000 principal amount of 4 3/4% Debentures currently exchangeable into
17,003 shares of Chevron Stock would receive New 4.95% Debentures exchangeable
into 13,993 shares of Chevron Stock (9.5123 shares of Chevron Stock per $1,000
principal amount of New 4.95% Debentures).
17
RISK FACTORS
COMPARATIVE FEDERAL INCOME TAX CONSEQUENCES OF EXCHANGING OLD DEBENTURES FOR
NEW DEBENTURES AND EXCHANGING OLD DEBENTURES FOR CHEVRON STOCK OR CASH.
A holder generally will recognize gain, if any, upon an exchange of Old
Debentures for New Debentures, and will be liable for federal income tax upon
such gain. See "Material Federal Income Tax Consequences--Treatment of
Exchange Offers." Any gain recognized by a holder on a subsequent sale or
exchange of the New Debentures (including their redemption or exchange for
Chevron Stock or cash) will be ordinary income. See "Material Federal Income
Tax Consequences--Treatment of New Debentures."
Pennzoil currently expects to call for redemption all Old Debentures that
remain outstanding after completion of the Exchange Offers, although the final
determination of whether to make, and the timing of, such redemption of the
Old Debentures (or either series thereof) will be made by Pennzoil's Board of
Directors based upon market and other factors prevailing at the time such
determination is made. If Pennzoil calls the Old Debentures for redemption,
based upon the terms of the Old Debentures and prevailing market prices for
Chevron Stock, Pennzoil expects that substantially all holders of Old
Debentures will exercise their Existing Exchange Rights to obtain the shares
of Chevron Stock for which the Old Debentures are exchangeable (although
Pennzoil has the right to pay cash instead of delivering shares of Chevron
Stock). The federal income tax consequences of not participating in the
Exchange Offers and instead exercising the Existing Exchange Rights will
generally be substantially more favorable to a holder if the holder has
accounted for the Old Debentures for federal income tax purposes using the
same method as Pennzoil and Pennzoil elects to deliver Chevron Stock upon such
exercise rather than cash, because a holder's gain, if any, on such an
exchange of Old Debentures for Chevron Stock probably will be substantially
lower than its gain, if any, on an exchange of Old Debentures for New
Debentures, and any gain on a subsequent disposition of Chevron Stock received
in exchange for Old Debentures generally will be capital gain rather than the
ordinary income arising on a subsequent disposition of New Debentures received
in exchange for Old Debentures. See "Material Federal Income Tax
Consequences--Treatment of Exercise of Existing Exchange Rights." Moreover,
the federal income tax consequences of not participating in the Exchange
Offers and instead exercising the Existing Exchange Rights may under some
circumstances (e.g., if the holder would realize gain on a Deemed Option
Exchange and loss on a Deemed Debt Exchange) be somewhat more favorable to a
holder even if Pennzoil elects to deliver cash on such exercise.
NO SPECIAL EVENT-RISK PROTECTION
The New Debentures, like the Old Debentures, will not benefit from any
covenant or other provision that would afford holders of New Debentures
special protection in the event of a highly leveraged transaction involving
Pennzoil, except for any such protection described under "Description of New
Debentures--Limitation of Liens." This absence of such special protection is
less significant in the case of the Old Debentures, because the market price
of Chevron Stock has increased since the issuance of the Old Debentures and,
as a result, the Old Debentures are currently exchangeable for shares of
Chevron Stock at equivalent exchange prices ($42 1/16 per share for the 6 1/2%
Debentures and $58 13/16 per share for the 4 3/4% Debentures) that are less
than the current market price for Chevron Stock. (On June 26, 1998, the
reported closing price of Chevron Stock on the NYSE was $83 5/8 per share.)
The equivalent exchange price for the New Debentures will initially be in
excess of the market price for Chevron Stock and, absent an increase in such
market price, the exchange rights of holders of New Debentures would offer
less protection against a highly leveraged transaction or a change in control.
18
CAPITALIZATION
The following table sets forth information with respect to the consolidated
capitalization of Pennzoil and its subsidiaries as of March 31, 1998 and the
adjusted consolidated capitalization of Pennzoil and its subsidiaries after
giving effect to (a) (i) the issuance of $762.6 million of New Debentures
(assuming $432.3 million principal amount of Old Debentures are accepted for
exchange), (ii) the redemption of the remaining Old Debentures (assuming
holders of all such remaining Old Debentures elect to exercise their Existing
Exchange Rights for Chevron Stock and Pennzoil does not elect to pay cash in
lieu of delivering Chevron Stock), (iii) the assumed sale of Chevron Stock
that would no longer be deposited with exchange agents for possible exchange
of the Old Debentures or the New Debentures and the use of the net proceeds
from such sale to reduce outstanding variable-rate indebtedness and (iv) the
issuance by Pennzoil of $150 million of Series A Cumulative Preferred Stock
("Preferred Stock") in June 1998 and the application of the net proceeds
thereof to reduce outstanding variable-rate indebtedness and (b) the Spin-Off
and related transactions, in each case as if those transactions had occurred
on March 31, 1998.
MARCH 31, 1998
----------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS FOR
PREFERRED STOCK PRO FORMA FOR PRO FORMA
ISSUANCE AND PREFERRED STOCK ADJUSTMENTS PRO FORMA
EXCHANGE ISSUANCE AND FOR FOR SPIN-
HISTORICAL OFFERS(A) EXCHANGE OFFERS SPIN-OFF OFF
---------- --------------- --------------- ----------- ----------
Cash and Temporary Cash
Investments............ $ 24,894 $ -- $ 24,894 $ 86,697(i) $ 111,591
========== ========= ========== =========== ==========
Short-Term Debt
Current Maturities of
Long-Term Debt....... $ 1,381 $ -- $ 1,381 $ (1,381)(j) $ --
---------- --------- ---------- ----------- ----------
Total Short-Term
Debt............... 1,381 -- 1,381 (1,381) --
---------- --------- ---------- ----------- ----------
Long-Term Debt,
excluding Current
Maturities
Notes and Debentures
due 1999-2009........ 800,000 -- 800,000 800,000
6 1/2% and 4 3/4%
Debentures due 2003.. 888,858 (888,858) -- -- --
New Debentures due
2008................. -- 762,562 (b) 762,562 -- 762,562
Variable-Rate Credit
Arrangements......... 574,673 (273,370)(c) 301,303 (301,303)(i) --
Other, including
Debenture Premiums
and Discounts........ 54,095 (22,211)(d) 31,884 (50,756)(j) (18,872)
---------- --------- ---------- ----------- ----------
Total Long-Term
Debt............... 2,317,626 (421,877) 1,895,749 (352,059) 1,543,690
Shareholders' Equity
Preferred Stock....... -- 147,000 (e) 147,000 -- 147,000
Unrealized Holding
Gain on Marketable
Securities........... 186,726 49,212 (f) 235,938 -- 235,938
Gain on Assumed
Disposition of
Chevron Stock........ -- 148,707 (g) 148,707 -- 148,707
Extraordinary Items
Related to Exchange.. -- (200,725)(h) (200,725) -- (200,725)
Other Equity.......... 955,010 -- 955,010 (714,755)(k) 240,255
---------- --------- ---------- ----------- ----------
Total Shareholders'
Equity............. 1,141,736 144,194 1,285,930 (714,755) 571,175
---------- --------- ---------- ----------- ----------
Total Capitalization.... $3,460,743 $(277,683) $3,183,060 $(1,068,195) $2,114,865
========== ========= ========== =========== ==========
- --------
(a) Assumes an Average Chevron Stock Price of $84 per share.
(b) Adjustment to reflect New Debentures issued at face amount. The financial
statement carrying amount of the New Debentures will be marked to market
by Pennzoil based upon changes in the price of Chevron Stock above the
effective exchange price. Such increases or decreases in carrying value
will be charged or credited, respectively, net of tax, to Pennzoil's
income.
(c) Adjustment to reflect the application of the $131.0 million proceeds from
the assumed sale by Pennzoil of 1.56 million Chevron shares at $84 per
share and $150.0 million proceeds from the June 1998 issuance of 1,500,000
shares of Preferred Stock, less $4.7 million of New Debenture issuance
costs and $3 million of Preferred Stock issuance costs.
(d) Adjustment to reflect an assumed 2.9% discount on issuance of New
Debentures. The discount amount is calculated as the face amount of New
Debentures divided by 103% less the face amount of New Debentures.
(footnotes continued on following page)
19
(e) Adjustment to reflect the issuance on June 1, 1998 of 1,500,000 shares of
Preferred Stock for $150 million, net of $3 million issuance costs.
(f) Reflects the net increase in the unrealized holding gain on marketable
securities to reflect the adjusted fair value of the remaining 7.25
million shares of Chevron Stock held by Pennzoil at an assumed $84 per
share, reduced by liquidated holding gains (i) on the shares of Chevron
Stock assumed to be delivered in exchange for unexchanged Old Debentures
under Existing Exchange Rights and (ii) on the shares of Chevron Stock
assumed to be sold. Future changes in the fair market value of the shares
of Chevron Stock held by Pennzoil will be reflected in its financial
statement carrying amount of marketable securities. Such increases or
decreases in the carrying amount will be recognized as an after-tax
adjustment to shareholders' equity. The following table reflects the
effect of the Exchange Offers on the Chevron Stock beneficially owned by
the Company:
6 1/2% 4 3/4% TOTAL
------------ ------------ ------------
CURRENT INVESTMENT IN CHEVRON
Old Debentures as of March 31, 1998. $397,138,000 $491,720,000 $888,858,000
Par amount per debenture............ $ 1,000.00 $ 1,000.00 $ 1,000.00
------------ ------------ ------------
Number of debentures outstanding.... 397,138 491,720 888,858
Approximate number of Chevron shares
per debenture...................... 23.7741 17.0032 --
------------ ------------ ------------
Total number of Chevron shares
beneficially owned by Pennzoil... 9,441,617 8,360,808 17,802,425
============ ============ ============
PROPOSED TRANSACTION
Number of Chevron shares available for sale by Pennzoil
(0.1770XTarget Amount)....................................... 1,559,616
Number of Chevron shares underlying New Debentures
(0.8230XTarget Amount)....................................... 7,254,079
------------
Target Amount at $84 per share................................ 8,813,695
Chevron shares remaining to satisfy exchange rights of holders
of Old Debentures............................................ 8,988,730
------------
Total number of Chevron shares beneficially owned by
Pennzoil................................................... 17,802,425
============
(g) Adjustment to reflect the realized gain of $153.9 million on the assumed
exchange of 9.0 million shares of Chevron Stock for the remaining Old
Debentures and the realized gain of $78.5 million on the assumed
disposition of 1.56 million shares of Chevron Stock at an assumed $84 per
share, net of taxes of $83.6 million. Pennzoil's cost for the shares of
Chevron Stock for accounting purposes is $33.676 per share.
(h) Reflects the extraordinary loss on retirement of the Old Debentures, which
is calculated as the difference between the carrying amount of the Old
Debentures of $432.3 million (less related unamortized debt issue costs of
$5.6 million) and the market value (net of discount) of the New Debentures
being issued in the exchange of $740.4 million. This pretax loss of $313.6
million is then reduced by an income tax benefit of $112.9 million,
resulting in an after-tax extraordinary loss of $200.7 million.
(i) Adjustment to reflect the application of a $388.0 million repayment by
Products Group of indebtedness due to Pennzoil to temporarily eliminate
$301.3 million of variable rate indebtedness of Pennzoil, and the
application of the excess of such repayment proceeds of $86.7 million to
cash. Pennzoil's current intention is to evaluate applying proceeds from
the repayment of Products Group indebtedness to repurchase or redeem a
portion of Pennzoil's outstanding notes and debentures due 1999-2009,
which would create an extraordinary loss on extinguishment of
indebtedness. Pennzoil has not determined the principal amount or the
series of notes and debentures that would be repurchased or redeemed in
such event.
(j) Adjustment to reflect the debt of Products Group that will be eliminated
from Pennzoil at the time of the Spin-Off.
(k) Adjustment to reflect the Spin-Off of Products Group's net assets, less
the repayment by Products Group of indebtedness owed to Pennzoil.
20
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offers.
Successful completion of the Exchange Offers will allow the Company to
release a portion of the shares of Chevron Stock that have been deposited with
exchange agents for possible exchange of Old Debentures under Existing
Exchange Rights, specifically (i) all shares underlying a Fractional New
Debenture and (ii) 0.1770 of a share of Chevron Stock for each share of
Chevron Stock underlying an Old Debenture accepted for exchange. Pennzoil
currently intends to sell such released shares of Chevron Stock for cash prior
to December 31, 1998 and use the net proceeds from such sale to reduce
outstanding variable-rate indebtedness.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's consolidated ratio of earnings
to combined fixed charges and preferred stock dividends for the periods shown
(a) on a historical basis and (b) on a pro forma basis after giving effect to
(i) the Exchange Offers, (ii) the issuance of the Preferred Stock and the
application of the net proceeds thereof and (iii) the Spin-Off and related
transactions (as described under "Capitalization"):
PRO FORMA HISTORICAL
- --------------------------- ------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31, YEAR ENDED DECEMBER 31,
- ------------ ------------ ------------ ---------------------------------
1998 1997 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
1.06 2.93 1.20 2.45 1.75 -- -- 1.99
For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" represent income from continuing
operations before interest charges and before federal and state income taxes.
"Fixed charges" represent the sum of interest charges (whether expensed or
capitalized) and the portion of rental expense representative of an interest
factor. On a pro forma basis, after giving effect to the issuance of the
Preferred Stock and the application of the net proceeds thereof and the
Exchange Offers (but without giving effect to the Spin-Off and related
transactions), the ratio of earnings to combined fixed charges and preferred
stock dividends for the three months ended March 31, 1998 and for the year
ended December 31, 1997 was 1.27 and 2.61, respectively. On an historical
basis, fixed charges exceeded earnings by approximately $481.9 million for the
year ended December 31, 1995 and approximately $514.1 million for the year
ended December 31, 1994. There was no preferred stock outstanding for any of
the historical periods shown above.
21
CHEVRON CORPORATION
Chevron is a major international oil company. It provides administrative,
financial and management support for, and manages its investments in, U.S. and
foreign subsidiaries and affiliates, which engage in fully integrated
petroleum operations, chemical operations and coal mining. The company
operates in the United States and approximately 90 other countries. Pennzoil
has no affiliation with Chevron other than its stock ownership and contractual
arrangements in the ordinary course of business and therefore has no greater
access to information relating to Chevron than any other Chevron stockholder.
Appendix A to this Prospectus contains selected information concerning Chevron
taken from Chevron's Annual Report on Form 10-K for the year ended December
31, 1997, together with Chevron's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for the year ended December 31,
1997.
Based upon information published by Chevron, at December 31, 1997, Chevron
had 653,402,530 shares of Chevron Stock issued and outstanding; Chevron Stock
is listed on the NYSE (trading symbol: CHV), as well as the Midwest; Pacific;
Vancouver; London; and Zurich, Basel, and Geneva, Switzerland, stock
exchanges. Chevron Stock is also traded on the Boston, Cincinnati, Detroit and
Philadelphia stock exchanges. On June 26, 1998, the reported closing price of
Chevron Stock on the NYSE Composite Tape was $83 5/8.
DIVIDEND AND PRICE RANGE OF CHEVRON STOCK
The following table sets forth the high and low trading prices for Chevron
Stock on the NYSE Composite Tape and dividends declared for the calendar
periods indicated as reported in published financial sources.
HIGH LOW DIVIDENDS
---- --- ---------
1996:
First Quarter............................... 58 7/8 51 0.50
Second Quarter.............................. 62 1/8 54 1/2 0.50
Third Quarter............................... 63 3/8 55 7/8 0.54
Fourth Quarter.............................. 68 3/8 60 1/4 0.54
1997:
First Quarter............................... 72 3/4 63 1/2 0.54
Second Quarter.............................. 77 1/4 61 3/4 0.58
Third Quarter............................... 89 3/16 73 1/2 0.58
Fourth Quarter.............................. 88 7/8 71 1/2 0.58
1998:
First Quarter............................... 90 3/16 67 3/4 0.61
Second Quarter (through June 26, 1998)...... 86 13/16 77 3/8 0.61
22
PRICE RANGE OF OLD DEBENTURES
On June 26, 1998, the closing prices for the 6 1/2% Debentures and the 4
3/4% Debentures on the NYSE Composite Tape were $190 and $142 5/8,
respectively. Because the Old Debentures may trade in small amounts and
sometimes infrequently on the NYSE, the most recently reported trading price
may or may not be indicative of the current market value.
6 1/2% DEBENTURES
The following table sets forth the high and low trading prices for the 6
1/2% Debentures on the NYSE Composite Tape for the calendar periods indicated
as reported in published financial sources.
HIGH LOW
---- ----
1996:
First Quarter.......................................... 137 120
Second Quarter......................................... 147 1/2 130 1/2
Third Quarter.......................................... 150 1/2 138
Fourth Quarter......................................... 159 147 1/2
1997:
First Quarter.......................................... 167 150 1/2
Second Quarter......................................... 176 1/2 156
Third Quarter.......................................... 201 181
Fourth Quarter......................................... 205 186
1998:
First Quarter.......................................... 175 171
Second Quarter (through June 26, 1998)................. 202 140
4 3/4% DEBENTURES
The following table sets forth the high and low trading prices for the 4
3/4% Debentures on the NYSE Composite Tape for the calendar periods indicated
as reported in published financial sources.
HIGH LOW
---- ----
1996:
First Quarter.......................................... 105 1/2 100 1/2
Second Quarter......................................... 110 1/2 101 3/4
Third Quarter.......................................... 111 104
Fourth Quarter......................................... 118 110
1997:
First Quarter.......................................... 123 7/8 111 1/2
Second Quarter......................................... 130 111
Third Quarter.......................................... 146 1/2 126
Fourth Quarter......................................... 147 1/2 123 3/4
1998:
First Quarter.......................................... 148 122
Second Quarter (through June 26, 1998)................. 144 3/4 123
23
THE EXCHANGE OFFERS
PURPOSE AND EFFECT OF THE EXCHANGE OFFERS
The purpose of the Exchange Offers is to replace a portion of Pennzoil's
outstanding Old Debentures with the New Debentures. The Company is undertaking
the Exchange Offers to take advantage of what it believes to be favorable
conditions in the equity-linked securities markets.
The 6 1/2% Debentures are currently redeemable at Pennzoil's option at any
time, although Pennzoil does not intend to redeem the 6 1/2% Debentures before
August 15, 1998, and the 4 3/4% Debentures are redeemable at Pennzoil's option
beginning October 1, 1998. Pennzoil believes that, based upon the terms of the
Old Debentures and currently prevailing market prices for Chevron Stock,
holders of Old Debentures will be inclined to exchange the Old Debentures for
the underlying shares of Chevron Stock once the Old Debentures are subject to
redemption by Pennzoil (although Pennzoil has the right to pay cash instead of
delivering shares of Chevron Stock). If holders of all Old Debentures
exercised their right to exchange such Old Debentures for Chevron Stock (and
Pennzoil chose to deliver shares of Chevron Stock), Pennzoil would recognize a
net gain for federal income tax purposes on the shares of Chevron Stock
delivered in the exchange and incur current tax on the gain of up to
approximately $100 million. To the extent that holders of Old Debentures elect
to exchange for New Debentures instead of electing to exercise their Existing
Exchange Rights to exchange the Old Debentures for shares of Chevron Stock
(although Pennzoil has the right to pay cash instead of delivering shares of
Chevron Stock), the Exchange Offers may enable the Company to defer such
current federal income taxes. (If Pennzoil were to elect to pay cash instead
of delivering shares of Chevron Stock upon surrender of Old Debentures for
exchange, Pennzoil would not recognize a net gain for federal income tax
purposes unless and until Pennzoil sold the Chevron Stock.)
By effecting the Exchange Offers, certain holders of Old Debentures will be
allowed to exchange from (1) a security that has the near-term prospect of
being called into (2) a new security with (a) higher effective interest income
and principal, and enhanced call protection, but also (b) fewer underlying
shares and an extended maturity. In addition, the net tax loss created by the
Exchange Offers will be used to offset (at least in part) gains recognized by
Pennzoil (1) from expected exercise of Existing Exchange Rights on unexchanged
Old Debentures (although Pennzoil has the right to pay cash instead of
delivering shares of Chevron Stock) and (2) on any shares of Chevron Stock
that may be released (from deposit with exchange agents for possible exchange
of Old Debentures as a result of the Exchange Offers) and sold by Pennzoil.
Pennzoil also expects that the effects of the Exchange Offers will include a
reduction in total long-term debt of Pennzoil. See "Capitalization."
Pennzoil currently expects to call for redemption all Old Debentures that
remain outstanding after completion of the Exchange Offers, although the final
determination of whether to make, and the timing of, such redemption of the
Old Debentures (or either series thereof) will be made by Pennzoil's Board of
Directors based upon market and other factors prevailing at the time such
determination is made. If Pennzoil calls the Old Debentures for redemption,
based upon the terms of the Old Debentures and prevailing market prices for
Chevron Stock, Pennzoil expects that substantially all holders of Old
Debentures will exercise their Existing Exchange Rights to obtain the shares
of Chevron Stock for which the Old Debentures are exchangeable (although
Pennzoil has the right to pay cash instead of delivering shares of Chevron
Stock). Although Pennzoil has the right to redeem the 6 1/2% Debentures
beginning January 15, 1998, Pennzoil does not intend to call the 6 1/2%
Debentures for redemption before August 15, 1998. Pennzoil currently expects
to call the 4 3/4% Debentures for redemption on October 1, 1998, which is the
first date on which the Company can redeem them.
RECOMMENDATION OF PENNZOIL
The Board of Directors of Pennzoil has unanimously approved the Exchange
Offers. Participation in the Exchange Offers is voluntary and holders should
carefully consider whether to accept. Neither the Board of Directors of
Pennzoil nor Pennzoil makes any recommendation to holders of the Old
Debentures as to whether to tender in the Exchange Offers. The Company urges
holders of the Old Debentures to consult their financial and tax advisors on
what action to take.
24
TERMS OF THE EXCHANGE OFFERS
Pennzoil is offering to issue its New Debentures in exchange for the Target
Amounts of its outstanding Old Debentures. The Target Amounts of Old
Debentures to be accepted for exchange and the principal amount of New
Debentures to be issued in the Exchange Offers will be determined as described
herein. The 6 1/2% Target Amount is the amount of 6 1/2% Debentures that are
exchangeable into between 4.76 million and 6.00 million shares of Chevron
Stock under Existing Exchange Rights. The 4 3/4% Target Amount is the amount 4
3/4% Debentures that are exchangeable into between 3.40 million and 4.29
million shares of Chevron Stock under Existing Exchange Rights. The Target
Amounts will be determined by reference to the Average Chevron Stock Price.
See "--Target Amounts." On June 26, 1998, the last reported closing price of
Chevron Stock on the NYSE Composite Tape was $83 5/8 per share. See "Chevron
Corporation--Dividend and Price Range of Chevron Stock" for recent trading
prices of Chevron Stock.
The principal amount of New 4.90% Debentures to be issued in exchange for 6
1/2% Debentures will be equal to the product of (i) 103% of the Average
Chevron Stock Price and (ii) the aggregate number of shares of Chevron Stock
for which the 6 1/2% Debentures validly tendered by a holder and accepted by
the Company for exchange are currently exchangeable as of the 6 1/2%
Acceptance Date (subject to the payment of cash in lieu of the issuance of a
Fractional New 4.90% Debenture). The principal amount of New 4.95% Debentures
to be issued in the 4 3/4% Exchange Offer will be equal to the product of (i)
103% of the Average Chevron Stock Price and (ii) the aggregate number of
shares of Chevron Stock for which the 4 3/4% Debentures validly tendered by a
holder and accepted by the Company for exchange are currently exchangeable as
of the 4 3/4% Acceptance Date (subject to the payment of cash in lieu of the
issuance of a Fractional New 4.95% Debenture).
If holders validly tender, and do not withdraw, more than the 6 1/2% Target
Amount of 6 1/2% Debentures for exchange prior to the 6 1/2% Expiration Date,
the Company will accept 6 1/2% Debentures for exchange on a pro rata basis
from among the 6 1/2% Debentures validly tendered. If holders validly tender,
and do not withdraw, more than the 4 3/4% Target Amount of 4 3/4% Debentures
for exchange prior to the 4 3/4% Expiration Date, the Company will accept 4
3/4% Debentures for exchange on a pro rata basis from among the 4 3/4%
Debentures validly tendered.
Pennzoil will issue a press release publicly announcing the Average Chevron
Stock Price, the Target Amounts and the principal amount of New Debentures to
be issued in the Exchange Offers prior to the opening of trading on the second
trading day prior to the respective Expiration Dates. Such information can
also be obtained from D. F. King & Co., Inc., the Information Agent, by
calling 1-800-735-3591 beginning on the second trading day prior to the
respective Expiration Dates.
The Company is making the Exchange Offers only to holders of Old Debentures
in registered form. Holders of Old Debentures in bearer form must first
exchange their Old Debentures in bearer form for Old Debentures in registered
form if they desire to participate in the Exchange Offers. See "The Exchange
Offers--Procedures for Tendering."
Holders of the Old Debentures do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law or the Indenture in
connection with the Exchange Offers. The Company intends to conduct the
Exchange Offers in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Debentures
when, as and if the Company has given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent on or after the respective
Expiration Dates. The Exchange Agent will act as agent for the tendering
holders for the purpose of the exchange of Old Debentures.
The Company will issue New Debentures only in registered form and only in
denominations of $1,000. Holders who would otherwise be entitled to receive a
New Debenture in a principal amount under $1,000 will receive a cash payment
in lieu of the issuance of a Fractional New Debenture.
25
If any tendered Old Debentures are not accepted for exchange because of
proration, an invalid tender, the occurrence of certain other events set forth
herein or otherwise, any such unaccepted Old Debentures will be returned, at
the expense of Pennzoil, to the tendering holder thereof as promptly as
practicable after the respective Expiration Dates.
The Company expects to deliver notice confirming the number of New
Debentures exchanged for Old Debentures accepted in the Exchange Offers,
certificates representing portions of Old Debentures not accepted for exchange
for New Debentures in the Exchange Offers and checks in payment of the cash to
be paid in lieu of the issuance of Fractional New Debentures and accrued and
unpaid interest due on Old Debentures accepted for exchange as soon as
practicable after the respective Expiration Dates. See "--Terms of the
Exchange Offers."
Holders who tender Old Debentures in the Exchange Offers will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letters of Transmittal, transfer taxes with respect to the exchange of
Old Debentures pursuant to the Exchange Offers. The Company will pay all of
its charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offers. See "--Fees and Expenses."
TARGET AMOUNTS
The following table identifies the Target Amounts (expressed in millions of
shares of Chevron Stock into which the Old Debentures are exchangeable under
Existing Exchange Rights) given the following Average Chevron Stock Prices. If
the Average Chevron Stock Price is between two full dollar amounts set forth
in the following table, the Target Amounts will be determined by interpolating
between the corresponding Target Amounts in the following table. On June 26,
1998, the reported closing price of Chevron Stock on the NYSE Composite Tape
was $83 5/8.
