NEW YORK, DEC. 31 -- Texaco Inc. has proposed to pay out $5.6 billion, including $2.2 billion from cash reserves, as part of the settlement plan designed to end its mammoth legal battle with Pennzoil Co.
The exact cost of the settlement was disclosed by Texaco in a statement filed in federal bankruptcy court today. The settlement plan, which was signed Dec. 17, includes a payment of $3 billion to Pennzoil.
The plan still must be approved by two-thirds of Texaco's shareholders in a vote that will likely take place early in the new year. Since Pennzoil, Texaco and committees representing Texaco's shareholders and creditors support the deal, approval is considered likely.
If the plan is approved, Texaco then would emerge from the bankruptcy reorganization it sought last April. Texaco filed for bankruptcy protection to escape financial pressures caused by Pennzoil's unprecedented $10.3 billion verdict. The judgment was awarded by a jury as compensation for Texaco's alleged interference with Pennzoil's contract to merge with Getty Oil Co.
Apart from the $3 billion earmarked for Pennzoil, another $2.6 billion will be used to satisfy claims by Texaco's creditors and to pay some legal fees and administrative costs, according to the statement filed today. In addition to drawing on cash reserves, the company said it will finance the huge payments by obtaining new loans from "various domestic and international banks."
Texaco said that once the plan is approved and the bankruptcy reorganization is ended, the company's total debt will be "only slightly higher than year-end 1986 levels."
The plan goes far to satisfy the legions of lawyers involved in the multifaceted legal dispute between Pennzoil and Texaco. If the settlement is approved, 16 derivative lawsuits seeking damages on behalf of Texaco's stockholders from the company's directors and others would be dismissed.
Dismissal of those suits also would relieve more than a dozen former Getty Oil directors, the J. Paul Getty Museum Trust, Getty family heir Gordon Getty, several major Wall Street investment banks and a host of law and accounting firms from any legal liability arising from the Pennzoil dispute.
Moreover, the statement filed today said that personal legal fees incurred by Texaco's directors while defending themselves against the shareholder suits would be reimbursed from company funds. The statement even invites lawyers on the other side of those suits to file applications with the bankruptcy court for legal fees.
"Our feeling was that it would be best to write 'finis' to the entire chapter," said Joel Zweibel, an attorney representing Texaco's creditors.
Other lawyers involved in the case said the generous provisions for legal fees were included partly to help win approval of the overall settlement. They said the only meaningful opposition to the plan is likely to come from disgruntled shareholders who feel that Texaco should attempt to recover some of its $3 billion payment to Pennzoil by suing other parties involved in the case.
Since the lawyers who filed the 16 derivative actions against Texaco's directors and others nominally represent shareholder interests, allowing them to collect fees from the bankruptcy court could dissuade them from mustering shareholder opposition to the settlement.
In addition, though Texaco has invited the shareholders' lawyers to apply for fees, it has not yet said whether it will support any such fee applications. One lawyer involved in the negotiations said Texaco is withholding its support to create an incentive for the shareholder attorneys to support the settlement deal.