6 1/2% TARGET
AMOUNT CORRESPONDING
(# OF SHARES OF PRINCIPAL AMOUNT
UNDERLYING OF 6 1/2%
AVERAGE CHEVRON CHEVRON STOCK) DEBENTURES
STOCK PRICE (IN MILLIONS) (IN MILLIONS)
- --------------- --------------- ----------------
$76.00.......... 6.00 $252.50
77.00.......... 5.89 247.61
78.00.......... 5.77 242.90
79.00.......... 5.67 238.34
80.00.......... 5.56 233.94
81.00.......... 5.46 229.68
82.00.......... 5.36 225.56
83.00.......... 5.27 221.58
84.00.......... 5.18 217.72
85.00.......... 5.09 213.99
86.00.......... 5.00 210.37
87.00.......... 4.92 206.87
88.00.......... 4.84 203.47
89.00.......... 4.76 200.17
4 3/4% TARGET
AMOUNT CORRESPONDING
(# OF SHARES OF PRINCIPAL AMOUNT
UNDERLYING OF 4 3/4%
CHEVRON STOCK) DEBENTURES
AVERAGE CHEVRON STOCK PRICE (IN MILLIONS) (IN MILLIONS)
- --------------------------- --------------- ----------------
$76.00................................... 4.29 $252.50
77.00................................... 4.21 247.61
78.00................................... 4.13 242.90
79.00................................... 4.05 238.34
80.00................................... 3.98 233.94
81.00................................... 3.91 229.68
82.00................................... 3.84 225.56
83.00................................... 3.77 221.58
84.00................................... 3.70 217.72
85.00................................... 3.64 213.99
86.00................................... 3.58 210.37
87.00................................... 3.52 206.87
88.00................................... 3.46 203.47
89.00................................... 3.40 200.17
Pennzoil will issue a press release publicly announcing the Average Chevron
Stock Price, the Target Amounts and the principal amount of New Debentures to
be issued in the Exchange Offers prior to the opening of trading on the second
trading day prior to the respective Expiration Dates. Such information can
also be obtained from D. F. King & Co., Inc., the Information Agent, by
calling 1-800-735-3591 beginning on the second trading day prior to the
respective Expiration Dates.
Pennzoil reserves the right to accept more than the Target Amounts of Old
Debentures for exchange (such higher amount will then become the "Target
Amount" for purposes of proration). If more than the Target Amount of either
series of Old Debentures is accepted for exchange, Pennzoil will extend the
respective Expiration Date for the respective Exchange Offer for a minimum of
ten business days following public announcement thereof, unless the increase
in the amount of Old Debentures accepted over the Target Amount is less than
two percent of the respective Old Debentures.
26
EXPIRATION DATES; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
Friday, July 31, 1998, unless the Company, in its sole discretion, extends the
Exchange Offers, in which case the term "4 3/4% Expiration Date" shall mean
the latest date and time to which the 4 3/4% Exchange Offer is extended and
the term "6 1/2% Expiration Date" shall mean the latest date and time to which
the 6 1/2% Exchange Offer is extended.
If the Company chooses to extend either or both of the Exchange Offers, the
Company will notify the Exchange Agent of any extension by oral notice
(confirmed in writing) or written notice and will make a public announcement
thereof prior to 9:00 a.m., New York City time, on the next business day after
each previously scheduled expiration date.
The Company expressly reserves the right, prior to the respective Expiration
Dates, to (i) withdraw or terminate either or both of the Exchange Offers and
promptly return all Old Debentures, at any time, (a) if either or both of the
Exchange Offers would result in less than $100 million in principal amount of
the respective series of New Debentures being issued or upon the failure of
any of the conditions specified in "The Exchange Offers--Procedures for
Tendering," (b) if the Average Chevron Stock Price is less than $76.00 per
share or is more than $89.00 per share or (c) upon the occurrence of any of
the other events listed in "The Exchange Offers--Conditions of the Exchange
Offers," (ii) waive any condition to the Exchange Offers and accept all the
Old Debentures previously tendered, (iii) extend the Expiration Date of either
or both of the Exchange Offers for any reason and retain all Old Debentures
tendered until the Expiration Date, subject, however, to all withdrawal rights
of holders (see "The Exchange Offers--Withdrawal of Tenders") or (iv) amend or
modify the terms of either or both of the Exchange Offers in any manner for
any reason, including (without limitation) the form of the consideration, the
formula for calculating the amount of the consideration to be paid pursuant to
the Exchange Offers or the coupon for either series of New Debentures. Any
amendment applicable to either or both of the Exchange Offers will apply to
all Old Debentures tendered pursuant to the respective Exchange Offer or the
Exchange Offers. If the Company materially changes the terms of either or both
of the Exchange Offers or if it waives a material condition of either or both
of the Exchange Offers, the Company will extend the Expiration Date of
respective Exchange Offer or the Exchange Offers. The minimum period that the
Company will extend either or both of the Exchange Offers following a material
change in the terms of either or both of the Exchange Offers or a waiver by
the Company of a material condition of either or both of the Exchange Offers,
other than a change in the principal amount of Old Debentures being sought for
exchange or in the formula for calculating the consideration offered, will
depend upon the facts and circumstances, including the relative materiality of
the change or waiver.
If one of the Exchange Offers is extended or terminated in accordance with
the foregoing conditions, the Company reserves the right to extend or
terminate the remaining Exchange Offer for any reason. With respect to a
change in the amount of the Old Debentures being sought or the formula for
calculating the consideration offered for an Exchange Offer, such Exchange
Offer will be extended for a minimum of 10 business days following public
announcement of such change. Any withdrawal or termination of the Exchange
Offers will be followed as promptly as practicable by public announcement
thereof. In the event the Company withdraws or terminates the Exchange Offers,
it will give immediate notice to the Exchange Agent, and all Old Debentures
theretofore tendered for exchange pursuant to the Exchange Offers will be
returned promptly to the tendering holders thereof. See "--Withdrawal of
Tenders."
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offers, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
27
CONDITIONS OF THE EXCHANGE OFFERS
Notwithstanding any other provisions of the Exchange Offers, Pennzoil shall
not be obligated to consummate the Exchange Offers if the Commission shall
have issued a stop order suspending the effectiveness of the Registration
Statement or shall have instituted proceedings for such purpose prior to the
respective Expiration Dates.
Pennzoil's obligation to consummate the 6 1/2% Exchange Offer is subject to
the condition that at least $100 million in principal amount of New 4.90%
Debentures will be issued. Pennzoil's obligation to consummate the 4 3/4%
Exchange Offer is subject to the condition that at least $100 million in
principal amount of New 4.95% Debentures will be issued.
Pennzoil reserves the right to terminate either or both of the Exchange
Offers prior to the respective Expiration Dates if the average Chevron Stock
Price is less than $76.00 per share or is more than $89.00 per share.
In addition, notwithstanding any other provisions of the Exchange Offers,
Pennzoil, at its option may withdraw, modify or terminate either or both of
the Exchange Offers if any material change occurs prior to the respective
Expiration Dates, which is likely to affect the Exchange Offers or the value
or market price of the Old Debentures or the New 4.90% Debentures or New 4.95%
Debentures, including if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to either or both of the
Exchange Offers which, in the reasonable judgment of the Board of Directors
of Pennzoil, may have a material adverse effect on the contemplated
benefits of the Exchange Offers to Pennzoil;
(b) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities listed on the NYSE, (ii) a
declaration of a banking moratorium by United States, New York or Texas
authorities or (iii) a commencement of war, armed hostilities or other
international or national emergency;
(c) there shall have occurred any change or development involving a
prospective change in or affecting the business or financial affairs of
Pennzoil which, in the reasonable judgement of the Board of Directors of
Pennzoil, would or might prohibit, restrict or delay consummation of the
Exchange Offers or materially impair the contemplated benefits of the
Exchange Offers to Pennzoil; or
(d) there exists, in the reasonable judgment of the Board of Directors of
Pennzoil, any other actual or threatened legal impediment (including a
default under an agreement, indenture or other instrument or obligation to
which Pennzoil is a party or by which it is bound) to the acquisition of
the affected Old Debentures or the issuance of the New Debentures.
If any of the foregoing events shall have occurred, Pennzoil may, prior to
the respective Expiration Dates, (i) terminate either or both the Exchange
Offers and not accept for exchange any Old Debentures not previously accepted
for exchange; (ii) extend either or both of the Exchange Offers and retain all
tendered Old Debentures until the expiration of such Exchange Offers, subject,
however, to the rights of holders thereof to withdraw such Old Debentures (see
"--Withdrawal of Tenders"); or (iii) waive the unsatisfied conditions (other
than the receipt of the order of the Commission, which cannot be waived) with
respect to any or all of the Exchange Offers and accept all Old Debentures
tendered therein.
PROCEDURES FOR TENDERING
The tender for exchange of Old Debentures by a holder thereof pursuant to
one of the procedures set forth below and the acceptance thereof by the
Company will constitute a binding agreement between such holder and the
Company in accordance with the terms and subject to the conditions set forth
herein and in the applicable Letter of Transmittal. This Prospectus, together
with the Letters of Transmittal, will first be sent on or about July 1, 1998
to all holders of Old Debentures known to the Company and the Exchange Agent.
28
The Company is making the Exchange Offers only to holders of Old Debentures
in registered form. If holders of Old Debentures in bearer form desire to
participate in the Exchange Offers, they must first exchange their Old
Debentures in bearer form for Old Debentures in registered form. In order to
exchange Old Debentures in bearer form for Old Debentures in registered form,
a holder must surrender the Old Debentures in bearer form at the office or
agency of the Trustee with all unmatured coupons and all matured coupons in
default thereto appertaining. Only a holder of registered Old Debentures may
tender such Old Debentures in the Exchange Offers. Each holder of Old
Debentures desiring to accept either of the Exchange Offers for all or any
portion of his or her Old Debentures must transmit a properly completed and
duly executed Letter of Transmittal, or a photocopy thereof, including any
other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the respective Expiration Dates. In addition, either (i)
certificates for such Old Debentures must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Old Debentures, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company ("DTC") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
respective Expiration Dates or (iii) the holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively,
the Old Debentures, Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent; Information Agent" prior to 5:00 p.m., New York City time, on the
respective Expiration Dates.
LETTERS OF TRANSMITTAL, OLD DEBENTURES AND ANY OTHER REQUIRED DOCUMENTS
SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY, THE DEALER
MANAGER OR DTC.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, THE COMPANY RECOMMENDS THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, THE COMPANY
RECOMMENDS THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER
INSURANCE BE OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE RESPECTIVE EXPIRATION DATES.
Any beneficial owner whose Old Debentures are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee should contact
the registered holder promptly and instruct such registered holder to tender
on such beneficial owner's behalf if such beneficial owner desires to tender
Old Debentures for exchange. If such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial owner must, prior to completing
and executing the applicable Letter of Transmittal (or delivering an Agent's
Message) and delivering such beneficial owner's Old Debentures, either make
appropriate arrangements to register ownership of the Old Debentures in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the respective Expiration
Dates.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Debentures tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion
Program or The New York Stock Exchange Medallion Program or the Stock Exchange
Medallion Program (any of the foregoing hereinafter referred to as an
"Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Old Debentures listed therein, such Old Debentures must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old
Debentures.
29
If a Letter of Transmittal or any Old Debentures or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Debentures will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Debentures not properly tendered or any Old Debentures the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Debentures. The
Company's interpretation of the terms and conditions of the Exchange Offers
(including the instructions in the Letters of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Debentures must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Debentures, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Old Debentures will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Old Debentures received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in a Letter of
Transmittal, as soon as practicable following the respective Expiration Dates.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with respect to the
Old Debentures at DTC for purposes of the Exchange Offers and, subject to the
establishment thereof, any financial institution that is a participant in
DTC's system may make book-entry delivery of Old Debentures by causing DTC to
transfer such Old Debentures into the Exchange Agent's account at DTC in
accordance with DTC's Automated Tender Offer Program ("ATOP") procedures for
such book-entry transfer.
However, the exchange for Old Debentures so tendered will only be made after
timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer
of Old Debentures into the Exchange Agent's account, and timely receipt by the
Exchange Agent of an Agent's Message (as such term is defined in the next
sentence) and any other documents required by the Letters of Transmittal. The
term "Agent's Message" means a message, transmitted by DTC and received by the
Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that DTC has received an express acknowledgment from a participant tendering
Old Debentures that is the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letters of
Transmittal and that the Company may enforce such agreement against such
participant.
GUARANTEED DELIVERY
If a holder desires to accept either of the Exchange Offers and time will
not permit a Letter of Transmittal or Old Debentures to reach the Exchange
Agent before the respective Expiration Dates or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
the Exchange Agent has received at its office, prior to the respective
Expiration Dates, a letter, a telegram, or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering
holder, the name(s) in which the Old Debentures are registered and, if the Old
Debentures are held in certificated form, the certificate number of the Old
Debentures to be tendered, and stating that the tender is being made thereby
and guaranteeing that within three trading days after the date of execution of
such letter, telegram, or facsimile transmission by the Eligible Institution,
the Old Debentures, in proper form for transfer together with a properly
completed and duly executed Letter of Transmittal (and any other required
documents), or a confirmation of book-entry transfer of such Old
30
Debentures into the Exchange Agent's account at DTC, will be delivered by such
Eligible Institution. Unless the Old Debentures being tendered by the above-
described method are deposited with the Exchange Agent within the time period
set forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents) or a confirmation of book-entry
transfer of such Old Debentures into the Exchange Agent's account at DTC in
accordance with DTC's ATOP procedures is received, the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent and the Information Agent.
LETTERS OF TRANSMITTAL
The Letters of Transmittal contain, among other things, the following terms
and conditions, which are part of the Exchange Offers.
The party tendering Old Debentures for exchange (the "Transferor")
exchanges, assigns, and transfers such Old Debentures to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause such Old Debentures to be assigned,
transferred, and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign, and transfer the Old
Debentures and to acquire New Debentures issuable upon the exchange of such
tendered Old Debentures, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title to the tendered Old
Debentures, free and clear of all liens, restrictions, charges, and
encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Debentures or transfer
ownership of such Old Debentures on the account books maintained by DTC. All
authority conferred by the Transferor will survive the death, bankruptcy or
incapacity of the Transferor, and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
WITHDRAWAL OF TENDERS
Holders may withdraw their tenders of Old Debentures at any time prior to
the respective Expiration Dates.
To be effective, a written notice of withdrawal delivered by mail, hand
delivery or facsimile transmission must be timely received by the Exchange
Agent at the address set forth in a Letter of Transmittal. The method of
notification is at the risk and election of the holder. Any such notice of
withdrawal must specify (i) the Holder named in the Letter of Transmittal as
having tendered Old Debentures to be withdrawn, (ii) if Old Debentures are
held in certificated form, the certificate numbers of such Old Debentures to
be withdrawn, (iii) that such holder is withdrawing his election to have such
Old Debentures exchanged and (iv) the name of the registered holder of such
Old Debentures, and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Old Debentures being withdrawn. The Exchange Agent will
return the properly withdrawn Old Debentures promptly following receipt of
notice of withdrawal. If Old Debentures have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Debentures and otherwise comply with DTC's procedures. All questions as to the
validity of notice of withdrawal, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties. Withdrawals of tenders of Old Debentures may not be rescinded and
any Old Debentures withdrawn will thereafter be deemed not validly tendered
for purposes of the Exchange Offers. Properly withdrawn Old Debentures,
however, may be retendered by following the procedures therefor described
elsewhere herein at any time prior to the respective Expiration Dates. See "--
Procedures for Tendering."
31
EXCHANGE AGENT; INFORMATION AGENT
Chase Bank of Texas, National Association has been appointed as Exchange
Agent for the Exchange Offers. D.F. King & Co., Inc. has been appointed as
Information Agent for the Exchange Offers. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the
Letters of Transmittal and requests for Notices of Guaranteed Delivery may be
directed to the Exchange Agent or the Information Agent addressed as follows:
The Exchange Agent:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By Mail By Facsimile: By Hand or Overnight Courier
(registered or certified (214) 672-5746
mail recommended)
c/o Chase Bank of Texas,
Confirm by Telephone to:
Chase Bank of Texas, National Association,
(214) 672-5678 Corporate Trust Services
1201 Main, 18th Floor
National Association,
Corporate Trust Services Dallas, Texas 75202
P.O. Box 2320 or
Dallas, Texas 75221-2320 Chase Texas Trust Company
55 Water Street, North
Building
Room 234, Windows 20 & 21
New York, New York 10041
The Information Agent:
D. F. KING & CO., INC.
CALL TOLL FREE 1-800-735-3591
77 Water Street Royex House
New York, NY 10005 Aldermanbury Square
(212) 269-5550 London, England EC2V 7HR
(Call Collect) 011-44-171-600-5005
(Call Collect)
TRADING OF NEW DEBENTURES AND OLD DEBENTURES
Application will be made to list the New Debentures for trading on the NYSE.
There can be no assurance, however, that an active public market for the New
Debentures will develop and continue after the Exchange Offers.
The Old Debentures and the Chevron Stock are listed on the NYSE. For recent
trading prices of the Old Debentures and the Chevron Stock, see "Price Range
of Old Debentures" and "Chevron Corporation--Dividend and Price Range of
Chevron Stock." See Appendix A for information regarding Chevron taken from
Chevron's Annual Report on Form 10-K for the year ended December 31, 1997 and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, together
with Chevron's "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for the quarter ended March 31, 1998.
To the extent that Old Debentures are tendered and accepted in the Exchange
Offers, the trading market for the untendered Old Debentures could be reduced
significantly, which might adversely affect the liquidity of the Old
Debentures, although the consummation of the Exchange Offers alone should not
affect the continued listing of the Old Debentures on the NYSE. Published
guidelines of the NYSE indicate that the NYSE would consider delisting an
issue of the Old Debentures if the aggregate principal amount or market value
of such issue publicly held is less than $1,000,000.
32
A debt security with a small outstanding principal amount available for
trading (a smaller "float") may command a lower price than would a comparable
debt security with greater float. Therefore, the market price for untendered
Old Debentures may be affected adversely to the extent that the principal
amount of Old Debentures tendered pursuant to the Exchange Offers reduces the
float. The reduced float may also tend to make the market price of untendered
Old Debentures more volatile.
NO TRANSACTIONS OR ARRANGEMENTS
Except as described in this Prospectus, there are no contracts,
arrangements, understandings or relationships in connection with the Exchange
Offers between the Company or any of its directors or executive officers and
any person with respect to the New Debentures or the Old Debentures.
FEES AND EXPENSES; TRANSFER TAXES
The expenses of soliciting tenders of Old Debentures will be borne by the
Company. For compensation to be paid to the Dealer Manager, see "Dealer
Manager." The total expenses to be incurred by the Company in connection with
the Exchange Offers, other than fees payable to the Dealer Manager, but
including the expenses of the Dealer Manager, printing, accounting, and legal
fees, and the fees and expenses of the Exchange Agent, the Information Agent
and the Trustee are estimated to be approximately $700,000.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Old Debentures to it or its order pursuant to the Exchange
Offers. If, however, certificates representing New Debentures or Old
Debentures are not tendered or accepted for exchange, are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder(s) of such Old Debentures tendered, or if a transfer tax is
imposed for any reason other than the exchange of Old Debentures to the
Company or its order pursuant to the Exchange Offers, the amount of any such
transfer taxes (whether imposed on the registered holder(s) or any other
person) will be payable by the tendering holder(s). If satisfactory evidence
of payment of such taxes or exception therefrom is not submitted, the amount
of such transfer taxes will be billed directly to such tendering holder.
33
DESCRIPTION OF NEW DEBENTURES
GENERAL
The New 4.90% Debentures will be a series of Pennzoil's debt securities (the
"Debt Securities") and will be issued under the Indenture dated as of December
15, 1992 (the "Indenture") between Pennzoil and Chase Bank of Texas, National
Association (formerly known as Texas Commerce Bank National Association), as
trustee (the "Trustee"), and the Third Supplemental Indenture to the Indenture
("Third Supplemental Indenture") between Pennzoil and Chase Bank of Texas,
National Association, as trustee. The New 4.95% Debentures will be a series of
Pennzoil's Debt Securities and will be issued under the Indenture and the
Fourth Supplemental Indenture to the Indenture ("Fourth Supplemental
Indenture" and, together with the Third Supplemental Indenture, the
"Supplemental Indenture") between Pennzoil and Chase Bank of Texas, National
Association, as trustee. The 6 1/2% Debentures and the 4 3/4% Debentures have
also been issued under the Indenture. The Indenture does not limit the
aggregate principal amount of securities which can be issued thereunder and
provides that securities may be issued from time to time thereunder in one or
more series, each in an aggregate principal amount authorized by Pennzoil
prior to issuance. The Indenture does not limit the amount of other unsecured
indebtedness or Debt Securities that may be issued by Pennzoil. The italicized
references below refer to the section numbers of the Indenture or the
Supplemental Indentures.
The principal amount of New 4.90% Debentures issued in exchange for 6 1/2%
Debentures will be equal to the product of (i) 103% of the Average Chevron
Stock Price and (ii) the aggregate number of shares of Chevron Stock for which
the Old Debentures validly tendered by holders and accepted by the Company for
exchange are currently exchangeable as of the 6 1/2% Acceptance Date (subject
to the payment of cash in lieu of the issuance of a Fractional New 4.90%
Debenture). The principal amount of New 4.95% Debentures to be issued in
exchange for 4 3/4% Debentures will be equal to the product of (i) 103% of the
Average Chevron Stock Price and (ii) the aggregate number of shares of Chevron
Stock for which the 4 3/4% Debentures validly tendered by holders and accepted
by the Company for exchange are currently exchangeable as of the 4 3/4%
Acceptance Date (subject to the payment of cash in lieu of the issuance of a
Fractional New 4.95% Debenture). On June 26, 1998, the reported closing price
of the Chevron Common Stock on the NYSE was $83 5/8 per share.
The Company will issue the New Debentures on the next calendar day following
the respective Acceptance Dates. The New Debentures will mature on August 15,
2008 and will bear interest from the date of issuance at the rate per annum
determined as described in the following paragraph, payable semiannually on
each February 15 and August 15, commencing February 15, 1999 to the holders of
the New Debentures at the close of business on the February 1 next preceding
such February 15 or the August 1 next preceding such August 15, as the case
may be.
The New Debentures will constitute unsecured senior debt obligations of
Pennzoil ranking pari passu with all other present and future unsecured
general obligations of Pennzoil that are not expressly subordinated to senior
indebtedness. Pennzoil currently conducts substantially all of its operations
through subsidiaries, and the holders of the New Debentures will have a junior
position to any creditors of Pennzoil's subsidiaries. As of March 31, 1998,
the aggregate outstanding debt of Pennzoil's subsidiaries was approximately
$63 million, and, on a pro forma basis after giving effect to the Spin-Off,
such subsidiary debt will be zero.
The New Debentures, like the Old Debentures, will not benefit from any
covenant or other provision that would afford holders of New Debentures
special protection in the event of a highly leveraged transaction involving
Pennzoil, except for any such protection provided by the Indenture as
described below under "--Limitation of Liens." This absence of such special
protection is less significant in the case of the Old Debentures, because the
market price of Chevron Stock has increased since the issuance of the Old
Debentures and, as a result, the Old Debentures are currently exchangeable for
shares of Chevron Stock at equivalent exchange prices ($42 1/16 per share for
the 6 1/2% Debentures and $58 13/16 per share for the 4 3/4% Debentures) that
are less than the current market price for Chevron Stock. (On June 26, 1998,
the reported closing price of Chevron Stock on the NYSE Composite Tape was $83
5/8 per share.) The equivalent exchange price for the New Debentures will
34
initially be in excess of the market price for Chevron Stock and, absent an
increase in such market price, the exchange rights of holders of New
Debentures would offer less protection against a highly leveraged transaction.
FORM OF DEBENTURES
The New Debentures will be issued only in registered form.
BOOK-ENTRY ISSUANCE ONLY
Each issue of the New Debentures will be represented by one or more fully
registered global securities (collectively, the "Global Debentures"). The
Global Debentures will be deposited upon issuance with a custodian for DTC and
registered in the name of DTC or a nominee of DTC (the "Global Debenture
Registered Owner"). Except as set forth below, the Global Debentures may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Dealer Manager), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that pursuant to procedures established by
it (i) upon deposit of the Global Debentures, DTC will credit the accounts of
Participants designated by the Exchange Agent with portions of the face amount
of the Global Debentures and (ii) ownership of such interests in the Global
Debentures will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Debentures). The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Such laws may impair the ability
to transfer beneficial interests in a Global Debentures.
Except as described below, owners of interests in the Global Debentures will
not have New Debentures registered in their names, will not receive physical
delivery of New Debentures in definitive form and will not be considered the
registered owners or holders thereof under the Indenture for any purpose. As
long as DTC, or its nominee, is the registered owner of the Global Debentures,
DTC, or its nominee, as the case may be, will be considered the sole owner and
holder of the New Debentures presented by the Global Debentures for all
purposes under the Indenture and the New Debentures.
Payment of any interest on the New Debentures registered in the name of the
Global Debentures Registered Owner will be payable by the Trustee to the
Global Debentures Registered Owner in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the New Debentures, including
the Global Debentures, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
(Section 203 of the Indenture). Consequently, none of the Company, the Trustee
or any agent of the Company or the Trustee has or will have any responsibility
or liability for (i) any aspect of DTC's records or any Participant's records
relating to or payments made on account of beneficial ownership interests in
the Global Debenture, or for maintaining, supervising or reviewing any of
DTC's records or any Participant's records relating to the beneficial
ownership interests in the Global Debentures or (ii) any other matter relating
to the actions and practices of DTC or any of
35
its Participants. DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities such as the New Debentures, is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in face
amount of beneficial interests in the relevant security as shown on the
records of DTC, unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Debentures will be governed by
standing instructions and customary practices and will be the responsibility
of the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the New Debentures, and the Company and
the Trustee may conclusively rely on and will be protected in relying on
instructions of the Global Debentures Registered Owner for all purposes.
The Global Debentures are exchangeable for definitive New Debentures in
registered certificated form only if (i) DTC (a) notifies the Company that it
is unwilling or unable to continue as the depositary for the Global Debenture
and the Company thereupon fails to appoint a successor depositary or (b) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the New Debentures in definitive registered certificated
form or (iii) there shall have occurred and be continuing an Event of Default
(as defined in the Indenture) or any event which after notice or lapse of time
or both would be an Event of Default with respect to the New Debentures. Upon
issuance of New Debentures in definitive registered certificated form, the
Trustee is required to register the securities in the name of, and cause the
New Debentures to be delivered to, the person or persons (or the nominee
thereof) identified as the beneficial owners as DTC shall direct.
EXCHANGE RIGHTS
A holder will have the option to exchange the New Debentures at any time
prior to maturity, unless previously redeemed, for shares of Chevron Stock
owned by Pennzoil. Subject to adjustment in certain events, the exchange rate
for the New Debentures will be 0.8230 shares of Chevron Stock for each share
of Chevron Stock into which exchanged Old Debentures were exchangeable as of
the respective Acceptance Dates under Existing Exchange Rights (excluding
shares of Chevron Stock exchangeable for that portion of Old Debentures for
which cash is paid in lieu of the issuance of a Fractional New Debenture),
subject to adjustment in certain events as set forth in the Supplemental
Indenture such as (i) a stock dividend on the Chevron Stock, (ii) a
subdivision or combination of Chevron Stock into a greater or lesser number of
shares, (iii) a reclassification of Chevron Stock, or (iv) a consolidation or
merger of Chevron where Chevron Stock is converted into other securities or
property, or a sale or transfer of all or substantially all assets of Chevron
(if holders of Chevron Stock receive other securities or property in exchange
for Chevron Stock), or a dissolution, liquidation or winding up of Chevron.
Such adjustments are designed to proportionately adjust the economic benefits
of the exchange rights to holders of New Debentures in the event of the
extraordinary circumstances described above. In the event the New Debentures
are called for redemption, the exchange rights will terminate at the close of
business on the date immediately prior to the date of redemption. (Section 201
of the Supplemental Indentures).
Prior to and in connection with the issuance of the New Debentures, Pennzoil
will deposit the number of shares of Chevron Stock deliverable in exchange for
the New Debentures with Chase Bank of Texas, National Association, who will
act as exchange agent for holders of New Debentures (the "New Debenture
Exchange Agent") on behalf of Pennzoil. Pennzoil will thereafter deposit with
the New Debenture Exchange Agent any cash and other property deliverable in
exchange for the New Debentures. Pennzoil will not be permitted to pledge,
mortgage, hypothecate or grant a security interest in, or permit any mortgage,
pledge, security interest or other lien upon, the Chevron Stock, cash and
other property deliverable in exchange for the New Debentures (collectively,
"Exchange Property"). The deposit arrangements with the New Debenture Exchange
Agent will terminate at such time as the right to exchange New Debentures with
the New Debenture Exchange Agent shall have expired pursuant to the
Supplemental Indentures.
In order to exercise the right of exchange, the holder of any New Debenture
must surrender such New Debenture to the New Debenture Exchange Agent at its
office maintained for such purpose in Dallas, Texas.
36
Each New Debenture to be surrendered must be accompanied by written notice to
Pennzoil and the New Debenture Exchange Agent that the holder elects to
exchange such New Debenture. Delivery of the certificates for Chevron Stock or
any other Exchange Property may be delayed at the request of Pennzoil in order
to effectuate the calculation of the adjustments of the Chevron Stock or other
Exchange Property to obtain any certificate representing securities to be
delivered, to complete any reapportionment of the Chevron Stock or other
Exchange Property which is required by the Indenture or to comply with any
applicable law. (Section 202 of the Supplemental Indentures). No fractional
shares will be delivered on any exchange of New Debentures, and, in lieu
thereof, a cash adjustment based on the market price of the Chevron Stock or
other Exchange Property will be paid, such market price to be determined as of
the date of receipt by Pennzoil of the notice of exchange relating to such New
Debentures (or, if such date is not a business day, on the business day next
preceding such date). (Section 203 of the Supplemental Indentures).
If Pennzoil has called the New Debentures for redemption, holders of New
Debentures exercising the right of exchange will receive accrued and unpaid
interest on the New Debentures through the date of exchange. If the New
Debentures have not been called for redemption, holders of New Debentures
exercising the right of exchange will not receive any accrued and unpaid
interest on the New Debentures. (Section 202 of the Supplemental Indentures).
In lieu of delivering certificates representing Chevron Stock in exchange
for any New Debentures, Pennzoil may pay to the holder surrendering such New
Debentures an amount in cash equal to the market price of the Chevron Stock or
other Exchange Property for which such New Debentures are exchangeable,
determined as of the date of receipt by Pennzoil of the notice of exchange
relating to such New Debentures (or, if such date is not a business day, on
the business day next preceding such date). Prior to so directing the New
Debenture Exchange Agent to make any such cash payment, Pennzoil shall deposit
with the New Debenture Exchange Agent the cash so payable. (Section 216 of the
Supplemental Indentures).
Pennzoil will be entitled to all cash dividends with respect to the Chevron
Stock or other Exchange Property, other than dividends paid pursuant to a plan
of liquidation or partial liquidation of Chevron, recapitalization or
restructuring of Chevron or other extraordinary cash dividends. Pennzoil will
also be entitled to all interest payments on any debt securities held for
exchange by Pennzoil which are issued in exchange for Chevron Stock or other
Exchange Property pursuant to any merger or consolidation of Chevron or in
connection with any sale of all or substantially all the assets of Chevron.
(Section 205 of the Supplemental Indentures).
If Chevron should issue any Chevron Stock in subdivision or by way of stock
dividend, the exchange rate will be proportionately increased, and, if Chevron
shall effect a combination of Chevron Stock, the exchange rate will be
proportionately reduced, subject in each case to adjustments for tax
consequences, if any. (Section 204 of the Supplemental Indentures).
If Chevron should make any distribution of cash, securities or other
property with respect to the Chevron Stock or other Exchange Property (other
than cash dividends to which Pennzoil is entitled as described above, the
distributions described in the preceding paragraph or any securities or other
property received in a merger or consolidation of Chevron or in connection
with any sale of all or substantially all the assets of Chevron as described
in the next paragraph) or if Chevron grants transferable subscription rights,
options, warrants or other similar rights to Pennzoil in respect of the
Chevron Stock or other Exchange Property, Pennzoil will cause all such
securities, other property and rights to be deposited with the applicable
Exchange Agent and will direct the applicable Exchange Agent to sell all such
securities and other property and all such rights for cash, except any such
securities or property that are convertible, without payment of any
consideration, into Chevron Stock and which rights do not expire before the
retirement of such securities or other property. Such Exchange Agent will
apply the proceeds first to the payment of any taxes incurred or deemed
incurred by Pennzoil or such Exchange Agent on such distribution or such grant
of rights and incurred or deemed incurred by Pennzoil or such Exchange Agent
on the subsequent sale of the securities or other property distributed or
rights granted. The balance of the cash proceeds will be held by such Exchange
Agent for distribution pro rata with the Chevron Stock or other Exchange
Property. In the event that a distribution or grant of cash, securities or
other property on Exchange Property shall be effected as contemplated by this
paragraph, a notice stating that such distribution or grant has
37
occurred and setting forth the additional cash, securities or other property
distributed on the Exchange Property shall as soon as practicable be mailed by
or on behalf of Pennzoil to the holders of New Debentures at their addresses
as they appear in the Security Register. (Section 205 of the Supplemental
Indentures).
In the case of any merger or consolidation of Chevron with or into any other
person that results in shares of Chevron Stock, as constituted prior to the
consummation of such transaction, being converted into other securities and/or
property, including cash, or any sale of all or substantially all the assets
of Chevron (if in connection with such sale or transfer holders of Chevron
Stock receive other securities and/or property, including cash, in exchange
for their shares of Chevron Stock), the holder of any New Debenture
surrendered for exchange thereafter will, subject to the following paragraph,
be entitled to receive the kind and amount of shares of stock and other
securities and property receivable upon or in connection with such transaction
by a holder of the number of shares of Chevron Stock or other Exchange
Property for which such New Debenture might have been exchanged immediately
prior to such transaction, as well as a pro rata share of any cash held for
exchange by Pennzoil in accordance with the preceding paragraph. (Section 211
of the Supplemental Indentures).
Upon the occurrence of any such merger, consolidation, sale of all or
substantially all the assets of Chevron described in the preceding paragraph
or any voluntary or involuntary dissolution, liquidation or winding up of
Chevron, or any stock dividend, subdivision, combination or reclassification
of shares of Chevron Stock or other Exchange Property, which shall be taxable
to Pennzoil or the New Debenture Exchange Agent, or upon the happening of any
other event with respect to the Chevron Stock or other Exchange Property,
which is taxable or treated as being taxable to Pennzoil or the New Debenture
Exchange Agent, the New Debenture Exchange Agent will deliver cash which it
holds for exchange (including cash received in such transaction) to Pennzoil
or to itself for payment of the taxes arising from such transaction. If the
cash held for exchange is insufficient to pay the amount of such taxes, the
New Debenture Exchange Agent will sell such of the shares of Chevron Stock or
other Exchange Property as may be necessary to pay the amount of the
insufficiency and any taxes payable by Pennzoil or the New Debenture Exchange
Agent arising from such sale. The remaining shares of Chevron Stock or other
Exchange Property will be held by the New Debenture Exchange Agent for
distribution pro rata to holders requesting exchange of their New Debentures.
(Section 215 of the Supplemental Indentures).
From time to time, Pennzoil may require the New Debenture Exchange Agent to
segregate such property as Pennzoil determines may be necessary for Pennzoil
or the New Debenture Exchange Agent to pay taxes with respect to the
transactions or events described above, subject to the determination of
taxability (and any expenses incurred in determining taxability), and such
property (or any portion thereof) shall be deliverable to holders of New
Debentures only after determination that such withholding is not necessary for
the payment of such taxes and after deducting the expenses incurred in
connection with such determination. (Section 215 of the Supplemental
Indentures).
If Chevron grants nontransferable subscription rights, options, warrants or
similar rights with respect to the Exchange Property, Pennzoil will, if
otherwise lawful, deliver such rights pro rata to the New Debenture Exchange
Agent. Pennzoil and the New Debenture Exchange Agent shall cause such rights
to be distributed to the holders of the New Debentures shown in the Security
Register. (Section 205 of the Supplemental Indentures).
Pennzoil is required to give to holders of New Debentures notice of certain
dividends on the Chevron Stock deliverable upon exchange of New Debentures,
the granting of subscription rights, options, warrants or other similar rights
to holders of Chevron Stock, any reclassification of Chevron Stock (other than
a subdivision or combination of outstanding shares of Chevron Stock), certain
mergers involving Chevron, the sale of all or substantially all of the assets
of Chevron and the dissolution, liquidation or winding up of Chevron. (Section
206 of the Supplemental Indentures).
Any cash held by the New Debenture Exchange Agent that is deliverable upon
exchange of New Debentures will be invested by the New Debenture Exchange
Agent at the direction of Pennzoil in U.S. Government Obligations with
maturity dates of twelve months or less. Any interest or gain on such
investments will be for the benefit of Pennzoil, and Pennzoil will be
responsible for any losses on such investments. To the extent New Debentures
are redeemed prior to exchange, Pennzoil will be entitled to receive from the
New Debenture Exchange Agent such number of shares of Chevron Stock, other
Exchange Property and such amount of cash, if
38
any, held by the New Debenture Exchange Agent for exchange as exceeds the
number of shares of Chevron Stock or other Exchange Property required to be
held by the New Debenture Exchange Agent for the exchange of all New
Debentures remaining then outstanding. (Section 205 of the Supplemental
Indentures).
In the event of a tender offer or exchange offer for any class of securities
included within the Exchange Property (i) if Pennzoil owns shares of such
class which are not subject to the Exchange Agreement, Pennzoil will cause the
New Debenture Exchange Agent to tender such shares of such class in the same
proportion that Pennzoil tenders its securities in such class which are not
subject to the Exchange Agreement and (ii) if Pennzoil does not own securities
of a class which are subject to the Exchange Agreement, Pennzoil may, at its
option and in its sole discretion, elect to cause the New Debenture Exchange
Agent to tender all or any portion or none of such class of security included
within the Exchange Property held by the New Debenture Exchange Agent. The
proceeds of the sale of any such Exchange Property pursuant to any such tender
or exchange offer will be held by the New Debenture Exchange Agent for the
benefit of holders as provided in the Supplemental Indenture. As a result of
the receipt by the New Debenture Exchange Agent of cash or other property upon
the tender or exchange of an Exchange Property, holders will not participate
in any subsequent appreciation or depreciation in the market price of such
Exchange Property tendered or exchanged upon any subsequent exchange of New
Debentures. (Section 212 of the Supplemental Indentures).
The right of a holder to exchange his New Debentures for Chevron Stock or
other Exchange Property could be adversely affected in the event of the
bankruptcy, insolvency or liquidation of Pennzoil. In such event, the Chevron
Stock or other Exchange Property could be assets of Pennzoil subject to the
claims of its general creditors.
REPURCHASE RIGHTS
The New Debenture Exchange Agent will act as agent for Pennzoil in
connection with Pennzoil's exchange obligations under the Supplemental
Indentures and will not act as escrow agents for the benefit of holders of New
Debentures. Accordingly, Pennzoil may at any time obtain from the New
Debenture Exchange Agent or otherwise authorize or direct the New Debenture
Exchange Agent to release all or a part of the Chevron Stock or other Exchange
Property. In the event that Pennzoil obtains or otherwise releases any Chevron
Stock or other Exchange Property in any manner otherwise than as contemplated
by the Supplemental Indenture, each holder of New Debentures will have the
right ("Repurchase Right"), at such holder's option, to require Pennzoil to
repurchase all of such holder's New Debentures, or a portion thereof which is
$1,000 or any integral multiple thereof, in the manner and at the price
described below. (Section 217 of the Supplemental Indentures).
Promptly (and in any event within 10 days) after Pennzoil has obtained or
released any Exchange Property in any manner otherwise than as contemplated by
the Supplemental Indentures, the New Debenture Exchange Agent will mail to all
holders of record of the New Debentures a notice thereof and the Repurchase
Right arising as a result thereof (a "Repurchase Notice"). To exercise the
Repurchase Right, a holder of New Debentures must deliver on or before the
15th day after the date of the Repurchase Notice irrevocable written notice to
the New Debenture Exchange Agent of the holder's exercise of such right,
together with the New Debentures with respect to which the right is being
exercised, duly endorsed for transfer.
On the date ("Repurchase Date") that is 30 days after the date of the
Repurchase Notice, Pennzoil will be required to repurchase all New Debentures
in respect of which the Repurchase Right has been exercised at the following
price: (i) if the date on which Pennzoil's obtaining or release of Exchange
Property in a manner not contemplated by the Supplemental Indenture first
occurs (the "Triggering Date") is before August 15, 2000, the product of (1)
120% and (2) the greater of the principal amount at maturity of such New
Debentures (plus accrued and unpaid interest, if any, to the Repurchase Date)
and the market price of the Exchange Property deliverable in exchange for such
New Debentures on the Triggering Date (or if such date is not a business day,
on the next succeeding business day); and (ii) if the Triggering Date occurs
on or after August 15, 2000, the greater of (1) the redemption price as
specified under "--Redemption Provisions" on the Triggering Date and (2) the
market price of the Exchange Property deliverable in exchange for such New
Debentures on the Triggering Date (or if such date is not a business day, on
the next succeeding business day).
39
The obligation of Pennzoil to deliver Exchange Property (or cash in lieu
thereof) in exchange for New Debentures shall survive and continue to apply in
full force and effect following and notwithstanding the occurrence of any
event triggering a Repurchase Right. Failure by Pennzoil to exchange New
Debentures in accordance with the Supplemental Indentures or to repurchase New
Debentures upon exercise of a Repurchase Right will constitute an Event of
Default with respect to the New Debentures, and holders of New Debentures will
have the remedies provided for in the Indenture, including acceleration of the
indebtedness evidenced by the New Debentures, in the event of any such
failure.
The exchange obligations of Pennzoil may not be assigned or otherwise
transferred by Pennzoil except in accordance with a transfer of the
indebtedness evidenced by the New Debentures in the manner permitted by the
Indenture.
If an offer is made to repurchase New Debentures in connection with a
Repurchase Right, Pennzoil will comply with all tender offer rules, including
but not limited to Sections 13(e) and 14(e) under the Exchange Act and Rules
l3e-1 and l4e-1 thereunder, to the extent applicable to such offer.
REDEMPTION PROVISIONS
Subject to the redemption provisions described below, the Company may not
redeem the New Debentures prior to August 15, 2000. Thereafter, the Company
has the option to redeem all or part of the New Debentures, on not less than
30 nor more than 60 days' notice by mail to the holders of New Debentures at
their addresses appearing on the Security Register, at the following
redemption prices (expressed as a percentage of the principal amount at
maturity) if redeemed during the 12-month period beginning August 15 of the
following years:
YEAR REDEMPTION PRICE
---- ----------------
2000..................................................... 104.00%
2001..................................................... 103.50%
2002..................................................... 103.00%
2003..................................................... 102.50%
2004..................................................... 102.00%
2005..................................................... 101.50%
2006..................................................... 101.00%
2007..................................................... 100.50%
in each case together with accrued and unpaid interest to the redemption date;
provided, however, if any interest payment date on New Debentures is on or
prior to the redemption date, interest shall be payable to the holders of such
New Debentures, registered as such, at the close of business on the relevant
Record Dates as provided in the Indenture. There is no sinking fund applicable
to the New Debentures.
EVENTS OF DEFAULT
Unless otherwise provided with respect to any series of Debt Securities, the
following are Events of Default under the Indenture with respect to the Debt
Securities of such series issued under such Indenture (which includes the New
Debentures): (a) failure to pay principal of (or premium, if any, on) any Debt
Security of such series when due; (b) failure to pay any interest on any Debt
Security of such series when due, continued for 60 days; (c) failure to
deposit any mandatory sinking fund payment, when due, in respect of the Debt
Securities of such series, continued for 60 days; (d) failure to perform any
other covenant of Pennzoil in the Indenture (other than a covenant included in
the applicable Indenture for the benefit of a series of Debt Securities other
than such series), continued for 90 days after written notice as provided in
the applicable Indenture; (e) certain events of bankruptcy, insolvency or
reorganization; and (f) any other Event of Default as may be specified with
respect to Debt Securities of such series. (Section 501 of the Indenture). If
an Event of Default with respect to any outstanding series of Debt Securities
occurs and is continuing, either the Trustee or the holders of at least 25% in
principal amount of the outstanding Debt Securities of such series (in the
case of an Event of Default described
40
in clause (a), (b), (c) or (f) above) or at least 25% in principal amount of
all outstanding Debt Securities under the Indenture (in the case of other
Events of Default) may declare the principal amount of all the Debt Securities
of the applicable series (or of all outstanding Debt Securities under the
Indenture, as the case may be) to be due and payable immediately. At any time
after a declaration of acceleration has been made, but before a judgment has
been obtained, the holders of a majority in principal amount of the
outstanding Debt Securities of such series (or of all outstanding Debt
Securities under the Indenture, as the case may be) may, under certain
circumstances, rescind and annul such acceleration. (Section 502 of the
Indenture).
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default in respect of any series of Debt Securities, give to
the holders of the Debt Securities of such series notice of all uncured and
unwaived defaults known to it; provided, however, that except in the case of a
default in the payment of the principal of (or premium, if any) or any
interest on, or any sinking fund installment with respect to, any Debt
Securities of such series, the Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is
in the interest of the holders of the Debt Securities of such series; and
provided, further, that such notice shall not be given until at least 60 days
after the occurrence of a default in the performance, or breach, of any
covenant or warranty of Pennzoil under the Indenture other than for the
payment of the principal of (or premium, if any) or any interest on, or any
sinking fund installment with respect to, any Debt Securities of such series.
For the purpose of this provision, "default" with respect to Debt Securities
of any series means any event which is, or after notice or lapse of time, or
both, would become, an Event of Default with respect to the Debt Securities of
such series. (Section 602 of the Indenture).
The holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt
Securities under the Indenture) have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the securities of such series (or of
all outstanding securities under the Indenture). (Section 512 of the
Indenture). The Indenture provides that in case an Event of Default shall
occur and be continuing, the Trustee shall exercise such of its rights and
powers under the Indenture and use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs. (Section 610 of the Indenture). Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the holders of
the securities unless they shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might
be incurred by it in compliance with such request. (Section 603 of the
Indenture).
The holders of a majority in principal amount of the outstanding Debt
Securities of any series (or, in certain cases, all outstanding Debt
Securities under the Indenture) may on behalf of the holders of all Debt
Securities of such series (or of all outstanding Debt Securities under the
Indenture) waive any past default under the Indenture, except a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security or in respect of a provision which under the Indenture cannot be
modified or amended without the consent of the holder of each outstanding Debt
Security affected. (Section 513 of the Indenture). The holders of a majority
in principal amount of the outstanding Debt Securities affected thereby may on
behalf of the holders of all such Debt Securities waive compliance by Pennzoil
with certain restrictive provisions of the Indentures. (Section 1009 of the
Indenture).
Pennzoil is required to furnish to the Trustee annually a statement as to
the performance by Pennzoil of certain of its obligations under the Indenture
and as to any default in such performance. (Section 1008 of the Indenture).
MODIFICATION
Modifications and amendments of the Indenture may be made by Pennzoil and
the Trustee with the consent of the holders of a majority in principal amount
of the outstanding Debt Securities under the Indenture affected thereby;
provided, however, that no such modification or amendment may, without the
consent of the holder of
41
each outstanding Debt Security affected thereby, (a) change the stated
maturity date of the principal of, or any installment of interest on, any Debt
Security, (b) reduce the principal amount of, or the premium (if any) or
interest on, any Debt Security, (c) change the place or currency, currencies,
or currency unit or units or payment of principal of, or premium (if any) or
interest on, any Debt Security, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security or (e)
reduce the percentage in principal amount of outstanding securities the
consent of whose holders is required for modification or amendment of the
Indenture or for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults. (Section 902 of the Indenture).
The Indenture provides that Pennzoil and the Trustee may, without the
consent of any holders of Debt Securities, enter into supplemental indentures
for the purposes, among other things, of adding to Pennzoil's covenants,
adding additional Events of Default, establishing the form or terms of Debt
Securities or curing ambiguities or inconsistencies in the Indenture, provided
such action to cure ambiguities or inconsistencies shall not adversely affect
the interests of the holders of the Debt Securities in any material respect.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Pennzoil, without the consent of any holders of outstanding Debt Securities,
may consolidate with or merge into, or convey, transfer or lease its assets
substantially as an entirety to, any person, provided that the person formed
by such consolidation or into which Pennzoil is merged or which acquired or
leases the assets of Pennzoil substantially as an entirety is a corporation,
partnership or trust organized under the laws of any United States
jurisdiction and assumes by supplemental indenture Pennzoil's obligations on
the Debt Securities and under the Indenture, that after giving effect to the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, and that certain other conditions are met. Upon compliance with
these provisions by a successor person, Pennzoil will (except in the case of a
lease) be relieved of its obligations under the Indenture and the Debt
Securities. (Article Eight of the Indenture).
DISCHARGE AND DEFEASANCE
Pennzoil may terminate its obligations under the Indenture, other than its
obligation to pay the principal of (and premium, if any) and interest on the
Debt Securities of any series and certain other obligations, if it (i)
irrevocably deposits or causes to be irrevocably deposited with the Trustee as
trust funds money or U.S. Government Obligations maturing as to principal and
interest sufficient to pay the principal of, any interest on, and any
mandatory sinking funds in respect of, all outstanding Debt Securities of such
series on the stated maturity of such payments or on any redemption date and
(ii) complies with any additional conditions specified to be applicable with
respect to the covenant defeasance of Debt Securities of such series. (Section
401 of the Indenture). The terms of the New Debentures provide an additional
condition that Pennzoil will be permitted to terminate certain of its
obligations under the Indenture pursuant to the Indenture's covenant
defeasance provisions only if Pennzoil delivers to the Trustee an opinion of
counsel that covenant defeasance will not cause holders of the New Debentures
to recognize income, gain or loss for United States federal income tax
purposes. (Section 105 of the Supplemental Indentures).
The terms of any series of Debt Securities may also provide for legal
defeasance pursuant to the Indenture. In such case, if Pennzoil (i)
irrevocably deposits or causes to be irrevocably deposited money or U.S.
Government Obligations as described above, (ii) makes a request to the Trustee
to be discharged from its obligations on the Debt Securities of such series
and (iii) complies with any additional conditions specified to be applicable
with respect to legal defeasance of Debt Securities of such series, then
Pennzoil shall be deemed to have paid and discharged the entire indebtedness
on all the outstanding Debt Securities of such series and the obligations of
Pennzoil under the Indenture and the Debt Securities of such series to pay the
principal of (and premium, if any) and interest on the Debt Securities of such
series shall cease, terminate and be completely discharged, and the holders
thereof shall thereafter be entitled only to payment out of the money or U.S.
Government Obligations deposited with the Trustee as aforesaid, unless
Pennzoil's obligations are revived and
42
reinstated because the Trustee is unable to apply such trust fund by reason of
any legal proceeding, order or judgment. (Sections 403 and 404 of the
Indenture). The terms of the New Debentures provide for legal defeasance.
Legal defeasance is permitted under the terms of the New Debentures only on
the additional condition that Pennzoil shall have received from, or there
shall have been published by, the United States Internal Revenue Service a
ruling to the effect that legal defeasance will not cause holders of the New
Debentures to recognize income, gain or loss for United States federal income
tax purposes. (Section 105 of the Supplemental Indentures).
Neither legal defeasance nor covenant defeasance will affect the then
existing rights of a holder of New Debentures to exchange for shares of
Chevron Stock owned by Pennzoil.
"U.S. Government Obligations" is defined in the Indenture as direct
noncallable obligations of, or noncallable obligations the payment of
principal of and interest on which is guaranteed by, the United States of
America, or to the payment of which obligations or guarantees the full faith
and credit of the United States of America is pledged, or beneficial interests
in a trust the corpus of which consists exclusively of money or such
obligations or a combination thereof.
REGISTRATION AND TRANSFER
The New Debentures may be presented for registration of transfer (with the
form of transfer endorsed thereon duly executed), at the office of the
Security Registrar or at the office of any transfer agent designated by
Pennzoil for such purpose with respect to the New Debentures, without service
charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon
the Security Registrar or such transfer agent, as the case may be, being
satisfied with the documents of title and identity of the Person making the
request. Pennzoil has appointed the Trustee as Security Registrar. (Section
305 of the Indenture). No service charge will be made for any registration of
transfer or exchange of the Debt Securities, but Pennzoil may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. (Section 305 of the Indenture). Pennzoil may at any time
designate additional transfer agents with respect to any series of securities.
(Section 1002 of the Indenture).
In the event of any redemption in part, Pennzoil shall not be required to
(i) issue, register the transfer of or exchange during a period beginning at
the opening of business 15 days prior to the selection for redemption and
ending on the close of business on the day of mailing of the relevant notice
of redemption or (ii) register the transfer of or exchange any New Debentures,
or portion thereof, called for redemption, except the unredeemed portion of
any New Debentures being redeemed in part. (Section 305 of the Indenture).
PAYMENT AND PAYING AGENTS
Payment of principal of and interest on the New Debentures will be made in
the designated currency or currency unit at the office of such paying agent or
paying agents as Pennzoil may designate from time to time (the "Paying
Agents"), except that at the option of Pennzoil payment of any interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register. Payment of any installment of
interest on the New Debentures will be made to the person in whose name such
New Debentures are registered at the close of business on the regular record
date for such interest. (Section 307 of the Indenture).
The Corporate Trust Office of the Trustee in the Borough of Manhattan, The
City of New York will be designated as a Paying Agent for Pennzoil for
payments with respect to the New Debentures. Pennzoil may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that Pennzoil will be required to maintain a Paying Agent in each Place
of Payment for such series and Pennzoil will be required to maintain a Paying
Agent in the Borough of Manhattan, The City of New York for principal payments
with respect to the New Debentures. (Section 1002 of the Indenture).
43
All moneys paid by Pennzoil to a Paying Agent for the payment of principal
of and any premium or interest on any security which remain unclaimed at the
end of three years after such principal, premium or interest shall have become
due and payable will (subject to applicable escheat laws) be repaid to
Pennzoil and the holder of such security or any coupon will thereafter look
only to Pennzoil for payment thereof. (Section 1003 of the Indenture).
MEETINGS
The Indenture contains provisions for convening meetings of the holders of
Debt Securities of a series. (Section 1301 of the Indenture). A meeting may be
called at any time by the Trustee, and also, upon request, by the Company or
the holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as described
under "--Notices" below. (Section 1302 of the Indenture). Except for any
consent that must be given by the holder of each outstanding Debt Security
affected thereby, as described under "--Modification" above, any resolution
presented at a meeting or adjourned meeting at which a quorum is present may
be adopted by the affirmative vote of the holders of a majority in principal
amount of the outstanding Debt Securities of that series; provided, however,
that, except for any consent that must be given by the holder of each
outstanding Debt Security affected thereby, as described under "--
Modification" above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the holders of a specified percentage, which is less
than a majority in principal amount of the outstanding Debt Securities of a
series, may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the holders of such
specified percentage in principal amount of the outstanding Debt Securities of
that series. Subject to the proviso set forth above, any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all holders of Debt
Securities of that series and any related coupons. The quorum at any meeting
called to adopt a resolution, and at any reconvened meeting, will be Persons
holding or representing a majority in principal amount of the outstanding Debt
Securities of a series. (Section 1304 of the Indenture).
NOTICES
Notices to holders of New Debentures will be given by mail to the addresses
of such holders as they appear in the Security Register. (Section 107 of the
Indenture).
THE TRUSTEE
The Indenture contains certain limitations on the right of the Trustee, as a
creditor of Pennzoil, to obtain payment of claims in certain cases and to
realize on certain property received with respect to any such claims, as
security or otherwise. (Section 613 of the Indenture). The Trustee is
permitted to engage in other transactions, except that, if it acquires any
conflicting interest (as defined), it must eliminate such conflict or resign.
(Section 608 of the Indenture).
The Trustee has made loans to Pennzoil and its subsidiaries and affiliates
from time to time in the ordinary course of business and at prevailing
interest rates under agreements with commercial bank groups. In addition, the
Trustee serves as a depositary of funds of, and performs other services for,
Pennzoil and is trustee under one other indenture pursuant to which several
outstanding series of Pennzoil's debentures have been issued.
LIMITATION ON LIENS
The Indenture provides that, so long as any Debt Securities are outstanding,
Pennzoil will not, and will not permit any Designated Subsidiary (as defined
below) to, pledge, mortgage, hypothecate or grant a security interest in, or
permit any mortgage, pledge, security interest or other lien upon, any
property or assets owned by Pennzoil or any Designated Subsidiary to secure
any Indebtedness, without making effective provision whereby outstanding
securities shall be equally and ratably secured.
44
Under the Indenture, Atlas Processing Company ("Atlas"), an indirect wholly
owned subsidiary of Pennzoil, is currently the only Subsidiary (as defined
below) of Pennzoil which is a Designated Subsidiary. Therefore, the above
restriction applies only to Pennzoil and Atlas and does not cover other
Pennzoil subsidiaries, including PEPCO, PPC or Jiffy Lube. Moreover, Atlas is
a subsidiary of PPC, and Atlas will cease to be a Designated Subsidiary upon
the effectiveness of the Spin-Off.
The Indenture contains no restriction on the disposition by Pennzoil of the
stock of a Designated Subsidiary or any other Subsidiary. Moreover, the
Indenture does not prohibit Pennzoil or any Designated Subsidiary from doing
business through any existing or new Subsidiary that is not a Designated
Subsidiary and, therefore, not subject to the limitation on liens in the
Indenture or from transferring assets or businesses to those Subsidiaries.
Under the terms of the Indenture, the above negative pledge restriction does
not apply to (a) any mortgage, pledge, security interest, lien or encumbrance
upon any property or assets created at the time of the acquisition of such
property or assets by Pennzoil or any Designated Subsidiary or within one year
after such time to secure all or a portion of the purchase price for such
property or assets; (b) any mortgage, pledge, security interest, lien or
encumbrance upon any property or assets existing thereon at the time of the
acquisition thereof by Pennzoil or any Designated Subsidiary (whether or not
the obligations secured thereby are assumed by Pennzoil or any Subsidiary);
(c) any mortgage pledge, security interest, lien or encumbrance upon any
property or assets, whenever acquired, of any corporation that becomes a
Designated Subsidiary after December 15, 1992, provided that (i) the
instrument creating such mortgage, pledge, security interest, lien or
encumbrance shall be in effect prior to the time such corporation becomes a
Designated Subsidiary and (ii) such mortgage, pledge, security interest, lien
or encumbrance shall only apply to properties or assets owned by such
corporation at the time it becomes a Designated Subsidiary or thereafter
acquired by it from sources other than Pennzoil or another Designated
Subsidiary; (d) any extension, renewal or refunding of any mortgage, pledge,
security interest, lien or encumbrance described in (a), (b) or (c) above on
substantially the same property or assets theretofore subject thereto; (e) any
mortgage, pledge, security interest, lien or encumbrance arising from or in
connection with a conveyance by Pennzoil or a Designated Subsidiary of any
production payment with respect to oil, gas, natural gas, carbon dioxide,
sulphur, helium, coal, metals, minerals, steam, timber or other natural
resources; (f) any mortgage, pledge, security interest, lien or encumbrance in
favor of Pennzoil or any Wholly Owned Subsidiary (as defined below); (g) any
mortgage, pledge, security interest, lien or encumbrance created or assumed by
Pennzoil or a Designated Subsidiary in connection with the issuance of debt
securities the interest on which is excludable from gross income of the holder
of such security pursuant to the Code for the purpose of financing, in whole
or in part, the acquisition or construction of property or assets to be used
by Pennzoil or a Subsidiary; or (h) any mortgage, pledge, security interest,
lien or encumbrance securing any Indebtedness (as defined below) in an amount
which, together with all other Indebtedness secured by a mortgage, pledge,
security interest, lien or encumbrance that is not otherwise permitted by the
foregoing provisions, does not at the time of the incurrence of the
Indebtedness so secured exceed 5% of Consolidated Net Tangible Assets, as
shown on a balance sheet as of the date of the balance sheet contained in
Pennzoil's most recent periodic report on Form 10-K or Form 10-Q filed with
the Commission prior to the date of such incurrence. For the purpose of this
provision, "security interest" will include the interest of the lessor under a
lease with a term of three years or more that should be, in accordance with
generally accepted accounting principles, recorded as a capital lease, and any
such lease of property or assets not acquired from Pennzoil or any Designated
Subsidiary in contemplation of such lease shall be treated as though the
lessee had purchased such property or assets from the lessor. (Section 1007 of
the Indenture).
The term "Indebtedness," as applied to any Person, is defined in the
Indenture as all indebtedness, whether or not represented by bonds,
debentures, notes or other securities, created or assumed by such Person for
the repayment of money borrowed, and obligations, computed in accordance with
generally accepted accounting principles, or as lessee under leases that
should be, in accordance with generally accepted accounting principles,
treated as capital leases. All Indebtedness secured by a lien upon property
owned by Pennzoil or any Subsidiary and upon which Indebtedness such Person
customarily pays interest, although such Person has not assumed or become
liable for the payment of such Indebtedness, shall be deemed to be
Indebtedness of such Person. All
45
Indebtedness of others guaranteed as to payment of principal by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
such Indebtedness shall also be deemed to be Indebtedness of such Person.
Indebtedness shall not include amounts which are payable out of all or a
portion of the oil, gas, natural gas, carbon dioxide, sulphur, helium, coal,
metals, minerals, steam, timber or other natural resources produced, derived
or extracted from properties owned or developed by such Person.
"Consolidated Net Tangible Assets" is defined in the Indenture as the total
amount of assets of Pennzoil and the Designated Subsidiaries on a consolidated
basis, including the equity in Subsidiaries that are not Designated
Subsidiaries (less applicable reserves and other properly deductible items)
after deducting therefrom (i) all current liabilities (excluding any which
are, by their terms, extendable or renewable at the option of the obligor
thereon to a time more than 12 months after the time as of which the amount
thereof is being computed) and (ii) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like intangible
assets.
The Indenture defines the term "Subsidiary" as a corporation more than 50%
of the outstanding voting stock of which is owned, directly or indirectly, by
Pennzoil or by one or more other Subsidiaries, or by Pennzoil and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"Designated Subsidiary" is defined to include any Subsidiary which at the
time has been designated by Pennzoil as a Designated Subsidiary in an
Officers' Certificate delivered to the Trustee for such purpose, subject to
such provisions, if any, as may be contained in such Officers' Certificate
providing that upon the occurrence of a specified event or action or in such
other circumstances as is specified in such Officers' Certificate, such other
Subsidiary shall no longer be a Designated Subsidiary. Atlas is the only
Subsidiary of Pennzoil currently so designated, and Atlas will cease to be a
Designated Subsidiary upon the effectiveness of the Spin-Off.
46
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Baker & Botts, L.L.P., counsel to Pennzoil, the following
are the material federal income tax consequences to a holder of exchanging Old
Debentures for New Debentures in the Exchange Offers and owning and disposing
of New Debentures, of not exchanging Old Debentures for New Debentures in the
Exchange Offers and instead exchanging Old Debentures for Chevron Stock or
cash pursuant to the holder's exercise of the Existing Exchange Rights, and of
owning and disposing of Chevron Stock received in exchange for Old Debentures
or New Debentures. This opinion is based on provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as currently in effect and all of which are
subject to change (possibly with retroactive effect) and to differing
interpretations. Furthermore, there can be no assurance that the Internal
Revenue Service ("IRS") would not take a position contrary to those expressed
herein. This opinion deals only with holders that hold the Old Debentures, and
will hold the New Debentures and Chevron Stock, as capital assets and does not
address all aspects of federal income taxation that may be applicable to
investors in light of their particular circumstances, or to investors subject
to special treatment under federal income tax law (including, but not limited
to, life insurance companies, dealers in securities, financial institutions,
tax-exempt organizations, foreign persons, persons having a functional
currency other than the U.S. dollar, and persons holding the Old Debentures,
the New Debentures or the Chevron Stock as a position in a "straddle" or
conversion transaction, or as part of a "synthetic security" or other
integrated financial transaction). This opinion also does not address the
state, local or foreign tax consequences of an investment in the Old
Debentures, the New Debentures or the Chevron Stock. INVESTORS CONSIDERING THE
EXCHANGE OF OLD DEBENTURES IN THE EXCHANGE OFFERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX CONSEQUENCES OF THE
EXCHANGE OFFERS AND THE OWNERSHIP AND DISPOSITION OF THE NEW DEBENTURES AND
THE CHEVRON STOCK UNDER FEDERAL AND APPLICABLE STATE, LOCAL AND FOREIGN TAX
LAWS, INCLUDING THE EFFECTS OF RECENT OR POSSIBLE FUTURE CHANGES IN SUCH LAWS.
TREATMENT OF EXCHANGE OFFERS
Bifurcation of Old Debentures. Pursuant to proposed Treasury regulations
outstanding at the time the Old Debentures were issued, Pennzoil has taken the
position that each Old Debenture is bifurcated for federal income tax purposes
into two separate instruments: a right to receive payments of principal and
stated interest (the "Deemed Debt Instrument") and a right to exchange the Old
Debenture for Chevron Stock (the "Deemed Option"). The IRS has announced that
it will respect any reasonable method used by a taxpayer to account for debt
instruments of that type issued at that time, including a method based upon
the proposed regulations upon which Pennzoil has relied. The discussion below
assumes that the Old Debentures are treated by the holder as bifurcated into
Deemed Debt Instruments and Deemed Options. If a holder has adopted a
different reasonable method for reporting income, gain, loss and deduction on
the Old Debentures, its tax consequences may be different than those discussed
below. Holders who have not adopted the bifurcation method of reporting with
respect to the Old Debentures should contact their tax advisors regarding the
tax consequences of the Exchange Offers.
Bifurcation of Exchange. The exchange by a holder of Old Debentures for New
Debentures will constitute two separate exchanges for federal income tax
purposes: an exchange of the Deemed Debt Instruments for a portion of the New
Debentures (the "Deemed Debt Exchange") and an exchange of the Deemed Options
for the balance of the New Debentures (the "Deemed Option Exchange"). The
amount realized by a holder upon receipt of New Debentures (which will be
equal to the "issue price" of the New Debentures, determined in the manner
discussed below at "--Treatment of New Debentures--Issue Prices") will be
allocated between the Deemed Debt Exchange and the Deemed Option Exchange in
proportion to the relative fair market values of the Deemed Debt Instruments
and the Deemed Options on the applicable Acceptance Date. The basis of the
holder in the Deemed Debt Instruments and the Deemed Options will be
determined by allocating the holder's basis in the Old Debentures between the
Deemed Debt Instruments and the Deemed Options in proportion to their
47
relative fair market values at the time the holder acquired the Old
Debentures, with subsequent adjustments for any amounts of original issue
discount, market discount, premium or acquisition premium included in the
determination of the holder's income with respect to the Deemed Debt
Instruments. A holder that participates in both the 4 3/4% Exchange Offer and
the 6 1/2% Exchange Offer will have a separate Deemed Debt Exchange and Deemed
Option Exchange for each of the Exchange Offers.
The discussion below assumes that a holder has the same basis and holding
period in each of its Old Debentures exchanged pursuant to the Exchange Offer.
This may not be the case as to any holder that, for example, acquired Old
Debentures in more than one transaction. Any holders that acquired Old
Debentures in more than one transaction or otherwise do not have the same tax
basis and holding period in each of their Old Debentures should contact their
tax advisors regarding additional tax considerations applicable to them.
Deemed Debt Exchange. The tax consequences of the Deemed Debt Exchange to a
holder will depend upon whether such exchange is a "recapitalization" for
federal income tax purposes. The Deemed Debt Exchange will be a
recapitalization only if both the Deemed Debt Instruments and the New
Debentures are "securities" for federal income tax purposes. The determination
whether a debt instrument is a "security" is complex and cannot be made with
certainty because the courts have identified many factors that must be
considered in making the determination and have assigned different weights to
the various factors from case to case, producing a body of case law that is
difficult to harmonize. Baker & Botts, L.L.P., counsel to Pennzoil, has
analyzed these factors and concluded that the Deemed Debt Instruments and New
Debentures probably are securities and the Deemed Debt Exchange therefore
probably is a recapitalization.
If the Deemed Debt Exchange is a recapitalization, a holder generally will
not recognize loss, if any, on the Deemed Debt Exchange, but will recognize
gain, if any, on such exchange to the extent of the "boot" received in such
exchange. The amount of "boot" received by a holder in the Deemed Debt
Exchange will probably be equal to the excess of the portion of the issue
price of the New Debentures allocated to such exchange over the adjusted issue
price of the Deemed Debt Instruments, but a holder could reasonably adopt the
position that the amount of the boot is equal to the fair market value of the
excess of the stated principal amount of the New Debentures allocated to such
exchange over the stated principal amount of the Old Debentures. Any gain
recognized generally will be capital gain. However, any gain will be ordinary
income to the extent of the sum of any accrued market discount on the Deemed
Debt Instrument that has not previously been included in the holder's income
and, if there is an Intention to Call (as defined below), the excess of the
original issue discount on the Deemed Debt Instrument that has not previously
been included in the income of the holder (together with all prior holders)
over any acquisition premium of the holder with respect to the Deemed Debt
Instrument. Pennzoil believes it did not have an intention at the time of the
original issuance of the Deemed Debt Instruments to call them before maturity
(an "Intention to Call"), and it clearly will be treated as lacking such
intention as to Deemed Debt Instruments held by holders that have elected to
apply the original issue discount regulations issued in January 1994 to the
Deemed Debt Instruments.
If, contrary to the discussion above, the Deemed Debt Exchange is not a
recapitalization, a holder will recognize gain or loss, if any, on the
exchange. The amount of gain, if any, recognized by a holder generally will be
the same regardless of whether or not the Deemed Debt Exchange is a
recapitalization (although, as discussed in the preceding paragraph, a holder
could reasonably adopt a position under which the gain recognized in a
recapitalization is somewhat smaller). The amount of a holder's gain or loss
on the Deemed Debt Exchange generally will be relatively small in comparison
to the gain or loss on the Deemed Option Exchange, discussed below at "--
Deemed Option Exchange," since all of the gain or loss arising from changes in
the value of Chevron Stock will be attributable to the Deemed Option Exchange
(with the gain or loss on the Deemed Debt Exchange merely reflecting any
changes in prevailing interest rates and the market's perception of the
creditworthiness of Pennzoil). Any gain will be characterized as capital gain
or ordinary income in the manner discussed in the preceding paragraph, and any
loss will be characterized as capital loss. The remaining discussion herein
will assume the Deemed Debt Exchange is a recapitalization.
48
Deemed Option Exchange. The Deemed Option Exchange will not be pursuant to a
"recapitalization" because a Deemed Option does not constitute a "security" of
Pennzoil under Treasury regulations, so the holder will recognize any gain or
loss on such exchange. Any gain or loss recognized will be capital gain or
loss.
Basis and Holding Period of New Debentures. The basis of a holder in New
Debentures received pursuant to either of the Exchange Offers (including the
portion of any hypothetical Fractional New Debenture allocable to the Deemed
Debt Exchange as discussed below at "--Cash in Lieu of Fractional New
Debentures") will be equal to the sum of (i) the basis of the portion of the
Old Debentures surrendered by the holder in the Deemed Debt Exchange,
increased for any gain recognized by the holder on such exchange and (ii) the
issue price (determined as discussed below at "--Treatment of New Debentures--
Issue Prices") of the portion of the New Debentures received in the Deemed
Option Exchange. The holding period of the portion of the New Debentures
received in the Deemed Option Exchange and the portion of the New Debentures
received in the Deemed Debt Exchange that are allocable to "boot" will begin
the day after the applicable Acceptance Date. The holding period of the
portion of the New Debentures received in the Deemed Debt Exchange that are
not allocable to "boot" will include the period for which the holder held the
Old Debentures, provided that if all of a holder's gain upon the Deemed Debt
Exchange is recognized, the holding period of such New Debentures probably
will begin the day after the applicable Acceptance Date.
Cash in Lieu of Fractional New Debentures. The portion of the cash received
in lieu of the issuance of a Fractional New Debenture that is allocable to the
Deemed Debt Exchange probably will be treated as if the holder had received a
Fractional New Debenture (in the amount allocable to the Deemed Debt
Exchange), then the Fractional New Debenture was redeemed by Pennzoil in
exchange for the cash. Any gain on such redemption will be interest income
taxable at ordinary income rates and any loss will be capital loss, as
discussed below at "--Treatment of New Debentures--Sale, Exchange, Redemption
or Exercise of New Debentures." The portion of the cash received in lieu of a
Fractional New Debenture that is allocable to the Deemed Option Exchange will
constitute an additional amount realized by the holder in such exchange.
Interest Paid at Exchange. The interest on the Old Debentures payable at the
time of the exchange will not be additional consideration received in the
Deemed Debt Exchange or the Deemed Option Exchange, but a payment of accrued
original issue discount on the Deemed Debt Instruments immediately before such
exchanges.
TREATMENT OF NEW DEBENTURES
Issue Prices. Pennzoil anticipates that the New Debentures will be listed
for trading on the NYSE on and after the respective Acceptance Dates, in which
case the issue prices of the New 4.90% Debentures and the New 4.95% Debentures
will be their respective fair market values on the respective Acceptance
Dates. The discussion herein assumes that the issue prices of the New 4.90%
Debentures and the New 4.95% Debentures will be determined in this manner.
Contingent Payment Regulations. The tax consequences to a holder of owning
or disposing of a New Debenture discussed below arise from the application of
certain Treasury regulations governing contingent payment debt instruments
(the "Contingent Payment Regulations") to the New Debentures. The Contingent
Payment Regulations require the application of the "noncontingent bond method"
to determine the amount, timing and character of income, gain, loss and
deduction with respect to the New Debentures. As discussed below, generally,
under the noncontingent bond method, taxable interest income will accrue on
each New Debenture under rules similar to the original issue discount rules,
at a rate equal to the "comparable yield" (as defined below) of such New
Debenture, and additional adjustments will be made to the income and deduction
of the holder with respect to such New Debenture to the extent such New
Debenture is satisfied at maturity for an amount different than the amount
indicated on the "projected payment schedule" (as defined below) for such New
Debenture or the holder's basis in such New Debenture is different than the
adjusted issue price of such New Debenture. A separate "comparable yield" and
"projected payment schedule" will be determined for each series of New
Debentures (i.e., the New 4.90% Debentures and the New 4.95% Debentures). The
Contingent Payment Regulations apply in lieu of the general rules for accrual
of interest; a holder will not have interest or original issue discount income
with respect to a New Debenture other than as described below.
49
Determination of Comparable Yields. The "comparable yield" of each New
Debenture will be the yield at which Pennzoil would issue a fixed rate debt
instrument on the applicable Acceptance Date with terms and conditions
comparable to those of such New Debenture, including the level of
subordination, term, timing of payments, and general market conditions (but
without the right to exchange the New Debenture for Chevron Stock). The
"comparable yield" of each series of New Debentures will be determined on the
applicable Acceptance Date and will exceed the stated rate of interest on such
series.
Accrual of Interest at Comparable Yield. Under the noncontingent bond
method, a holder, whether such holder uses the cash or the accrual method of
tax accounting, will be required to include as ordinary interest income the
sum of the "daily portions" of interest on each New Debenture for all days
during the taxable year that the holder owns such New Debenture. As a result,
a holder of a New Debenture that employs the cash method of accounting will be
required to include amounts in respect of interest accruing on such New
Debenture in taxable income each year, whether or not the current receipt of
cash from such New Debenture is sufficient to pay any resulting tax.
The daily portions of interest on a New Debenture are determined by
allocating to each day in any accrual period a ratable portion of the interest
allocable to that accrual period. The amount of interest on a New Debenture
allocable to each accrual period is determined by multiplying the "adjusted
issue price" (as defined below) of the New Debenture at the beginning of the
accrual period by the comparable yield of the New Debenture (appropriately
adjusted to reflect the length of the accrual period). The "adjusted issue
price" of a New Debenture at the beginning of any accrual period generally
will be the sum of its issue price (determined as discussed above at "--Issue
Prices") and the amount of interest allocable to all prior accrual periods,
less the amount of any stated interest payments made in all prior accrual
periods. Since the comparable yield of each New Debenture will exceed the
stated interest rate of such New Debenture, interest income with respect to
each New Debenture will exceed the amount of stated interest payable on such
New Debenture.
Projected Payment Schedules. The "projected payment schedule" for a series
of New Debentures is a schedule that will be created on the applicable
Acceptance Date and will include all stated payments of interest on a New
Debenture in such series and an amount for the value of the exchangeability
feature on the Maturity Date that produces a yield on such New Debenture equal
to the comparable yield of such New Debenture. If, on the Maturity Date, a New
Debenture is retired or is exchanged for Chevron Stock pursuant to the
exercise of the holder's option, any excess of the amount actually paid on the
Maturity Date over the amount listed on the projected payment schedule
applicable to such New Debenture for payment on the Maturity Date will be a
"positive adjustment" and any excess of the amount listed on such projected
payment schedule over the amount paid will be a "negative adjustment." See "--
Effect of Positive and Negative Adjustments."
Differences Between Basis and Adjusted Issue Price. A holder whose initial
basis in a New Debenture (determined as discussed above at "--Treatment of
Exchange Offers--Basis and Holding Period of New Debentures") is different
from the adjusted issue price of such New Debenture must make appropriate
"positive" and "negative" adjustments to its income and deductions with
respect to such New Debenture. At the time the holder acquires a New
Debenture, the holder must allocate any difference between its basis in the
New Debenture and the adjusted issue price of the New Debenture among either
the remaining payments due on the projected payment schedule applicable to
such New Debenture or the remaining accruals of interest at the comparable
yield of such New Debenture in a reasonable manner. It will be reasonable for
a holder to allocate any such difference pro rata to all remaining accruals of
interest on a New Debenture at the applicable comparable yield, provided that,
after taking into account this allocation, the yield on the New Debenture
would not be less than the applicable Federal rate applicable to the New
Debenture (determined as if it were a new debt instrument issued on the
purchase date and due on the Maturity Date). Adjustments allocated to either
an interest accrual or the projected payments are taken into account at the
time the corresponding interest is accrued or payment is made. If the holder's
basis is greater than the adjusted issue price of the New Debenture, the
excess is treated as a "negative adjustment", and if the holder's basis is
less than the adjusted issue price, the difference is treated as a "positive
adjustment". See "--Effect of Positive and Negative Adjustments."
50
Effect of Positive and Negative Adjustments. Positive and negative
adjustments with respect to a New Debenture for a taxable year are netted. A
net positive adjustment is treated as additional interest income to the
holder. A net negative adjustment first reduces the amount of interest accrued
by the holder on the New Debenture for the taxable year, as described above at
"--Accrual of Interest at Comparable Yield," then the remainder is ordinary
loss to the extent the holder's total interest inclusions with respect to the
New Debenture exceed the total amount of net negative adjustments treated as
ordinary losses for prior years. Any excess net negative adjustment is carried
forward as a negative adjustment to the following year, except that any excess
net negative adjustment on the Maturity Date or in the year in which the
holder disposes of the New Debenture reduces the holder's amount realized on
the redemption, sale or exchange. Any negative and positive adjustments of the
kind described above at "--Differences Between Basis and Adjusted Issue Price"
made by a holder of a New Debenture in respect of any difference between its
basis and the adjusted issue price of such New Debenture on the date of
acquisition decrease or increase, respectively, the holder's basis in such New
Debenture.
Sale, Exchange or Redemption of New Debentures. When a holder sells,
exchanges or otherwise disposes of a New Debenture, including the redemption
or retirement of the New Debenture by Pennzoil or the exercise by the holder
of its option to exchange the New Debenture for Chevron Stock (a
"disposition"), the holder's gain (or loss) on such disposition will equal the
difference between the amount realized by the holder for the New Debenture and
the holder's tax basis in the New Debenture. Upon an exercise by the holder
prior to the Maturity Date of its right to exchange the New Debenture for
Chevron Stock, the amount realized by the holder will be equal to the fair
market value of any Chevron Stock (or the amount of cash received in lieu of
Chevron Stock) received by such holder, plus any cash received in lieu of
fractional shares, adjusted for any "adjustments" required under the
principles described above at "--Effect of Positive and Negative Adjustments."
In the case of a retirement on the Maturity Date or an exercise by the holder
on the Maturity Date of its right to exchange the New Debenture for Chevron
Stock, the amount realized will be the amount listed in the applicable
projected payment schedule for payment on the Maturity Date, as discussed
about at "--Projected Payment Schedules," adjusted for any "adjustments"
required under the principles described above at "--Projected Payment
Schedules" and "--Effect of Positive and Negative Adjustments." A holder's tax
basis in a New Debenture will be its initial basis, determined as described
above at "--Treatment of Exchange Offers--Basis and Holding Period of New
Debentures," increased for interest accrued in prior accrual periods as
described above at "--Accrual of Interest at Comparable Yield," decreased by
the amount of the payments of stated interest made on the New Debenture in
prior accrual periods and further adjusted as described above at "--
Effect of Positive and Negative Adjustments." Any gain realized by a holder on
a disposition will be treated as ordinary interest income. Any loss realized
by a holder on a disposition will be treated as ordinary loss to the extent
the holder's interest inclusions with respect to the New Debenture up to the
date of disposition exceed the total net negative adjustments previously
treated by the holder as ordinary loss. Any loss recognized in excess of such
amount generally will be treated as a capital loss. If a holder receives
Chevron Stock in a disposition, such holder will have a basis in that stock
equal to the stock's fair market value on the date of the disposition.
Additionally, the holder's holding period in the Chevron Stock will begin the
day after the disposition.
Pennzoil's Determination Binding. Pennzoil's determination of the comparable
yields and projected payment schedules will be binding on holders. Information
regarding the comparable yields and the projected payment schedules can be
obtained from the Corporate Secretary of Pennzoil at the address or telephone
number set forth under "Incorporation of Certain Documents By Reference" any
time after the tenth business day after the respective Acceptance Dates.
The "comparable yields" and the "projected payment schedules" are used to
determine accruals of interest for tax purposes only and are not assurances by
Pennzoil with respect to the actual yields of, or payments to be made in
respect of, the New Debentures. The "comparable yields" and the "projected
payment schedules" do not necessarily represent Pennzoil's expectations
regarding such yields or the amounts of such payments.
TREATMENT OF EXERCISE OF EXISTING EXCHANGE RIGHTS
Pennzoil currently expects to call for redemption all Old Debentures that
remain outstanding after the completion of the Exchange Offers, although the
final determination of whether to make, and the timing of, such
51
redemption of the Old Debentures (or either series thereof) will be made by
Pennzoil's Board of Directors based upon market and other factors prevailing
at the time such determination is made. See "The Exchange Offers--Purpose and
Effect of the Exchange Offers." If Pennzoil calls the Old Debentures for
redemption, based upon the terms of the Old Debentures and prevailing market
prices for Chevron Stock, Pennzoil expects that substantially all holders of
Old Debentures will exercise their Existing Exchange Rights to obtain the
shares of Chevron Stock for which the Old Debentures are exchangeable
(although Pennzoil has the right to pay cash instead of delivering shares of
Chevron Stock). The following is a discussion of the federal income tax
consequences of the exercise of Existing Exchange Rights by a holder who did
not elect to exchange its Old Debentures for New Debentures pursuant to the
Exchange Offers.
Exchange of Old Debentures for Chevron Stock. If a holder exercises a Deemed
Option and exchanges an Old Debenture for Chevron Stock, such exchange
probably will be treated for federal income tax purposes as a taxable sale of
the Deemed Debt Instrument for its then fair market value and an exercise of
the Deemed Option at an exercise price equal to the then fair market value of
the Deemed Debt Instrument. Such a "sale" of a Deemed Debt Instrument will
generally result in recognized gain or loss to the holder equal to the
difference between the fair market value of the Deemed Debt Instrument and the
holder's tax basis in the Deemed Debt Instrument as of the time of the
exchange. However, the conclusions stated above are in some respects
uncertain, and it is possible that the exchange would instead be treated as an
exchange of the Deemed Debt Instrument for the Chevron Stock, upon which the
holder would recognize gain or loss equal to the difference between the fair
market value of the Chevron Stock and the holder's tax basis in the Old
Debenture as of the time of the exchange. Any gain or loss on the exchange
generally will be capital gain or loss. However, any gain will be ordinary
income to the extent of the sum of any accrued market discount on the Deemed
Debt Instrument that has not previously been included in the holder's income
and, if there is an Intention to Call, the excess of the original issue
discount on the Deemed Debt Instrument that has not previously been included
in the income of the holder (together with all prior holders) over any
acquisition premium of the holder with respect to the Deemed Debt Instrument.
The holder's tax basis in the Chevron Stock received in the exchange
(including any fractional share for which it receives cash) probably will
equal the sum of the tax basis in the Deemed Option and the fair market value
of the surrendered Deemed Debt Instrument. However, if the holder's gain or
loss on the exchange is measured by reference to the fair market value of the
Chevron Stock, the holder's basis in the Chevron Stock will be equal to such
fair market value. The receipt of cash in lieu of a fractional share of
Chevron Stock will be treated as a taxable sale of such fractional share of
Chevron Stock, resulting generally in gain or loss equal to the difference
between the cash received and the holder's allocable basis in such fractional
share of Chevron Stock. A holder's holding period for Chevron Stock received
upon an exercise of a Deemed Option will commence the day after the Deemed
Option is exercised.
Exchange of Old Debentures for Cash. If a holder exercises a Deemed Option
and Pennzoil elects to pay the holder cash in lieu of Chevron Stock, the
holder will be required to calculate its gain or loss separately for the
Deemed Debt Instrument and the Deemed Option. In making such calculation, the
cash received must be allocated between such Deemed Debt Instrument and such
Deemed Option in proportion to their relative fair market values as of the
time of the exchange. Gain or loss with respect to each Deemed Debt Instrument
or Deemed Option will equal the difference between the amount of cash that is
allocated to such Deemed Debt Instrument or Deemed Option and the holder's tax
basis in such Deemed Debt Instrument or Deemed Option. Any gain or loss on the
exchange generally will be capital gain or loss. However, any gain will be
ordinary income to the extent of the sum of any accrued market discount on the
Deemed Debt Instrument that has not previously been included in the holder's
income and, if there is an Intention to Call, the excess of the original issue
discount on the Deemed Debt Instrument that has not previously been included
in the income of the holder (together with all prior holders) over any
acquisition premium of the holder with respect to the Deemed Debt Instrument.
TREATMENT OF CHEVRON STOCK
Distributions on Chevron Stock. The gross amount of any distribution made by
Chevron to a holder with respect to the Chevron Stock generally will be
includible in the income of a holder as a dividend taxable as
52
ordinary income to the extent that such distribution is paid out of Chevron's
current or accumulated earnings and profits as determined under federal income
tax principles. Subject to certain limitations, corporations holding Chevron
Stock that receive dividends thereon generally will be eligible for a
dividends-received deduction equal to 70% of the dividends received. If the
amount of any distribution exceeds Chevron's current and accumulated earnings
and profits as so computed, such excess first will be treated as a tax-free
return of capital to the extent of the holder's tax basis in its Chevron
Stock, and thereafter as gain from the sale or exchange of property.
Dispositions of Chevron Stock. A holder generally will recognize capital
gain or loss for federal income tax purposes on the sale or disposition of
Chevron Stock in an amount equal to the difference between the amount realized
on the sale or other disposition and the holder's tax basis in the Chevron
Stock. Any such gain or loss will be capital gain or loss.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder may be subject to information reporting and to backup withholding
at a rate of 31 percent with respect to payments made on an Old Debenture, a
New Debenture or Chevron Stock, or the cash proceeds of the sale, exchange,
redemption or other disposition of an Old Debenture, a New Debenture or
Chevron Stock, unless such holder provides proof of an applicable exemption or
a correct taxpayer identification number, and otherwise complies with
applicable requirements of the information reporting and backup withholding
rules.
Certain holders may receive Forms 1099-OID reporting interest accruals on a
New Debenture. Those forms may not, however, reflect the effects of any
positive or negative adjustments resulting from differences between the
holder's basis in a New Debenture and the adjusted issue price of the New
Debenture. Holders are urged to consult their tax advisors as to whether, and
how, such adjustments should be made to the amounts reported on any Form 1099-
OID.
DEALER MANAGER
PaineWebber Incorporated, as Dealer Manager, has agreed to solicit exchanges
of Old Debentures. The Company will pay the Dealer Manager a fee of $500,000
($250,000 of which has already been paid and $250,000 of which will be payable
as of the commencement of the Exchange Offers), plus $0.39 per share of
Chevron Stock into which exchanged Old Debentures were exchangeable as of the
respective Acceptance Dates under Existing Exchange Rights. Additional
solicitation may be made by telecopier, by telephone, or in person by officers
and regular employees of the Company and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders.
Pennzoil has agreed to indemnify the Dealer Manager against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act, and contribute to
payment that the Dealer Manager may be required to make in respect thereof.
The Dealer Manager engages in transactions with, and from time to time has
performed services for, the Company.
LEGAL MATTERS
Certain legal matters in connection with the New Debentures offered hereby
will be passed upon for Pennzoil by Baker & Botts, L.L.P., Houston, Texas.
53
EXPERTS
The consolidated financial statements of Pennzoil and its subsidiaries
incorporated by reference in this Registration Statement to the extent and for
the periods indicated in their report have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
The summary report of Ryder Scott Company Petroleum Engineers included as
Exhibit 99(a) to Pennzoil's Annual Report on Form 10-K for the year ended
December 31, 1997 and the estimates from the reports of that firm appearing
under the caption "Oil and Gas--Oil and Gas Reserves" in Item 1 of such Annual
Report and under "Oil and Gas Information" included in the Supplemental
Financial and Statistical Information contained in such Annual Report are
incorporated by reference herein on the authority of said firm as experts in
giving such reports.
AVAILABLE INFORMATION
Pennzoil is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission, which can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549; and at regional
offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at Suite 1300, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov.) that contains reports, proxy and
information statements and other information filed electronically by Pennzoil
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval (EDGAR) System. In addition, Pennzoil's common stock and the Old
Debentures are listed on the NYSE, and application will be made to list the
New Debentures for trading on the NYSE. Material filed by Pennzoil can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005 and the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104.
Pennzoil has filed with the Commission a Registration Statement under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to
Pennzoil and such securities, reference is made to such Registration Statement
and to the exhibits thereto.
54
APPENDIX A
SELECTED INFORMATION CONCERNING CHEVRON
Appendix A contains selected information concerning Chevron Corporation
("Chevron") taken from Chevron's Annual Report on Form 10-K for the year ended
December 31, 1997 and from Chevron's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, together with Chevron's "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for the quarter
ended March 31, 1998.
Chevron is subject to the information requirements in the Exchange Act, and
in accordance therewith files reports, proxy statements and other information
with the Commission, to which reference is made for detailed financial and
other information regarding Chevron. Such reports, proxy statements and other
information can be inspected and copied at the Commission's offices referred
to on page 54 of the Prospectus or can be inspected and copied at the NYSE, 20
Broad Street, New York, New York 10005, on which Chevron Stock is listed. A
holder can also find information regarding Chevron at the Commission's offices
and on the Commission's website at (http: //www.sec.gov). The Commission does
not approve or disapprove or pass upon the accuracy or the adequacy of
reports, proxy statements or other information filed with it. Although
Pennzoil has no reason to believe the information concerning Chevron included
therein is not reliable, Pennzoil has not verified either its accuracy or its
completeness. Neither Pennzoil nor the Dealer Manager warrants that there have
not occurred events not yet publicly disclosed by Chevron which would affect
either the accuracy or the completeness of the information concerning Chevron
included therein. Pennzoil has no affiliation with Chevron other than its
stock ownership and contractual arrangements in the ordinary course of
business and therefore has no greater access to information relating to
Chevron than any other Chevron stockholder. Pennzoil does not intend to
furnish to holders of New Debentures subsequent information with respect to
Chevron.
A-1
- --------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997 AND QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1998.
SELECTED FINANCIAL DATA
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------- ------- ------- ------- ------- -------
(EXPRESSED IN MILLIONS EXCEPT PER SHARE AMOUNT)
Sales and other
operating revenues..... $7,464 $10,794 $40,583 $42,782 $36,310 $35,130 $36,191
Equity in net income of
affiliated companies... 151 178 688 767 553 440 440
Other income............ 38 121 679 344 219 284 451
------ ------- ------- ------- ------- ------- -------
Total Revenues.......... 7,653 11,093 41,950 43,893 37,082 35,854 37,082
Costs, Other Deductions
and Income Taxes....... 7,153 10,262 38,594 41,286 36,152 34,161 35,817
------ ------- ------- ------- ------- ------- -------
Net Income (Loss)....... $ 500 $ 831 $ 3,256 $ 2,607 $ 930 $ 1,693 $ 1,265
====== ======= ======= ======= ======= ======= =======
Net Income (Loss) Per
Share of Common Stock.. $ .77 $ 1.27 $ 4.97 $ 3.99 $ 1.43 $ 2.60 $ 1.94
====== ======= ======= ======= ======= ======= =======
Cash Dividends Per Share
of Common Stock........ $ .61 $ .54 $ 2.28 $ 2.08 $ 1.93 $ 1.85 $ 1.75
A-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Overview and Outlook
Net income for the 1998 first quarter was $500 million ($.76 per share--
diluted, $.77 per share--basic), a decrease of 40 percent from $831 million
($1.27 per share--diluted and basic) earned in the first quarter of 1997.
Special items benefited 1998 first quarter earnings $64 million compared with
benefits of $27 million in last year's first quarter.
This year's earnings were adversely affected by several major factors:
significantly lower crude oil prices, lower natural gas prices, foreign
currency losses and major scheduled maintenance at two of the company's
largest U.S. refineries. In addition, despite lower feedstock costs, sales
margins were squeezed by lower U.S. refined product prices resulting from an
abundance of supply. However, international downstream earnings increased
compared with the first quarter 1997, primarily in the company's Caltex and
international shipping operations.
Chevron's worldwide exploration and production (upstream) earnings suffered
appreciably from the decline in crude oil and natural gas prices since last
year's first quarter. These lower prices were the primary drivers for the
decline in earnings. The company's average U.S. crude oil realization per
barrel in the first quarter 1998 fell 37 percent compared with the 1997 first
quarter, while average U. S. natural gas realization declined 25 percent.
However, on the positive side, international liquids production continues to
grow. During the first quarter of 1998, net international liquids production
was up 2 percent from the first quarter of last year, including a record level
of liquids production from the five-year-old Tengizchevroil (TCO) joint
venture in Kazakhstan.
The interplay of rising supply and the declining rate of demand growth has
driven the crude price steadily downward. On the demand side, Asia's currency
crisis has slowed oil demand growth in that region and a globally mild winter
caused consumers in the northern hemisphere to require less oil and gas to
heat homes, offices and other buildings. Meanwhile, as the pace of demand
growth has dropped, worldwide oil supply has been increasing. New and improved
technologies have made oil and gas easier to find and produce.
Crude oil prices have remained "soft" into the 1998 second quarter, despite
the agreement by oil producing countries to cut production. During the first
four months of 1998, the spot price for West Texas Intermediate (WTI), an
industry benchmark light crude, averaged $15.78 per barrel representing a 28
percent decline from the corresponding 1997 period.
Chevron is aware that some countries in which it produces may be considering
crude oil production cuts, but the company believes the net effect of any host
country directed changes will be insignificant to its overall production
levels. However, any host country directed reductions or limits may have an
adverse effect on the level of new production from current and future
development projects.
The company continues to monitor the crude oil market closely, but has not
made any substantive changes to its operations or capital spending plans and
expects to move forward with attractive investment opportunities.
Chevron and its affiliates continue to review and analyze their operations
and may close, sell, exchange, acquire or restructure assets to achieve
operational or strategic benefits to improve competitiveness and
profitability. In addition, Chevron receives claims from, and submits claims
to, customers, trading partners, contractors and suppliers. The amounts of
these claims, individually and in the aggregate, may be significant and
require lengthy periods to resolve. These activities may result in significant
losses or gains to income in future periods.
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-3
Current Developments
In spite of the low crude prices in the first quarter 1998, the company has
been active in all areas of its business. Some of the operational highlights
since the beginning of 1998 were:
The company announced the discovery of the Viosca Knoll Carbonate Trend in
the Gulf of Mexico offshore Mississippi. This is the first offshore U. S. Gulf
natural gas reserves to originate from Lower Cretaceous pay sands. This
carbonate trend is contiguous to and lies south of the giant Chevron-operated
Norphlet natural gas trend and other offshore production, possibly permitting
the tie-in of production from the new trend into existing infrastructure. The
company has made five new field discoveries in this trend since 1994, four
within the last 18 months. Chevron is the operator and holds the dominant
interest in 71 leases in this trend. The Viosca Knoll Block 68 discovery well,
drilled in June 1997, began production in April 1998 and is the first of the
five discovery wells in the trend that will begin production.
In the first quarter of 1998, Chevron signed two new exploration and
production-sharing agreements in Qatar and Bahrain. The onshore concession in
Qatar covers 10,900 square-kilometers and lies to the east of the Dukhan oil
field and south of the North Dome gas field. For Bahrain, the offshore
concession of three blocks covers approximately 5,900 square kilometers.
The company announced two crude oil discoveries in the Haute Mer deepwater
permit area offshore Congo, suspected to be on-trend with Chevron's two 1997
giant discoveries in Block 14 offshore Angola in the Cabinda Concession.
Chevron holds a 30 percent interest in each of these two discoveries.
Initial liquids production began from two new fields in Nigeria this year.
Production began at the offshore Opolo Field in the Niger delta in February.
The field is currently producing at an average of 24,000 barrels of crude oil
per day and is expected to remain at about that level for the remainder of
1998. In April, Chevron announced that production had begun at the onshore
Gbokoda Field, its first "zero-flare" oil field project in Nigeria. Gbokoda
gas, produced in association with the crude oil, will be processed for
commercial use at the Escravos Gas Project. Crude oil production from the
Gbokoda Field is expected to increase to over 40,000 barrels per day by the
end of 1998. Gbokoda and Opolo are the first two of four Chevron-operated
fields in Nigeria scheduled to begin production in 1998.
Chevron and Sasol, a South African fuels and petrochemicals company, plan to
pool resources to begin the design and engineering of a 20,000 barrel per day
gas-to-liquids plant adjacent to Chevron's Escravos Gas Project facilities in
Nigeria. Processed gas from the Escravos Gas Project will feed the proposed
gas-to-liquids plant for the conversion of natural gas to synthetic crude oil,
which will be processed further into high-quality diesel and naphtha products.
In Papua New Guinea, production began at the Moran Field in February and the
Gobe Field in March of this year. Production from the Gobe development is
expected to surpass 50,000 barrels per day by mid-1998. The extended well test
at the Moran Field will produce oil at a rate of 10,000 barrels per day.
The company plans to reconstruct an existing section of pipeline across the
Republic of Georgia to provide a pipeline transportation outlet to the
Georgian Black Sea port of Batumi for crude oil from the Tengiz Field in
Kazakhstan. The company is also evaluating the feasibility of building a new
pipeline to connect existing pipelines in the Azerbaijan-Georgia corridor.
Currently, pipeline exports of Tengiz crude are limited by quota restrictions
for access to Russian pipeline capacity. Alternative modes of transportation,
such as rail and barges, are used to maximize crude oil production.
Chevron and Texaco plan to establish a joint venture of their global marine
and industrial fuels and marine lubricant businesses, which will operate in
over 100 countries worldwide. The new company will be owned 69% by Texaco and
31% by Chevron and will market fuel oil to marine and industrial users and
marine lubes and greases in approximately 450 ports.
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-4
Chevron has significant production and development projects under way in
West Africa. Its share of combined production from Nigeria, Angola, Republic
of Congo and Democratic Republic of Congo is currently more than 310,000
barrels per day. While the company's producing operations in Nigeria and other
African countries have been generally unaffected by the civil unrest,
political uncertainty and economic conditions in this area, the company
continues to closely monitor developments.
Chevron's partner in Nigeria, the government-owned Nigerian National
Petroleum Corporation (NNPC) is currently reviewing funding levels for joint
ventures for 1998 and is currently making payments at 1997's rate.
Insufficient funding from NNPC could delay some of the company's development
projects in Nigeria.
Year 2000 compliance assessments of the company's information systems,
software and embedded technology continue. The company is also investigating
the compliance efforts of suppliers, contractors, and trading partners with
whom Chevron does business. The total amount of costs to be incurred to
address the Year 2000 issue cannot be reliably estimated at this time.
Review of Operations
Excluding special items, first quarter 1998 operating earnings were $436
million compared with 1997 first quarter operating earnings of $804 million in
the 1997 quarter. In the 1998 first quarter, favorable prior-year tax
adjustments of $125 million were partially offset by deferred tax effects of
$56 million from an exchange of international exploration and production
properties and net environmental remediation provisions of $5 million in the
company's U.S. refining, marketing and transportation (downstream) operations.
The net benefit from special items in the 1997 period included gains of $49
million from the sale of certain U.S. producing properties, which were
partially offset by environmental remediation and other provisions of $22
million.
Total revenues for the first quarter of 1998 were $7.7 billion, down 31
percent from $11.1 billion in last year's first quarter, primarily due to
lower prices for crude oil, natural gas and refined products. However,
approximately 25 percent of the decrease was attributable to the company's
fourth quarter 1997 exit from the U.K. refining and marketing business and the
sale of its interest in a U.K. chemicals affiliate.
The company continues to focus on costs during this period of low crude oil
prices. Ongoing operating expenses declined to $5.52 per barrel, down 41 cents
from the year-ago quarter and about 3 percent from the full year 1997, helping
to mitigate the effect of declining prices on operating results.
Return on capital employed, excluding special items, declined to 12.7
percent for the 12 months ended March 31, 1998, from 13.5 percent in the
similar period last year.
Due primarily to lower earnings, taxes on income for the first quarter of
1998 were $299 million compared with $628 million in last year's first
quarter. The effective tax rate decreased to 37.4 percent from 43.1 percent in
the 1997 first quarter. The primary reasons for the decrease were favorable
prior-period tax adjustments partially offset by the tax effects of an
exchange of international upstream properties and higher international taxes
caused by a shift in the earnings mix from lower effective tax-rate countries
to higher effective tax-rate countries.
Foreign currency effects reduced net income in the first quarter of both
years: $46 million in 1998 and $18 million in 1997. The increase in losses
between years reflect higher foreign currency losses from the company's and
Caltex's operations in Australia, Thailand and the Philippines. Earnings for
both years include significant foreign currency losses from Caltex's Korean
operations.
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-5
The following tables detail Chevron's after-tax earnings by major operating
area and selected operating data.
EARNINGS BY MAJOR OPERATING AREA
THREE
MONTHS
ENDED
MARCH 31,
---------
1998 1997
---- ----
MILLIONS
OF
DOLLARS
Exploration and Production
United States...................................................... $106 $361
International...................................................... 99 347
---- ----
Total Exploration and Production................................. 205 708
---- ----
Refining, Marketing and Transportation
United States...................................................... 45 70
International...................................................... 101 56
---- ----
Total Refining, Marketing and Transportation..................... 146 126
---- ----
Total Petroleum Operations....................................... 351 834
Chemicals............................................................ 63 63
Coal and Other Minerals.............................................. 11 15
Corporate and Other.................................................. 75 (81)
---- ----
Net Income........................................................... $500 $831
==== ====
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-6
SELECTED OPERATING DATA (1) (2)
THREE MONTHS
ENDED
MARCH 31,
-------------
1998 1997
------ ------
U.S. Exploration and Production
Net Crude Oil and Natural Gas Liquids Production (MBPD)........ 336 347
Net Natural Gas Production (MMCFPD)............................ 1,808 1,927
Sales of Natural Gas (MMCFPD).................................. 3,497 3,767
Sales of Natural Gas Liquids (MBPD) (3)........................ 141 143
Revenue from Net Production
Crude Oil ($/Bbl.)........................................... $12.49 $19.86
Natural Gas ($/MCF).......................................... $ 2.09 $ 2.77
International Exploration and Production
Net Crude Oil and Natural Gas Liquids Production (MBPD)........ 746 729
Net Natural Gas Production (MMCFPD)............................ 644 617
Sales of Natural Gas (MMCFPD).................................. 1,329 786
Sales of Natural Gas Liquids (MBPD)............................ 56 53
Revenue from Liftings
Liquids ($/Bbl.)............................................. $12.99 $20.02
Natural Gas ($/MCF).......................................... $ 1.96 $ 2.28
Other Produced Volumes (MBPD) (4).............................. 90 80
U.S. Refining, Marketing and Transportation
Sales of Gasoline (MBPD)....................................... 599 585
Sales of Other Refined Products (MBPD)......................... 534 585
Refinery Input (MBPD).......................................... 757 846
Average Refined Product Sales Price ($/Bbl.)................... $23.68 $30.40
International Refining, Marketing and Transportation
Sales of Refined Products (MBPD)............................... 809 912
Refinery Input (MBPD).......................................... 491 573
Chemical Sales and Other Operating Revenues (5)
United States.................................................. $ 681 $ 752
International.................................................. 145 134
Worldwide.................................................... $ 826 $ 886
- --------
(1) Includes equity in affiliates.
(2) MBPD=thousand barrels per day; MMCFPD=million cubic feet per day;
Bbl.=barrel; MCF=thousand cubic feet.
(3) 1997 restated to conform to 1998 presentation.
(4) Total field production under the Boscan operating service agreement in
Venezuela.
(5) Millions of dollars. Includes sales to other Chevron companies.
Worldwide exploration and production net earnings were $205 million in the
first quarter of 1998, down significantly from $708 million in the 1997 first
quarter when crude oil and natural gas prices were substantially higher. U.S.
exploration and production net earnings were $106 million, down from $361
million in the 1997 first quarter. There were no special items in the first
quarter 1998; however, 1997 results included special gains of $49 million from
the sales of two producing properties and charges of $6 million for
environmental
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-7
remediation provisions. Excluding the 1997 special items, current quarter
earnings were about one-third of the $318 million earned in last year's first
quarter. Significantly lower crude oil and natural gas prices and lower
production volumes accounted for the decline in 1998 operating earnings.
The company's average 1998 U. S. crude oil and natural gas realizations
declined by 37 percent and 25 percent, respectively, compared with the first
quarter 1997. Average U. S. crude oil realizations of $12.49 per barrel were
down $7.37 from the 1997 first quarter. Average U. S. natural gas realizations
of $2.09 per thousand cubic feet were 68 cents lower than in the first quarter
of last year.
Net U. S. liquids production decreased to 336,000 barrels per day from
347,000 barrels per day in the prior-year first quarter. Net U. S. natural gas
production of 1.8 billion cubic feet per day declined from 1.9 billion cubic
feet per day compared with the 1997 first quarter. The declines in the
production of liquids and natural gas were primarily attributable to property
sales, 1998 weather-related shut-ins of liquids production in California and
normal field declines.
International exploration and production net earnings were $99 million, down
from $347 million in the 1997 first quarter. Net earnings for the 1998 quarter
included a loss of $56 million from deferred tax effects of an exchange of
certain U. K. North Sea producing properties for properties in the Norwegian
North Sea. Excluding the effect of this special item, 1998 operating earnings
of $155 million decreased by $192 million compared with last year's quarter.
The decline in operating earnings reflected lower crude oil prices, partially
offset by higher liftings when compared with the year-ago quarter.
Net international liquids production increased 17,000 barrels per day to
746,000 barrels per day, mostly due to increased production in Canada,
Indonesia, Australia and West Africa. These increases were partially offset by
declines in Europe and Papua New Guinea. Natural gas production increased 4
percent to 644 million cubic feet per day, reflecting higher production in
Indonesia and Nigeria that was partially offset by lower volumes in Canada and
Kazakhstan.
Foreign currency losses in the first quarter 1998 were $15 million compared
with gains of $5 million in the 1997 quarter. The changes were primarily in
the company's Australian and U.K. operations.
Worldwide refining and marketing and transportation had net earnings of $146
million in the first quarter of 1998, up 16 percent from $126 million in last
year's first quarter. U.S. refining, marketing and transportation net earnings
in 1998 were $45 million compared with $70 million in the first quarter 1997.
After excluding net special charges of $5 million for environmental
remediation and $8 million for litigation matters from the 1998 and 1997
results, respectively, operating earnings were $50 million, a decline of 36
percent from the $78 million reported in last year's first quarter.
U.S. refined product sales margins decreased in the 1998 first quarter, as
the deterioration in sales realizations outpaced the decline in feedstock
costs. While significant, the unfavorable effects of refinery downtime for
scheduled maintenance were comparable in the 1998 and 1997 periods. The
average refined product sales price in the 1998 quarter was $23.68 per barrel,
down 22 percent from $30.40 per barrel in last year's first quarter.
Total refined product sales volumes were 1.13 million barrels per day, down
3 percent from the comparable quarter last year. Most refined products sales
volumes decreased except for gasoline sales, which increased 2 percent to
599,000 barrels per day, and jet fuel sales, which increased by about 3
percent.
International refining, marketing and transportation net earnings were $101
million, up from $56 million reported for the first quarter of 1997. In the
Caltex areas of operations, earnings increased significantly, especially in
Korea and Japan, as the fall in crude oil prices resulted in improved refined
product sales margins. The company's international shipping results improved
as freight rates rose.
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-8
Sales volumes declined by 11 percent in the first quarter of 1998, due
primarily to the effect of the company's exit from the U.K. refining and
marketing business in the fourth quarter of 1997. For the remaining
operations, a 2 percent increase in Caltex's sales volumes more than offset
sales volume declines by the company's other international downstream
businesses.
Foreign currency losses in the 1998 first quarter were $31 million compared
with losses of $29 million in 1997. In 1998, increased foreign currency losses
in Caltex's Thailand, Philippine and Australian operations were nearly offset
by the absence of U.K. currency losses following the company's exit from the
U.K. downstream business in late 1997.
Chemicals net earnings were $63 million in the 1998 quarter, the same as
earned in last year's first quarter. Higher sales volumes and improved sales
margins for additives were offset primarily by lower earnings from equity
affiliates. The latter was a result of the sale of the company's interest in a
U.K. chemicals affiliate in the fourth quarter of 1997.
Coal and other minerals net earnings declined by $4 million in the first
quarter 1998 to $11 million. Higher operating expenses at one of the company's
mines offset higher overall sales of coal and additional earnings from equity
affiliates.
Corporate and other includes interest expense, interest income on cash and
marketable securities, corporate cost centers and real estate and insurance
operations. These activities provided net earnings of $75 million in the first
quarter 1998, compared with net charges of $81 million in the comparable
prior-year quarter. After excluding a favorable prior-year tax adjustment of
$125 million in 1998 and a special charge of $8 million for environmental
remediation in 1997, net charges declined to $50 million in 1998 from $73
million in 1997. The decline in net charges was due primarily to recoveries of
certain prior-year claims and lower costs of variable components of employee
compensation plans.
Liquidity and Capital Resources
Cash and cash equivalents totaled $1.265 billion at March 31, 1998, up $250
million from year-end 1997. In addition to cash from operations, an increase
in short-term debt, primarily commercial paper, was required to fund the
company's capital expenditures and dividend payments to stockholders.
Total debt and capital lease obligations were $7.069 billion at March 31,
1998, up about $1 billion from $6.068 billion at year-end 1997. The increase
was primarily from a net increase in short-term commercial paper outstanding,
partially offset by the scheduled non-cash retirement in January of $60
million in 8.11 percent ESOP debt.
Although the company benefits from lower interest rates available on short-
term debt, the large amount of short-term debt has kept Chevron's ratio of
current assets to current liabilities at relatively low levels. The current
ratio was .98 at March 31, 1998, compared with 1.01 at year-end 1997. The
company's short-term debt, consisting primarily of commercial paper and the
current portion of long-term debt, totaled $5.432 billion at March 31, 1998.
This amount excludes $2.725 billion that was reclassified as long-term since
the company has both the intent and ability, as evidenced by revolving credit
agreements, to refinance it on a long-term basis. In the third quarter of
1997, the company decreased the amount of committed credit facilities from
$4.425 billion to $4.05 billion, but increased the portion with termination
dates beyond one year from $1.8 billion to $2.725 billion. The company's
practice has been to refinance its commercial paper continually, maintaining
levels it believes to be appropriate to provide adequate funding for ongoing
operations and capital spending.
The company's debt ratio (total debt to total debt plus equity) was 28.8
percent at March 31, 1998, up from 25.8 percent at year-end 1997, as a result
of the increase in the issuance of commercial paper. The company continually
monitors its spending levels, market conditions and related interest rates to
maintain what it perceives to be reasonable debt levels.
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-9
In December 1997, Chevron's Board of Directors approved the repurchase of up
to $2 billion of its outstanding common stock, providing shares for use in its
employee stock option programs. In the first quarter of 1998 the company
purchased an additional 2.8 million shares at a cost of about $200 million. To
date, the company has purchased 4 million shares at a cost of about $300
million under the repurchase program.
Worldwide capital and exploratory expenditures for the first quarter of
1998, including the company's share of affiliates' expenditures, totaled $972
million, 3 percent more than the $941 million spent in the 1997 first quarter.
Expenditures for exploration and production activities represented 72 percent
of total spending in the 1998 first quarter, up 4 percent from the comparable
1997 period. Expenditures for international exploration and production
projects were $422 million, or 43 percent of total expenditures, reflecting
the company's continued emphasis on increasing international oil and gas
production. Total capital and exploratory spending for the year 1998 is
forecast to be a record $6.3 billion, a 14 percent increase from record 1997
spending levels.
The company continues to evaluate its capital spending plans. Should the low
crude oil and natural gas price environment become more severe and prolonged,
the company has the ability to modify its planned expenditures accordingly. In
many of the countries where the company has upstream operations, host
countries are partners in the ventures and provide a share of the funds for
exploration and production projects. The ability of these host countries and
other joint venture partners to fund their share of expenditures may affect
the level of 1998 spending and the new projects the company seeks to initiate.
- -------------------------------------------------------------------------------
REPRODUCED FROM CHEVRON CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998.
A-10
APPENDIX B
DESCRIPTION OF OLD 6 1/2% DEBENTURES
Capitalized terms defined in this Appendix B are used as defined only in this
Appendix B.
GENERAL
The 6 1/2% exchangeable senior debentures due 2003 (the "6 1/2% Debentures")
are an issue of Pennzoil's Debt Securities (the "Securities") issued under the
Indenture dated as of December 15, 1992 (the "Indenture") between Pennzoil
Company (the "Company" or "Pennzoil") and Chase Bank of Texas, National
Association (formerly known as Texas Commerce Bank National Association), as
trustee (the "Trustee"). The italicized references below refer to the section
numbers of the First Supplemental Indenture dated as of January 13, 1993 to
the Indenture ("First Supplemental Indenture") between Pennzoil and Chase Bank
of Texas, National Association, as trustee.
The 6 1/2% Debentures will mature on January 15, 2003 and will each bear
interest from January 13, 1993 at 6 1/2% per annum, payable semiannually on
each January 15 and July 15, commencing July 15, 1993 (i) to the holders of
the Registered 6 1/2% Debentures at the close of business on the December 31
next preceding such January 15 or the June 30 next preceding such July 15, as
the case may be, and (ii) to the holders of the Bearer 6 1/2% Debentures upon
presentation of the appropriate coupon appertaining thereto on each January 15
and July 15, commencing July 15, 1993. The aggregate principal amount of the 6
1/2% Debentures outstanding is $397.1 million.
The 6 1/2% Debentures constitute unsecured senior debt obligations of
Pennzoil ranking pari passu with all other present and future unsecured
general obligations of Pennzoil that are not expressly subordinated to senior
indebtedness.
FORM OF 6 1/2% DEBENTURES
The 6 1/2% Debentures are issued as both Registered 6 1/2% Debentures and
Bearer 6 1/2% Debentures. The Registered 6 1/2% Debentures are in definitive
form without coupons. The Bearer 6 1/2% Debentures are in denominations of
$5,000, with coupons attached.
The Paying Agent for the Bearer 6 1/2% Debentures is Chemical Bank London.
EXCHANGE RIGHTS
The 6 1/2% Debentures (or portions thereof in integral multiples of $1,000)
are exchangeable for shares of common stock ("Chevron Stock") of Chevron
Corporation ("Chevron") Chevron Stock at any time and from time to time prior
to maturity at an exchange rate of $42 1/16 share (equivalent to an exchange
rate of 23.7741 shares of Chevron Stock per $1,000 principal amount of 6 1/2%
Debentures), subject to adjustment under the circumstances described below. In
the event the 6 1/2% Debentures are called for redemption, the exchange rights
will terminate at the close of business on the date immediately prior to the
date of redemption. (Section 201)
Pennzoil has deposited the number of shares of Chevron Stock deliverable in
exchange for (i) the Registered 6 1/2% Debentures with Chase Bank of Texas,
National Association (formerly known as Texas Commerce Bank National
Association), who is the exchange agent for holders of Registered 6 1/2%
Debentures (the "Domestic Exchange Agent") on behalf of Pennzoil and (ii) the
Bearer 6 1/2% Debentures with Chemical Bank London, who is the exchange agent
for holders of Bearer 6 1/2% Debentures (the "Foreign Exchange Agent") on
behalf of Pennzoil. Each of the Domestic Exchange Agent and the Foreign
Exchange Agent are referred to individually herein as an "Exchange Agent" and
collectively as the "Exchange Agents." Pennzoil will deposit with the Domestic
Exchange Agent and the Foreign Exchange Agent any cash and other property
deliverable in exchange for the Registered 6 1/2% Debentures and the Bearer 6
1/2% Debentures, respectively. Pennzoil will not be
B-1
permitted to pledge, mortgage, hypothecate or grant a security interest in, or
permit any mortgage, pledge, security interest or other lien upon, the Chevron
Stock, cash and other property deliverable in exchange for the 6 1/2%
Debentures (collectively, "Exchange Property"). The deposit arrangements with
each Exchange Agent will terminate at such time as the right to exchange 6
1/2% Debentures with such Exchange Agent shall have expired pursuant to the
First Supplemental Indenture.
In order to exercise the right of exchange, the holder of any Registered 6
1/2% Debenture must surrender such 6 1/2% Debenture to the Domestic Exchange
Agent at its office maintained for such purpose in Houston, Texas and the
holder of a Bearer 6 1/2% Debenture must surrender such 6 1/2% Debenture to
the Foreign Exchange Agent at its office maintained for such purpose in
London, England. Each 6 1/2% Debenture to be surrendered must be accompanied
by written notice to Pennzoil and the applicable Exchange Agent that the
holder elects to exchange such Debenture. Delivery of the certificates for
Chevron Stock or any other Exchange Property may be delayed at the request of
Pennzoil in order to effectuate the calculation of the adjustments of the
Chevron Stock or other Exchange Property to obtain any certificate
representing securities to be delivered, to complete any reapportionment of
the Chevron Stock or other Exchange Property which is required by the
Indenture or to comply with any applicable law. (Section 202). No fractional
shares will be delivered on any exchange of 6 1/2% Debentures and in lieu
thereof a cash adjustment based on the market price of the Chevron Stock or
other Exchange Property will be paid. (Section 203)
In lieu of delivering certificates representing Chevron Stock in exchange
for any 6 1/2% Debentures, Pennzoil may pay to the holder surrendering such 6
1/2% Debentures an amount in cash equal to the market price of the Chevron
Stock or other Exchange Property for which such 6 1/2% Debentures are
exchangeable, determined as of the date of receipt by Pennzoil of the notice
of exchange relating to such 6 1/2% Debentures (or, if such date is not a
business day, on the business day next preceding such date). Prior to so
directing an Exchange Agent to make any such cash payment, Pennzoil shall
deposit with such Exchange Agent the cash so payable. (Section 216)
Upon an exchange of Exchange Property (or cash in lieu thereof) for a
Debenture, a holder will not receive any cash payment representing accrued
original issue discount for United States federal income tax purposes ("Tax
OID"). The delivery of the Exchange Property (or cash in lieu thereof) to a
holder in exchange for a holder's 6 1/2% Debenture will be deemed to satisfy
Pennzoil's obligation to pay the principal amount of the 6 1/2% Debenture
including the Tax OID attributable to the period from the date of issue to the
date of such exchange with respect to such Debenture. Thus, the accrued Tax
OID is deemed to be paid rather than canceled, extinguished or forfeited. As a
result, the exchange rate is not adjusted for accrued Tax OID. (Section 202)
Pennzoil is entitled to all cash dividends with respect to the Chevron Stock
or other Exchange Property, other than dividends paid pursuant to a plan of
liquidation or partial liquidation of Chevron, recapitalization or
restructuring of Chevron or other extraordinary cash dividends. Pennzoil will
also be entitled to all interest payments on any debt securities held for
exchange by Pennzoil which are issued in exchange for Chevron Stock or other
Exchange Property pursuant to any merger or consolidation of Chevron or in
connection with any sale of all or substantially all the assets of Chevron.
(Section 205)
If Chevron should issue any Chevron Stock in subdivision or by way of stock
dividend, the exchange rate will be proportionately increased, and if Chevron
shall effect a combination of Chevron Stock, the exchange rate will be
proportionately reduced, subject in each case to adjustments for tax
consequences, if any. (Section 204)
If Chevron should make any distribution of cash, securities or other
property with respect to the Chevron Stock or other Exchange Property (other
than cash dividends to which Pennzoil is entitled as described above, the
distributions described in the preceding paragraph or any securities or other
property received in a merger or consolidation of Chevron or in connection
with any sale of all or substantially all the assets of Chevron as described
in the next paragraph) or if Chevron grants transferable subscription rights,
options, warrants or other similar rights to Pennzoil in respect of the
Chevron Stock or other Exchange Property, Pennzoil will cause all such
securities, other property and rights to be deposited with the applicable
Exchange Agent and will direct the applicable Exchange Agent to sell all such
securities and other property and all such rights for cash, except any
B-2
such securities or property that are convertible, without payment of any
consideration, into Chevron Stock and which rights do not expire before the
retirement of such securities or other property. Such Exchange Agent will
apply the proceeds first to the payment of any taxes incurred or deemed
incurred by Pennzoil or such Exchange Agent on such distribution or such grant
of rights and incurred or deemed incurred by Pennzoil or such Exchange Agent
on the subsequent sale of the securities or other property distributed or
rights granted. The balance of the cash proceeds will be held by such Exchange
Agent for distribution pro rata with the Chevron Stock or other Exchange
Property. In the event that a distribution or grant of cash, securities or
other property on Exchange Property shall be effected as contemplated by this
paragraph, a notice stating that such distribution or grant has occurred and
setting forth the additional cash, securities or other property distributed on
the Exchange Property shall as soon as practicable be mailed by or on behalf
of Pennzoil to the holders of Registered 6 1/2% Debentures at their addresses
as they appear in the Security Register and shall be published at least twice
in a daily newspaper in the cities of New York and London or other capital
city in Western Europe. (Section 205)
In the case of any merger or consolidation of Chevron with or into any other
person which results in shares of Chevron Stock, as constituted prior to the
consummation of such transaction, being converted into other securities and/or
property, including cash, or any sale of all or substantially all the assets
of Chevron (if in connection with such sale or transfer holders of Chevron
Stock receive other securities and/or property, including cash, in exchange
for their shares of Chevron Stock), the holder of any 6 1/2% Debenture
surrendered for exchange thereafter will, subject to the following paragraph,
be entitled to receive the kind and amount of shares of stock and other
securities and property receivable upon or in connection with such transaction
by a holder of the number of shares of Chevron Stock or other Exchange
Property for which such 6 1/2% Debenture might have been exchanged immediately
prior to such transaction, as well as a pro rata share of any cash held for
exchange by Pennzoil in accordance with the preceding paragraph. (Section 211)
Upon the occurrence of any such merger, consolidation, sale of all or
substantially all the assets of Chevron described in the preceding paragraph
or any voluntary or involuntary dissolution, liquidation or winding up of
Chevron, or any stock dividend, subdivision, combination or reclassification
of shares of Chevron Stock or other Exchange Property, which shall be taxable
to Pennzoil or either Exchange Agent, or upon the happening of any other event
with respect to the Chevron Stock or other Exchange Property, which is taxable
or treated as being taxable to Pennzoil or either Exchange Agent, the
applicable Exchange Agent will deliver cash which it holds for exchange
(including cash received in such transaction) to Pennzoil or to itself for
payment of the taxes arising from such transaction. If the cash held for
exchange is insufficient to pay the amount of such taxes, such Exchange Agent
will sell such of the shares of Chevron Stock or other Exchange Property as
may be necessary to pay the amount of the insufficiency and any taxes payable
by Pennzoil or such Exchange Agent arising from such sale. The remaining
shares of Chevron Stock or other Exchange Property will be held by such
Exchange Agent for distributions pro rata to holders requesting exchange of
their 6 1/2% Debentures. (Section 215)
From time to time, Pennzoil may require the Exchange Agents to segregate
such property as Pennzoil determines may be necessary for Pennzoil or the
Exchange Agents to pay taxes with respect to the transactions or events
described above, subject to the determination of taxability (and any expenses
incurred in determining taxability), and such property (or any portion
thereof) shall be deliverable to holders of 6 1/2% Debentures only after
determination that such withholding is not necessary for the payment of such
taxes and after deducting the expenses incurred in connection with such
determination. (Section 215)
If Chevron grants nontransferable subscription rights, options, warrants or
similar rights with respect to the Exchange Property, Pennzoil will, if
otherwise lawful, deliver such rights pro rata to the Exchange Agents.
Pennzoil and the Domestic Exchange Agent shall cause such rights to be
distributed to the holders of the Registered 6 1/2% Debentures shown in the
Security Register and Pennzoil shall make available to holders of Bearer 6
1/2% Debentures a notice published at least twice in a daily newspaper in the
cities of New York and London or other capital city in Western Europe, which
notice shall state that such rights will be delivered to such holder upon such
holder's furnishing satisfactory proof to Pennzoil of such holder's status as
a holder of Bearer Securities. (Section 205)
B-3
Pennzoil is required to give to holders of 6 1/2% Debentures notice of
certain dividends on the Chevron Stock deliverable upon exchange of 6 1/2%
Debentures, the granting of subscription rights, options, warrants or other
similar rights to holders of Chevron Stock, any reclassification of Chevron
Stock (other than a subdivision or combination of outstanding shares of
Chevron Stock), certain mergers involving Chevron, the sale of all or
substantially all of the assets of Chevron and the dissolution, liquidation or
winding up of Chevron. (Section 206)
Any cash held by an Exchange Agent that is deliverable upon exchange of 6
1/2% Debentures will be invested by such Exchange Agent at the direction of
Pennzoil in U.S. Government Obligations with maturity dates of twelve months
or less. Any interest or gain on such investments will be for the benefit of
Pennzoil and Pennzoil will be responsible for any losses on such investments.
To the extent 6 1/2% Debentures are redeemed prior to exchange, Pennzoil will
be entitled to receive from the applicable Exchange Agent such number of
shares of Chevron Stock, other Exchange Property and such amount of cash, if
any, held by such Exchange Agent for exchange as exceeds the number of shares
of Chevron Stock or other Exchange Property required to be held by such
Exchange Agent for the exchange of all 6 1/2% Debentures remaining then
outstanding. (Section 205)
"U.S. Government Obligations" is defined in each Indenture as direct non-
callable obligations of, or non-callable obligations the payment of principal
of and interest on which is guaranteed by, the United States of America, or
the payment of which obligations or guarantees the full faith and credit of
the United States of America is pledged, or beneficial interests in a trust
the corpus of which consists exclusively of money or such obligations or a
combination thereof.
In the event of a tender offer or exchange offer for any class of securities
included within the Exchange Property (i) if Pennzoil owns shares of such
class which are not subject to the Exchange Agreement, Pennzoil will cause
each Exchange Agent to tender such shares of such class in the same proportion
that Pennzoil tenders its securities in such class which are not subject to
the Exchange Agreement, and (ii) if Pennzoil does not own securities of a
class which are subject to the Exchange Agreement, Pennzoil may, at its option
and in its sole discretion, elect to cause either or both Exchange Agents to
tender all or any portion or none of such class of security included within
the Exchange Property held by such Exchange Agent or Exchange Agents. The
proceeds of the sale of any such Exchange Property pursuant to any such tender
or exchange offer will be held by each Exchange Agent for the benefit of
holders as provided in the First Supplemental Indenture. As a result of the
receipt by an Exchange Agent of cash or other property upon the tender or
exchange of an Exchange Property, holders will not participate in any
subsequent appreciation or depreciation in the market price of such Exchange
Property tendered or exchanged upon any subsequent exchange of 6 1/2%
Debentures. (Section 212)
The right of a holder to exchange his 6 1/2% Debentures for Chevron Stock or
other Exchange Property could be adversely affected in the event of the
bankruptcy, insolvency or liquidation of Pennzoil. In such event, the Chevron
Stock or other Exchange Property could be assets of Pennzoil subject to the
claims of its general creditors.
REPURCHASE RIGHTS
The Exchange Agents will act as agents for Pennzoil in connection with
Pennzoil's exchange obligations under the First Supplemental Indenture and
will not act as escrow agents for the benefit of holders of 6 1/2% Debentures.
Accordingly, Pennzoil may at any time obtain from either or both of the
Exchange Agents or otherwise authorize or direct either or both of the
Exchange Agents to release all or a part of the Chevron Stock or other
Exchange Property. In the event that Pennzoil obtains or otherwise releases
any Chevron Stock or other Exchange Property in any manner otherwise than as
contemplated by the First Supplemental Indenture, each holder of 6 1/2%
Debentures will have the right ("Repurchase Right"), at such holder's option,
to require Pennzoil to repurchase all of such holder's 6 1/2% Debentures, or a
portion thereof which is $1,000 or any integral multiple thereof, in the
manner and at the price described below. (Section 217)
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Promptly (and in any event within 10 days) after Pennzoil has obtained or
released any Exchange Property in any manner otherwise than as contemplated by
the First Supplemental Indenture, the Domestic Exchange Agent will mail to all
holders of record of the 6 1/2% Debentures a notice thereof and the Repurchase
Right arising as a result thereof (a "Repurchase Notice") and the Foreign
Exchange Agent will cause a copy of the Repurchase Notice to be published at
least twice in a daily newspaper in the cities of New York and London or other
capital city in Western Europe. To exercise the Repurchase Right, a holder of
6 1/2% Debentures must deliver on or before the 15th day after the date of the
Repurchase Notice irrevocable written notice to the applicable Exchange Agent
of the holder's exercise of such right, together with the 6 1/2% Debentures
with respect to which the right is being exercised, duly endorsed for
transfer.
On the date ("Repurchase Date") that is 30 days after the date of the
Repurchase Notice, Pennzoil will be required to repurchase all 6 1/2%
Debentures in respect of which the Repurchase Right has been exercised at the
following price: (i) if the date on which Pennzoil's obtaining or release of
Exchange Property in a manner not contemplated by the First Supplemental
Indenture first occurs (the "Triggering Date") is before January 15, 1998, the
product of (1) 120% and (2) the greater of the principal amount at maturity of
such 6 1/2% Debentures (plus accrued and unpaid interest, if any, to the
Repurchase Date) and the market price of the Exchange Property deliverable in
exchange for such 6 1/2% Debentures on the Triggering Date (or if such date is
not a business day, on the next succeeding business day); and (ii) if the
Triggering Date occurs on or after January 15, 1998, the greater of (1) the
redemption price as specified under "Redemption Provisions" on the Triggering
Date and (2) the market price of the Exchange Property deliverable in exchange
for such 6 1/2% Debentures on the Triggering Date (or if such date is not a
business day, on the next succeeding business day).
The obligation of Pennzoil to deliver Exchange Property (or cash in lieu
thereof) in exchange for 6 1/2% Debentures shall survive and continue to apply
in full force and effect following and notwithstanding the occurrence of any
event triggering a Repurchase Right. Failure by Pennzoil to exchange 6 1/2%
Debentures in accordance with the First Supplemental Indenture or to
repurchase either Registered 6 1/2% Debentures or Bearer 6 1/2% Debentures
upon exercise of a Repurchase Right will constitute an Event of Default with
respect to the 6 1/2% Debentures, and holders of 6 1/2% Debentures will have
the remedies provided for in the Indenture, including acceleration of the
indebtedness evidenced by the 6 1/2% Debentures, in the event of any such
failure.
The exchange obligations of Pennzoil may not be assigned or otherwise
transferred by Pennzoil except to the extent Pennzoil may, without the consent
of any holders of outstanding Securities, consolidate with or merge into, or
convey, transfer or lease its assets substantially as an entirety to, any
person, provided that the person formed by such consolidation or into which
Pennzoil is merged or which acquires or leases the assets of Pennzoil
substantially as an entirety is a corporation, partnership or trust organized
under the laws of any United States jurisdiction and assumes by supplemental
indenture Pennzoil's obligation on the Securities and under the Indentures,
that after giving effect to the transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and that certain other
conditions are met. Upon compliance with these provisions by a successor
person, Pennzoil will (except in the case of a lease) be relieved of its
obligations under the Indenture and the Securities (Article Eight).
If an offer is made to repurchase 6 1/2% Debentures in connection with a
Repurchase Right, Pennzoil will comply with all tender offer rules, including
but not limited to Sections 13(e) and 14(e) under the Exchange Act and Rules
l3e-1 and 14e-1 thereunder, to the extent applicable to such offer.
REDEMPTION PROVISIONS
Subject to the redemption provisions described below, the 6 1/2% Debentures
will not be redeemable prior to January 15, 1998. Thereafter, the 6 1/2%
Debentures may be redeemed at the option of Pennzoil, in whole or from time to
time in part, (i) on not less than 30 nor more than 60 days' notice by mail to
the holders of Registered 6 1/2% Debentures at their addresses appearing on
the Security Register and (ii) by publication for the holders of Bearer 6 1/2%
Debentures at least twice in a daily newspaper in the cities of New York and
London or other capital city of Western Europe, one of which publications is
not later than 30 days prior to the redemption date
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and one of which publications is not earlier than 60 days prior to the
redemption date, at the following redemption prices (expressed as a percentage
of the principal amount at maturity) if redeemed during the 12-month period
beginning January 15 of the following years:
REDEMPTION
YEAR PRICE
---- ----------
1998................................... 103.25%
1999................................... 102.60%
2000................................... 101.90%
2001................................... 101.30%
2002................................... 100.65%
in each case together with accrued interest to the redemption date; provided,
however, that installments of interest on Bearer 6 1/2% Debentures whose
stated maturity is on or prior to the redemption date shall be payable only at
an office or agency located outside the United States (except as otherwise
provided in Section 1002 of the Indenture) and, only upon presentation and
surrender of coupons for such interest; and provided, further, that
installments of interest on Registered 6 1/2% Debentures whose stated maturity
is on or prior to the redemption date shall be payable to the holders of such
6 1/2% Debentures, registered as such at the close of business on the relevant
Record Dates. There is no sinking fund applicable to the 6 1/2% Debentures.
The 6 1/2% Debentures may also be redeemed at the option of Pennzoil, in
whole but not in part at any time, upon notice as described below, at a
redemption price equal to the principal amount thereof, together with accrued
and unpaid interest to the date fixed for redemption, if (i) Pennzoil shall
determine that, as a result of any change in, or amendment to, the laws (or
any regulations or rulings promulgated thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting
taxation, or any change in official position regarding the application,
enforcement or interpretation of such laws, regulations or rulings (including
a holding by a court of competent jurisdiction), which change, amendment,
application, enforcement or interpretation becomes effective on or after the
date of this Prospectus Supplement, Pennzoil must pay or would become
obligated to pay any additional amounts ("Additional Amounts") with respect to
the 6 1/2% Debentures as described below under "Certain United States Federal
Income Tax Consequences--Payment of Additional Amounts" or (ii) any action
shall have been taken by a taxing authority (including but not limited to a
ruling or announcement of the Internal Revenue Service ("IRS") or other taxing
authority, whether or not officially published) or a court of competent
jurisdiction in the United States or any political subdivision or taxing
authority thereof or therein, including any of those actions specified in (i)
above (whether or not, in the case of an action taken by a taxing authority,
such action was taken or brought with respect to Pennzoil) or any change,
amendment, application, enforcement or interpretation shall be officially
proposed, in any case on or after the date of the prospectus supplement for
these 6 1/2% Debentures, as a result of which there is a substantial
possibility that Pennzoil will be obligated to pay Additional Amounts and, in
either case described in clause (i) or (ii), such obligation to pay Additional
Amounts cannot be avoided by the use of reasonable measures available to
Pennzoil; provided, however, that (i) no notice of redemption may be given
earlier than 90 days prior to the earliest date on which Pennzoil would be
obligated to pay such Additional Amounts were a payment in respect of the 6
1/2% Debentures then due, and (ii) at the time such notice of redemption is
given, such obligation to pay such Additional Amounts remains in effect. Prior
to the publication of any notice of redemption of the 6 1/2% Debentures
pursuant to the foregoing, Pennzoil shall deliver to the Trustee an opinion of
independent legal counsel to Pennzoil stating that Pennzoil is entitled to
effect such redemption, together with a certificate setting forth facts
showing that the conditions precedent to the right of Pennzoil so to redeem
have occurred.
If Pennzoil shall determine, based upon an opinion of an independent legal
counsel to Pennzoil, that any payment made outside the United States by
Pennzoil or any of its paying agents of the full amount of the next scheduled
payment of principal of or interest due in respect of any Bearer 6 1/2%
Debenture or coupon appertaining thereto would, under any present or future
laws or regulations of the United States affecting taxation
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or otherwise, be subject to any certification, information, documentation or
other reporting requirement of any kind the effect of which requirement is the
disclosure to Pennzoil, any paying agent or any governmental authority of the
nationality, residence or identity (as distinguished from status as a United
States Alien (as defined below)) of a beneficial owner of such Bearer 6 1/2%
Debenture or coupon who is a United States Alien (other than such a
requirement which (a) would not be applicable to a payment if made (i)
directly to the beneficial owner or (ii) to a custodian, nominee or other
agent of the beneficial owner, (b) can be satisfied by such a custodian,
nominee or other agent certifying to the effect that such beneficial owner is
a United States Alien, provided, however, that in each case referred to in
clause (a) (ii) and (b) payment by such custodian, nominee or agent to such
beneficial owner is not otherwise subject to any such requirement (other than
a requirement which is imposed on a custodian, nominee or other agent
described in clause (e) of this sentence), (c) is applicable only to a
collection or payment by a custodian, nominee or other agent of the beneficial
owner to or for such beneficial owner, (d) would not be applicable to such a
payment made by any other paying agent of Pennzoil outside the United States
or (e) is applicable to a payment to or by a custodian, nominee or other agent
of the beneficial owner because such custodian, nominee or agent is a United
States person (within the meaning of the United States Internal Revenue Code
of 1986, as amended (the "Code")), a controlled foreign corporation for United
States tax purposes, a foreign person 50% or more of whose gross income for
certain periods is effectively connected with a United States trade or
business, or otherwise related to the United States), Pennzoil shall redeem
the Bearer 6 1/2% Debentures (but not the Registered 6 1/2% Debentures), in
whole but not in part at any time, at a redemption price equal to the
principal amount thereof, together with accrued and unpaid interest and any
Additional Amounts with respect thereto, on the date fixed for redemption,
less applicable withholding taxes, such redemption to take place on such date,
not later than one year after the publication of notice of such determination,
as Pennzoil shall determine by notice to the Trustee at least 60 days before
the redemption date unless shorter notice is acceptable to the Trustee.
Pennzoil shall make such determination as soon as practicable and give prompt
notice thereof in accordance with Section 1104 of the Indenture, stating in
that notice the effective date of such certification, information,
documentation or reporting requirements and the date on which the redemption
shall occur. Notwithstanding the foregoing, Pennzoil shall not so redeem the 6
1/2% Debentures if, on the basis of any subsequent event, it is determined, in
the manner set forth above, 30 days or more prior to the date fixed for
redemption, that no such payment would be subject to any such requirement, in
which case Pennzoil shall give prompt notice of such determination. Except as
otherwise provided in the Indenture, notices to holders of Bearer Securities
will be given by publication at least twice in a daily newspaper in The City
of New York and London or other capital city in Western Europe and in such
other city or cities as may be specified in the Securities. Notices to holders
of Registered Securities will be given by mail to the addresses of such
holders as they appear in the Security Register. (Section 107) Any earlier
redemption notice shall then be deemed revoked and of no further effect.
Notwithstanding the provisions of the immediately preceding paragraph, if
and so long as each certification, information, documentation or other
reporting requirement referred to therein would be fully satisfied by payment
of withholding tax, backup withholding tax or similar charge, Pennzoil may
elect, prior to publication of the notice of determination referred to in the
second sentence of the immediately preceding paragraph, to have the provisions
of this paragraph apply in lieu of the provisions of that paragraph. In such
event, Pennzoil will pay as Additional Amounts such amounts as may be
necessary so that every net payment made following the effective date of such
requirement outside the United States by Pennzoil or any of its paying agents
of principal of, premium, if any, and interest on any Bearer 6 1/2% Debenture
or any coupon to a holder who is a United States Alien (but without any
requirement with regard to disclosure of the nationality, residence or
identity of such holder), after deduction or withholding for or on account of
such withholding tax, backup withholding tax or similar charge (other than a
withholding tax, backup withholding tax or similar charge which would not be
applicable in the circumstances referred to in the second parenthetical clause
of the first sentence of the immediately preceding paragraph), will not be
less than the amount provided for in such Bearer 6 1/2% Debenture or such
coupon to be then due and payable. If Pennzoil elects to pay such Additional
Amounts and so long as it is obligated to pay the same, Pennzoil may
subsequently redeem the Bearer 6 1/2% Debentures (but not the Registered 6
1/2% Debentures), in whole but not in part at any time, at a redemption price
equal, to the principal amount thereof, together with accrued and unpaid
interest to the date fixed for redemption. If Pennzoil elects to
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pay Additional Amounts pursuant to this paragraph and the condition specified
in the first sentence of this paragraph should no longer be satisfied, then
Pennzoil shall promptly redeem the Bearer 6 1/2% Debentures (but not the
Registered 6 1/2% Debentures) in whole but not in part.
DISCHARGE AND DEFEASANCE
The terms of the 6 1/2% Debentures provide that Pennzoil will be permitted
to terminate certain of its obligations under the Indenture pursuant to the
Indenture's covenant defeasance provisions only if Pennzoil delivers to the
Trustee an opinion of counsel that covenant defeasance will not cause holders
of the 6 1/2% Debentures to recognize income, gain or loss for United States
federal income tax purposes.
Pennzoil may terminate its obligations under the Indenture, other than its
obligation to pay the principal of (and premium, if any) and interest on the
Securities of any series and certain other obligations, if it (i) irrevocably
deposits or causes to be irrevocably deposited with the Trustee as trust funds
money or U.S. Government Obligations maturing as to principal and interest
sufficient to pay the principal of, any interest on, and any mandatory sinking
funds in respect of, all outstanding Securities of such series on the stated
maturity of such payments or on any redemption date and (ii) complies with any
additional conditions specified to be applicable with respect to the covenant
defeasance of Securities of such series. (Section 401)
The terms of the 6 1/2% Debentures also provide to legal defeasance. Legal
defeasance is permitted only if Pennzoil shall have received from, or there
shall have been published by, the United States Internal Revenue Service a
ruling to the effect that legal defeasance will not cause holders of the 6
1/2% Debentures to recognize income, gain or loss for United States federal
income tax purposes. In such case, if Pennzoil (i) irrevocably deposits or
causes to be irrevocably deposited money or U.S. Government Obligations as
described above, (ii) makes a request to the Trustee to be discharged from its
obligations on the Securities of such series and (iii) complies with any
additional conditions specified to be applicable with respect to legal
defeasance of Securities of such series, then Pennzoil shall be deemed to have
paid and discharged the entire indebtedness on all the outstanding Securities
of such series and the obligations of Pennzoil under the applicable Indenture
and the Securities of such series to pay the principal of (and premium, if
any) and interest on the Securities of such series shall cease, terminate and
be completely discharged, and the holders thereof shall thereafter be entitled
only to payment out of the money or U.S. Government Obligations deposited with
the Trustee as aforesaid, unless Pennzoil's obligations are revived and
reinstated because the Trustee is unable to apply such trust fund by reason of
any legal proceeding, order or judgment. (Sections 403 and 404)
PAYMENT OF ADDITIONAL AMOUNTS
Pennzoil will, subject to certain exceptions and limitations set forth
below, pay as additional interest such Additional Amounts to the holder of any
6 1/2% Debenture who is a United States Alien (as defined below) as may be
necessary in order that every net payment by Pennzoil or any of its paying
agents of principal of, premium, if any, and interest on each 6 1/2% Debenture
and any other amounts payable with respect to each Debenture, after deduction
or withholding for or on account of any present or future tax, assessment or
governmental charge imposed by the United States (or any political subdivision
or taxing authority thereof or therein) upon or as a result of such payment,
will not be less than the amount provided for in such 6 1/2% Debenture to be
then due and payable. However, Pennzoil will not be required to make any
payment of Additional Amounts for or on account of any one or more of the
following:
(a) any tax, assessment or other governmental charge which would not have
been so imposed but for (i) the existence of any present or former
connection between such holder (or a fiduciary, settlor, beneficiary,
member or shareholder of, or possessor of a power over, such holder, if
such holder is an estate, a trust, a partnership or a corporation) and the
United States, including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or treated as a resident thereof,
or being or having been present therein, or being or having been engaged in
a trade or business therein, or having or having had a permanent
establishment therein or (ii) the
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presentation of a 4 3/4% Debenture or any coupon appertaining thereto for
payment on a date more than 10 days after the date on which such payment
becomes due and payable or the date on which payment thereof is duly
provided for, whichever occurs later;
(b) any estate, inheritance, gift, sales, transfer, wealth, personal
property or any similar tax, assessment or other governmental charge;
(c) any tax, assessment or other governmental charge which is payable
otherwise than by deduction or withholding from payments of principal of or
interest on the 6 1/2% Debentures;
(d) any tax, assessment or other governmental charge imposed by reason of
such holder's past or present status (i) as a personal holding company or a
foreign personal holding company with respect to United States federal
income taxation, (ii) as a corporation which accumulates earnings to avoid
United States federal income tax, (iii) as a controlled foreign corporation
for United States tax purposes that is related to Pennzoil through stock
ownership, (iv) as the owner, actually or constructively, of 10 percent or
more of the total combined voting power of all classes of stock of Pennzoil
entitled to vote or (v) as a private foundation or other tax-exempt
organization;
(e) any tax, assessment or other governmental charge imposed by reason of
such holder's failure to comply with any certification, identification or
other reporting requirements concerning its nationality, residence,
identity or connection with the United States if such compliance is
required to establish entitlement to exemption from such tax, assessment or
other governmental charge; or
(f) any tax, assessment or other governmental charge which would not have
been imposed but for the fact that a 6 1/2% Debenture constitutes a "United
States real property interest," as defined in Section 897(c) (1) of the
Code with respect to the beneficial owner of such a 4 3/4% Debenture;
nor shall Additional Amounts be paid with respect to any payment of principal
of, premium, if any, or interest on a 6 1/2% Debenture or any other amount
payable with respect to a Debenture to any United States Alien holder who is a
fiduciary or partnership or other than the sole beneficial owner of any such
payment to the extent a beneficiary or settlor with respect to such fiduciary
or a member of such partnership or a beneficial owner would not have been
entitled to the Additional Amounts had such beneficiary, settlor, member or
beneficial owner been the holder of the Debenture. (Section 106)
The term "United States Alien" means any person who, for United States
federal income tax purposes, is as to the United States (i) a foreign
corporation, (ii) a foreign partnership one or more of the members of which
is, as to the United States, a foreign corporation, a nonresident alien
individual or a nonresident alien fiduciary of a foreign estate or trust,
(iii) a nonresident alien individual or (iv) a nonresident alien fiduciary of
a foreign estate or trust.
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APPENDIX C
DESCRIPTION OF OLD 4 3/4% DEBENTURES
Capitalized terms defined in this Appendix C are used as defined only in this
Appendix C.
GENERAL
The 4 3/4% exchangeable senior debentures due 2003 (the "4 3/4% Debentures")
are an issue of Pennzoil's Debt Securities (the "Securities") issued under the
Indenture dated as of December 15, 1992 (the "Indenture") between Pennzoil and
Chase Bank of Texas, National Association (formerly known as Texas Commerce
Bank National Association), as trustee (the "Trustee"). The italicized
references below refer to the section numbers of the Second Supplemental
Indenture to be dated as of October 12, 1993 to the Indenture ("Second
Supplemental Indenture") between Pennzoil and Chase Bank of Texas, National
Association, as trustee.
The 4 3/4% Debentures will mature on October 1, 2003 and will each bear
interest from October 12, 1993 at 4 3/4% per annum, payable semiannually on
each April 1 and October 1, commencing April 1, 1994 (i) to the holders of the
Registered 4 3/4% Debentures at the close of business on the March 15 next
preceding such April 1 or the September 15 next preceding such October 1, as
the case may be, and (ii) to the holders of the Bearer 4 3/4% Debentures upon
presentation of the appropriate coupon appertaining thereto on each April 1
and October 1, commencing April 1, 1994. The aggregate principal amount of the
4 3/4% Debentures outstanding is $491.8 million.
The 4 3/4% Debentures constitute unsecured senior debt obligations of
Pennzoil ranking pari passu with all other present and future unsecured
general obligations of Pennzoil that are not expressly subordinated to senior
indebtedness.
FORM OF 4 3/4% DEBENTURES
The 4 3/4% Debentures are issued as both Registered 4 3/4% Debentures and
Bearer 4 3/4% Debentures. The Registered 4 3/4% Debentures are in definitive
form without coupons. The Bearer 4 3/4% Debentures are in denominations of
$5,000, with coupons attached.
The Paying Agent for the Bearer 4 3/4% Debentures is Chemical Bank London.
EXCHANGE RIGHTS
The 4 3/4% Debentures (or portions thereof in integral multiples of $1,000)
are exchangeable for Chevron Stock at any time and from time to time prior to
maturity at an exchange rate of $58 13/16 per share (equivalent to an exchange
rate of 17.0032 shares of Chevron Stock per $1,000 principal amount of 4 3/4%
Debentures), subject to adjustment under the circumstances described below. In
the event the 4 3/4% Debentures are called for redemption, the exchange rights
will terminate at the close of business on the date immediately prior to the
date of redemption. (Section 201)
Pennzoil has deposited the number of shares of Chevron Stock deliverable in
exchange for (i) the Registered 4 3/4% Debentures with Chase Bank of Texas,
National Association (formerly known as Texas Commerce Bank National
Association), who will act as exchange agent for holders of Registered 4 3/4%
Debentures (the "Domestic Exchange Agent") on behalf of Pennzoil and (h) the
Bearer 4 3/4% Debentures with Chemical Bank London, who will act as exchange
agent for holders of Bearer 4 3/4% Debentures (the "Foreign Exchange Agent")
on behalf of Pennzoil. Each of the Domestic Exchange Agent and the Foreign
Exchange Agent are referred to individually herein as an "Exchange Agent" and
collectively as the "Exchange Agents." Pennzoil will deposit with the Domestic
Exchange Agent and the Foreign Exchange Agent any cash and other property
deliverable in exchange for the Registered 4 3/4% Debentures and the Bearer 4
3/4% Debentures, respectively. Pennzoil will not be permitted to pledge,
mortgage, hypothecate or grant a security interest in, or permit any
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mortgage, pledge, security interest or other lien upon, the Chevron Stock,
cash and other property deliverable in exchange for the 4 3/4% Debentures
(collectively, "Exchange Property"). The deposit arrangements with each
Exchange Agent will terminate at such time as the right to exchange 4 3/4%
Debentures with such Exchange Agent shall have expired pursuant to the Second
Supplemental Indenture.
In order to exercise the right of exchange, the holder of any Registered 4
3/4% Debenture must surrender such 4 3/4% Debenture to the Domestic Exchange
Agent at its office maintained for such purpose in Houston, Texas and the
holder of a Bearer 4 3/4% Debenture must surrender such 4 3/4% Debenture to
the Foreign Exchange Agent at its office maintained for such purpose in
London, England. Each 4 3/4% Debenture to be surrendered must be accompanied
by written notice to Pennzoil and the applicable Exchange Agent that the
holder elects to exchange such Debenture. Delivery of the certificates for
Chevron Stock or any other Exchange Property may be delayed at the request of
Pennzoil in order to effectuate the calculation of the adjustments of the
Chevron Stock or other Exchange Property to obtain any certificate
representing securities to be delivered, to complete any reapportionment of
the Chevron Stock or other Exchange Property which is required by the
Indenture or to comply with any applicable law. (Section 202) No fractional
shares will be delivered on any exchange of 4 3/4% Debentures, and in lieu
thereof a cash adjustment based on the market price of the Chevron Stock or
other Exchange Property will be paid. (Section 203)
In lieu of delivering certificates representing Chevron Stock in exchange
for any 4 3/4% Debentures, Pennzoil may pay to the holder surrendering such 4
3/4% Debentures an amount in cash equal to the market price of the Chevron
Stock or other Exchange Property for which such 4 3/4% Debentures are
exchangeable, determined as of the date of receipt by Pennzoil of the notice
of exchange relating to such 4 3/4% Debentures (or, if such date is not a
business day, on the business day next preceding such date). Prior to so
directing an Exchange Agent to make any such cash payment, Pennzoil shall
deposit with such Exchange Agent the cash so payable. (Section 216)
Upon an exchange of Exchange Property (or cash in lieu thereof) for a
Debenture, a holder will not receive any cash payment representing accrued
original issue discount for United States federal income tax purposes ("Tax
OID"). The delivery of the Exchange Property (or cash in lieu thereof) to a
holder in exchange for a holder's 4 3/4% Debenture will be deemed to satisfy
Pennzoil's obligation to pay the principal amount of the 4 3/4% Debenture
including the Tax OID attributable to the period from the date of issue to the
date of such exchange with respect to such Debenture. Thus, the accrued Tax
OID is deemed to be paid rather than canceled, extinguished or forfeited. As a
result, the exchange rate is not adjusted for accrued Tax OID. (Section 202)
Pennzoil is entitled to all cash dividends with respect to the Chevron Stock
or other Exchange Property, other than dividends paid pursuant to a plan of
liquidation or partial liquidation of Chevron, recapitalization or
restructuring of Chevron or other extraordinary cash dividends. Pennzoil will
also be entitled to all interest payments on any debt securities held for
exchange by Pennzoil which are issued in exchange for Chevron Stock or other
Exchange Property pursuant to any merger or consolidation of Chevron or in
connection with any sale of all or substantially all the assets of Chevron.
(Section 205)
If Chevron should issue any Chevron Stock in subdivision or by way of stock
dividend, the exchange rate will be proportionately increased, and if Chevron
shall effect a combination of Chevron Stock, the exchange rate will be
proportionately reduced, subject in each case to adjustments for tax
consequences, if any. (Section 204)
If Chevron should make any distribution of cash, securities or other
property with respect to the Chevron Stock or other Exchange Property (other
than cash dividends to which Pennzoil is entitled as described above, the
distributions described in the preceding paragraph or any securities or other
property received in a merger or consolidation of Chevron or in connection
with any sale of all or substantially all the assets of Chevron as described
in the next paragraph) or if Chevron grants transferable subscription rights,
options, warrants or other similar rights to Pennzoil in respect of the
Chevron Stock or other Exchange Property, Pennzoil will cause all such
securities, other property and rights to be deposited with the applicable
Exchange Agent and will direct the applicable Exchange Agent to sell all such
securities and other property and all such rights for cash, except any such
securities or property that are convertible, without payment of any
consideration, into Chevron Stock and
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which rights do not expire before the retirement of such securities or other
property. Such Exchange Agent will apply the proceeds first to the payment of
any taxes incurred or deemed incurred by Pennzoil or such Exchange Agent on
such distribution or such grant of rights and incurred or deemed incurred by
Pennzoil or such Exchange Agent on the subsequent sale of the securities or
other property distributed or rights granted. The balance of the cash proceeds
will be held by such Exchange Agent for distribution pro rata with the Chevron
Stock or other Exchange Property. In the event that a distribution or grant of
cash, securities or other property on Exchange Property shall be effected as
contemplated by this paragraph, a notice stating that such distribution or
grant has occurred and setting forth the additional cash, securities or other
property distributed on the Exchange Property shall as soon as practicable be
mailed by or on behalf of Pennzoil to the holders of Registered 4 3/4%
Debentures at their addresses as they appear in the Security Register and
shall be published at least twice in a daily newspaper in the cities of New
York and London or other capital city in Western Europe. (Section 205)
In the case of any merger or consolidation of Chevron with or into any other
person which results in shares of Chevron Stock, as constituted prior to the
consummation of such transaction, being converted into other securities and/or
property, including cash, or any sale of all or substantially all the assets
of Chevron (if in connection with such sale or transfer holders of Chevron
Stock receive other securities and/or property, including cash, in exchange
for their shares of Chevron Stock), the holder of any 4 3/4% Debenture
surrendered for exchange thereafter will, subject to the following paragraph,
be entitled to receive the kind and amount of shares of stock and other
securities and property receivable upon or in connection with such transaction
by a holder of the number of shares of Chevron Stock or other Exchange
Property for which such 4 3/4% Debenture might have been exchanged immediately
prior to such transaction, as well as a pro rata share of any cash held for
exchange by Pennzoil in accordance with the preceding paragraph. (Section 211)
Upon the occurrence of any such merger, consolidation, sale of all or
substantially all the assets of Chevron described in the preceding paragraph
or any voluntary or involuntary dissolution, liquidation or winding up of
Chevron, or any stock dividend, subdivision, combination or reclassification
of shares of Chevron Stock or other Exchange Property, which shall be taxable
to Pennzoil or either Exchange Agent, or upon the happening of any other event
with respect to the Chevron Stock or other Exchange Property, which is taxable
or treated as being taxable to Pennzoil or either Exchange Agent, the
applicable Exchange Agent will deliver cash which it holds for exchange
(including cash received in such transaction) to Pennzoil or to itself for
payment of the taxes arising from such transaction. If the cash held for
exchange is insufficient to pay the amount of such taxes, such Exchange Agent
will sell such of the shares of Chevron Stock or other Exchange Property as
may be necessary to pay the amount of the insufficiency and any taxes payable
by Pennzoil or such Exchange Agent arising from such sale. The remaining
shares of Chevron Stock or other Exchange Property will be held by such
Exchange Agent for distribution pro rata to holders requesting exchange of
their 4 3/4% Debentures. (Section 215)
From time to time, Pennzoil may require the Exchange Agents to segregate
such property as Pennzoil determines may be necessary for Pennzoil or the
Exchange Agents to pay taxes with respect to the transactions or events
described above, subject to the determination of taxability (and any expenses
incurred in determining taxability), and such property (or any portion
thereof) shall be deliverable to holders of 4 3/4% Debentures only after
determination that such withholding is not necessary for the payment of such
taxes and after deducting the expenses incurred in connection with such
determination. (Section 215)
If Chevron grants nontransferable subscription rights, options, warrants or
similar rights with respect to the Exchange Property, Pennzoil will, if
otherwise lawful, deliver such rights pro rata to the Exchange Agents.
Pennzoil and the Domestic Exchange Agent shall cause such rights to be
distributed to the holders of the Registered 4 3/4% Debentures shown in the
Security Register and Pennzoil shall make available to holders of Bearer 4
3/4% Debentures a notice published at least twice in a daily newspaper in the
cities of New York and London or other capital city in Western Europe, which
notice shall state that such rights will be delivered to such holder upon such
holder's furnishing satisfactory proof to Pennzoil of such holder's status as
a holder of Bearer Securities. (Section 205)
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Pennzoil is required to give to holders of 4 3/4% Debentures notice of
certain dividends on the Chevron Stock deliverable upon exchange of 4 3/4%
Debentures, the granting of subscription rights, options, warrants or other
similar rights to holders of Chevron Stock, any reclassification of Chevron
Stock (other than a subdivision or combination of outstanding shares of
Chevron Stock), certain mergers involving Chevron, the sale of all or
substantially all of the assets of Chevron and the dissolution, liquidation or
winding up of Chevron. (Section 206)
Any cash held by an Exchange Agent that is deliverable upon exchange of 4
3/4% Debentures will be invested by such Exchange Agent at the direction of
Pennzoil in U.S. Government Obligations with maturity dates of twelve months
or less. Any interest or gain on such investments will be for the benefit of
Pennzoil, and Pennzoil will be responsible for any losses on such investments.
To the extent 4 3/4% Debentures are redeemed prior to exchange, Pennzoil will
be entitled to receive from the applicable Exchange Agent such number of
shares of Chevron Stock, other Exchange Property and such amount of cash, if
any, held by such Exchange Agent for exchange as exceeds the number of shares
of Chevron Stock or other Exchange Property required to be held by such
Exchange Agent for the exchange of all 4 3/4% Debentures remaining then
outstanding. (Section 205)
"U.S. Government Obligations" is defined in each Indenture as direct non-
callable obligations of, or non-callable obligations the payment of principal
of and interest on which is guaranteed by, the United States of America, or
the payment of which obligations or guarantees the full faith and credit of
the United States of America is pledged, or beneficial interests in a trust
the corpus of which consists exclusively of money or such obligations or a
combination thereof.
In the event of a tender offer or exchange offer for any class of securities
included within the Exchange Property (i) if Pennzoil owns shares of such
class which are not subject to the Exchange Agreement, Pennzoil will cause
each Exchange Agent to tender such shares of such class in the same proportion
that Pennzoil tenders its securities in such class which are not subject to
the Exchange Agreement and (ii) if Pennzoil does not own securities of a class
which are subject to the Exchange Agreement, Pennzoil may, at its option and
in its sole discretion, elect to cause either or both Exchange Agents to
tender all or any portion or none of such class of security included within
the Exchange Property held by such Exchange Agent or Exchange Agents. The
proceeds of the sale of any such Exchange Property pursuant to any such tender
or exchange offer will be held by each Exchange Agent for the benefit of
holders as provided in the Second Supplemental Indenture. As a result of the
receipt by an Exchange Agent of cash or other property upon the tender or
exchange of an Exchange Property, holders will not participate in any
subsequent appreciation or depreciation in the market price of such Exchange
Property tendered or exchanged upon any subsequent exchange of 4 3/4%
Debentures. (Section 212)
The right of a holder to exchange his 4 3/4% Debentures for Chevron Stock or
other Exchange Property could be adversely affected in the event of the
bankruptcy, insolvency or liquidation of Pennzoil. In such event, the Chevron
Stock or other Exchange Property could be assets of Pennzoil subject to the
claims of its general creditors.
REPURCHASE RIGHTS
The Exchange Agents will act as agents for Pennzoil in connection with
Pennzoil's exchange obligations under the Second Supplemental Indenture and
will not act as escrow agents for the benefit of holders of 4 3/4% Debentures.
Accordingly, Pennzoil may at any time obtain from either or both of the
Exchange Agents or otherwise authorize or direct either or both of the
Exchange Agents to release all or a part of the Chevron Stock or other
Exchange Property. In the event that Pennzoil obtains or otherwise releases
any Chevron Stock or other Exchange Property in any manner otherwise than as
contemplated by the Second Supplemental Indenture, each holder of 4 3/4%
Debentures will have the right ("Repurchase Right"), at such holder's option,
to require Pennzoil to repurchase all of such holder's 4 3/4% Debentures, or a
portion thereof which is $1,000 or any integral multiple thereof, in the
manner and at the price described below. (Section 217)
Promptly (and in any event within 10 days) after Pennzoil has obtained or
released any Exchange Property in any manner otherwise than as contemplated by
the Second Supplemental Indenture, the Domestic Exchange
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Agent will mail to all holders of record of the 4 3/4% Debentures a notice
thereof and the Repurchase Right arising as a result thereof (a "Repurchase
Notice") and the Foreign Exchange Agent will cause a copy of the Repurchase
Notice to be published at least twice in a daily newspaper in the cities of
New York and London or other capital city in Western Europe. To exercise the
Repurchase Right, a holder of 4 3/4% Debentures must deliver on or before the
15th day after the date of the Repurchase Notice irrevocable written notice to
the applicable Exchange Agent of the holder's exercise of such right, together
with the 4 3/4% Debentures with respect to which the right is being exercised,
duly endorsed for transfer.
On the date ("Repurchase Date") that is 30 days after the date of the
Repurchase Notice, Pennzoil will be required to repurchase all 4 3/4%
Debentures in respect of which the Repurchase Right has been exercised at the
following price: (i) if the date on which Pennzoil's obtaining or release of
Exchange Property in a manner not contemplated by the Second Supplemental
Indenture first occurs (the "Triggering Date") is before October 1, 1998, the
product of (1) 120% and (2) the greater of the principal amount at maturity of
such 4 3/4% Debentures (plus accrued and unpaid interest, if any, to the
Repurchase Date) and the market price of the Exchange Property deliverable in
exchange for such 4 3/4% Debentures on the Triggering Date (or if such date is
not a business day, on the next succeeding business day); and (ii) if the
Triggering Date occurs on or after October 1, 1998, the greater of (1) the
redemption price as specified under "Redemption Provisions" on the Triggering
Date and (2) the market price of the Exchange Property deliverable in exchange
for such 4 3/4% Debentures on the Triggering Date (or if such date is not a
business day, on the next succeeding business day).
The obligation of Pennzoil to deliver Exchange Property (or cash in lieu
thereof) in exchange for 4 3/4% Debentures shall survive and continue to apply
in full force and effect following and notwithstanding the occurrence of any
event triggering a Repurchase Right. Failure by Pennzoil to exchange 4 3/4%
Debentures in accordance with the Second Supplemental Indenture or to
repurchase either Registered 4 3/4% Debentures or Bearer 4 3/4% Debentures
upon exercise of a Repurchase Right will constitute an Event of Default with
respect to the 4 3/4% Debentures, and holders of 4 3/4% Debentures will have
the remedies provided for in the Indenture, including acceleration of the
indebtedness evidenced by the 4 3/4% Debentures, in the event of any such
failure.
The exchange obligations of Pennzoil may not be assigned or otherwise
transferred by Pennzoil except to the extent Pennzoil may, without the consent
of any holders of outstanding Securities, consolidate with or merge into, or
convey, transfer or lease its assets substantially as an entirety to, any
person, provided that the person formed by such consolidation or into which
Pennzoil is merged or which acquires or leases the assets of Pennzoil
substantially as an entirety is a corporation, partnership or trust organized
under the laws of any United States jurisdiction and assumes by supplemental
indenture Pennzoil's obligation on the Securities and under the Indentures,
that after giving effect to the transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing, and that certain other
conditions are met. Upon compliance with these provisions by a successor
person, Pennzoil will (except in the case of a lease) be relieved of its
obligations under the Indenture and the Securities (Article Eight)
If an offer is made to repurchase 4 3/4% Debentures in connection with a
Repurchase Right, Pennzoil will comply with all tender offer rules, including,
but not limited to, Sections 13 (e) and 14 (e) under the Exchange Act and
Rules l3e-1 and l4e-1 thereunder, to the extent applicable to such offer.
REDEMPTION PROVISIONS
Subject to the redemption Provisions described below, the 4 3/4% Debentures
will not be redeemable prior to October 1, 1998. Thereafter, the 4 3/4%
Debentures may be redeemed at the option of Pennzoil, in whole or from time to
time in part, (i) on not less than 30 nor more than 60 days' notice by mail to
the holders of Registered 4 3/4% Debentures at their addresses appearing on
the Security Register and (ii) by publication for the holders of Bearer 4 3/4%
Debentures at least twice in a daily newspaper in the cities of New York and
London or other capital city of Western Europe, one of which publications is
not later than 30 days prior to the redemption date
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and one of which publications is not earlier than 60 days prior to the
redemption date, at the following redemption prices (expressed as a percentage
of the principal amount at maturity) if redeemed during the 12-month period
beginning October 1 of the following years:
REDEMPTION
YEAR PRICE
---- ----------
1998................................... 102.375%
1999................................... 101.900%
2000................................... 101.420%
2001................................... 100.950%
2002................................... 100.475%
in each case together with accrued interest to the redemption date; provided,
however, that installments of interest on Bearer 4 3/4% Debentures whose
stated maturity is on or prior to the redemption date shall be payable only at
an office or agency located outside the United States (except as otherwise
provided in Section 1002 of the Indenture) and, only upon presentation and
surrender of coupons for such interest; and provided, further, that
installments of interest on Registered 4 3/4% Debentures whose stated maturity
is on or prior to the redemption date shall be payable to the holders of such
4 3/4% Debentures, registered as such at the close of business on the relevant
Record Dates. There is no sinking fund applicable to the 4 3/4% Debentures.
The 4 3/4% Debentures may also be redeemed at the option of Pennzoil, in
whole but not in part at any time, upon notice as described below, at a
redemption price equal to the principal amount thereof, together with accrued
and unpaid interest to the date fixed for redemption, if (i) Pennzoil shall
determine that, as a result of any change in, or amendment to, the laws (or
any regulations or rulings promulgated thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting
taxation, or any change in official position regarding the application,
enforcement or interpretation of such laws, regulations or rulings (including
a holding by a court of competent jurisdiction), which change, amendment,
application, enforcement or interpretation becomes effective on or after the
date of this Prospectus Supplement, Pennzoil must pay or would become
obligated to pay any additional amounts ("Additional Amounts") with respect to
the 4 3/4% Debentures as described below under "--Payment of Additional
Amounts" or (ii) any action shall have been taken by a taxing authority
(including, but not limited to, a ruling or announcement of the IRS or other
taxing authority, whether or not officially published) or a court of competent
jurisdiction in the United States or any political subdivision or taxing
authority thereof or therein, including any of those actions specified in (i)
above (whether or not, in the case of an action taken by a taxing authority,
such action was taken or brought with respect to Pennzoil) or any change,
amendment, application, enforcement or interpretation shall be officially
proposed, in any case on or after the date of the prospectus supplement for
these 4 3/4% Debentures, as a result of which there is a substantial
possibility that Pennzoil will be obligated to pay Additional Amounts and, in
either case described in clause (i) or (ii), such obligation to pay Additional
Amounts cannot be avoided by the use of reasonable measures available to
Pennzoil; provided, however, that (i) no notice of redemption may be given
earlier than 90 days prior to the earliest date on which Pennzoil would be
obligated to pay such Additional Amounts, were a payment in respect of the 4
3/4% Debentures then due, and (ii) at the time such notice of redemption is
given, such obligation to pay such Additional Amounts remains in effect. Prior
to the publication of any notice of redemption of the 4 3/4% Debentures
pursuant to the foregoing, Pennzoil shall deliver to the Trustee an opinion of
independent legal counsel to Pennzoil stating that Pennzoil is entitled to
effect such redemption, together with a certificate setting forth facts
showing that the conditions precedent to the right of Pennzoil so to redeem
have occurred.
If Pennzoil shall determine, based upon an opinion of an independent legal
counsel to Pennzoil, that any payment made outside the United States by
Pennzoil or any of its paying agents of the full amount of the next scheduled
payment of principal of or interest due in respect of any Bearer 4 3/4%
Debenture or coupon appertaining thereto would, under any present or future
laws or regulations of the United States affecting taxation
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or otherwise, be subject to any certification, information, documentation or
other reporting requirement of any kind the effect of which requirement is the
disclosure to Pennzoil, any paying agent or any governmental authority of the
nationality, residence or identity (as distinguished from status as a United
States Alien (as defined below)) of a beneficial owner of such Bearer 4 3/4%
Debenture or coupon who is a United States Alien (other than such a
requirement which (a) would not be applicable to a payment if made (i)
directly to the beneficial owner or (ii) to a custodian, nominee or other
agent of the beneficial owner, (b) can be satisfied by such a custodian,
nominee or other agent certifying to the effect that such beneficial owner is
a United States Alien; provided, however, that in each case referred to in
clause (a) (ii) and (b), payment by such custodian, nominee or agent to such
beneficial owner is not otherwise subject to any such requirement (other than
a requirement which is imposed on a custodian, nominee or other agent
described in clause (e) of this sentence), (c) is applicable only to a
collection or payment by a custodian, nominee or other agent of the beneficial
owner to or for such beneficial owner, (d) would not be applicable to such a
payment made by any other paying agent of Pennzoil outside the United States
or (e) is applicable to a payment to or by a custodian, nominee or other agent
of the beneficial owner because such custodian, nominee or agent is a United
States person (within the meaning of the United States Internal Revenue Code
of 1986, as amended (the "Code")), a controlled foreign corporation for United
States tax purposes, a foreign person 50% or more of whose gross income for
certain periods is effectively connected with a United States trade or
business, or otherwise related to the United States), Pennzoil shall redeem
the Bearer 4 3/4% Debentures (but not the Registered 4 3/4% Debentures), in
whole but not in part at any time, at a redemption price equal to the
principal amount thereof, together with accrued and unpaid interest and any
Additional Amounts with respect thereto, on the date fixed for redemption,
less applicable withholding taxes, such redemption to take place on such date,
not later than one year after the publication of notice of such determination,
as Pennzoil shall determine by notice to the Trustee at least 60 days before
the redemption date unless shorter notice is acceptable to the Trustee.
Pennzoil shall make such determination as soon as practicable and give prompt
notice thereof in accordance with Section 1104 of the Indenture, stating in
that notice the effective date of such certification, information,
documentation or reporting requirements and the date on which the redemption
shall occur. Notwithstanding the foregoing, Pennzoil shall not so redeem the 4
3/4% Debentures if, on the basis of any subsequent event, it is determined, in
the manner set forth above, 30 days or more prior to the date fixed for
redemption, that no such payment would be subject to any such requirement, in
which case Pennzoil shall give prompt notice of such determination. Except as
otherwise provided in the Indenture, notices to holders of Bearer Securities
will be given by publication at least twice in a daily newspaper in The City
of New York and London or other capital city in Western Europe and in such
other city or cities as may be specified in the Securities. Notices to holders
of Registered Securities will be given by mail to the addresses of such
holders as they appear in the Security Register. (Section 107) Any earlier
redemption notice shall then be deemed revoked and of no further effect.
Notwithstanding the provisions of the immediately preceding paragraph, if
and so long as each certification, information, documentation or other
reporting requirement referred to therein would be fully satisfied by payment
of withholding tax, backup withholding tax or similar charge, Pennzoil may
elect, prior to publication of the notice of determination referred to in the
second sentence of the immediately preceding paragraph, to have the provisions
of this paragraph apply in lieu of the provisions of that paragraph. In such
event, Pennzoil will pay as Additional Amounts such amounts as may be
necessary so that every net payment made following the effective date of such
requirement outside the United States by Pennzoil or any of its paying agents
of principal of, premium, if any, and interest on any Bearer 4 3/4% Debenture
or any coupon to a holder who is a United States Alien (but without any
requirement with regard to disclosure of the nationality, residence or
identity of such holder), after deduction or withholding for or on account of
such withholding tax, backup withholding tax or similar charge (other than a
withholding tax, backup withholding tax or similar charge which would not be
applicable in the circumstances referred to in the second parenthetical clause
of the first sentence of the immediately preceding paragraph), will not be
less than the amount provided for in such Bearer 4 3/4% Debenture or such
coupon to be then due and payable. If Pennzoil elects to pay such Additional
Amounts and so long as it is obligated to pay the same, Pennzoil may
subsequently redeem the Bearer 4 3/4% Debentures (but not the Registered 4
3/4% Debentures), in whole but not in part at any time, at a redemption price
equal to the principal amount thereof, together with accrued and unpaid
interest to the date fixed for redemption. If Pennzoil elects to
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pay Additional Amounts pursuant to this paragraph and the condition specified
in the first sentence of this paragraph should no longer be satisfied, then
Pennzoil shall promptly redeem the Bearer 4 3/4% Debentures (but not the
Registered 4 3/4% Debentures) in whole but not in part.
DISCHARGE AND DEFEASANCE
The terms of the 4 3/4% Debentures provide that Pennzoil will be permitted
to terminate certain of its obligations under the Indenture pursuant to the
Indenture's covenant defeasance provisions only if Pennzoil delivers to the
Trustee an opinion of counsel that covenant defeasance will not cause holders
of the 4 3/4% Debentures to recognize income, gain or loss for United States
federal income tax purposes.
Pennzoil may terminate its obligations under the Indenture, other than its
obligation to pay the principal of (and premium, if any) and interest on the
Securities of any series and certain other obligations, if it (i) irrevocably
deposits or causes to be irrevocably deposited with the Trustee as trust funds
money or U.S. Government Obligations maturing as to principal and interest
sufficient to pay the principal of, any interest on, and any mandatory sinking
funds in respect of, all outstanding Securities of such series on the stated
maturity of such payments or on any redemption date and (ii) complies with any
additional conditions specified to be applicable with respect to the covenant
defeasance of Securities of such series. (Section 401)
The terms of the 4 3/4% Debentures also provide for legal defeasance. Legal
defeasance is permitted only if Pennzoil shall have received from, or there
shall have been published by, the IRS a ruling to the effect that legal
defeasance will not cause holders of the 4 3/4% Debentures to recognize
income, gain or loss for United States federal income tax purposes. In such
case, if Pennzoil (i) irrevocably deposits or causes to be irrevocably
deposited money or U.S. Government Obligations as described above, (ii) makes
a request to the Trustee to be discharged from its obligations on the
Securities of such series and (iii) complies with any additional conditions
specified to be applicable with respect to legal defeasance of Securities of
such series, then Pennzoil shall be deemed to have paid and discharged the
entire indebtedness on all the outstanding Securities of such series and the
obligations of Pennzoil under the applicable Indenture and the Securities of
such series to pay the principal of (and premium, if any) and interest on the
Securities of such series shall cease, terminate and be completely discharged,
and the holders thereof shall thereafter be entitled only to payment out of
the money or U.S. Government Obligations deposited with the Trustee as
aforesaid, unless Pennzoil's obligations are revived and reinstated because
the Trustee is unable to apply such trust fund by reason of any legal
proceeding, order or judgment. (Sections 403 and 404)
PAYMENT OF ADDITIONAL AMOUNTS
Pennzoil will, subject to certain exceptions and limitations set forth
below, pay as additional interest such Additional Amounts to the holder of any
4 3/4% Debenture who is a United States Alien (as defined below) as may be
necessary in order that every net payment by Pennzoil or any of its paying
agents of principal of, premium, if any, and interest on each 4 3/4% Debenture
and any other amounts payable with respect to each Debenture, after deduction
or withholding for or on account of any present or future tax, assessment or
governmental charge imposed by the United States (or any political subdivision
or taxing authority thereof or therein) upon or as a result of such payment,
will not be less than the amount provided for in such 4 3/4% Debenture to be
then due and payable. However, Pennzoil will not be required to make any
payment of Additional Amounts for or on account of any one or more of the
following:
(a) any tax, assessment or other governmental charge which would not have
been so imposed but for (i) the existence of any present or former
connection between such holder (or a fiduciary, settlor, beneficiary,
member or shareholder of, or possessor of a power over, such holder, if
such holder is an estate, a trust, a partnership or a corporation) and the
United States, including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, member, shareholder or possessor) being or
having been a citizen or resident thereof or treated as a resident thereof,
or being or having been present therein, or being or having been engaged in
a trade or business therein, or having or having had a permanent
establishment therein or (ii) the
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presentation of a 4 3/4% Debenture or any coupon appertaining thereto for
payment on a date more than 10 days after the date on which such payment
becomes due and payable or the date on which payment thereof is duly
provided for, whichever occurs later;
(b) any estate, inheritance, gift, sales, transfer, wealth, personal
property or any similar tax, assessment or other governmental charge;
(c) any tax, assessment or other governmental charge which is payable
otherwise than by deduction or withholding from payments of principal of or
interest on the 4 3/4% Debentures;
(d) any tax, assessment or other governmental charge imposed by reason of
such holder's past or present status (i) as a personal holding company or a
foreign personal holding company with respect to United States federal
income taxation, (ii) as a corporation which accumulates earnings to avoid
United States federal income tax, (iii) as a controlled foreign corporation
for United States tax purposes that is related to Pennzoil through stock
ownership, (iv) as the owner, actually or constructively, of 10 percent or
more of the total combined voting power of all classes of stock of Pennzoil
entitled to vote or (v) as a private foundation or other tax-exempt
organization;
(e) any tax, assessment or other governmental charge imposed by reason of
such holder's failure to comply with any certification, identification or
other reporting requirements concerning its nationality, residence,
identity or connection with the United States if such compliance is
required to establish entitlement to exemption from such tax, assessment or
other governmental charge; or
(f) any tax, assessment or other governmental charge which would not have
been imposed but for the fact that a 4 3/4% Debenture constitutes a "United
States real property interest," as defined in Section 897(c) (1) of the
Code with respect to the beneficial owner of such a 4 3/4% Debenture;
nor shall Additional Amounts be paid with respect to any payment of principal
of, premium, if any, or interest on a 4 3/4% Debenture or any other amount
payable with respect to a Debenture to any United States Alien holder who is a
fiduciary or partnership or other than the sole beneficial owner of any such
payment to the extent a beneficiary or settlor with respect to such fiduciary
or a member of such partnership or a beneficial owner would not have been
entitled to the Additional Amounts had such beneficiary, settlor, member or
beneficial owner been the holder of the Debenture. (Section 106)
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[LOGO OF PENNZOIL CORP. APPEARS HERE]
The Exchange Agent:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By Mail By Facsimile: By Hand or Overnight
(registered or certified (214) 672-5746 Courier
mail recommended)
Confirm by Telephone to: c/o Chase Bank of Texas,
Chase Bank of Texas, (214) 672-5678 National Association,
National Association, Corporate Trust Services
Corporate Trust Services
1201 Main, 18th Floor
P.O. Box 2320 Dallas, Texas 75202
Dallas, Texas 75221-2320 or
Chase Texas Trust Company
55 Water Street, North
Building
Room 234, Windows 20 & 21
New York, New York 10041
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at the telephone numbers and addresses listed
below. Requests for additional copies of the Exchange Offers, the Letters of
Transmittal or other Exchange Offers materials may be directed to the
Information Agent, and such copies will be furnished promptly at the Company's
expense. Holders of Old Debentures may also contact their local broker, dealer,
commercial bank or trust company for assistance concerning the Exchange Offers.
The Information Agent:
D. F. KING & CO., INC.
TOLL FREE 1-800-735-3591
77 Water Street Royex House
New York, NY 10005 Aldermanbury Square
(212) 269-5550 London, England EC2V 7HR
(Call Collect) 011-44-171-600-5005
(Call Collect)
The Dealer Manager:
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
Telephone: (800) 595-8360 (toll-free)
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article VII of the By-Laws of Pennzoil, as amended, provides for
indemnification of officers, directors, agents and employees of Pennzoil to
the extent authorized by applicable law, including, but not limited to, the
Delaware General Corporation Law ("DGCL"). Pursuant to Section 145 of the
DGCL, a corporation generally has the power to indemnify its present and
former directors, officers, employees and agents against expenses and
liabilities incurred by them in connection with any suit to which they are, or
are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and with respect to any criminal action, they had no reasonable cause to
believe their conduct was unlawful. With respect to suits by or in the right
of a corporation, however, indemnification is generally limited to attorneys'
fees and other expenses and is not available if such person is adjudged to be
liable to the corporation unless the court determines that indemnification is
appropriate. In addition, a corporation has the power to purchase and maintain
insurance for such persons. The statute also expressly provides that the power
to indemnify authorized thereby is not exclusive of any rights granted under
any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
Article EIGHTH of Pennzoil's Restated Certificate of Incorporation
eliminates in certain circumstances the monetary liability of directors of
Pennzoil for a breach of their fiduciary duty as directors. These provisions
do not eliminate the liability of a director (i) for a breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
knowing violation of law; (iii) under Section 174 of the DGCL (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the DGCL); or (iv) for transactions from which the director derived an
improper personal benefit.
The above discussion of Pennzoil's Restated Certificate of Incorporation and
By-Laws and of Section 145 of the DGCL is not intended to be exhaustive and is
respectively qualified in its entirety by such Restated Certificate of
Incorporation, By-Laws and statute.
Directors and executive officers of Pennzoil have entered into
indemnification agreements with Pennzoil that provide indemnification similar
to that provided by Pennzoil's By-Laws.
ITEM 22. UNDERTAKINGS
(a) Pennzoil hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Items 4, 10(b),
11 or 13 of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request.
(b) Pennzoil hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(c) Pennzoil hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 20 above, or
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otherwise, the registrants have each been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) Pennzoil hereby undertakes to file, during any period in which offers or
sales are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the registration statement.
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ITEM 21--EXHIBITS
1.1 Dealer Manager Agreement
*3.1 Restated Certificate of Incorporation of Pennzoil Company, as amended
through May 10, 1996 (Pennzoil 10-Q (March 31, 1997) SEC File No. 1-
05591 Exhibit 3)
*3.2 By-laws of Pennzoil Company, as amended through March 12, 1998
(Pennzoil 8-K (March 12, 1998) SEC File No. 1-05591 Exhibit 1)
*4.1 Indenture dated as of December 15, 1992 between Pennzoil Company and
Chase Bank of Texas, National Association, Trustee (Pennzoil Company
10-K (1992), SEC File No.1-5591, Exhibit 4(o))
4.2 Form of Third and Fourth Supplemental Indenture between Pennzoil and
Chase Bank of Texas, National Association, Trustee
4.3 Form of Exchange Agent Agreements Between Pennzoil Company and Chase
Bank of Texas, National Association
5.1 Opinion of Baker & Botts, L.L.P.
8.1 Opinion of Baker & Botts, L.L.P. regarding certain tax matters
*12.1 Computation of Ratio of Earnings to Fixed Charges for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 (Pennzoil Company 10-K
(1997), SEC File No. 1-5591, Exhibit 12)
*12.2 Computation of Ratio of Earnings to Fixed Changes for the three months
ended March 31, 1998 and 1997 (Pennzoil Company 10-Q (March 31, 1998),
SEC File No. 1-5591, Exhibit 12)
12.3 Computation of Ratio of Earnings to Fixed Charges--Pro Forma for the
three months ended March 31, 1998 and 1997
23.1 Consent of Arthur Andersen LLP
**23.2 Consent of Ryder Scott Company Petroleum Engineers
**24 Powers of attorney
**25 Form T-1 Statement of Eligibility of Trustee under the Trust Indenture
Act of 1939, as amended, of Chase Bank of Texas, National Association
99.1 Form of Letter of Transmittal for 6 1/2% Exchange Offer
99.2 Form of Letter of Transmittal for 4 3/4% Exchange Offer
99.3 Form of Notice of Guaranteed Delivery
99.4 Form of Letter to Registered Holders and Depository Trust Company
Participants
99.5 Form of Letter to Clients
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* Incorporated by reference
** Previously filed
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SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
the State of Texas, on June 30, 1998.
PENNZOIL COMPANY
/s/ James L. Pate
By:__________________________________
(James L. Pate,
Chairman of the Board and
Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James L. Pate Principal Executive Officer June 30, 1998
____________________________________ and Director
(James L. Pate,
Chairman of the Board and Chief
Executive Officer)
/s/ David P. Alderson, II Principal Financial and June 30, 1998
____________________________________ Accounting Officer
(David P. Alderson, II,
Group Vice President--Finance
and Accounting)
Howard H. Baker, Jr.*
W. L. Lyons Brown, Jr.*
Ernest H. Cockrell*
Harry H. Cullen* Directors of Pennzoil
Alfonso Fanjul*
Berdon Lawrence*
Brent Scowcroft*
Gerald B. Smith*
Cyril Wagner, Jr.*
*By: /s/ David P. Alderson, II June 30, 1998
____________________________________
(David P. Alderson, II,
Attorney-in-Fact)
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